[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



   HARMING PATIENT ACCESS TO CARE: THE IMPACT OF EXCESSIVE LITIGATION

=======================================================================

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 17, 2002

                               __________

                           Serial No. 107-127

                               __________

       Printed for the use of the Committee on Energy and Commerce


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house

                               __________

81-491              U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2002

____________________________________________________________________________
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                    ------------------------------  

                    COMMITTEE ON ENERGY AND COMMERCE

               W.J. ``BILLY'' TAUZIN, Louisiana, Chairman

MICHAEL BILIRAKIS, Florida           JOHN D. DINGELL, Michigan
JOE BARTON, Texas                    HENRY A. WAXMAN, California
FRED UPTON, Michigan                 EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida               RALPH M. HALL, Texas
PAUL E. GILLMOR, Ohio                RICK BOUCHER, Virginia
JAMES C. GREENWOOD, Pennsylvania     EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California          FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia                 SHERROD BROWN, Ohio
RICHARD BURR, North Carolina         BART GORDON, Tennessee
ED WHITFIELD, Kentucky               PETER DEUTSCH, Florida
GREG GANSKE, Iowa                    BOBBY L. RUSH, Illinois
CHARLIE NORWOOD, Georgia             ANNA G. ESHOO, California
BARBARA CUBIN, Wyoming               BART STUPAK, Michigan
JOHN SHIMKUS, Illinois               ELIOT L. ENGEL, New York
HEATHER WILSON, New Mexico           TOM SAWYER, Ohio
JOHN B. SHADEGG, Arizona             ALBERT R. WYNN, Maryland
CHARLES ``CHIP'' PICKERING,          GENE GREEN, Texas
Mississippi                          KAREN McCARTHY, Missouri
VITO FOSSELLA, New York              TED STRICKLAND, Ohio
ROY BLUNT, Missouri                  DIANA DeGETTE, Colorado
TOM DAVIS, Virginia                  THOMAS M. BARRETT, Wisconsin
ED BRYANT, Tennessee                 BILL LUTHER, Minnesota
ROBERT L. EHRLICH, Jr., Maryland     LOIS CAPPS, California
STEVE BUYER, Indiana                 MICHAEL F. DOYLE, Pennsylvania
GEORGE RADANOVICH, California        CHRISTOPHER JOHN, Louisiana
CHARLES F. BASS, New Hampshire       JANE HARMAN, California
JOSEPH R. PITTS, Pennsylvania
MARY BONO, California
GREG WALDEN, Oregon
LEE TERRY, Nebraska
ERNIE FLETCHER, Kentucky

                  David V. Marventano, Staff Director

                   James D. Barnette, General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

                         Subcommittee on Health

                  MICHAEL BILIRAKIS, Florida, Chairman

JOE BARTON, Texas                    SHERROD BROWN, Ohio
FRED UPTON, Michigan                 HENRY A. WAXMAN, California
JAMES C. GREENWOOD, Pennsylvania     TED STRICKLAND, Ohio
NATHAN DEAL, Georgia                 THOMAS M. BARRETT, Wisconsin
RICHARD BURR, North Carolina         LOIS CAPPS, California
ED WHITFIELD, Kentucky               RALPH M. HALL, Texas
GREG GANSKE, Iowa                    EDOLPHUS TOWNS, New York
CHARLIE NORWOOD, Georgia             FRANK PALLONE, Jr., New Jersey
  Vice Chairman                      PETER DEUTSCH, Florida
BARBARA CUBIN, Wyoming               ANNA G. ESHOO, California
HEATHER WILSON, New Mexico           BART STUPAK, Michigan
JOHN B. SHADEGG, Arizona             ELIOT L. ENGEL, New York
CHARLES ``CHIP'' PICKERING,          ALBERT R. WYNN, Maryland
Mississippi                          GENE GREEN, Texas
ED BRYANT, Tennessee                 JOHN D. DINGELL, Michigan,
ROBERT L. EHRLICH, Jr., Maryland       (Ex Officio)
STEVE BUYER, Indiana
JOSEPH R. PITTS, Pennsylvania
W.J. ``BILLY'' TAUZIN, Louisiana
  (Ex Officio)

                                  (ii)


                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Anderson, Richard, CEO, Doctor's Company.....................    84
    Court, Jamie, Foundation for Taxpayer and Consumer Rights....    92
    Fine, Stuart H., CEO, Grand View Hospital....................    50
    Hollier, Lisa, LBJ General Hospital, Department of OB/GYN....    26
    Hurly, James, American Academy of Actuaries..................   101
    Plunkett, Travis, Consumer Federation of America.............   108
    Roberts Sam, on behalf of the American Academy of Family 
      Physicians.................................................    40
    Schwartz, Victor E., Shook, Hardy & Bacon....................   117
    Townsend, Lauren, Coalition for Consumer Justice.............    43
    Visco, Fran, National Breast Cancer Coalition................    34
Material submitted for the record by:
    American Academy of Dermatology Association, prepared 
      statement of...............................................   143
    American Academy of Family Physicians, prepared statement of.   144
    American Academy of Otolaryngology--Head and Neck Surgery, 
      Inc., prepared statement of................................   145
    American Association of Orthopaedic Surgeons, prepared 
      statement of...............................................   147
    American College of Physicians, prepared statement of........   148
    American Dental Association, prepared statement of...........   150
    American Health Care Association and the National Center for 
      Assisted Living, prepared statement of.....................   151
    American Osteopathic Association, prepared statement of......   153
    American Society for Clinical Pathology, prepared statement 
      of.........................................................   156
    American Society of Anesthesiologists, prepared statement of.   157
    Bleier, Robin A., letter dated July 19, 2002.................   158
    National Medical Liability Reform Coalition, prepared 
      statement of...............................................   158

                                 (iii)

  

 
   HARMING PATIENT ACCESS TO CARE: THE IMPACT OF EXCESSIVE LITIGATION

                              ----------                              


                        WEDNESDAY, JULY 17, 2002

                  House of Representatives,
                  Committee on Energy and Commerce,
                                    Subcommittee on Health,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 2123, Rayburn House Office Building, Hon. Michael 
Bilirakis (chairman) presiding.
    Members present: Representatives Bilirakis, Barton, 
Greenwood, Deal, Whitfield, Ganske, Norwood, Wilson, Pickering, 
Bryant, Buyer, Brown, Waxman, Strickland, Barrett, Capps, 
Pallone, Deutsch, Eshoo, Stupak, and Wynn.
    Also present: Representatives Cox and Fletcher.
    Staff present: Patrick Morrisey, deputy staff director; 
Steven Tilton, health policy coordinator; Cheryl Jaeger, 
majority professional staff; Eugenia Edwards, legislative 
clerk; Jonathan Cordone, minority counsel; and Bridgett Taylor, 
minority counsel.
    Mr. Bilirakis. Can we please take our seats? I call this 
hearing to order. I'm advised that there probably will be a 
vote at 10:30, so we'll try to get in as many opening 
statements as we can.
    I'd like to thank our witnesses for appearing before the 
subcommittee today. This subcommittee certainly values your 
expertise and we're grateful for your cooperation and 
attendance.
    Today, the Health Subcommittee is going to focus on how the 
current medical liability system is harming patient access to 
care. The United States is facing a crisis that in the end is 
going to harm patients. One has to look no farther than my home 
State of Florida where some obstetricians/gynecologists are 
paying in excess of $200,000 per year for their liability 
insurance. Or Mississippi, where neurosurgeons have been 
leaving the State to practice in Louisiana which has 
significantly lower insurance premiums.
    The most disturbing indication of the severity of this 
crisis, however, might in Las Vegas, where the county-operated 
trauma center was forced to close because the Center's trauma 
surgeons could no longer afford to risk their livelihoods in 
this climate of runaway litigation. I'm advised that the trauma 
center recently reopened, which will spare the city from the 
dubious distinction of being the largest metropolitan area of 
the United States without a trauma center.
    Although it would be easy enough to gauge the severity of 
this crisis just by reading the newspapers, I decided to hold a 
field forum in my District to hear from providers about how 
this issue is affecting how they practice medicine. The event 
highlighted the scope of the problem and the urgent need for 
congressional action. As one solo practitioner remarked, ``it 
is imperative that we act now to stem this crisis. If no action 
is taken soon, and if the present trends are allowed to 
continue, there will be no medical system left to save.''
    I'm sure that everyone here today believes that we're 
facing a crisis and that patients are going to find it 
increasingly difficult to find an OB/GYN or a neurosurgeon or a 
trauma surgeon, unless the Federal Government intervenes. And I 
know that there are very different ideas about what format the 
solution should take and that's what this is all about.
    While I have no doubt that many of my colleagues will use 
today's hearing to advocate for increased Federal regulation of 
insurance companies, I would point out that this industry is 
already regulated at the State level. In fact, State insurance 
commissioners already approve each premium rate before it goes 
on the market. I will say, however, that that is a very 
legitimate and merited concern and topic and it's something 
that we certainly should focus on. And this is the first of a 
series, certainly of two or three hearings, in any case, and we 
will be emphasizing that aspect of the situation more so in 
future hearings.
    Instead of talking about increased regulation of an already 
regulated industry, however, I would prefer that we look to 
models that we already know work. For example, in 1975, 
California enacted the Medical Injury Compensation Reform Act 
or MICRA. That's in 1975. The defining feature of MICRA is the 
limits it places on non-economic damages. This reasonable law 
has done a commendable job of protecting patients' rights, 
while also keeping insurance premiums at a relatively low 
level.
    The United States has seen steady increases over the past 
several years in both jury awards and malpractice suits and the 
average amount paid by insurance companies for claims merely 
alleging malpractice. However, California has remained 
relatively immune to the pressures brought about by these 
trends, largely thanks to MICRA. It is a time tested system 
that certainly seems to work and we should not be discarding 
any consideration of that type of a process.
    I'm a co-sponsor of legislation H.R. 4600 that closely 
mirrors this ground breaking law. Without delving into the 
specifics of this particular bill, I do believe that it 
represents a common sense solution to this problem that 
respects the States' traditional role as regulators of the 
insurance industry. Although I'm aware that many members of 
this subcommittee have some strongly held views on this issue, 
I would hope to use this hearing to take advantage of our 
witnesses' expertise and explore this issue in depth. 
Hopefully, we will leave with a better understanding of why 
this problem exists and what our role is in identifying and 
implementing a solution.
    While I often say that not every problem requires action by 
the Federal Government, this one apparently does. And I believe 
we can stabilize our out of control medical liability system 
without harming the ability of patients to recover adequate 
compensation when they have been harmed.
    And I'll now yield to the ranking member, Mr. Brown, for 
his opening statement.
    Mr. Brown. I thank the chairman. I'd like to thank all of 
our witnesses for joining us this morning.
    I share your interest, Mr. Chairman, in this issue. A 
physician friend of mine in Ohio was recently informed that his 
medical malpractice carriers are leaving our State. He tells me 
many carriers have either limited their coverage or left the 
State. The least expensive premium he has been quoted 
represents a 300 percent increase over his current year 
premium. There's something wrong with this picture and I'm 
pleased the subcommittee is looking into it.
    I assume, Mr. Chairman, that the purpose of this hearing is 
to take an objective look at the diversity of factors that 
could be contributing to the spike in medical malpractice 
insurance premiums and the gaps and access to this type of 
coverage. I'm assuming the underlying goal is to make informed 
decisions about how best to remedy these problems and to do 
that, we must take into account the full range of factors 
contributing to the current situation. Not only do we have a 
responsibility to the doctors who are reeling at the size of 
medical malpractice premiums and in some cases trying to react 
to an unavailability of coverage, we also have a responsibility 
to patients who expect and deserve access to high quality 
health care.
    Malpractice insurance shouldn't hinder access to high 
quality care. It should help ensure access to high quality 
care.
    Harming patient access to care, the impact of excessive 
litigation, the title of this hearing, implies that this 
hearing is perfunctory, that we've already drawn a conclusion 
about what is causing the spike in medical malpractice 
insurance premiums. Doctors in my District, who justifiably 
wonder whether the recent premium increases are actually the 
insurance industry's attempt to recoup stock market losses or 
perhaps bad management decisions by the insurance company. 
Perhaps, instead of calling this hearing ``harming patient 
access to care, the impact of excess of litigation'', we should 
title the hearing, ``harming patient access to care, the impact 
of corporate abuse on stock market volatility and insurance 
profit objectives'' or maybe we should call the hearing, 
``harming patient access to care, the impact of huge insurance 
companies' CEO salaries'' or perhaps we should call the hearing 
``harming patient access to care, the impact of the insurance 
underwriting cycle.''
    The point of this, Mr. Chairman, is that doctors have 
raised valid concerns about medical malpractice insurance 
premiums, about access to medical malpractice coverage, about 
the nature of medical malpractice litigation itself. But the 
current medical malpractice crisis and it is undoubtedly a 
crisis because of its effect on patients, first and foremost, 
and on physicians, importantly, the current crisis should not 
be used as an excuse to decimate a system that protects 
patients and doctors. We shouldn't use this hearing as an 
excuse to beat up on the insurance industry or to demonize 
lawyers or to trivialize the concerns of providers or dismiss 
the legitimate rights of patients. The doctors in my District 
and others around the country whom I know and whom I respect, 
have no problem with being held accountable as long as the 
system is fair.
    That brings me back to my doctor friend in Northeast Ohio. 
I wouldn't call a 300 percent premium increase fair. I would 
call it an outrage. I hope and expect that today's witnesses 
can help us build a factual basis for doing something about it, 
not simply to exploit preconceived notions.
    Thank you, Mr. Chairman.
    Mr. Bilirakis. And I thank the gentleman. I would say to 
the gentleman that there is merit in everything that he has 
said and as I've indicated, this is a first of a series of 
hearings. I can't tell you how many we will have, but certainly 
we will look into some of the areas we are not looking into 
today.
    Mr. Greenwood.
    Mr. Greenwood. Thank you, Mr. Chairman. I thank you for 
holding the hearing on access to care for patients and the need 
for medical liability reform.
    As you know, I'm deeply committed to solving this problem 
which is affecting both of our States and impacting health care 
across the Nation. A few weeks ago at the committee field event 
in your District, we heard about the dire circumstances that 
your constituents find themselves in throughout Florida.
    And let me tell you about how this is impacting care in 
Bucks County in Southeastern Pennsylvania. Philadelphia, and 
the surrounding five county area with its world-class 
hospitals, medical schools, doctors and other institutions is 
one of the Nation's and I dare say the world's crown jewels in 
health care. However, the fabric that holds together these 
doctors, patients and institutions has become more than frayed. 
It has begun to tear and disintegrate before our eyes.
    The long term damage caused by the exorbitant cost and 
concomitant lack of medical liability insurance in Pennsylvania 
has become incalculable. Let me give you an example. Recently, 
Methodist Hospital in South Philadelphia, was forced to close 
down its obstetrics practice which has been in the present in 
the hospital since 1892.
    Mr. Chairman, let me read for you from several letters I 
received from constituents who describe this crisis most 
poignantly. This came from a woman in the Philadelphia area, my 
District. ``I was born and raised in the Philadelphia area, an 
area that used to be known for excellent medical care. Eight 
months ago I again found a wonderful OB/GYN office. The doctors 
are wonderful, respectful, well educated and overall just 
great. They delivered my beautiful baby girl for me and I could 
not have been happier with their care. I referred my sister who 
is currently pregnant and due in a few short weeks to them. She 
too, is satisfied with them. But 2 weeks ago we were outraged 
to discover that they were closing their doors at the end of 
May 2002. My sister who has been going to their office for all 
of her prenatal care visits, cannot even have her after 
delivery exam by the doctor who delivers her first child. I 
will not be able to return to them for subsequent prenatal care 
or even normal GYN care. This is an outrage. It is also the 
second physician's office I've been to in the last couple of 
years that has been forced to close due to medical liability 
costs. Another office that I was aware of closed as well for 
the same reason. I can't even switch to see them because they 
no longer exist within our State. I don't know who I can even 
go to now. No other OB/GYN physicians practice in my area any 
more. I plan to be in Doylestown area for quite a while and it 
would be a disaster to have families leaving the State so that 
they know they will be cared for properly in the event of an 
emergency medical situation.''
    Here's another letter. This is from the husband of a 
physician. ``My family has a 200-year history in lower Bucks 
County and my wife and I decided to stay local. After my wife's 
residency at Penn and after four grueling years there and 
another at the MCP Honnoman Department of Neurology, she 
entered a group practice of neurology in the area. Her time 
there finished, she is trying to start her own practice, 
focusing on the underserved members of the lower Bucks senior 
population, those in nursing homes, long-term care facilities 
and home bound. Her desire to serve these patients was inspired 
not by a business decision, but for a true concern for those 
who find it difficult to get the quality of neurological care 
she has been trained to provide. Five months ago after sending 
her first application for insurance she is still not insured. 
The State administered JUA, Joint Underwriting Association, is 
not an option for a new physician starting out and the cost is 
prohibitive.''
    Mr. Chairman, this crisis affects more than just patients 
and doctors. Recently, the orthopedics practice that was to 
cover the Doylestown Hospital emergency room on a weekend found 
that its insurance coverage would lapse. After months of 
searching, the hospital then had to find other practices to 
cover the ER. Other orthopedics practices are also having 
trouble finding insurance in the area.
    What happens when we can't find orthopedists to treat the 
broken bones and dislocated joints in the ER on weekends? 
Worse, St. Mary's Medical Center, the only trauma center in 
Bucks County, faced closing its doors last fall since it could 
not find insurance. Luckily, the State came through with 
emergency coverage. However, this is not sustainable in the 
long run. Las Vegas, for the past few weeks, as we've seen in 
the news has not been so lucky.
    This is about patients, doctors and health care 
institutions where care is delivered. This is not merely a 
crisis. It is more than that. It is beyond a meltdown. It is a 
full-blown catastrophe that is having a damaging and 
detrimental impact on the health care of Pennsylvania and 
millions of Americans.
    Worse, this catastrophe will result in people dying because 
trauma centers will continue to close their doors or emergency 
rooms will be unable to provide care since doctors won't be 
available. I am saddened and angered that this catastrophe is 
having permanent and long term effects, weakening hospitals, 
debilitating medical schools, reducing the number of doctors 
who practice and destabilizing health care institutions.
    The cause, Mr. Chairman, is clear, unfettered litigation. 
The median malpractice by jury awards rose from $500,000 in 
1995 to $800,000 in 1999. We need reforms now.
    Mr. Chairman, the reforms that I have proposed, along with 
you, Chris Cox, John Murtha and a number of other bipartisan 
co-sponsors are common sense, time tested reforms. They follow 
the model used in California and a number of other States. This 
bill is fair and straight forward. The bill, H.R. 4600, the 
bipartisan Health Care Act includes reforms to make medical 
malpractice insurance affordable again and encourage health 
care practitioners to maintain their practices and to continue 
to serve patients.
    Thank you, Mr. Chairman.
    Mr. Bilirakis. I thank the gentleman. Mr. Pallone, for an 
opening statement.
    Mr. Pallone. Thank you, Mr. Chairman. We can tell from the 
title of this hearing that the supporters of H.R. 4600 believe 
that excessive litigation is the precise direct reason for the 
current malpractice crisis and that by passing legislation that 
limits non-economic damages to $250,000, the problem will be 
easily solved.
    Mr. Chairman, I think this is far too simplistic. For 
example, you have the chart up there, but in 1975, California 
enacted the Medical Injury Compensation Reform Act into law 
that has severely limited the rights of patients injured by 
medical malpractice. From what I understand, California's 
medical malpractice liability premiums actually increased by 
190 percent in the 12 years following enactment of that law.
    I'd also like to add that medical malpractice insurance 
profits have been 10 times greater than the profits of other 
lines of insurance in California. Skyrocketing malpractice 
insurance premiums have been particularly acute in high risk 
specialties. This is clearly because inherent in high risk 
practices are bad outcomes that are beyond the control of 
providers. Further, this is compounded by the fact that 
medicine is changing in the direction of becoming more and more 
complex. For example, if a 50-year-old woman goes to her OB/GYN 
and wants to have a baby, it makes a high risk specialist 
liable for an even higher risk pregnancy where the chances of a 
bad outcome are dramatically increased. The OB/GYN is not going 
to turn the patient away or tell her that it's not possible to 
have the baby, but my point is that although the face of 
medicine is changing, we have yet to examine how insurance 
needs to be changed in order to reflect the rapid advancements 
taking place in various fields of medicine.
    Aside from this example, if we take a surface level look 
into other changes in health care we see that HMOs for the last 
15 to 20 years have entered the market. Doctors have been 
subject to certain limitations under HMOs that may prevent 
patients from receiving the best care possible from their 
doctors. Is there a direct correlation between care under HMOs 
and bad patient outcomes? Well, it's something we have to look 
at.
    I'm also curious, given the atmosphere of corporate 
malfeasance which we've seen so often in the last few weeks 
whether bad accounting or bad business judgment on the part of 
insurance companies has anything to do with dramatic rises in 
medical malpractice premiums.
    Mr. Chairman, I propose legislation the Federal Medical 
Malpractice Insurance Stabilization Act of 2002 that would 
create a national reinsurance fund. This proposal mandates the 
Secretary of Health and Human Services to establish a program 
where insurance companies pay into a Federal fund and in times 
of crisis these funds would be made available to those 
companies in an effort to provide stability in the market for 
medical malpractice insurance coverage.
    Some other ideas that my own State of New Jersey are 
examining are deductible option of about $10,000 that would 
lower premiums, a risk management program for doctors that 
would correspond with the decrease in premiums and allowing 
doctors to make installment payments for high premiums over 
time without a penalty.
    I'm not suggesting that these are answers, but I think the 
title of this hearing, once again, shows that some on the 
committee just the cap, if you will, on damages as something 
that's going to solve all the problems and I don't think that's 
the case. There's no question that we have a crisis here. 
Certainly in my home State of New Jersey it is acute. We've had 
forums at my local hospitals with physicians to talk about 
this. We've had the State Insurance Commissioner in. We had a 
rally on the steps of the State House by physicians and other 
health care providers, basically begging that something be 
done.
    So I appreciate the fact, Mr. Chairman, that we're having 
the hearing and that we will have others. I don't think there's 
any question that we need to address this. But I just hope that 
we can work together in this subcommittee and come up with 
sensible legislation that will effectively address the current 
problems with medical malpractice insurance and not just assume 
that certain aspects of tort reform are going to solve all the 
problems.
    Thank you.
    Mr. Bilirakis. I thank the gentleman. Mr. Cox?
    Mr. Cox. Thank you, Mr. Chairman. The purpose of today's 
hearing is to learn how to put patients first. Our health care 
lawsuit system today is destroying hospitals. It's eliminating 
patient choice. It's driving specialists out of entire States 
and out of their practices. And it's enriching a handful of 
amoral trial lawyers beyond any level previously imagined.
    In days gone by, medicine and law were the professions. 
Both were respected. Both were considered upstanding members of 
the community. Members of both professions earn handsome 
compensation for their valued services. But neither doctors nor 
lawyers were paid extravagantly compared to say investment 
bankers.
    Today, in the early 21st century, that has changed. 
Doctors' compensation by any standard is being squeezed. 
Hospitals are having trouble staying in business. OB/GYNs face 
such financial risks that many now refuse to deliver babies. 
Meanwhile, America is home to the world's only billionaire 
lawyers. Many of those billions have been taken from the health 
care system and directly from patient settlements.
    In a national poll taken this week, lawyers rank at the 
bottom of the list, below politicians, below accountants, below 
CEOs, on a list of whom Americans can trust.
    In California, during the malpractice crisis of a 
generation ago, a Democratic legislature and a Democratic 
Governor, Jerry Brown, signed into law MICRA which regulates 
health care lawsuits for the benefit of all patients, not the 
lawyers.
    In California, specialists are not leaving our State. The 
malpractice insurance crisis so acute in other States, has not 
struck California. There's a simple way to test this fact. Ask 
the doctors. In America, it's high time we trusted our 
physicians, not our lawyers, with our Nation's health care.
    Thank you, Mr. Chairman.
    Mr. Bilirakis. Ms. Eshoo for an opening statement.
    Ms. Eshoo. Thank you, Mr. Chairman. And good morning to all 
my colleagues and to our distinguished witnesses. Thank you for 
holding this hearing. I think it's important to hear from a 
variety of witnesses, people that are steeped in the background 
that certainly Members of Congress need to hear and be made 
aware of.
    I agree with many of my colleagues that we have a problem 
and that it needs to be addressed. Physicians across the 
country are having trouble meeting the skyrocketing cost of 
malpractice insurance. We know that and that is cause for 
alarm. To have a stable health care system, we have to have a 
stable malpractice system. My father used to say at the end of 
the day you want the best doctors standing on one side of you 
and a great lawyer on the other side. So I don't think that we 
should fall into the trap of either defending one side and 
damning the other or vice versa. We have to have strength on 
both sides and we have to have really a balance between the 
two.
    Just as patients need to have access to medical care and 
that we need top physicians that are going to provide the care 
that only they can, as well as their corollaries in the system, 
when something goes wrong, that has to be spoken to in our 
system as well. It hurts the medical practitioner in the 
country if there is a bad apple in the barrel, just as it hurts 
Members of Congress when we have bad apples in the political 
process as well.
    So where I disagree with some of my colleagues is in the 
total presumption, in the total presumption that the rising 
cost of malpractice premiums are solely due to patient 
litigation. We have to restrain ourselves a little here and we 
need to get more information. Is there something wrong? Yes. 
But I don't think we can afford to just leap frog today. That's 
why the hearing and hearings, subsequent hearings are very 
important.
    In reality, there are a whole host of factors in my view 
that have led to the increases and that the Congress has the 
duty to examine each and every one of the factors before we 
act. As a Californian, my State created MICRA and it's been 
referenced in 1975. I'm pleased with how that law has helped to 
moderate malpractice premiums in our State and I know that 
Representative Greenwood has introduced legislation that's 
based on the MICRA law. I'm concerned that there's an urgency 
to act before understanding. We have to understand things 
before we can accept or reject, so developing, Mr. Chairman, 
and you're doing that by having the hearing, is really 
important and I can't state that enough.
    I also understand that there's a GAO report that's been 
requested on the role of market conditions and insurance 
company practices and I look forward to the results of that 
report and I think we all should. That needs to be taken into 
consideration as well.
    So the testimony of today's excellent witnesses, amongst 
them, I think one of the real greats on behalf of women and the 
issues of breast cancer in our country, Fran Visco; with the 
GAO report and the data we already have on the effect of 
litigation on the malpractice system should really allow us to 
more ably and responsibly address this serious problem. So 
thanks again, Mr. Chairman and certainly to Mr. Greenwood whom 
I admire as a legislator. He's serious. He always works to be 
fair and as a complete disclosure he's been--I'm about to have 
been and still am, a partner with him on many pieces of 
legislation.
    If I have any time left, I yield back. Thank you.
    Mr. Bilirakis. Thank you. We have 3 minutes to make this 
vote, so we're going to run over and make this vote. In 15 
minutes to 20 minutes at the latest we should get started 
again. When I get back into this chair, we're going to get 
started.
    [Brief recess.]
    Mr. Bilirakis. Please take your seats. The gentleman from 
Kentucky, Mr. Whitfield, to give his opening statement.
    Mr. Whitfield. Thank you very much, Mr. Chairman, and of 
course, I'm also delighted that we're having these hearings on 
this particularly important subject. There's been a lot of 
comments made about the possibility that insurance companies 
are doing some gouging and so forth, but I find it interesting 
that last year the Nation's second largest malpractice insurer 
had underwriting losses of $940 million, the St. Paul Companies 
and they announced that they were getting out of the insurance 
business, the malpractice insurance business. So if they're 
making so much money, then why are they getting out of the 
business?
    An article in the Wall Street Journal indicated that the 
consequences of actions like that, because other malpractice 
carriers were getting out of the business, and the consequences 
are being felt by patients all around the U.S. Last year, 
Bolivar County in western Mississippi had six doctors providing 
obstetrical care. Today it has three. Obstetrics insurance for 
a doctor in Bolivar County jumped from $28,000 to $105,000 with 
a $25,000 deductible. In neighboring Sunflower County, all four 
doctors who delivered babies have quit private practice. In the 
northern half of the State last year, there were nine 
practicing neurosurgeons. Today, there are three on emergency 
call.
    And I could go on and on. There's an article just a few 
days ago in my home State of Kentucky, ``State losing doctors 
to insurance hikes.'' Coverage for malpractice jumps as much as 
204 percent. And the doctors are blaming jury verdicts for this 
increase. And another part of this article indicates that, for 
example, in Corbin, Kentucky, the Corbin Family Health Center 
lost malpractice coverage and closed down. We have doctors 
leaving Kentucky, going to Indiana because the Indiana 
insurance rates are much lower for malpractice insurance than 
in Kentucky and one reason that they're lower is that Indiana 
adopted a meaningful tort reform legislation some time ago. And 
so there is a real difference in insurance rates between those 
areas where tort reform has been adopted and where it has not 
been adopted.
    So I'm delighted with this hearing. I look forward to the 
testimony and I yield back the balance of my time.
    Mr. Bilirakis. I thank the gentleman. Mr. Waxman.
    Mr. Waxman. Thank you very much, Mr. Chairman. I welcome 
this hearing today on the crisis of high medical liability 
insurance and its impact on doctors and patients around the 
country. The title of the hearing which focuses on the impact 
of litigation is unfortunate. It's unfortunate because it 
assumes that increases in malpractice premiums are simply the 
result of the legal system out of control. With that conclusion 
which we heard during the insurance crisis of the mid-1980's 
and many times since, it's far from clear. We don't know, for 
instance, to what extent the business cycle and the business 
practices of insurance companies have contributed to these 
increases. There is substantial evidence to suggest that rates 
are more closely related to these factors than to lawsuits and 
large jury verdicts. These are fundamental questions that need 
to be answered before we attempt any legislative fix for the 
problem and before we enact what is essentially a bill that may 
be considered a bailout for the insurance industry.
    In 1975, California adopted MICRA which stands for the 
Medical Injury Compensation Act. It imposed significant 
limitations on the rights of injured patients to sue and 
recover for malpractice-related injuries. For example, MICRA 
imposed a $250,000 cap on non-economic damages and eliminated 
joint liability. Some of the witnesses appearing before us 
today are going to tell us that MICRA has worked well in 
California and that because of that we should adopt legislation 
even more restrictive on the national level.
    H.R. 4600, for example, adopts many of MICRA's major 
provisions and goes further. It extends limitations to product 
liability cases for defective drugs and medical devices and it 
imposes caps and other significant limitations on punitive 
damages.
    I have serious reservations about moving quickly to adopt 
limitations along these lines. Insurance regulations is an area 
that Congress has traditionally left to the States and for good 
reason. It's a complex business. It varies market by market and 
community by community. We do not license medical doctors and 
other health professions. That's done at the State level. One 
size does not fit all.
    We will hear testimony that raises serious questions about 
the California experience from Jamie Court, the Executive 
Director of the Foundation for Taxpayer and Consumer Rights who 
will testify that MICRA has prevented the courts from awarding 
adequate compensation to many deserving victims. He's also 
expected to testify that MICRA has given a windfall to 
insurance companies in California and it has not delivered the 
reductions it promised for medical malpractice insurance. He 
will contend that the malpractice premiums in California have 
stayed close to premium trends around the country, and in fact, 
between 1991 and 2000, premiums grew at a rate of 3.5 percent 
which is higher than the national average of 1.9 percent.
    According to Robert Hunter, who is an actuary from the 
State of Texas and a former Texas Insurance Commissioner, in 
the years since MICRA was enacted, medical malpractice insurers 
have profited more from their business in California than in 
any other State. Since 1989, California medical malpractice 
insurers paid out less than 50 cents in claims to every premium 
dollar they took in. In other parts of the country, he contends 
that malpractice insurers typically paid out more than two-
thirds of every dollar taken in through premiums. In addition, 
California medical malpractice insurers earn higher operating 
profits, that is profits earned as a percentage of premiums 
than to medical malpractice insurers outside the State.
    In short, there are a number of serious questions to sort 
through. We should be careful before we rush to use any one 
model for the entire country.
    I look forward to the testimony that we're going to receive 
from witnesses today and to work with my colleagues on this 
very difficult issue.
    Mr. Bilirakis. I thank the gentleman. Dr. Ganske.
    Mr. Ganske. Thank you, Mr. Chairman, for holding this 
hearing. I think this is a very important issue. In my home 
State of Iowa, we are not in a crisis yet. We are probably 
about 12 to 18 months from that.
    Let me give you a real life example. A woman, family 
practitioner in Iowa, gets called to the emergency room because 
a Hispanic woman who has received no prenatal care has shown up 
in labor. Out of the goodness of her heart and her professional 
ethics, this woman physician goes to the hospital, delivers a 
baby, no problems during the delivery. Baby is handed over to 
the neonatal unit. Subsequently becomes septic and dies. 
Needless to say, very shortly afterwards, this woman family 
physician is named in the lawsuit, for basically her pro bono 
work.
    Mr. Chairman, I will tell you we have worked on this issue. 
How many times have we voted on this now in the House in the 
last 8 years? I think we've passed this at least twice, medical 
mal. tort reform, if not three times. And we'll do that again.
    The real problem has been the hold up in the U.S. Senate in 
terms of getting something done on this. Now I don't know 
whether insurance companies, investments in the tech bubble 
have had some effect on their ability to cap their reserves. 
That's something we can find out easily, but I do know this, I 
know that the incidence of the types of lawsuits that this 
woman physician experienced recently in Iowa are driving 
insurance rates. And it is something we need to do something 
about or I'll tell you, if you're looking at going to Las 
Vegas, you may be gambling a little bit more than your money, 
if you have an accident. And this is happening all over the 
country.
    So thank you, Mr. Chairman, for holding this hearing. I 
look forward to learning from it.
    Mr. Bilirakis. Thank you, Dr. Ganske. Mr. Stupak.
    Mr. Stupak. Thank you, Mr. Chairman, and thank you for 
holding this hearing today on the impact of litigation on 
medical malpractice insurance premiums. No doubt about it, this 
is an issue that merits our attention. We need today to sort 
out fact from fiction and to help us understand the real 
underlying reasons for those steep premium hikes.
    I'm concerned, however, that some of us here have already 
made up our minds as the reason for these hikes. Has blame 
already been placed? Let's look no further than the topic and 
title of today's hearing, ``Harming Patient Access, the Impact 
of Excessive Litigation.''
    In this area, as in so many other areas, the right to sue 
is being attacked as the root of all evils and stopping 
Americans from suing is being proposed as the magic cure all. 
In fact, when you take away the incentive to behave or to be 
sued, you eliminate deterrence. This is a proven fact. I 
recommend to this committee in light of what the last couple of 
speakers on the other side of aisle have said, look at two Wall 
Street Journal articles written less than a month ago. First 
one on June 24, it says Wall Street Journal, June 24, insurers' 
price wars contributed to doctors facing soaring costs. 
Lawsuits alone didn't inflate malpractice premiums. Reserves at 
St. Paul distorted pricing picture in the 1990's.
    I also recommend another article, again on June 24. Wall 
Street examines medical malpractice liability crisis. Finds it 
is insurance industry generated. Insurance company executive 
admits the crisis is self-inflicted. It goes on to say the 
insurance industry's questionable accounting exposed. Sounds 
like Enron and WorldCom to me all over again, so we're going to 
blame the victims of malpractice.
    We've seen this happen with disastrous results with 
securities litigation that we passed, the Private Securities 
Litigation Reform Act of 1995. Accountants and executives had 
no incentive to be good corporate citizens and look what's 
happened since then. The largest corporate bankruptcies in 
American history. And it's not the fat cats that are paying, 
Mr. Chairman. The people who are paying are our constituents 
and now we have a proposal to do the same for those harmed by 
medical mistakes.
    H.R. 4600 introduced by the distinguished gentleman from 
Pennsylvania, Mr. Greenwood, I believe would do a similar 
injustice to medical consumers as the Private Securities 
Litigation Reform Act did to shareholders and investors. As 
we've done for shareholders, we're now proposing to do for 
patients. I commend Mr. Greenwood for attempting to find a 
solution, but this bill is not the answer. This bill is a one 
size fits all approach to a complex issue. Experts on this 
issue in front of us today will testify that stopping lawsuits 
and capping damages is not the magic bullet. In fact, the 
insurance companies themselves have stated unequivocally that 
tort reform will not reduce premiums and will not fix the 
medical malpractice liability system.
    In my home State of Michigan, many of these reforms that 
have been listed in this bill before, have been done in 
Michigan, and yet Michigan is listed as one of these critical 
crisis States for malpractice reform.
    I understand and I sympathize with the doctors facing huge 
premiums, but this bill is not the answer they're seeking. 
Careful, thoughtful consideration of all factors contributing 
to this dilemma is what we're here to do today. I'm 
particularly bothered by section 7(c) in this bill found on 
page 10 and it states on line 17, subsection (c) ``no civil 
monetary penalties for products that comply with FDA 
standards.''
    We've seen this over and over again, much like the PLSRA. 
Again, go back to Los Angeles Times, December 20, 2000, 
headline, ``How a New Policy Led to Seven Deadly Drugs.'' 
Medicine. Once a Wary Watchdog, the USFDA Administration set 
out to become a partner of the pharmaceutical industries.'' 
Since 1997, these drugs have been approved with expedited 
process, only to find they have to be certainly withdrawn. 
According to the adverse events reports filed with the FDA, the 
seven drugs were cited as suspects in 1002 deaths. It goes on 
to say that a total of 10 drugs have been pulled from the 
market in just the past 3 years for safety reasons, including 
three pills that were approved before the shift that took hold 
in 1993. That was PADUFA. Never before has the FDA overseen the 
withdrawals of so many drugs in such a short period of time. 
More than 22 million Americans, about 10 percent of the 
Nation's population took these drugs and the drug company 
himself benefited to the tune of over $5 billion before they 
were withdrawn. So the answer is is not to restrict to FDA or 
say because the FDA approved a drug it is suddenly immune from 
any kind of tort liability or certainly restrict the rights of 
patients to bring lawsuits.
    Look, we need to look at our past mistakes on tort reform, 
PLSRA and some of these other bills that have passed through 
this committee and learn from them.
    So Mr. Chairman, I look forward to hearing from our 
witnesses today, looking forward to working with you and the 
gentleman from Pennsylvania, Mr. Greenwood, and let's really 
look at the real cause of the problem and not just artificially 
go after medical malpractice as the answer.
    Mr. Bilirakis. The gentleman's time has expired. Dr. 
Norwood.
    Mr. Norwood. Thank you very, Mr. Chairman. As we all know, 
all of us, both sides, that we are in the midst of a full-blown 
health care crisis. I like to liken it to a perfect storm where 
many storms are coming together. One of those storms could very 
well be the insurance industry and I want to know more about 
that and this committee is going to find out. But one of the 
storms we do know a lot about and are for certain of is the 
liability crisis and it would be of help if everybody on this 
committee would recognize that that is part of the problem. It 
may not be the entire part of the problem, but it is one that 
we do have a lot of information on.
    I don't know any physician or health care provider who has 
not witnessed drastic increases in their insurance premiums 
over the past year. Whether these rate increases are 30 percent 
or 300 percent, the bottom line is that these premium increases 
threaten the physicians' ability to continue to practice, 
especially specialty physicians such as OB/GYN. But while the 
financial burden forced on to physicians is the most obvious 
symptom of this crisis, the greatest harm that is occurring is 
patient access and patient care. On July 3, the trauma center 
of the University Medical Center in Las Vegas closed its doors 
as Dr. Ganske alluded to. Facing a 93 percent premium hike, 
what are the surgeons going to do? They had to walk out, 
obviously. Casino floor defibrulators has become the closest 
thing to emergency care as a 10,000 square mile was left 
without a trauma center.
    We have an opportunity here before us to defend patients' 
access to health care and shore up the solvency of the health 
care industry. I realize the complexity and the multitude of 
issues impacting this medical liability crisis, regardless of 
what anybody on this committee says and the surplus of 
editorial page banner that's going on, but the issue of tort 
reform is front and center. We know a lot about that, to have 
unlimited liability is part of the problem and it deserves all 
of our attention.
    We have clear and convincing evidence of the overwhelmingly 
positive results of medical liability reform for 25 years' 
worth of data under California's MICRA. This reform measure is 
centered on limiting non-economic damages and restricting 
abusive lawyer contingency fees. Let's be clear, non-economic 
damages are rewarded to compensate for pain and suffering or 
other nontangible, unquantifiable, nonmonetary losses. And 
punitive damages are left to a sliding scale.
    I strongly believe in fair compensation to patients injured 
by health care provider negligence, but not in excess of these 
great jury verdicts. But of course, when we talk about limiting 
run away jury awards, we're also talking about limiting runaway 
fees for lawyers which form the only true opposition to this 
legislation. The only opposition to this legislation. The 
medical liability industry is caught in a vicious cycle that 
hurts patients any way you cut it. Let's fight for patients' 
access to care and patient care.
    Mr. Chairman, I look forward to the testimony of our 
witnesses today. I look forward to our other hearings as we 
look at different parts of this storm and hopefully we can come 
together to improve the health care in this country.
    Thank you, Mr. Chairman.
    Mr. Bilirakis. I thank you, Doctor. Mr. Strickland.
    Mr. Strickland. Thank you, Mr. Chairman. There is trouble 
in the medical malpractice insurance industry. That much is 
clear. I have heard from doctors in my District since early 
this year about spikes in costs and fears that more serious 
problems in the neighboring States of Pennsylvania and West 
Virginia will be replicated in Ohio.
    As a Representative of a rural area, I am particularly 
concerned about this issue. My District already suffers from 
chronic access problems and I am very worried that a 
malpractice crisis in which doctors simply cannot buy insurance 
would exacerbate this problem to the point of emergency. I 
received a letter last week from a physician in my District who 
told me that his malpractice insurance has gone from $12,000 
last year to over $45,000 this year. That obviously is not 
sustainable. But the question we must ask and answer is why?
    As many of the witnesses before us today will confirm and 
discuss, a variety of factors have contributed to the current 
crisis. Certainly, we should consider what tort reforms may be 
needed, but as has been mentioned, the recent Wall Street 
Journal article illustrates other problems that may be serious 
factors in this escalating problem.
    Many of my colleagues are championing this H.R. 4600 bill, 
a bill that seeks to address the problem in medical malpractice 
using just one approach, tort reform. A look at research from 
across the country though finds that the States have 
dramatically different situations with respect to medical 
malpractice systems demonstrating how complicated this industry 
is. It is wrong to think that we can assign only one size fits 
all solution. That will adequately address this crisis. In 
fact, I fear that H.R. 4600 will not fix the problems. I worry 
that the bill may though hurt patients. Specifically, I fear 
that this bill could (1) violate States' rights by stripping 
away State law and Federalizing a new body of law and 
procedure; (2) set a very short and unfair statute of 
limitations that could actually increase the number of lawsuits 
that are filed because people may rush to file before their 
window of opportunity expires; and (3) I fear that H.R. 4600 
would create laws that have already been found unconstitutional 
such as the limit on non-economic damages. Even more 
importantly though, H.R. 4600 does absolutely nothing, nothing 
to address the reforms that are needed in the insurance 
industry to repair the current crisis and ensure that it 
doesn't happen again.
    I am particularly concerned about the cap on uneconomic 
damages. I find this cap egregious because it limits access to 
our legal system. It disproportionately caps damage awards for 
women and others who earn low incomes.
    In addition, there is no evidence that these caps will 
actually reduce malpractice rates. The California situation has 
been alluded to, a $250,000 cap on economic damages has been in 
place since 1975 and still the State of California has premiums 
that are 56 percent higher than in my State of Ohio which 
doesn't currently have caps. Limiting access to our legal 
system and place the burden of this limited access 
disproportionately on the most vulnerable in our society won't 
ensure that malpractice rates stop rising. All of these reasons 
are why I am working with some of my colleagues, including 
Representative Sandlin to craft a thoughtful legislative 
response to malpractice crisis that takes all dimensions of the 
crisis into account including tort reform and insurance 
industry reforms. We must look critically at all of these 
systems and the problems that are plaguing them instead of 
believing that a single issue as addressed in H.R. 4600 will do 
the job. The problem is far too serious for us to do that and 
the health of all Americans depends upon the actions that we 
are likely to take in this committee.
    Thank you, Mr. Chairman, with this hearing and I yield back 
whatever time I----
    Mr. Greenwood. Mr. Chairman, will the gentleman yield the 
balance of his time just for one quick correction?
    Mr. Strickland. Yes, I would.
    Mr. Greenwood. The gentleman from Ohio I think misspoke 
when he said that California caps economic damages.
    Mr. Strickland. Non-economic damages. If I misspoke, thank 
you for correcting that.
    Mr. Bilirakis. Dr. Fletcher for an opening statement.
    Mr. Fletcher. Thank you, Mr. Chairman, and I appreciate 
your allowing me to sit in on this hearing and I want to thank 
Mr. Greenwood for his work on H.R. 4600.
    I don't think there's any question that runaway lawsuits 
have contributed to the increased cost of health care. There 
may be other problems that have additionally increased the cost 
of health care, but I don't think there's any question it's had 
an impact on both increased cost of health care as well as 
access to health care.
    Let me say that I don't believe any of us want to take away 
the appropriate redress that patients who have been injured by 
negligence have in this Nation. I don't think there's any 
question that we all believe that we need to certainly rid our 
communities of those who would practice negligently and that if 
physicians or other health care providers do such, that they 
need to be held accountable and that patients need to be 
compensated for that injury.
    But let me say what the runaway lawsuits have done. They 
have increased the cost of health care. They've ciphoned money 
from health care and from patient care and they've gone into 
the pockets to make personal injury lawyers very, very wealthy. 
Now I don't have any problem with people being successful in 
life, but we've got to realize that the money comes out of 
health care and a large portion of it goes into personal injury 
lawyers' pockets.
    Second, if you look at the IOM report, and you look at 
other studies, there's a physician-attorney at Harvard named 
Troy Brennan who's done studies to show that the runaway 
liability we have does not improve the quality of health care. 
And in fact, in promoting defensive medicine may actually have 
a deleterious effect on the quality of health care. It may 
worsen the quality of health care.
    Third, California rates and people have talked about 
California, actually, there's been 125 percent increase in 
malpractice costs in California versus 425 percent across the 
United States in the same time period. There may be aberrations 
of that within certain States, as the gentleman mentioned, 
Ohio, but in fact, the procedures or the policies that have 
been in place in California have reduced the increase in 
escalation costs of premiums.
    I don't question that there's probably not some concerns 
with insurance companies. The gentleman mentioned the New 
England Journal of Medicine article. I read that article and 
from my recollection of that article, when you look at St. 
Paul, the problem with health insurance rates--correction, 
malpractice premium insurance rates are much higher now because 
they were under charging in the 1990's. They were charging less 
than actuarially the responsibilities were laid upon them which 
meant the increased cost of the liability and all the lawsuits 
exceeded the premiums in the 1990's. So because of that they 
have to compensate, make up for that with increased cost.
    It is about patient access and I reference an article out 
of our local newspaper, ``doctors seek cure from skyrocketing 
insurance, malpractice rates take toll on medical care.'' 
Here's an OB/GYN that's leaving rural Kentucky where he 
delivers a large portion of Medicaid patients, delivers babies 
there. His insurance rates went from $65,000 to $185,000 a 
year. Now he's leaving Kentucky because he can't make a living 
there. We have a crisis, a malpractice crisis in this country. 
It affects some States more than others and I want to commend 
Mr. Greenwood for his effort on this bill. I think you put 
together, contrary to what's been said, a very thoughtful piece 
of legislation. It is not the full answer of rising health care 
costs, but it's a very thoughtful piece of legislation to 
address this problem. And, thank you, Mr. Chairman. I yield 
back the remainder of my time.
    Mr. Bilirakis. Ms. Capps.
    Ms. Capps. Mr. Chairman, I am pleased we are considering 
recent increases in professional liability insurance premiums. 
These increases may, in fact, be barriers to access for our 
constituents, but I have to say that I think we're putting the 
cart before the horse with this hearing. Even its title is 
prejudicial. It assumes that so-called excessive litigation is 
the cause of premium increases and that it does reduce access 
to care. But I'm not sure this has been established yet. There 
is serious debate about why premiums are rising and what should 
be done to stem that growth, but until we resolve that debate, 
it seems unwise to determine solutions. The wrong solution 
could be harmful to many people and not prevent an increase in 
premiums.
    Some have suggested that the malpractice insurance 
companies are trying to make up for money they have lost 
playing the stock market. If that is true, we need to look at 
regulating the insurance industry. Others thing that frivolous 
lawsuits and exorbitant awards for damages are driving them up. 
These people argue we need legislation to cap non-economic 
damages to patients who have been harmed by doctors, mistake or 
negligence. The problem with this argument is that these 
lawsuits are not by definition frivolous. In cases where large 
damages are awarded, a jury has found that the patient has been 
severely harmed. And I have to say that I'm very skeptical of 
putting caps on the damage awards that a severely injured 
patient receives. This puts the burden on to someone who is 
rightfully seeking redress and it will unfairly penalize people 
who do not work or who are paid little such as senior citizens, 
stay at home moms, people with disabilities. They would have 
their damage payments limited while corporate CEOs will see 
massive payments. It is non-economic damages that make sure 
everyone gets the redress they deserve. I cannot support 
measures to cap damages in a way that will harm the neediest in 
society, particularly not when it has not been demonstrated 
that capping them will have a positive result on premiums. 
California has caps, as has been pointed out. And we in my area 
of California are still suffering great shortages of doctors. 
With our caps in place and even though they are in place, 
doctors are still leaving their practices in droves. So I hope 
that as this committee moves forward on this issue, Mr. 
Chairman, that we will carefully consider all the factors and 
not jump to conclusions about the remedies. And I yield back 
the balance of my time.
    Mr. Bilirakis. California does have caps in more ways than 
one.
    Ms. Capps. More than one kind, yes, thank you.
    Mr. Bilirakis. More than one kind. Mr. Buyer?
    Mr. Buyer. Thank you. I've sat on quality assurance risk 
management meetings at hospitals. I've litigated medical 
malpractice. I've done personal injury and I'm going to tell 
you, I'm stunned when I hear individuals willing to defend the 
lawyers here and blame insurance companies, blame hospitals, 
blame medical providers. I look at my own bar. My own bar has 
lawyers in there, some of whom are very responsible and have an 
individual who has been harmed by someone's negligence. And we 
also have individuals in that bar who will take any case 
imaginable and really disgust me in what they do to my 
profession. And we have become too litigious of a society and 
I'm not surprised at all that you can even break this down.
    We went through this whole Medicare thing and others had a 
lot of fun saying Republicans are in the pockets of so and so. 
It's not even debated in this country that the Democrats are in 
the pockets of the trial lawyers. That's not even debated. So 
we're not even surprised at all that we would hear that today--
--
    Ms. Eshoo. Would the gentleman yield? Would the gentleman 
yield?
    Mr. Buyer. No, I'm having fun. And so I'm not surprised at 
all that we would hear that.
    But let me share something. It's not--Ms. Capps is correct 
when she says it's not just the lawyers. You see, the fear of 
lawsuits, not medical necessity, drives the ordering of many 
tests even. Doctors go to extensive lengths and expensive 
lengths to protect themselves from lawsuits and that ends up 
becoming a driver of medical costs.
    There is a better way. Now I have something that's really 
interesting here. You want to say well, in California we have 
caps, but we have all these expenses. Let me share a 
perspective with my colleagues. Indiana, 20 years ago, Dr. Otis 
Bowen, who was the former, not only Governor of Indiana, but he 
also went on to serve as the Secretary of Health and Human 
Services under President Reagan, the State of Indiana took 
steps to protect its citizens by balancing the ability of 
patients harmed by the health care system to seek redress and 
the need to ensure continued access to health care by all 
Hoosiers. Indiana was one of the first States to pass a 
comprehensive medical malpractice reform and the Indiana model 
has now been used by other States in reforming medical tort 
law. So it's workable for both injured patients and health care 
providers.
    Briefly, Indiana law places limits on the liability of 
health care providers. Any recovery over this limit is provided 
by a patient compensation fund. It's managed by the State of 
Indiana and is funded through insurance surcharges. The total 
recovery is capped. Attorney fees are capped. And importantly, 
a medical review panel is convened for each case to review the 
validity of medical claims and must make its findings before a 
party can go to court. The findings of the medical review panel 
are admissible in court and there are time constraints on 
convening the panel and the panel making its findings so the 
case is not drawn out indefinitely. Injured patients receive 
compensation in a timely fashion.
    As I listen to some of my colleagues, let me do a little 
quick comparison. I have a medical liability rate survey here 
and in Indiana, people mentioned OB/GYN. In Indiana, the 
insurance average for the State of Indiana is $13,800. I heard 
testimony from my colleagues in Kentucky. In Kentucky, the 
average is $57,000. Let ms go to Ohio, since I heard some of my 
colleagues talk about Ohio's problems and flight of doctors to 
Indiana. Ohio, for OB/GYN, the average is around $57,000 to 
$58,000. New Jersey. New Jersey is around $72,000. So you can 
defend the lawyers all you like. You can do rallies on whatever 
steps you choose, but don't stick your head in the sand here 
and defend the lawyers and ignore the problems. It's happening 
throughout the country and it's a driver of costs and if you 
want to say we're not too litigious a society, you're having a 
huge impact on individuals' responsibility and as a member of 
the bar, I just am disgusted by the conduct of some of my 
colleagues. I yield back.
    Mr. Bilirakis. The gentleman's time has expired. Mr. Wynn.
    Mr. Wynn. Thank you, Mr. Chairman. Thank you for calling 
this hearing. I just wanted to make a couple of observations 
that kind of struck me in the course of this discussion. First 
of all, we've heard about California and now we've heard about 
Indiana and I can reflect on the experience from my own State 
of Maryland which also has caps. And it says one thing. States 
are competent to make this decision and the Federal role or 
Federal intrusion in this area is not necessary. There's no 
real pressing issue here. If he cites a good example in 
Indiana, perhaps other States will follow as they see fit.
    The second observation that I want to make is this notion 
of so-called runaway lawsuits. Lawsuits in medical malpractice 
cases reflect the decisions of a jury of ones peers. They 
reflect what the citizens of that community believe is fair in 
light of the injuries that an individual has suffered, so the 
suggestion that somehow it's the malpractice lawyers that are 
the villains in this scenario is just not accurate. You would 
think hearing the rhetoric that the other side doesn't have 
lawyers, that there's no standard of medical care to which 
practitioners can be held or critiqued on. That's the reality 
of malpractice law, that there's two sides in the courtroom, 
very competent lawyers representing doctors and most lawsuits 
are not runaway lawsuits. Most awards are not astronomical and 
that most of the people who receive these awards are average 
citizens, most of them women, in fact, who get awards that 
their community feels are fair. So I think that has to be taken 
into consideration.
    Third, you hear about runaway lawsuits driving health care 
costs, but I hope that this panel would share with us some 
concrete data and the analysis supporting it to show that that 
is, in fact, the case.
    Finally, I think we have to look at the business practices 
of the insurance companies. They made decisions during the 
1990's regarding setting premiums. In many cases they made some 
bad decisions, underpriced their premiums in relation to their 
true cost, used profits in the booming 1990's to patch over 
these bad decisions and now are reaping the consequences of 
those business decisions. So I don't see that we can portray 
them as the poor victims of the malpractice system because they 
made bad decisions.
    I think this is a good hearing to have. I'm looking forward 
to hearing the witnesses, but I hope it will be a balanced 
hearing and not one that just attempts to characterize the 
malpractice attorneys as villains in a very balanced judicial 
system which the forefathers conceptualized as a means to which 
citizens could have their grievances addressed.
    I hope we'll have good testimony on all these issues and I 
look forward to hearing the witnesses. I would like to yield 
the balance of my time to my colleague, Ms. Eshoo.
    Ms. Eshoo. I thank the gentleman. I'd like to jump in and 
say something here and that is that if any of us went to a 
doctor and said we weren't feeling well and the doctor said I'm 
only going to examine one part of your body, you'd move on to 
someone else. I think that this committee with all due respect 
to my colleague from Indiana who said I'm just having fun, this 
is not meant for fun. There are problems each person here, 
whether I agree 100 percent with them or not has pointed out 
something that we need to pursue. To come here and to pretend 
that we have the entire answer simply because we showed up this 
morning and think we're having fun, I think, does a disservice 
to the people that we represent. So let's listen to our 
witnesses and let's see what we can devein out of this. I think 
that we should stay away from the bluster. It doesn't do 
anything for me and most frankly for anyone that's listening 
because this is being carried. I think it's going to turn them 
off instead of being instructive and sensitive and see what we 
can come up with to resolve the problems that are being pointed 
out.
    I thank the gentleman for yielding.
    Mr. Norwood. Mr. Wynn, would you yield for just a second?
    Mr. Wynn. If I have any time left.
    Mr. Bilirakis. Yes, he has time.
    Mr. Norwood. I don't think anybody here has said in any way 
that this is the only part of the problem. Nobody is saying 
that.
    Mr. Wynn. If I could just reclaim my time.
    Mr. Bilirakis. Mr. Wynn, we're not going to get into a 
debate here. These are opening statements only.
    Mr. Wynn. Mr. Chairman, I yielded to my colleague. I just 
wanted to respond to his statement merely to say that I would 
like to know the facts on that question because it's being 
characterized that this is the driving force behind the 
increase in health insurance rates and access to care and if 
there are facts to support that, I think we'd certainly like to 
hear them. But just to keep saying this and making this 
allegation without evidence, I don't think is very helpful.
    I yield back the balance of my time.
    Mr. Bilirakis. The intent of the Chair is that we will get 
into those facts regarding the impact of litigation regarding 
what might be the impact of insurance regulation or lack of it 
or whatever the case may me.
    Mr. Brown. Mr. Chairman, Mr. Chairman, our side is not real 
happy with the title of the hearing, just that it appears that 
all of the problem from the title of the hearing, all of the 
problem is one thing and I think all of us when we're more 
introspective of it understand the problem is much more 
complicated than that, whether it's physicians I know in Ohio 
or Mr. Wynn knows in Maryland or whether it's our own judgment. 
We all know that it's more complicated and we just wanted to 
express some unhappiness with the title and the direction.
    Mr. Bilirakis. If the gentleman will yield, the title 
``Harming Patient Access to Care, the Impact of Excessive 
Litigation'' whatever that impact might be. And it's only one 
of the impacts. There are other impacts, all right? So there's 
nothing wrong with the title. It's the way I think that you 
interpret it.
    Mr. Wynn. Mr. Chairman, Mr. Chairman, if the chairman will 
yield for just----
    Mr. Bilirakis. I'll be glad to yield. You have the time.
    Mr. Wynn. I wanted to say that perhaps it's the use of the 
term ``excessive'' that creates this impression that there may 
be somewhat of a predetermined--I yield back.
    Mr. Bilirakis. Let's get to the problem here for crying out 
loud and quit quibbling about the title of the hearing. That's 
why we quite often don't get things done the way we should 
around here.
    Let's see, Mr. Deal for an opening statement.
    Mr. Deal. I thank the chairman. Mr. Chairman, quite 
frankly, I've enjoyed these opening statements better than any 
series of opening statements I've heard in a long time. I do 
think that this hearing is appropriate and I think the comments 
of all of our colleagues have likewise been appropriate. I 
think the reason this issue has been surrounded with so much 
intensity is that it literally involves life and death issues. 
It likewise involves two of the great professions that are the 
hallmark of our Nation, the medical profession and the legal 
profession.
    It is not a solution that is easy to come by as we have 
seen from experiments in our various States. Now I know that 
we're going to hear from various points of view, but I'm here 
to say there's plenty of blame to go around in every way and 
direction you wish to point your finger. Let me give you just a 
few examples.
    With regard to the insurance industry. For years, as a 
member of the State Legislature in Georgia, I continually asked 
the question why are you charging the same premiums for the 
same specialties in the metropolitan city of Atlanta as you are 
charging in rural North Georgia? I never got a satisfactory 
answer. The reason was simply they're in the same specialty. 
When you compare that to what most insurance premiums are 
dictated upon and that is a loss ratio. There was no 
correlation in most instances to loss ratios, nor any 
adjustment for geographical areas in which the practice is 
being maintained. I think they have done better in recent years 
to make those adjustments, but still I think they have a long 
way to go in that direction.
    With regard to my own profession and I was, as Mr. Buyer 
previously a trial lawyer, I am totally disgusted by the fact 
of the advertisements on television by members of our 
profession who say come down to see me, I can get you thousands 
or millions of dollars for your claim with no understanding of 
whether there was a meritorious claim or not. That to me is 
taking and I regret that the Supreme Court had gone so far as 
to the extend the first amendment to that kind of advertising, 
but unfortunately, we live in that era.
    With regard to the medical profession, certainly there are 
innocent medical providers who have been harmed and who are 
fearful of the effects of potential malpractice judgments where 
they think they may be blameless, but I know that there are 
some things in the medical community that need to be looked at. 
For example, they have constantly shielded their own members 
from their own malpractice as far as the public is concerned. 
It is a known fact that it is almost impossible in many 
instances to find out where the bad doctors are and many times 
the way to discipline a bad doctor is simply to ship him to 
another community where they're unsuspecting and have no 
knowledge of his negligence and his background. That is 
something the medical community in my opinion has not come face 
to face with and until they do, they're going to continue to 
have, as Mr. Wynn says, the peers in their own community who 
are suspect of what they're doing and they are the ones 
delivering the verdicts. So maybe the bedside manner does 
translate into jury verdicts or perhaps in some cases the lack 
thereof.
    My point is this, there's a lot of blame to go around. I 
think the purpose of this hearing is to look at all of the 
facets that surround this very emotionally charged issue, but 
the fact and reality is it is having an effect on the 
availability of health care in many parts of the country. My 
District, like many of your Districts, are seeing premium 
increases of 1000 percent or more in a 1-year period of premium 
jumps and that cannot be justified in most instances based on 
lost claims that have been paid. They have no relationship in 
most instances. So I think the question is why are these 
premiums so high, what are the justifications for them and what 
can we do in a reasonable considered fashion not to do unjust 
damage to our judicial system which is the foundation for 
resolving all civil disputes in our country.
    I yield back, Mr. Chairman.
    Mr. Bilirakis. The voice of reason yields back. Mr. 
Pickering.
    Mr. Pickering. Mr. Chairman, I would yield to my senior 
member.
    Mr. Bilirakis. He was hiding back here behind Mr. Cox and I 
didn't see he was there. All right, he will not accept the 
yield. Mr. Pickering.
    Mr. Pickering. I always try to follow my good Subcommittee 
on Energy Chairman, Mr. Barton. But Mr. Chairman, I want to 
thank you for having this hearing. I want to thank Mr. Deal for 
his comments, his attitude and I wanted to talk about the 
issues before us today.
    You know I come from a family, my father was a trial 
lawyer. Today, he is a Judge. I can remember going to the 
courtroom as a boy, as he tried his cases and I was always 
proud that I thought that he was trying to bring justice to 
somebody who may have been harmed or injured, but I looked 
today at my home State and the situation that we face and I try 
to make decisions, how do we maintain the principles, making 
sure that we have a jury system? How do we deter when there are 
wrongful acts or negligence, but how do we also protect health 
care in my home State where we're seeing some terrible losses. 
We're seeing 400 doctors leave our State. For the first time in 
the history of the University of Mississippi Medical Center, 
and the OB/GYN specialties, not one, not one OB/GYN medical 
student is staying in the State of Mississippi. We're seeing 
clinics close. We're seeing hospitals talk about moving away 
from Mississippi, across the river into Louisiana. We are 
seeing from Jackson, Mississippi to Memphis, Tennessee, which 
if you know anything about geography, is a lot of territory, a 
lot of communities, a lot of folks, that we will only have 
about two neurosurgeons.
    We're seeing in OB/GYN an acute crisis and shortage. We're 
seeing in rural hospitals that cannot afford health medical 
malpractice insurance premiums, whether they're hospitals, for 
example, in Franklin County, Mississippi, a community or county 
of about 8,000 people, their insurance premium has increased 
over the past year from $54,000 to $265,000. Now that health 
care clinic or hospital if you went to it, you would see that 
it is in terrible need of capital investment to improve their 
facilities. And they're struggling to pay that bill so that 
they can give quality health care and then having a five fold 
increase in insurance premiums.
    There has to be a balance here that I hope that we can 
strike. I do believe that some cap, some limit, so that we do 
not have the excessive, so that we do not drive hospitals, we 
do not drive doctors, we do not drive specialties, we do not 
close clinics as a result of excessive verdicts.
    In my home State of Mississippi, the average malpractice 
case across the Nation is $3.5 million, but in Mississippi it's 
$8.2 million. The rate, the number of claims for medical 
negligence, those cases brought is 55 percent greater than the 
combined averages of all States. So you see a terrible crisis 
in a State that is rural, that is low income. Many of the 
citizens on fixed income and you're creating a crisis because 
of the excessive.
    We've got to maintain the principles of our judicial 
system. But we have to find a way to have a balance that we do 
not harm health care. I believe in the right to a jury, but I 
also believe in the right to good health care, that our mothers 
have a right to see an OB/GYN when they need to deliver a 
child, that if we have a tragedy, a trauma, a car wreck, and 
you have minutes that window of opportunity, that window of 
life to get care, that we'll have a neurosurgeon that will 
treat our sons and daughters, our husbands and wives if that 
tragedy occurs.
    And so we've got to find a way, as Mr. Deal was talking 
about, to find a way to address all the issues and find a way 
to bring justice, but also protect affordable, accessible 
health care.
    Mr. Wynn. Would the gentleman yield?
    Mr. Pickering. Yes.
    Mr. Wynn. I really appreciate the statement you made. I 
know it's made out of a great deal of sincerity, but I have to 
ask the question, why can't the State of Mississippi address 
this problem in a way that it sees fit just as other States 
have done including my own and others that have been referred 
to here?
    I feel kind of awkward on the Democratic side arguing 
States' rights, but----
    Mr. Bilirakis. These are opening statements for crying out 
loud. Now, let's not get into debating. If you choose to 
respond to that, Chip, please do so very briefly.
    Mr. Pickering. Like I was saying, I do believe in States' 
rights, but we have a situation in my home State, the States 
that are around us that have implemented reforms have seen 30 
percent reductions in medical malpractice insurance premiums 
and the question is what we're saying is any State that adopts 
reform, this legislation will not apply. So we are giving 
incentives for the States to take care of this problem 
themselves, but if they don't, my fundamental responsibility 
and I think fundamental responsibility of all members is to 
make sure that our mothers have health care, our families have 
health care, our families have health care and we've got to 
protect that right. Thank you.
    Mr. Bilirakis. The gentleman's time has expired. Mr. 
Barton.
    Mr. Barton. Thank you, Mr. Chairman, and the public, happy 
birthday, plus one. Yesterday was Chairman Bilirakis' birthday. 
He's now old enough to buy alcohol legally in his State. And I 
want to compliment you and Chairman Greenwood for--there you 
go, see--holding this hearing. I wish that my subcommittee 
members paid as much attention to the titles of the hearings 
that I do as they do to yours.
    I have waited to give my opening statement, Mr. Chairman, 
because my staff put together a really good statement. In fact, 
it's so good that Congressman Norwood told me that his staff 
helped my staff put it together, so I felt like I needed to be 
here to do it. This is a good bill that we're going to hold a 
hearing on, H.R. 4600 that you and Chairman Greenwood have 
introduced. We do have a crisis, in my opinion, in our medical 
liability system. I've heard from many of the doctors in my 
District down in Texas. They're facing astronomical increases 
in their medical malpractice premiums. They've had their 
premiums doubled and in some cases tripled. Because of that, 
they've stopped performing certain procedures. Some have even 
retired from medicine all together.
    I believe that it is a crisis in medical liability and that 
this crisis is creating a barrier to obtaining quality health 
care. For example, women in South Texas are now finding it 
difficult to find an OB/GYN to help deliver their expectant 
child. I'm told that out in Nevada, in Clark County, one of 
their emergency rooms, trauma centers just shut down, just 
closed the doors because of the rise in medical liability 
premiums, so I think the crisis is real.
    We all agree that if a patient is injured through 
malpractice or negligence that patient should be compensated 
for their injuries and that compensation should not be 
abridged. The Health Act contains no cap on economic and 
medical damages. If a patient is injured, he or she will 
rightly have the ability to be made whole through the judicial 
system.
    The Health Act allows unlimited recovery of economic 
damages. That person will be able to recover all past, present 
and future economic losses. There is a cap on non-economic 
damages of $250,000. Punitive damages are still allowed and can 
be levied against those who demonstrate malice or gross 
negligence.
    Our courts have become a system or a form of legal lotto. 
The purpose of lawsuits is not to compensate injured victims so 
much as it is to enrich the plaintiff lawyers that bring the 
lawsuits. They work on contingency fees and they're looking and 
hoping that their winning ticket will turn them into instant 
millionaires. This system has clogged up the courts with 
frivolous lawsuits and has delayed the judiciary from 
processing more meritorious claims.
    One of the most important reforms in the Act before us is 
the elimination of joint and several liability. Joint and 
several liability encourages trial lawyers to search for deep 
pockets regardless of the culpability. This country was founded 
on the ideal of personal responsibility, the idea that a person 
should be responsible for his or her actions. Joint and several 
liability is the antithesis of this idea.
    Mr. Chairman, I want to thank Mr. Cox for helping me to 
pronounce antithesis and for my staff for putting in a big word 
so that I can learn a new word today.
    Mr. Norwood. That was my staff.
    Mr. Barton. That was your staff that did that? Under the 
concept of joint and several liability, a party could be found 
to be 1 percent at fault for a particular injury, yet could be 
responsible for paying 100 percent of the damage award. This 
encourages trial lawyers to file a claim, throw everything up 
against the wall and hope that something sticks.
    Our current medical liability system, in my opinion, 
creates one group of winners and that's the plaintiff lawyers. 
However, there are numerous losers, the injured patients whose 
lawsuits linger in the judicial system because they're 
overwhelmed by other frivolous lawsuits; the patients who can't 
get care period because their providers no longer provide that 
care.
    I come to this hearing with an open mind. I want to thank 
you and Chairman Greenwood for putting in the bill and I hope 
that after the hearing we can work in a bipartisan basis to 
move the bill.
    Mr. Bilirakis. All right, I thank the gentleman. I believe 
that finally completes the opening statements to the relief of 
all of us.
    The first panel, oh yes, by all means. Unanimous consent 
request.
    Mr. Brown. Mr. Chairman, I ask that all members have the 
opportunity to submit testimony in writing.
    Mr. Bilirakis. Without objection. That will be the case. I 
thank the gentleman.
    [Additional statement submitted for the record follows:]
 Prepared Statement of Hon. W.J. ``Billy'' Tauzin, Chairman, Committee 
                         on Energy and Commerce
    Thank you, Mr. Chairman, for holding this hearing today, and thank 
you for the leadership that you have demonstrated in advancing this 
important issue.
    For over eight years, Members of this Committee have taken the lead 
in drafting legislation to help restore some degree of common sense to 
our tort system. They have realized that our current system is too 
slow, too expensive, too inefficient and most importantly, fails to 
improve the health of patients.
    Today, this Committee will hear from several witnesses about the 
current medical liability crisis, which is indeed a grave problem in 
need of serious attention. Health care providers in eleven states are 
in dire straits, having to make quick decisions about whether or not to 
move out of specialty practices, move to another state to practice, or 
retire early. Patients are the hidden victims here: when there is no 
doctor, there is no health care. It makes no difference that your HMO 
or Medicare covers a particular procedure. When there is an inadequate 
number of physicians available to perform procedures, there is limited 
health care access for patients. It's that simple.
    This hearing is not about potential consequences. We are talking 
about real events, real trauma that is hurting patients before they 
even get in the door to see a doctor. Approximately two weeks ago, the 
University Medical Center in Las Vegas closed. The UMC trauma center 
serves a 10,000-square-mile area; when the center closed, Las Vegas 
became the largest metropolitan area in the nation without a trauma 
center. It is truly a miracle that no major catastrophes occurred 
during the ten-day period that the facility was closed. What can we do 
to prevent an occurrence like this from becoming a trend? What has 
happened to the business climate in Nevada that health care 
professionals who have dedicated their lives to saving patients are no 
longer willing to serve?
    The problem is not an isolated one. As policymakers, we need to 
find a solution fast, before more patients are harmed. Why are doctors 
fleeing the state of Nevada for the California coast? Why did a 
hospital that has operated for over a hundred years in Philadelphia, PA 
board its windows and lock the doors? Why have one-third of 
neurosurgeons left the state of Mississippi? While I am sure, no doubt, 
that my colleagues from Louisiana welcome the influx of doctors from 
the state of Mississippi, this is not how Louisiana wants to attract 
new residents to the State.
    What my home state has in place and what California have benefited 
from for over 27 years are common sense guidelines for health care 
lawsuits. These guidelines ensure that injured patients receive greater 
compensation while at the same time deterring frivolous lawsuits that 
extort health care professionals and drive doctors from the practice of 
medicine.
    It is difficult for me to believe that the reason so many of our 
health care providers are being sued is that they are bad doctors. The 
Texas Medical Examiner Board reported that half of the doctors in the 
state had lawsuits filed against them. Are half of the doctors in the 
state of Texas bad doctors? Members on both sides of the aisle know 
this is absurd. Just as there are good doctors, and bad doctors, there 
are good lawyers, and bad lawyers. Our judicial system must protect the 
good doctors, and provide speedy recourse for patients when they are 
harmed. Our judicial system should not be manipulated to benefit 
special interests at the expense of patients.
    Our task today is clear. Members on this Committee must evaluate if 
our current judicial system is serving patients well. When injured 
patients have to wait years before a medical injury case is complete, 
our judicial system has failed. When injured patients lose 58 percent 
of their compensation to attorneys and the courts, our judicial system 
has failed. When 60 percent of malpractice claims against doctors are 
dropped or dismissed, but the fear of litigation still forces doctors 
with twenty-five years of experience to retire early, our judicial 
system has failed.
    It's time for this Congress to enact common-sense reforms that 
protect injured patients while restoring sanity in our judicial 
process. Patient care should not be harmed by special interest 
politics. This is an issue that deserves action this year.
    I look forward to the witness testimony.

    Mr. Bilirakis. Dr. Lisa Hollier is with the LBJ General 
Hospital, Department of OB/GYN in Houston and she is here on 
behalf of the American College of Obstetricians and 
Gynecologists; Ms. Fran Visco, National Breast Cancer 
Coalition. Ms. Visco's been with us before. Sam Roberts is from 
Elkins, West Virginia. Ms. Lauren Townsend, Coalition for 
Consumer Justice, from Philadelphia; and Mr. Stuart Fine, Chief 
Executive Officer of Grand View Hospital in Sellersville, 
Pennsylvania, here on behalf of the American Hospital 
Association.
    I don't know whether Mr. Greenwood wanted to introduce Mr. 
Fine and supplement my introduction without Mr. Fine.
    Mr. Greenwood. I'd be delighted to, Mr. Chairman. Stuart 
Fine is the Director of Grand View Hospital, one of the finer 
hospitals in our region. He's a good long time friend and 
really has been a leader in trying to change the medical 
system, the health care system and a fighter against abuses in 
a variety of ways. We're just delighted to have him here. And 
now I understand why we call this a hearing because you come 
and hear us for 2 hours.
    Mr. Bilirakis. True. Anyhow, your written statements, those 
would be matter of the record. I would hope that what you would 
do is complement if you will, or supplement your statements. I 
will set the clock at 5 minutes. Hopefully you will try to 
abide that as well as you can.
    Dr. Hollier, please proceed.

STATEMENTS OF LISA M. HOLLIER, LBJ GENERAL HOSPITAL, DEPARTMENT 
 OF OB/GYN; FRAN VISCO, NATIONAL BREAST CANCER COALITION; SAM 
ROBERTS ON BEHALF OF THE AMERICAN ACADEMY OF FAMILY PHYSICIANS; 
LAUREN TOWNSEND, COALITION FOR CONSUMER JUSTICE; AND STUART H. 
                 FINE, CEO, GRAND VIEW HOSPITAL

    Ms. Hollier. Thank you, Mr. Chairman. As an obstetrician/
gynecologist, I welcome the opportunity to speak with you this 
morning on behalf of the American College of Obstetricians and 
Gynecologists, 44,000 partners in women's health care.
    I am here today because excess litigation has left American 
women asking who will deliver my baby. An ailing civil justice 
system in severely jeopardizing patient care for women and 
their newborns, forcing one out of ten obstetricians to stop 
delivering babies and countless more physicians to contemplate 
the same.
    After a brief overview, today I will delineate the 
inevitable health consequences for women if we allow excessive 
litigation to persist. In my home State of Texas and across the 
country, liability insurance for obstetrician/ gynecologists 
has become prohibitively expensive. Premiums have tripled and 
quadrupled practically overnight. In some areas, OB/GYNS can no 
longer obtain liability insurance at all as insurance companies 
fold or abruptly stop insuring doctors. When OB/GYNS cannot 
find or afford liability insurance, they are forced to stop 
delivering babies, curtail surgical services, or close their 
doors.
    This shortage of care affects hospitals, public health 
clinics, and medical facilities in rural areas and inner 
cities. Now women's health care is in jeopardy and this crisis 
will only end soon with legislative intervention. This crisis 
involves more than just the decisions of individual insurance 
companies. The manner in which our antiquated tort system 
resolves medical liability claims is at the root of the 
problem. A liability system should equitably spread the 
insurance risk of providing affordable health care for our 
society. It should fairly compensate patients harmed by 
negligent medical care. It should provide compensation to 
patients with devastating outcomes, unrelated to negligence, 
like newborns born with cerebral palsy. Our current system 
fails on all counts. It's punitive, expensive, and inequitable 
for all, jeopardizing the availability of care.
    Although the number claims filed against all physicians 
climbed in recent decades, the phenomenon does not reflect an 
increase rate of medical negligence. In fact, OB/GYNs win the 
vast majority of the claims filed against them. One half of 
claims against OB/GYNs are simply dropped by plaintiffs' 
attorneys, dismissed or settled without a payment. Of cases 
that did precede to court, OB/GYNs won seven out of ten cases 
closed by a jury or court verdict. What should not be 
overlooked here are the ripple effects that excessive 
litigation is directly having on the delivery of women's health 
care.
    Today, the liability crisis is causing women and their 
newborns to suffer in the following six ways. No. 1, less 
prenatal care. With fewer obstetricians, it's harder for women 
to get prenatal care, a significant factor in the delivery of a 
healthy baby. The greater availability of this care over the 
last several decades has resulted in the country's lowest 
infant mortality rate. Now, our ability to maintain that 
standard is threatened.
    No. 2, shorter visits and longer waits. Doctor shortages 
mean women have to travel longer distances for prenatal 
appointments and to deliver their babies, especially in rural 
areas. Wait times for appointments increased while quality time 
with doctors inevitably decreases.
    No. 3, losing gynecologic surgery. As doctors stop 
preforming gynecologic surgery, women can lose access to care 
that helps protect fertility and pelvic pain, or treat 
precancerous conditions early.
    No. 4, less preventative health care. Fewer doctors 
offering fewer services means less regular screenings for 
reproductive cancers, infections, and other health risks for 
women.
    No. 5, less for the underserved. Clinics that provide 
prenatal and delivery care to underserved and high risk 
populations included rural, inner city, and teaching hospitals, 
will have trouble recruiting and affording positions.
    And finally, No. 6, less training in women's health. 
Hospitals may drop their residency training programs in 
obstetrics and gynecology when they can no longer afford to 
insure OB/GYNs residents and teachers. The result? Fewer new 
doctors trained to treat women, particularly pregnant women.
    As a physician, I strive to provide every woman in my 
practice with affordable health care of the highest quality. 
And without question, I believe that patients who have been 
harmed by professional negligence should have the opportunity 
to be adequately compensated for their injuries. But today the 
scales of justice are out of balance, and until this Nation 
enacts common sense medical liability reforms, America's women 
and mothers will continue to suffer.
    Thank you, Mr. Chairman, for your leadership on this 
important issue and for the subcommittee's attention to this 
crisis. I appreciate the opportunity to present our concerns 
for the panel's consideration and look forward to working with 
you to protect women's access to health care.
    [The prepared statement of Lisa M. Hollier follows:]
   Prepared Statement of Lisa M. Hollier, on Behalf of the American 
               College of Obstetricians and Gynecologists
    On behalf of the American College of Obstetricians and 
Gynecologists (ACOG), an organization representing more than 44,000 
physicians dedicated to improving the health care of women, we urge you 
to bring an end to the excessive litigation restricting women's access 
to health care.
    In addition to providing an overview of the issue, this statement 
will explain how the medical liability crisis compromises obstetric 
care for women and detail the consequences for women's health care if 
excessive litigation persists. This statement will also highlight how 
the medical liability crisis is acutely affecting nine states, 
including Florida, explaining how access to basic and important women's 
health care in those states is severely jeopardized because of a 
liability system gone awry.

 I. EFFECTS OF EXCESSIVE LITIGATION ON WOMEN'S HEALTH CARE: AN OVERVIEW

    The number of lawsuits against all physicians has been rising over 
the past 30 years in an increasingly litigious climate, and obstetrics-
gynecology--considered a ``high risk'' specialty by insurers--remains 
at the top of the list of specialties affected by this trend.
    An ailing civil justice system is severely jeopardizing patient 
care for women and their newborns. Across the country, liability 
insurance for obstetrician-gynecologists has become prohibitively 
expensive. Premiums have tripled and quadrupled practically overnight. 
In some areas, ob-gyns can no longer obtain liability insurance at all, 
as insurance companies fold or abruptly stop insuring doctors.
    When ob-gyns cannot find or afford liability insurance, they are 
forced to stop delivering babies, curtail surgical services, or close 
their doors. The shortage of care soon affects hospitals, public health 
clinics, and medical facilities in rural areas and inner cities.
    Now, women's health care is in jeopardy for the third time in three 
decades. This crisis will only end soon with legislative intervention. 
The recurring liability crisis involves more than the decisions of 
individual insurance companies. The manner in which our antiquated tort 
system resolves medical liability claims is at the root of the problem.
    A liability system--encompassing both the insurance industry and 
our courts--should equitably spread the insurance risk of providing 
affordable health care for our society. It should fairly compensate 
patients harmed by negligent medical care. It should provide humane, 
no-fault compensation to patients with devastating medical outcomes 
unrelated to negligence--as in the case of newborns born with 
conditions such as cerebral palsy. Our current system fails on all 
counts. It's punitive, expensive, and inequitable for all, jeopardizing 
the availability of care.
    Jury awards, which now soar to astronomical levels, are at the 
heart of the problem. The average liability award increased 97% between 
1996 and 2000, fueled by states with no upper limits on jury awards. 
This ``liability lottery'' is enormously expensive, and patients who 
need, but can't get, health care, pay the price.
    The current liability system encourages attorneys to focus on 
relatively few claims with exorbitant award potential, ignoring other 
claims with merit. Even then, much of a jury award goes straight into 
the lawyers' pockets; often, less than half of every medical liability 
dollar ever reaches the patient.
    Patients and physicians need a real solution to this crisis. In the 
1980s, the Institute of Medicine warned that the liability crisis 
compromised the delivery of obstetric care for women across the nation. 
It urged Congress to provide both immediate relief and long-term 
solutions. ACOG has asked the Institute to reexamine this issue and 
update its report.
    The liability crisis continues to compromise the delivery of health 
care today. A recent Harris survey showed that three-fourths of 
physicians feel their ability to provide quality care has been hurt by 
concerns over liability cases. And, patients understand the problem, 
too. An April 2002, survey by the Health Care Liability Alliance found 
that 78% of Americans are concerned about the impact of rising 
liability costs on access to care.

II. HOW EXCESSIVE LITIGATION COMPROMISES THE DELIVERY OF OBSTETRIC CARE

    Obstetrics-gynecology is frequently among the top three specialties 
in the cost of professional liability insurance premiums. Nationally, 
insurance premiums for ob-gyns increased over time: the median premium 
increased 167% between 1982 and 1998. The median rate rose 7% in 2000, 
and 12.5% in 2001, with increases ranging from 0.3% to 69%, according 
to a survey by Medical Liability Monitor, a newsletter covering the 
liability insurance industry.
    A number of insurers are abandoning coverage of doctors altogether. 
The St. Paul Companies, Inc., which handled 10% of the physician 
liability market, announced in recent months that it was withdrawing 
from that market. One insurance ratings firm reported that five medical 
liability insurers failed in 2001. One-fourth of the remaining insurers 
were rated D+ or lower, an indicator of serious financial problems.
    According to Physicians Insurance Association of America, ob-gyns 
were first among 28 specialty groups in the number of claims reported 
against them in 2000. Ob-gyns were the highest of all specialty groups 
in the average cost of defending against a claim in 2000, at a cost of 
$34,308. In the 1990s, they were first--along with family physicians-
general practitioners--in the percentage of claims against them closed 
with a payout (36%). They were second, after neurologists, in the 
average claim payment made during that period ($235,059).
    Although the number of claims filed against all physicians climbed 
in recent decades, the phenomenon does not reflect an increased rate of 
medical negligence. In fact, ob-gyns win most of the claims filed 
against them. A 1999 ACOG survey of our membership found that over one-
half (53.9%) of claims against ob-gyns were dropped by plaintiff's 
attorneys, dismissed or settled without a payment. Of cases that did 
proceed to court, ob-gyns won 7 out of 10 cases closed by a jury or 
court verdict.
    When a jury does grant an award, it can be exorbitant, particularly 
in states with no upper limit on awards. Jury awards in all civil cases 
averaged $3.49 million in 1999, up 79% from 1993 awards, according to 
the latest reports from Jury Verdict Research of Horsham, Pennsylvania. 
The median medical liability award jumped 43% in one year, from 
$700,000 in 1999, to $1 million in 2000: it has doubled since 1995.
    Ob-gyns are particularly vulnerable to this trend, because of jury 
awards in birth-related cases involving poor medical outcomes. The 
average jury award in cases of neurologically impaired infants, which 
account for 30% of the claims against obstetricians, is nearly $1 
million, but can soar much higher. One recent award in a Philadelphia 
case reached $100 million.
    We survey our members regularly on the issue of medical 
professional liability. According to our most recent survey, the 
typical ob-gyn is 47 years old, has been in practice for over 15 
years--and can expect to be sued 2.53 times over his or her career. 
Over one-fourth (27.8%) of ACOG Fellows have even been sued for care 
provided during their residency. In 1999, 76.5% of ACOG Fellows 
reported they had been sued at least once so far in their career. The 
average claim takes over four years to resolve.

        III. WOMEN'S HEALTH CONSEQUENCES OF EXCESSIVE LITIGATION

    The medical liability crisis is complex, affecting every aspect of 
our nation's ability to deliver health care services. As partners in 
women's health care, we urge Congress to end the medical liability 
insurance crisis. Without legislative intervention, women's access to 
health care will continue to suffer. We urge you to bring an end to the 
meteoric rise in liability premiums that is already impeding women's 
access to health care.
    This crisis is obstructing mothers' access to obstetric care. When 
confronted with substantially higher costs for liability coverage, ob-
gyns and other women's health care professionals stop delivering 
babies, reduce the number they do deliver, and further cut back--or 
eliminate--care for high-risk mothers. With fewer women's health care 
professionals, access to early prenatal care will also be reduced, 
depriving them of the proven benefits of early intervention.
    Excessive litigation also threatens women's access to gynecologic 
care. Ob-gyns have, until recently, routinely met women's general 
health care needs--including regular screenings for gynecologic 
cancers, hypertension, high cholesterol, diabetes, osteoporosis, 
sexually transmitted diseases, and other serious health problems. 
Staggering premiums continue to burden women's health care 
professionals and will further diminish the availability of women's 
care.
    Legislative intervention is needed to avert another rural health 
crisis. Women in underserved rural areas have historically been 
particularly hard hit by the loss of physicians and other women's 
health care professionals. With the economic viability of delivering 
babies already marginal due to sparse population and low insurance 
reimbursement for pregnancy services, increases in liability insurance 
costs are forcing rural providers to stop delivering babies. Help 
sustain those providers dedicated to caring for America's rural women 
and mothers.
    Allowing the crisis to continue will mean community clinic 
cutbacks. Also hurt by the medical liability crisis are the nation's 39 
million uninsured patients--the majority of them women and children--
who rely on community clinics for health care. Unable to shift higher 
insurance costs to their patients, these clinics have no alternative 
but to care for fewer people.
    Acting now can save more women from the ranks of the uninsured. 
Health care costs continue to increase overall, including the cost of 
private health care coverage. As costs continue to escalate, employers 
will be discouraged from offering benefits. Many women who would lose 
their coverage, including a large number of single working mothers, 
would not be eligible for Medicaid or SCHIP because their incomes are 
above the eligibility levels. Last year, 11.7 million women of 
childbearing age were uninsured. Without reform, even more women ages 
19 to 44 will move into the ranks of the uninsured.
    As partners in women's health care, ACOG urges Congress to act 
swiftly to avert further access issues for women.

                 IV. WOMEN'S HEALTH SUFFERS NATIONWIDE

    As ob-gyns, our primary concern is access to affordable, quality 
health care. Help us maintain the highest standard of care for 
American's women and mothers by ending the crisis in the following nine 
``Hot States'': Florida, Mississippi, Nevada, New Jersey, New York, 
Pennsylvania, Texas, Washington, and West Virginia. In three other 
states--Ohio, Oregon, and Virginia--a crisis is brewing, while four 
other states--Connecticut, Illinois, Kentucky and Missouri--should be 
watched for mounting problems.
    In identifying these states, the College considered a number of 
factors in the escalating medical liability insurance crisis for ob-
gyns. The relative weight of each factor could vary by state. Factors 
included: the lack of available professional liability coverage for ob-
gyns in the state; the number of carriers currently writing policies in 
the state, as well as the number leaving the medical liability 
insurance market; the cost, and rate of increase, of annual premiums 
based on reports from industry monitors; a combination of geographical, 
economic, and other conditions exacerbating an already existing 
shortage of ob-gyns and other physicians; the state's tort reform 
history, and whether tort reforms have been passed by the state 
legislature--or are likely to be in the future--and subsequently upheld 
by the state high court.

A. Florida
 With the highest average premium for ob-gyns in the nation in 
        2000, at $158,000 per year, Florida has a high number of 
        medical liability lawsuits and a history of large jury awards. 
        According to First Professionals Insurance Company, Inc., 
        Florida's largest medical liability insurer, one out of every 
        six doctors is sued in the state as compared to one out of 
        every 12 doctors nationwide.
 In South Florida, where insurers say litigation is the 
        heaviest, annual premiums for ob-gyns went as high as $208,949 
        in 2001--the highest rates in the country, according to Medical 
        Liability Monitor.
 The liability situation has been so chronic in Florida that 
        during the crisis of the 1980s, the state began to allow 
        doctors to ``go bare'' (not have liability coverage), as long 
        as they could post bond or prove ability to pay a judgment of 
        up to $250,000.
 Double- and triple-digit premium increases have forced some 
        doctors to cut back on staff, while others have left the state 
        or have stopped performing high-risk procedures to avoid the 
        lofty rates. Ob-gyns in this state are more likely than their 
        colleagues in other states to no longer practice obstetrics.
 Florida already has some tort-reform laws aimed at protecting 
        doctors. But more recent Florida Supreme Court rulings have 
        weakened such laws, causing the number of lawsuits to climb 
        again. Now Florida is one of at least a dozen states 
        contemplating another round of legislation.

B. Mississippi
 According to the Mississippi State Medical Association, 
        medical liability insurance rates for doctors who deliver 
        babies have risen 20% to 400% in the past year, depending on 
        the carrier. Annual premiums range from $40,000 to $110,000.
 The Delta Democrat Times reported that from 1999 to 2000, the 
        number of liability lawsuits faced by Mississippi physicians 
        increased 24%, with an additional 23% increase in the first 
        five months of 2001.
 According to the Delta Democrat Times, 324 Mississippi 
        physicians have stopped delivering babies in the last decade. 
        Only 10% of family physicians deliver babies.
 In Cleveland, Mississippi, three of the six doctors who 
        deliver babies dropped that part of their practice in October 
        2001 because of the increase in premiums.
 In Greenwood, Mississippi, where approximately 1,000 babies 
        are born every year, the number of obstetricians has dropped 
        from four to two. The two remaining obstetricians are each 
        limited to delivering 250 babies per year, leaving 
        approximately 500 pregnant women searching for maternity care, 
        reports the Mississippi Business Journal.
 In Yazoo City, Mississippi, which has 14,550 residents, there 
        is no one practicing obstetrics.
 Natchez, Mississippi, which serves a 6-county population of 
        over 100,000, has only three physicians practicing obstetrics.
 The State Legislature defeated 12 tort and insurance reform 
        bills this year. No reforms were approved during the 2002 
        session, which adjourned in mid-April.
 The St. Paul Companies, Inc., was the 14th insurer to leave 
        Mississippi in five years, according to the Mississippi State 
        Medical Association.
 State Insurance Commissioner George Dale has stated that 
        unless tort reform is passed, it is unlikely that insurance 
        companies will be interested in doing business in Mississippi.

C. Nevada
 In December 2001, The St. Paul Companies, Inc., the nation's 
        second largest medical liability insurer, announced it would no 
        longer renew policies for 42,000 doctors nationwide--including 
        the 60% of Las Vegas doctors who were insured by St. Paul. 
        Replacement policies are costing some Nevada doctors four or 
        five times as much as before: $200,000 or higher annually, more 
        than most doctors' take-home pay, the Los Angeles Times 
        reports. Prior to the St. Paul announcement, insurance premiums 
        for Las Vegas ob-gyns had been in the $40,000 range.
 A February 2002 survey of Clark County ob-gyns, commissioned 
        by their ob-gyn society, revealed:
     60% indicated that they are going to drop obstetric care 
            from their practices because they cannot afford the 
            increases in their professional liability insurance.
     50% reported they have been quoted premium increases 
            ranging from 50% to 200%.
     42.3% are making plans right now to leave the state if 
            there is no resolution in the medical liability situation 
            in the next couple of months.
     78% percent indicated that they ultimately will have to 
            leave the state if there is no long-term solution.
 According to a March article in the Las Vegas Review-Journal, 
        many Las Vegas Valley doctors say they will be forced to quit 
        their practices, relocate, retire early or limit their services 
        if they cannot find more affordable rates of professional 
        liability insurance by early summer.
 According to the Nevada State Medical Association, it is 
        estimated that between 200 and 250 physicians will be facing 
        bankruptcy, closing their offices, or leaving Nevada this year.
 In February 2002, the Las Vegas Sun reported that medical 
        liability cases in Clark County had more than doubled in the 
        past six years. In that period, plaintiffs' awards in the 
        county totaled more than $21 million.
 USA Today reports that in the past two years, Nevada juries 
        have awarded more than $1.5 million each in six different 
        medical liability trials.
 Recruiting doctors to Las Vegas is extremely difficult because 
        of the escalating medical liability premiums and the perception 
        that it is highly litigious. Nevada currently ranks 47th in the 
        nation for its ratio of 196 doctors per 100,000 population. The 
        state's medical school produces just 50 physicians a year.
 Unlike neighboring California, which has a cap on noneconomic 
        damages, there is no limit in Nevada as to what juries can 
        award patients in medical liability cases.

D. New Jersey
 In February 2002, the Newark Star-Ledger reported that three 
        medical liability insurance companies went bankrupt or 
        announced they would stop insuring New Jersey physicians in 
        2002 for financial reasons. The state's two largest medical 
        liability insurers have stated that they cannot pick up all the 
        extra business and are rejecting doctors they deem high risk.
 MBS Insurance Services of Denville, one of New Jersey's 
        largest medical liability insurance brokers, estimates that 
        approximately 300 to 400 of the state's doctors cannot get 
        insurance at any price.
 According to the Medical Society of New Jersey, premiums have 
        risen 50% to 200% over last year.
 According to the Star-Ledger, ``An obstetrician with a good 
        history--maybe just one dismissed lawsuit--can expect to pay 
        about $45,000 for $1 million in coverage. Rates rise if the 
        physician faces several lawsuits, regardless of whether the 
        physician has been found liable in those cases.''
 The president of the New Jersey Hospital Association says that 
        rising medical liability premiums are a ``wake-up call'' that 
        the state may lose doctors. Hospital premiums have risen 250% 
        over the last three years, and 65% of facilities report that 
        they are losing physicians due to liability insurance costs.

E. New York
 New York State currently faces a shortage of obstetric care in 
        certain rural regions. Increasing liability insurance costs 
        will only exacerbate these access problems.
 In 2000, New York was second only to Florida in the average 
        cost of annual liability insurance premiums for ob-gyns 
        ($144,973 per year).
 Also in 2000, there was a total of $633 million in medical 
        liability payouts in New York State, far and away the highest 
        total in the country. According to the insurance consumer web 
        site www.insure.com, this is 80% more than the state with the 
        second highest total.
 Increased insurance rates have forced some physicians in New 
        York to ``quit practicing or to practice medicine defensively, 
        by ordering extra tests or procedures that limit their risk,'' 
        according to a recent New York Times report.
 Physician medical liability insurance costs have historically 
        been a problem in New York State. The legislature and governor 
        had to take significant action in the mid-1970s and again in 
        the mid-1980s to avert a liability insurance crisis that would 
        have jeopardized access to care for patients.

F. Pennsylvania
 Pennsylvania is the second-highest state in the country for 
        total payouts for medical liability. During the fiscal year 
        2000, combined judgments and settlements in Pennsylvania 
        amounted to $352 million--or nearly 10% of the national total.
 From the beginning of 1997 through September 2001, major 
        liability insurance carriers writing in Pennsylvania increased 
        their overall rates 80.7% to 147.8%, according to a January 
        2002 York Daily Record article.
 Philadelphia and the counties surrounding it are hardest hit 
        by the liability crisis. From January 1994 through August 2001, 
        the median jury award in Philadelphia for a medical liability 
        case was $972,900. For the rest of the state, including 
        Pittsburgh, the median was $410,000.
 One-quarter of respondents to an informal ACOG poll of 
        Pennsylvania ob-gyns say they have stopped or are planning to 
        stop the practice of obstetrics. 80% of medical students who 
        come to the state for a world-class education ultimately choose 
        to practice elsewhere, according to the Pennsylvania State 
        Medical Society.
 On April 24, 2002, Methodist Hospital in South Philadelphia 
        announced that it will stop delivering babies due to the rising 
        costs of medical liability insurance. The labor and delivery 
        ward closed on June 30, leaving that area of the city without a 
        maternity ward. Methodist Hospital has been delivering babies 
        since its founding in 1892.
 Despite some tort reform measures passed by the state 
        legislature (House Bill 1802) this past winter, ob-gyns were 
        disappointed the measures did not provide more relief. The law 
        did not include: caps on jury awards; sanctions on frivolous 
        suits; changes in joint and several liability; limits on 
        lawyers' fees; or, a guarantee that a larger share of jury 
        awards will go to injured plaintiffs.
 The rules for venue of court cases in Pennsylvania are very 
        liberal. Recently approved measures only appoint a committee to 
        study venue shopping, but do not limit the practice.
 Since HB 1802 passed, experts predict a 15% to 20% overall 
        reduction in doctors' liability premiums. But with the 50% to 
        100% premium increases of the last two years, medical officials 
        believe the bill is not enough to stop physicians from leaving 
        practice or to attract new physicians. Nor do they believe new 
        insurers will begin writing policies in Pennsylvania.

G. Texas
 Preliminary results of a recent Texas Medical Association 
        physician survey indicate that:
     More than half of all Texas physicians responding, 
            including those in the prime of their careers, are 
            considering early retirement because of the state's medical 
            liability insurance crisis.
     Nearly a third of the responding physicians said they are 
            considering reducing the types of services they provide 
            because of recent premium increases for medical liability. 
            The percentage of physicians answering ``yes'' to that 
            question was higher in Fort Worth, Houston, San Antonio, 
            and Dallas than in Brownsville or El Paso.
 Medical liability insurance premiums for 2002 are expected to 
        increase from 30% to 200%, according to the Texas Medical 
        Association. In 2001, ob-gyns in Dallas, Houston, and Galveston 
        paid medical liability insurance premiums in the range of 
        $70,00 to $160,000.
 According to Governor Rick Perry's office, between 1996 and 
        2000 an average of one in four Texas physicians had a medical 
        liability claim filed against them. In the Lower Rio Grande 
        Valley, the situation is even worse.
 According to a February 2001 Texas Medical Association survey, 
        one in three Valley doctors say their insurance providers have 
        stopped writing liability insurance.
 In 2000, 51.7% of all Texas physicians had claims filed 
        against them, according to the Texas Medical Examiners Board. 
        Patients filed 4,501 claims, up 51% from 1990.
 By some estimates, as many as 86% of medical liability claims 
        filed in Texas are dismissed or simply dropped without payment 
        to the patient. Yet providers and insurance companies must 
        still spend millions of dollars in defense, even against 
        baseless claims.
 According to a Texas Medical Association study, the amount 
        paid per claim in 2000 was $189,849 (average for all 
        physicians), a 6% increase in one year.
 Texas has no limits on noneconomic damages in medical 
        liability cases, although the legislature enacted such limits 
        in the 1970s as part of a comprehensive set of reforms. The 
        Texas Supreme Court later rejected them in the 1980s.
 Texas has procedures in place to screen lawsuits for merit and 
        to sanction lawyers who file frivolous suits, but these are not 
        enforced uniformly across the state, according to an April 2002 
        news release issued by Governor Rick Perry.
 Only about 30% of the medical liability insurance market is 
        served by insurance companies that are regulated by the Texas 
        State Department of Insurance and subject to rate review laws, 
        according to Governor Perry's office.

H. Washington
 According to Medical Liability Monitor, in late 2001 the 
        second largest carrier in Washington State announced that it 
        was withdrawing from providing medical liability insurance for 
        Washington physicians. This decision by Washington Casualty 
        Company impacted approximately 1,500 physicians.
 In 2001, state ob-gyns paid medical liability insurance 
        premiums in the range of $34,000 to $59,000. For many 
        physicians, this meant an increase of 55% or higher from the 
        year 2000.
 According to the Pierce County Medical Society, some Tacoma 
        specialists reported 300% increases.
 Unlike California, Washington has no cap on noneconomic 
        damages in medical liability cases. The State Supreme Court 
        found a previous cap unconstitutional in 1989.
 In April, The Olympian reported that Washington State 
        Insurance Commissioner Mike Kreidler's office has heard 
        repeatedly from physicians throughout the state that they may 
        be forced out of Washington because of high medical liability 
        rates or the lack of available insurance.

I. West Virginia
 There are only three carriers in the state--including the 
        state-run West Virginia Board of Risk and Insurance 
        Management--currently writing medical liability policies for 
        doctors. Annual premiums range from $90,700 to $99,800.
 In 2000, many physicians had problems affording or finding 
        insurance. This urgency prompted Governor Bob Wise to issue a 
        request for proposals to commercial insurance carriers asking 
        them to provide terms under which they would be willing to come 
        to the state. The governor's office received no response at 
        all. To date, some carriers previously active in West Virginia 
        are under an indefinite, self-imposed moratorium for new 
        business in the state, according to the West Virginia State 
        Medical Society.
 Legislation eked out during a grueling special session in the 
        fall of 2001 reestablished a state-run insurer of last resort. 
        However, with rates 10% higher than the highest commercial 
        rate, and an additional 50% higher for those physicians who are 
        considered high risk, the state-run insurer does not solve the 
        affordability problem, according to ob-gyns in the state.
 According to an informal survey of ACOG's West Virginia 
        section, more than half of all ob-gyn residents plan to leave 
        the state once they have completed training because of the 
        state's medical liability insurance climate. A majority of 
        private practitioners who provide obstetric care plan to leave 
        the state if there is not improvement in the insurance crisis.
 West Virginia cannot afford to lose more doctors. The West 
        Virginia State Medical Society reports that a majority of the 
        state is officially designated by the federal government as a 
        health professional shortage area and medically underserved.

V. Conclusion
    Thank you, Mr. Chairman, for your leadership on this important 
issue and for the Subcommittee's attention to this crisis. ACOG 
appreciates the opportunity to present our concerns for the panel's 
consideration. The College looks forward to working with you as we push 
for a solution.

    Mr. Bilirakis. Thank you very much, Doctor.
    Ms. Visco.

                     STATEMENT OF FRAN VISCO

    Ms. Visco. Thank you very much, Mr. Chairman. As you know, 
I'm the president of the National Breast Cancer Coalition and a 
15-year breast cancer survivor. The National Breast Cancer 
Coalition is a group of more than 600 organizations from across 
the country. We are dedicated to eradicating breast cancer 
through action and advocacy and we focus on increasing Federal 
funding for breast cancer research and collaborating with the 
scientific community to make certain that research is well 
done, to increasing access to health care for all women and 
certainly to quality clinical trials and to increasing the 
influence of women with breast cancer and other breast cancer 
advocates and all decisionmaking around breast cancer.
    We've been fighting as an organization for access to high 
quality health care since our inception in 1991. And much of 
the debate over the past decade has focused on how to finance 
and deliver health care. But we believe, and equally, if not a 
more important question is, how do we define quality care? What 
is it? How does it compare to the kind of care the patients 
usually and currently receive?
    You know, we're talking today about whether excessive 
litigation is harming patient's access to care, and I have to 
say in listening to a number of the opening statements, I was 
questioning whether I'm in the right room. Because really what 
I'm focusing on is and what the National Breast Cancer 
Coalition is focused on, what our goals are, to make certain 
that patients have access to quality health care.
    And there are many barriers standing in the way of access 
to quality health care. You're dealing today with whether 
excessive litigation is one of those barriers. There's an 
assumption that excessive litigation is increasing medical 
malpractice rates and increasing medical malpractice rates have 
resulted in a barrier to access to health care. Those are all 
assumptions that you're going to have to test and put into the 
context of all the other barriers and prioritize what is the 
most important and how can we achieve as quickly as possible 
access to quality care for all Americans.
    The National Breast Cancer Coalition is one of a number of 
organizations that have supported very strong enforcement 
mechanisms in all litigation. We have opposed caps and 
liability damages. We are one of a number of organizations that 
take and continue to take that position.
    You're asking today, again, whether the prevalence and 
amount of jury awards has been the cause of sky rocketing 
insurance premiums. And if that is the case, we're asking well, 
would limiting lawsuits be the solution? Perhaps a better 
solution, one of a number of better solutions would be to limit 
the need for lawsuits.
    You know, there's an atmosphere in this country now among 
the public and the patient community of distrust, distrust 
certainly for corporations, for institutions, and the medical 
community. We're looking at what are the barriers in the way. 
What is it that we need to work on and focus on.
    The Institute of Medicine has issued a number of reports 
that have identified so many problems in the health care system 
in this country, the Quality Chasm Report, Medical Errors 
Report, the Data Report. There is much dialog and much research 
going in to looking at the barriers to health care. There are 
the issues of corporate individual and institutional actions. 
You're looking at issues like Imclone. It's not just the 
insider trading issues, but the issue of conflict of interest 
of institutions and clinicians who are involved in research. 
How does that impact access to quality care? What effect does 
that have on individuals? Those conflicts are serious and 
they're real and they're undermining the trust in the country 
for the medical community.
    We're looking at recent, there are a number of examples 
given but there was also a recent article in the paper about a 
large pharmaceutical company hiding toxicity data when it 
presented data to the FDA for drug approval. That drug was then 
approved out in the public and a number of deaths occurred. 
We're looking at a lack of evidence base medicine in this 
country. You've seen the recent report on arthoscopic surgery. 
You're looking at the hormone replacement clinical trial 
recently. Breast self exam. Mammography screening. You're 
looking at a system that needs serious attention and fixing in 
order to get access to quality care. You're looking at tens of 
millions of Americans who lack health insurance. You're looking 
at millions and millions of Americans whose health insurance 
premiums are increasing.
    There are barriers to doctors and institutions to providing 
care. There may be an overuse of technology. They're saturated 
markets in competition. There's lack of a focus on evidence 
based medicine, and we're dealing with a necessary shift to 
evidence based medicine from a fee for service system.
    Now practice premiums are too high, but what caused that? 
Was it corporate mismanagement? Was it excessive litigation? 
The resources of the grass roots and the patients across this 
country that are part of the National Breast Cancer Coalition 
are precious. And we're very careful how we utilize them. We're 
very careful when we ask them to get behind a particular issue. 
And the resources of the U.S. Congress are equally precious. We 
look to you for leadership. We look to you for focusing on the 
right priorities on what we really need to accomplish to get 
all Americans access to quality health care.
    If excessive litigation turns out to be the case, then that 
is something I hope you will look at extremely carefully and we 
can work on together. But we need to work together to fixing 
the health care system. And as an organization, along with a 
number of other organizations to date, we do not believe that 
putting caps on what a patient is going to receive as a result 
of malpractice is the answer to this problem. Thank you very 
much.
    [The prepared statement of Fran Visco follows:]

  Prepared Statement of Fran Visco, President, National Breast Cancer 
                               Coalition

                              INTRODUCTION

    Thank you Mr. Chairman, and Members of the Committee, for inviting 
me to testify today. I am Fran Visco, President of the National Breast 
Cancer Coalition (NBCC), and a breast cancer survivor. I am one of the 
3 million women living with breast cancer in the United States today.
    The National Breast Cancer Coalition is a grassroots advocacy 
organization dedicated to ending breast cancer through the power of 
action and advocacy. The Coalition's main goals are to increase federal 
funding for breast cancer research and collaborate with the scientific 
community to implement new models of research; improve access to high 
quality health care and breast cancer clinical trials for all women; 
and expand the influence of breast cancer advocates in the decision-
making process.
    NBCC has been fighting for access to high quality breast cancer 
care since its inception in 1991. While much of the debate over the 
past decade has focused on how to deliver and finance health care, we 
believe that these are secondary issues. Before we can determine what 
system best delivers quality breast cancer care, we first have to 
answer a more basic question: what is quality care? How does it compare 
to the kind of care that patients currently receive?
    The issue before the Committee today deals with whether excessive 
litigation is harming patient access to care. However, rather than 
focusing on whether litigation has increased, and whether jury awards 
are too high, we think the more important questions are: What type of 
care do patients deserve? Why are they turning to the court system to 
get it? Will limited accountability and capping damages solve the 
problem?
    The Institute of Medicine has published a number of reports--
Crossing the Quality Chasm, To Err is Human, and Enhancing Data Systems 
to Improve the Quality of Care, which address important concerns about 
the quality of the health care that patients currently receive. These 
reports revealed that in many ways the healthcare system is broken, and 
that patients do not have access to the care they deserve. The focus 
must be on improving the system--and ensuring a patient-centered, 
accountable system of care.
    The National Breast Cancer Coalition is focused through its Quality 
Care Initiative to accomplish this goal. In fact, NBCC believes that 
the most effective way to reduce lawsuits is to create a fair and 
transparent system of accountability for health care. Once defined, a 
high quality health care system would be one where everyone knows the 
rules. Doctors would follow it. Insurance companies would embrace it. 
And patients would benefit from it.
    Moreover, in a quality health care system, no one would assume that 
the doctor is always right, that the health plan is always wrong. 
Rather, we would have guidance from a comprehensive set of high quality 
health care standards. Patients would have access to evidence-based 
medicine. Health plans would deny certain procedures only if they were 
ineffective, not because of the bottom line. Patients would not assume 
that more care is better care, because with a more transparent system, 
they would be better educated and more empowered. In NBCC's vision of a 
quality care system, providers would be trained in a patient-centered 
perspective--from the beginning.
    I would like to focus my testimony on two main points:
    First, the reason that the National Breast Cancer Coalition cares 
about this issue is that we are committed to quality cancer care, and 
we believe that accountability is a key component to getting this care.
    NBCC is working with its 600 member organizations, and tens and 
thousands of breast cancer advocates across the country in a 
partnership with committed health insurers, providers and public policy 
officials to define a quality health care system, to put it in place, 
and to ensure that all breast cancer patients have access to it. 
Ultimately, we know that without accountability in the system, we will 
never have quality care.
    In the Coalition's vision of quality, patients would get access to 
high quality evidence-based medicine. Patients would be ensured access 
to approved clinical trials, which provide the best evidence about what 
works, and what does not. Patients would have a seat at the tables 
where decisions about breast cancer are made, and the system would be 
more transparent. Transparency would lead to trust. Transparency would 
also result in a built-in infrastructure of accountability--one that 
would limit the number of patients harmed in the system, and compensate 
those who were injured. Providers and institutions would place the 
highest premium on delivering high quality care to their patients, and 
health plans would support providers in this endeavor.
    NBCC appreciates the difficult challenge in working to fix a system 
that may be broken as opposed to just saying what is wrong with it. It 
is for that reason that we hope you will embrace the opportunity to 
work to improve the quality of our healthcare system, and to reduce 
patients' need to turn to the courts to get the care they deserve.
    When patients are diagnosed with breast cancer, the last thing they 
want while they fight for their lives is to have to go to court and 
fight for their care. If lawsuits are increasing, it is fair to assume 
that patients may not be getting access to the type of care they need, 
when they need it. We have a responsibility to work together to improve 
patients' outcomes in the healthcare system.
    Recently, we have seen first hand the harm that results when there 
is a lack of accountability for corporate and individuals' actions. We 
can pull relevant examples from the accounting world where corporate 
executives acted in bad faith, at the expense of their employees and 
the public, without concern that they'd be held liable for their 
actions. It is only now that the bad actors are splashed across the 
front pages of newspapers, and forced to testify before Congress to 
explain their actions, that the corporate culture is seeking to improve 
the system. And it is only because the corporate world is being held 
accountable for its illegal activity that it is committed to change. 
There is no doubt that accountability can be a powerful deterrent, and 
that it is an essential component of change.
    Why, then, would Congress seek to limit accountability in the 
health care system rather than improve the quality of care that 
patients receive? The way to improve quality care, minimize medical 
errors, reduce medical costs, and deter bad actors cannot be achieved 
by simply reducing damage awards or limiting enforcement. While the 
solution may be complex, the National Breast Cancer Coalition is 
committed to working with Members to ensure that all individuals have 
access to a quality healthcare system where they receive their care 
without having to go to court.
    NBCC believes that the right to sue also serves as an assurance 
that patients who have been injured have access to redress for injuries 
caused by medical errors and malpractice.
    Congress has made it clear that employees of Enron and WorldCom 
should have recourse for life savings they have lost due to actions of 
others. Likewise, shouldn't a patient, who after being denied access to 
high quality care, or being the victim of medical malpractice, have the 
chance to be compensated for her loss?
    We have all heard the horror stories about patients who are denied 
access to quality care, and suffer tragic consequences as a result. 
While these individual stories are compelling and important to address, 
we believe that the focus of today's hearing should be on what we can 
do to move forward toward a more patient-centered, evidence-based 
system of quality health care within which patients are survivors 
rather than victims.
    Second, the ultimate goal is to make certain that patients have 
access to quality healthcare. Extensive litigation may not be standing 
in the way.
    While medical malpractice insurance rates are increasing, there is 
no conclusive evidence as to why. There also seems to be a lack of 
clarity about what this really means for patients. NBCC feels strongly 
that medical decisions must be evidence-based; likewise, we believe 
that legislation must stem from an evidence-based analysis. We must 
ensure that we are addressing the real issue, the right way, rather 
than rushing to enact a solution before we truly understand the 
problem.
    According to a recent ``Wall Street Journal'' article, business 
decisions made by the insurance industry may also have contributed to 
the current crisis in affordable coverage. During the last decade, 
malpractice insurers competed for a national market share, keeping 
prices artificially low and inadequate to cover claims. Losses from 
inadequate pricing and poor investment decisions have forced many 
insurers either to withdraw from the malpractice market or restrict 
their coverage.
    It may be that too little oversight and regulation of the insurance 
industry has led to dramatic price increases and fluctuations in the 
availability of coverage, leaving many providers without access to 
affordable coverage.
    Of course at issue today is also whether the prevalence and amount 
of jury awards has been the cause of skyrocketing insurance premiums, 
and if that is the case, one must ask: would limiting lawsuits be the 
solution? NBCC believes that the better solution would be to limit the 
need for lawsuits.
    It is also important not to become alarmist about reports that 
patients are having difficulty in accessing healthcare due to medical 
malpractice rates. While there may be incidents in some states where 
patients had difficulty in accessing a provider, we have a 
responsibility not to suggest that the problem is widespread relative 
to all patients in all states, until we have conclusive information.
    The National Breast Cancer Coalition looks forward to working with 
Members of Congress to address the issue of access to high quality 
health care for all Americans. Attached for the record is NBCC's 
position paper on our vision for quality health care, and a copy of our 
recently published ``Guide To Quality Breast Cancer Care''. Thank you 
for the opportunity to testify, and I'd be happy to answer any 
questions.

                           Position Statement

                                POSITION

    NBCC has been fighting for access to quality breast cancer care 
since its inception in 1991. Much of the debate over the past decade 
has focused on how to deliver and finance health care, but we believe 
this is a secondary question. Before we can determine what system best 
delivers quality breast cancer care, we have to first answer a more 
basic question: what is quality care? NBCC believes that quality breast 
cancer care is a patient-centered, evidence-based system of care that 
fulfills the following overlapping core values: Access, Information, 
Choice, Respect, Accountability, and Improvement.

                              THE PROBLEM

    The term ``quality health care'' is often used but rarely defined. 
There is no national consensus on what makes breast cancer care 
``quality'' care. But even without a precise definition, we know that 
breast cancer care in this country is inconsistent and sometimes 
dangerously inadequate. Recent studies are revealing the depth and 
breadth of the problem.1
---------------------------------------------------------------------------
    \1\ The National Cancer Policy Board, in its report Ensuring 
Quality Cancer Care (NIM/NRC, 1999), found that we do not have good 
evidence about what constitutes good quality care. But it concludes 
that our current cancer care ``system'' leaves a substantial number of 
patients with far less than ideal care. The RAND Corporation, in How 
Good is the Quality of Health Care in the United States (RAND/RP-751, 
1999), also notes the surprisingly small amount of systematic knowledge 
available on the quality of health delivered in the United States. But 
based on existing data, it also concludes that there are large gaps 
between the care people should receive and the care they do receive. In 
Crossing the Quality Chasm: A New Health System for the 21st Century 
(IOM/NAP 2001), the Committee on the Quality of Health Care in America 
concludes that quality problems are everywhere and that the U.S. health 
care delivery system is in need of fundamental change.
---------------------------------------------------------------------------
    As breast cancer activists, we know too well that the present 
health care system--or rather, lack of a system--does not work for 
everyone. We believe everyone affected by breast cancer should have 
full access to the best care available, care that is based on sound 
scientific evidence and delivered in a respectful and timely manner. 
This is a far cry from reality.
    We also strongly support evidence-based medicine and know that more 
care is not always better care. We do not want to waste our limited 
resources--or risk our health or lives--on treatments that are based on 
little more than a hope. We deserve health care that works, and access 
to a wide range of well-designed and efficiently run clinical trials 
that help us find better treatments for breast cancer.
    But evidence-based care is just one part of quality breast cancer 
care. Because we do not have a sure cure, breast cancer patients and 
clinicians are often forced to make crucial choices with inadequate 
information. Sometimes there are no best answers. In such an uncertain 
and frightening environment, psycho-social concerns become paramount.
    For these reasons, NBCC does not view quality care as simply a 
checklist of procedures or a measurement of over-treatment and under-
treatment. Instead, our vision is of overlapping core values. We 
believe the following six core values are the essential components of 
quality breast cancer care: Access, Information, Choice, Respect, 
Accountability, and Improvement.

                                 ACCESS

    Comprehensive affordable health care must be available to everyone. 
All patients must have access to coordinated care that is user-
friendly, culturally respectful, timely, and integrated both among and 
within provider offices and systems.

                              INFORMATION

    All information must be accurate, timely, readily available, and 
disseminated in an appropriate format. Health care providers must offer 
clear information on the risks and benefits of all treatment options, 
and the evidence and lack of evidence relating to each option. They 
must encourage multiple opinions to assure the patient that the 
provider's recommendation is appropriate.
    There must be transparent standards of evidence that explain what 
level of evidence is acceptable and what happens in the absence of 
sufficient evidence.
    Providers and patients must be given time and resources to review 
evidence, and efforts to review and synthesize evidence must be 
expanded so the system reflects current scientific/medical knowledge.
    A national advocacy advisory panel should be established to work 
with advocates, health literacy specialists, economists, and the public 
health community to review evidence and help design effective methods 
for communicating health care information to consumers, providers, and 
insurers.

                                 CHOICE

    Recommended treatments must offer the best possible outcome 
consistent with patients' personal preferences. Patient preferences for 
information and involvement in determining the course of treatment must 
be respected.
    Patients must have choices among a reasonable range of providers 
and treatment options, including specialists and complimentary care 
with proven efficacy.

                                RESPECT

    Care must be patient-responsive and culturally respectful. Patients 
should feel comfortable asking questions, voicing opinions, and being 
participants (at whatever level is appropriate for them) in all health 
care decisions. They must have justified confidence in the experience 
and training of health care providers and know that providers listen to 
them and advocate on their behalf.
    Patient confidentiality is paramount, and patients must have 
assurances that it is respected.
    There must be a system-wide emphasis on comprehensive care that 
respects patients' fears, beliefs, culture, time, bodies, pain, 
decisions, and family members. The system must enable patients for whom 
breast cancer is a chronic illness to take care of themselves, avoid 
complications, and maintain their quality of life. The system must 
provide a wide range of services related to end of life issues for 
those dying of breast cancer.

                             ACCOUNTABILITY

    There must be national standards of quality care that are 
continually updated; every aspect of care must meet these standards at 
all sites of care. Services provided should be ``needed and effective'' 
as determined by a decision-making body that includes consumers; the 
end result should be based on democratically developed unambiguous 
criteria.
    There must be a well-designed and trusted grievance procedure that 
is clearly articulated to patients and includes meaningful consequences 
for both system and health care/insurer provider errors.
    Patients must bring health issues forward to their providers and 
accept the choices they make for themselves. All providers and patients 
must be accountable to our society for the responsible use of health 
care dollars.

                              IMPROVEMENT

    There must be an ongoing commitment to increasing the quality and 
quantity of available evidence, especially regarding the causes and 
prevention of breast cancer, and with an emphasis on learning from 
mistakes. All patients must be fully informed of clinical trials for 
which they are eligible, and there must be no financial barriers to 
participation in these trials.
    There needs to be more creative and meaningful measures of quality, 
and more effective ways of collecting and disseminating this 
information. Designing scientific tools for measuring health care 
quality has, until recently, been the domain of health services 
researchers. Breast cancer survivors and activists bring a unique and 
crucial perspective to this issue, and must be involved at every level 
of the quality breast cancer care research process.
    A patient-centered evidence-based vision of quality must deeply 
permeate our medical educational system, including continuing medical 
education, so both current and future providers understand and 
appreciate their role in creating quality breast cancer care.

                     CONCLUSION: A GUIDE TO QUALITY

    The specific methods and strategies for fulfilling these core 
values will vary, but the core values themselves will not. Together, 
they serve as a guide to design and evaluate quality health care public 
policy. We believe that successfully incorporating all of these core 
values into our health care system is the key to achieving quality 
breast cancer care.

                              ABOUT NBCCF

    The National Breast Cancer Coalition Fund is a grassroots 
organization dedicated to ending breast cancer through the power of 
action and advocacy. The Coalition's main goals are to increase federal 
funding for breast cancer research and collaborate with the scientific 
community to implement new models of research; improve access to high 
quality health care and breast cancer clinical trials for all women; 
and expand the influence of breast cancer advocates in all aspects of 
the breast cancer decision making process.

    Mr. Bilirakis. Thank you, Ms. Visco. Before I introduce Dr. 
Roberts, I would like to announce that Ms. Capito, 
Congresswoman from West Virginia, who is not a member of the 
committee that of course greatly interested in this issue 
because of the problems in West Virginia, particularly, has 
joined us to listen in. Thank you for being here.
    Dr. Roberts.

                    STATEMENT OF SAM ROBERTS

    Mr. Roberts. I'm Dr. Samuel Roberts from Elkins, West 
Virginia. I live in a town of about 10,000 people. The county 
is approximately 30,000 people. We take care of seven counties, 
approximately a 100,000 patient population. We have one 
hospital there. When I first went into practice in Elkins, 
1978, there were six hospitals, providing full service, 
obstetrics, surgery, and emergency room intensive care work. 
There's now one hospital in that area. We serve 100,000 people. 
We are losing physicians by the day. We have four OB/GYNs and 
myself delivering babies in that community. One of our OB/GYNs 
went to Canada last week to interview for a job because he 
could not find malpractice insurance in West Virginia.
    The three other OB/GYNs went to work for the hospital. I'm 
presently in private practice. My partner, who is also a family 
physician, stopped doing obstetrics 2 years ago because he 
could not afford the malpractice costs. I'm a second generation 
family physician. My father and I have delivered over 9,000 
babies in Elkins, the town of 10,000. In the last 63 years, 
there's been a Dr. Roberts practicing medicine, other than the 
5 years that my father was gone during World War II as a 
medical officer in the European theater. Four years, excuse me. 
And I'm very proud of that.
    But he and I practiced together for approximately 6 years. 
And I have tried to continue that heritage. I have a daughter 
named Leah Roberts, who is a second year medical student at 
West Virginia University. Leah had hoped to come back to 
practice with me as I did with my father carrying on the 
tradition of caring for people in our community. Leah and many 
of her classmates do not feel that they can come back to West 
Virginia because they cannot afford to pay the malpractice 
premiums. I have four children in college and graduate school. 
I'm having difficulty paying their tuitions and continuing to 
keep my practice open. My practice is approximately 90 percent 
welfare, Medicaid and Medicare. And my obstetrical is 90 
percent Medicaid.
    We provide services. I have two physician's assistants, and 
a nurse practitioner. I have ten employees total that try to 
take care of as many people as we can. We're not in it for the 
money. We're there to try to help people. And honestly, it's 
not an issue of money. It's an issue of access to care. And the 
people really have a chance to see their family doctor, have a 
chance to do something to help themselves provide their family 
with the best care possible.
    The number of OB providers in West Virginia in 1978 was 
approximately 200 and included 140 family physicians and 
approximately 60 OB/GYNs. Now there are approximately 100 
providers. In the last 24 years, the number of providers has 
dropped, from approximately 200 to less than a 100. So access 
to prenatal care and delivery services has diminished. For 
every dollar spent on prenatal care you save $4 on the care of 
pre-term infant. As the gentleman mentioned earlier, a woman 
comes into the emergency department at 26 or 28 weeks. If that 
woman had had good care, anticipatory prenatal care, she could 
have been prevented possibly from being brought in an emergency 
situation to deliver in an emergency department.
    That child, that family, and the society will pay the bill 
the rest of their life. When that child is born at 26 weeks, 
it's going to have respiratory problems, many times cerebral 
problems, blindness, many complications that can occur from 
excessive prematurity. We need to be aware that this has long 
term impact on the people of America. The access to care is not 
there.
    In West Virginia it is critical. We are losing people by 
the day. We have four surgeons in Elkins. Two of them are going 
to retire this year because they had to change companies and 
they cannot afford to pay their tail. If they switch to a new 
company, they have to buy tail at that company.
    I had to switch BRIM, which is the Bureau Risk and 
Insurance Management, which is run by the State of West 
Virginia. It was initially brought about in order to provide 
services for professors at the universities, such as Marshall 
University and West Virginia University. And what's happened is 
that BRIM has, in this emergency situation, taken up the 
individual physician, such as myself, that could not find other 
malpractice insurance.
    I have never had a malpractice claim in 24 years. My rates 
doubled last year from $17,000 to $35,800. I can't afford that 
next year, because they tell me it's going to double again. I 
can not afford to continue to provide obstetrical services in 
Elkins, West Virginia. I have families I have delivered eight, 
nine children for. It makes me very sad to know that I'm not 
going to be able to be there for those families. I am 
delivering babies of women that I delivered. And that's a very 
wonderful feeling. To live in a small community in West 
Virginia and realize we're going to lose that special touch. It 
makes me very sad that my daughter doesn't feel that she can 
come back and practice with me.
    I think it's a loss to West Virginia, it's a loss to the 
United States. We don't have a sense of what's right here. The 
lawyers are pointing at the insurance companies. The insurance 
companies are pointing at the lawyers. The doctors are pointing 
at the insurance companies and the lawyers. We need to sit down 
and work out something we can all live with that allows our 
people to have the right to health care. We need to use common 
sense. We need not to make this a political issue. I'm a 
Democrat. My grandfather was Governor of West Virginia in the 
1930's. He brought West Virginia through some hard times. And I 
hope that we can come through this hard time. I hope that 
medically we can make a difference. We can stabilize the 
situation. But it takes people sitting down and working 
together and that's the reason I'm here today. I appreciate you 
listening. Thank you.
    [The prepared statement of Sam Roberts follows:]

Prepared Statement of Sam Roberts, on Behalf of the American Academy of 
                           Family Physicians

    Thank you, Mr. Chairman, Ranking Member Brown and members of the 
Health Subcommittee. My name is Dr. Sam Roberts. I am a family 
physician from Elkins, WV, here today on behalf of the American Academy 
of Family Physicians and the National Medical Liability Reform 
Coalition.
    I am here because I am concerned that the medical liability crisis 
threatens my patients' ability to get the health care they need. I am 
the second generation to serve as the local physician in Elkins. My 
father was the local physician in Elkins before me. Between the two of 
us, we have delivered 9,000 babies in a town of 10,000. I have never 
been sued in twenty-five years of practice, but I cannot afford the 
insurance to continue delivering babies. This year I will have to stop, 
leaving the seven counties around me with no family physician 
delivering prenatal or maternity care. This will mean my pregnant 
patients will have to drive four to six hours for their prenatal care 
and delivery. This is a hard decision both for both my patients and me. 
But the litigation environment in West Virginia has driven up premiums 
so that I cannot afford the insurance.
    I am also concerned that West Virginia is facing a larger health 
care crisis. My daughter, Leah Roberts, is sitting behind me today. She 
is in her first year of medical school at West Virginia University 
Medical School. Her incoming class was surveyed at the beginning of the 
year and over ninety percent expected to stay in West Virginia to 
practice medicine. At the end of this year, they were surveyed again. 
Over two thirds of the class now expects to leave the state for states 
that are not experiencing a litigation crisis.
    We need passage of liability reforms on the national level. The 
AAFP and the National Medical Liability Reform Coalition support H.R. 
4600, the Help Efficient, Accessible, Low Cost, Timely Health Care 
(HEALTH) Act of 2002.

    Mr. Bilirakis. Thank you very much, Dr. Roberts, for your 
excellent testimony.
    Ms. Townsend.

                  STATEMENT OF LAUREN TOWNSEND

    Mr. Townsend. Thank you very much, chairman, members of the 
committee and for the civics lesson for my son who has been 
listening to all the back and forth throughout the day.
    I'm the Director of Citizens for Consumer Justice. We're 
Pennsylvania's largest consumer coalition and organization. I'm 
also representing U.S. Action. I'm on the board of U.S. Action 
nationally. We applaud you for addressing this very, very 
important issue. However, with all due respect to our own 
Representative Greenwood, we vehemently oppose the contents of 
H.R. 4600, because we know that it will hurt victims of medical 
malpractice. It will immunize wrongdoers and be a boon for the 
insurance industry.
    We, as patients, I know you've heard this over and over 
again, are regularly subjected to the hassle factor when we 
seek health care. Because of HMOs, because of these corner the 
market hospital system giants, our relationship with many 
doctors, unlike Dr. Roberts, is tenuous at best. Our hands, 
patients and doctors, are tied because of bureaucrats calling 
the shots and deciding how health care should be delivered. And 
the result is health care cost containment, and that means 
frequently blowing through patients, avoiding costly referrals 
to specialists, making nurses work overtime, and not 
modernizing or streamlining systems and processes and 
procedures to avoid mistakes.
    Doctors are finding themselves in a terrible, terrible 
predicament. They're told how to practice medicine by 
administrators all the while finding the environment for 
practicing more difficult because of the sky rocketing 
insurance rates we've been talking about all day.
    Another issue that's really important, the AMA itself has 
said that medical errors, medical mistakes account for the 
fifth leading cause of death in this country. At a rally last 
fall, Pennsylvania victims spoke of malpractice and their own 
personal horror stories. Donald Davis used to work at a Home 
Depot. In September of 2000, he went to a doctor to have a bone 
spur removed from his right baby toe. Shouldn't have been a big 
surgery and he was expected back to work within a few weeks.
    Because of a mistake on the part of the doctor, the surgery 
incision didn't heal properly and become gangrenous. 
Ultimately, the infection ensued and he had to have the toe 
amputated and needed bi-pass surgery in his leg. By January of 
that year, he developed a massive blood infection and in his 
own words, he said, ``if I hadn't ended up finding a new 
doctor, I would have died because of the blood infection. But 
unfortunately, the only way to save my life was to have both 
legs amputated. What happened to me was the result two doctors' 
errors and it was preventable. Because of my amputation I had 
to leave my job and my life will never be the same. I came in 
with a problem with one toe and came out without my legs.''
    H.R. 4600 is not the answer. It will only further hurt 
injured victims and do nothing to foster patient safety or 
lower insurance premiums. It tells a women whose doctor's 
negligence costs the life of her child that the child's life is 
only worth $250,000. And it tells Donald Davis that having no 
legs for the rest of his life because of malpractice is worth 
the same.
    Through caps on non-economic damages, we place an arbitrary 
price tag on the most horrendous of injuries. Should 
legislation decide the value of your baby's life or your 
eyesight when taken from you by a negligent doctor? Wouldn't we 
prefer to have that decision in the hands of your constituents 
on a jury that has heard all the facts?
    Last summer, at Philadelphia's St. Agnes Hospital, a number 
of people died because of mistaken lab tests that went on for 
weeks without detection and affected hundreds of patients. This 
bill does nothing to upgrade technology and processes and 
procedures at our Nations' hospitals. Instead it eliminates 
joint and several liability which just further immunizes 
hospitals and HMOs. It also does nothing to deal with the issue 
of fatigue on the job. Health care workers have to work brutal 
schedules without adequate rest. The government doesn't allow 
truck drivers or airline pilots to work for such long hours. 
Why should we let our health care providers?
    Throughout our Nation, most doctors do wonderful things for 
people and it's just a small percentage that repeatedly make 
errors. This bill does nothing to weed out the regular 
offenders, the ones that regularly malpractice. In fact, it's a 
double whammy for victims because it caps damages against the 
repeat offenders and then compensates victims through periodic 
payments that many victims, particularly women and the 
disabled, need sooner rather than later.
    Americans need insurance reform. We need it desperately. In 
Pennsylvania, we've gone from eight malpractice insurance 
providers, the big ones, to four in a very short period of 
time. Industry experts, like Charles Kolodkin of Gallagher 
Health Care Insurance Services, tell us that a quick 
examination of the medical malpractice insurance market place 
might lead a dispassionate observer to conclude that that 
segment of the insurance industry is confused, in disarray, and 
generally in a state of disorder. Premiums are doubling. 
Hospital deductibles are tripling. Claims for the physicians 
are being nonrenewed and insurers are leaving territory en 
masse.
    We've seen St. Paul drop its malpractice branch. We've seen 
two notorious medical malpractice insurers, PIE & PIC that are 
no longer in business. In fact, the president of PIE Insurance 
company admitted that he stole $6.8 million from the company to 
buy a pig farm in Tennessee to pay off gambling debts. He 
pleaded guilty in Federal Court to charges of conspiracy, 
insurance fraud, and tax evasion.
    Mr. Bilirakis. Please summarize, Ms. Townsend.
    Mr. Townsend. The bottom line is we should not allow the 
insurance and health industries to play divide and conquer 
politics.
    We applaud members of this committee for calling on the GAO 
to investigate the insurance industry's role in creating this 
havoc. And we need to be asking questions and demanding 
answers.
    Aren't the regulators of the insurance industry supposed to 
head off problems before they become disasters? Whose rates are 
too high? Whose rates are too low? What is responsible pricing.
    When we're confronted with a PIC or a PHICO or a St. Paul, 
how do we get to the root cause of why the insurer got itself 
into trouble? And then why aren't reviewing other insurance 
providers to find out whether they're engaged in the same bad 
practices?
    The culprit is the insurance industry for this insurance 
crisis. And the system is rigged. This kind of legislation just 
further sabotages an already damaged system. And we know that 
passage of tort reforms do nothing to really eliminate the 
mistakes from happening.
    Mr. Bilirakis. You're testimony is very excellent, but your 
time is long expired. You're 2 minutes over.
    Mr. Townsend. Forgive me.
    Mr. Bilirakis. I will forgive you. But we do have to move 
on.
    Mr. Townsend. I will just say one final thing. Study after 
study has shown that tort reform measures across the country 
have not lowered insurance rates. There's no evidence to prove 
that and members of the American Insurance Association have 
said so as well. Thank you.
    [The prepared statement of Lauren Townsend follows:]

Prepared Statement of Lauren Townsend, Executive Director, Citizens for 
                            Consumer Justice

    Hello. My name is Lauren Townsend. I am a Pennsylvania Board Member 
of USAction and Executive Director of Citizens for Consumer Justice, 
Pennsylvania's largest consumer organization. Both organizations are 
dedicated to an agenda of economic, racial, social, and environmental 
justice.
    I'd like to thank the members of the Health Subcommittee of the 
House Energy and Commerce Committee for inviting me to speak today 
about HR 4600, the HEALTH Act of 2002.
    Citizens for Consumer Justice has become the state's leading 
organization working on quality, affordable, safe health care for all, 
strengthening Social Security and Medicare, lowering prescription drug 
prices for consumers, and passing a strong Patients' Bill of Rights 
with a right to sue HMOs.
    As you are no doubt aware, we in Pennsylvania have been mired for 
the last few years in a medical malpractice insurance crisis that has 
been spreading across our country and is the impetus for the 
introduction of HR 4600. While we applaud members of Congress like our 
own Pennsylvania Representative Jim Greenwood for wanting to solve the 
problem through legislative means, we vehemently oppose HR 4600 which 
we know will hurt victims of medical malpractice, immunize wrongdoers 
and be a boon for the monolithic giant that should be the target of 
everyone's ire: the insurance industry.

              OUR HEALTH CARE SYSTEM IS RIGGED FOR FAILURE

    We patients are regularly subjected to the ``hassle-factor'' when 
we seek health care. We are either uninsured and find ourselves using 
trauma centers as primary care facilities OR we have insurance and are 
put through the wringer to get the care we need. Because of the advent 
and dominance of HMOs, and the merger of hospitals that have become 
corner-the-market-giants, our relationship with doctors is tenuous at 
best. Our hands--patients' and doctors'--are tied because of 
administrative bureaucrats who are calling the shots and making health 
decisions. The result: ``health care cost containment,'' a fancy way of 
saying cut corners wherever and whenever possible. And that means: blow 
through patients; avoid costly referrals to specialists; make nurses 
work overtime; and don't modernize and streamline systems and 
procedures to avoid mistakes.
    Doctors find themselves in an awful predicament. They are told how 
to practice medicine by administrators--a veritable petri dish for 
increasing the number of medical mistakes--all the while finding the 
environment for practicing medicine more difficult because of 
skyrocketing malpractice insurance rates.

              MALPRACTICE IS REAL AND IT DEVASTATES LIVES

    According to the AMA, medical errors are the 5th leading cause of 
death in this country. It is the potential for (and reality of) these 
errors that compels doctors and hospitals to have malpractice insurance 
in order to practice medicine.
    At a rally last fall, Pennsylvania victims of medical malpractice 
told their horror stories and spoke out about the need for patient 
safety legislation and continued access to the courts. The individual 
stories that were told by the rally participants were sobering and 
dramatized how far behind Pennsylvania and our nation are in taking 
steps to reduce the medical errors that result in so much unnecessary 
suffering:
    Jenny Stephens is a victim of serious dental malpractice. Prior to 
May 19, 2000, she was a vibrant 40 year old woman, fully articulate and 
pursuing a career as a speaker within her industry. Today she suffers 
from facial paralysis, a large hole in her mouth that continues to 
baffle specialists with regard to restoration and chronic pain for 
which she must take very expensive medication on a daily basis. ``Would 
it surprise you to know,'' she told CCJ and members of Pennsylvania's 
state legislature, ``that the dentist who inflicted this life long 
impairment upon me had been under state investigation for years prior 
to my seeing him? Or that I was unable to reach this dentist during the 
emergency he created because he was incarcerated and on a work release 
program for multiple DUI arrests and convictions? Worse yet, the 
insurance company who referred me to him had supposedly investigated 
his credentials, education, practice and ability prior to accepting him 
into their plan.''
    After talking about the need for real patient safety legislation, 
Stephens said, ``Although my personal experience was a nightmare, I 
have learned one very important thing: you never know. On May 19, 2000, 
my life changed forever and now encompasses challenges I never dreamt 
possible. It could happen to you or one of your loved ones. It 
shouldn't happen to anyone.''
    Donald Davis, a medical malpractice victim, used to work as the 
manager at a local Home Depot. In September of 2000, Davis went to a 
doctor to have a bone spur removed from his right baby toe--it should 
not have been a big surgery and he was expected back to work within a 
few weeks. Because of a mistake on the part of the doctor, the surgery 
incision did not heal properly, and became gangrenous. Because of the 
infection he had to have the toe amputated and needed bypass surgery in 
his right leg. By January of that year he had developed a massive blood 
infection from the bypass surgery. The blood infection prevented him 
from standing or walking and was making him increasingly ill. So not 
only had his doctor failed to treat a minor infection that caused him 
to lose his toe, he failed to take care of the blood infection which 
almost cost Davis his life. Davis said ``If I had not ended up finding 
a new doctor, I would have died because of the blood infection. But, 
unfortunately, the only way to save my life was to have both my legs 
amputated . . . What happened to me was the result of two doctors' 
errors, and it was preventable. Because of my amputation, I've had to 
leave my job and my life will never be the same . . . I went in for a 
problem with one toe and came out without my legs.''
    Bernadette Hudack is the mother of a three-year-old boy who suffers 
from cerebral palsy and mental retardation. In May of 1998, she came 
down with asthmatic bronchitis. She had a terrible cough, congestion 
and shortness of breath. She was also 32 weeks pregnant. On her first 
full day in the hospital her obstetrician ordered a test to evaluate 
the well-being of her baby and the test indicated that the baby was 
fine. During her stay in the County hospital (four full days), doctors 
continued to treat her bronchitis. Unfortunately, they neglected to 
monitor her oxygen saturation levels and neglected to monitor the baby, 
until it was too late.
    Hudack explained, ``As my own oxygen saturation level dropped, so 
did my baby's. Finally, on my fourth day in the hospital, a nurse 
repeated the test to evaluate the well-being of my baby and realized 
that he was in distress and needed to be delivered immediately. But the 
damage had already been done.
    Hudack hopes that after hearing stories like hers, that patient 
safety legislation will be passed. When she spoke of the mandatory 
overtime issue, she said ``I know first hand what it means for patients 
to be with tired nurses who've worked more than the shift they 
originally came to work. Because I AM a nurse.''

                       HR 4600 IS NOT THE ANSWER

    On the contrary, HR 4600 will further hurt already injured victims 
and will do nothing to foster patient safety or lower insurance 
premiums for doctors:

 Insurers have convinced too many doctors that the answer to 
        higher medical malpractice premiums is to limit the liability 
        of insurance companies for malpractice. H.R. 4600 tells a woman 
        whose doctor's negligence cost the life of her child, that that 
        child's life was worth only $250,000. It tells Donald Davis 
        that having no legs for the rest of his life, because of 
        malpractice, is worth only $250,000. Through caps on non-
        economic damages, H.R. 4600 places an arbitrary price tag on 
        the most horrendous of injuries. Should legislation decide the 
        value of your baby's life, or your legs, or your eyesight, when 
        taken from you by a negligent doctor? Wouldn't you prefer to 
        leave that decision in the hands of 12 of your constituents on 
        a jury that has heard all the facts?
 Hospitals have resisted technology used in other states to 
        guard against errors in medications and lab tests. Last summer 
        patients at Philadelphia's St. Agnes Hospital died because of 
        mistaken lab tests that went for weeks without detection and 
        affected hundreds of patients. One in every 250 prescriptions 
        is wrong. Prescription errors are the worst offenders in the 
        world of medical mistakes. HR 4600 does nothing to upgrade 
        technology and processes and procedures in our nation's 
        hospitals. Instead, it eliminates joint and several liability, 
        which will further immunize hospitals and HMOs from their 
        responsibility to make victims and/or their families whole 
        again.
 Interns, residents and nurses still have to work brutal 
        schedules without adequate rest. The government won't allow 
        truck drivers or airline pilots to work after so many hours. 
        Why then do we routinely schedule our health care providers on 
        double shifts when they, too, hold our lives in their hands? We 
        don't need studies to know that careless human errors increase 
        when people are tired or sleep deprived. HR 4600 does nothing 
        to prevent health care worker fatigue. On the contrary, without 
        a Patients' Bill of Rights that would enable us to hold HMOs 
        and these huge hospital systems accountable for bottom-line 
        motivated cost containment that limits the number of staff 
        needed to deliver high quality health care, preventable medical 
        errors will continue to be rampant.
 It's ironic that hospital systems like those in Pennsylvania 
        have vied for tobacco settlement money that was secured through 
        the doctrine of joint and several liability when these very 
        entities want to use HR 4600 to destroy this doctrine of 
        fairness for consumers who are victims of medical malpractice. 
        Hospitals regularly tout their renowned doctors and the good 
        things that happen in their facilities to attract patients. 
        BUT, when medical malpractice occurs, suddenly they want to 
        distance themselves from the mistake and shirk their 
        responsibility.
 In Pennsylvania and many other states throughout our nation 
        most doctors do wonderful things for people and it's just a 
        small percentage that repeatedly make errors. HR 4600 does 
        nothing to weed out those who regularly malpractice. In fact, 
        it's a double whammy for victims because it caps non-economic 
        damages against these repeat offenders and then compensates 
        victims through periodic payments that many victims--
        particularly women and the disabled--need sooner rather than 
        later.
 What's more, while doctors and hospitals are crying out for an 
        expedited reimbursement policy from insurers and Medicare, they 
        want those to penalize victims of malpractice who are smart 
        enough or lucky enough to have health insurance by imposing a 
        one-sided collateral source rule.

                    AMERICANS NEED INSURANCE REFORM.

    In Pennsylvania, we've gone from eight principle malpractice 
insurance providers to four in a very short time. Industry experts, 
like Charles Kolodkin of Gallagher Healthcare Insurance Services, tell 
us that ``a quick examination of the medical malpractice insurance 
marketplace might lead a dispassionate observer to conclude this 
segment of the insurance industry is confused, in disarray, and 
generally in a state of disorder. Premiums are doubling, hospital 
deductibles are tripling, claims-free physicians are being non-renewed, 
and insurers are leaving territories en masse. Simply put, the market 
is in chaos.''
    Kolodner tells us that throughout the 1990s insurers were charging 
premiums at such low rates that when the time came to pay losses 
(losses are when mistakes are made, doctors are held accountable and 
patients are compensated for their loss and injury by the responsible 
party'sinsurance company), the money wasn't there. In large part this 
emphasis on increasing market share was driven by a desire to 
accumulate large amounts of capital that the insurers could place in 
higher risk, but potentially more lucrative, investments.
    Here are some good examples. St. Paul, one of the nation's largest 
malpractice carriers, will no longer write malpractice policies because 
of more than $1 billion in losses nationwide. St. Paul also lost $108 
million with the collapse of Enron.
    Two notorious medical malpractice insurers, PIE and PIC, are no 
longer in business. Larry E. Rogers, according to the Cleveland Plain 
Dealer, former President of the failed PIE Insurance Company, admitted 
that he stole more than $6.8 million from the company to buy a pig farm 
in Tennessee and to pay off gambling debts. He pleaded guilty in 
federal court to charges of conspiracy, insurance fraud and tax 
evasion. Charges filed by the prosecutor claim that the theft and 
Rogers' corporate spending helped sink the insurer in 1998, leaving 
many doctors without insurance or with higher rates when other 
companies had to rush in to fill the void. The collapse left doctors in 
nine states without insurance. According to the Plain Dealer, 
``patients who might have collected millions of dollars have been 
forced to settle for far less.''
    In the last year, the list of ``impaired'' medical malpractice 
insurers got longer as the Pennsylvania Department of Insurance placed 
PHICO under official state scrutiny. PHICO--run by the Hospital 
Association of Pennsylvania and one of the largest writers of medical 
malpractice insurance--aggressively sold insurance during the late 
1990s. ``Rehabilitation'' was necessary as it became obvious PHICO's 
premiums had been inadequate to cover losses.
    Citizens and Members of Congress should not allow the insurance and 
health industries to play divide-and-conquer politics by putting the 
blame of this crisis onto the backs of patients through legislation 
like HR 4600 by limiting our access to the courts for malpractice that 
devastates, shatters lives and all too often kills. Patients harmed by 
medical malpractice should not be further penalized when they seek 
justice. Instead, we should be asking questions. If we're attempting to 
get to the bottom of Enron and Global Crossing, why aren't we getting 
to the bottom of the gross negligence and improprieties--and, yes, 
accounting shenanigans--that exist in the insurance industry?
    Citizens for Consumer Justice applauds members of the U.S. House of 
Representatives and its Energy and Commerce Committee for calling for a 
General Accounting Office (GAO) investigation of the insurance 
industry's role in creating such havoc for doctors and ultimately 
patients. That's what we should be doing: asking questions and 
demanding answers.
    Aren't the regulators of the insurance industry supposed to head 
off problems before they become disasters? Whose rates are too low? 
Whose rates are too high? What is responsible pricing? And how will our 
nation's and individual state insurance departments ensure that 
responsible pricing is enforced?
    In Pennsylvania, PHICO, run by the Hospital Association of 
Pennsylvania, was put into rehabilitation after its surplus dropped to 
dangerously low levels. Our Insurance Commissioner was virtually absent 
while that was happening. This was right on the heels of Reliance going 
under, a demise that will likely cost Pennsylvania consumers billions 
of dollars.
    Insurance Departments throughout our nation are supposed to 
regulate the insurance industry and protect the insurance consumer. In 
addition, they are supposed to monitor financial solvency, license 
agents/brokers, and review and approve rates and forms, and coordinate 
the takeover and liquidation of insolvent companies and rehabilitate 
financially troubled insurers.
    When they are confronted with a PIC or a PHICO, do they investigate 
and get to the root cause of why the insurer was in trouble? And, if 
so, do they then review the other insurance providers to find out 
whether they are engaged in the same bad practices? How often are 
independent actuarial reviews conducted? Why aren't medical malpractice 
insurance rates, like auto and other lines, experience-based? These are 
just some of the questions that need to be asked and, more importantly, 
answered.
    Also, the Joint Underwriting Associations (JUAs) across the country 
and in some states, Catastrophic Loss Funds or CAT Funds, are state run 
malpractice insurers. The JUAs around the country have historically 
been seen as the insurers of last resort because of high rates. 
However, the JUAs don't have to charge such high rates. If we were to 
have a single-payer malpractice insurance system state by state or 
nationwide (in the case of Pennsylvania, a JUA with the CAT fund to 
handle the catastrophic cases) that is regulated by the state and the 
federal government, the administrative cost of underwriting would go 
down. With one payer, doctors' premiums would go down, and having a 
centralized system would allow for comprehensive monitoring of medical 
mistakes so that we can learn why and where they happen and how we can 
eliminate them.

       WHAT CONGRESS CAN AND SHOULD DO TO PROMOTE PATIENT SAFETY

Real Peer Review--Malpractice that injures patients cries out for 
        strong sanctions from medical review boards. Patients deserve 
        to be protected from chronic offenders who continue to make 
        avoidable, costly mistakes.
Safe Rx--New technology and procedures need to be adopted, particularly 
        in hospitals, that automatically check prescriptions against 
        patients' records.
Doctor/Nurse Fatigue--Reasonable schedules and staffing level ratios 
        for doctors and nurses will cut medical errors. Nurses, for 
        example, should not be forced to work overtime.
Access to the Courts--For those unfortunate victims of continuing 
        medical errors, access to the courts for redress must continue. 
        Without a legal system to hold those who harm innocent patients 
        accountable, the heavy financial costs of their care will be 
        imposed on taxpayers. And that is all of us.

 CONCLUSION--LOWER INSURANCE RATES BY REGULATING THE INSURANCE INDUSTRY

    The culprit of the malpractice insurance crisis is the insurance 
industry and our health care delivery system. The system is rigged. 
Legislation like H.R. 4600 further sabotages an already damaged system. 
We know that passage of the so-called tort-reforms like caps and the 
elimination of joint and several liability in this bill wuld do nothing 
to eliminate preventable medical errors from happening. Nor, as even 
the American Insurance Association and the American Tort Reform 
Association have admitted, would they reduce medical malpractice 
premiums.
    Instead, H.R. 4600 would further hurt individual victims whose 
lives are already shattered from lost babies, wives, husbands, 
eyesight, the amputation of limbs, the wrong medication . . . the list 
goes on. What we do know about limiting the non-economic compensation 
to $250,000 to a victim who has lost a baby, had the wrong breast 
amputated, or had a pap smear misdiagnosed, is that it is an arbitrary 
and paternalistic price tag hung on another person's life. And this is 
wrong.
    It doesn't make sense that this legislation is being contemplated 
as a solution to skyrocketing insurance rates when the Congress has not 
yet investigated the industry's justifications or its accounting 
practices . . . and when the insurance industry itself has admitted 
that we shouldn't expect ``tort reform'' to reduce insurance rates.
    The American Insurance Association (AIA), a major insurance 
industry trade group, said in a March 13, 2002 press release that 
lawmakers who enact ``tort reform'' should not expect insurance rates 
to drop. Evidently issued to critique the Center for Justice & 
Democracy's 1999 study, ``Premium Deceit--the Failure of ``Tort 
Reform'' to Cut Insurance Prices,'' the AIA release leads with an 
astounding face-saving pronouncement: ``[T]he insurance industry never 
promised that tort reform would achieve specific premium savings.''
    What's more, in 1999, ATRA President Sherman Joyce told Liability 
Week (July 19, 1999), ``We wouldn't tell you or anyone that the reason 
to pass tort reform would be to reduce insurance rates.'' Victor 
Schwartz, ATRA's General Counsel, told Business Insurance (July 19, 
1999) that ``[M] any tort reform advocates do not contend that 
restricting litigation will lower insurance rates, and `I've never said 
that in 30 years.' ''
    ``Premium Deceit'' is an exhaustive look at the impact of tort 
reform on nationwide insurance costs between 1985 and 1999. It finds 
that tort law limits enacted since the mid-1980s have not lowered 
insurance rates in the ensuing years. States with little or no tort law 
restrictions have experienced approximately the same changes in 
insurance rates as those states that have enacted severe restrictions 
on victims' rights. The losers are those patients--like Donald Davis 
who sought medical care for a problem with one toe and came out without 
his legs--injured through no fault of their own.
    Citizens for Consumer Justice applauds Representative Greenwood and 
the Committee for delving into a grim problem facing our health care 
delivery system. However, we urge you to hold the real culprit 
accountable, and not punish innocent victims of medical malpractice by 
advancing H.R. 4600.
    Thank you.

    Mr. Bilirakis. Thank you.
    Mr. Fine? Please use the mike.

                   STATEMENT OF STUART H. FINE

    Mr. Fine. Thank you very much. Hi, I'm Stuart Fine, Chief 
Executive Officer of Grand View Hospital in Bucks County, 
Pennsylvania. I also chair the Cassatt Insurance group of 12 
health care organizations from southeastern Pennsylvania that 
work together to improve patient safety and patient care 
quality and to share and ensure risk on a group basis.
    I'm here today on behalf of the American Hospital 
Association.
    We're pleased to testify before you about the harmful 
effects that excessive litigation is having on patient access 
to care. From my testimony this morning I hope to make three 
points. First, the cost of medical liability insurance is 
spiraling out of control. Next, the lack of affordable medical 
liability insurance is having a severe impact on patients' 
access to care. And finally, there's an expanding national 
problem that requires a timely Federal solution.
    Grand View is our region's largest employer. We provide 
jobs to more than 1,500 people and have an annual payroll that 
exceeds $55 million. These figures do not include the more than 
250 physicians who comprise our medical staff, or the hundreds 
of employees who are employed by those physicians. It's often 
been said that as goes our hospital, so does the economy of our 
community. It's important to note that in Grand View's 89 years 
of operation, our hospital has never had a court judgment 
against it for a professional liability claim. I'll repeat 
that. We've never had a court judgment against us for a 
professional liability claim.
    The experience of Grand View Hospital on our Cassatt group, 
however, is quite telling. We've self-insured certain 
professional and general liability exposures for more than 10 
years. Until 2 years ago, we could secure reinsurance for our 
group at affordable rates due to competition among commercial 
carriers. However, because of the frequency of lawsuits and the 
size of jury awards that have recently resulted in our region, 
Grand View's cost for insurance increased last year by about 
one third, and we were forced as a group to accept the $5 
million deductible on each and every reinsured claim basis.
    This year, our cost increased by almost 50 percent more. 
And the deductible both increased to $7.5 million and involves 
a 50 percent per claim co-payment. This year, Grand View will 
allot an excess of $750,000 every day, 365 days a year, for 
professional liability insurance coverage. That's nearly as 
much as we'll spend on medications for our patients. The 
Cassatt Group as a whole will spend an excess of $60 million to 
insure itself in fiscal year 2003.
    Securing this reduced level of coverage, even at its 
increase cost, was not easily accomplished. Earlier this year, 
I traveled with colleagues to London for 2 days of meetings 
with seven different reinsurers from Switzerland, Germany, and 
Lloyd's of London. We were told on three different occasions 
that along with Australia and Czechoslovakia, our region is 
viewed as being among the least attractive in the world within 
which to write insurance business.
    Because reasonably priced insurance coverage is not 
available for practitioners in many specialties, many of our 
region's physicians have retired or are relocating. It's become 
much more difficult to recruit new doctors and to secure 
insurance for practicing physician. If this situation 
continues, we'll be forced to reduce important patient 
services, leaving our community with little or no access to 
needed health care.
    For example, if Grand View hadn't been able to secure 
insurance coverage for our largest OB/GYN group at a cost of 
approximately $1,000 per delivery, Grand View would have lost 
five of our nine practicing obstetricians from practice 3 
months ago. This would probably have resulted in the closure of 
our OB service, something that's already occurred at three 
other Philadelphia area hospitals. That's why Congress must 
help hospitals and physicians to find a solution to sky 
rocketing medical liability premiums, so we can continue to 
provide the right care at the right time and the right place 24 
hours a day, 7 days a week. We must reform this system at the 
Federal level.
    It's well documented that the United States has the world's 
most expensive tort system. Tort costs over the past 50 years 
have outpaced growth in the United States economy by a factor 
of four. According to the GAO, 43 percent of insurance defense 
costs are spent on claims that have no merit while other 
studies show that many claims with merit are never even filed. 
A Federal solution is warranted here. That's why AHA strongly 
supports H.R. 4600, Health Act of 2002 sponsored by my 
Congressman, Jim Greenwood. The AHA believes that the 
California style reforms reflected in H.R. 4600 should be 
adopted at the Federal level.
    For more than 25 years, the reforms known as MICRA have 
demonstrated that patients' rights can be protected by reducing 
medical liability costs. The MICRA law has proven to be 
equitable, while the number of health care liability claims in 
California has remained steady on a per capita basis. The 
compensation actually paid to those medically injured in 
California has been higher after MICRA than before. This is not 
an issue of importance to just Pennsylvania and California. The 
medical liability insurance crisis affects hospitals and 
physicians nationally. Mr. Chairman, you already mentioned the 
reprieve recently realized by the University Medical Center 
trauma center in Los Vegas. Other members of the committee have 
discussed the situations that exist within their home States.
    In conclusion, hospitals and physicians need Congress to 
enact H.R. 4600 to prevent even more hospitals from shutting 
down needed services or closing their doors. We have a mission 
of providing health care services that save lives and improve 
the quality of lives our patients. But hospitals can't fulfill 
that mission without your timely help. We look forward to 
working with you to enact H.R. 4600 and I'll be pleased to 
respond to your questions.
    [The prepared statement of Stuart H. Fine follows:]

 Prepared Statement of Stuart H. Fine, Chief Executive Officer, Grand 
      View Hospital on Behalf of The American Hospital Association

    Mr. Chairman, I am Stuart H. Fine, Chief Executive Officer (CEO) of 
Grand View Hospital in Sellersville, Pennsylvania. I am here today on 
behalf of the American Hospital Association's (AHA) nearly 5,000 
hospital, health system, network, and other health care provider 
members. We are pleased to have this opportunity to testify before you 
concerning the harmful impact that excessive litigation is having on 
patient access to care. This issue is of critical importance for 
hospitals, physicians, and the patients and communities they serve 
across our nation.
    Formed in 1913 as Bucks County's first hospital, Grand View 
Hospital is in most ways a typical community, not-for-profit hospital. 
Grand View provides a broad array of patient services, from obstetrics 
to orthopedics, and from hospice/home care to oncology. Our mission, in 
brief, calls for us to ``provide and coordinate the appropriate 
utilization of quality, cost-effective health care and related 
services'' for the people of our community. We are our region's largest 
employer, providing jobs to more than 1,550 people and having an annual 
payroll in excess of $55 million. And these figures do not include the 
more than 250 physicians who comprise our medical staff, or the 
hundreds of individuals who are employed by those private 
practitioners. Solucient recently designated Grand View as operating 
one of the nation's ``Top 100'' Intensive Care Units as measured by 
patient care outcomes and cost-effectiveness. Also of note is that 
Grand View has never had a court judgment against it for a professional 
liability claim in our 89 years of operation.
    On a related note, I also serve as the chairman of Cassatt 
Insurance Co., Ltd., a Bermuda-based ``captive,'' through which 12 
suburban Philadelphia hospitals and health care organizations endeavor 
to improve patient safety and the quality of patient care services 
being provided; manage and share risk; and insure, on a group basis, 
their professional and general liability exposures. It is with this 
combination of experience and perspectives that I come before you today 
to discuss the problems associated with medical liability insurance, 
its impact on hospital and physician services, and, ultimately, how 
these factors affect access to important health care services.
    A recent AHA TrendWatch report, researched by the Lewin Group on 
behalf of the AHA, documented that health care providers across the 
nation are becoming increasingly concerned about their ability to find 
affordable medical liability insurance and how patients' access to care 
has been undermined. The report confirmed that since 2001, many 
physicians have, and are continuing to experience, premium increases in 
the high double digits. Premiums for hospitals have more than doubled! 
The report suggests that the current crisis is likely to be more 
complicated than medical liability insurance problems that occurred in 
the 1970s and 1980s. It stated that the factors influencing the wide 
geographic differences in premiums include the following:

 State regulations,
 Characteristics of physician organizations,
 Local culture and legal practices,
 Differences in the costs of defending claims, and
 Population size and degree of competition among insurers in 
        the market.
    The TrendWatch report also stated, ``The exit of a large insurer, 
like St. Paul [one of the nation's largest insurers that covered an 
estimated 750 hospitals and 42,000 physicians throughout the United 
States], from a market can push premium rates up and make coverage 
harder to find. In response, physicians may leave for another market 
and hospitals may need to alter the services they provide.''
    The experience of Grand View Hospital and the Cassatt group of 
insured health care organizations is telling. As a group, we've self-
insured certain professional liability exposures for more than 10 
years. Until two years ago, however, we were readily able to group-
purchase insurance at affordable rates for ``excess'' or 
``catastrophic'' layers of coverage above our primary limits, and do so 
on a ``first dollar'' basis above the primary layer of coverage. We 
were able to obtain this coverage due to competition among a large 
number of commercial carriers who were very interested in securing our 
business.
    Last year, Grand View's cost for insurance coverage increased by 
approximately one-third. But that doesn't tell the whole story. In 
addition to experiencing that huge increase in cost, we were forced to 
accept, on a group basis, a $5 million dollar deductible or retention 
on an ``each and every'' claim basis.
    This year, our insurance cost increased yet again--this time by 
almost 50 percent. Our deductible level is going from $5 million to 
$7.5 million. On top of that, we are being forced to accept a 50 
percent ``co-pay'' for each $5 million above the $7.5 million for which 
we secured coverage. Consequently, Grand View Hospital will spend in 
excess of $7,500 each and every day for our insurance coverage in the 
current fiscal year--about the same amount that we spend for 
medications/pharmaceuticals. Accordingly, the Cassatt group of 
hospitals will spend in excess of $60 million to insure itself in 
fiscal year 2003!
    Securing the coverage that I've described was not easily 
accomplished. In January, I joined four colleagues from other Cassatt 
hospitals and traveled to London for two days of meetings with seven 
different carriers and re-insurers from Switzerland, Germany, and the 
Lloyd's of London insurance syndicates. While essentially marketing our 
group to these carriers and re-insurers, we were surprised to be told 
on three different occasions during our visit that, along with 
Australia and Czechoslovakia, the Philadelphia region is viewed by the 
international insurance markets as being among the least attractive 
within which to do insurance business. The rationale supporting that 
view was that, up until that time, there had been a lack of meaningful 
tort reform activity on the part of our state legislators.

                           THE EFFECT ON CARE

    In addition to experiencing serious increases in the cost of health 
care liability insurance, hospitals are facing a growing workforce 
shortage; reductions in private, Medicare, and Medicaid payments; and 
redoubled disaster preparedness efforts. These additional burdens are 
threatening hospitals' ability to appropriately staff emergency 
departments, recruit new physicians to high-risk specialties, and 
deliver babies in the manner that most Americans have become 
accustomed.
    While I am pleased to report that Grand View Hospital continues to 
deliver babies, three other hospitals in our immediate area have 
discontinued OB services. Warminster Hospital in Bucks County has 
discontinued the service altogether, as have both Methodist and 
Misericordia Hospitals in Philadelphia. More recently, Methodist and 
Doylestown Hospitals announced that they would no longer be providing 
prenatal care for low-income women. The primary reason given for these 
unfortunate reductions in service was the rising cost of medical 
liability insurance.
    Our county has seen numerous OB/GYN physicians either retire from 
practice or eliminate the OB component of their practices. This has 
occurred at Doylestown Hospital, St. Mary Medical Center, and Lower 
Bucks Hospital. Already mentioned was Warminster Hospital's closure of 
its OB service. In the community of Quakertown, two of the three 
existing OB/GYN offices were closed as the physicians in those 
practices withdrew from our region based on the high cost of 
professional liability insurance. One of Doylestown Hospital's two 
orthopedic surgery groups has been unable to secure malpractice 
coverage and has discontinued its surgical practice and Emergency Room 
back-up coverage. At Grand View Hospital, we've lost physicians 
specializing in family practice, general surgery, plastic surgery, and 
interventional radiology. And, we have no neurosurgery coverage. Our 
efforts at recruiting replacement/successor physicians to those who 
have left our area, or are planning to retire, have proved fruitless. 
We currently need physicians in the areas of cardiology, family 
medicine, diagnostic and interventional radiology, neurosurgery, 
plastic surgery, and obstetrics. If our hospital had not been able to 
secure insurance coverage for our largest OB group at a cost of 
approximately $1,000 per delivery, an increase of approximately 50 
percent over the prior year, Grand View would have lost five of our 
nine practicing obstetricians from practice. That would probably have 
resulted in the closure of our OB service.
    In the book ``Ghost Soldiers,'' by Hampton Sides, a veteran of the 
Battle of Bataan describes how ``the defense of Bataan devolved into a 
brutal war of attrition--a war . . . of consumption without 
replenishment.'' It is just such a circumstance that confronts our 
nation's hospitals and physicians. Without intervention by Congress, we 
will soon be unable to address the basic health care needs of our 
communities. Congress must help hospitals and physicians find a 
solution to skyrocketing medical liability premiums so that we can 
continue to provide the right care, at the right time, in the right 
place; 24 hours a day, seven days a week.

                    THE CURRENT SYSTEM NEEDS REPAIR

    The current medical liability system is a costly and ineffective 
way of resolving health care liability claims and compensating injured 
patients. This has led to the growing crisis I've described. In many 
states, especially Delaware, Florida, Mississippi, Nevada, New Jersey, 
New York, North Carolina, Ohio, Oregon, South Carolina, Texas, 
Washington, West Virginia, and my own, inherent problems in the health 
care liability system are causing skyrocketing premiums.
    For example, there are many reasons why Pennsylvania is currently 
struggling with medical liability problems. Insurers faced heavy losses 
when declining returns on investment exposed insurers to expenses that 
were significantly above premiums collected. In addition, large jury 
awards, which often set the standard for settlement awards, began to 
put upward pressure on premiums. Finally, the three largest insurers, 
PHICO, PIC, and PIE became insolvent and no longer offered medical 
liability insurance. In short, insurance capacity evaporated.
    In an effort to address these issues, the Governor of Pennsylvania 
signed into law a medical liability reform bill in March of 2002. 
Pennsylvania's effort represents the latest in a series of legislative 
actions taken by the state to alleviate pressure on health care 
providers. While the law signed in March does not include a cap on 
damages, it does allow hospitals and physicians to appeal if paying 
those damages would force a doctor out of business or force a hospital 
to cut services, thereby affecting access to care in the community. In 
addition, it allows judgments for future medical costs to be spread out 
over time. More recently, a law reforming the rules regarding ``joint 
and several'' liability was passed in June. This is especially 
important to hospitals because we are often singled out as the ``deep 
pockets'' in many litigation situations.
    Because the effects of tort reform take time to be fully realized, 
in part due to the long trail of claims, the effects of the 
Pennsylvania legislation remain to be seen. At our hospital, due to our 
inability to obtain adequate medical liability coverage at a reasonable 
rate, many physicians have retired or relocated to areas with lower 
premiums. And it has become increasingly difficult to recruit new 
doctors and secure physician coverage. If this continues, we will be 
forced to reduce important patient services, leaving our community with 
little or no access to appropriate health care. Further, it is well 
documented that the United States has the world's most expensive tort 
system, with tort costs over the past 50 years outpacing growth in the 
United States' economy by a factor of four. Such growth has not 
translated into efficiency. According to the General Accounting Office 
(GAO), 43 percent of insurance defense costs are spent on claims that 
have no merit. Other studies show that many claims with merit are never 
filed.

                      LEGISLATIVE SOLUTION NEEDED

    The AHA believes that a federal legislative solution to America's 
medical liability crisis is warranted under the current circumstances. 
That is why the AHA strongly supports H.R. 4600, the bipartisan Help 
Efficient, Accessible, Low Cost, Timely Health Care (HEALTH) Act of 
2002, sponsored by my congressman, Representative Jim Greenwood (R-PA).
    The AHA believes that the California-style reforms enacted under 
the Medical Injury Compensation Reform Act (MICRA) of 1975 and 
reflected in H.R. 4600 should be adopted at the federal level. For more 
than 25 years, MICRA has demonstrated that patients' rights can be 
protected at the same time that medical liability costs are reduced. 
H.R. 4600 includes the following MICRA-type reforms:
    A limit on non-economic damages--By placing a ceiling of $250,000 
on non-economic damages (pain and suffering), stability is restored to 
the insurance market. All economic losses and/or costs are paid in 
full. Such a cap provides affordable coverage, and ensures that health 
care providers can buy coverage. It does not affect a plaintiff's 
ability to be fully compensated for economic damages such as medical 
expenses or lost wages.
    Establish a fair share rule--The ``joint and several'' rule allows 
any defendant to be liable for the entire amount of an award, 
regardless of how small that defendant's share of the fault may be. As 
a result, the rule generally punishes a co-defendant (or a sole 
defendant) who is fully insured or has substantial assets--the so-
called ``deep pocket'' defendant. For some providers, this removes any 
incentive to carry full liability insurance coverage. By establishing a 
fair share rule in health care lawsuits, each party is liable solely 
for its share of damages and not for the share of any others.
    Periodic payments--Periodic payments would allow compensation to be 
made in intervals rather than a lump sum, permitting settlements to be 
geared to a plaintiff's needs over the course of his or her life. In 
addition, because periodic payments can be funded through an annuity, 
future needs can be fully met at a considerably lower cost to the 
health care system.
    Regulation of attorneys' fees--Under the current health care 
liability system, patients awarded compensation are often shortchanged. 
Money that should go toward their long-term care goes instead to their 
attorneys. This is because, traditionally, attorneys in liability cases 
are paid through contingency fees, which provide the attorney a 
percentage of the plaintiff's award. Percentage limitations should be 
applied to attorneys' fees.
    The California experience under the MICRA law has proven to be more 
equitable to the medically injured. While the number of health care 
liability claims brought by medically injured plaintiffs in California, 
on a per capita basis, is the same as before MICRA, the compensation 
actually paid to those medically injured in California was higher after 
MICRA than before.
    The AHA also supports a uniform statute of limitations in health 
care liability cases and the continued development of successful 
conflict resolution programs. Bringing liability claims to court is 
often inefficient and costly and renders unpredictable results. 
Nontraditional approaches such as alternative dispute resolution 
systems can play an important role in reforming the health care 
liability system.

             A NATIONAL PROBLEM REQUIRES A FEDERAL SOLUTION

    While I appreciate the opportunity to discuss some of the 
challenges we face in Pennsylvania due to the medical liability crisis, 
this issue affects hospitals and physicians throughout the United 
States.
    I've already mentioned that Methodist Hospital in Philadelphia 
announced that it would no longer be able to provide prenatal care for 
low-income women, and just two weeks ago, the University Medical 
Center's (UMC) Level-I Trauma Center in Las Vegas, Nevada closed its 
doors due to the liability risk at the facility. As a result of the 
increased insurance premiums, 11 of UMC's 13 general trauma surgeons 
and 57 or 58 orthopedic surgeons resigned from trauma-care 
responsibilities. Within the past few days, the UMC Trauma Center has 
retained the temporary services of trauma and orthopedic surgeons who 
have agreed to be covered by the county's liability insurance for 45 
days. This temporary reprieve allows the governor to call a special 
legislative session to address this issue. While the trauma center has 
been able to keep its doors open for a few more days, a large question 
mark remains regarding access to care in the community. Without the UMC 
Trauma Center, patients will instead be routed to the closest emergency 
room, where most doctors aren't trained to do surgeries and where 
specialists might not be readily available. The UMC Trauma Center 
serves a 10,000-square mile area in four states--Nevada, California, 
Arizona, and Utah.
    Hospitals and physicians need Congress to enact H.R. 4600 to 
prevent even more hospitals from being forced to close their doors. We 
want to provide the type of health care that saves patients' lives and 
improves their quality of life, but we can't continue to do that 
without your help.
    I appreciate the opportunity to testify before your committee 
today. The hospital and physician communities look forward to working 
with members of this committee, as well as the entire Congress, to 
ensure that this critical legislation is enacted into law.

    Mr. Bilirakis. Thank you very much, Mr. Fine.
    Dr. Roberts, you've testified that just a few years ago you 
had six hospitals in your immediate area--number of counties?
    Mr. Roberts. Yes, there are seven counties.
    Mr. Bilirakis. Seven counties. And now it's down to one.
    Mr. Roberts. There's one. The other hospitals have either 
completely closed or they became emergency rooms or they have a 
2-day holding bed possibility, but they don't do obstetrical 
care, surgery, or intensive care work.
    Mr. Bilirakis. And what do you attribute these other five 
hospitals not being available?
    Mr. Roberts. Largely it was by Federal mandate that they 
wanted to regionalize health care. And that has happened for 
question cost efficiency. The problem is that bad things happen 
to good people. Sometimes, malpractice situations occur because 
people are blaming someone, they're upset, they have to 
understand what happened. So the most proximate person is the 
health care provider. So many times we get caught in that phase 
of resolution that people are going through.
    In our community, we have a very good feeling between our 
patients, I believe. But what is happening is that physicians 
are becoming afraid of their patients. Who's going to turn 
around and sue me next? So it creates a barrier as was 
mentioned earlier. There's a barrier between the physician and 
the patient. And I think it's critical that we address this and 
we look at access and the ability of people to find their 
health care provider and chose the person that will provide 
their family with family oriented care.
    Mr. Bilirakis. Doctor, you indicated that your rates 
already have doubled. You received word that they plan to 
double next year?
    Mr. Roberts. They have not given me a firm quote. My 
insurance is up in November, and they told it will probably 
double next year. I was with PHICO, and PHICO went under, and 
then I picked up by BRIM and they doubled the rate.
    Mr. Bilirakis. Have you inquired as to why this is taking 
place to the insurance commissioner of your State?
    Mr. Roberts. Yes, I have.
    Mr. Bilirakis. What is his or her response?
    Mr. Roberts. Because BRIM is the insurance of last resort, 
they created premium on all BRIM rates to make us try to find 
other insurance companies. The problem is the insurance 
companies are leaving the State. We just had physicians last 
week be notified that they would not be renewed by medical 
insurance. St. Paul has already pulled out. So we are in a 
critical situation. We have positions on our staff that will 
not have insurance as of October 1 or November 1 at the end of 
this year. And they're going to have to leave the area. We're 
losing people to early retirement. We're losing people because 
we can't recruit new physicians into the community. Private 
practice physicians such as myself will have to, I may have to 
go back to West Virginia University. I'm a professor there, but 
I may have to go there and teach, and stop my private practice.
    Mr. Bilirakis. You've already told us that you haven't had 
any claims against you. You've never had any claims against 
you?
    Mr. Roberts. No, sir.
    Mr. Bilirakis. How does the claims filed against the 
members of medical profession in West Virginia compare to other 
States?
    Mr. Roberts. West Virginia has a very active litigation 
system, and we have a lot of claims. There were a lot filed 
last fall. The State legislator spent 60 days in session at 
$35,000 a day trying to deal with this problem. And there were 
some cursory changes that were made, but I don't feel that they 
really made any significant change in the threat of major 
lawsuits.
    Mr. Bilirakis. So you attribute then the doubling of the 
rates to the total number of claims that are taking place in 
the State of West Virginia?
    Mr. Roberts. Absolutely. And then with my colleagues their 
rates have tripled. It really was quite fortunate that it 
wasn't higher. But next year, it will be and I'm going to have 
to stop delivering babies.
    Mr. Bilirakis. All right. I have 1 minute left. I'm going 
to yield to Ms. Capito, if she would like to inquire to either 
Dr. Roberts or anybody else.
    Ms. Capito. Welcome, Dr. Roberts from West Virginia in my 
District. I'm pleased to be here. I know that what you're 
saying is absolutely true and one of the hospitals in where I 
live in Charleston is actually paying the neurosurgeons to 
cover them a $1,000 a day for each of the two neurosurgeons in 
the Charleston area medical center to cover their insurance. 
Doctors are leaving West Virginia early retirement, but you 
know they're going to other States. They go to Ohio. I hear 
stories of them going to Ohio, Virginia. What do you attribute 
that to? Is it the number of lawsuits filed in West Virginia?
    Mr. Roberts. The rates presently in those States are 
approximately half or less than what they are in West Virginia. 
So positions in Bluefield, West Virginia move across the street 
to Bluefield, Virginia and their rates drop. I understand 
though that some of the insurance companies have gotten wise to 
that and are now looking for the zip codes of the patients on 
the other side of the border. People from Wheeling move over 
into Ohio. I can't do that. I'm in the center of the State. I 
either stay there or I leave.
    Ms. Capito. Well, I want to thank you for your years of 
service and your generational years of service. This is a 
crisis in West Virginia. No question about it. Not only does it 
affect our health care but it goes into affecting the economic 
fabric of our State because whose going to bring a company in 
if you can't get good health care? So I applaud your efforts in 
this and look forward to working for you----
    Mr. Bilirakis. The Chair----
    Mr. Roberts. I'm a physician that feels fortunate to have a 
chance to help people make a living doing that.
    Mr. Bilirakis. It sounds that that's an appropriate time--
--
    Mr. Roberts. I really feel we need to look at that aspect 
of this and how we serve our patients.
    Mr. Bilirakis. If there's less rhetoric and our real 
interest on the part of all of us is to solve this problem in 
an objective, open minded manner and we're going to get it 
done. And hopefully we will.
    The Chair recognizes Mr. Brown to inquire.
    Mr. Brown. I thank the chairman.
    Dr. Roberts, my father practiced medicine as his father did 
in a town a little bit bigger than Elkins but in Mansfield, 
Ohio. He practiced some 50 years general practice, never had a 
claim against him. And he unfortunately was not able to 
practice with his father, but he had his father's practice 
after World War II. And I emphasize with you and thank you for 
doing the same kind of work I believe my father did. I'm not a 
lawyer, so I don't have a dog in this hunt, but I hear my 
friend, Mr. Norwood say it's only the lawyers who have concerns 
or are opposed to whatever exact term he used about the 
Greenwood Bill.
    And I just want to enter into the record and ask consent 
request to enter into the record the National Partnership for 
Women and Families letter expressing their concern. And if I 
understand this as a nonlawyer, I'm a little confused about the 
non-economic caps. I understand that the Norwood Bill does not 
limit punitive damages, does not limit economic damages. But 
what that tells me, if you limit non-economic caps it's a 
little bit like the Republican tax cut. It helps those people 
that are already wealthiest and penalizes those that aren't.
    [The prepared statement of the National Partnership for 
Women and Families follows:]

                  National Partnership for Women & Families
                                                      July 17, 2002
The Honorable W.J. Tauzin
Chairman, Energy and Commerce Committee
U.S. House of Representatives
Washington, DC 20515

The Honorable John D. Dingell
Ranking Member, Energy and Commerce Committee
U.S. House of Representatives
Washington, DC 20515
    Dear Chairman Tauzin and Ranking Member Dingell: We write on behalf 
of the National Partnership for Women & Families to submit comments for 
the Energy and Commerce hearing being held today, ``Harming Patient 
Access to Care: The Impact of Excessive Litigation.'' Although the 
Partnership shares the Committee's concerns about the harmful impact 
that the lack of affordable medical malpractice insurance is having on 
patients' access to needed care, we urge you and other Committee 
members to fully investigate the multiple factors causing this crisis 
before taking any action that could further curtail patients' access to 
quality health care.
    As a nonprofit, nonpartisan advocacy organization dedicated to 
improving the lives of women and families, the Partnership advocates 
policies that ensure greater access to affordable, high quality health 
coverage. The Partnership is concerned about the barriers that patients 
are facing in accessing care as a result of doctors' inability to 
afford medical malpractice coverage. Women may be disproportionately 
,hurt as a result because Ob-Gyn doctors are more likely to have higher 
premiums and experience difficulty finding coverage than doctors in any 
other specialty. Some have suggested that the root cause of the current 
crisis is ``excessive litigation'' and are proposing federal litigation 
reforms to limit patients' ability to bring suits and seek appropriate 
damage awards as the simple answer to this problem. Substantial 
evidence suggests that this problem is far more complex, having its 
roots in the insurance industry itself, and that federal tort limits 
are not the right approach to address this crisis.\1\
---------------------------------------------------------------------------
    \1\ See, e.g., Zimmerman, Rachel & Christopher Oster, ``Assigning 
Liability: Insurers' Missteps Helped Provoke Malpractice `Crisis' '' 
Wall Street Journal, Monday, June 24, 2002; Hunter, J. Robert & Joanne 
Doroshow, ``Premium Deceit: The Failure of ``Tort Reform'' to Cut 
Insurance Prices,'' Center for Justice & Democracy, 1999.
---------------------------------------------------------------------------
    A key component in ensuring women and families' access to quality 
medical care is providing meaningful accountability for harms resulting 
from poor or inadequate care. Without such accountability, patients and 
their families have no redress for serious, debilitating, and life-
threatening injuries caused by medical errors and malpractice. Such 
accountability also provides an important deterrent against mistakes 
and malfeasance and ensures that providers and institutions make 
improved patient safety a top priority. And limits on non-economic 
damages of the kind often proposed in ``tort reform'' legislation 
disproportionately hurt women and children--because courts are less 
likely to value children's lives or stay-at-home moms' contribution to 
the family into economic terms, women and children are more likely to 
be seeking non-economic damages that exceed the damage limits imposed 
by so-called ``tort reforms.'' Congress has recognized the importance 
of preserving accountability as a means of ensuring better quality care 
from managed care plans by including accountability provisions in both 
versions of the Patients' Bill of Rights legislation that passed last 
year. We strongly believe that curtailing accountability for medical 
wrongs will have the perverse effect of diminishing quality health care 
for women and families, not improving it.
    Providers' difficulty in finding affordable medical malpractice 
coverage may have little to do with litigation. According to a recent 
Wall Street Journal article, business decisions made by the insurance 
industry have contributed greatly to the current crisis in affordable 
coverage.\2\ In the 1990s, malpractice insurers competed for national 
market share, keeping prices artificially low and inadequate to cover 
claims. Insurers' recent losses from inadequate pricing and poor 
investment decisions in the stock market caused many to either withdraw 
from the malpractice market or restrict their coverage. Minimal 
regulation and oversight has led to dramatic price increases and 
fluctuations in the availability of coverage, leaving many providers 
without access to affordable coverage. More information is needed to 
clearly determine the factors that are driving this crisis before any 
action should be taken to redress it. In this regard, we applaud the 
recent request made by Representatives Conyers, Dingell and other 
members of Congress to have GAO study the role the insurance industry 
may be playing in this crisis.
---------------------------------------------------------------------------
    \2\ Id., Zimmerman & Oster.
---------------------------------------------------------------------------
    It is also unclear whether limiting accountability would have any 
impact on the affordability of malpractice coverage. According to a 
recent study by the Center for Justice and Democracy, actual experience 
with insurance rates and tort reforms suggests that there is no 
correlation between strong restrictions on accountability and lower 
premium rates.\3\ In fact, after looking at insurance rates and tort 
law limitations across the country from 1985 through 1998, the study 
found that states with little or no tort law restrictions experienced 
the same insurance rates as states that enacted very strong tort 
restrictions. These findings suggest that limiting accountability might 
have very little, if any, impact on the current crisis.
---------------------------------------------------------------------------
    \3\ Hunter & Doroshow, 2.
---------------------------------------------------------------------------
    An alternative approach that could both address malpractice 
insurers' concerns about rising claims and respond to consumers' 
interest in improved quality would be to encourage malpractice insurers 
to partner with practitioners in promoting best practices and patient 
safety measures. For example, insurers could offer discounts in 
insurance rates not just based on actual claims experiences, but also 
based on a practitioners' implementation of proven safety measures that 
will improve health outcomes and reduce errors that could result in 
malpractice. This approach would have multiple benefits, including 
lowering premium rates, making insurance more affordable, and improving 
health care quality. As the Committee moves forward in this area, we 
encourage you to consider these types of alternatives.
    For these reasons, we encourage the Committee to study this issue 
carefully before moving forward with any legislative proposals, 
especially those that might restrict access to meaningful 
accountability. We also encourage the Committee to further study the 
extent to which the insurers themselves may be playing an important 
role in creating this crisis and to determine whether further 
regulation of this industry is needed, at the state or federal level. 
Thank you for your concern and attention to this issue of tremendous 
importance to women and families.
            Sincerely,
                                      Judith L. Lichtman, President
                          Deborah L. Ness, Executive Vice-President
                          Alice M. Weiss, Director of Health Policy

    Mr. Brown. I wish that Ms. Visco were still here because 
she talks very passionately and convincingly about how this 
hurts women, especially a 58-year-old woman who is working as a 
hotel maid or as a clerk at Walmart and has very little earning 
power in her future and so the non-economic damages are, the 
economic damages are pretty minimal to her compared to a 32-
year-old investment banker who has got millions of dollars 
potential earnings while the 58-year-old woman who works as a 
clerk is close to retirement, if she could ever retire on the 
little bit of money she would make there, and has very little 
potential economic potential earning potential. To sort of 
limit the economic, the non-economic damages, again I'm not a 
lawyer and I don't totally get this, but to limit the non-
economic damages is sort of like tax cuts for rich people. And 
we give tax breaks, you know, we're cutting taxes for 
everybody. Yeah, well if you're making a million dollars a year 
you get tens of thousands.
    If you're making $30,000 you get $12. And there's a little 
bit of that in and this and it just sort of continued class 
warfare that my friends on that side of the aisle commit 
against working people in this country and poor people. And I'm 
frankly sick of it and I'm sorry that this hearing was used to 
continue that sort of assault.
    I would like to move on and ask Ms. Townsend a couple of 
questions and I appreciate the testimony of all four of you. I 
think it was helpful and enlightening and Ms. Visco's was too.
    I agree with, first of all Ms. Townsend, I agree with Mr. 
Fine's assessment that Congress must help hospitals and 
physicians find a solution to this very real crisis. And I hear 
Dr. Roberts. I remember my dad talking about it in a lesser way 
because the problems weren't perhaps as great 20 years ago when 
we retired 15 years ago.
    But Mr. Fine mentioned three factors that contributed to 
increases in Pennsylvania. One, declining returns on investment 
for insurance companies. Second, that the three largest 
insurers were vacating the market. Third, large jury awards.
    Based on your experiences in eastern Pennsylvania, what 
contributed most to these increases in premiums? Can you help 
us understand that better?
    Ms. Townsend. I think that the biggest culprit was the 
insurance industries' boon during the 1990's and the way it was 
investing and then spending the money that it brought in and 
not having enough money in reserves. And there were a lot of 
improprieties that are now coming out in the newspapers because 
there's litigation going on. The insurance commissioner is 
actually looking into PHICO and there's litigation going on 
about PIC and PIE right now too. I would say that that is the 
biggest culprit and I think it's critical.
    It's been mentioned a number of times the comment from an 
insurance industry executive in the Wall Street Journal saying 
we have to look inwards. We made the mess and I think we really 
need to investigate the insurance industry as we are in Enron, 
Global Crossing and look for ways of making the system work 
better.
    Mr. Brown. You call it PIE. We in Ohio who are not as 
literate call it PIE, which I believe it's headquartered in 
Cleveland. What caused PIE to leave the Pennsylvania medical 
malpractice insurance market? Maybe you can talk more 
informationally about PIC or PHICO if that's how you say those, 
PHICO and PIC and PIE. What can you tell us about that?
    Ms. Townsend. To the best of my knowledge, I think it was 
because they ran out of money and they just could not continue 
the business.
    Mr. Brown. They ran out of money because?
    Ms. Townsend. Because they spent it all on poor investments 
and they invested unwisely and didn't have enough in reserves 
to be able to pay out when loses happened.
    Mr. Brown. And with PIE it was also obviously, you cited 
the case----
    Ms. Townsend. There was impropriety on the part of the 
president there.
    Mr. Brown. In these cases, is it mostly mismanagement, or 
is it fraud, or is it some sort--you know, one of the 
interesting things, and I'll wrap up, Mr. Chairman, the 
interesting thing about all this corporate abuse that president 
points out it's just not the illegal abuses that we should be 
concerned about. It's also the corporate CEOs sitting on each 
other boards and paying huge amounts of money in salaries, not 
illegal in bonuses, but ultimately cause layoffs in the 
companies. Is it some of that too in your----
    Ms. Townsend. Something that remains a mystery to me, if I 
can answer you question in a different kind of way, is we've 
had a catastrophic loss fund in Pennsylvania, and over time it 
has now going to be phased out as a result of recent 
legislation. The CAT fund, as opposed to the private insurers 
about which we're speaking with huge CEO salaries, runs in a 
very lean kind of way. The amount of money per claim, claims 
management they call it, per claim is about $500 per claim to 
manage it from start to finish as opposed to what they're going 
to do. What they're going to do now which is phase it out and 
then shop it out to the for profit entities that will cost 
between $4,000 and $5,000 per claim with less experienced 
people managing them. I guess that's my way of saying because 
of the obscene amount of money that's made by the insurance 
industry which is one of the richest industries in America 
today, consumers and patients are losing. And a suggestion that 
we had made that a number of people----
    Mr. Norwood [presiding]. Please wrap it up, Ms. Townsend. 
Time has expired for Mr. Brown.
    Mr. Brown. That's fine, Mr. Chairman. I would like her to 
finish her thought. Yes, Mr. Chairman.
    Ms. Townsend. We have been talking about making a single 
payor malpractice insurance system in Pennsylvania. JUAs don't 
have to charge such excruciatingly high rates. If we had one 
payor per State or one payor nationwide, the administrative 
costs would go down and premiums would go down and we'd have a 
centralized place to monitor mistakes where and when they 
happen and why they happen and get to the root cause.
    Mr. Norwood. Thank you, Ms. Townsend.
    Mr. Brown, as the prerogative of the Chair, I wanted to 
point out that this is not the Norwood bill, but it is the 
Greenwood Bill for which I support the basic premise of which 
if you don't have some limits on liability, we are never going 
to solve the problem of excess. But Mr. Greenwood is certainly 
on the right track. I recognize Mr. Cox now.
    Mr. Cox. Thank you, Mr. Chairman. I think it's important to 
point out because some of the dialog that's taken place that 
the experience in California is that there are no real limits 
in MICRA, that is to say there is no limit on the amount that a 
party to a lawsuit can recover. It's unlimited. There is no 
limit, for example, on punitive damages. And Ms. Townsend gave 
an example of someone cutting off the wrong foot or doing 
something wrong. Punitive damages are routinely awarded, and 
the amount is unlimited. Likewise, after all medical expenses 
are paid, not just to remedy whatever went wrong, but also to 
take into account all future medical expenses for one's 
lifetime if that's caused by the injury. That, of course, is 
unlimited. But also, all manner of conceivable second order 
effects from the injury such as I can't work in exactly the 
same line of work I used to be in and so on. All that's 
unlimited. There are no limits overall in California to what 
can be recovered. The limit is effectively infinitive. The only 
thing that MICRA limits in California is non-economic damages 
by which we mean so-called injured feeling damages. The 
inherently nonquantifiable damages that juries assess based on 
a gut feeling, as it were. That was thought a quarter century 
ago was the main contributor to the jackpot nature of some 
verdicts or more specifically the lack of horizontal equity and 
the lack of predictability and the subtraction of significant 
amounts of money from the health care system.
    We now have some experience with California versus the rest 
of the United States and because some people in their opening 
statements suggested that premiums might have gone up unduly in 
California notwithstanding MICRA, I think that it should be 
pointed out that since 1976 up until the turn of the 21st 
century, U.S. malpractice premiums over that period went up 420 
percent. And in California the premiums went up 168 percent. 
That's a rather significant difference for the biggest most 
populous State and the most diverse State in the Union. And 
yet, we hear that we have these horrible problems in West 
Virginia. We hear that we have these horrible problems in 
Nevada. Horrible problems in Mississippi. One can look around 
the country and sadly, tragically, some of it relates to OB/
GYNs and I want to ask Dr. Hollier because you're here in that 
capacity and you are an OB/GYN yourself. Is that right?
    Ms. Hollier. Yes, sir.
    Mr. Cox. Why it is that doctors who deliver babies are 
specially the targets of these kinds of lawsuits?
    Ms. Hollier. Doctors who deliver babies are considered high 
risk practitioners because babies can be born with problems and 
very often babies who are born with problems are associated 
with lawsuits against physicians. And I think it's important to 
remember that the claims that are brought against these 
physicians are not necessarily truly medical negligence.
    Mr. Cox. Another specialty that is deemed high risk is 
neurosurgery.
    Ms. Hollier. Yes, sir.
    Mr. Cox. On the one hand, I can understand the connection 
between delivering babies and the kinds of defects that might 
occur at birth and the insurance risk attended to neurosurgery 
because patients can become paralyzed or worse. But on the 
other hand, it strikes me, as a lawyer, not a doctor, that 
delivering babies in a certain sense is the most basic function 
of a health care system. It's sort of work a day. And so when 
people are run out of town, when they can't deliver babies 
anymore and Dr. Roberts has given us rather striking testimony 
in that regard, are we mischaracterizing that profession, that 
specialty, in calling it especially hazardous, especially high 
risk, because the human race is going to continue to propagate 
itself for a long time. We probably got by without 
neurosurgery, but I don't think we ever got by without 
delivering babies.
    How does this characterization of your specialty, how is it 
justified?
    Ms. Hollier. I think that obstetrician/gynecologists 
clearly provide an incredibly important service for women and 
the 4 million women who are going to deliver their children 
this year are relying on us to provide them with the highest 
quality of medical care. Perhaps my colleagues in the insurance 
industry can better explain why obstetricians and gynecologists 
pay such dramatically higher premiums than other types of 
physicians. We certainly work very hard to provide the best 
quality care that we can everyday.
    Mr. Cox. I'm wondering whether or not there might be more 
jury appeal when the injury occurs to an infant. Or whether 
it's the fact that there's a whole lifetime ahead for the 
infant that runs up the damages. But when I look at the Nevada 
situation and we have West Virginia on the panel here and Mr. 
Pickering spoke to Mississippi, but Nevada is also an extreme 
case. The University of Nevada Medical School tells us that 
this is as of last month 42 percent of obstetricians are making 
plans to move their practices out of southern Nevada. If that 
happens, only 78 obstetricians are going to be left in Las 
Vegas, which is a city of 1.5 million people and 23,000 births 
every year.
    Seventy-six percent of the obstetricians in Las Vegas have 
been sued. Now is it conceivable in America that there is a 
city of such substantial size where three quarters of the 
doctors are crooks or frauds or charlatans or quacks?
    Dr. Roberts, maybe you'd like to respond to that.
    Mr. Roberts. I think the problem is that everyone expects a 
perfect baby every time. When my father began practicing in the 
1930's, they didn't have the antibiotics that we have today. 
They didn't have the procedures that we have today. So they 
expected to lose some children, to not always have a perfect 
outcome. Unfortunately today, people in America expect a 
perfect baby every time. It's not always someone's fault. Many 
times it's an act of God. It's something that was going to 
happen no matter what the individual physician did or the nurse 
or whoever is held accountable for the problem. So I think we 
need to have a more realistic expectation. We all pay for the 
lawsuit abuse. We pay the bill one way or another. It plays 
into the inflationary spiral that costs us all more money every 
day. You can't put a price on non-economic damages. You can't 
put a price on human life. You cannot give somebody a million 
dollars and tell them they feel better because they lost their 
loved one.
    Unfortunately, our society has gotten to that point. We 
believe money is more important than feelings. Many times 
physicians need to communicate better. And this is a problem I 
see with many physicians as I teach students. I tell them to 
talk to people. Treat people the way you would like to be 
treated if you were that person, or if that were your wife, 
your child, or your parents. If we all did that, we'd have a 
much better communication system. We wouldn't be afraid of each 
other. We'd be treating each other with respect.
    Mr. Norwood. Thank you, Dr. Roberts, Mr. Cox.
    Ms. Eshoo, you're no recognized for 5 minutes.
    Ms. Eshoo. I want to thank all of the witnesses that are 
part of this first panel. While you have some differing views, 
I think that you presented yours very, very well and with a 
great deal of sincerity and professionalism.
    Doctor, I think that you have with your testimony, with 
your words, really etched into every single member's mind that 
we really do have a problem. I mean, here you are, someone that 
has continued a tradition in your community. You have never had 
a suit against you and yet, what is the cost of your premium 
this year?
    Mr. Roberts. $35,800.
    Ms. Eshoo. And who is the carrier that you pay your 
premiums to?
    Mr. Roberts. Bureau of Risk and Insurance Management in the 
State of West Virginia.
    Ms. Eshoo. And it was how much last year?
    Mr. Roberts. $17,000. That was with PICO. And then PICO 
went, of course, into receivership. So they did double the 
premium. They have said it may be as much as twice that next 
year. And I obviously will not be able to afford that.
    Ms. Eshoo. And approximately, what's the gross of your 
practice?
    Mr. Roberts. I can't tell you that. There are two 
physicians, two nurse practitioners and two----
    Ms. Eshoo. What does this present in terms of overhead for 
you?
    Mr. Roberts. Excuse me. It represents, I'm going to say, 10 
percent of my income. And there are expenses that come out of 
that.
    Ms. Eshoo. It's a lot of money. I'm sure you've shopped for 
insurance.
    Mr. Roberts. I can't get any other insurance in the State 
of West Virginia. All the other providers have pulled out. They 
will not ensure family physicians that do obstetrics. If I did 
not do obstetrics, my rate would be approximately half what it 
is. What happens is people drop procedures. They stop 
delivering babies. So women don't get prenatal care. Babies end 
up being born at 28 or 30 weeks in an emergency situation. They 
have to get in a helicopter and go to Morgantown. Those babies 
cost approximately $1,500 a day besides the human cost for that 
family and that child. The State pays the bill. Eventually, we 
all pay. Providing pre-natal care is one of the most important 
things we can do as a society.
    Ms. Eshoo. You're a good man. You really have touched me 
with how you've conducted yourself. You're a decent person, 
you're doing something that, and I'll tell you one thing, for a 
woman to, the relationship of women with their physicians, 
their OB/GYNs is something that no one can never drive a wedge 
through. We have very, very complicated bodies and we're 
reliant upon you.
    I'd like to ask the person sitting next you. How do you 
respond to the doctor? I mean, here he is--just a little cross 
rough. I'm not looking to make mischief. Each one comes in with 
their 100 percent clear cut view. And yet this is a pretty, 
this is not, I don't think, a stand alone case. It speaks to 
the problem that we have in our system. He has never been sued. 
What do you have to say about the problem? And also, I 
appreciate your testimony. You point out some very important 
things. But how would you respond to what he's saying?
    Ms. Townsend. I've been equally moved by Dr. Roberts.
    Ms. Eshoo. He's not a single, he's not just a single 
smokestack.
    Ms. Townsend. Oh no, he's not.
    Ms. Eshoo. He underscores the problem that we have. Now, I 
understand the room that there is in the system for medical 
malpractice, but if the insurance rates are what they are and 
he has never done anything that's wrong, what does that say to 
you? Maybe that's the fairest way to ask the question.
    Ms. Townsend. That tells me that Dr. Roberts, I believe, is 
being price gouged by the insurance industry. And that tells 
me, and maybe this is a crazy idea, I don't know whether this 
happens elsewhere, but is there such a thing as experience-
based insurance for medical professionals? It makes me think 
about that.
    Ms. Eshoo. We have, I know, on our next panel, and I hope 
I'm going to be able to be here for it, because we've already 
been in for about 3 hours here. Well, there's a lot of 
discussion and debate. As long as it takes, we should do it.
    Do the other two panelists, would you like to lean in on 
this and just say a few words? I give you the opportunity to.
    Mr. Fine. If I may add----
    Ms. Eshoo. Not very long so everyone else has a chance, but 
go ahead.
    Mr. Fine. I understand. Physicians, and rightly so, take 
care of patients one at a time. Hospitals have to bridge taking 
care of patients one at a time while at the same time trying to 
play a public health role in preparing and addressing the 
health care needs of their communities. So we're caught in a 
``Catch-22;'' we try to address the individual situations such 
as those that are discussed by Dr. Roberts and Ms. Townsend, 
and the need for us to be prepared to take care of the people 
in our community. Without resolving this problem, we will lose 
the capabilities in our community.
    Ms. Eshoo. It becomes gum stuck to your shoe as well.
    Mr. Fine. Exactly.
    Ms. Eshoo. Doctor, would you like to say something before 
my time expires?
    Ms. Hollier. Thank you very much for giving me the 
opportunity. We certainly appreciate your attention to this 
issue today and we appreciate the recognition of this committee 
that this truly is a crisis. The residents that I've trained 
who have debt from medical school, who have debt from brand new 
practices----
    Ms. Eshoo. Another huge problem we should be addressing.
    Ms. Hollier. They are going to be unable to continue to 
practice obstetrics next year, if premiums increase again. We 
desperately need of a solution.
    Ms. Eshoo. Has the Academy looked at the whole issue of 
experience pricing? What is it?
    Mr. Norwood. Your time is up, Ms. Eshoo.
    Ms. Eshoo. If she could answer that, Mr. Chairman.
    Mr. Norwood. This will be the end of it.
    Ms. Eshoo. Has the Academy looked at that, Doctor?
    Ms. Hollier. I am not aware of that.
    Ms. Eshoo. Thank you. Thank you, Mr. Chairman.
    Mr. Norwood. Yes ma'am. I now recognize myself for a couple 
of brief questions.
    Dr. Roberts, your malpractice insurance company is whom?
    Mr. Roberts. BRIM. The Bureau of Risk and Insurance 
Management of the State of West Virginia.
    Mr. Norwood. So Ms. Townsend is applying that the State of 
West Virginia is gouging you with that high premium.
    Mr. Roberts. I'll leave that question alone.
    Mr. Norwood. Is that what you were implying, Ms. Townsend?
    Ms. Townsend. I think he's being charged too much money.
    Mr. Norwood. So the State of West Virginia is charging you 
too much money, but nobody else will insure you.
    Mr. Roberts. That's correct.
    Mr. Norwood. That sort of leads me to the question, Dr. 
Hollier, about what happens if we have choices here. Would 
pregnant patients around the Nation rather have access to 
windfall jury awards because we refuse to admit there needs to 
be some limit on liability? And I'm not wishing to debate what 
that limit is, the fact that there needs to be some number out 
there in malpractice lawsuits. Or would the women of the 
country rather be ensured that they will have access to health 
ensure a safe pregnancy and a healthy child by having people 
stay in business? What would be your feeling about that?
    Ms. Hollier. Thank you very much for asking that question. 
My feeling is that the women of this country, just as I did, 
would recognize that prenatal care is extremely important in a 
delivery of a health child and would advocate for access to 
care. I think this legislation is important because we need to 
balance a few women who recover unquantifiable damages against 
the ability of all women in this country to receive the 
preventative and the diagnostic care that they need.
    Mr. Norwood. So the American College supports H.R. 4600.
    Ms. Hollier. The American College of Obstetricians and 
Gynecologists strongly supports H.R. 4600.
    Mr. Norwood. Do you agree with what many members have said, 
and panelists, that actually physicians at a rapid rate for 
leaving medicine and in particular OB/GYN.
    Ms. Hollier. Yes, sir. I absolutely agree with that. One of 
my colleagues in Cady, Texas just recently found out that his 
liability insurance was going to cost him $70,000 for the 
practice of both obstetrics and gynecology. If he drops 
obstetrics it's only $20,000. So he stopped obstetrics.
    Mr. Norwood. And Dr. Roberts, you agree that positions in 
the country, particularly those around mine and your age that 
may have had experience are rapidly getting out of the practice 
of medicine and particular OB/GYN.
    Mr. Roberts. Yes, sir.
    Mr. Norwood. Then it's logical to conclude that women in 
this country do not have access. Now what we're discussing 
today is why are those premiums as high as they are.
    Mr. Roberts. What is happening in the State of West 
Virginia, the Bureau of Risk and Insurance Management is 
dependent upon the State Treasury of West Virginia. They do not 
want physicians to be on BRIM program. BRIM program was 
initially begun so that the professors at West Virginia 
University and Marshall University would have coverage. What's 
happened is by default, they had to provide the availability of 
insurance to us, the other insurance companies have left. BRIM 
does not want us to continue. They are trying to get the State 
Medical Society to create a Physicians Mutual, which has in the 
past not done well--look at PIE and PHICO, and there are other 
examples across the country.
    So the State Medical Society has been very reticent to 
produce an insurance alternative because it's just a stop gap 
measure. Until we address the real issue, which is the 
excessive awards and the fact that people have developed this 
lottery system, then we are never going to have anything that's 
going to have a significant meaning. The State Treasury does 
not want to be at risk. That's why they have made BRIM the 
highest price. There's a 10 percent premium. Whatever rate you 
can get in the State of West Virginia, they add 10 percent to 
it and that's your BRIM rate.
    Mr. Norwood. So we can all then agree that part of the 
problem for the premium increase has got to be, part of it, the 
increased awards that are going on, and in many cases not even 
an award.
    Dr. Hollier, you said in your statement that out of 10 
cases taken to court of OB/GYNs, 7 were found for the 
defendant, meaning three 3 found to have done something wrong 
and there was then an award. But the other seven, having spent 
time, dollars, etcetera, were found not guilty.
    Ms. Hollier. Yes, sir. That is absolutely correct. In 
addition, in Texas, in fact, one study has shown that 86 
percent of claims against physicians are ultimately dropped by 
plaintiffs' attorneys, thus these claims are nonmeritorious.
    Mr. Norwood. Then why would these attorneys spend so much 
money taking a claim like that to court and lose so many of 
them?
    Ms. Hollier. I think that's a very difficult question. But 
that certainly brings us to address one of the important 
legislative components of H.R. 4600 which is a limit on the 
contingency fees lawyers can charge in litigation involving 
professional liability.
    Mr. Norwood. Well, does that mean that maybe 60 percent of 
an award that's supposed to go to a patient actually goes to 
the plaintiff attorney in court costs, therefore, windfalls are 
potential here, therefore it's okay to lose 7 out of 10, 
because all you have to do is win one and you don't even have 
to be right? To win one in the system you just have to be able 
to hire the most expert witness. So surely we can come to some 
agreement in this committee that there is a problem with the 
system that is contributing to the fact that women in this 
country are losing access to care no matter what side of this 
you're on, Mr. Brown. We ought to be able to sit down as 
grownups and discuss this and recognize. There's got to be some 
limit somewhere.
    My time is up, I'm sorry to say.
    Mr. Stupak, you're now recognized for 5 minutes.
    Mr. Stupak. Thank you, Mr. Chairman. In your comments to 
Mr. Brown, I think we probably could sit down and talk about 
this if we were to separate fact from fiction. I don't know of 
any State that allows a 60 percent recovery for attorney fees 
in malpractice cases as you claim for this big windfall for 
attorneys.
    Mr. Norwood. Would you yield just a second?
    Mr. Stupak. Just as long as I get my time back, I will.
    Mr. Norwood. I included court costs in that, too. 
Attorney's fees and court costs.
    Mr. Stupak. All right. I'll let it go. I don't tell you how 
to practice dentistry. You shouldn't tell us how to do 
malpractice. All right.
    Dr. Roberts, you said that the West Virginia legislature 
had tried to address this malpractice situation?
    Mr. Roberts. Yes, sir.
    Mr. Stupak. What did they determine?
    Mr. Roberts. Well, they spent 60 days in session and I can 
give you this off the top of my head, but please don't quote me 
exactly. But they raised the fee to file a malpractice claim 
from $85 to $250. They increased the jury from 6 people to 12 
people. Nine out of the 12 have to agree that there is 
malpractice. They created a tax credit. We have a provider tax 
in West Virginia. We pay 2 percent of our gross. Before we pay 
any bills, we pay 2 percent of our gross for the right to 
practice medicine in West Virginia. They gave us a partial tax 
credit. You deduct $10,000 from your malpractice fee premium 
and you take 10 percent of that amount off of your provider 
tax. So those are the things that were primarily done in the 
State of West Virginia, which again I feel are relatively 
minimal in having an impact on the situation.
    Mr. Stupak. Let's back up here. You said your total income, 
your malpractice is about 10 percent of your total income and 
it's probably going to be $35,800, so if that's 10 percent your 
income is about $300,000. And if West Virginia taxes you, what, 
2 percent?
    Mr. Roberts. Two percent.
    Mr. Stupak. So how much is 2 percent of your gross income 
that's paid to West Virginia?
    Mr. Roberts. $6,000. Something like that.
    Mr. Stupak. So they gave you a rebate on that.
    Mr. Roberts. Ten percent credited toward that amount.
    Mr. Stupak. They didn't go into caps and all this other 
stuff, right? West Virginia?
    Mr. Roberts. No. There is a cap, a million dollars on non-
economic damages now in West Virginia already in place.
    Mr. Stupak. If your legislature, you say you're State is in 
crisis. If your legislature won't take the steps you want them 
to do, as found in this bill, why then should the Federal 
Congress pass a law that affects all of the States?
    Mr. Roberts. This is a very political issue. In the State 
of West Virginia, I don't believe any tort reform will be 
passed unless the State Bureau of Risk and Insurance Management 
is the only provider in the State, and the State Treasury 
becomes that risk. Then the legislature will have to do 
something to limit the awards.
    The other thing that could happen is that a Federal bill, 
such as H.R. 4600, would come down to the State of West 
Virginia. They would have to comply with that.
    Mr. Stupak. We always hear up here that State legislatures 
are so much more closer to the people and they know better than 
we do, so why would we be Federalizing the system that the 
State won't do?
    Mr. Roberts. State legislatures are just as prone to 
politics as they are on a national level.
    Mr. Stupak. Sure. Can you then tell me then, Dr. Roberts, 
you indicated you never had any claims or anything like that 
against you, right? You didn't get any credit for that from the 
insurance carriers?
    Mr. Roberts. No.
    Mr. Stupak. Never, right? No claims, your policies keep 
going up? The premium keeps going up.
    Mr. Roberts. Yes, sir.
    Mr. Stupak. And your license has never been suspended for 
anything then?
    Mr. Roberts. I had a situation about 15 years ago, yes sir. 
It's a personal matter that's really not germane to this issue. 
And it did not affect my malpractice claims if that's your 
question.
    Mr. Stupak. No, no. I'm just trying to figure out why it 
always goes up, you never get a rebate if you never had a 
claim. But if your license is suspended, that's by the State of 
West of Virginia then, right?
    Mr. Roberts. Yes, sir.
    Mr. Stupak. So something else there other than a 
malpractice claim.
    Mr. Roberts. Yes, sir. It had nothing to do with 
malpractice, did not affect my rights in any way.
    Mr. Stupak. Your carrier told you that?
    Mr. Roberts. Yes, sir.
    Mr. Stupak. I would just think that if the State would take 
a drastic action like taking away a license of a physician, 
that's a right that you have a property right and your income 
right, that there has to be----
    Mr. Roberts. Sir, I addressed this with the Board of 
Medicine in West Virginia in 1987, 15 years ago. It was 
addressed correctly, it was resolved at full licensure with the 
Federal Government and with the State government of West 
Virginia. This is not an issue. Obviously, you're trying to 
turn this into political process. I'm a Democrat, too. Why are 
you attacking me?
    Mr. Stupak. Wait a minute. I asked an innocent question. 
You said that you had never had a license suspended or anything 
like that. No malpractice claims. So I asked a question. 
There's a part of licensing, or malpractice, called licensing. 
Did you ever have your license suspended? Innocent question. 
I'm not trying to get into your personal life. What I'm trying 
to say does it have influence on these malpractice premiums. 
There's a lot of factors that go into it. It's not just 
lawsuits.
    So answer this if you can, Doctor. What is it that States 
with caps on damages, why those with damages, caps, why isn't 
the premium higher than those without the caps?
    Mr. Roberts. I don't know.
    Mr. Stupak. Was West Virginia then voted caps? Was that an 
option they had in the legislature to go to caps? Was that an 
option that they presented at West Virginia to go to caps on 
malpractice award for non-economic losses, for punitive 
damages? Did they propose caps in West Virginia?
    Mr. Roberts. They proposed a cap of a million dollars on 
non-economic damages, yes. And there is no price on human 
suffering. I don't care if you call it a million dollars or 
$250,000. You cannot replace human suffering with money.
    Mr. Stupak. Then why would we have put a cap on it then? 
Shouldn't you let the jury determine then what that suffering 
was?
    Mr. Roberts. Because we all pay that price. Can you reward 
pain and suffering? Can you replace that individual? I don't 
think so.
    Mr. Stupak. But you said you can't put a price on it, but 
yet you want to put a cap on it. Correct?
    Mr. Roberts. I think it's a matter of economics. The United 
States cannot afford to continue to pay the prices that we're 
paying.
    Mr. Stupak. So life is just a matter of economics then?
    Mr. Roberts. It's economics if people can't find a doctor. 
It's economics if a baby is born weighing 1.5 pounds at 26 
weeks and has to go on a ventilator. That's how it becomes 
blind because of oxygen toxicity, or has a ventricular leak 
because they could not find a doctor. They had no prenatal 
care.
    Mr. Stupak. It's also economics if you have to take care of 
that injured person for the rest of your life. That family then 
has some economic factors that have to be considered.
    Mr. Roberts. It wasn't my fault if I wasn't able to be 
there to take care of the mother and baby.
    Mr. Stupak. It was your fault.
    Mr. Roberts. They couldn't get care because there was no 
access.
    Mr. Norwood. Thank you, gentleman.
    Mr. Stupak. If it was your fault. If you're talking about 
economics, it applies both ways. It can't just be one side.
    Mr. Norwood. Thank you very much, Mr. Stupak.
    Mr. Stupak. Thank you, Mr. Chairman.
    Mr. Norwood. And I want to apologize to you. I misspoke and 
I want to correct that. It's not 60 percent that goes into the 
administration and defense costs and attorney fees. It's 
actually 58 percent, and I'd like to submit for the record the 
Report on the Council of Economic Advisors and put that in the 
record the imply the problem is the patient doesn't receive as 
much as we think they do.
    And now I'd like to recognize Mr. Buyer for 5 minutes.
    Mr. Buyer. Thank you. I have some questions about this 
culture of fear. I sort of touched on it in my opening remarks 
about, I guess it can also be called practicing defensive 
medicine.
    And so I would like Dr. Roberts, actually I'm not picking 
on the two docs here. Help me out here. You're practicing 
medicine. You're doing the best that you can. But you also know 
that the lawyers are out there and if a lot of these claims are 
being filed also are being classified then as frivolous suits 
or nonactionable or however you want to title them. Tell me 
about the inside, the sit down with your colleagues? Tell us 
about the inside, the practice of defensive medicine. Is it 
happening, is it not? I'm just curious.
    Ms. Hollier. Thank you. It seems like my problems today are 
technical. We have quantifiable data that talks about the 
practice of defensive medicine, and it appears that more than 
three fourths of physicians feel concerned about malpractice 
litigation, in fact, 76 percent. This concern hurts their 
ability to provide quality of care in recent years.
    Physicians also report that the fear of malpractice claims 
causes themselves and/or other physicians to order more tests 
than they would need based on professional judgment of what's 
truly medically needed. Ninety-one percent have noticed other 
physicians do this, and 79 percent report that they do this 
themselves due to concerns about professional liability.
    Physicians may prescribe more medications such as 
antibiotics and only a scant 5 percent of physicians think that 
their colleagues are comfortable discussing medical errors with 
them.
    I think the medical community is working very hard to limit 
medical errors. We are actively involved in research to limit 
medical errors. Hospitals, as I believe you addressed earlier 
in your opening remarks, have quality assurance committees, 
risk assessment committees, and physicians are working very 
hard to improve patient safety.
    Mr. Buyer. Dr. Roberts?
    Mr. Roberts. I think one thing that's happened in some 
States is that there are certain practice guidelines that have 
been established, and what they've done there is try to 
determine the standard of care in the community. And if you 
have met that standard of care, then you can be held 
nonresponsible. But sometimes this leads to unnecessary x-rays, 
scans, and lab procedures that are done purely because we are 
afraid. If you're afraid that you're going to be sued, you 
order the extra CAT scan whether you feel it's really 
necessary. If a child falls and the child is fine, you've done 
a complete neurological exam. You've looked in their eyes. 
You've done all the screening tests. You go ahead and order the 
CAT scan in the emergency room because you're afraid if it's 
ever is that one in a million case that that is going to be the 
thing that's brought into court.
    Mr. Buyer. Answer this as you like. You can even do it in 
the hypothetical. But if you have a doctor doing his diagnostic 
analysis and he thinks it's a, could be b, but I really think 
it's a. But you know what, I know that this individual's 
insurance covers an MRI. I just want to be 100 percent. Is it 
happening that they go ahead and go yeah, let's just go ahead 
and get that MRI done. Let's go ahead and get that other 
procedure. Is that happening out there?
    Mr. Roberts. Absolutely. Every day. In every emergency room 
across the country and every doctor's office.
    Mr. Buyer. So it wouldn't be just for an MRI. It could be 
for laboratory tests from blood. Give us some examples. And 
then Mr. Fine I'd like for you to jump in.
    Mr. Roberts. What happens is the individual physician is 
put in the position of realizing that this case could be 
brought into court. They could be accountable whether it's 
their fault or not. Did you do the proper procedure? Did you 
order the proper test? And subsequently, the individual 
physician orders the test just because they know that, not 
because they feel it's necessary for the patient. And the 
problem is many of these people don't have insurance.
    Mr. Buyer. So it exceeds the boundary of the community 
standard of quality of medicine and then it becomes defined as 
defensive medicine.
    Mr. Roberts. Absolutely. I agree.
    Mr. Buyer. Thank you. Mr. Fine?
    Mr. Fine. Yes. To piggy back on that, it certainly occurs 
in every emergency room across the Nation regardless of whether 
has insurance or not for their health coverage. If someone 
comes in as the doctor described who has fallen and struck 
their head, CAT scan or MRI becomes the standard of care 
whether or not it's necessary in that incidence. And that 
occurs in the Philadelphia area whether or not the hospital 
paid for the case. Most of us are paid a flat rate for 
emergency room case, substantially less than a $100 per case. 
But that person that comes in who has lost consciousness or has 
had a minor head injury can end up with a $1,000 CAT scan or 
MRI because the emergency room can't afford, or the emergency 
room physician can't afford the exposure that's associated with 
not doing that test.
    Mr. Buyer. Thank you, Mr. Chairman. I yield back.
    Mr. Norwood. Thank you. Mr. Strickland, you are now 
recognized for 5 minutes.
    Mr. Strickland. Thank you, Mr. Chairman. And I'd like to 
say to my friend, Representative Deal, that I wish I had been 
wise enough to make your opening statement. I listened to all 
the opening statements, and I very much appreciated the balance 
and the passion with which you spoke. Thank you.
    Dr. Hollier, I'm not sure I'm pronouncing you correctly?
    Ms. Hollier. Hollier.
    Mr. Strickland. Do you believe that caps, if they are or 
were in place, would reduce malpractice premiums?
    Ms. Hollier. Yes, sir. I believe that they would. I think 
that the MICRA reforms that we've been talking about today 
really have stood the test of time in California. We've talked 
a lot about how the absolute number of the premium paid by 
physicians in California is relatively similar to the number 
physicians pay in other States. And I think it's important for 
us to remember that we very well may be comparing apples and 
oranges.
    Mr. Strickland. Can I ask you to respond to this then? I 
have data here from Medical Liability Monitor. It presents the 
average liability premium for OB/GYN physicians for 2001. And 
then in States without caps, the average premium is $44,485. 
And in the States with caps, the average premium is $43,010.
    How do you explain that data from what I believe is a 
credible source because it seems as if there is very 
insignificant difference, if any at all.
    Ms. Hollier. Well, I have not had the opportunity to 
specifically review that data. I would like to say that it's 
important to remember that we need to compare rates for the 
same amount of coverage. For example, my physicians in the 
State of Texas can't obtain $1 million, $3 million coverage. In 
fact, what we're obtaining for our $37,000 a year may in fact 
be $5,000, not $1 million. Or what is most common now in the 
State of Texas is actually $200,000, $600,000.
    Mr. Strickland. But you see, the problem that we face up 
here is that we hear all of these claims and accusations. At 
some point, there needs to be some coming together, some 
reasoning together to find out that we're looking at the same 
data, providing the same coverage. And I don't think we're 
there yet. I have a second question, if you'd be so kind.
    Many of us are interested in exploring not only the 
solutions that have been suggested by many of you, but also 
exploring reforms in the insurance industry as a part of the 
solution to the current problem.
    Now I have here information regarding several States that 
have already enacted caps. Florida caps both punitive and non-
economic damages. Nevada caps punitive damages. New Jersey caps 
punitive damages and in wrongful death cases non-economic are 
not available. Michigan caps punitive damages and non-economic. 
Texas caps non-economic and punitive damages. Washington has 
abolished punitive damage.
    Why is it that States with caps on damages are still facing 
this same crisis that we are describing if caps are going to 
provide the kind of premium relief that many of you seem to 
believe they will provide?
    Ms. Hollier. I think that's a very good question. Clearly 
the problem is multi-faceted and we are interested in 
investigating multiple measures to reduce those prices and 
ensure access of our patients to care.
    Mr. Strickland. It seems to me that your answer, and I 
think it's an accurate one, it's a multi-faceted problem, calls 
for a multi-faceted solution. And my problem with what we're 
attempting to do here is that we seem to have a single shot 
solution to a problem that is multi-faceted in nature.
    I'm very close to the hospitals in my District, Mr. Fine. I 
value what you and your association does and I'm wondering if 
you would just speak to that same series or a couple of 
questions that I've addressed to the good doctor here in regard 
to why our States which have these caps in place are still 
experiencing the kind of crisis that we're all recognizing as a 
reality?
    Mr. Fine. A few points there. First of all, within States 
there are significant differences by region. In Pennsylvania, 
the southeastern Pennsylvania region's rates for professional 
liability coverage are substantially higher than the more rural 
central part of the State. So part of this has to do with the 
venuing of cases and the way in which cases are reviewed by 
local juries.
    The listing that you had offered relative to States in 
which limits have been already implemented, as I understood the 
list, most of those limitations applied not to non-economic 
damages, but mostly to punitive damages and in H.R. 4600 those 
two things are addressed very, very differently.
    Mr. Strickland. If I could just make one concluding 
statement, Mr. Chairman. I'm conflicted because we trust the 
jury system to make life and death decisions regarding whether 
or not a person should be put to death, for example. It 
troubles me that we would trust the jury system to make 
decisions about life and not trust the jury system to make 
decisions about money. That is so fundamental to the conflict 
that I'm feeling, while recognizing that the problems that 
you've described here are very real ones and we need to address 
them.
    Mr. Chairman, I would yield--I think my time is up, as a 
matter of fact. Thank you.
    Mr. Norwood. Thank you very much, Mr. Strickland.
    Mr. Deal, you are recognized for 5 minutes.
    Mr. Deal. Thank you, Mr. Chairman. As I observed in my 
opening statement, this is a multi-faceted issue that has, 
quite frankly, very few good and absolute solutions, but I am 
after being in Congress and State legislature and practicing 
law for over 20 years, I've concluded that the perfect is never 
really going to be achieved, but what we try to do is to come 
as close as we can to resolving these issues.
    And Dr. Roberts, I would say that your testimony certainly 
is a graphic demonstration of the very practical problems that 
we're facing and I appreciate the fact that you would be 
willing to come and share your experiences with us because you 
come from an area that's very similar to my District and I'm 
sure the District that many people represent here and that is 
smaller communities where there has always been and hopefully 
will always continue to be a personal relationship between the 
doctor and the patient. The reputation of the doctor in that 
community spreads itself to the point that jurors who are 
assembled are confronted with a protectionist attitude, because 
this is our doctor and we have a relationship with him. 
Unfortunately, I think as we get into larger communities, much 
of that is lost.
    One of the problems that I alluded to earlier is that even 
though in the breakdown I now see that Mr. Buyer has here about 
insurance malpractice rates, that in some companies they are 
beginning to make geographical distinctions between larger 
communities many times where many of the larger verdicts come 
from and smaller communities where if there is ever a verdict 
it is always of a smaller magnitude.
    One of the aspects of this whole issue, however, that 
concerns me and that I'm hearing from my medical community is a 
decline in the number of young people who are actually applying 
for medical schools. Is that a concern that you've heard 
expressed, and if so, would you comment on it, any of you?
    Mr. Roberts. It's very much a concern. I teach at Western 
University. I'm a clinical professor and I also have worked on 
the medical school admissions board doing interviews with 
students. We have less applications every year. Students are 
discouraged from going into medicine because of fear. People 
actually in medical school such as my daughter are being 
questioned about where they're going to go and they're looking 
for States. She's considering going to Colorado. She worked out 
there for a year with an OB/GYN group and she found that their 
laws were much more stable than West Virginia. I'm not sure 
exactly the structure of that law, whether it's similar to the 
MICRA law or not, but I've noticed that Colorado is one of 
those States that's not as likely to get into a lawsuit.
    So yes, it is a concern. It's a concern that it's 
discouraging, some of our good students, not to go into 
medicine, and it concerns me.
    Mr. Deal. Doctor?
    Ms. Hollier. Thank you very much. I'd like to echo those 
concerns. I'm a teacher at the University of Texas Medical 
School at Houston and we are definitely seeing a decrease in 
the number of students who are interested in obstetrics and 
gynecology. In fact, one of the most frequently asked questions 
for me is what is the liability situation going to be like for 
me, am I going to actually be able to practice obstetrics. If I 
go through a 4-year residency training, a 3-year fellowship, am 
I going to be able to practice what I have learned? Our 
students are clearly demonstrating their concern about the 
current crisis and I'm afraid if this crisis continues, the 
quality of physicians that choose obstetrics and gynecology may 
decline.
    Mr Deal. So the effect is, first of all, there is a 
declining interest in medical school, in general, in the 
population, plus there is obviously a selection process of 
specialties going on and it is in some part dictated by 
liability concerns in the particular specialties and certainly 
the OB/GYN being one of those high risk specialties from a 
liability standpoint. Is that what I hear both of you saying?
    Mr. Roberts. Yes sir. Many family practice residents are 
electing not to obstetrics and not to do other high risk 
procedures because of that when they go into practice which 
again limits access to prenatal care and delivery care 
services.
    Mr. Deal. Mr. Fine, as a hospital administrator and CEO of 
a large hospital, I presume that one of your requirements for 
granting hospital privileges for physicians is that they must 
have liability insurance in their own right. Is that correct?
    Mr. Fine. That's not only a requirement of our hospital, in 
order to be licensed as a physician in the Commonwealth of 
Pennsylvania, you must have a minimum of $1.2 million of 
professional liability coverage.
    Mr. Deal. So there's no, in that case, there's no option 
about having to have liability insurance.
    Mr. Fine. No option.
    Mr. Deal. You can't just elect to be self-insured, in other 
words?
    Mr. Fine. Correct.
    Mr. Deal. And especially in situations where there is no 
separate liability allowed, but to joint and several 
liabilities in place, obviously the hospital is almost 
invariably a co-defendant in cases of alleged malpractice that 
occurred within the confines of the hospital. Is that correct?
    Mr. Fine. Yes sir, that's absolutely correct.
    Mr. Deal. All right. With regard to the insurance coverage 
of the hospital itself, would you repeat what your percentage 
of increases have been?
    Mr. Fine. Sure. Grand View Hospital specifically, 2 years 
ago was paying approximately $1.5 million for its professional 
liability coverage. That went up to approximately $2.3 million 
last year and will be over $3 million this year, in addition to 
the increases in coverage. We've been now forced to take $7.5 
million deductible in the first layer of excess insurance, 
right above $1 million. And a 50 percent co-payment for any 
claim that actually pierces into that layer. We have a 
tremendous exposure.
    Mr. Deal. I understand that that's a similar pattern that 
hospitals in my State and other States are experiencing is the 
larger up front deductibles and the larger percentage of co-
pays. I don't think your situation is unique in that regard. Is 
that your general understanding?
    Mr. Fine. That is my understanding.
    Mr. Deal. I think all of us--is my time up, Mr. Chairman? 
I'm sorry. I would not dare infringe on that. Thank you.
    Mr. Norwood. Thank you, Mr. Deal. I sure didn't want to 
call you down on it either.
    Mr. Deutsch, you're now recognized for 5 minutes.
    Mr. Deutsch. Thank you, Mr. Chairman. I would throw this 
out. I know all of you in good faith answered my colleague from 
Georgia's question, but I'd be curious to see any empirical 
data to support the contentions that were just made about less 
quality of students and people choosing not to go into medicine 
based on liability issues, people choosing not to go into 
specialties because of liability issues. I just--I have a 
medical school in my District where I have not heard of any of 
that. So if it exists, maybe it exists in other States besides 
Florida, but I'd be curious about it.
    Did you want to respond to that?
    Ms. Townsend. I actually have examples in three States to 
answer that question.
    Mr. Deutsch. Okay.
    Ms. Townsend. One is New York State. According to the New 
York Public Interest Research Group, New York State is ranked 
third in the Nation in its number of obstetricians and 
gynecologists per capita which is ahead of California which is 
ranked 27th. And when compared to the region, Connecticut 
ranked second as ahead of New York State in the number of OB/
GYNs per capita.
    What's more, the number of physicians practicing in New 
York has gone up significantly and is increasing at a rate 
faster than the national average. The Nation's ratio of 
physicians per capita rose by 43.6 percent compared with the 
47.9 percent increase in New York during the period of I guess 
between 1980 and 1998. I'm trying to speed this up.
    Mr. Deutsch. You know what, I'll tell you. I got the gist 
of what you're saying.
    Ms. Townsend. And also, this is from the Center for Justice 
and Democracy. There was also a study done called the Price of 
Practice from the Charleston Gazette in West Virginia, done by 
two reporters that found that despite claims from the medical 
association there, that the lack of tort reform had caused a 
mass exodus, that in fact, they were seeing an increase in 
physicians and the same goes for Pennsylvania. John Reed of the 
CAT Fund has----
    Mr. Deutsch. Mr. Chairman, Mr. Chairman, if you want to 
take my time, can you ask me to yield?
    Mr. Norwood. Would you yield to find out what study that 
was?
    Mr. Deutsch. I'd be happy to yield to the chairman.
    Ms. Townsend. It's called, it's a series that appeared in 
the Charleston Gazette. It's called the Price of Practice and 
the reporters in question where Lawrence Messina and Martha 
Leonard.
    Mr. Norwood. Thank you very much.
    Mr. Deutsch. Thank you. Recalling my time, we've had a lot 
of testimony this morning and I guess a question that I would 
raise and give you the opportunity because as far as I'm aware 
it really hasn't been discussed, why are we here? Why are we 
talking about this as one of the unique things that the Federal 
Government needs to be involved in? Many of us on this panel 
have served as State legislators and actually dealt with 
malpractice issues in the legislature. This has traditionally 
been a legislative issue, a State legislative issue. Why all of 
a sudden is this an issue that has to be Federalized?
    I'd like to thank my colleagues on the other side of the 
aisle, continuously, always say local government does better, 
State does better. Why are we choosing to have this hearing? 
Why are we choosing to discuss Federalizing what has 
historically and traditionally been a State issue?
    Does anyone want to offer any reason for it? I mean sort 
of----
    Mr. Fine. I'll offer the comment that in some States the 
crisis has already developed and in most of our neighborhood 
States, we see that the crisis is rapidly developing to the 
point that it would appear that a common solution to the 
problem would make more sense.
    Mr. Deutsch. But again, I guess I would ask you, why can't 
you go to your legislatures? I mean there's a reason why we 
have not Federalized insurance. Again, my question would be if 
the crisis is so dramatic as you're describing, the numbers you 
presented I think would absolutely point to that, why isn't 
your legislator responding? And let me just follow up on that, 
that if they're not responding and the crisis is as bad as 
you're describing, you have the ability in a political process 
to elect new legislators. This is again historically not a 
Federal issue for some very good reasons. And it seems very 
selective that we're even here today, all of a sudden 
Federalizing this particular issue.
    Mr. Fine. In Pennsylvania, I was asked to come here by 
members of the State legislature. In Pennsylvania, we have 
certain constitutional provisions that according to the 
Pennsylvania Supreme Court have precluded the establishment of 
such things as caps on non-economic damages. Members of the 
Pennsylvania House with whom we've worked closely on this, have 
worked to pass legislation that has then been overturned by the 
State Supreme Court. This occurred when----
    Mr. Deutsch. Let me just----
    Mr. Fine. Congressman Greenwood was sitting in the 
Pennsylvania Senate.
    Mr. Deutsch. Let me just mention because I see I'm wrapping 
up on time. I mean in Florida, again, I have a fair amount of 
experience in Florida. Both sides of this issue or three sides 
of this issue, four sides of this issue on more than one 
occasion, again, I don't know, Pennsylvania, ability to do 
initiatives in terms of constitutional amendments, but in 
Florida, we've had some very aggressive constitutional 
amendments because of similar issues related to, as you said, 
in Pennsylvania.
    The last thing I would mention, and really give people an 
opportunity and maybe Mr. Fine, you in particular, which always 
sort of--I have questions of this in terms of the whole 
malpractice issue. You mentioned a specific thing in terms of 
someone coming into an emergency room setting and getting a CAT 
scan. And I guess the perspective I have is in terms of either 
practice parameters or in terms of what is appropriate medical 
care. If it's not appropriate, even if it's one in one thousand 
times that the case that looks like the concussion is not a 
severe concussion, that only a CAT scan could pick up, then in 
any type of factual setting, why would someone, what's--it 
doesn't make sense that they would not do a CAT scan. It might 
not be for the--in other words, what I'm saying is you have to 
evidence. It's a factual issue. There has to be a factual basis 
at some point in a setting that that was an appropriate 
procedure to do, appropriate test to do. You're not doing CAT 
scans on fingers or broken arms because you're not and again, 
it might not be likely. It might not be that often. If you were 
paying out of pocket, maybe you wouldn't want to do it or maybe 
the patient might not want to do it, but I guess what I'm 
saying is if the test is actually showing something, even if 
it's unlikely, I mean in a sense it has to be showing something 
that very well might save the person's life. So I guess my 
question----
    Mr. Norwood. Mr. Deutsch, I know you're a stickler for 
protocol and your time has expired.
    Mr. Deutsch. But Mr. Chairman, I would ask to give the 
gentleman an opportunity to follow up and see if he can answer.
    Mr. Norwood. Well, it wasn't a question, was it?
    Mr. Deutsch. It really was.
    Mr. Norwood. You want to answer, Mr. Fine?
    Mr. Fine. If I understood the gist of the statement, the 
issue becomes that in retrospect any test that is found to be 
positive is determined to have been a necessary test and any 
test that was negative is generally viewed as having been 
unnecessary and that can only be determined after the fact, in 
retrospect. Until such time as we have, either reform such as 
those that are being discussed today or we have practice 
parameters that are established and protect practitioners so 
that they will not be found retrospectively responsible for 
having made what seemed to be a very well informed decision at 
the time. We will continue to have the problem that I believe I 
understood you to be outlining.
    Mr. Norwood. Thank you very much, Mr. Fine. Mr. Fletcher, 
Dr. Fletcher, you're now recognized for 5.
    Mr. Fletcher. Thank you, Mr. Chairman. Let me say I agree 
with some of the comments about Mr. Deal's opening statement. I 
think it was very thoughtful and I concur with him that in the 
profession of medicine we need to do a lot more on policing our 
own members and I'll ask a question about that just briefly 
regarding transparency which I think the runaway lawsuits 
decreases which makes it more difficult for peer review.
    Additionally, let me make a statement regarding also the 
chairman's or Dr. Norwood's questioning regarding lawsuits, 
only 70 percent, of all liability claims result in no payment 
to plaintiffs. And this is one of the problems of having this 
possibility of getting this large settlement. It is this fact 
that attracts trial lawyers and we see a lot of their ads on 
television as I believe Mr. Deal had mentioned, to go after 
cases which don't have the facts with them, simply because it's 
kind of the roll of the dice. And not only that, but the median 
cost of defending such a case, one where the jury rules the 
defendant not guilty is $66,767 and that was in 2001. So you 
see, there's a lot of money that changes hand, a lot of money 
to be made, even in these lawsuits that have no credibility and 
that are lost and that's part of the problem. That's what makes 
it broken.
    Let me make a comment additionally on the quote about the 
poor and I want to quote from Cruz Reynoso, a Democratic Vice 
Chairman of the U.S. Commission of Civil Rights, professor of 
law at UCLA and a former Justice to the California Supreme 
Court. He stated that publicly funded medical centers are 
supportive of MICRA because in their own insurance rates they 
found they would go up much more without MICRA which would 
decrease their ability to serve the poor. And I think that's 
true for institutions all across this country. So I don't think 
as some have tried to purport here, that having unlimited 
liability somehow protects the poor disproportionately. I think 
it's just the opposite. We've heard where rural physicians have 
had to stop practicing and move to other States or out of the 
rural areas.
    Dr. Roberts, you've talked about that. You and your father, 
delivering 9,000 out of 10,000 people, I don't know how that 
happened, but in your community, but obviously your departure 
of doing obstetrics there is going to have a tremendous impact 
on that community and young women are going to have travel.
    Let me ask you, what percentage of the two physicians here, 
Dr. Hollier and Dr. Roberts, do you all deal with Medicaid 
patients or patients that you don't end up getting paid from? 
What do you all do with those patients?
    Ms. Hollier. I practice at LBJ General Hospital in 
Northeast Houston, and the vast, vast majority--more than 90 
percent of my patients--are uninsured or Medicaid patients.
    Mr. Fletcher. And so if you left practice because you can't 
afford the escalating premium cost of malpractice insurance, 
you'd leave those people trying to find some place to go, is 
that right?
    Dr. Roberts?
    Mr. Roberts. That's the same situation in West Virginia. We 
have a very high percentage of Medicaid and uninsured patients. 
They have expanded the Federal guidelines, so more people can 
be guaranteed by Medicaid, but the majority of my patients, 
probably 90 percent of my obstetrical patients are Medicaid 
patients.
    Mr. Fletcher. I think the point is well taken. Here's an 
individual who took care of a number, a majority of poor 
individuals, women, particularly, and his service is no longer 
available because of this crisis, so this bill certainly is not 
a perfect solution, but it is part of the solution and I think 
a very important part of the solution.
    If I can ask the assistant to put up a chart here, there 
was a study done at Stanford on defensive medicine that shows a 
5 to 9 percent increase in medical costs due to the unlimited 
liability and effective tort reform would lower the cost 5 to 9 
percent. Savings nationally would be $50 billion. Do you know 
how may prescription drugs we could provide for our seniors, 
low income seniors, if we could spend that $50 billion on 
prescription drugs? Or what about on caring for the poor, those 
that have no insurance, almost 40 million people in this 
country.
    I want to and the physicians, I think, spoke to this. Does 
defensive medicine affect your practice? Do you feel that 
sometimes there's a sense of fear of liability in the practice, 
that sometimes affects your judgment?
    Dr. Hollier? It's a difficult question, but I've been there 
and let me say I've felt it personally.
    Ms. Hollier. I think there's definitely a climate of fear 
in which we practice.
    Mr. Fletcher. Dr. Roberts?
    Mr. Roberts. I think it absolutely affects the decision 
that every physician makes every day. I don't think you can 
decide if someone has insurance or doesn't have insurance 
whether they need a test. You need to order the test anyway and 
I think we need to be very careful that we don't become afraid 
to deal with people honestly and straightforwardly, that we 
continue to communicate with them in the way we would as if 
they were our own families.
    Mr. Fletcher. Well, thank you. Let me ask you a question, 
Ms. Townsend and I certainly appreciate your testimony. I'm 
sorry----
    Mr. Norwood. Your time is up, without objection, you can 
have an additional minute.
    Mr. Fletcher. Thank you, Mr. Chairman. The IOM report, To 
Err is Human, notes over and over again that health care 
professionals are threatened from sharing information on 
medical errors because of fear of retaliation. The IOM report 
states ``fears about the legal discoverability of information 
may undercut motivations to detect and analyze errors. Unless 
such data assures protection of information about errors will 
continue to be hidden and errors will be repeated. A more 
conducive environment is needed to encourage health care 
professionals and organizations to identify, analyze, and 
report errors without the threat of litigation, without 
compromising patients' rights.''
    Let me ask you, does your organization support legislation 
to grant peer review protections for data related to patient 
safety and quality improvements?
    Ms. Townsend. Would you define the peer review system about 
which you speak?
    Mr. Fletcher. Does your organization support legislation to 
grant peer review protections or if you have a peer review 
program in a hospital that tries to identify any concerns or 
problems going on with a colleague/physician of protecting that 
peer review so that you can identify a problem and correct them 
to protect that data for patient safety and quality? Because 
the Institute of Medicine, I think they're a pretty good 
organization, has stated that this impairs the ability to 
improve the quality of medicine and to do as Mr. Deal was 
talking about, to identify bad practitioners.
    Ms. Townsend. That's a very interesting idea. My 
organization has not looked at that particular recommendation.
    Mr. Fletcher. So you have no stand on that?
    Ms. Townsend. I think we need to do something about making 
it more common place for doctors and health care workers to 
come forward and talk about what goes wrong in the hospitals.
    It was interesting when I spoke with John Reed of the CAT 
Fund in Pennsylvania, he was a wealth of information. He could 
tell me which corner of the hospitals mistakes happen more 
often. He could tell me which day of the week was the least 
desirable date to go to a hospital, to get a procedure.
    Mr. Bilirakis. Will you share all that with us?
    Ms. Townsend. Well, if we had a centralized location, if we 
had a single payer system, perhaps, we would have that 
information and you could fix the problems.
    Mr. Bilirakis. The gentleman's time has expired. Mr. 
Greenwood to inquire.
    Mr. Greenwood. Thank you, Mr. Chairman, and I apologize 
that I had to leave for an hour or so.
    First off, if I could, Mr. Chairman, I'd like to enter into 
the record a series of letters that I've received from 
physicians and constituents in my District.
    Mr. Bilirakis. Without objection, that will be included.
    Mr. Greenwood. And let me turn my questions to you, Ms. 
Townsend.
    Ms. Townsend. Certainly.
    Mr. Greenwood. And I apologize and I know I'm going to ask 
some questions that may have been asked already, but that's the 
way it works.
    In your testimony, you say that H.R. 4600, that we 
vehemently oppose H.R. 4600 which we know will hurt victims of 
medical malpractice, immunize wrong doers and be a boon for the 
monolithic giant that should be the target of everyone's ire, 
the insurance industry.
    Could you tell me how you know that victims of medical 
malpractice will be hurt by this legislation?
    Ms. Townsend. Well, in the case of somebody who is a low 
income person, the case of a woman, women traditionally today 
make less money than men do. A senior citizen, a person with a 
disability----
    Mr. Greenwood. Okay, let's take a woman who is low income 
and she's injured as a result of malpractice. How does this----
    Ms. Townsend. If she is injured as a result of malpractice 
and it's a severe malpractice and the jury decides that in 
addition to economic damages, she should receive non-economic 
damages to cap non-economic damages at $250,000 is hurtful to 
that person who might need additional money----
    Mr. Greenwood. For what?
    Ms. Townsend. To take care of her life for the rest of her 
life because she wasn't making a lot of money and economic 
damages are----
    Mr. Greenwood. But she is entitled to say I lost my right 
arm as a result of an error by a physician and I'm not--this 
will be the limitations on my economic abilities. She will be 
able, you would agree that she can recover all of her medical 
costs, all of her medication costs, all of her therapy costs, 
all of her psychotherapy costs, whatever inability she has to 
achieve income, she'll be able to recover that, right?
    Ms. Townsend. My question to you would be, what would be 
the difference between that woman's economic damages versus a 
CEO of a company who had the same thing happen to him?
    Mr. Greenwood. She would recover everything that she might 
have otherwise had and so would the CEO.
    Ms. Townsend. But the CEO would receive a significant sum 
more.
    Mr. Greenwood. He was going to--he or she was going to get 
that anyway. In other words, she's going to recover, she's 
going to be--she's not--she's going to be held whole.
    Ms. Townsend. So he's going to be given money to give him 
the style to which he has grown accustomed and the woman who 
was struggling who perhaps will not be able to work for the 
rest of her life or has been severely altered what she can do, 
will never be able to factor in the fact that maybe that woman 
would be the American dream and was going to be a manager in a 
store 1 day and own the company the next day and ultimately be 
that CEO.
    Mr. Greenwood. Well, she's, of course, able to get punitive 
damages as well.
    Correct?
    Ms. Townsend. In this legislation is there not caps on 
punitive damages?
    Mr. Greenwood. No, there are no caps.
    Ms. Townsend. There's no--is there a formula?
    Mr. Greenwood. Excuse me, the cap is do you not know how we 
treat punitive damages in this legislation?
    Ms. Townsend. If you could tell me again. I know that 
there's a formula to it. And I don't have it committed to 
memory.
    Mr. Greenwood. I don't mean to be insulting, but when you 
come and testify about a bill, it helps if you've read it.
    Ms. Townsend. And I'm honestly saying----
    Mr. Greenwood. Mr. Chairman, now wait a second----
    Mr. Brown. Mr. Chairman, she's not testifying on the bill. 
She's testifying on the issue.
    Mr. Bilirakis. Did you yield?
    Mr. Greenwood. I did not yield the floor.
    Mr. Bilirakis. Let's go on. Let's go on.
    Mr. Greenwood. Ms. Townsend, the individual in this case 
can receive all of her economic damages. She can receive 
$250,000 in non-economic damages and she can receive punitive 
damages equal to twice her economic damages.
    Ms. Townsend. I understand that now, thank you. What I do 
know about punitive damages, if this woman is--has had 
something so egregious happen to her that the jury decides that 
she should receive punitive damages, I believe (1) that it 
should be up to the jury to decide what that amount is, an 
amount that is oftentimes ratcheted down ultimately, because 
it's aimed at sending a message to the wrongdoer that they 
should never do that ever again.
    Mr. Greenwood. That's what punitive damages are for.
    Ms. Townsend. They happen also very, very rarely. So we 
can't, unless we know the circumstances of that woman, count on 
punitive damages because they happen seldom.
    Mr. Greenwood. Let me ask you this question, where does 
your organization receive its funding? From where does it 
receive its funding?
    Ms. Townsend. We receive funding from a variety of 
individuals and organizations from around the country and the 
States.
    Mr. Greenwood. To what degree would you say that the trial 
bar constitutes your organization and funds your organization?
    Ms. Townsend. I would say that attorneys and the 
association just a very little bit, probably contribute some 25 
to 30 percent of the organization's work. And like you, I'm 
sure you know that you need to raise money to run for office 
like we need to raise money in order to exist as an 
organization, and we work to bring in funding from individuals 
who agree with our organization on the issues, rather than 
adapting to the----
    Mr. Greenwood. I just want the record that. Thank you, Mr. 
Chairman.
    Mr. Bilirakis. All right, I think that finally that 
completes the work of this panel.
    Mr. Brown. Mr. Chairman, can I ask for a clarification? I 
was very confused by that, Ms. Townsend and Mr. Greenwood, back 
and forth discussion. Could I just ask a question to understand 
it better?
    Mr. Bilirakis. Would you like a minute, 2 minutes?
    Mr. Brown. Two minutes would be fine.
    Mr. Bilirakis. Two minutes, without objection.
    Mr. Brown. First, I heard Mr. Greenwood say that punitive 
damages aren't limited and then I think you said, Mr. 
Greenwood, and I will yield to you that they are, in fact, 
limited?
    Mr. Greenwood. I said they're not capped. They are 
permitted to--punitive damages are limited to the result, to 
twice the economic damages.
    Mr. Brown. Okay, I reclaim my time. So the interesting 
thing here and I go back to this Congress, the majority in this 
Congress continuing to go after working families and rewarding 
the wealthy in society. Think about this. The cap on punitive 
damages is based, is two times the amount of economic damages. 
That means if a doctor injures a CEO, the CEO can get more 
punitive damages than if the doctor injures or the hospital or 
the nurse whatever, injures a woman who works in a hotel. So 
that's just sort of inexplicable. I'll just leave it at that. I 
don't get that, why that should be the case. In addition to 
earning power in the future and all that we're doing on 
economic damages, that sort of to me, makes me wonder about the 
whole intent of this legislation.
    Mr. Norwood. Mr. Chairman, could I have 2 minutes, too, 
please?
    Mr. Bilirakis. No objection, but I don't want any more of 
that. This panel has been here for 4 hours.
    Mr. Norwood. Just a quick thought.
    Mr. Bilirakis. Without objection, go ahead.
    Mr. Norwood. The purpose of economic damages is if a person 
is harmed economically they are to be made whole. And the 
person who is harmed economically as a CEO is made whole----
    Mr. Brown. These are punitive damages.
    Mr. Norwood. Don't interrupt now. You all are sticklers for 
that. The other thing I wanted to quickly ask Dr. Roberts is I 
heard you say that defensive medicine is practiced. Mr. Fine 
said it also in the emergency room--is practiced all the time 
because you are afraid. And what I think you are afraid of is 
that juries today, and with so many plaintiff lawyers trying to 
take you to court, that you can lose everything. All your 
life's work. All at one lick. Because there is absolutely no 
limit as to what they can do and the trial attorney has great 
interest in driving that number up as high as possible.
    Would you be less afraid if there were some reasonable 
limitation so that you could then protect yourself through 
reinsurance and be able once again to practice medicine rather 
than having to practice law to defend yourself.
    Mr. Roberts. Absolutely. I think that would be an ideal 
solution.
    Mr. Norwood. Thank you, Mr. Chairman.
    Mr. Bilirakis. The Chair asks for unanimous consent that it 
document what appeared in the May 1996 issue of the Quarterly 
Journal of Economics entitled ``Do Doctors Practice Defensive 
Medicine?'' be made part of the record. That being the case 
without objection. Thanks so very much. I apologize for keeping 
you here this long. But I think you can see an awful lot was 
gained by all of us in terms of knowledge. We customarily have 
written questions which we send to witnesses, to panelists, if 
you will, and ask for responses in a timely fashion. You're all 
willing to do that, aren't you? I think Ms. Visco, she's 
appeared before us, so I expect that she would be willing to 
submit also. That having been the case with our thanks you are 
discharged. Thank you very much.
    The next panel which has been so very, very patient 
consists of Dr. Richard Anderson, CEO of the Doctor's Company 
on behalf of the Physician Insurers Association of America; Mr. 
Jamie Court of the Foundation for Taxpayer and Consumer Rights 
here from Santa Monica, California; Mr. Jim Hurly on behalf of 
the American Academy of Actuaries from Atlanta, Georgia; Mr. 
Travis Plunkett with the Consumer Federation of America; and 
Mr. Victor E. Schwartz with the firm of Shook, Hardy & Bacon 
here in Washington, DC. Welcome, gentlemen, and thank you for 
being here and again we appreciate your understanding and your 
patience. Your written statement is, of course, a part of the 
record and we would hope that you would complement it verbally. 
We'll set the clock at 5 minutes and hope that you can stay 
within that period of time or shortly thereafter, if you would.
    Dr. Anderson, if you would pull that mike closer so we can 
hear you. Please proceed, sir. The mike is not on.

STATEMENTS OF RICHARD E. ANDERSON, CEO, DOCTOR'S COMPANY; JAMIE 
   COURT, FOUNDATION FOR TAXPAYER AND CONSUMER RIGHTS; JAMES 
HURLY, AMERICAN ACADEMY OF ACTUARIES; TRAVIS PLUNKETT, CONSUMER 
 FEDERATION OF AMERICA; AND VICTOR E. SCHWARTZ, SHOOK, HARDY & 
                             BACON

    Mr. Anderson. Chairman Bilirakis, Representative Brown, and 
members of the subcommittee, thank you for this opportunity to 
present our views on the implications of excessive malpractice 
litigation on our health care system and the need for Federal 
reform. I am Chairman of the Board of the Doctor's Company, one 
of the 45 doctor owned and/or operated medical liability 
insurers that comprise the Physicians Insurance Association of 
America, PIAA. PIAA members insure more than 277,000 physicians 
and 1,100 hospitals against the accusations of malpractice. 
Personally, as an oncologist, I must bear the knowledge that 
each and every cancer patient whose life I tried to save can be 
turned into a potential adversary in our current medical legal 
system by the effects of the terrible disease and an 
exploitative plaintiff's attorney.
    In my testimony, I would like to discuss with you proven 
solutions to some of the most serious problems affecting our 
health care system. Today's crisis and medical care access is 
well known to you. What must be understood is that States like 
California have previously experienced very similar crises and 
have successfully adopted medical liability reform and have no 
such crises today.
    Despite stunning advances in scientific knowledge, medicine 
remains more art than science because human beings are not 
machines. Medicines' achievements today and promise tomorrow, 
as remarkable as they are, cannot be guaranteed. It's a sad 
commentary on our society that approximately one of every six 
practicing physicians faces a malpractice claim every year.
    In high risk specialties such as obstetrics, orthopedics, 
trauma surgery, and neural surgery, there is one claim for 
every doctor every 2.5 years. It is critical to understand that 
7 or more out of 10 of these claims are found to be without 
merit. Nonetheless, each of these meritless cases requires 
costly legal defense averaging approximately $23,000 per case. 
The Doctor's Company alone has spent more than $400 million 
defending claims that were ultimately shown to be without 
merit.
    The insurance system was able to accommodate even this 
inexcusable volume of litigation as long as the size of the few 
valid claims was predictable. Unfortunately, in the past few 
years, there has been an explosion in the cost of individual 
claims. Texas has seen a $268 million verdict. A number of 
States have witnessed verdicts in excess of $100 million. The 
city of Philadelphia alone has recorded multiple verdicts in 
excess of $50 million in just the past 2 years.
    Mr. Chairman, insurance is not magic. If society expects 
insurers to pay unlimited awards, it should expect that those 
who are insured should pay corresponding premiums. As premiums 
rise, so must the cost of health care. Since health care today 
is a zero sum game, these cost increases mean corresponding 
decreases in access to necessary medical services.
    Those are the largest claims. What about the size of the 
average claim? PIAA data shows that the average indemnity claim 
payment in 2001 was more than $310,000, a 60 percent increase 
in just the past 5 years. The figure continues to be affected 
by the tens of thousands of malpractice claims closed every 
year. Whatever the number, beyond dispute, is that the cost of 
these claims is rising precipitously. The sum of the 
malpractice indemnities paid in New York and Pennsylvania alone 
was nearly $1 billion in year 2000.
    Those who would attempt to obfuscate the truth will argue 
that the numbers are much smaller. The Center for Justice and 
Democracy and J. Robert Hunter actually state the average claim 
payment in 2002 was $8,066. He got this number by adding all 
the claims that closed without any payment whatsoever. In other 
words, zero dollar claims to the number of paid claims.
    Put differently, Mr. Hunter would argue that the solution 
to today's malpractice crisis is more frivolous litigation 
because that brings down the average cost per claim. Such 
arguments are as without merit as the frivolous claims 
themselves.
    Mr. Hunter also claimed that the cost of malpractice 
premiums had risen no more in California which has tort reforms 
than in the rest of the country. In fact, since the MICRA 
statutes of 1975 were enacted, rates in California have 
increased at a rate only one third that of the rest of the 
country. You don't need to take my word for this. This is data 
affirmed by the National Association of Insurance 
Commissioners.
    Moreover, those who would obfuscate the truth would argue 
that stock market loses by insurance companies are the real 
driver of price increases. The truth is once again quite 
different.
    I know of no insurance companies that have experienced net 
losses greater than their investment income. Not only do State 
insurance commissioners who closely regulate such investments, 
but rating agencies also monitor them closely. What has 
happened is that less investment income is available to 
subsidize premium levels. Therefore, today premium levels must 
more closely approximate claims loses.
    California has 27 years' experience with MICRA. This is not 
an experiment. We know, we do not speculate, that genuine 
liability reform works. Since 1975, Doctor's Company 
Malpractice Premiums in California have decreased by 40 percent 
in constant dollars. This is true despite the fact that there 
has not been and is not today any limit whatsoever on actual 
damages awarded.
    We know, we do not speculate, that claims settle about 33 
percent faster in California than the rest of the Nation 
because the lottery aspect of non-economic damages has been 
controlled.
    We know, we do not speculate, that even very large 
judgments can be accommodated by the insurance system because 
they can be paid on an annual basis over the intended period of 
compensation, not as a single jackpot.
    We know, we do not speculate, that injured patients take 
home a significantly higher percentage of awards in California 
because there is an upper limit on attorney contingency fees.
    Mr. Bilirakis. If you could summarize, Dr. Anderson, I 
would appreciate it.
    Mr. Anderson. Yes sir. We know, we do not speculate, the 
MICRA has not limited access to attorneys. California is a 
litigious State and the frequency of suits in California is 50 
percent higher than the national average. But still 8 out of 10 
claims in California are found to be without merit.
    Finally, we know that not only does MICRA not limit total 
awards, but also that malpractice awards still arise faster 
than inflation in California. These same reforms are found in 
H.R. 4600, the PIAA and the Doctor's Company totally support 
the provisions of this Act, which when signed into law would 
provide the same protections to patients across the United 
States as found in California for over a quarter century.
    We thank the members of the committee and their staff for 
this important hearing and inviting us to testify. We look 
forward to working with you to make the health care liability 
system fairer for everyone.
    I'll be happy to answer any questions.
    [The prepared statement of Richard E. Anderson follows:]

   Prepared Statement of Richard E. Anderson, Chairman, The Doctors' 
     Company on Behalf of Physician Insurers Association of America

    Chairman Bilirakis, Representative Brown and members of the 
subcommittee, thank you for this opportunity to present to you today 
our views on the implications of excessive litigation and the need for 
Federal health care litigation reform. My name is Richard Anderson and 
I am an oncologist with more than 25 years experience practicing cancer 
medicine in California. I am also Chairman of The Doctors' Company one 
of the 45 doctor-owned and/or operated medical liability insurers that 
comprise the Physician Insurers Association of America (PIAA). 
Collectively, the PIAA companies insure over 60% of the Nation's 
practicing physicians. At last count, PIAA companies insured more than 
277,000 doctors and 1,100 hospitals. On behalf of our member companies 
and their insureds, the PIAA has always supported health care liability 
reform that will more equitably and rapidly compensate patients who 
have received substandard care, but which at the same time will also 
limit frivolous lawsuits and increase access to health care.

                               BACKGROUND

    Despite stunning advances in scientific knowledge, medicine remains 
more of an art than science because human beings are not machines. 
Sadly, the tide of litigation against America's doctors has risen even 
faster. Approximately one of every six practicing physicians faces a 
malpractice claim every year. In high-risk specialties such as 
obstetrics, orthopedics, trauma surgery and neurosurgery, there is one 
claim for each doctor every 2\1/2\ years. However, fully 70% of these 
tens of thousands of cases are found to be without merit. Nonetheless, 
every single case requires a costly legal defense. Nationally, as the 
chart below shows, these loss adjustment expenses average $22,967 per 
defendant. Those cases that go all the way through trial before a 
vindicating defense verdict average $85,718 per defendant.1 
[See chart below] The Doctors' Company itself, for example, has spent 
more than $400 million defending claims that ultimately were shown to 
be without merit.
---------------------------------------------------------------------------
    \1\ PIAA Data Sharing Project, May 2002.
    [GRAPHIC] [TIFF OMITTED] T1491.001
    
                    ROOTS OF THE CURRENT ENVIRONMENT

    Medical liability claims were fairly uncommon until the 
1970s. In the 40 year period between 1935 and 1975, 80% of all 
medical malpractice lawsuits were filed in the last five years 
of that period.2 Massive losses between 1970 and 
1975 forced many commercial insurers to conclude that the 
practice of medicine was an uninsurable risk, and they simply 
refused to provide malpractice insurance at any price. This 
resulted in a ``crisis of availability'' to which providers 
responded emergently. Doctors contributed their own funds as 
capital to support the efforts of their state medical and 
hospital associations, among others, to start as many as 100 
provider owned specialty carriers across the country. Dubbed 
``bed pan mutuals'' by their commercial competitors (many of 
whom had fled the market), these upstarts were not expected to 
succeed where the giant commercials could not find success. 
Because their primary mission is to provide a service, and 
because they were entirely committed to remaining present even 
in the most difficult markets, these companies have succeeded 
and are the basis of the PIAA. As one example, The Doctors' 
Company was formed by doctors, for doctors in 1976, and today 
insures more than 25,000 doctors throughout the nation.
---------------------------------------------------------------------------
    \2\ Professional Liability in the ``80s, Report 1, American Medical 
Association, 10, 84, p4.
---------------------------------------------------------------------------

                       A LITIGIOUS SOCIETY GROWS

    A second crisis emerged in the early 1980's, known as a 
``crisis of affordability.'' Insurers faced ever-mounting 
losses, with rampant increases in paid claim frequency (number 
of paid claims) and severity (amount of indemnity payment). 
PIAA data shows that on average it takes 5\1/2\ years for an 
insurer to close a malpractice claim after the date of the 
incident.3 There is often a long lag before the 
claim is reported. The majority of the delay, however, comes 
because of the inefficiencies of the tort system. California 
enacted the Medical Injury Compensation Reform Act of 1975 
(MICRA) which largely eliminates the lottery aspect of 
malpractice litigation in that state. The Doctors' Company data 
reveals that claims are settled in one-third less time than the 
national average. [See chart below] This result not only 
decreases the cost of litigation, but it means injured patients 
are indemnified much faster in California.
---------------------------------------------------------------------------
    \3\ PIAA Data Sharing Project, December, 2001.

    [GRAPHIC] [TIFF OMITTED] T1491.002
    
    During much of the 1990s, PIAA companies exercised their 
fiduciary responsibility to wisely invest the premium deposits 
of their policyholders, who benefited from the rising bond 
markets. These returns were used not to line the pockets of the 
companies, but to subsidize the premium rates being charged to 
policyholders so that they could remain affordable. It was the 
policy holders (health care providers) who reaped the financial 
benefits.
    It must be noted that insurance is a highly regulated 
industry. Every state department of insurance, as well as the 
national rating agencies, closely monitors both the kinds and 
qualities of investments. Virtually no medical liability 
insurance company has experienced net investment losses. In 
fact, 80% of investments by PIAA companies are in high-grade 
bonds. What has happened is that investment yields have 
declined due to falling interest rates and are no longer 
available to subsidize premium rates to the extent they once 
did. In other words, premium rates must now more closely match 
the actual cost of losses. The combination of these factors 
created ``the perfect storm'' for medical liability insurers.

                           THE PERFECT STORM

    During this same time period, claim frequency and severity 
continued to increase. In addition, reinsurance costs rose 
significantly in relation to the increase in loss costs. The 
insurance system was able to accommodate even this inexcusable 
volume of litigation as long as the size of the few valid 
claims was predictable. Unfortunately, in the past few years 
there has been an explosion in the cost of individual claims. 
Texas has seen a $268,000,000 verdict. A number of states have 
witnessed verdicts in excess of $100,000,000. The city of 
Philadelphia alone has recorded multiple verdicts in excess of 
$50,000,000 in just the past two years. Four claims in Arkansas 
totaled $98,000,000 in just the past year. According to PIAA 
data [shown on next chart], during the period 1991 to 2001, the 
percentage of claims costing in excess of $1 million dollars 
increased nearly four-fold. Insurance is not magic. If society 
expects insurers to pay unlimited awards, it should expect 
those who are insured to pay corresponding premiums. As 
premiums rise so must the cost of health care. Since health 
care today is a zero sum game, these costs increases mean 
corresponding decreases in access to health care.

[GRAPHIC] [TIFF OMITTED] T1491.003

    Those are the largest claims. What about the size of the 
average claim? PIAA data shows that the average indemnity 
payment in 2001 was more than $310,000, a 60% increase in the 
last five years. As the next chart shows, the average 
malpractice payment is rising precipitously. With it, the sum 
of the malpractice claims paid rises. In New York and 
Pennsylvania alone nearly $1 billion was paid in 2000.
[GRAPHIC] [TIFF OMITTED] T1491.004

                         THE CURRENT SITUATION

    As the new millennium began, insurers who were not able to 
weather the storm began to experience poor financial results. 
Expressed differently, a number of com-
panies that felt that they could provide insurance for less 
than its cost learned the inevitable lesson. Several, such as 
PHICO, PIE and Reliance, have ceased all under-
writing operations. In December of last year, long-time 
industry leader St. Paul an-
nounced that due to unsustainable losses and the ``unfavorable 
tort environment''
the company would no longer write new medical liability 
coverage and it would not
renew the policies of its 42,000 physicians, 750 hospitals and 
73,000 other health

care providers. Though St. Paul is a commercial carrier and not 
a member of PIAA, it is telling that the largest company in the 
industry for the better part of two decades feels that it can 
no longer afford the risk of insuring the practice of medicine. 
Companies remaining in the market have had no choice but to 
take the rate increases necessary to insure survival.
    Conning & Co. estimates that malpractice insurers will pay 
out approximately $1.40 for every premium dollar collected in 
2001 and 2002. Even with the projected rate increases, Conning 
& Co. still projects insurers will pay out $1.35 for each 
dollar collected in 2003 (Conning Report on Medical Malpractice 
Insurance, April 2002). PIAA data reveals that since 1990, 
claims costs have risen annually by 6.9%, nearly three times 
the rate of inflation.

                             IN CONCLUSION

    The average claim payment has increased by 60% over the 
past five years. The cost of the most expensive claims has 
exploded in a manner that is absolutely unprecedented. If 
judgments are to be unlimited, than the premiums need to 
increase accordingly to pay for those judgments. With absolute 
certainty, this money will be taken out of our healthcare 
system and compound the severe access to care issues that we 
all face today.
    Several spurious arguments have been put forth by those 
with an interest in continuing the tsunami of medical 
malpractice litigation. First, it has been deceptively argued 
that stock market losses are the real driver of price 
increases. In fact, investments by insurance companies are 
highly regulated and controlled by each state department of 
insurance and closely monitored by the rating agencies. 
Insurance companies continue to gain funds from their 
investments and use those funds to offset even higher 
malpractice premium rates. As income from investments 
decreases, however, premiums must more closely match losses.
    Second, it is argued that insurance companies should have 
raised rates sooner. There may be some truth to this. However, 
it is difficult to understand how having today's sky-high rates 
earlier would make them more palatable.
    Third, it is argued that insurance companies fail to settle 
claims when they should, and are therefore, exposed to 
astronomic jury verdicts. Again, reality is quite different. In 
most cases, it is the physician, not the company, who must make 
any settlement decision. Remember that doctors are found to be 
without fault in approximately 8 out of 10 malpractice trials. 
Should these cases have been settled?
    Finally, there are those who argue for a state run medical 
liability system. Allow me to point out that the majority of 
state run malpractice programs have gone bankrupt, or charge 
premiums that are much higher than those charged by PIAA 
companies. In New York, premiums are actually set by the 
Department of Insurance, not by individual companies, and New 
York rates are among the highest in the nation.

                 THERE IS A ``TRIED AND TRUE'' SOLUTION

    California has 27 years of experience with the MICRA 
statutes. We know, we do not have to speculate, that tort 
reform works. Since 1975, The Doctors Company malpractice 
premium rates in California have decreased by 40% in constant 
dollars. [See chart below] This is true despite the fact that 
there has not been and is not today any limit on actual damages 
awarded.

[GRAPHIC] [TIFF OMITTED] T1491.005

    We know, we do not speculate, that claims settle about 33% 
faster in California than the rest of the nation because the 
lottery aspect of non-economic damages has been controlled.
    We know, we do not speculate, that even very large 
judgments can be accommodated by the insurance system because 
they can be paid on an annual basis over the intended period of 
compensation, not as a single jackpot.
    We know, we do not speculate, that injured patients 
actually take home a significantly higher percentage of awards 
in California because there is an upper limit on attorney 
contingency fees. In many areas, more than 40% of a malpractice 
award goes directly into the pocket of the plaintiff's 
attorney. In California, MICRA contains a limitation on this 
fee. An attorney winning a $1 million claim must be satisfied 
with a legal fee of $221,000.
    We know, we do not speculate, that MICRA has not limited 
access to attorneys. California remains a litigious state and 
according to The Doctors Company data the frequency of 
malpractice cases in the state is 50% higher than the national 
average.
    California passed effective tort reforms and its providers 
have been able to weather this liability crisis well. These 
same reforms are found in H.R. 4600, the Help Efficient, 
Accessible, Low-cost, and Timely Healthcare Act of 2002 (the 
HEALTH Act). The PIAA and The Doctors Company fully support the 
provisions of this act, which when signed into law, will 
provide the same protections to patients across the United 
States as found in California for over a quarter century. The 
next chart, which was compiled from data reported to the 
National Association of Insurance Commissioners, speaks volumes 
about MICRA's effectiveness:

[GRAPHIC] [TIFF OMITTED] T1491.006

    We thank members of the Committee and their staff for 
holding this important hearing and inviting us to testify. We 
look forward to working with you to make the health care 
liability system fairer for everyone. I will be happy to answer 
any questions you might have.

    Mr. Bilirakis. Thank you, doctor.
    Mr. Court.

                    STATEMENT OF JAMIE COURT

    Mr. Court. I'm Jamie Court and I have a few slides. 
Hopefully, we can put the first one up. I'm Executive Director 
of the Foundation for Taxpayer Consumer Rights. I deal with 
patients. I've dealt with probably a couple hundred patients 
over the years who have been victims of MICRA, the medical 
malpractice restrictions you're debating for the Nation. This 
is one of them, and he's the reason I actually came 3,000 miles 
here today. His name is Steven Olsen. He's 12 in this picture. 
It was taken last week. He's blind, he's brain damaged. When he 
was two, he fell on a stick in the woods. He tripped, the stick 
impaled him. He went to a hospital. They took the stick out. 
His parents felt he was acting a little weird, rubbing his 
head. Asked for a CAT scan because his mother had a tumor, she 
had had a brain tumor before. Thought something was up. They 
didn't give him the CAT scan, sent him away. He came back, same 
situation. They wanted the CAT scan. Again, these are doctors 
driven in an HMO environment to do less for the patient, not 
exhibit enough caution. Sent him away, he came back. Finally, 
blind, comatose and as he is today.
    A jury awarded $7.1 million after hearing these facts in 
non-economic damages for his lifetime of pain and suffering, 
for his lifetime of darkness for not knowing as a child whether 
he would be become an executive or a millionaire for a doctor. 
He'll never have that chance. That's what that compensated him 
for. And today after that $7.1 million verdict, it was reduced 
by a Judge unbeknownst to the jury to $250,000 for pain and 
suffering.
    A jury foreman found out about it in the newspaper and 
wrote a letter that's in my testimony that you can read, 
shocked that a jury in America could be overturned and not know 
about it.
    This child today has lots of problems. His mother had to 
quit her job. They had to take him over a hundred medical and 
therapy appointments last year. His life and his family's life 
is forever altered and he's a victim of MICRA. He is a kid who 
will never see. And because of a one size fits all cap on 
compensation, his pain and suffering is valued as the same as 
anyone else in California. And it was determined by an 
arbitrary limit set by the legislature.
    MICRA has denied victims, not just adequate compensation, 
but also legal representation. If you are a patient with only 
non-economic damages, you will not find a lawyer in California. 
And I urge you to read the patient stories I put together. 
There are a lot of patients that don't find attorneys and what 
happens to them--they go on public assistance and the tax payer 
pays for them when they can't get their injuries compensated. 
That's what happened to patients. The other aspect of MICRA 
that I'd like you to consider today is that it does have an 
effect on HMOs.
    The Nation's largest HMO which is Kaiser, and the state's 
largest HMO, is protected in about 400 lawsuits every year by 
the MICRA cap. And in my testimony I've shown some evidence 
that's come out in newspapers of systemic problems in Kaiser 
that were never fixed because of the price of those injuries to 
Kaiser was limited in non-economic damages of $250,000. There 
was no incentive for this system to change and Kaiser operates 
nationally. It covers 6 million California patients. So for 6 
million of our 24 million insured, those patients don't have 
redress.
    The final question that I'd like to bring to your attention 
is for what. And if we can move to the next slide.
    What has been the impact overall on MICRA and what I put 
together here is the NAIC data showing medical loss, these are 
insurers loss ratios which go across all lines of insurance. 
And if you can see in California, ever since 1986, was when the 
Supreme Court said the MICRA cap was legal. You have seen that 
malpractice insurers consistently have paid out less than 50 
cents of every dollar they have taken in in premiums and 
claims. So less than 50 cents of every premium dollar goes out 
in claims in California. Next slide, please.
    You can also see from this slide that insurers' profits, 
and it's all in the testimony as well, have been higher than 
the national average every year since 1986.
    Next slide, please. This is all attributable to the fact 
that was described in the Wall Street Journal Article--the 
insurance cycle. This is happening against all lines of 
insurance, not just medical malpractice insurance. I deal with 
HMOs. Premiums are going up in California by HMOs 30 percent 
for small businesses. It's happening on home owners. It's 
happening on other lines of malpractice, and it's because when 
investments are good, when they're rich, insurers cut their 
premiums to attract people so they have more capital to make 
money in the investment markets. And when Wall Street is bad, 
what happens? They raise their rates to make up for their 
losses. This is the problem that needs to be addressed--the 
passing through of investment losses. And that happens in all 
lines of insurance. If you go to the next slide and the last 
slide.
    This is an article dealing with the malpractice crisis. But 
it's not for doctors. It's the California Bar Journal in this 
issue of July 2002. It's for lawyers whose premiums are now 
going up literally 200 and 300 percent. Why? Because investment 
losses are driving this crisis. And what I put to this panel is 
I suspect from the discussion today you would not limit the 
rights of people who are represented by lawyers to sue them for 
malpractice as a way of solving this crisis. So if you're not 
going to do it for lawyers, I ask that you don't do it for 
medical providers. There are some disputes in numbers.
    There's one statistic I'd like to address before stopping. 
It is the statistic that's been thrown out a few times here 
about malpractice premiums.
    Bob Hunter did do a study that showed, by looking at NAIC 
premium data, earned premiums, and dividing it by number of 
doctors in California and then similarly the number of doctors 
in the United States, and he found malpractice premiums pretty 
comparable. I mean, not enough to limit victims' rights 
clearly, not enough of a difference. The data that I've heard 
today talking about a 400 percent increase in premiums 
nationally versus a 150 percent premiums in California since 
1976, that deals with a very interesting little quirk that I 
found out when I was talking to a friend about Hunter's data.
    The friend is from the medical establishment and he tells 
me wait a second. California malpractice premiums you represent 
are way lower than we know them to be. And that's because a 
third of the physicians in California, those who are a part of 
Kaiser Permanente, are self-insured and not counted in that 
premium data. And similarly, in this premium data from the NAIC 
that is being talked about today, a third of the premiums are 
not represented because a third of the doctors are self 
insured. So thank you for the time.
    [The prepared statement of Jamie Court follows:]

 Prepared Statement of Jamie Court, Executive Director, Foundation for 
                      Taxpayer and Consumer Rights

    `In age where expanding patients' rights has become a national 
demand, HR 4600 would dramatically contract patients' rights across the 
nation. This anti-consumer legislation will shield HMOs and providers 
they influence from legal accountability to the patient for harm they 
cause.
    HR 4600 will deny innocent victims of medical negligence both 
adequate compensation for their injuries and legal representation for 
legitimate claims. It will confer substantial financial benefits only 
on malpractice insurance companies, not the average physician. To the 
extent that staff model HMOs indemnify their staff and facilities, as 
the nation's largest HMO does, HR 4600 will also protect HMOs from 
liability for the harm they cause to patients. The evidence comes from 
California, where the model for HR 4600 has had these consequences.
    Under California's restrictions, malpractice insurers have 
consistently paid out in claims less than 50% of the premiums they have 
taken in and made excessive profits. Despite limitations on victims, 
California doctors' malpractice premiums have been consistent with the 
national average.
    The failed model for this legislation was enacted in California in 
1975 as the Medical Injury Compensation Reform Act, or MICRA. In recent 
years, Californians have been confronted with MICRA's devastating human 
impact and its failure to achieve its financial goals. The California 
legislature has tried twice in the last four years to remove MICRA's 
limits, but have been unsuccessful in the face of lobbying by the 
insurance industry.
    First my testimony will explain the impact of the MICRA provisions 
also contained in HR 4600 and their draconian consequences for innocent 
patients. Then, I will address MICRA's impact on malpractice premiums 
and how insurers in California have seen the only substantial profits 
from MICRA.
    Like HR 4600, MICRA provisions:
 Place a $250,000 cap on the amount of compensation paid to 
        malpractice victims for their ``non-economic'' injuries.
 Eliminate the ``collateral source rule'' that forces those 
        found liable for malpractice to pay all the expenses incurred 
        by the victim.
 Permit those found liable for malpractice to pay the 
        compensation they owe victims on an installment plan basis.
 Impose a short ``statute of limitations'' on malpractice 
        victims (generally three years).
 Establish a sliding scale for attorneys fees which discourages 
        lawyers from accepting serious or complicated malpractice 
        cases.
    I have been contacted over the last ten years by hundreds of 
patients who are innocent victims of medical malpractice, then further 
victimized by these MICRA restrictions. The actual experiences of these 
patients shows the cruel consequences of each MICRA restriction also 
contained in HR 4600.

   CAPPING MEDICAL MALPRACTICE VICTIMS' COMPENSATION CAUSES INNOCENT 
                    PATIENTS MORE PAIN AND SUFFERING

    Like HR 4600, MICRA places a cap of $250,000 on the amount of 
compensation paid to malpractice victims for their ``non-economic'' 
injuries, no matter how egregious the malpractice or serious the harm.
    The MICRA cap is not adjusted for inflation. In order to provide 
the same level of compensation in today's dollars, the cap would have 
to be approximately $800,000. Put another way, the $250,000 MICRA cap 
has decreased in value since 1975, when compared to the Consumer Price 
Index, to approximately $70,000. Though health care costs--hospital 
charges, medical fees, etc.--have risen dramatically since 1975, 
compensation for non-economic damages has been frozen by the statute.
    Non-economic injuries include pain, physical and emotional distress 
and other intangible ``human damages.'' Such damages compensate for 
severe pain; the loss of a loved one; loss of the enjoyment of life 
that an injury has caused, including sterility, loss of sexual organs, 
blindness or hearing loss, physical impairment, and disfigurement.
    Applying a one-size-fits-all limit to non-economic damages 
objectifies and erases the person, considering them as a fixed 
``thing'' for the purposes of law, so that there is no recognition of 
the uniqueness of their suffering. There is no quicker way to strip an 
individual of their humanity than to fail to recognize their suffering.
    My personal bias on this point springs from the experiences of a 
friend who today is twelve years old. Steven Olsen is blind and brain 
damaged because, as a jury ruled, he was a victim of medical negligence 
when he was two years old. He fell on a stick in the woods while 
hiking. Under the family's HMO plan, the hospital pumped Steven up with 
steroids and sent him away with a growing brain abscess, although his 
parents had asked for a CAT scan because they knew Steven was not well. 
The next day, Steven Olsen came back to the hospital comatose. At 
trial, medical experts testified that had he received the $800 CAT 
scan, which would have detected a growing brain mass, he would have his 
sight and be perfectly healthy today.
    The jury awarded $7.1 million in ``non-economic'' damages for 
Steven's avoidable life of darkness and suffering. However, the jury 
was not told of a two decade old restriction on non-economic damages in 
the state. The judge was forced to reduce the amount to $250,000. The 
jurors only found out that their verdict had been reduced by reading 
about it in the newspaper. Jury foreman Thomas Kearns expressed his 
dismay in a letter published in the San Diego Union Tribune.
    We viewed video of Steven, age 2, shortly before the accident. This 
beautiful child talked and shrieked with laughter as any other child at 
play. Later, Steven was brought to the court and we watched as he 
groped, stumbled and felt his way long the front of the jury box. There 
was no chatter or happy laughter. Steven is doomed to a life of 
darkness, loneliness and pain. He is blind, brain damaged and 
physically retarded. He will never play sports, work, or enjoy normal 
relationships with his peers. His will be a lifetime of treatment, 
therapy, prosthesis fitting and supervision around the clock . . .
    Our medical-care system has failed Steven Olsen, through 
inattention or pressure to avoid costly but necessary tests. Our 
legislative system has failed Steven, bowing to lobbyists of the 
powerful American Medical Association (AMA) and the insurance industry, 
by the Legislature enacting an ill-conceived and wrongful law. Our 
judicial system has failed Steven, by acceding to this tilting of the 
scales of justice by the Legislature for the benefit of two special-
interest groups . . .
    I think the people of California place a higher value on life than 
this.
    When in San Diego, I often visit Steven and his family. Their 
struggles are unfathomable to me. In 2001, Steven had 74 doctor visits, 
164 physical and speech therapy appointments, and three trips to the 
emergency room. And his parents say that was a good year because Steven 
was not hospitalized. Steven's mother Kathy had to leave her job 
because caring for Steven is a full time job. She has to struggle 
constantly with the school district for Steven to receive special 
education classes. One day, Steven ate part of a light bulb, not an 
uncommon problem for children with brain injuries. He has to be watched 
constantly. Insurance executives that seek to limit jury awards for the 
individual's pain and suffering claim society must do so to save money. 
Yet these executives typically make millions every year without any of 
Steven Olsen's pain and suffering. Limiting their responsibility for 
the pain of individuals reduces not only the corporation's 
accountability, but the worth of the individual to that of a mere 
object.
    Last week, Kathy Olsen said this about Steven: It has been 10 years 
ago this month when Steven came home from a 5-month life changing stay 
at the hospital. He was only 2 years old. When he went into the 
hospital no one asked his party affiliation. He was a casualty of the 
system. The system that he had no say in. Which lawmakers were looking 
out for him? Now with all his disabilities he will never see, do things 
that the average person gets to do in their lifetime, or vote in an 
election. Please look out for all the Steven Olsen's in this great 
country. Don't let this happen over and over again.
    Other California patient cases similar document how the $250,000 
cap on compensation has further victimized innocent victims.
    Patients with permanent injuries are limited to $250,000, even when 
juries award significantly more compensation, tangible ``economic'' 
damages exist (but are unidentified by juries), and unforeseen 
``economic'' costs arise later.
    Harry Jordan, a Long Beach man, was hospitalized to have a 
cancerous kidney removed but the surgeon took out his healthy kidney 
instead. A jury awarded Jordan more than $5 million dollars, but the 
judge was required to reduce the verdict to $250,000 due to 
California's cap on ``non-economic'' damages--plus a mere $6,000 in 
``economic costs''. Jordan, who lived for years on 10% kidney function, 
could no longer work, though the jury (which lawfully can not be 
notified about the ``non-economic'' cap) did not take this into 
account. Jordan's court costs--not including attorney fees--amounted to 
more than $400,000 and his medical bills, that arose after frequently 
being denied by insurers, totaled more than $500,000. He paid $1700 per 
month in health insurance.
    Arbitrary caps on ``non-economic'' compensation unfairly 
discriminate against the suffering of women--who typically sustain 
injuries due to medical negligence, such as laceration of the uterus or 
loss of a new born during child birth, that do not carry high 
``economic'' price tags but involve significant loss. Injuries 
sustained by homemakers are also unvalued, because they have no ``wage 
loss.'' Caps not only deny women victimized by medical malpractice fair 
compensation and legal representation for their injuries, but subject 
women to repeat offenders and have been undeterred.
    San Andrean Terry McBride lost her unborn baby and her fertility at 
the hands of a negligent doctor who had injured at least 25 women 
before her, causing the unnecessary deaths of their babies and the 
affliction of Cerebral Palsy to 2 children. California's ``non-
economic'' compensation cap restricted McBride to less than $250,000 
for the loss of her child's life and her own sterilization (because she 
suffered no wage loss due to her injuries). The award was even 
insufficient to cover the cost of an expensive new procedure seeking to 
restore her fertility.
    Arbitrary caps on ``non-economic'' compensation unfairly 
discriminate against the littlest victims, children--who can not prove 
significant future wage loss and whose families cannot realistically 
estimate the expenses they are to incur over the course of a life time.
    A six year old Northern California girl paralyzed by negligent 
medicine was restricted to 250,000 in compensation for her lifetime due 
to California's ``non-economic'' cap because she could not prove any 
future wage loss.
    Caps on ``non-economic'' compensation devalue the lives and health 
of low income patients. Caps on pain and suffering discriminate against 
the suffering of low income people whose ``economic'' basis--wages--are 
limited. A strictly ``economic'' evaluation based on wages devalues 
what victims will create or produce in the future, their quality of 
life, as well as an injury's impact on their ability to nurture others. 
For instance, a laborer may loose his arms due to the exact same act of 
medical negligence as a corporate CEO, but the CEO would be able to 
collect millions and the laborer would be closely limited to the 
$250,000 cap. A housewife similarly would be limited to the cap no 
matter the physical or emotional depths of her injury. Caps assign 
greater value to the limbs and lives of some people than the limbs and 
lives of others.
    The five children of a 32-year old mother, who was unemployed and 
untrained (therefore had no ``economic'' value), were left with merely 
$250,000 to compensate all of them for their life time after the errors 
caused their mother's death during an emergency Caesarean section.
    Caps make taxpayers foot the bill for malpractice. Malpractice 
victims receive full compensation only for medical bills and lost 
wages. But those who are not wage earners--such as seniors, women, and 
the poor--have no other resource from which to pay for unforeseen 
medical expenses and basic needs. A cap forces malpractice victims to 
seek public assistance from state or federal programs funded by 
taxpayers.
    A Los Angeles woman, who sustained severe jaw damage and slight 
brain damage from an HMO's misdiagnosis and refusal to treat her, was 
not represented by an attorney because she was limited in her recovery 
by California's cap. As the HMO did not pay for the damage it caused, 
and would not treat her, the woman was forced to receive government 
funded Medicare and Supplemental Social Security Income payments for 
her disability.

             HMO PROTECTION: ENDING DETERRENCE TO HMO ABUSE

    The nation's largest HMO, which is also California's largest HMO, 
is protected by MICRA's cap in California and staff model HMOs like it 
would be similarly shielded across the nation under HR 4600. Kaiser 
Permanente has hundreds of cases in its system every year in California 
for which it is liable for no more than $250,000 in non-economic 
damages. In many cases, California's cap system has limited the 
liability for egregious systemic error to an acceptable cost of doing 
business, permitting systemic medical negligence to continue 
undeterred. There is no incentive to systemic problems.
    For example, Colin McCaffery was born too large, in Kaiser's 
Woodland Hills facility with only a nurse-midwife present--although his 
parents urged that a physician be there because their other children 
had been born large. As a cost cutting practice, the HMO did not 
routinely assign doctors to be present during child birth, except for 
``high risk'' cases. Because the nurse-midwife lacked the skill to 
properly guide Colin out of the birth canal, he was crippled, losing 
movement in his arms and torso--a rare condition know as Erbs Palsy 
resulting only from botched deliveries. Due to California's cap on 
recovery, Colin's family settled for only $250,000--not enough to 
compensate Colin or make Kaiser change its practice. Colin's father 
stated after the case the HMO ``still does not provide the option for a 
doctor when delivering babies. At a clinic for Colin, I saw over 50 
babies, all under the age of two, clinging to their parents. None of 
them were smiling. They all had Erbs Palsy. One little girl around one 
had such a sad look to her. Her arms, both of them, just dangled 
lifelessly by her side. `` Other similar cases of seriously injured or 
dead newborns due to the child birth system have emerged in California, 
but they typically cost Kaiser no more than $250,000, so there is 
little incentive for the HMO to change its system.
    A recent account from the Los Angeles Times of systemic problems 
with overcrowding in Kaiser's emergency room show how un-addressed 
deficiencies have led to many patient deaths from similar circumstances 
(Charles Ornstein, ``Cases Reveal Lapses in Kaiser Emergency Care,'' 
Los Angeles January 2, 2002 p.A1) MICRA's cap dramatically limited the 
HMO's liability in these cases so there was no incentive to change its 
practices over a ten year period. As the article points out, recently 
the California Department of Managed Health Care fined Kaiser $1.1 
million for these same systemic problems. ``In justifying a $1.1-
million fine against Kaiser, state regulators cited three patient 
deaths and said the cases demonstrated a pattern of problems in 
emergency care that has put the HMO's 6 million California members at 
risk,'' the Times reported. ``Similar problems showed up in at least 
nine other cases since 1995 . . . in which arbitrators found Kaiser 
liable for patient injuries or deaths.'' Had MICRA's shield not 
protected the HMO, perhaps Kaiser would have had an incentive to change 
its practices. Under MICRA, deterrence to wrongdoing at Kaiser has been 
removed.
    For HMOs like Kaiser, the $250,000 cap in MICRA and in HR 4600 
allows negligence without consequence. Deterrence to wrongdoing is 
especially important at HMOs. Arbitrarily applying one-size-fits-all 
caps to systemic wrongdoing lets HMOs know there is a financial limit 
to how much they will pay no matter how egregious and irresponsible 
their conduct. This is carte blanche in many cases to throw caution to 
the wind.
    Ironically, proponents of HR 4600 claim it will limit ``defensive 
medicine'' procedures. The Congressional Office of Technology 
Assessment reported in July 1994 that ``defensive medicine,'' 
procedures purported to be driven by physicians' fears of lawsuits, 
account for only 8% of medical procedures and may in fact constitute 
merely preventative, high quality health care. As the OTA stated, fear 
of lawsuits can often simply make those with the least incentive to be 
cautious exhibit more caution. This is precisely the incentive HMOs and 
their doctors and hospitals now need.

   PERIODIC PAYMENTS REWARD CONVICTED WRONG-DOERS AT THE EXPENSE OF 
                    MALPRACTICE VICTIMS THEY INJURE

    Like HR 4600, MICRA permits defendants found liable for malpractice 
to pay jury awards on a periodic, rather than a lump sum, basis, if the 
award equals or exceeds $50,000 and the defendant requests it. Jury-
designated malpractice awards can be restricted by the judge as to the 
dollar amount paid each period and the schedule of payments. The 
periodic payment arrangement, once approved by a judge, cannot 
typically be modified--unless the victim dies earlier than expected, in 
which case the defendants, rather than the family of the deceased, 
retain the balance of what they owe.
    This provision of MICRA, like HR 4600's provisions, allows the 
negligent provider or its insurance carrier to control, invest and earn 
interest upon the victim's compensation year after year. No adjustment 
is made in the payments to reflect unexpected trends in the inflation 
rate or changes in the cost of medical care.
    If the defendant enters bankruptcy or simply ceases to pay, the 
victims are forced to return to court and engage in another lengthy 
legal proceeding. Another problem is that an inflexible payment 
schedule leaves the victim without sufficient resources in the event 
that unanticipated medical or other expenses arise. This is most likely 
to occur in the years immediately following the injury, when the 
periodic payments are unlikely to cover the aggregate costs.
    Periodic payments allow wrong-doers to invest and earn interest on 
the money owed injured victims. Periodic payment schedules permit 
convicted perpetrators to control the money owed victims and profit 
from its use year after year. If the physician happens to fall into 
bankruptcy due to bad investments, the victim is denied the agreed upon 
compensation.
    If a patient dies, all payments stop and the victim's family 
receives nothing. Wrong-doers are rewarded for causing the most severe, 
life threatening injuries. If a patient dies, periodic payments cease 
and the guilty physician is allowed to keep the remainder of their 
money. Awards do not revert to the next of kin.
    Periodic payments reduce the already limited compensation received 
by victims, as the value of the verdict diminishes over time due to 
inflation. No adjustment is ever made in the payments to reflect the 
inflation rate or changes in the costs for medical care--which have 
risen sharply and well above the inflation rate for many years.
    Periodic payments put the burden on the victim to meet their basic 
needs. The periodic payment arrangement, once approved, is 
extraordinarily difficult to modify. If costs of the victim's medical 
care increases beyond their means, or a special expensive medical 
technology is made available which the victims requires, the injured 
patient must retain a lawyer to have the schedule modified--and may 
very well not succeed.

 CAPPING PLAINTIFF ATTORNEY CONTINGENCY FEES, BUT NOT DEFENSE ATTORNEY 
                  FEES, DENIES VICTIMS REPRESENTATION

    Like HR 4600, MICRA sets a sliding contingency fee schedule for 
plaintiffs' attorneys representing victims of medical malpractice. The 
MICRA fees are limited to 40% of the first $50,000 recovered; 33\1/3\% 
of the next $50,000; 25% of the following $100,000, and 15% of any 
amount exceeding $200,000. MICRA does not limit the fees of the 
defendant's lawyers.
    Only the most seriously injured victims with clear-cut cases to 
prove can ever find legal representation. In states with caps on 
attorney contingency fees for medical malpractice cases (and 
particularly in states such as California where a victim's pain and 
suffering compensation is also capped), victims of medical malpractice 
simply can not find legal representation. It is not cost effective for 
attorneys to take the vast majority of cases. Says the President of 
Safe Medicine For Consumers, a California-based medical malpractice 
survivors group, ``The vast majority of individuals who contact us are 
women, parents of children or senior citizens. 90% of these individuals 
are unable to pursue meritorious medical malpractice cases because they 
can not find legal representation on a contingency basis and their 
savings have been wiped out.''
    Limiting plaintiff attorney contingency fees, but not defense 
attorney fees creates an uneven playing field for victims. Defendants 
can typically afford very high priced attorneys who fly special expert 
witnesses in from out of state. A contingency fee practice demands that 
a plaintiff's attorney must front the cost of expert witnesses to 
refute the testimony of experts flown in by the defendant. With caps on 
fees, such costs become prohibitive for the victim's legal counsel.
    Undermining the contingency fee mechanism contributes to a 
deteriorating quality of health care and passes costs onto taxpayers. 
Left without legal representation in California, victims go 
uncompensated, and dangerous doctors go undeterred. Taxpayers pay the 
cost of low income victims' medical care and basic needs through public 
assistance programs if the physicians responsible for the injuries are 
not held accountable.
    Undermining the viability of contingency fee mechanism 
discriminates against low income patients who are most at risk of 
medical malpractice. A contingency fee system is a poor patient's only 
hope of affording an attorney to challenge a negligent physician. 
Undermining such a system through caps on fees, that reduce incentives 
for attorneys to take malpractice cases, fails to punish negligence in 
poor neighborhoods.

IMPOSING A COLLATERAL SOURCE OFFSET FORCES TAXPAYERS AND POLICY HOLDERS 
                     TO PAY FOR WRONGDOERS' ERRORS

    The collateral source rule prohibits defendants charged with 
negligence from informing the jury that the plaintiff has other sources 
of compensation, such as health insurance or government benefits, 
including social security and disability. The purpose of this long-
established doctrine is to ensure that the jury holds the defendant 
responsible for the full cost of the harm the defendant caused by 
requiring the defendant to pay all the victim's expenses--even if a 
collateral source has already paid them.
    Application of another legal doctrine, known as subrogation, 
ensures that the collateral source rule does not result in ``double 
recoveries'' for injured victims. Under subrogation rights--which are 
applicable to virtually all health insurance policies, government 
programs, and workers' compensation systems--the third-party payor of a 
health or job loss benefit has the legal right to take funds from a 
malpractice award to reimburse itself for payments it has already made 
to the malpractice victim. The collateral source rule, in conjunction 
with subrogation rights, ensures that wrongdoers pay for the full 
amount of the harm they cause, and that victims do not receive double 
payments for their injuries. HR 4600's provisions are not necessary 
because there are already controls on ``double recoveries.''
    For example, an injured individual's health care coverage usually 
pays the victim's medical bills. Under the traditional collateral 
source rule, if the victim sues the wrongdoer for compensation, 
including payment of medical bills, the defendant cannot tell the jury 
that the bills have already been paid by another source. However, once 
the jury makes an award to the victim, including damages for medical 
care, the health insurer can exercise its subrogation rights, and 
recover from the defendant (or the victim, if the award has been paid) 
the amount of money already paid for the victim's medical bills.
    As HR 4600 proposes for the nation, MICRA repealed these rules in 
California. Consequently, in a trial, defendants may introduce evidence 
of insurance or other compensation obtained by the plaintiff. The jury 
is further permitted to reduce its award against the defendant by the 
amount of alternative compensation the victim received or is entitled 
to. As with the cap on non-economic damages, abolition of the 
collateral source rule reduces the amount of money the wrongdoer must 
pay. In effect, responsibility for the harm is transferred to the 
victim, who purchased the insurance coverage, to the victim's insurer, 
and/or to taxpayers. Moreover, once the defendant tells the jury about 
payments made by collateral sources, MICRA prohibits the collateral 
source from using the subrogation process to obtain reimbursement from 
the wrongdoer.
    Collateral source offsets will shift billions of dollars per year 
in malpractice injury costs caused by the negligent onto taxpayers and 
the health insurance system. The cost of injuries resulting from 
medical malpractice total $60 billion each year according to the 
Harvard School of Public Health. Instead of wrong-doers bearing the 
full cost of these injuries, tax-payer funded programs, such as social 
security, and policy-holder funded health plans, will be forced to pick 
up the tab.
    A collateral offset forces poor patients onto welfare, while wrong-
doers' fortunes will be protected. Low income victims ``entitled'' to 
public assistance payments from taxpayer-funded supplemental social 
security, social security disability and aid to families with dependent 
children become government assistance recipients while the wrong-doers 
earn interest on profits made at the victim's expense.

   MICRA'S PROMISES HAVE NEVER MATERIALIZED, DATA SHOWS HR 4600 WILL 
                          ENRICH ONLY INSURERS

    Like HR 4600, MICRA promised drastic reductions in physician 
malpractice premiums. MICRA was enacted by the California legislature 
in 1975 in response to rapidly-increasing medical malpractice insurance 
premiums. The powerful insurance and physicians' lobbies told state 
legislators that medical malpractice lawsuits and jury awards were 
responsible for the higher premiums.
    Insurance companies threatened that the costs associated with 
malpractice insurance were rising at such a rate that their only option 
was to raise health care professionals' liability premiums or to 
withdraw from the market altogether. Physicians and hospitals emerged 
as high visibility advocates for the legislation: many opted to ``go 
bare'' (practice without malpractice insurance), some discontinued 
providing certain high-risk procedures, while others threatened to 
quit.
    The crisis, we now know, was created by the ``insurance cycle.'' 
This is a well-established phenomenon in which insurers, during bad 
economic times, raise premiums to cover investment losses after years 
in which they have lowered premiums (the good economic times) to 
attract capital for investment. This cycle and its inherent periods of 
investment losses, then as now, increased malpractice premiums, not 
lawsuits and claims. Reform then should focus on preventing such 
insurer investment practices, not restricting victims' rights.
    For this reason, data from the National Association of Insurance 
Commissioners (NAIC) shows MICRA has not significantly lowered 
physician malpractice premiums compared to the national average and has 
resulted instead in excessive overhead costs and profit margins for 
insurers.
    Nationally recognized actuary J. Robert Hunter, former Texas 
Insurance Commissioner and Federal Insurance Administrator under 
presidents Ford and Carter, compared national malpractice premium 
trends to those in California. Hunter found that from 1991 to 2000, 
malpractice premiums in California have stayed close to national 
premium trends.
     The 2000 average premium per doctor in California was only 
8.2 percent below that of the nation ($7,200.61 vs. $7,843.75).
     The average malpractice premium in California between 1991 
and 2000 actually grew more quickly (3.5 percent), than it did in the 
nation overall (1.9 percent.) According to Hunter, ``there is not much 
difference in the rates or the rate of change between California and 
the nation based on the latest decade of experience.''
    If there are savings to limiting the rights and recovery of 
innocent victims of dangerous and culpable doctors, then insurers have 
not passed them onto physicians.
    The following table shows Mr. Hunter's analysis.

----------------------------------------------------------------------------------------------------------------
                                                                 California     U.S.A.
                                                                  Medical      Medical      Average     Average
                                        California    U.S.A.    Malpractice  Malpractice    Med Mal     Med Mal
                 Year                    Number of   Number of  Prem Earned  Prem Earned    Premium     Premium
                                          Doctors     Doctors       (in          (in      Per Doctor  Per Doctor
                                                                 thousands)   thousands)  California    U.S.A.
----------------------------------------------------------------------------------------------------------------
1991..................................       76043      631400       529056      4862170     6957.33     7700.62
1992..................................       76367      652100       526496      5138395     6894.29     7879.77
1993..................................       76411      670300       563004      5174055     7368.10     7719.01
1994..................................       77311      684400       576771      5931898     7460.40     8667.30
1995..................................       78169      720300       597660      6080639     7645.74     8441.81
1996..................................       79048      737800       610003      5992394     7716.87     8121.98
1997..................................       80341      756700       628858      5917038     7827.36     7819.53
1998..................................       81762      777900       652601      6195047     7981.72     7963.81
1999..................................       82872      797600       611785      6155241     7382.29     7717.20
2000..................................       84675      812800       609712      6375401     7200.61     7843.75
1991 to 1999 percent change...........         3.5         1.9
1991 to 1999 % change (annualized)....         0.4         0.2
----------------------------------------------------------------------------------------------------------------
Sources:
Doctors USA: Statistical Abstract of the United States
Doctors CA: California Department of Consumer Affairs
Earned Premiums: NAIC Report On Profit By Line By State

    NAIC data also shows that California insurers have, in fact, 
profited greatly from California patients' pain.
     In most years since the courts ruled that MICRA's cap was 
constitutional, 1986, California malpractice insurers have paid out in 
claims less than fifty cents of every dollar they have taken in through 
premiums (every year since 1989). By contrast, malpractice insurers 
nationally have typically paid out in claims more than two-thirds of 
every premium dollar.
     California malpractice insurers' ``operating profits'' 
have been higher than the rest of nation since MICRA was implemented, 
even though many insurers claim to be ``not for profit.'' For non 
profits, the money taken in from doctors but not paid to victims can 
also be tied up in excessive overhead, assets and reserves that yield 
investment profits or in higher legal costs of defending against 
claims.
    The chart below shows this NAIC data taken from Report on 
``Profitability By Line By State, 1976-2001''

                                           Loss Ratios for Malpractice
----------------------------------------------------------------------------------------------------------------
                                                                   CA
                                      CA Loss                  Operating    U.S. Loss                    U.S.
                                       ratio:                   Profit:       Ratio:                  Operating
               Year                    Losses     CA Profit   Profit As a     Losses    U.S. Profit   Profit: As
                                     Incurred/      ($000)        % of      Incurred/      ($000)       a % of
                                      Premiums                  Premiums     Premiums                  Premiums
                                       Earned                    Earned       Earned                    Earned
----------------------------------------------------------------------------------------------------------------
1976..............................        61.9%        3,198         1.4%        47.0%      238,576        20.1%
1977..............................        38.9%       50,638        22.3%        40.4%      315,608        24.1%
1978..............................        41.3%       53,227        21.4%        59.7%      175,510        12.7%
1979..............................        42.1%       59,494        24.9%        68.2%      119,064         8.6%
1980..............................        44.3%       61,241        26.6%        77.8%       90,662         6.8%
1981..............................        61.3%       49,733        24.4%       101.0%       36,959         2.8%
1982..............................        81.8%       19,169         9.1%       113.0%      -65,644        -4.3%
1983..............................        70.5%       45,961        16.0%       104.4%       44,262         2.4%
1984..............................        92.7%       18,358         4.9%       112.1%      187,029         8.8%
1985..............................        80.8%       37,327         8.3%       121.6%     -513,570       -19.3%
1986..............................        68.2%       89,382        14.2%        98.5%      -99,011        -2.6%
1987..............................        63.0%       64,024        10.1%        85.8%       86,459         1.9%
1988..............................        52.4%      137,936        20.8%        75.6%      426,683         8.4%
1989..............................        39.4%      232,467        36.7%        52.6%    1,428,346        27.9%
1990..............................        35.6%      241,699        39.9%        53.9%    1,449,651        29.4%
1991..............................         9.0%      354,997        67.1%        55.7%    1,419,754        29.2%
1992..............................        39.8%      148,998        28.3%        69.5%    1,495,273        29.1%
1993..............................        38.1%      153,137        27.2%        64.6%    1,541,868        29.8%
1994..............................        37.5%      148,807        25.8%        59.3%    1,506,702        25.4%
1995..............................        41.5%      133,388        22.3%        59.3%    1,563,241        25.7%
1996..............................        45.0%      132,262        21.7%        62.9%    1,696,723        28.3%
1997..............................        44.3%      178,933        28.5%        57.8%    1,892,251        32.0%
1998..............................        41.3%      197,932        30.3%        73.0%    1,258,887        20.3%
1999..............................        42.0%      125,494        20.5%        73.9%      874,421        14.2%
2000..............................        45.8%      171,520        28.1%        80.9%      869,373        13.6%
----------------------------------------------------------------------------------------------------------------

                               CONCLUSION

    For what? That is the question asked by Californians who understand 
both the human devastation MICRA has wrought and its financial 
failures. Enacting similar draconian restrictions federally would fly 
in the face of the experience of too many California casualties who 
have suffered needlessly under MICRA for a result that has only 
benefited malpractice insurers.
    The real answer to skyrocketing insurance premiums, which are 
striking across all lines of insurance, is to regulate the insurers' 
pricing and accounting practices so that investment losses cannot be 
passed onto policyholders. Congress should not blame the victim for a 
crisis created by insurance companies.

    Mr. Bilirakis. Mr. Hurly.

                    STATEMENT OF JAMES HURLY

    Mr. Hurly. Chairman Bilirakis, Ranking Member Brown, 
members of the subcommittee, thanks for inviting me to testify 
today on behalf of the American Academy of Actuaries. My name 
is Jim Hurly. I am chairperson of the Academy's Medical 
Malpractice Subcommittee. The Academy is the public policy and 
professional organization for actuaries practicing in all 
specialties within the United States. The Academy is 
nonpartisan and assists the public policy process through the 
presentation of clear and objective actual analysis. The 
Academy also develops and upholds actuarial standards of 
conduct, qualification, and practice. And for those of you who 
don't know who an actuary is, he's the guy who evaluates loss 
data to advise about rates and reserves, those liabilities that 
companies carry. So what I do is evaluate those loss data and 
make determinations about what rates need to be charged and 
what loss reserves need to be held.
    I appreciate this opportunity to comment on issues related 
to the availability and pricing in medical malpractice 
insurance. In the time available, I would like to highlight a 
number of key points from my written statement. It may be 
helpful to start by discussing recent experiences in the 
medical malpractice line of business. During the 1990's, the 
medical malpractice line experienced favorable operating 
results and insurers competed aggressively. Health care 
providers shared in the benefit of improved loss experience and 
higher levels of investment income through lower charged 
premiums.
    Recently, however, the cost of medical malpractice 
insurance has been rising. Rate increases have been 
precipitated in part by the growing size of claims, more 
frequent claims in some areas and higher defense costs. The 
relationship of increasing litigation and increased losses is 
clear. For example, the size of a medium jury award went to $1 
million in 2000, a jump from roughly $475,000 in 1996, 
according to July 2002 Insurance Information Institute Report.
    From a financial standpoint, medical malpractice results 
deteriorated in 1999 and 2000, and they're expected to to 
continue to deteriorate in 2001. These results can be looked at 
in two component parts, underwriting and investments. The 
combined ratio is an indication of how the company is doing in 
its insurance underwriting. A.M. Best Company offers 
comprehensive data to insurance professionals and tracks these 
results. For all companies reported in A.M. Best, the combined 
ratio of 130 percent and 134 percent of the earlier 2 years, 
respectively, has deteriorated to 143 percent based on 
preliminary estimates for 2001.
    From underwriting, this represents a loss of 43 cents on 
each dollar of premium earned in 2001. The operating ratio 
factors in investment income and other costs to reflect the 
companies bottom line. An operating ratio of 106 percent for 2 
earlier years, reflecting a loss of 6 cents on every dollar of 
premium earned, is expected to deteriorate when 2001 results of 
the entire industry become available. At these levels, 2001 
results will be the worse they've been in 15 years or more, 
approximating levels on the mid 1980's.
    Today the loss environment has deteriorated. Benefits of 
favorable reserve development appear to be gone and the 
available investment income offset has declined. In fact, 
reserve reliability may require increases to cover current 
ultimate lost obligations.
    All said, rates for both insurers and reinsurers need to 
increase to properly align with current loss and investment 
income levels. Companies failing to do this jeopardize their 
surplus base and financial health.
    My written statement summarizes the two key drivers of 
financial results and their effects on operating results and 
surplus. The chart on display, which appears as chart c in my 
testimony, demonstrates the fall in that operating income. And 
this is for a subset of those companies reporting to A.M. Best 
because all of that data is not summarized yet, so this is a 
summarization of a significant portion of the companies that 
are reporting to A.M. Best.
    The strong operating results of the earlier years as you 
can see by the chart in the neighborhood of 20, 25 percent, has 
declined to a slight profit in 2000 and to a 10-percent loss 
for 2001.
    The next chart which appears as chart d in my testimony 
dem-onstrates the decline in surplus for these same companies. 
Surplus increased through 1999 and it shows the rate of 
increase, so you're looking at the percent of increase year 
over year. Surplus increase through 1999 decreased slightly in 
2000 and decreased again more significantly in 2001.
    Surplus represents a capital base for these insurers. And 
it's de-cline reduces the capacity to write new or renewing 
business and/or absorb losses on business written in prior 
years. And this in-cludes their opportunity to write business 
that will become avail-able from companies withdrawing from the 
market.
    I noted earlier the underwriting investment components of 
finan-cial results. Most malpractice insurers anticipate losing 
money in their underwriting operations and offsetting the loss 
with their in-vestments. However, investment income is no 
longer sheltering the operating loss as reflected in the 
operating results or bottom line described earlier.
    Investment income plays an important role in overall 
financial results, particularly for insurers and medical 
professional liability because of the long delay between the 
payment of premium and payment of losses. Insurers, just for 
the record, have not suffered investment losses. They've 
experienced lower rates of returns on those investments. In 
establishing rates, insurers do not recoup in-vestment losses. 
Rather, the general practice is to chose an ex-pected 
prospective rate of return, for example five or 6 percent, cal-
culate a discount factor, usually producing a credits of rates 
on the order of 10 to 15 percent. Since interest yields drive 
this process, when interest yields decrease, rates increase.
    In conclusion, I appreciate this opportunity to provide an 
actu-arial prospective on these important issues. I would be 
glad to an-swer any questions you may have or provide any 
additional infor-mation that would to be helpful to the 
subcommittee in its delib-erations.
    [The prepared statement of James Hurly follows:]

 Prepared Statement of James Hurley, Chairperson, Medical Malpractice 
              Subcommittee, American Academy of Actuaries

                              INTRODUCTION

    The American Academy of Actuaries appreciates the opportunity to 
provide com-
ments on issues related to insurance and the availability and pricing 
of medical malpractice insurance. The Academy hopes these comments will 
be helpful as the subcommittee considers related proposals.
    This testimony discusses some facts about medical malpractice 
financial results updated through 2001, contributing factors, and some 
common misconceptions about the results.
Then and Now
    During the 1990s, the medical malpractice line of business 
experienced favorable operating results, and insurers competed 
aggressively. Healthcare providers shared in the benefit of improved 
loss experience and higher levels of investment income through lower 
charged premiums.
    Recently, however, the cost of medical malpractice insurance has 
been rising. Rate increases have been precipitated in part by the 
growing size of claims, more fre-
quent claims in some areas, and higher defense costs. The relation of 
increasing liti-
gation and increased loss costs is clear, and the size of a median jury 
award rose to $1 million in 2000, a jump from $474,536 in 1996, 
according to a July 2002 Insur-
ance Information Institute report.
    From a financial standpoint, insurance industry medical malpractice 
results dete-
riorated in 1999 and 2000, and are expected to have continued to 
deteriorate in 2001. For all companies reporting to A.M. Best (an 
organization offering comprehen-
sive data to insurance professionals), the combined ratio of 130 
percent and 134 per-
cent for the earlier two years, respectively, has deteriorated to 143 
percent, per A.M. Best preliminary estimates. An operating ratio of 106 
percent for the two earlier years, reflecting a loss of 6 cents on 
every dollar of premium written after consid-
ering underwriting and investment results, is expected to deteriorate 
when 2001 results become available. At these levels, 2001 re-
sults will be the worst they have been in 15 years or more, 
approximating levels of the mid-1980s.
    Today, the loss environment has deteriorated, benefits of favorable 
reserve devel-
opment appear to be gone, and the available investment income offset 
has declined. In fact, reserve liabilities may require increases to 
cover current ultimate loss obli-
gations. All said, rates for both insurers and reinsurers need to 
increase to properly align with current loss and investment income 
levels. Companies failing to do this jeopardize their surplus base and 
financial health.

                               SOME FACTS

    Because 2001 insurance industry A.M. Best data is not available, 
the following discussion is based on results of 30 companies (the 30-
Group), primarily physician-
owned and/or -operated medical liability insurers. These companies 
represent about one-third of the exposure reported to A.M. Best. 
Information is shown for the last seven years.
    Results for these companies reflect a slight operating profit (a 96 
percent oper-
ating ratio, or 4 percent net income relative to premiums) in 2000. 
However, the results deteriorated to a 10 percent operating loss (a 110 
percent operating ratio) for 2001.
    Following are discussion and charts summarizing the two key drivers 
of financial results and their effects on operating results and 
surplus.

                        CHART A: COMBINED RATIO

[GRAPHIC] [TIFF OMITTED] T1491.007

    Driver #1--Higher combined ratio (defined here as calendar year 
loss and all loss adjustment and underwriting expenses divided by 
premium earned). The combined ratio deteriorated by 10 points in 2000 
and a further 14 points in 2001. The ratios were 124 percent and 138 
percent in 2000 and 2001, respectively. The preceding five years 
reflect a rather stable 110-115 percent range. The driver in these 
results is the deterioration of the loss and loss adjustment expense 
ratio as the underwriting expense ratio remains relatively flat. The 
earlier years reflect the benefit of signifi-
cant reserve reductions that have decreased and contributed to the 
deterioration ob-
served.

      CHART B: INVESTMENT INCOME AS PERCENTAGE OF PREMIUM DECLINES

[GRAPHIC] [TIFF OMITTED] T1491.008

    Driver #2--Decreased investment income (shown here as pre-tax 
investment in-
come divided by premium earned). As shown in Chart A, insurers 
generally spend more money on loss and expense than they collect in 
premium. This is possible be-
cause investment income offsets this underwriting loss. In Chart B, 
pre-tax invest-
ment income is divided by earned premium to estimate the protection 
provided to offset an underwriting combined ratio in excess of 100 
percent. As can be seen from Chart B, this statistic has declined over 
the measurement period from the mid-40s to the mid-30s, and, in 2001, 
to 31 percent. This ``offset'' will continue to decline in the future 
for two reasons. First, most invested assets are bonds and are affected 
by recently lower yields, a change that has not been fully felt in 
current investment income. Second, the premium base is growing due to 
increased rates, growth in ex-
posure, or both. Invested assets are not increasing as rapidly as 
premium and, therefore, investment income as a percentage of premium 
will decline.
    Effect #1--Net operating income falls (shown in Chart C as a 
percentage of pre-
mium). Net operating income represents the net impact of the combined 
ratio and investment income ratio, adjusted for other income statement 
items (primarily pol-
icyholder dividends, miscellaneous other income, and federal income 
tax). The strong operating returns of the early years have been 
followed by the slight 2000 profit and 10 percent loss for 2001 
described earlier.

         CHART C: CALENDAR YEAR OPERATING RESULTS TURN NEGATIVE

[GRAPHIC] [TIFF OMITTED] T1491.009

    Effect #2--Surplus declines are shown in Chart D as a percentage 
change from one year to the next. Surplus increases through 1999, 
decreases slightly in 2000, and decreases more significantly in 2001. 
Surplus represents the capital base for these insurers, and its decline 
in 2000 and 2001 reduces the capacity to write new or renewing business 
prospectively, and/or absorb adverse loss developments on business 
written in prior years.

                 CHART D: SURPLUS CHANGE TURNS NEGATIVE

[GRAPHIC] [TIFF OMITTED] T1491.010

                          CONTRIBUTING FACTORS

    There are several factors contributing to the financial results 
described above. It is probably best to note the factors contributing 
to the favorable results of the early and mid-1990s and then discuss 
the changes in these factors today.
    Factor #1: Throughout the 1990s, premium rates for the insurance 
industry as a whole were relatively flat or down in several states. 
Rates decreased toward the middle and end of the period in comparison 
to rates at the beginning of the decade. In many cases, rate decreases 
were a consequence of more significant discounts rather than changes to 
filed rates.
    Factor #2: Loss-cost trends (the annual change in the frequency and 
severity of claims) during this time period were relatively low. Long-
term indications suggest a low single-digit change, 3 percent to 5 
percent, varying from state to state. This
reflects a lower general economic inflationary environment, and, 
perhaps more im- portantly, an equally low medical inflationary index. 
Rates established at the beginning of the period contemplated higher 
trends. Companies responded to this emerg- ing data in different ways. 
Some held rates stable and paid policyholder dividends or gave premium 
discounts. Some reduced filed rates. Others found they needed to 
increase rates modestly and tried to refine pricing models to improve 
the equity of their program costs. Many insurers employed combinations 
of these, with resulting increases in some programs and decreases in 
others, depending on specific facts and circumstances. However, in 
general, there was a decline in the adequacy of pre- miums in this 
period. Collected rates came into line with insurers' costs, but com- 
petitive actions pushed rates even lower in some jurisdictions.
    Factor #3: Lower than expected loss-cost trends allowed reductions 
in loss re- serves established in anticipation of trends more in line 
with historically higher lev- els. As experience emerged, loss reserves 
for prior years were reduced, contributing to very profitable calendar 
year results. This evidence emerged gradually as claims settled. Thus, 
the reductions occurred over a period of years. Loss reserve reductions 
for prior years lowered current calendar year loss ratios (and thus the 
combined and operating ratios) during the mid-to-late 1990s, as shown 
in Chart E. As is clear from the graph, loss reserve development for 
the 30-Group was not a factor in 2001. From a broader perspective, it 
appears that the medical malpractice line for the insurance industry as 
a whole is currently in a deficit position. For example, the industry 
as a whole had to increase reserves in 2000, and indications are that 
this also will have occurred in 2001. (Insurance industry results for 
2001 are not yet available.)

[GRAPHIC] [TIFF OMITTED] T1491.011


    Factor #4: During the 1990s, investment income returns produced a 
real spread between fixed income rates of return and economic 
inflation. In addition, the modest equity position of invested assets 
for the 30-Group combined with fixed income yields to produce 
significant investment gains, improving overall financial results. 
These gains increased the investment income ratio (see earlier graph) 
and improved the operating ratio.

    Factor #5: Given the financial results of the early-to-mid-1990s, 
some companies considered expansion into new markets (although they may 
have had limited infor- mation to develop rates), became more 
competitive in existing markets, and offered more aggressive premium 
discounts. In most jurisdictions, ``discounts'' against the manual 
premium became common, reducing the actual premiums paid by health care 
providers. Reinsurers likewise reduced rates, competed and covered more 
expo- sure but often at lower rates. As a consequence, rates on a 
coverage year basis be- came less adequate.

    Factor #6: Loss-cost trends, particularly claim severity, began to 
pick up toward the latter part of the 1990s. The number of large claims 
(sometimes very large) in- creased, but even basic limits analyses 
(eliminating the distortions of very large claims) began to move 
upward. This, coupled with the cumulative effect of the low loss-cost 
trend and rate activity in the earlier part of the decade, produced 
rate indi- cations that were moving up significantly in many states. 
Insurers are moving to eliminate competitive discounts.

    Factor #7: Aggregate loss reserve levels were reconciled to the 
lower loss-cost trends, resulting in no further reductions in 2001 (and 
for the insurance industry, requiring an addition to prior reserve 
levels). In fact, the upward loss-cost pressure noted above calls into 
question whether current reserve levels will be adequate to meet 
ultimate loss costs. Results to date for the 30-Group reflect little or 
no strengthening in the aggregate, although results vary on a company-
by-company basis.

    Factor #8: Rates of return on invested assets declined, and equity 
values fell. In addition to the fact that this affected interest 
earnings on existing assets, it also affected the expectation for 
investment earnings used to offset needed prospective premium levels. 
Rates established using an interest rate assumption of 6 percent rather 
than 7 percent were 3 to 4 percent higher (assuming no changes in other 
rate components) due to the multiplier effect of investment income. 
Moving to even lower yields compounds the impact.
    Factor #9: Reinsurers' experience deteriorated as their results 
were affected by the increased claim severity and pricing changes in 
the early-to-mid-1990s. Since reinsurers generally cover the higher 
layers of exposure, their results were disproportionately impacted by 
claim severity increases. This, coupled with the broadly tightened 
reinsurance market after the events of September 11, 2001, caused 
reinsurers to substantially increase rates and tighten terms of 
reinsurance for medical malpractice.

                        FREQUENT MISCONCEPTIONS

    In closing, it would be helpful to address some frequent 
misconceptions about the insurance industry and medical malpractice 
insurance coverage.

Misconception 1: ``Insurers are increasing rates because of investment 
        losses, particularly their losses in the stock market.''
    Investment income plays an important role in the overall financial 
results of insurers, particularly for insurers of medical professional 
liability, because of the long delay between payment of premium and 
payment of losses. Insurers have not suffered investment losses, but 
they have experienced a decline in their portfolio rates of return. The 
vast majority of invested assets are fixed-income instruments. 
Generally, these are purchased in maturities that are reasonably 
consistent with claim payments. Losses from this portion of the 
invested asset base have been minimal, although the rate of return 
available has declined. Equities are a much smaller portion of the 
portfolio (for this 30-Group, representing about 15 percent of invested 
assets). After favorable performance up through the latter 1990s, there 
has been a decline in the last few years, contributing to less 
favorable investment results and overall operating results. Thus, 
investment returns are still positive, but the rates of return have 
been adversely affected by equity declines and lower fixed income 
investment yields.
    In establishing rates, insurers do not recoup investment losses. 
Rather, the general practice is to choose an expected prospective rate 
of return (e.g., 5 percent or 6 percent) and calculate a discount 
factor (usually producing a credit to rates on the order of 10 percent 
to 15 percent). This means the insurer is expecting to have an 
underwriting loss that will be offset by investment income. Since 
interest yields drive this process, when interest yields decrease, 
rates increase.

Misconception 2: ``Companies operated irresponsibly and caused the 
        current problems.''
    Financial results for medical insurers have deteriorated. Further, 
some companies made underwriting and rate decisions that have resulted 
in adverse financial results, including insolvencies. A significant 
portion of this adverse experience is emerging on business written in 
newly entered markets by companies that attempted to expand in the mid-
to-late 1990s. In addition, companies became too aggressive in 
discounting premiums for existing business.
    Additionally, while one can argue about whether companies were 
imprudent in past pricing behavior, today's rate increases reflect a 
reconciliation of rates and current loss levels, given available 
interest yields. There is no added cost for past mispricing. Thus, 
although the competitive, soft market pricing delayed reconciliation of 
rates and loss levels, the ``current problem'' reflects current data.

Misconception 3: ``Companies are reporting losses to justify increasing 
        rates.''
    This is a false observation. Companies are reporting losses 
primarily because claim experience is worse than anticipated when 
prices were set. It is clear that companies, having gone through the 
1990s reporting very profitable results, would not suddenly have 
decided that, in order to get more profits, they would report losses to 
increase rates. Further, several companies have suffered serious 
adverse consequences given these financial results, including 
liquidation or near liquidation. For example, the St. Paul Cos., 
formerly the largest writer of medical malpractice insurance, is now in 
the process of withdrawing from this market.
    The Academy appreciates the opportunity to provide an actuarial 
perspective on these important issues and would be glad to provide the 
subcommittee with any additional information that might be helpful.

    Mr. Bilirakis. Thank you very much, Mr. Hurly.
    Mr. Plunkett? Please proceed, sir.

                  STATEMENT OF TRAVIS PLUNKETT

    Mr. Plunkett. Thank you, Mr. Chairman and thank you to the 
chairman and Mr. Brown and members of the subcommittee for the 
opportunity to offer our comments on this very important issue. 
I'm Travis Plunkett. I'm the Legislative Director with the 
Consumer Federation of America.
    For the third time in less than 30 years, Congress and 
State Legislators are grappling with the problem of fast rising 
medical malpractice rates. As we've just heard, insurers insist 
a sharp increase in large, unwarranted jury verdicts is to 
blame for the crisis.
    But research by our Director of Insurance, Robert Hunter, 
shows that insurers are pointing fingers when they should be 
looking in the mirror. It is the hard insurance market and the 
insurance industry's own business practices that are largely to 
blame for the rate shock that physicians have experienced in 
recent months.
    Our research shows several trends that are relevant to the 
debate about malpractice rates. First is we've already heard, 
these rate hikes aren't occurring in a vacuum. Commercial 
insurance rates are rising overall depending on the size of the 
account and type of insurance. The problem is caused by a 
classic turn in the economic cycle of the industry, and I'd ask 
that the insurance cycle slide be put up--sped up, but not 
caused by the terrorist attacks.
    There are been three malpractice crises since the early 
1970's, in the mid-1970's, the mid-1980's, and right now. As 
the graph shows, these crises have coincided precisely with the 
bottom of the insurance cycle each time this has occurred, with 
the one exception in 1992, that would be payouts for Hurricane 
Andrew losses. This appears to be so far, this crisis, the 
mildest of the three events in terms of price increases and 
coverage unavailability. Even with the withdrawal of the 
largest malpractice insurer, Saint Paul, from the market.
    According to the National Association of Insurance 
Commissioners, there are three major causes of this kind of 
steep underwriting cycle.
    First, a large loss shock. Second, changes in interest 
rates. Third, underpricing in soft markets. Lower interest 
rates and underpricing have already been in place for quite 
some time. September 11 provided the shock loss in an achingly 
painful way. But the cycle had turned before the 11th in late 
2000.
    As I mentioned, a significant part of the problem is 
underpricing, and I'd like to turn now to exhibit a.
    This shows that the average malpractice premium per doctor 
barely climbed from 1991 to 2000--1.9 percent, which is really 
a 32.5 percent drop if medical inflation is factored in. That 
means it would take a rate increase of 48 percent to bring 
premium rates in 2000 back to the 1991 level.
    Our research shows that medical malpractice as well as a 
percentage of national health care expenditures is quite low. 
It's a fraction. It's about 66 cents over the last decade for 
every $100 of national health care cost. Thus, the maximum 
potential savings if you eliminate all rights for injured 
patients to seek legal redress would be under 60 cents on a 
$100 medical bill. I say under 60 cents because the year 2000 
cost was about 56 cents.
    Regarding claims in the last decade, let us note that only 
one in four person, as you've heard, get any payment at all. 
I'd like to turn to exhibit c. Each closed claim in America 
which includes all million dollar verdicts averaged $27,824 for 
the decade ending December 31, 2000. Notice I'm talking about 
the decade, not the most recent year where data on claims is 
clearly insufficient. This includes costs for insured defense 
and claims adjustment. The figures over the decade showed 
virtually no growth in closed claims.
    Now why do we talk about closed claims? Because they 
include those costs you've heard so much about today. They 
include the cost for the zero claims. They include the cost for 
paying out those claims and defending against those claims. 
It's important to note that. If you talk just about claims that 
are paid, and the number we have in our chart over a decade is 
average $112,000, this number doesn't include costs for 
defensive claims settled, adjudicated or otherwise closed with 
no payment. So you have to look at both. You have to look at 
both the closed claims and those that are paid.
    The conclusion we've drawn from this data is that the 
insurance cycle and the practices of the insurance industry 
themselves are the key culprits in the rate shock that 
physicians, hospitals, and patients are grappling with. 
Unfortunately, each time the cycle turns from soft to a hard 
market, the response by insurers is extremely predictable.
    They shift from inadequate under pricing to unconscionable 
over pricing. They cut back on coverage and then they blame 
large jury verdicts for the problem. Insurers seem to expect 
Congress and the American public to swallow the dubious line, 
that trial lawyers have managed to time their million dollar 
jury verdicts to coincide precisely with the bottom of the 
insurance cycle three times in the last 30 years. That just 
doesn't seem plausible. And as you've heard from others the 
insurance cycle is quite complicated and you can't boil it down 
simply to a question of losses involving jury verdicts.
    A lot is at stake in this debate. As you've already heard, 
the IOM report demonstrates that far too many Americans face 
the serious possibility of an injury or even death due to 
medical mistakes in the hospital. Their range, on medical 
errors, was either the eighth leading cause of death in the 
country ahead, of AIDs and breast cancer, or the fourth leading 
cause of death in the country, depending on how you calculate 
the numbers and what study you look at.
    Mr. Bilirakis. Please summarize, Mr. Plunkett.
    Mr. Plunkett. Absolutely. Some medical errors are directly 
attributable to physician negligence and some aren't. But the 
point is it that there are serious implications here if you 
roll back legal rights. And before you move tort reform 
legislation, I urge you to look at these insurance issues very 
closely, get the facts, and look at the role the insurance 
industry has played in the predicament that we all find 
ourselves in right now. Thank you.
    [The prepared statement of Travis Plunkett follows:]

 Prepared Statement of Travis Plunkett, Legislative Director, Consumer 
                         Federation of America

    Good morning. I am Travis Plunkett, legislative director for the 
Consumer Federation of America. CFA is a non-profit association of more 
than 290 organizations founded in 1968 to advance the consumer interest 
through advocacy and education. Ensuring the provision of fairly priced 
and adequate insurance has been one of our core concerns since CFA's 
inception.
    I would like to thank Chairman Bilirakus, Ranking Member Brown and 
the other members of the Subcommittee for the opportunity to offer our 
comments on this extremely important issue. For the third time in less 
than thirty years, Congress and State legislators across the country 
are grappling with the problem of fast-rising medical malpractice 
rates. Insurers insist that a sharp increase in large, unwarranted jury 
verdicts is to blame for the crisis. As a result, lawmakers on this 
Subcommittee and in a variety of states are considering legislation to 
place further limits on the legal rights of Americans who have been 
harmed or killed by medical malpractice.
    But research by actuary and CFA Director of Insurance J. Robert 
Hunter shows that insurers are pointing fingers when they should be 
looking in the mirror. It is the ``hard'' insurance market and the 
insurance industry's own business practices that are largely to blame 
for the rate shock that physicians have experienced in recent months. 
CFA has found that:

 Medical malpractice rates are not rising in a vacuum. 
        Commercial insurance rates are rising overall.
 The rate problem is caused by the classic turn in the economic 
        cycle of the industry, sped up--but not caused by--terrorist 
        attacks.
 Insurers have under-priced malpractice premiums over the last 
        decade. It would take a 50 percent rate hike to increase 
        inflation-adjusted rates to the same level as existed ten years 
        ago.
 Further limiting patients' rights to sue for medical injuries 
        would have virtually no impact on lowering overall health care 
        costs. Medical malpractice insurance costs as a proportion of 
        national health care spending are miniscule, amounting to less 
        than 60 cents per $100 spent.
 Insurer losses for medical malpractice have risen slowly in 
        the last decade, by just over the rate of inflation.
 Malpractice claims have not ``exploded'' in the last decade. 
        Closed claims--which include claims where no payout was made--
        have remained constant, while paid claims have averaged just 
        over $110,000.
 Medical Malpractice profitability over the last decade has 
        been excellent, at just over 12 percent, despite a decline in 
        profits in the last two years.

 I. PUTTING MEDICAL MALPRACTICE INSURANCE RATES INTO CONTEXT: INSURER 
                   PRACTICES AND THE INSURANCE CYCLE

A. Commercial Insurance Rates Overall Are Rising
    To put price increases in insurance anywhere in America today into 
context, you have to be aware of a general tendency toward higher rates 
nationally. According to data released by the Council of Insurance 
Agents (CCIA) and Brokers,1 commercial premiums are 
increasing quickly. According to estimates made by CFA based upon the 
CCIA data for the 12-month period ending December 31, 2001, average 
prices rose as follows: Small Commercial Accounts +21%; Mid-size 
Commercial Accounts +32%; and Large Commercial Accounts +36%.
---------------------------------------------------------------------------
    \1\ 4th Quarter 2001 Survey, released January 2002.
---------------------------------------------------------------------------
    The worst hit are, not surprisingly, ``terrorist target'' risks, 
such as skyscrapers. According to the CCIA survey, CFA calculates the 
average increases over the last year by line of insurance as: Business 
Interruption +30%; Construction +46%; Commercial Cars +28%; Property 
+47%; General Liability +27%; Umbrella Liability +56%; and Workers' 
Compensation +24%.
    Interestingly, the broad rate increases are occurring even when 
terrorism is excluded. The market shows all the earmarks of a classic 
cycle bottom, which is discussed in some detail below.
B. There is a Classic ``Hard'' Cycle Nationally--with Prices Rising 
        Accelerated by the Events of September 11th
    Insurance is a cyclical business. This is particularly true in the 
medical malpractice insurance business. In the mid-1970s, the country 
experienced the first liability insurance crisis. In this case, the 
crisis was particularly acute in product liability insurance and 
medical malpractice insurance.
    At the mid-70s cycle low, the industry's rate of return was ``2.6% 
in 1975,'' rose ``to 19.7% in 1977, a gain of almost 17 points in the 
course of only two years. The industry's rate of return then fell by 
more than 17 points over the next 7 years to 1.9% in 1984, the nadir of 
that soft market. During the subsequent hard market, profits once again 
shot up--to 15.4%'' (by 1987).2
---------------------------------------------------------------------------
    \2\ Cycles and Crises in Property/Casualty Insurance: Causes and 
Implications, edited by Cummings, Harrington and Klein, NAIC, 1991. 
Page 11.
---------------------------------------------------------------------------
    The mid-1980s crisis was in commercial liability generally, hitting 
municipalities, day care centers, environmental liability, medical 
malpractice and many other liability risks and lines. Time magazine had 
a cover story called ``Sorry America, Your Coverage is Cancelled.''
    Two charts below show the cyclical nature of insurance.3 
The first chart, ``Insurance Cycle'' shows the operating income as a 
percentage of premium from 1967 to 2001. The operating income of the 
industry falls below zero four times on the chart--in 1975, in 1984 and 
1985, in 1992, and in 2001 (the last number estimated by CFA).
---------------------------------------------------------------------------
    \3\ Both of these charts use data from A. M. Best and Co., 
Aggregates and Averages, 2001 edition for all years except 2001, where 
CFA made estimates of the results based on current information.
[GRAPHIC] [TIFF OMITTED] T1491.012

    The 1992 data point was not a classic cycle bottom, but reflected 
the impact of Hurricane Andrew and other catastrophes in that year.
    The 1975 and mid-80s bottoms were both classic cycle bottoms with 
very sizeable price increases and coverage availability problems 
immediately following the bottom. Consider the mid-80s cycle turn: 
between 1977 and 1984, insurance premiums had ``. . . actually declined 
(by) 4.4% . . . from 1984 to 1987, net premiums written increased 63.3% 
. . .'' 4
---------------------------------------------------------------------------
    \4\ Cycles and Crises in Property/Casualty Insurance: Causes and 
Implications, edited by Cummings, Harrington and Klein, NAIC, 1991. 
Page 8.
---------------------------------------------------------------------------
    The price increases in this cycle turn began in late 
2000.5 The rate of change was accelerating upward before 
September 11th. The terrorist attacks sped up the price increases into 
what some seasoned industry analysts see as gouging.6 Many 
examples of unjustified price increases have surfaced in the last few 
months.7,8
---------------------------------------------------------------------------
    \5\ ``The Big Question For 2002: Will Hard Market Last Long?'' By 
Sean F. Mooney, National Underwriter, January 7, 2002 edition.
    \6\ ``. . . there is clearly an opportunity now for companies to 
price gouge--and it's happening . . . But I think companies are 
overreacting, because they see a window in which they can do it.'' 
Jeanne Hollister, consulting actuary, Tillinghast-Towers Perrin, in, 
``Avoid Price Gouging, Consultant Warns,'' National Underwriter, 
January 14, 2002.
    \7\ ``As Insurers Hike Prices, State Regulators Consider Reducing 
Regulatory Authority,'' Consumer Federation of America, December 5, 
2001.
    \8\ ``We've seen premiums go up as much as 40-70 percent,'' says 
[Jenny] Jones [CEO of Elkins/Jones insurance brokerage]. She points out 
that commercial buildings which now pay five or six cents per square 
foot for insurance need to budget for costs to go up to as much as 
seven or eight cents a foot. She says the increases could be across the 
board for all types of properties. Single family housing developers 
could be sharply affected, she notes, citing one homebuilder whose 
liability premium doubled at the November 11 renewal.'' ``Large 
Insurance Premium Increases in 2002 as September 11 Ricochets Through 
Industry, Expert Advises,'' Business Wire, January 3, 2002.
---------------------------------------------------------------------------
    Gouging usually does occur as the cycle turns.9 The 
evidence is very strong that what we are experiencing is a classic 
underwriting cycle turn into a ``hard,'' from a prolonged ``soft,'' 
market.
---------------------------------------------------------------------------
    \9\ ``To be sure, the market began firming in 2000. But the Sept. 
11 terrorist attacks sent insurance prices skyrocketing far beyond the 
estimates of increases that earlier were being attributed to a normal 
hard cycle.'' ``Year in Review,'' Business Insurance, December 24, 
2001.
---------------------------------------------------------------------------
    According to the National Association of Insurance Commissioners, 
``. . . underwriting cycles may be caused by some or all of the 
following factors:

1. Adverse loss shocks . . . unusually large loss shock . . . may lead 
        to supra-competitive prices.
2. Changes in interest rates . . .
3. Under pricing in soft markets . . .'' 10
---------------------------------------------------------------------------
    \10\ Cycles and Crises in Property/Casualty Insurance: Causes and 
Implications, edited by Cummings, Harrington and Klein, NAIC, 1991. 
Page 339.
---------------------------------------------------------------------------
    Prior to September 11th, the industry had been in a soft market 
since the late 1980s. The usual six to ten year economic cycle had been 
expanded by the amazing stock market of the 1990s. No matter how much 
they cut their rates, the insurers wound up with a great year when 
investing the float on the premium in this amazing market (the 
``float'' occurs during the time between when premiums are paid into 
the insurer and losses paid out by the insurer--e.g., there is about a 
15 month lag in auto insurance). Further, interest rates were 
relatively high in recent years as the Fed focused on inflation.
    But, in the last two years, the market turned with a vengeance and 
the Federal Reserve cut interest rates again and again. Item 2 above 
had occurred well before September 11th.
    Item 3 above, the low rates, were also apparent. The chart, 
``Insurance Cycle,'' shows the operating profit drop from about 13% of 
premium in 1997 to about 3.5% of premium in 2000.
    So, before September 11th, the cycle had turned, rates were rising 
and a hard market was developing. An anticipated price jump of 10% to 
15% in 2001 was predicted by CFA and confirmed by the Insurance 
Information Institute.
    Item 1, the shock loss was all that was missing. September 11th 
provided that in an achingly painful way.
    However, the increases are mostly due to the cycle turn. The price 
increases were sped up by the terrorist attack, collapsing two years of 
anticipated increases into a few months, but the bulk of the increases 
are not related to pricing for terrorism, per se. This is a classic 
economic cycle.
    The question we hear a lot of debate about is how long the hard 
market can last. Given the amazing inflow of capital, can the prices 
hold for long? While the jury is still out on that question, there are 
some factors that make it seem likely that the hard market will be 
brief. They include:

 The capital inflow in excess of the after-tax terrorism loss,
 The relatively overcapitalized position of the industry as 
        shown in the chart, ``Leverage Ratio,'' below,
 The availability of alternative risk mechanisms to the larger 
        client risks, the insureds with the biggest price hikes,
 The pattern of risk managers blaming insurers, not the 
        terrorism event, for renewal problems, and shopping for better 
        deals.11
---------------------------------------------------------------------------
    \11\ ``Risk Managers Blame Insurers for Renewal Woes,'' National 
Underwriter, January 14, 2002

[GRAPHIC] [TIFF OMITTED] T1491.013


    A ``leverage ratio'' is the ratio of net premiums written (i.e., 
after reinsurance) to the surplus, the amount of money the insurer has 
to back up the business; assets less the liabilities. Surplus is not 
reserves, which are liabilities set up to cover claims. The leverage 
ratio has always been the key measure of insurer strength.
    The rule of thumb used for decades by insurance regulators and 
other experts in determining solidity is the so-called ``Kenny 
12 Rule'' of $2 of premium for each $1 of surplus as safe 
and efficient use of capital. Some now say that this rule is anti- 
quated, given the new level of catastrophe possible, but new ways of 
spreading the

risk, such as securitizing it, may offset this. CFA still believes a 
2:1 ratio is safe. But even those proposing a lower ratio do not go 
below 1.5:1. The NAIC uses a 3:1 ratio as the standard for determining 
if an individual insurer warrants solvency inspection.
---------------------------------------------------------------------------
    \12\ Named after a famous insurance financial writer, Roger Kenny.
---------------------------------------------------------------------------
    When the cycle turned in the mid-70s, the premium/surplus ratio was 
as high as 2.8 to 1. This was a dangerously high average ratio since 
many insurers exceeded the 3:1 NAIC problem ratio. When the mid-80s 
cycle turned, the ratio was as high as 1.8 to 1--a relatively safe 
level. In today's cycle turn, CFA projects the ratio for 2001 year-end 
to be about 1.2 to 1, extremely safe and, indeed, overcapitalized.

       II. THE FACTS ABOUT MEDICAL MALPRACTICE CLAIMS AND LOSSES

    As the lengthy explanation above demonstrates, the practices of the 
insurance industry itself are to largely to blame for the wildly 
gyrating business cycle of the last thirty years. Each time the cycle 
turns from a soft to a hard market the response by insurers is 
predictable: they shift from inadequate under-pricing to unconscionable 
over pricing, cut back on coverage and blame large jury verdicts for 
the problem. It is particularly appalling to see a crisis caused by 
insurer action being blamed, by the very insurers that caused the 
problem, on others. Insurers seem to expect legislators and the 
American public to swallow the dubious line that trial lawyers have 
managed to time their million-dollar jury verdicts to coincide 
precisely with the bottom of the insurance cycle three times in the 
last thirty years. Medical malpractice insurance rates are now rising 
fast. Insurers tell the doctors it is the fault of the legal system and 
urge them to go to state legislatures or to Congress and seek 
restrictions on the rights of their patients. Physician associations, 
unfortunately, are only too willing to accept this faulty logic.
    Although rates are obviously now increasing, medical malpractice 
insurance losses are not ``exploding'' and have actually declined by 
one significant measure. CFA's Director of Insurance, J. Robert Hunter, 
conducted an actuarial analysis of medical malpractice insurance using 
the most recent insurance data available from the National Association 
of Insurance Commissioners and A.M. Best and Company. He found the 
following:

1.Inflation-adjusted medical malpractice premiums have declined by one-
        third in the last decade. Exhibit A shows that the average 
        medical malpractice premium per doctor barely climbed from 
        $7,701 in 1991 to $7,843 in 2000, an increase of 1.9 percent. 
        Rates in constant 2000 dollars have declined by 32.5 percent, 
        when the medical care services Consumer Price Index is taken 
        into consideration, It would take a rate increase of 48 percent 
        to bring premium rates in 2000 back to the 1991 price level. 
        This chart points to insurer pricing practices (e.g. under-
        pricing during a soft market followed by a sharp increase in 
        premiums as the market has hardened) as a key culprit in the 
        rate shock that many physicians are now experiencing.

2. Medical malpractice as a percentage of national health care 
        expenditures are a fraction of the cost of health care in this 
        nation. Over the last decade, for every $100 of national health 
        care costs in the United States, medical malpractice insurance 
        cost 66 cents. In the latest year (2000) the cost is 56 cents, 
        the second lowest rate of the decade. Exhibit B shows that 
        malpractice premiums as a share of health costs have declined 
        from .95 percent in 1988 to .56 percent in 2000. Medical 
        malpractice insurance is actually an amazing value as it covers 
        all medical injuries for about one-half of one percent of all 
        health costs. Moreover, this chart shows that proposals to 
        further limit patients' rights to sue for medical injuries have 
        little, if any, value in terms of lowering overall health care 
        costs. The maximum potential savings of eliminating all rights 
        for injured patients to seek legal redress would be under 60 
        cents on a $100 medical bill.

3. There is no ``explosion'' in the severity of medical malpractice 
        claims. Only about one in four persons who bring a claim 
        (24.6%) get any payment at all. Each closed claim in America--
        which includes all million-dollar verdicts--averaged only 
        $27,824 for the decade ending December 31, 2000. This includes 
        costs for insurer defense and claims adjustment. The figures 
        over the decade showed no growth in average paid claim. If one 
        looks at average payout just for claims with payments (as 
        opposed to all closed claims) the average loss was $112,987. 
        This includes costs for defense of claims settled, adjudicated 
        or otherwise closed with no payment, thereby overstating the 
        cost per claim paid. (See Exhibit C.)

4. Medical malpractice insurance losses have risen very slowly. 
        Incurred losses, including loss adjustment expense (LAE) has 
        risen by one-half of one percent over the last decade on a per-
        capita basis more than medical inflation. (See Exhibits A and 
        C.) Furthermore, Exhibit D shows that medical malpractice 
        losses haven't come anywhere close to approaching or exceeding 
        premiums, as they did in the early 1980s. In other words, 
        losses have increased on a fairly regular, predictable basis, 
        like most goods and services subject to inflation. The problem, 
        as pointed out in 1 above, is that premiums have not kept up 
        with losses.

5. Medical Malpractice profitability over the last decade has been 
        excellent. Despite a decline in profitability in the last three 
        years, the average return on net worth for medical malpractice 
        lines was still a handsome 12.3% over the last decade. (See 
        Exhibit E.)

                             III. SOLUTIONS

    Both the states and Congress must act to deal with the true source 
of the malpractice insurance price increases: insurer pricing practices 
and the volatile insurance cycle. As usual with insurance issues, state 
regulators must take the lead. CFA has called on the National 
Association of Insurance Commissioners to thoroughly investigate rate 
hikes in both personal and property/casualty lines and to consider a 
number of specific reforms to freeze or rollback unwarranted rate hikes 
and to prevent rate shock in the future. States can also take steps to 
spur private market development of increased insurance alternatives 
(such as captive insurance companies, risk retention groups, purchasing 
groups and the creation of new mutual insurance companies) and to 
increase the availability of insurance through public resources (such 
as joint underwriting associations and insurance facilities.)
    The states could also act to provide relief to the medical 
specialists, such as obstetricians and neurologists, who bear the brunt 
of medical malpractice costs. The problem, from an insurance point-of-
view, is that the risk is too concentrated on too few providers. The 
highest risk patients, who have illnesses or conditions where a slight 
provider error can cause grave harm or death, are usually ``referred 
up'' from general practitioners and internists to specialists. For 
example, only the very worst risks of all bad backs in a particular 
state end up being treated by neurosurgeons. Yet a few neurosurgeons 
bear the full cost of these risks; none of the risk is borne by 
referring physicians. This risk should be spread somewhat, because non-
specialist physicians benefit financially from this structure (lower 
risk patients are less costly in malpractice terms.) States should 
consider requiring insurers to impose a ``high-risk referral'' fee on 
all physicians, that could then be adjusted upward for risk depending 
on the class of practitioner and used to lower insurer costs in the 
highest-risk classes.
    Congress could act to address rising malpractice rates by creating 
a national reinsurance facility. All insurers writing medical 
malpractice would be members of the facility. Members would cede the 
premiums and claims over a set catastrophic amount to the facility. The 
facility would take all risk over this retention and would charge an 
actuarially-based premium for this coverage. The premium would NOT be 
allowed to fluctuate downward during the economic cycle of the medical 
malpractice insurance market, thereby serving to stabilize the premium 
cycle as well as make insurance more readily available through 
spreading the cost of large injuries to a national base. The 
reinsurance plan would have to be administered by a federal agency--the 
Department of Health and Human Services is probably the best bet--but 
there would be no taxpayer funding. Cost of premiums and of program 
administration would be paid out of the premiums ceded to the facility. 
HHS would utilize the data generated on these catastrophic claims to 
report to Congress on ways to decrease medical errors and malpractice.
    There have been three medical malpractice crises, in the mid-1970s, 
the mid-1980s and currently. This appears to be (so far) the mildest of 
the three events in terms of price increases and coverage 
unavailability, even with the withdrawal of malpractice insurer St. 
Paul from the market.
    The crises are caused by the economic cycle of the insurance 
industry. The cost of claims has been relatively flat, of the order of 
$110,000 per claim closed with payment and under $30,000 per claim 
closed when those claims closed without payment are included in the 
averages (as they must be since the adjustment expense for such claims 
is included in the data).
    Thus, in order to control the periodic malpractice insurance rate 
flare-ups, the cycle must be controlled. This requires the discipline 
of a regulator to do a very difficult thing, keep prices somewhat 
higher than competition would dictate during the ``soft'' phase of the 
cycle and escrow the excess to help when the ``hard'' phase sets in.
    The ``hard'' phase is related to reinsurance becoming unavailable 
or high priced. This is why a national reinsurance facility makes 
sense. Further, if the facility is regulated by the federal government, 
the government would have incentives to make sure that rates remained 
actuarially sound and stable throughout the cycle and would be able to 
use the data on large claims for risk reduction research.

                             IV. CONCLUSION

    A lot is at stake in this debate. The 1999 report regarding medical 
errors by the Institute on Medicine (IOM) demonstrates that far too 
many Americans face the serious possibility of an injury, or even 
death, due to medical mistakes in the hospital. Using the IOM's low 
estimate of 44,000 deaths per year, medical errors are the eighth 
leading cause of death in this country, ahead of breast cancer and 
AIDS. The IOM's high-range estimate of 98,000 deaths a year would make 
medical errors the fifth leading cause of death, more than all 
accidental deaths.13 Of course, some medical errors are 
directly attributable to physician negligence and some are not, but the 
IOM report clearly demonstrates the serious implications of rolling 
back the legal rights of Americans who have been harmed or killed by 
malpractice. If Congress gets it wrong, the pain and suffering incurred 
by many families across the country will only increase.
---------------------------------------------------------------------------
    \13\ To Err is Human, Building a Safer Health System, Institute of 
Medicine, National Academy of Sciences; November, 1999.
---------------------------------------------------------------------------
    Before this Committee rushes through tort reform legislation, I 
urge you get to get the facts. As the evidence I've presented you with 
today shows, insurers have only themselves to blame for the predicament 
they--and physicians and patients throughout the country--face.

                                EXHIBIT A: MEDICAL MALPRACTICE PREMIUMS 1991-2000
----------------------------------------------------------------------------------------------------------------
                                                                 U.S.A.
                                                                Medical    Average Med    Medical      Med Mal
                                                    U.S.A.    Malpractice  Mal Premium      Care       Average
                      Year                        Number of      Premm      per Doctor    Services    Premium at
                                                   Doctors     Earned (in     U.S.A      CPI-U 7/1       2000
                                                               thousands)                 of Year      Dollars
----------------------------------------------------------------------------------------------------------------
1991...........................................       631400      4862170      7700.62        176.1     11614.33
1992...........................................       652100      5138395      7879.77        189.7     11032.50
1993...........................................       670300      5174055      7719.01        202.6     10119.30
1994...........................................       684400      5931898      8667.30        212.6     10828.01
1995...........................................       720300      6080639      8441.81        223.5     10031.97
1996...........................................       737800      5992394      8121.98        231.9      9302.27
1997...........................................       756700      5917038      7819.53        238.7      8700.74
1998...........................................       777900      6195047      7963.81        246.5      8580.88
1999...........................................       797600      6155241      7717.20        254.6      8050.62
2000...........................................       812800      6375401      7843.75        265.6      7843.75
1991 to 2000 Percent Change....................         50.8        -32.5
Rate increase required to bring 2000 to 1991          48.10%
 price level...................................
----------------------------------------------------------------------------------------------------------------
Sources:
Doctors USA: Statistical Abstract of the United States
Earned Premiums: NAIC Report on Profit By Line By State
Medical Care Services Inflation: Bureau of Labor Statistics


           EXHIBIT B: RATIO OF MEDICAL MALPRACTICE PREMIUM COSTS TO NATIONAL HEALTH CARE EXPENDITURES
----------------------------------------------------------------------------------------------------------------
                                                      Diect Plus Assumed                            Medical
                                                            Medical         National Health   Malpractice Pemium
                        Year                              Malpractice      Expenditures \2\    as a % of Health
                                                      Pemiums Earned \1\                             Costs
----------------------------------------------------------------------------------------------------------------
1988................................................               $5322            $562,000                0.95
1989................................................                5379             623,900                0.86
1990................................................                5157             699,400                0.74
1991................................................                5015             766,800                0.65
1992................................................                5127             836,500                0.61
1993................................................                5367             898,500                0.60
1994................................................                5896             947,700                0.62
1995................................................                6207             993,700                0.66
1996................................................                6190           1,042,500                0.59
1997................................................                6402           1,092,400                0.59
1998................................................                6559           1,146,000                0.57
1999................................................                6703           1,211,000                0.55
2000................................................                7360           1,311,000                0.56
TOTAL...............................................             $56,062          $8,463,400                0.66
----------------------------------------------------------------------------------------------------------------
\1\ Best's Aggregates and Averages, 1998 and 2001 Editions. Figures in millions of dollars. Using direct plus
  assumed slightly overstates the size of medical malpractice premiums.
\2\ U.S. Department of Health and Human Services web site.


                                              EXHIBIT C: MEDICAL MALPRACTICE CLAIMS BY AMERICANS 1991-2000
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           Percent
                                                          Claims     Claims               Claims   Total      of       Paid       Average      Average
                                                          closed     closed      USA      w/pay    claims   total   losses and    loss for     loss for
                         Year                              with     without   pumber of  per 100   closed   claims      LAE      all claims  paid claims
                                                         payment    payment    poctors   poctors  per 100    with     expense      closed        only
                                                                                                  poctors  payment     (000)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1991..................................................      30841      75348     631400      4.9     16.8     29.0     3089412     29093.52    100172.24
1992..................................................      31079      82737     652100      4.8     17.5     27.3     3270128     28731.71    105219.86
1993..................................................      32821      87728     670300      4.9     18.0     27.2     3438042     28519.87    104751.29
1994..................................................      31147      92788     684400      4.6     18.1     25.1     3696608     29826.99    118682.63
1995..................................................      31237      94180     720300      4.3     17.4     24.9     3903960     31127.84    124978.71
1996..................................................      30522      92888     737800      4.1     16.7     24.7     3641179     29504.73    119296.87
1997..................................................      24326      79178     756700      3.2     13.7     23.5     2560484     24738.02    105257.09
1998..................................................      17835      67094     777900      2.3     10.9     21.0     2488737     29303.74    139542.30
1999..................................................      10419      50363     797600      1.3      7.6     17.1     1192560     19620.28    114460.12
2000..................................................       3035      22280     812800      0.4      3.1     12.0      204248      8068.26     67297.53
TOTAL.................................................     243262     744584    7241300      3.4     13.6     24.6    27485358     27823.53    112986.65
--------------------------------------------------------------------------------------------------------------------------------------------------------


                                                                                                                                             [GRAPHIC] [TIFF OMITTED] T1491.014
                                                                                                                                             


    EXHIBIT E: MEDICAL MALPRACTICE INSURANCE PROFITABILITY 1991-2000
                 PROFITABILITY DATA--RETURN ON NET WORTH
------------------------------------------------------------------------
                                                                National
                             Year                                Return
------------------------------------------------------------------------
1991..........................................................      15.9
1992..........................................................      15.5
1993..........................................................      15.3
1994..........................................................      13.7
1995..........................................................      12.7
1996..........................................................      12.6
1997..........................................................      12.6
1998..........................................................       7.6
1999..........................................................       5.1
2000..........................................................       5.4
Average ROR...................................................      12.3
------------------------------------------------------------------------
Source: Profitability By-Line, By-State, National Association of
  Insurance Commissioners, 2000 Edition.


    Mr. Bilirakis. Thank you, sir.
    Mr. Schwartz. Your mike, please.

                 STATEMENT OF VICTOR E. SCHWARTZ

    Mr. Schwartz. Chairman Bilirakis, Ranking Member Brown, 
members of the committee I appreciate your inviting me here 
today to talk about the medical malpractice crisis. I've 
studied liability law as a law professor. I've practiced law 
for the plaintiff's side for 15 years. The past 22, I've been 
on the defense side. I also chair the Public Policy Group at 
Shook, Hardy, & Bacon. I served as General Counsel to the 
American Tort Reform Association, but today my views are my 
own, not that of the association or any member.
    One reason why the committee thought it would be important 
for me to testify today is that some quotes of mine have been 
put before this committee and the Judiciary Committee, that 
medical malpractice liability reform in H.R. 4600 will do no 
good. Those quotes were taken from statements I've made about 
another bill which had no limits on damages. When I heard about 
this, I felt actually good. In Washington, first you're not 
quoted, then you're quoted. Then you're misquoted. Then you're 
quoted out of context. That's when you've made it, so I thought 
there was something satisfactory about that, but I thought I 
should clear it up.
    The bill is going to limit damages to $250,000 pain and 
suffering is going to ultimately have an effect on insurance. I 
don't think the bill should be passed simply to limit insurance 
costs. I don't think that's right. I think the first thing with 
tort reform that it should be fair and it should be balanced.
    A bill such as H.R. 4600 can limit insurance costs because 
it limits the amount of payouts. Some members pointed this out. 
You don't need to study tort law for 3 decades to figure that 
out.
    Mr. Deutsch, other members raised the issue why not let 
States do it. My view about medical malpractice has been that 
the States should do it. The problem is, and it was adverted to 
by some of the witnesses, that State tort reform, in key States 
that you're looking at, like Arizona, Nevada, Illinois, Ohio, 
has been decimated by State Supreme Courts holding these laws 
unconstitutional under State constitutions. When they do that, 
there is no way you can get a review of the decisions because 
they use State constitutions and you cannot get to the Supreme 
Court. Even the Washington Post calls it judicial 
nullification. The Harvard Law Review has roundly criticized 
these decisions. We've done an article on it. We'll submit it 
to the committee for the record. But the answer to the question 
of why not let the States do it, is it's been shown that the 
States can't do it. And a handful of States can undermine the 
total national picture.
    Mr. Bilirakis. If you would submit that article to the 
committee and without objection, it will be part of the record.
    Mr. Schwartz. We will.
    Mr. Bilirakis. Thank you.
    Mr. Schwartz. Another myth is that someone that insurers 
are all going to go to the bank and create a big raid once you 
pass this bill. This committee back in 1981, then in 1986, 
passed the Federal Risk Retention Act. It was not mentioned by 
anybody today. I'll bring it to your attention because it's 
extremely relevant.
    If insurers do not really reflect the savings that would be 
brought about by your bill, doctors have a ready alternative. 
They can self insure or they can group together and purchase 
insurance on a group basis. The Doctor's Company, which is a 
principal insurer, is a mutual. It's owned by the doctors. So 
they're not there to cheat their members or not pass along 
savings brought by tort reforms.
    The final thing, and I've heard it many times, is that the 
tort reform won't be effective, it won't do any good. I heard 
the same thing about the General Aviation Recovery Act in 1994, 
which was signed by Bill Clinton, which limited the liability 
in a constructive way of the general aviation industry. I was 
told in the Senate Room that they would be papier mache 
airplanes that fall out of the sky, that nothing would happen.
    Well, let me share with you what happened and we will 
submit an article that shows this. This Congress passed a tort 
reform. It's the only real Federal tort reform that affects a 
substantial business in the United States. It brought back 
Piper. It brought back Cesna. It produced 25,000 jobs and there 
has not been one Member of Congress on either side of the aisle 
that sought to repeal that bill, because they know if they did 
they would be in the paper for repealing a bill that was 
effective.
    So civil liability reform of this type can be effective. It 
can achieve the goals you wish. I'd be happy to answer any 
questions that you might have. I realize there's a limited 
amount of time, but I would value answering questions because 
there were a lot of things said this morning that really 
deserve a clear, concise answer.
    [The prepared statement of Victor E. Schwartz follows:]

Prepared Statement of Victor E. Schwartz, Senior Partner, Shook, Hardy 
                            & Bacon, L.L.P.

    Thank you, Mr. Chairman, and members of this Committee, for your 
kind invitation to testify today about the medical malpractice 
liability crisis.
    By way of background, I wish to share with you that I have 
practiced and taught in the area of liability law for over three 
decades. For almost fifteen years, while teaching, I worked exclusively 
for injured parties. Since 1980, I have been affiliated with law firms 
that have primarily defense practices. I am now a senior partner at 
Shook, Hardy & Bacon, L.L.P. and chair its Public Policy Group. I am 
senior author of the Nation's leading torts casebook, and have had the 
privilege to serve on each of the Advisory Committees in the American 
Law Institute's project that is restating the law of torts for this new 
century.
    I serve as General Counsel to the American Tort Reform Association 
(ATRA), but the views that I am sharing today are my own, not those 
necessarily shared with members of ATRA or of the various medical 
groups that are seeking this reform.
    One reason why some members of the Committee thought it would be 
helpful for me to testify here today is because purported quotes that I 
made about the medical liability system and medical malpractice have 
been placed before this Committee by other witnesses. When I read these 
quotes, it reminded me of a wise insight given to me by my former 
minister, Burt Sikkelee. In his sermons, he admonished our congregation 
that ``something not in context is pretext.'' In that regard, it has 
been suggested that my views are that a bill such as H.R. 4600 would do 
nothing to reduce the burgeoning insurance rates and premiums faced by 
physicians and other medical providers throughout our Nation. This 
suggestion is simply not true. I have attached a letter regarding this 
issue we sent to Mr. Nadler, your colleague on the Judiciary Committee. 
I would like to take a moment to share my response with you.
    Some of the comments that have been quoted to you were made about a 
completely different piece of legislation that contained no strict 
limits on the amount of damages a plaintiff would receive. Instead, 
these comments related to a product liability bill considered by this 
body in 1998. That 1998 bill contained general principles of tort law 
and sought to provide a badly needed balance between plaintiffs and 
defendants in our legal system.
    Again, that 1998 bill did not contain provisions for strict limits 
on damages which ultimately help reduce insurance rates. Reducing 
insurance rates is an important consideration, but it is not and should 
not be the sole guiding light for enacting tort reform.
    First and foremost, tort reform should be fair and balanced, and 
meet the needs of both plaintiffs and defendants. If it is not fair, it 
is not good.
    Having studied the subject of torts from both perspectives of the 
court aisle, I believe that tort reform can be fair to both plaintiffs 
and defendants and that tort reform can achieve stability in the 
insurance market. Meaningful reforms such as those in H.R. 4600 will 
help bring a degree of predictability and fairness to the civil justice 
system that is critical to solving the growing medial access and 
affordability crisis.

                     WHY NOT LET THE STATES DO IT?

    When it comes to the specific area of medical malpractice, in the 
past I have believed that this should be the exclusive function of the 
States. Medical malpractice insurance rates are often set on a state-
by-state basis, where state controls could lower costs. That good 
premise and that good practice has been upended in recent years, 
because when States have passed balanced medical malpractice reforms, 
they have been nullified by state courts under obscure portions of very 
lengthy and prolix State Constitutions.
    I am submitting to this Committee a law review article that was 
authored by my colleague, Leah Lorber, and myself that was recently 
published in the Rutgers Law Review,1 and ask that it be 
made a part of the record. The article demonstrates that these 
decisions do not represent sound State Constitutional law, and also 
that they trespass on the Federal Constitution itself. It is very 
pertinent to note that not one of these decisions held a state medical 
malpractice law unconstitutional under the Constitution of the United 
States; they would be upheld under that Constitution.
---------------------------------------------------------------------------
    \1\ See Victor E. Schwartz & Leah Lorber, Judicial Nullification of 
Civil Justice Reform Violates the Fundamental Federal Constitutional 
Principle of Separation of Powers: How to Restore the Right Balance, 32 
Rutgers L. J. 907 (2001).
---------------------------------------------------------------------------
    The state courts that have nullified state tort reform are in key 
areas, such as Arizona, Illinois, and Ohio, all of which have 
situations that cry out for medical malpractice reform.
    In Arizona, for example, USA Today reports that the medical 
liability crisis has forced the maternity ward in Bisbee, Arizona, to 
close its doors. Expectant mothers must drive more than a half hour to 
the nearest town to deliver.2 In Ohio, a general surgeon 
named Dr. Joan Palomaki was scheduled to close her practice on June 30, 
the day before the price she paid for medical liability insurance would 
have jumped 80 percent, to about $45,000 a year.3 Dr. 
Palomaki had spent 25 years performing biopsies, lumpectomies, 
mastectomies and other breast surgeries. Had she chosen to stay in 
medicine, Dr. Palomaki said she would have had to clock 1,000 office 
visits--half a year's work--just to cover the cost of 
insurance.4
---------------------------------------------------------------------------
    \2\ See Steve Freiss, Malpractice gets costlier; Insurance rate 
hikes put doctors in a bind, USA Today, Apr. 9, 2002 at D7.
    \3\ See Roger Mezger, Insurance costs force doctors to quit, The 
Plain Dealer, Feb. 18, 2002, at A1.
    \4\ See id.
---------------------------------------------------------------------------
    State court decisions to nullify legislative medical malpractice 
reforms trespass on the needs of others, a fact that can be readily 
appreciated by members of this Committee. For decades, this Committee 
has upheld both the principles and purposes of the Commerce Clause of 
the Constitution of the United States. Wayward action by a few courts 
in a few states should not undermine national goals, which is to have 
fair and balanced tort law, and affordable liability insurance.
    At this point in time, the medical malpractice liability crisis is 
best handled at the federal level, with uniform principles, giving 
states some options to address provisions, such as the cap on pain and 
suffering damages, where state policy may provide rules that are 
appropriate for the individual state. This is the approach that is 
taken under H.R. 4600.

   THE MYTH THAT INSURANCE COMPANIES WILL REAP THE PROFITS OF REFORM

    I have read statements by the Center for Justice & Democracy and 
other organizations that suggest that if reform is enacted, either it 
will not be effective or if it is, that the benefits of tort reform 
will be wrenched away from doctors' hands by commercial insurance 
companies. This is another myth that I wish to dispose of today.
    Back in 1981 and then again in 1986, I worked with members of this 
Committee to support the Federal Risk Retention Act. Those members of 
this Committee who served at that time will recall that I sought the 
enactment of risk retention, so that if a tort reform were enacted into 
law, we could assure all Americans that the benefits of that reform 
would go to those who need it--the doctors and, in turn and in this 
instance, the very important needs of the patient who seeks and needs 
medical care at affordable cost. If commercial insurers were to reap 
and hold profits that arose from tort reform, the Federal Risk 
Retention Act would provide a ready vehicle for doctors' groups to form 
their own insurance pool or band together to form insurance purchasing 
groups to shop among commercial insurers for a better price. There 
already is in existence The Doctors Company and other mutual insurance 
groups that can help guard against that possibility.
    It has been noted that on occasion when state tort reforms have 
been enacted, insurance premiums for doctors did not immediately drop. 
From what I have suggested, that is wise rate-setting policy by 
commercial, mutual or doctor-owned insurance companies. We now know 
that state reform may last for a very short period of time, up until it 
is nullified by a state supreme court. If an insurance company, again a 
commercial or mutual company, were to lower reserves based on a tort 
reform that would be subject to nullification, doctors, patients and 
our Nation would not be well served.

                     CAN TORT REFORM BE EFFECTIVE?

    It has been strongly suggested by the Center for Justice & 
Democracy and other organizations that bills such as H.R. 4600--or tort 
reform in general--are not effective. I heard the very same argument 
from other groups in 1993, when we sought enactment of the General 
Aviation Revitalization Act, signed into law on August 17, 1994 by 
President Bill Clinton. This was an act to address a crisis that 
occurred in general aviation. The crisis had some interesting 
similarities to that faced by physician insurers. The tort system had 
gone haywire, and was driving the general aviation industry out of 
business; Piper, Cessna and other companies had stopped producing 
planes. The promise of tort reform was that it would bring back 
stability within the industry. I am pleased to share with you today a 
very important fact: a promise made was a promise kept. Those companies 
are now back in business; over 25,000 jobs have been 
created.5 We will submit to this Committee an article to be 
published in the Journal of Air Law and Commerce 6 that 
details the effectiveness of federal tort reform.
---------------------------------------------------------------------------
    \5\ See General Aviation Manufacturers Association, Five Year 
Results: A Report to the President and Congress on the General Aviation 
Revitalization Act (1999).
    \6\ See Victor E. Schwartz & Leah Lorber, The General Aviation 
Revitalization Act: How Rational Civil Justice Reform Revitalized an 
Industry, J. of Air L. & Com. (forthcoming 2002).
---------------------------------------------------------------------------
    A bill such as H.R. 4600 can have appropriate and salutary benefits 
for patients, doctors and the medical system in the United States. 
Doctors are leaving practice because insurance is unaffordable. 
Specialists such as OB/GYNs are particularly hit hard. Even 
professionals who are merely providing care for patients, such as 
nursing homes, have seen insurance soar and have had to go without 
insurance or close their doors.

                               CONCLUSION

    I have kept my remarks brief because my points, which while I 
believe are important are very simple. Tort reform should be enacted if 
it is fair and balanced. A bill such as H.R. 4600, which seeks to 
achieve that balance, will have an important effect on insurance rates, 
just like MICRA had positive impacts in California, and the General 
Aviation Revitalization Act of 1994 had beneficial effects for the 
aviation industry in America.
    The commercial insurance industry will not steal greater profits 
for benefits that should go to all Americans. That will not take place, 
but if it ever does, we have a guardian at the gate: doctor mutuals and 
the Risk Retention Act, to ensure that the benefits of this legislation 
will help all Americans.
    It is true that there is one group that will steadfastly oppose 
this legislation under any and all scenarios, those who earn their 
living by suing people. If I still earned my living that way, I would 
be concerned about it too. The medical malpractice crisis is pervasive. 
The needs of our country should be put first, and this Committee should 
move forward this legislation as soon as possible.
    Thank you for your attention.

    Mr. Bilirakis. Thank you, Mr. Schwartz.
    We have three votes, and I think it would be wise to break. 
You haven't had lunch, too. I was able to grab a piece of pizza 
in the other room. But in any case, we'll break, for three 
votes which constitutes a good half hour, so maybe you all can 
take a break. I apologize. I'm sorry for those who aren't 
accustomed to doing this, this is routine up here, 
unfortunately. We have these votes so we got to make them. We 
willl return right after the third vote in a half hour or so.
    [Brief recess.]
    Mr. Bilirakis. Mr. Hurly, you are the chairperson of the 
Medical Malpractice Subcommittee within the American Academy of 
Actuaries, right? I think that was a yes.
    Mr. Hurly. Yes, sir.
    Mr. Bilirakis. Let's see, you weren't hired. You're not 
being paid for testifying here today?
    Mr. Hurly. No.
    Mr. Bilirakis. Is an actuary ordinarily hired by an 
association or by a company or whatever the case may be to give 
answers to various questions?
    Mr. Hurly. Frequently, yes. My capacity here today is as a 
member of the American Academy, I chair the committee that I 
described, the Medical Malpractice Subcommittee of the American 
Committee, and therefore it's part of a voluntary participation 
as a member of the Academy that I'm here today.
    Typically, my job is I'm a consulting actuary, so I do work 
for companies or self-insured programs, hospitals and things 
like that that would be interested in sorting out what their 
medical liability is.
    Mr. Bilirakis. Okay, your submittal here, your written 
statement, which certainly is professionally done, in charts a, 
b, c, d, contributing factors, introduction, then and now, et 
cetera, et cetera. All that was done by you in conjunction with 
your testimony here today. Is that right?
    Mr. Hurly. That is correct.
    Mr. Bilirakis. That is correct. So you were not asked to do 
that by either the American Medical Association or medical 
profession by the insurance profession, by the majority up 
here?
    Mr. Hurly. No, actually I started to draft a document that 
was like this awhile ago at the request of some folks who were 
interested in getting an overview of what was going on and that 
just formed the basis for this, but this was written 
specifically for this purpose.
    Mr. Bilirakis. Sir, you were in the audience. God knows you 
were in the audience for all those hours just waiting 
patiently.
    Mr. Hurly. I remember that, yes.
    Mr. Bilirakis. And you heard Dr. Roberts testifying about 
his rates having doubled and how he's heard that they will 
doubling again next year, that sort of thing. Why are insurance 
commissioners of the States allowing something like that to 
happen?
    Mr. Hurly. Well, as you know, the regulators in the States 
have, depending on the State law, the opportunity either to 
approve prior to the implementation of rates or review after 
the implementation of rates whether the rates are adequate, not 
excessive, and not unfairly discriminatory.
    Mr. Bilirakis. That is inconsistent. In other words, some 
States require them to approve them before they go into effect 
and others do it after the fact?
    Mr. Hurly. That's correct. Depends on the law of the State 
in question. In the case of West Virginia, it's a prior 
approval State, and so rates need to be filed in advance. They 
are subject, if they are greater than 10 percent to a rate 
hearing which is open to the public and is held under the 
auspices of the Insurance Commissioner of the State. In the 
case of West Virginia, there is an actuary retained by the 
State to review the filing that's made and then finding of fact 
made by the Hearing Officer based on the request for a rate 
change. So they're subject to the review of State regulators 
and their approval.
    Mr. Bilirakis. All right. In your experience, how would you 
say the State insurance commissions, regulators function? Do 
they--do some function in your eyes better than others in terms 
of allowing increases in terms of decreases? I don't know if 
they do decrease at all in lieu of the fact there may be some 
documentation to show loss in other words or whatever reduction 
in claims, etcetera. Do some reduce?
    Mr. Hurly. If the question is do some State regulators 
reject the rate increases that are filed and adjust them to 
lower levels, the answer is yes, they do. In the case of West 
Virginia, for example, the rate increases and then filed by the 
most significant writer in that State had been reduced the last 
couple of times that they've made filing. So they'd win for a 
rate increase of 25 percent and that would get 15 approved by 
the State. So the State is looking at these rate applications 
carefully and making a determination. And some States are more 
aggressive and more particular about that than others. Others 
believe the market should be allowed to operate and may not be 
as, I guess, careful in reviewing those.
    Mr. Bilirakis. Do any of them on their own volition look at 
the rates? For instance, is it only when an application is made 
by an insurance company that they would take a look at them? Or 
lets say, for instance, do any of them take a look and say, 
well claims have dropped? You know, whatever all that data is 
for the past year or whatever and they therefore are going to 
decrease the rates? Does that happen at all?
    Mr. Hurly. As a practical matter, once rates are filed and 
approved, they stay in place as a general proposition until a 
company comes in and requests a change in those rates, whether 
they be a reduction or an increase, those rates would stay in 
place until such times the company would file again.
    Mr. Bilirakis. All right, now the rates in West Virginia 
that have doubled for Dr. Roberts, have you looked at those at 
all? You haven't had an opportunity to look at those, come to 
any personal conclusion as to whether they were right in doing 
so or right in looks like maybe doubling them again or 
whatever?
    Mr. Hurly. I can't speak to the specifics about that 
particular rate application. I've done work on malpractice 
exposure in the State of West Virginia, but I have not reviewed 
that particular rate analysis. I do believe there was a correct 
statement of how the BRIM program works, and that it is a State 
run facility and how those rates were determined. But I can't 
speak to the actual rates.
    Mr. Bilirakis. Many members of the minority, Mr. Brown and 
others, and I'm really not at all displeased that they have, 
because the intent here is to do what's right. Yes, I think the 
original focus was intended and has been on the legislation and 
on the litigation and that sort of thing. But they brought in 
this insurance business and what not, and we would be wrong to 
not look at the overall picture. But the insurers statement, 
insurers are increasing rates because of investment losses 
particularly their losses in the stock market. Now I know 
you've covered this in your written statement, very briefly 
though. Right, wrong? Possible, impossible?
    Mr. Hurly. The answer is no. They cannot increase rates in 
response to prior losses in the stock market or in their 
investments. They can't recoup investment losses in pricing 
prospectively for coverage that they will provide in the 
future. From actuarial standpoint, it's an actuarial standard 
of conduct. You can't do that. You make prices prospectively 
considering what you think is going to be in place 
prospectively, not based on your investment losses from prior 
periods.
    Mr. Bilirakis. All right, you say they can't do that 
because of the violation of actuarial standards. Do any of them 
do that? Might any of them have done that?
    Mr. Hurly. Not to my knowledge, not that I have seen, no.
    Mr. Bilirakis. Okay. There are others. My time is really 
up, but companies operated irresponsibly and caused the current 
problems. Companies are reporting losses to justify increasing 
rates, etcetera. We've heard that all day today, that sort of 
thing. And I don't disagree. I would raise the questions where 
any of that is possible, possibly in the process of others 
questioning I might have an opportunity to get at that.
    Mr. Brown, to inquire.
    Mr. Brown. Thanks, Mr. Chairman. We noted earlier that, and 
I come back to this because I'm still sort of intrigued by 
this, this question really is for you, Mr. Schwartz, I think 
that on page 10 of H.R. 4600, there's language the amount of 
punitive damages awarded in health care lawsuit may be up to as 
much as two times the amount of economic damages awarded, on 
and on. So I come back. I want to make sure I understand this, 
and you have great expertise in tort law, obviously. If it 
means that someone so that candid, if a doctor harms Ken Lay, 
the punitive damages are higher than if the doctor harms in 
exactly the same way and the same body part or the same injury, 
whatever, the woman that empties the waste basket in Ken Lay's 
office. It strikes me as peculiar in a country that sort of put 
the \3/5\ths rule which is in our Constitution behind us that 
some human beings are only worth \3/5\ths of another human 
being. This isn't economic damages of what you're going to 
earn. This is to punish the provider that made the--committed 
the negligent act.
    Is this something we see in tort law? I'm not a lawyer and 
I'm hardly an expert in tort law. Is this a common sort of 
thing in our law?
    Mr. Schwartz. No, it isn't common. Most States don't have 
caps or limits on punitive damages. Some do. And there's a 
variety of ways to treat them. The Supreme Court has said in 
one opinion, and there are many opinions on this--we probably 
don't want to get in depth. At some point, the ratio of 
punitives to compensatories could be so extreme that it's close 
to the line of being unconstitutional. And the court has talked 
about four to one and five to one. But there the court was 
talking about compensatory damages which include both economic 
damages and damages for pain and suffering.
    Mr. Brown. Do you support this part of that bill to----
    Mr. Schwartz. Do I personally support it?
    Mr. Brown. Yes.
    Mr. Schwartz. I think one has to make sure that punishment 
is adequate for a defendant and I would want to give some 
thought to this. I wasn't really asked to comment on the 
details of the bill and I've not supported ratios in the past 
that would be based on punitives to purely economic losses. So 
the answer would be that is not something I've supported in the 
record, no.
    Mr. Brown. I appreciate that. I wasn't really here to talk 
about 4600 either and----
    Mr. Schwartz. I want to mention one thing because you asked 
a lot of questions about it and I thought your questions, I'm 
surprised you're not a lawyer because you're questions were 
really many of them on the mark. And that is economic losses 
versus non-economic losses. Believe me, this is a complex 
thing. There are a lot of things in the law that are economic 
losses, somebody who is not a lawyer wouldn't think of as 
economic losses. For example, somebody who is at home, a house 
wife or house husband, they're not earning anything. So one 
might think they have no economic losses. But that's not the 
way it is if you're a plaintiff's lawyer. I used to be able to 
jack those things up to $60,000, $70,000, $80,000 a year. I'd 
break down on a chart everything that the woman, it was mostly 
women at the time, did, to cooking, nursing care. So I can 
build their economics up very high.
    With a child, as somebody mentioned a child earlier, you 
can take the child and you bring in neighbors and people who 
knew him or her, show his promise of economic losses in the 
future and build him up very, very substantially.
    So some of the remarks about the focus on economics are 
probably misplaced, or that people haven't tried cases. So that 
the distinction that's made in the bill is an honest 
distinction. You're not leaving somebody high and dry simply 
because they may not, at that point in time, have a job. And a 
final point on this, is that the California statute was not 
going to work miracles. Once the plaintiffs' lawyers, and I was 
one, they do good work. They're smart. They readjust. Figured 
out what the situation was. They moved a lot of things that 
used to be deemed pain and suffering into economic losses. So 
sure MICRA saved money, but it didn't save a huge ton because 
thing that had previously been regarded as pain and suffering 
damages were put into economic losses, and I think the record 
should reflect that.
    Mr. Brown. Thank you. I have one question, Mr. Plunkett. 
One of the witness's referenced the departure of St. Paul from 
the malpractice market. Are there other reasons why St. Paul 
left the market?
    Mr. Plunkett. I don't know. I know that they were the 
largest provider of malpractice insurance. I actually don't 
know much about their departure from the market.
    Mr. Anderson. Perhaps if I could offer a partial 
explanation of that. I am at least somewhat familiar with it. 
St. Paul lost more than a billion dollars in the year 2001 in 
excess claims costs over and above the premium. Not investment 
market losses, not stock market losses; it lost more than a 
million dollars in actual paid, it had losses, in access of 
approximately a billion dollars in excess of the amount of 
premium that it collected.
    Really what St. Paul was saying, that despite the fact that 
it was the largest carrier of malpractice insurance in the 
United States for the better part of 2 decades, that the 
insurance market had become so unpredictable in the United 
States, that they, despite 2 decades of work in the industry, 
were unable to predict what adequate premiums would be. And 
they were unwilling to put their shareholders at risk.
    Mr. Brown. They lost tens of millions of dollars on Enron 
too, did the not?
    Mr. Anderson. I don't know what they lost in Enron. I know 
what they lost in medical malpractice which I thought was the 
subject of the hearing. They lost more than a billion dollars 
in paid claims in excess of the premium taken in the year 2001. 
They didn't choose to exit other lines of insurance. They chose 
to exit malpractice insurance.
    Mr. Plunkett. Mr. Brown, since the subject has been brought 
up, let me mention this. There had been concerns that St. Paul 
moved too fast to expand into too many States, to take 
advantage of the positive environment in the 1990's for medical 
malpractice insurance and that they overreached. In particular, 
that they underpriced premiums, and then when losses started 
increasing moderately, they started increasing. They weren't in 
a position to deal well with that financially.
    Mr. Brown. Thanks, Mr. Chairman.
    Mr. Norwood [presiding]. Mr. Greenwood to inquire.
    Mr. Greenwood. Thank you, Mr. Chairman. I want to quickly 
follow up on something. There's been an awful lot of talk 
throughout this hearing about blaming the insurance industry 
and saying the real reason we have these outrageous rates is 
because the insurance industry lost so much money in the stock 
market that they had to make it up. Now is there a grain of 
truth to that?
    Mr. Anderson. Barely and probably actually less than a 
whole single grain. Insurance is a highly regulated industry, 
and insurance company investments are regulated carefully and 
in detail by both insurance commissioners and the National 
Association----
    Mr. Greenwood. Since my time is very brief and I have a lot 
of questions less than a half a grain. Mr. Hurly, you said that 
they can't recoup, that the State insurance commissions don't 
allow insurance companies to put into their rates past losses, 
right? It wouldn't make a jot of difference if St. Paul or 
anybody lost $100 million to $200 million in Enron or anywhere 
else in terms of how they set their rates. Is that you've 
testified?
    Mr. Hurly. Yes.
    Mr. Greenwood. Mr. Schwartz, is it possible that there's 
anything built into the rate of an insurance company that has 
anything in your opinion, that has anything to do with past 
losses in the insurance industry, excuse me, in the investment 
market?
    Mr. Schwartz. If the insurance commissioners are doing 
their job, no.
    Mr. Greenwood. Mr. Plunkett, do you disagree with these 
other three gentlemen on that point?
    Mr. Plunkett. Sadly, yes. Investment income affects 
reserves. Reserves affects operating income. The combination 
there is especially potent for medical malpractice because you 
have a longer lag time for medical malpractice, a pay out 
period of 6 years than you do for other types of insurance. So 
it actually does have an impact.
    Mr. Greenwood. Mr. Anderson, Mr. Hurly, would you care to 
refute or agree with Mr. Plunkett in that regard?
    Mr. Anderson. Investment income does not affect reserves. 
Reserves are set based on the actual anticipated value of a 
case. It has nothing to do with investment income. Any decrease 
in investment income is simply money that is no longer 
available to subsidize the premiums of medical malpractice 
insurance.
    Mr. Greenwood. Mr. Hurly, is Mr. Plunkett right or is Mr. 
Anderson right?
    Mr. Hurly. I would agree with Dr. Anderson.
    Mr. Greenwood. Mr. Anderson is right. Okay. So Mr. Hurly, 
what goes into, what are the components of a rate that a 
company gets to charge a premium that gets a charge? We know 
that they don't even, in that premium is less than they expect 
to pay in payouts, right?
    Mr. Hurly. That's generally correct, yes.
    Mr. Greenwood. So that premium, so then out of their future 
investments they have to get all their operating costs and any 
profit. Is that correct?
    Mr. Hurly. Well, that's not always the case. What they'll 
do is they'll build a rate that includes lost costs and 
expenses of operating their company. In general, though they 
anticipate that they're going to lose money, the combined costs 
of operating the company and paying losses is going to be 
greater than the premium they collect and they offset that with 
investment income. But it may be that the loss ratio is like 
90, 95 percent on an undiscounted basis and expenses are 20, 25 
percent, something like that.
    Mr. Greenwood. There's a draft Democratic bill that's 
called the Medical Liability Insurance Crisis Response Act of 
2002 that I think is going to be offered up as an alternative 
to H.R. 4600. One of the things that they proposed to do is 
freeze in medical malpractice insurance rates, effective on the 
date of enactment, rates would be frozen at the level of 
January 1, 2002 until 6 months after the filing of the 
Commission Report.
    What would a 6-month freeze in insurance premium, what 
would be the impact of that, Mr. Anderson? Dr. Anderson?
    Mr. Anderson. Well, I think it would be devastating. I 
think we've heard allegations before the committee today that 
the malpractice industry was derelict for not raising rates 
sooner, which is a notion that I find very difficult to 
understand. It's hard to know why having today's sky high 
malpractice rates sooner would make them more palatable.
    Mr. Greenwood. The bill also provides, says this--
preventing medical malpractice insurers from exiting the 
market. Any insurer who exits the medical malpractice insurance 
market must also stop offering all types of insurance.
    Mr. Hurly, what do you think about that?
    Mr. Hurly. I think it's peculiar. I don't see that as a----
    Mr. Greenwood. That's kind of an understatement, isn't it?
    Mr. Hurly. Yes, I think so. I don't want to use poor legal 
terminology here. I'm not a lawyer, but it sounds almost 
confiscatory and sort of binding the company to do something 
that's inconsistent with good financial activity.
    Mr. Greenwood. Mr. Plunkett, since you don't support the 
tort reform approach, do you concede that the rates are 
outrageously high in places like Pennsylvania? You agree with 
that, don't you?
    Mr. Plunkett. We have a rate problem in some States. 
Absolutely.
    Mr. Greenwood. A rate problem. Now, you don't think the 
tort reform is the way to solve the rate problems, so could you 
outline for us what insurance reforms you think would solve 
this problem?
    Mr. Plunkett. Absolutely. We've proposed a number of items 
at the State and the Federal level. And some of them are unique 
and recognize the problem; for instance, that the high risk 
specialties you've heard about so much today, the obstetricians 
and the neurologists, some of the specific problems that they 
face. For example, in the written testimony as you have 
probably seen, we suggest that the States consider a sort of a 
fee based on risk that would be adjusted, which----
    Mr. Greenwood. What fee?
    Mr. Plunkett. It would be a fee that insurance companies 
would assess, that they would assess it on all physicians. It 
would be based on the risk of the specialty, so a higher fee 
for a higher risk----
    Mr. Greenwood. What's the difference between a higher fee 
and a higher premium?
    Mr. Plunkett. It could possibly mean that for general 
practitioners and internists and those who are practicing much 
lower malpractice rates at this current time, but are doing 
what we call referring up. The problem with some of these 
specialties is that they're seeing patients who are of the 
highest risk, because neurologists and neurosurgeons are having 
referred up to them from other practitioners, patients who if 
there's a minor error----
    Mr. Greenwood. You would have the family doctor pay higher 
insurance rates to lower----
    Mr. Plunkett. The family doctor, Mr. Greenwood, is actually 
benefiting from the medical malpractice structure a little bit. 
So I'd have them pay a little bit. Yes, absolutely. And that 
would actually deal with some of the problems that we've heard 
today where we have obstetricians leaving practice. Where we 
have neurologists who are facing medical malpractice insurance 
premiums that are extremely high. It would be a slight subsidy 
for those high risk specialties recognizing that all physicians 
are part of the care that these patients get. Only some of them 
are taking the risk.
    Mr. Greenwood. My time is expired, but I invite you to come 
to Pennsylvania and you'll find out that there are no physician 
categories that aren't gouged as it is. And there's no room to 
simply transfer the premiums downward to the family practices. 
They're already struggling.
    Thank you, Mr. Chairman.
    Mr. Norwood. Mr. Stupak, you're recognized for 5 minutes.
    Mr. Stupak. Thank you, Mr. Chairman.
    Dr. Anderson, you talked a lot about St. Paul and I believe 
you said that St. Paul was the, business was exclusively 
medical malpractice but everything I've seen----
    Mr. Anderson. I didn't say that.
    Mr. Stupak. You didn't say that. Okay. Ten percent of their 
business is medical malpractice. Ninety percent is insuring 
others. So when they lost $108 million on Enron, it had to be 
picked up somewhere. We're not saying it was in the medical 
malpractice field, but somewhere. If you lose money, next year 
you got to pick up that loss somehow, right?
    Mr. Anderson. That's your testimony. That's not my 
testimony. What I pointed out was that St. Paul lost more than 
a billion dollars in medical malpractice paid lawsuits. They 
chose not to exit other lines of business to limit their loses. 
They chose to exit the sale of medical malpractice insurance.
    Mr. Stupak. And St. Paul, between 1992 and 1997 released 
$1.1 billion from the reserves, reserves that were set aside. 
They released it, which certainly hurt their malpractice 
business and made their bottom line and their profit look very 
well. But if you have a run of claims, it's going to hurt you 
if you release $1.1 billion from your reserves.
    Mr. Anderson. I'm sorry sir, but that logic is incorrect. I 
can talk to you about it in detail if you'd like me to take the 
time.
    Mr. Stupak. Well, sir, I refer you to the Wall Street 
Journal article, June 24, 2002, because that's exactly what 
they reported as happen and that's what caused sort of a run 
under claims for medical malpractice.
    Mr. Anderson. I think it would be a great mistake for this 
committee to accept the article in the Wall Street Journal as 
representing fair, appropriate, and balanced evaluation of the 
situation before it today.
    Mr. Stupak. Well, if you look at also their statements for 
those years, like last year they had $1.8 billion where 10 
percent come from medical malpractice. If you look at their 
financial statements and go back and see what happened, I think 
would verified the Wall Street Journal article.
    Anyway, moving right on. Mr. Schwartz, you know about the 
Medical Liability Monitor magazine?
    Mr. Schwartz. I've heard of it. It is not something that I 
have read, sir.
    Mr. Stupak. Is it a credible source for a magazine?
    Mr. Schwartz. I have no idea. It's not something that is in 
my reading box every week.
    Mr. Stupak. And you have not relied on it then?
    Mr. Schwartz. No, I have not sir.
    Mr. Stupak. The Medical Liability Monitor indicates that 
States without caps on damages and States with caps on damages, 
the premiums are actually about the same. So the caps found in 
4600 here, how is that going to reduce the malpractice 
premiums?
    Mr. Schwartz. Well, I can't evaluate a source that I don't 
know anything about. I've been working in tort law for 30 years 
and I've never heard of that journal.
    Mr. Stupak. Well, then you can't dispute it either.
    Mr. Schwartz. Well, I just would say that where you have, 
there's a certain common sense approach to all of this, that if 
you limit damages in tort law to $250,000 you do a number of 
things that are going to reduce costs. No. 1, obviously if a 
verdict--work with me on this. Before the thing is law, a jury 
can come back with a million dollars pain and suffering. 
Afterward, it can only come out with $250,000. Ninety-five 
percent, or 97 percent in some instances of these cases are 
settled. Now I've been in a lot of settlement negotiations. 
Hundreds. And if there is a cap in a State, whether I'm on the 
plaintiff's side or the defense side, the perimeters of the 
settlement are going to be narrowed. They just are. So I don't 
know what this periodical showed, but as a matter of common 
sense, it should reduce cost.
    Mr. Stupak. The common sense is based on assumption based 
upon your experience, right?
    Mr. Schwartz. That's all I have, sir.
    Mr. Stupak. Well, than tell me this. Then tell me this. 
Michigan, which did pass medical malpractice with caps very 
similar to 4600, but yet the AMA still lists them as one 
medical malpractice crisis States. If these caps work so 
wonderful, and we've been at it about 10 years now, the 
verdicts would be through the system, why is Michigan still a 
crisis State?
    Mr. Schwartz. Well, it could be and one has to look at the 
Michigan verdicts and the Michigan experience that after a 
period of time, plaintiff's lawyers were able to shift enough 
costs into economic loss so it didn't make any difference. I 
haven't studied it, but I would say that would be the answer. 
And I haven't labeled Michigan as a crisis State. Michigan law, 
overall, is pretty fair. It's a good court and it isn't a State 
that at least comes to my mind as being a crisis State.
    Mr. Stupak. Well, Michigan premium recoveries are $85,000, 
this is based upon National Practitioners Data Base. Michigan, 
the medical malpractice pay out based on 2000 is $85,000, where 
rest of the Nation is $125,000. So they're actually about 
$40,000 or almost a third less, but yet they're still 
considered a crisis. So you have less pay outs. You have the 
caps. But yet they are still in crisis.
    Mr. Schwartz. I would want to see what the criteria for 
crisis are.
    Mr. Norwood. Thank you very much, Mr. Stupak.
    Now I'll recognize Mr. Cox for 5 minutes.
    Mr. Cox. Thank you, Mr. Chairman.
    Let me begin with Mr. Plunkett. Earlier, on the first 
panel, Lauren Townsend with the Coalition for Consumer Justice 
answered a question concerning trial or contributions to the 
Coalition for Consumer Justice, indicated that a significant 
portion of that organization's funding comes from trial 
lawyers. In California, the trial lawyers have changed their 
name to the Consumer Lawyers of California. Can you tell me 
whether or not the Consumer Federation of America takes trial 
lawyer money?
    Mr. Plunkett. No, I can't tell you.
    Mr. Cox. Oh, you cannot tell me?
    Mr. Plunkett. I don't know. But I can tell you this----
    Mr. Cox. How can we find out the answer to that question? I 
only ask this in the interest of full disclosure. Obviously, we 
have insurers sitting here, we have stakeholders, we have 
physicians and so on. And if we have lawyers being represented 
indirectly then we know that too.
    Mr. Plunkett. Okay, here's what I can tell you. We have an 
annual awards dinner every year. Mr. Schwartz is a regular 
attendee. I think on occasion trial lawyers----
    Mr. Cox. I'm sorry, Mr. Plunkett. I'm asking a really 
direct question.
    Mr. Plunkett. Not that I know of.
    Mr. Cox. Do you disclose your finances publicly? Is there a 
way for Congress or the public to find out who funds the 
Consumer Federation of America?
    Mr. Plunkett. We can give you our annual report just like 
we will to anybody.
    Mr. Cox. Does that include that information of where the 
money comes from?
    Mr. Plunkett. I don't know. I haven't looked at it 
recently.
    Mr. Cox. All right. Well, thank you for that non-answer.
    Mr. Plunkett. The truth is if there's any, it's----
    Mr. Cox. I'm sorry, Mr. Plunkett.
    Mr. Plunkett. Less than half of a percent. There's your 
answer.
    Mr. Cox. Actually, that's a very direct answer. So the 
answer is----
    Mr. Plunkett. Well, why I tried to say Mr. Cox but----
    Mr. Cox. Half of a percent----
    Mr. Plunkett. We have an annual awards dinner. That's the 
only time when we accept outside contributions. So if there's a 
percentage, it's tiny, tiny, tiny, and it's probably equivalent 
to what Mr. Schwartz here contributes.
    Mr. Cox. I'm sorry, outside contributions. And what are the 
other contributions?
    Mr. Plunkett. Say, foundation grants and contributions from 
our members.
    Mr. Cox. And might those members include trial lawyers?
    Mr. Plunkett. No, they don't.
    Mr. Cox. They're forbidden from contributing?
    Mr. Plunkett. Members of the Consumer Federation include 
legitimate consumer groups. They include other members such as 
a credit unions and public power entities and our association. 
But we don't include trial lawyers.
    Mr. Cox. We'll try and figure out exactly where that all 
comes from so we know exactly what interests are being 
represented. But I appreciate that.
    Dr. Anderson, the Doctor's Company which is a significant 
insurer in the State of California, my State, has been in the 
market throughout that malpractice crisis when Jerry Brown was 
Governor, when the democratic legislative enacted MICRA and he 
signed it into law. And you're still around in California. You 
haven't left. My understanding is the following, and please 
correct me if I'm wrong, that in constant dollars, the 1976 
premiums on average for malpractice in California were $23,000 
and that today, the average premium, or at least in 2001 the 
average premium was $14,000. Is that right?
    Mr. Anderson. That is correct in constant dollars, yes.
    Mr. Cox. So in other words the premium is less now than it 
was a quarter century ago.
    Mr. Anderson. That is correct.
    Mr. Cox. And that experience I take it is not unique to 
California, but is experienced in other States with similar 
kinds of tort reform?
    Mr. Anderson. Absolutely true. Whenever we do an apples to 
apples comparison, we find the same thing. Colorado has 
precisely the same experience, Indiana has the same experience. 
States that have effective tort reforms have effective 
decreases in premium. The reason that the Medical Liability 
Monitor and the Consumer Federation of America and the Center 
for Justice and Democracy don't seem to be able to get hold of 
the fact that limits on non-economic damages decrease rates is 
because they're making fish to bicycle comparisons. The cap 
that we're talking about here is a $250,000 cap on non-economic 
damages. Where ever that cap has been used results are 
dramatic. Obviously, they would be less dramatic if you have a 
million dollar cap. They will be less dramatic if you have a 
cap on punitive damages because punitive damages are rarely, if 
ever pled in medical malpractice cases. I point out that in 
general, punitive damages are not insurable, because insuring 
an illegal act is considered a moral hazard.
    Mr. Cox. Dr. Anderson, what is the nature of the law in 
California, what are the provisions, I mean, the main 
provisions of it.
    Mr. Anderson. MICRA has four principal provisions. One is--
--
    Mr. Cox. I'm sorry, did I say California? I meant to say 
Colorado.
    Mr. Anderson. Colorado has very similar reforms to 
California, generally limiting total medical liability damages 
to approximately a million dollars.
    Mr. Cox. And in Colorado, where the experience base is 1986 
to 2002, the premium in constant dollars is $30,000 back in 
1986 and $11,000 in 2002. Is that right?
    Mr. Anderson. Yes, that's correct.
    Mr. Cox. So it's again lower by over 60 percent.
    Mr. Anderson. Yes, sir.
    Mr. Cox. Now what year did Colorado enact this reform?
    Mr. Anderson. 1986.
    Mr. Cox. So over the period of time since these reforms 
have been in place, not only have premiums not gone up, but 
they've been reduced by over 60 percent?
    Mr. Anderson. In constant dollars, yes sir.
    Mr. Cox. I'm sorry, Mr. Chairman? I'm being informed that 
my time is up. I apologize to the other witnesses for not being 
able to ask more questions.
    Mr. Norwood. But don't leave, we'll go around again.
    Mr. Strickland, you are recognized for 5 minutes.
    Mr. Strickland. Thank you, Mr. Chairman. One of the reasons 
I think we have witnesses before this committee is to pick your 
brains and get your judgments, your best opinions. And we've 
heard here today something that really bothers me greatly. And 
that has to do not with the economic damages as such and not 
with the non-economic damages as such, but with the punitive 
damages, which are damages that are for the sole purpose of 
punishing or deterring inappropriate behavior. And we've been 
told that this bill allows in the area of punitive damages an 
amount two times the amount of the economic damages up to 
$250,000, whichever of the two is greater.
    Now I think that means that if you are a relatively poor 
person and you have been subject to bad behavior so that 
punitive damages are called for, that you've got the 
possibility perhaps of getting a little bit of money. But if 
you are a very successful, high income individual and you 
qualify for punitive damages, you have the possibility of 
getting a whole lot of money. I'm just interested in your 
opinion. And I'd like for you to tell me if you would as you go 
down the table there. Do you think this is fair?
    Dr. Anderson?
    Mr. Anderson. Punitive damages are rarely pled in medical 
malpractice.
    Mr. Strickland. But when they are. When they are, this is a 
theoretical question but, I'm trying to get at your best 
judgment and perhaps your values, I don't know.
    Mr. Anderson. What this would imply is that punitive 
damages should be proportionate to the injury. This is a way of 
making that----
    Mr. Strickland. But it's based on the economic damages. 
It's not based on the severity of the injury as such.
    Mr. Anderson. I beg to differ, sir. There is no limitation 
on actual damages as has been pointed out in previous 
testimony.
    Mr. Strickland. But this is based not on non-economic 
damages, but on economic damages which means that a person of 
low income is going to receive less in terms of punitive awards 
than the person of high income.
    Is that fair when the purpose of punitive damages is to 
deter bad behavior?
    Isn't it appropriate that we have at least an equal 
punishment for bad behavior directed toward a poor person as we 
would have directed toward a wealthy individual?
    Mr. Anderson. If the sole purpose of punitive damage is to 
punish the offender, it would have no relationship to whom they 
are paid, sir.
    Mr. Strickland. It would have no relationship to what, sir?
    Mr. Anderson. To whom they are paid. If society wishes to 
use----
    Mr. Strickland. But the amount would, would it not? The 
amount would have a deterrent effect.
    Mr. Brown. Would the gentleman yield?
    Mr. Strickland. I would.
    Mr. Brown. Does this mean if a physician or physical 
therapist or whatever is working on a wealthy person providing 
some service that they're going to be a lot more careful 
because punitive damage will be higher, than if they're working 
on the wealthy person's maid, where they do injury to that 
person, punitive damages will be very little?
    Mr. Strickland. Reclaiming my time, I hope that's not the 
answer.
    Dr. Anderson, could I get a yes or no or a I don't know 
answer from you to that question? I've given you three choices, 
yes, no, or I choose not to say.
    Mr. Anderson. I'm sorry, sir. I don't find the question to 
be something that I can answer.
    Mr. Strickland. Do you not understand the question, sir? 
I'll explain it again if you do not understand it.
    Mr. Anderson. Go ahead.
    Mr. Strickland. If you are a poor person and you are 
injured and the jury awards punitive damages, you're going to 
get less if you are a poor person than if you are a wealthy 
person.
    Can you understand that?
    Mr. Anderson. I understand your words. It is not 
necessarily the case.
    Mr. Strickland. Let's assume it is the case.
    Mr. Anderson. That's your answer.
    Mr. Strickland. I don't think you want to answer me, sir, 
so we're going to move on. Next.
    Mr. Hurly. As a representative of the American Academy, I'm 
not speaking on behalf of the Academy.
    Mr. Strickland. Sure, I understand that, sir.
    Mr. Hurly. But it seems to me that punitive damages don't 
tend to be dealt with in medical malpractice cases because 
they're, in a lot of cases, not allowed.
    Mr. Strickland. But when they are, when they are should a 
poor person get less than a wealthy person? In your judgment 
sir. I'm just asking for your judgment.
    Mr. Hurly. My personal judgment is that it should be not 
mitigated by whether they're poor or rich.
    Mr. Strickland. Thank you, sir. Mr. Hurly?
    Mr. Plunkett. Plunkett.
    Mr. Strickland. Oh, I'm sorry, Mr. Plunkett.
    Mr. Plunkett. Well, as with Mr. Brown, I'm also not an 
attorney. So I'm going to give you, we have also not taken a 
formal position on the Greenwood Bill because we're still 
looking at it. But in general, we are wary of this kind of tort 
reform. So here's your general answer. It doesn't make much 
sense to me to base punitive damages on the income of the 
person who's suing. Punitive damages should be based on the 
deterrent value.
    Mr. Strickland. Thank you. Next.
    Mr. Schwartz. I was asked that question by Mr. Stupak when 
you were out of the room. That's not an approach that I would 
advocate. I think there should be reasonable limits on punitive 
damages. I hate to see this bill sidetrack on what, as a 
practical matter, is a non-issue because as some of the 
witnesses testified, punitive damages rarely come in med. mal.
     Mr. Strickland. I know, but I want to tell you this single 
issue just bothers me greatly.
    Mr. Schwartz. I can understand that and hopefully--there's 
really three things here and it's very confusing although this 
morning having the 5 hours there allowed me to stop and think 
which once in a while I do. I had a good day, so I thought 
about it. There's three things going on here and everybody 
keeps mixing them up.
    One, is there a problem? And there seems to be at least 
some consensus that there is a problem for some of the doctors.
    Mr. Strickland. There is.
    Mr. Schwartz. No. 2, whether this particular bill would be 
effective in addressing that problem. And there is considerable 
debate among the members as whether it would or not; whether in 
California it has worked or it has not worked. I think it's 
worked. That's my view.
    And the third, which goes to your question, that last 
question. And that is, whether the contents of this bill are 
fair. And I think it might be helpful over time, as you talk 
among yourselves to keep those three things separate, because 
that third part I would say that's not an approach that I would 
advocate on punitive damage reform, which I believe in. And 
that goes to the part three.
    Mr. Norwood. Mr. Strickland, your time is up I'm sorry to 
say.
    Mr. Buyer, you're recognized for 5 minutes.
    Mr. Buyer. Thank you. Mr. Schwartz, I want to thank you for 
your testimony. I'm relating to you. There are more thoughts, 
though, that we have examining this. I immediately came toward 
you in your thoughts when you spoke about States' rights, 
because that's where I am. And so I am concerned about the 
commerce clause and its applicability here and the Federal 
Government being involved in States' issues.
    Federal Government, you know, reality is over the years 
depending upon whatever party is in control here in this town, 
we pick and choose. We really do. We don't like to admit that, 
but we do. We pick and chose when we should intervene and we're 
all politicians and we can justify just about anything.
    So I'm interested in a reply about the constitutional 
question. The other is with regard to punitives. I'll just put 
on my lawyer's cap. Punitives really are in my opinion are 
about the punishment. And it has no idea about justice is 
completely blind. They have no idea about the face of that 
individual nor care about their well-being or economic 
standing. It was the conduct. So I'd just say to my colleague, 
Mr. Strickland isn't here, I guess he's moved. I guess I don't 
get as emotionally excited as you did on this one because I 
agree with you on it, but anyway, that's just the way punitives 
works out there as I know it, in the two States that I 
practiced in.
    So I'm interested about the constitutional question. With 
regard to Mr. Anderson and Mr. Hurly, question for you is this 
idea on I have looked at, I cited to it earlier, this trend in 
2001 rates for physicians, medical professional liability 
insurance. And as I look at all these increases in rates 
through all the jurisdictions of States, and those of whom have 
some type of cap, and they all got--it's a hybrid out there. 
And since you have the Doctor's Company, you're dealing with a 
lot of different ones.
    But my question is to you those States that have made some 
form of an attempt, has there not been some form of an impact 
upon those premiums? Okay, so I've got a list of questions for 
both of you and Mr. Schwartz. And I hate to put it that simply, 
but we'll start with Dr. Anderson first.
    Mr. Anderson. I think that's a very important point. 
Speaking for the Doctor's Company, but in general this is true 
for all the PIAA companies that insure in multiple States, it's 
very important to point out that the average rate increase in 
the United States in the year 2000 is about 10 percent. 
Doctor's Company actually less than that. In the 2001, it's 
between 10 and 20 percent. The astronomically high rates that 
are now being demanded are solely being demanded in areas where 
there is unlimited liability in which we have now entered a new 
era of nine figure hundreds of million of dollars a malpractice 
suit. So this is not a problem in every venue. It is only a 
problem in venues which now have unlimited damages.
    I would point out that even in the State of Nevada, there 
is a big difference between rates in Clark County, which is 
exceptionally litigious with a very active plaintiffs' bar, and 
Reno, which is much less so. And the rates fairly reflect that 
difference.
    Mr. Buyer. Why was is it in Pennsylvania when the 
legislature increased the physicians' primary limits, then all 
of a sudden premiums increased also by 69 percent.
    Mr. Anderson. I'm sorry, sir, I missed the question.
    Mr. Buyer. In Pennsylvania it looks at though the 
legislature increased the physicians' primary limits up to 
$500,000/$1.5 million fund surcharge. And then also we also had 
these insurance premiums just skyrocket in Pennsylvania even 
though they have caps and a compensation fund.
    Mr. Anderson. Because the liability picture in Pennsylvania 
has gone, because there was no check and really is to this day, 
no check on the limitation for damages in Pennsylvania, more or 
less out of the clear blue sky, the State of Pennsylvania has 
now entered a new era of $50 and $100 million malpractice 
verdicts.
    As I pointed out, the city of Philadelphia alone in the 
last year has had four verdicts in excess of $50 million. That 
is an enormous burden to be placed on the limited number of 
physicians who carry that burden. It also means that any 
insurance company trying to set future rates must now be aware 
of what the upper limit of risk is. The alternative is to have 
the company go bankrupt.
    I would point out that most of the companies whose names 
have been put before the committee already went bankrupt during 
the time when financial returns in the investment markets were 
highest. It didn't go bankrupt because they made bad 
mismanagement decisions or mismanaged investment funds. They 
went bankrupt because they thought they had a mechanism for 
pricing their insurance at less than the cost of the actual 
claims.
    Insurance is not magic. Insurance companies cannot 
manufacture money. They must adjust premiums to match risk or 
they will not survive and patients will have no indemnity and 
physicians will have no insurance.
    Mr. Buyer. Mr. Chairman, I see the lights have come on. I'd 
appreciate it though if Mr. Hurly and Mr. Schwartz could have 
the opportunity to answer those questions.
    Mr. Hurly. As far as tort reforms, which is the second 
question you asked, I don't think Dr. Anderson addressed that. 
I think one of the clearest examples we have of the impact of 
tort reforms is the body of tort reforms that were passed in 
the mid 1980's which once they fed in through the system and 
companies began to get a feel for what their impact was going 
to be because companies will tend to defer until they figure 
out whether the tort reforms are going to be upheld, whether 
they're going to be effective and to measure that, companies 
did decrease the rates as they went into the decade of the 
1990's, and that's part of the reason why rates went down 
during that timeframe. St. Paul, for example, I happened to run 
across a piece of paper, they reduced rates in 30 States in 
1989 on average of 15, 20 percent across each of these States, 
and it was largely due to the impact of the implementation of 
these tort reform and the change in social consciousness, 
because tort reforms do have an impact on losses and companies 
will respond when indicated by adjusting the rates for the most 
part.
    I think that is true and I agree with what Dr. Anderson 
said about the situation with the pricing. One thing about the 
Pennsylvania pricing that you mentioned, it's not clear from 
what you said whether you reflected the fact that when you 
increase the limits of coverage, you need to increase the price 
that's paid. And in the State of Pennsylvania they've iterated 
up their coverage over time from $200- to $300- to $400- to 
$500,000 as the primary limit. And part of that rate increase 
may have been the steps, part of the stepping process up to 
that limit of coverage, but I don't know that from what you 
said. So that notwithstanding, Pennsylvania has seen a 
deterioration in its loss experience and rates are responding 
to that deterioration.
    Mr. Schwartz. Mr. Buyer, there's an article written by 
former Judge Bork and actually a young man at the American 
Enterprise Institute, which I don't think is a liberal think 
tank, showing the commerce clause's effect in tort law. It's a 
good study. It's at 3 Harvard Journal of Law and Public Policy. 
And Judge Bork and his colleague show how the commerce clause 
today would be impacted by the things that were discussed this 
morning, that medical malpractice crisis is not really isolated 
to one State.
    The costs also that are borne by this are borne by this 
government and by laws passed by this Congress. So they make 
the argument that this is an area where the Congress of the 
United States can act.
    Now, I agree with you around this great institution, 
States' rights is often in the eyes of the beholder. So merely 
because the commerce clause allows this, that doesn't mean that 
it should be done. The reason I think it should be considered 
very, very seriously is State tort reform right now is Russian 
Roulette. You never know whether a particular act is or is not 
going to be held unconstitutional, because it really depends on 
the vagaries of who's sitting on a State court.
    In Ohio, they nullified a tort reform. In California, they 
didn't. In Florida, a lower court, they did. So how can one 
operate in something as serious as medical mal with that going 
on?
    Moreover, if I were running an insurance company and a 
State passed a medical malpractice cap, I would not touch my 
reserves or my rates and premiums until I knew whether or not 
the issue would be held constitutional or not and that can take 
4 or 5 years.
    Mr. Norwood. Thank you, Mr. Buyer.
    Mr. Schwartz, you're referring to it is found in States, 
various States, unconstitutional according to the State 
constitution.
    Mr. Schwartz. That's correct, sir. In State constitutions, 
and we'll submit this article to you. I just started to read 
them 10 years ago. I didn't read them in law school. They can 
be two or three hundred pages in length, and they have clauses 
in them that are extremely malleable. Something like open 
courts. An open courts provision to a Judge could say, well, 
the court should be open 24 hours a day. Or if you touch $1 of 
compensatory damages, it's unconstitutional. And unfortunately 
for both sides, these decisions seemed to have reflected the 
elected Judge constituency who elected him.
    So if he or she were elected by the business community, 
they're upheld as constitutional. If he or she were elected by 
our friends in the plaintiffs' bar, it's held unconstitutional. 
And that's where State tort reform is left right now, and it is 
not a pretty picture.
    Mr. Norwood. Mr. Deal, you're recognized for 5 minutes.
    Mr. Deal. Thank you, Mr. Chairman. First of all, let me go 
back to the punitive damages issue that Mr. Strickland 
addressed and perhaps another point of view. In my State, and 
although I've been out of the practice of law now for 10 years 
by virtue my position here, our State passed an unusual 
provision. I say unusual, perhaps it's affected other States, 
and that is because punitive damages are, by their very nature, 
not really intended to compensate the victim, but rather to 
punish and therefore take on more of a criminal type fine 
approach rather than reimbursement or restitution, in products 
liability cases, our State I believe now requires that either 
two thirds or three fourths of that will be paid to the State. 
And as I recall, the challenge to this constitutionality has 
been upheld.
    So Mr. Greenwood, I might suggest we might think about, in 
terms of punitive damages, having a portion of punitive damages 
aesthete to the State to be used to help States pay the cost of 
their Medicaid program.
    Mr. Strickland. Would the gentlemen yield?
    Mr. Deal. Sure.
    Mr. Strickland. You know, that seems fair to me if the 
amount was the same regardless of the income of the individual. 
It's the discrimination that goes between----
    Mr. Deal. Reclaiming my time. I understand the point that 
you're trying to make. The point though also is that sometimes 
the amount of compensatory damages is not always based on the 
financial status of the alleged victim. In most times, it is 
based primarily on the extent of damage and injury, not the 
financial condition of the individual. Financial condition of 
the individual would primarily be an ingredient only when 
you're trying to calculate lost earnings or lost wages. And 
that, of course, has to have an actual factual basis for making 
that calculation.
    Going back to something else, though. I would like Mr. 
Schwartz, and I thank you for being here today. I think all of 
us would like to know what effect these State statutes fixing 
caps have actually had in real terms on reducing the cost of 
medical malpractice insurance. And one of the procedural things 
that I have run across is, that in most instances, the jury is 
not advised of the existence of caps before they make their 
awards. Is that generally true?
    Mr. Schwartz. That's generally true, and the reason that 
that's done is there is a belief that if they knew what the cap 
was, that they would always award the cap. Now that belief may 
or may not be true, but when these issues are lobbied, one 
reason they're not told about it is that they always would move 
to the top of the ladder. Again, I'm not saying they would do 
it, but that's the reason that's put in the law so they're not 
informed.
    Mr. Deal. Does anybody have any information that indicates 
how much of jury verdicts that actually been written off as of 
a result of the caps? In other words, they return verdicts in 
excess of the caps but because they did not know the caps, the 
Judge was required to write off those verdicts.
    Does anybody have any information as to how much those 
amounts might be? And if they are known, what effect would the 
write offs have on premiums had they not had the caps?
    Mr. Anderson. The total amount is significant, which again 
proves the efficacy of the caps. The reason why there is no 
readily available figure is because the majority of medical 
malpractice claims in which there is recognized liability are 
settled. They don't go to court. Settlements do not break out 
the difference between economic and non-economic damages. But 
the settlements do reflect the upper limit of risk. In other 
words, a State like Texas which has a $268 million verdict, 
your settlement costs will be higher than in a State like 
California where such a verdict will not have been paid.
    Mr. Deal. I recognize that any time you're negotiating 
something it's based on what is your achievable end in the long 
run.
    Mr. Schwartz, if you would walk us through some other 
things, too. And these are procedural issues. Just as you don't 
tell the jury about the statutory caps, the debate is ongoing 
about collateral sources as to whether or not an injured 
plaintiff would have disclosed to the jury of course, what 
other collateral sources had paid for medical expenses, 
etcetera, and whether or not mandatory offsets should take 
place.
    The argument on the other side is if you're going to do 
that, why not disclose to that same jury what the limits of 
liability of the insurance policy that the defendant is 
carrying also has so that they can take all of these outside 
sources into account.
    Would you sort of walk us through the debates that have 
surrounded all of that?
    Mr. Schwartz. Lot of complicated things there, but in some 
States they do let the jury know about the collateral sources. 
And then let them make the judgment as to whether or not the 
plaintiff should, and it really is a false thing, have double 
recovery or not, whether they should know about it. I agree 
with that, actually.
    I think that the juries are otherwise left to speculate 
about it, and they already know that a lot of people have 
insurance. So they might as well be informed. The reason that, 
and you have to go, I'll conclude with this the reason for each 
rule.
    I gave you the reason for the rule on the $250,000. The 
reason for the collateral source rule is that a wrong doer is 
not supposed to benefit from the fact that the plaintiff has 
been prudent or has been paid by a source other than the 
defendant. That is the reason for the rule. Now, wrongdoing 
varies. Some people are more heinous than others. So my feeling 
on that issue is let them make a decision as to whether or not 
the defendant's conduct is so bad that the collateral source 
shouldn't be considered. So that's my position on that.
    Mr. Deal. Do you know of any States that have allowed 
information to be made known to the jury as to the liability 
coverage of the defendant through his insurance policy?
    Mr. Schwartz. No, I do not.
    Mr. Deal. I believe my time is up.
    Mr. Norwood. I now recognize myself for 5 minutes and then 
do you wish to have a closing statement, Mr. Brown?
    Mr. Brown. I agree with that. You probably have said 
enough.
    Let me--Mr. Schwartz, first let me say I have liked a lot 
of words you have used today. Fair and balanced, common sense. 
And with that in mind let me ask all of the panelists. Are 
there any of you out there that truly believe in your heart 
that not having some limit on non-economic damages would not 
improve the health care system in lower premiums? Any of you 
think that's wrong?
    Mr. Brown. I think that is correct, sir.
    Mr. Plunkett. Once again, our expertise is on the insurance 
side, but for all those out there who aren't here, it won't 
improve the health care system for those who are not able to 
live their lives----
    Mr. Norwood. We're on my time. Yes or no would have been 
find. Your answer is no.
    Mr. Plunkett. You have my answer, Mr. Chairman.
    Mr. Norwood. Is there any limit on non-economic damages 
that you could settle or live with?
    Mr. Plunkett. Well, I think there might be, Mr. Chairman, 
but we think that it has to be analyzed based on a real sense 
of what's happening. If you think that jury verdicts are 
exploding or out of control, if you rely only on jury verdict 
research, the firm that is the source for much of this 
information and as described in that Wall Street Journal story 
acknowledges huge gaps in their information. If you don't 
understand the insurance cycle, then you're going to come to 
the wrong conclusion of what has to happen.
    Mr. Norwood. The stories that I've heard today, the 
comments, the opinions, it's all over the board. I don't know 
whose got what State right anymore than you do. But it is all 
right for me to say there is perhaps somewhere a limit that you 
can agree to that might help reduce premium costs.
    Mr. Plunkett. If it's based on a real sense of what's 
happening and not based on this kind of warfare that goes on at 
the State level and the congressional level. If it looks at the 
insurance industry and jury verdicts and closed claims and 
claims that are paid for the and the whole bit that I 
mentioned, we haven't ruled it out, no.
    Mr. Norwood. Okay, good. Are you a lawyer?
    Mr. Plunkett. No, I'm not.
    Mr. Norwood. Just curious.
    Mr. Schwartz, I want you if you would to take a minute and 
explain to me something that I have been told by a lot of 
people around this town now for at least the last year. And 
that's about economic damages.
    Are the courts just totally wrong in their awards on 
economic damages or does that actually work? Nobody has ever 
suggested anywhere there be any type of cap on economic 
damages.
    Do patients actually receive economic damages or do they 
need this other amount of money called pain and suffering?
    Mr. Schwartz. Well, that's a question that has been debated 
for almost ages. In terms of needs, you used an interesting 
word there--need. When it comes to worker compensation, if 
somebody is hurt in the work place, they don't get any pain and 
suffering damages. They get their needs. They get their medical 
costs and a percentage of their loss of wages under our Social 
Security System disability. They do not get pain and suffering. 
Under auto no fault, they don't. So if we're focusing on need 
in the sense of what do I really need to survive, pain and 
suffering is not needed.
    However, you're in the middle of this crazy tort system. 
And a professor back in 1914 wrote an article that probably 
told the truth as much as anything else. The one third of the 
costs are going to lawyers when you recover. So the person 
doesn't get 100 percent of their need. So some damage for pain 
and suffering, he said, and for the record the man's name is 
Terry on Negligence and I read all this stuff and helped me 
understand what a new idea is versus an old idea.
    The pain and suffering damages actually make up, according 
to Terry, for the amount that the person is having to pay to 
his lawyer, or her lawyer, which is about one third. I think 
the sort of underground explanation for pain and suffering is 
that.
    There was an article written by the dean of Washington Law 
School, a very brilliant man named Cornelius Peck, who studied 
whether pain and suffering damages do any good. I give this 
gentleman a million dollars in pain and suffering. Does he feel 
any better? Does he have any less pain? When he wakes up in the 
morning, is the fact that his arm is not there, does he feel 
better about it because he has the money?
    Well, Professor Peck concluded no, he doesn't. And that 
there really is no relationship between the amount of money and 
how people feel. So that's as best as I can do with respect to 
that questions.
    Mr. Norwood. Well, on a $50 million verdict, surely that 
can't then be pain and suffering just to pay the lawyer. 
There's a lot of other money.
    Mr. Schwartz. That's right. If you're getting in the $50 
million range, but an economic loss can possibly get up there. 
It's difficult, but you can get there. Remember with economics, 
and I think one thing that I would say from listening this 
morning, I felt that the economic quotient to the verdict was 
down played too much.
    Economic losses today, with a good plaintiff's lawyer and 
boy they vary, sir. You got a good one helping you. He or she 
is going to get those economics up because many, many things 
can translate into market value today. And every piece of 
medical equipment, every aid, everything you could have done 
before that you can't do now can be measured in terms of 
economic losses.
    And I think the way the definition is in your bill, I don't 
know whose bill it is has been criticized, I think the bill 
does a very nice job, a good job, of defining what is economic 
and what is non-economic. So it has guidelines to courts as to 
dividing these two areas. Because believe me, if you, if this 
ever were to become law, what I would be doing, and what all 
the lawyers would be doing, is arguing what's on which side of 
the line. I know that may seem a little abstract, but that's 
what occurs every day. And the bill does a very good job on 
that. I'm just saying, in summary, that the economic portion of 
this bill should not be down played. It is a significant 
component of awards.
    Mr. Norwood. Well, what if we just had unlimited economic 
damages? No non-economic damages, but just pay the lawyers.
    Mr. Schwartz. Well, that would be a very intriguing thing. 
And if Terry's spirit is up in the sky somewhere, I don't think 
any tort person gets into heaven, but there may be another 
place where they go, sort of a special tort place, that he 
would be very pleased because that's what he recommended in 
1914.
    Mr. Norwood. Well, how do you feel about that?
    Mr. Schwartz. I don't think that's a bad idea. I think 
that's a very intriguing idea.
    Mr. Deal. Will the chairman yield?
    Mr. Norwood. Ye sir.
    Mr. Deal. If I might follow up on that, we have Federal 
statutes whereby we allow the Judge to fix compensation for the 
attorneys. The one that comes that my mind is in the wage 
discrimination cases in which if the plaintiff is successful, 
than the Trial Judge has the ability to consider what the 
records are, the costs, etcetera, and fix compensation for the 
attorney. It would be interesting to see whether or not the 
insurance companies would like that one.
    Mr. Schwartz. Well, that is a very intriguing thing. I have 
the feeling, while my friends in ATLA don't like this bill, if 
you did that I would be running out of the building at the end 
of the hearing.
    Mr. Norwood. Just quickly, you do believe patients are 
compensated for their medical damages?
    Mr. Schwartz. Absolutely.
    Mr. Norwood. Very well in most cases?
    Mr. Schwartz. Yes, as long as they again, the lawyers that 
do med. mal., plaintiffs' lawyers. First, you'd be surprised. 
There's not that many of them. This is not automobile fender 
bender stuff. This is hard stuff on either side. The cases are 
hard to win and you have to be very talented and I'm thinking 
of a man in this jurisdiction, a former ATLA president Berry 
Nase, a superb lawyer to whom I've referred many cases. And he 
will make sure that every medical cost to the nearest dime from 
now to the projected life of that individual, is recovered by 
that individual. And every possible loss of wages is covered by 
that individual. And any other economic loss is compensated to 
that individual. So the answer is yes, they are fully 
compensated under our tort system, if they have the benefit of 
having a good lawyer. In a medical malpractice, most of the 
plaintiffs' lawyers know what they're doing because it is both 
an art and a science.
    Mr. Anderson. Mr. Chairman, if I may, I'd like to add to 
that answer. Mr. Court previously cited the Olsen cases, an 
example of MICRA not working. And in fact, really quite the 
contrary is true. The Olsen child was awarded $17 million as a 
2-year-old child in lost wages. So that I think this is a 
rather outstanding example of the fact that plaintiffs' lawyers 
are quite skilled at transferring economic damages, non-
economic damages over to the non-economic damages.
    Also, I'd like to clarify that despite Mr. Court's 
testimony, the principal defendant in that case was not a 
faceless HMO. The principal defendant in that case was the 
University of California, San Diego and the verdict was funded 
by the tax payers of the State.
    Mr. Norwood. Thank all of you. This has been--Mr. Brown?
    Mr. Brown. I'm just asking unanimous consent, particularly 
since Ms. Visco had to leave for a train and Mr. Court had to 
fly back to California that any questions that any of us would 
submit on either side to either those two witnesses or any of 
the other half dozen or so.
    Mr. Norwood. Absolutely. I wanted to ask both of them some 
questions. That's great.
    Mr. Brown. Mr. Schwartz, even though I'm not a lawyer, you 
sound like you'd be a good school professor to the point that I 
almost want to go to law school.
    Mr. Schwartz. Well, I appreciate that I was for many years, 
I was told not to mention this, but I do have this book called 
Schwartz on Torts and I will give a discount to any member who 
is here.
    Mr. Norwood. Well, all that, of course, presumes that any 
law school would have, Mr. Brown.
    We do appreciate----
    Mr. Greenwood. Mr. Chairman, if Mr. Brown would agree to go 
to law school, I think we could take up a collection for 
tuition.
    Mr. Brown. Only if I went full time.
    Mr. Norwood. I appreciate all of you coming and I want to 
ask Mr. Greenwood, since it is his bill, to close our hearing 
for us.
    Mr. Greenwood. Well, thank you, Mr. Chairman. I think Mr. 
Schwartz put it very well when he said there are three things 
we have to consider and that is is there a problem. Do the tort 
reform provisions in H.R. 4600 solve the problem, go a long way 
to solve the problem? And three is adjust.
    I think you're correct that this hearing and any reasonable 
observation would conclude we got huge problems. And in 
Pennsylvania, to which I can speak most clearly, it is of 
unimaginable consequence. I do not know what we're going to do 
for health care in the very near future, if we don't do 
something. And it's beyond the reach of the Pennsylvania 
legislature because we a constitutional prohibition against 
caps. So that there is a crisis only the blind would miss. That 
caps, and tort reform, reduce premiums significantly, I
    think, also, is frankly beyond dispute. All you have to 
look at is California, Indiana, and the other States. You put 
caps on it a Federal level, you will reduce the cost of these 
premiums and you will solve the problem.
    The only question that I think that the subject to real 
honest dispute is the fairness question. Is it fair? Do we 
treat plaintiffs fairly enough in this legislation? And for 
instance, is the deriving punitive of damages as a function of 
economic damages. Is that fair? Is it fair to people of 
different economic levels? And I think we ought to continue to 
work on that. I look forward to working with Democrats on this 
committee who want to a bipartisan solution to the crisis. I 
think it's possible.
    I'm open to adding insurance reforms if they're real. But 
frankly, I haven't seen any evidence from our hearing today 
that there's anything we can do--much to be done on that side 
that's going to fix the problem. So I think fundamentally we 
need to find out if whether we can come to terms on what's fair 
from one side of the aisle to the other, and I'm going to try 
very hard for the rest of the summer to accomplish that, Mr. 
Chairman.
    Mr. Brown. Mr. Chairman, I didn't know we were doing 
opening statements again. I've never seen this kind of end of a 
hearing when one guy on the other side gets to make another 
statement. You start off this hearing with an assumption that 
all of the problem, by the name of the hearing, all of the 
problem rests with trial lawyers. Not questions of fairness, no 
representation from patients, and I am just a little surprised 
that this hearing has been run in that direction. I will close 
with that.
    Mr. Norwood. Hearing adjourned.
    [Whereupon, at 4:32 p.m., the hearing was adjourned.]
    [Additional material submitted for the record follows:]

 Prepared Statement of the American Academy of Dermatology Association

    On behalf of the American Academy of Dermatology Association 
(AADA), the largest dermatologic association with approximately 14,000 
physician members around the world, I appreciate the opportunity to 
share with you our views regarding health care litigation reform. The 
AADA is very concerned with the current medical malpractice insurance 
marketplace and requests that the subcommittee favorably act on H.R. 
4600, the ``Help Efficient, Accessible, Low Cost, Timely Health Care 
`HEALTH' Act of 2002.'' The current crisis poses a serious threat to 
the availability of, and access to, quality health care for all 
patients.
    Since January, Frontier, St. Paul Global Health Care, PHICO and 
Reliance have all left the medical liability insurance market. As a 
result, liability premiums are now rising for medical specialties not 
typically associated with high risk, adding to the financial pressures 
placed on all practicing physicians.
    Physicians across the country have been reporting that they are 
unable to obtain medical liability insurance. Dermatologists, in 
particular, have reported that premium increases in certain parts of 
the country are making it difficult for them to remain viable at a time 
when all practice efficiencies have been implemented. In some areas, 
only one insurer remains, forcing physicians to face an all or nothing 
proposition.
    While patient access to care is being threatened in a number of 
states, there are six states where the crisis for dermatologists is 
most severe: Florida, Mississippi, Nevada, Pennsylvania, Texas and West 
Virginia. The AADA is working with dermatology societies in these 
states, along with their State medical associations, to provide support 
for their efforts to procure state-level remedies; however, many states 
are not in session right now and few can agree on the proper course to 
pursue. For those states that have already enacted medical malpractice 
legislation, H.R. 4600 would not pre-empt their laws, the legislation 
only applies to states that have gaps in their laws or have not 
succeeded in passing legislation.
    In 2001, eight states saw two or more liability insurers raise 
their rates by at least 30 percent. This year, physicians in Texas have 
witnessed skyrocketing insurance rates of over 50 percent. Mississippi 
is expected to lose over 400 physicians this year due to the ongoing 
medical liability crisis. In the first three months of 2002, medical 
jury awards in Mississippi have reached upwards of $27 million. 
Furthermore, Nevada Governor Kenny Guinn has been forced to call a 
special session of the legislature to respond to the closing of the 
states only trauma center due to the lack of affordable liability 
coverage.
    A primary cause of this emerging crisis is the unrestrained 
escalation in jury awards that are a part of our judicial system. The 
reality of being sued is evident in all corners of our health care 
delivery system. A recent Harris Interactive study (The Fear of 
Litigation Study--The Impact on Medicine) for Common Good illustrates 
the detrimental impact our litigious society has on those who provide 
care to patients.
    The study shows, among other things, that more than three-fourths 
(76%) of physicians believe that concern for medical liability 
litigation has hurt their ability to provide quality care in recent 
years, and nearly all physicians feel that unnecessary or excessive 
care is provided because of litigation fears. It also shows that an 
overwhelming majority of physicians (83%) do not trust the current 
system of justice to achieve a reasonable result to a lawsuit.
    Federal legislation is vital to ensuring that physicians provide 
appropriate care to their patients without fear of litigious action. 
The present instability of our medical malpractice insurance 
marketplace is already hampering patient access to care in some states. 
H.R. 4600 contains much needed medical liability reforms that are 
similar to those remedies that have kept the market stable in 
California since 1975, while continuing to ensure that patients who 
have been injured through negligence are fairly compensated.
    According to Medical Liability Monitor, the gap between medical 
liability insurance rates in California and those in the largest states 
that do not limit non-economic awards is substantial and growing. One 
national insurance company (The Doctors Company) recently reported a 93 
percent difference in average rates between obstetrician/gynecologists 
in California (with MICRA reforms) and Nevada (with no MICRA-type 
reforms).
    Yet H.R. 4600 would continue to protect injured patients by 
allowing unlimited economic damages with additional non-economic 
damages of up to $250,000. In addition, this bill would eliminate joint 
and several liability so that damages are allocated fairly and in 
proportion to a party's degree of fault.
    The American Academy of Dermatology Association strongly believes 
the time to act is now. Inaction would put American's in jeopardy of 
not receiving the health care services they need and deserve. We urge 
Congress to enact H.R. 4600 to ensure the stability and viability of 
our nation's health care system.
    On behalf of our 14,000 members, thank you for your consideration 
of our views.
                                 ______
                                 
    Prepared Statement of the American Academy of Family Physicians

    This statement is submitted to the Energy and Commerce Committee on 
behalf of the 93,500 members of the American Academy of Family 
Physicians. This hearing entitled, ``Harming Patient Access to Care: 
The Impact of Excessive Litigation'' is timely. The current lack of 
professional liability insurance does threaten patient access to care 
in some states. The current trend of increasing insurance premiums 
drive up the cost of health care and force physicians to drop certain 
services when they cannot afford professional liability insurance.
 family physicians affected by the lack of medical liability insurance
    Medical liability insurers have left the medical insurance market 
in the past year in alarming numbers. One reason for this exodus is the 
unpredictable rise in jury awards that exist in states without adequate 
tort reforms. According to the Physician Insurers Association of 
America (PIAA), the last decade has seen a dramatic increase in awards 
in excess of $1 million even while the number of suits filed has 
remained the same. As a result of a few record-breaking cases, insurers 
find it more difficult to predict their risk.
    The remaining insurers have been forced to raise rates or to refuse 
new applications for insurance. Family physicians are beginning to 
experience difficulty in finding insurance companies to provide 
liability insurance or are receiving renewal notices with double-digit 
and triple-digit increases for the second year in a row.
    For example, in Florida, 40 medical liability companies were 
writing medical liability insurance five years ago. Today, there are 
six companies and two of them will not accept new applications. Family 
physicians are experiencing increases of medical liability insurance 
rates anywhere from 35 percent up to 300 percent based on location and 
scope of practice. In Pennsylvania, there were 25 medical liability 
insurers in 2000. Currently, there are ten and only one is accepting 
new applications. Over the last two years, family physicians in 
Pennsylvania have received a 30 percent increase on average in 
liability insurance premiums and premiums increases are expected to be 
at least that expensive for 2002.
    State laws, hospital accreditation and managed care contracts all 
require physicians to carry medical liability insurance. If family 
physicians cannot afford insurance coverage, they must choose between 
shutting down their practice altogether or restricting the range of 
services they provide. For family physicians in rural settings, this 
usually means being forced to stop delivering babies or providing 
prenatal care due to mounting liability premiums.

      FAMILY PHYSICIANS' DECISION TO DELIVER RURAL MATERNITY CARE

    According to data from the Health Research and Services 
Administration (HRSA), family physicians are more likely than other 
primary care physicians to practice in rural areas. Rural family 
physicians are much more likely to provide maternity and prenatal care, 
although both the fear of litigation and the unavailability or 
affordability of liability insurance are beginning to force some 
physicians into limiting the services they provide.
    The need for national tort reform has also been clear to family 
physicians for over ten years. The following excerpt from a study 
published in the Western Journal of Medicine, June 1991, entitled, Tort 
Reform and the Obstetric Access Crisis by Rosenblatt, R. et al., may 
signal what lies ahead as the next liability crisis looms:
        The data are remarkably similar for the four states 
        [Washington, Alaska, Montana, and Idaho]. As in other studies, 
        physicians reported that issues related to medical malpractice 
        are the most powerful factors influencing their collective 
        decisions to continue basic practice. The cost of medical 
        malpractice insurance is the most important factor, often 
        exceeding the fiscal capacity of family physicians to continue 
        to offer this service. To this economic decision is added the 
        difficult-to-qualify--but no less important--emotional effects 
        of a climate in which obstetrics malpractice suits are 
        perceived as increasingly common and increasingly expensive.
    Although all four states did enact some tort reform in the 1980s, 
none of them enacted a package of tort reforms such as California's 
Medical Injury Compensation Reform Act of 1975 (MICRA). The MICRA 
reforms have already brought stability and fairness to the California 
legal system for the past 27 years. Californians Allied for Patient 
Protections (CAPP), a major consumer group supportive of MICRA, have 
found that legal disputes in California are settled 23 percent faster 
than the national average. At the same time, the number of suits filed 
in California matches the national average. In 1998, the Congressional 
Budget Office estimated that tort reforms such as those effective in 
California would result in savings of $1.5 billion over ten years.

                       AAFP SUPPORT FOR H.R. 4600

    The American Academy of Family Physicians supports The Help 
Efficient, Accessible, Low Cost, Timely Health Care (HEALTH) Act of 
2002 (H.R. 4600) because it would bring the same rational reforms 
contained in MICRA to all states' professional liability systems. Given 
what researchers have shown in the past concerning the impact of high 
insurance costs on patient access, the AAFP supports federal 
legislation to stabilize the medical tort reform systems in the states. 
According to Kenneth S. Abramowitz, in the New York Times (September 9, 
2001), ``The rising cost of malpractice coverage is becoming one of the 
most important factors driving inflation for physicians' services.''
    The AAFP supports several provisions of The HEALTH Act in 
particular. H.R. 4600 would require that a party pay damages only to 
the extent that the party was liable for the harm caused. Family 
physicians provide primary care (comprehensive and coordinated care for 
all life stages and both genders). Because they are the overall medical 
managers for a vast number of patients in the U.S., with responsibility 
for making referrals to subspecialists, family physicians need the 
protections of joint and several liability reforms to ensure that they 
are not held responsible for the clinical decisions of others.
    H.R. 4600 would limit attorneys' fees ensuring that a larger 
proportion of the award actually goes to the patient who was harmed. 
According to PIAA, less than two percent of paid claims exceeded $1 
million in 1991. By the year 2001, that number increased to seven 
percent. However, with contingency fees taking upwards of forty percent 
of a settlement, average citizens who seek redress in court will end up 
with only a tiny portion of the award. This provision ensures that they 
are treated fairly after they leave the courthouse.
    H.R. 4600 includes a cap on non-economic damages. The Office of 
Technology Assessment drafted an analysis of tort reforms in 1993 
entitled, ``Impact of Legal Reforms on Medical Malpractice Costs.'' 
That report found that the one reform shown to consistently reduce 
medical liability costs was a cap on non-economic damages. While 
economic losses, such as lost wages, medical expenses and 
rehabilitation costs are fully compensated, non-economic damages 
reflect the monies collected for intangible losses.

                               CONCLUSION

    The Academy appreciates the opportunity to address the Energy and 
Commerce Committee regarding the impact of excessive litigation on 
patient access to care.
    We look forward to working with the Committee to find a workable 
solution for patients and physicians. We believe that the reforms 
contained in H.R. 4600 are fair both to legitimately harmed parties and 
to medical professionals.
                                 ______
                                 
Prepared Statement of American Academy of Otolaryngology--Head and Neck 
                             Surgery, Inc.

    Chairman Bilirakis, Ranking Member Brown and members of the 
Subcommittee, the American Academy of Otolaryngology--Head and Neck 
Surgery (AAO-HNS) is pleased to submit this statement for the record of 
the Energy and Commerce Subcommittee on Health's hearing on this 
country's growing medical liability insurance crisis. AAO-HNS, 
representing more than 10,000 otolaryngologist--head and neck surgeons 
across the country, is the national medical association of physician 
specialists dedicated to the care of patients with disorders of the 
ears, nose and throat and related structures of the head and neck. We 
are often referred to as ENT physician specialists.
    In a growing number of states across the country, including 
Florida, Ohio, Oregon, Pennsylvania and West Virginia, the ability to 
obtain medical liability insurance has become either increasingly cost-
prohibitive or is simply unavailable. Physicians who find it too 
expensive to maintain their practices appear to be retiring early or 
moving to states with less costly premiums. As this trend continues, 
access to quality health care for patients in many communities and 
neighborhoods is seriously jeopardized.
    Today, practicing physicians face burdensome regulatory 
requirements, rising practice costs and decreasing reimbursements. 
These problems are compounded by increasing medical liability premiums, 
which are forcing physicians to practice ``defensive medicine,'' reduce 
the number of services and stop performing high-risk procedures in an 
attempt to keep their practices afloat and avoid litigation. The money 
physicians could use to purchase the latest medical technology or hire 
another physician is often diverted to pay the skyrocketing insurance 
premiums. Ultimately, increasing medical liability premiums are forcing 
physicians to devote a greater amount of time and energy away from 
their number one priority--providing quality health care to their 
patients.
    While numerous states continue to suffer from the tightening grip 
of increasing medical insurance premiums, one state has insulated 
itself and today remains relatively protected by the high premium 
costs. In 1975, as a result of soaring liability premiums, California 
passed the Medical Injury Compensation Reform Act (MICRA). The 
legislation has helped the state of California maintain manageable 
control of insurance premiums and stabilize the industry to the benefit 
of physicians and patients alike. The AAO-HNS believes that in order to 
create nationwide stability in the medical liability insurance system, 
while continuing to protect the ability of patients to be compensated 
when injured by an act of negligence, Congress must pass fair and 
equitable tort reform. To that end, we urge Congress to pass the Help 
Efficient, Accessible, Low-Cost Timely Health Care ``HEALTH'' Act of 
2002 (H.R. 4600), introduced by your colleague Representative 
Greenwood. The legislation includes provisions similar to those passed 
in MICRA that would limit non-economic damages, provide periodic 
payment for future damages and establish a reasonable statute of 
limitations. Amending the federal health liability laws through this 
legislation is a positive step towards ensuring patient access to 
physicians when and where they need care.
    The AAO-HNS is pleased that the Subcommittee is addressing the 
important issue of reforming the medical liability crisis that is 
plaguing physicians across the country. We welcome the opportunity to 
work with the Subcommittee to ensure passage of meaningful legislation 
that will give physicians access to affordable insurance and not 
further jeopardize a patient's access to quality health care.
    Thank you for the opportunity to submit this statement.
                                 ______
                                 
 Prepared Statement of the American Association of Orthopaedic Surgeons

    On behalf of the American Association of Orthopaedic Surgeons 
(AAOS), representing 18,000 board-certified orthopaedic surgeons 
throughout the United States, we are pleased to offer a statement to 
the House Energy and Commerce Committee, Subcommittee on Health. We 
thank Chairman Bilirakis and members of the subcommittee for holding 
this important hearing and believe the time is right to address 
problems with the current tort system. AAOS supports the adoption of 
federal measures that will permit orthopaedic surgeons to better 
provide high quality services at reasonable costs to their patients. 
Without action, we fear patient access to specialty care will be 
threatened.
    Across the country, surgical practices and emergency rooms are 
closing or reducing their hours of availability to patients due to 
substantially increased rates of professional liability insurance and 
an unavailability of insurers willing to provide coverage.
    Last year, commercial carriers in eight states raised their rates 
by more than 30 percent, and another 12 states increased premiums by 
more than 25 percent. In some states, high-risk specialists have had 
their insurance cancelled or not renewed. Our physicians are finding 
their premiums being raised by 200-300 percent--even without ever 
having a claim filed against them. Patient care has suffered further 
because physicians must increase their patient load in order to afford 
increased coverage rates, while at the same time reduce the amount of 
time dedicated to each individual. It has become difficult for 
orthopaedists to provide the kind of care and attention they would like 
to provide their patients.
    This situation was brought to light most dramatically in Nevada, 
when the University Medical Center Level 1 trauma center in Las Vegas--
the only trauma center in southern Nevada--was forced to close for 10 
days beginning July 3. Fifty-six orthopaedists resigned from the trauma 
center because of concerns with escalating medical liability premiums 
and coverage issues. Although the governor of Nevada has called a 
special legislative session to try to develop a long-term solution, it 
is clear that without action, residents of southern Nevada, as well as 
neighboring states served by the trauma center will lack critical 
specialty care in the meantime.
    In addition to Nevada, throughout the country, there are startling 
statistics regarding the cost of practicing medicine in today's current 
legal environment. For instance:

 At Temple University in Philadelphia, Pennsylvania, faculty 
        have been unable to recruit orthopaedic fellows to fill slots 
        that have remained open for two years, despite the qualified 
        specialists that receive training at the University.
 Health care providers in the Kansas City area experienced 25 
        percent to 100 percent increases in medical liability insurance 
        rates, after both the St. Paul Cos. and Chicago Insurance Co. 
        withdrew from the medical malpractice market, and PHICO 
        Insurance Co. declared bankruptcy. The three companies provided 
        malpractice coverage to about one-fourth of the physicians in 
        Missouri.
 A survey done by North Mississippi Health Services found that 
        15 percent of the company's doctors are considering early 
        retirement and 30 percent are considering jobs in other states 
        because of legal issues. The survey also revealed that 80 
        percent of the doctors who have found affordable liability 
        insurance are practicing ``defensive medicine,'' performing 
        extra tests to create a record that can be used in case of a 
        lawsuit.
    In a recent survey conducted by the AAOS, we learned that two-
thirds of the respondents indicated that the cost of their professional 
liability has affected their practice. Physicians are limiting the 
scope of their practice, ordering more tests and turning away from 
providing charity care. They are retiring or leaving certain states 
altogether just to survive. As the population continues to age, we are 
gravely concerned of the consequences of less access to quality 
orthopaedic care.
    Physicians need relief. One possible solution is H.R. 4600--the 
``Help, Efficient, Accessible, Low-cost, Timely Health Care (HEALTH) 
Act of 2002,'' introduced by Representative Greenwood (R-PA) and 
several others, including Representatives Chris Cox (R-CA), John Murtha 
(D-PA), Patrick Toomey (R-PA), Collin Peterson (D-MN), Dave Weldon (R-
FL), Charles Stenholm (D-TX), Chip Pickering (R-MS), Ken Lucas (D-KY) 
and James Moran (D-VA). This bipartisan legislation safeguards 
patients' access to care through reasonable, comprehensive, and 
effective health care liability reforms. AAOS supports the provisions 
contained within the HEALTH Act and believes a significant measure of 
relief can be achieved if it is adopted.
    Importantly, the HEALTH Act addresses several critical 
inconsistencies within the current system. H.R. 4600 sets reasonable 
limits on noneconomic damages and implements a system of several 
liability, in which the physician is liable only to the extent he or 
she is responsible, thus ensuring a more fair allocation of 
responsibility. Another key principle protects payment of all medical 
expenses yet supports the allowance for periodic payment of future 
damage awards. This important provisions ensures that a physician need 
not risk bankruptcy, and therefore provide no compensation to the 
patient. The legislation also allows for the timely resolution of 
claims.
    These reforms work in states that have adopted them. Similar 
legislation passed in California in the mid-1970's resulted in a 
stabilization of the professional liability situation. However, not 
every state has enacted legislation. Federal legislation is needed to 
bring uniformity to this situation.
    At the same time, an additional measure of relief could be found 
within the insurance industry itself. Congress may want to consider 
examining possible insurance reforms. It may prove helpful to assess 
the rising cost of insurance and what role the marketplace plays in 
setting rates. We believe Congress should carefully examine all 
possible reasons for the sudden rate increases and devastating market 
withdrawls.
    Thank you again, Chairman Bilirakis, and Representative Brown, for 
holding this hearing. Continued patient access to specialty care will 
be compromised if steps are not immediately taken to address liability 
concerns. We look forward to working with you on this issue.
                                 ______
                                 
Prepared Statement of American College of Physicians--American Society 
                          of Internal Medicine

    The American College of Physicians-American Society of Internal 
Medicine (ACP-ASIM)--representing 115,000 physicians and medical 
students--is the largest medical specialty society and the second 
largest medical organization in the United States. We congratulate the 
Subcommittee on Health for holding this important hearing on a subject 
matter that has more relevance today than ever before. Of the College's 
top priorities for 2002, addressing the health care liability crisis 
and its impact on access to care is one of the most critical to our 
members. ACP-ASIM thanks Congressmen Michael Bilirakis, Chairman of the 
Subcommittee, Sherrod Brown, Ranking Member of the Subcommittee, and 
other members, for holding this hearing to discuss how excessive 
litigation is impacting patient access to health care.

                               BACKGROUND

    Doctors across the country are experiencing sticker shock when they 
open their medical malpractice insurance renewal notices--if they even 
get a renewal notice. After more than a decade of generally stable 
rates for professional liability insurance, physicians have seen costs 
dramatically increase between 2000 and 2002. And in some areas of the 
country, premiums have soared to unaffordable levels. According to the 
Medical Liability Monitor, in mid-2001, insurance companies writing in 
36 states and the District of Columbia claim to have raised rates well 
over 25 percent. With the new rate assessments coming in July 2002, 
rates are expected to increase even further.
    While obstetricians, neurosurgeons and other high-risk specialists 
have been hit hard, internists have been one of the hardest hit 
specialties--having seen a record 45 percent increase in the last three 
years. In some cases, physicians, even those without a track record of 
lawsuits, could not find an insurance company willing to provide 
coverage. These physicians are being forced to decide whether to dig 
deeper and pay a steeper bill, change carriers, move out of state, or 
retire from the practice of medicine.
    Of these options, changing carriers may not even be an alternative. 
Finding replacement coverage won't be as easy as it was in a buyer's 
market. Companies writing professional liability coverage are fleeing 
or being chased from the market. As an example, St. Paul Companies, 
which insures doctors in 45 states and is the second largest medical 
underwriter in the country, announced late in 2001 that it no longer 
would write medical liability policies. It plans to phase out coverage 
as physicians' contracts expire over the next 18 to 24 months. Also, 
Frontier and Reliance are gone. Other commercial insurers, such as 
PHICO, CNA and Zurich, are significantly cutting back. Even some 
provider-owned insurers, committed to this market by their founders, 
are pulling back from some states.

                           THE PERFECT STORM

    At a time when the market is squeezing physician and hospital 
margins, the rise in professional liability insurance may be the factor 
that determines whether physician offices and emergency rooms keep 
their doors open. There are other contributing factors that have 
limited patient access to health care: the cost of delivering health 
care driven by increased cost of new technologies; increased cost of 
drugs deemed necessary to meet the standard of care; the rising cost of 
compliance under increasing state and federal regulation; the low 
reimbursement rates under Medicare and Medicaid; and the declining fees 
from managed care.
    Unquestionably, there is real potential that rising insurance rates 
ultimately will reduce access to care for patients across the country. 
Indeed, daily press accounts from coast to coast are demonstrating 
exactly that. Physician offices and emergency rooms have been closing 
their doors all across the country due to the exorbitant costs of 
liability coverage. The states most severely affected by the spiraling 
out-of-control rates are: West Virginia, Florida, New York, Georgia, 
Illinois, Washington, Ohio, Texas, Nevada, Michigan, Pennsylvania, and 
Oregon. Several other states are just beginning to feel the impact.
    Some states have tried to address the dramatic increase in 
professional medical liability insurance rates with very little 
success. At best, attempts by the states to solve this problem have not 
addressed the underlying problem: the escalation of lawsuit awards and 
the expense of litigation has led to the increase in medical liability 
premiums. This fact has resulted in many patients not receiving or 
delaying much needed medical care--facts Congress can no longer ignore. 
ACP-ASIM strongly believes that Congress must act to stabilize the 
market to avoid further damage to the health care system.

        RELIEF FOR PHYSICIANS FROM SOARING MALPRACTICE PREMIUMS

    Federal legislation has finally been introduced to help curb the 
escalating trend in malpractice premiums. H.R. 4600, the ``Help 
Efficient, Accessible, Low Cost, Timely Health Care'' (HEALTH) Act of 
2002, will safeguard patient access to care, while continuing to ensure 
that patients who have been injured through negligence are fairly 
compensated. ACP-ASIM strongly endorses this legislation as a means to 
stabilize medical liability insurance market and bring balance to our 
medical liability litigation system. The HEALTH Act achieves this 
balance through the following common sense reforms:

 Limit on pain and suffering (non-economic) awards. This 
        requirement limits unquantifiable non-economic damages, such as 
        pain and suffering, to no more than $250,000.
 Unlimited recovery for future medical expenses and loss of 
        future earnings (economic) damages. This provision does not 
        limit the amount a patient can receive for physical injuries 
        resulting from a provider's care, unless otherwise restricted 
        by state law.
 Limitations on punitive damages. This requirement 
        appropriately raises the burden of proof for the award of 
        quasi-criminal penalties to ``clear and convincing'' evidence 
        to show either malicious intent to injure or deliberate failure 
        to avoid injury. This provision does not cap punitive damages, 
        rather, it allows punitive damages to be the greater of two 
        times the amount of economic damages awarded or $250,000.
 Periodic payment of future damages. This provision does not 
        reduce the amount a patient will receive. Rather, past and 
        current expenses will continue to be paid at the time of 
        judgment or settlement while future damages can be funded over 
        time. This ensures that the plaintiff will receive all damage 
        awards in a timely fashion without risking the bankruptcy of 
        the defendant.
 Elimination of double payment of awards. This requirement 
        provides for the jury to be duly informed of any payments (or 
        collateral source) already made to the plaintiff for his/her 
        injuries.
 A reasonable statute of limitation on claims. This requirement 
        guarantees that health care lawsuits will be filed no later 
        than 3 years after the date of injury, providing health care 
        professionals with ample access to the evidence they need to 
        defend themselves. In some circumstances, however, it is 
        important to guarantee patients additional time to file a 
        claim. For example, the legislation extends the statue of 
        limitations for minors injured before age 6.
 A sliding scale for contingency fees. This provision will help 
        discourage baseless and frivolous lawsuits by limiting attorney 
        incentives to pursue meritless claims. Without this provision, 
        attorneys could continue to pocket large percentages of injured 
        patient awards, leaving patients without the money they need 
        for their medical care. The sliding scale would look something 
        like this:
     Forty percent (40%) of the first fifty thousand dollars 
            recovered
     Thirty-three and one-third percent (33\1/3\%) of the next 
            fifty thousand dollars recovered
     Twenty-five percent (25%) of the next five hundred 
            thousand dollars recovered
     Fifteen percent (15%) of any amount recovered in excess of 
            six hundred thousand dollars
 Proportionate liability among all parties. Instead of making a 
        party responsible for another's negligent behavior, this 
        requirement ensures that a party will only be liable for his or 
        her own share. Under the current system, defendants who are 
        only 1 percent at fault may be held liable for 100 percent of 
        the damages. This provision eliminates the incentive for 
        plaintiff's attorneys to search for ``deep pockets'' and pursue 
        lawsuits against those minimally liable or not liable at all.
 These common sense recommendations have been proven to work. 
        The HEALTH Act is based on provisions contained in the 
        California Medical Injury Compensation Reform Act (MICRA). 
        Since its enactment in the mid-1970's, the MICRA reforms have 
        helped reduce the overall costs of medical malpractice and have 
        contributed to the increase in patient access to care. During 
        this recent malpractice insurance crisis, California's rates 
        have changed only slightly, while rates in other states have 
        escalated to out of control levels.

                               CONCLUSION

    ACP-ASIM is pleased that the Subcommittee agreed to conduct this 
hearing to address the serious problem of soaring medical malpractice 
premiums that physicians are facing across the country. We strongly 
urge the Subcommittee to pass the common sense reforms contained in the 
HEALTH Act that allow greater access to care, while adequately 
compensating injured patients. We appreciate the opportunity to submit 
this statement for the record.
                                 ______
                                 
         Prepared Statement of the American Dental Association

    The American Dental Association (ADA), a professional organization 
that represents more that 140,000 licensed dentists in the United 
States, believes that federal legislation is needed to remedy the root 
cause of excessive liability insurance premiums, which can and do 
threaten patient access to health care services.
    To address this problem, the ADA supports H.R. 4600, the ``Help 
Efficient, Accessible, Low Cost, Timely Health Care (HEALTH) Act of 
2002.'' This legislation, sponsored by Representative Jim Greenwood (R-
PA), would reduce liability costs that are burdening the health care 
delivery system without compromising the legal rights of persons truly 
injured as the result of malpractice. H.R. 4600 would:

 encourage the speedy resolution of claims through 
        implementation of a 3-year statute of limitations on health 
        care-related injuries in most cases;
 provide for a $250,000 limit on noneconomic damages;
 ensure that each party shall be liable only for the amount of 
        damages that should be allocated in direct proportion to his or 
        her responsibility;
 place express limits on contingency fees that can be collected 
        by plaintiff's counsel;
 permit introduction of information concerning collateral 
        source benefits;
 state that future damages may be paid by periodic payments; 
        and
 permit state statutory limits on compensatory and punitive 
        damages to remain in effect, regardless of whether they are 
        greater or smaller than the limits provided in the Act.
    The ADA is concerned that the current sharp increases in 
malpractice premiums are adversely affecting access to medical 
services, and could soon also affect dental services. Some medical 
specialties are seeing increases of up to 100 percent in liability 
insurance premiums. As a result, some physicians are no longer 
providing procedures that would put them at risk of liability suits, 
and some are moving to areas with lower insurance rates or, retiring 
early. The ADA hopes that congressional action will stem this tide.
    Many insurers cite the skyrocketing amounts of jury awards in 
medical liability cases as their rationale for premium increases. 
According to Jury Verdict Research's report, ``Medical Malpractice: 
Verdicts, Settlements and Statistical Analysis'', the median national 
jury award in medical liability claims jumped 43% in one year--from 
$700,000 in 1999 to $1 million in 2000. H.R. 4600 would place fair, 
reasonable limits on such awards.
    While the practice of dentistry differs profoundly from medicine, 
insurance premiums are still a concern for dentists and should be of 
concern to dental patients and third party payers, such as private 
sector employers and federal and state governments. Some dental 
liability insurance experts predict that dentists will face a 
substantial growth in premiums within 3 to 5 years. Significant 
increases in the cost of dental malpractice coverage will necessarily 
make oral health care services more expensive. With more than 50 
percent of all dental expenditures paid out-of-pocket by the dental 
consumer, any unnecessary increases in dental costs could make dental 
care less attainable for many Americans. And because of the progressive 
nature of dental disease, those who choose to forgo care as a result of 
increased costs will face the unfortunate fact that untreated dental 
disease almost certainly worsens over time.
    In addition to recommending the passage of H.R. 4600, we would be 
remiss if we did not also request that Congress seek additional ways to 
prevent the filing of frivolous lawsuits. We believe that an effort 
must be made to differentiate between the legitimate claims of injured 
parties and those filed be people who want to play the system.
    To better understand our concerns you must understand that, for a 
health care provider, nothing is more devastating than an allegation 
that he or she has harmed, rather than helped, a patient. When one 
prides oneself on an ability to provide sound dental care to a patient, 
and one's reputation in the community rests on that ability, a public 
claim to the contrary--regardless of how flimsy or misguided--takes a 
toll.
    Fundamentally, all any health care provider has to offer is a 
reputation based upon the level of care provided. It is this 
reputation, even more that the time and money that must be needlessly 
expended to defend oneself against a frivolous suit, that is at risk 
when someone looks to make some easy money by filing a frivolous 
malpractice lawsuit. We ask that Congress seek ways to prevent such 
suits from getting filed. For example, some states require that a 
plaintiff in a malpractice suit obtain a certificate of merit--an 
affidavit from an independent professional that a standard of care was 
not met--before a case can proceed.
    Dentists have worked hard to deliver the best dental care in the 
world while struggling to keep it affordable. Frivolous lawsuits and 
increased liability premiums could jeopardize these efforts, resulting 
in more expensive dental care for all: patients, employers, and public 
health programs such as Medicaid.
    Mr. Chairman and members of the committee, thank you for providing 
the ADA with this opportunity to discuss our views on much needed 
liability reform. We look forward to working with you on this issue.
                                 ______
                                 
Prepared Statement of American Health Care Association and the National 
                       Center for Assisted Living

    On behalf of the American Health Care Association and the National 
Center for Assisted Living, we thank you for holding this important 
hearing in order to hear from providers and patients alike regarding 
the issue of medical liability reform. We commend you for bringing 
light to an issue that has a significant impact on patient access to 
care and services.
    We support you for your efforts to introduce and work for passage 
of legislation that is pro-patient and will bring common sense reforms 
to our medical liability laws. AHCA and NCAL support legislative 
efforts to ensure patient access to quality long-term care is 
safeguarded, and we consider the bill you have put forth as an 
important step towards ensuring care of the vulnerable elderly and 
disabled is protected. AHCA has endorsed The Help Efficient, 
Accessible, Low Cost, Timely Health Care Act (The HEALTH Act) of 2002. 
This bipartisan legislation is co-sponsored by Rep. James Greenwood, 
Rep. Christopher Cox, Rep. John Murtha, Rep. Patrick Toomey, Rep. James 
Moran, Rep. Collin Peterson, Rep. Charles Stenholm, Rep. Ken Lucas, 
Rep. Charles (Chip) Pickering, Rep. Dave Weldon and over 80 others.

                             THE AON REPORT

    New research by AON Risk Consultants, Inc. shows that national 
trends in General Liability and Professional Liability (GL/PL) losses 
are increasing at an alarming rate. In the five-year period between 
1990 and 1995 costs more than doubled from $240 per bed to $590 per 
bed. Since 1995 costs have quadrupled to an estimated $2,360 per bed. 
The countrywide increases are the results of an explosion in litigation 
that started in a handful of states and is spreading to a multitude of 
regions throughout the country. This increase in litigation is raising 
the number of claims individual long-term care operators are incurring 
each year. In addition, the average size of each claim is steadily 
going up across the country at annual increases well ahead of 
inflation. In many states, the increase in liability costs is largely 
offsetting annual increases in Medicaid reimbursements.
    Some specific facts revealed by the AON study include:

 The average long term care GL/PL cost per annual occupied 
        skilled nursing bed has increased at an annual rate of 24% a 
        year from $240 in 1990 to $2,360 in 2001. National costs are 
        now ten times higher than they were in the early 1990's.
 The long-term care operators represented in this study report 
        $1.9 billion in GL/PL liability claims incurred between 1990 
        and 2001. The expected ultimate cost of claims incurred in this 
        period is $3.7 billion, taking into consideration the claims in 
        the pipeline and the as yet to be determined outcomes of open 
        cases.
 These same providers, who represent only 26% of the providers 
        in the United States, are projected to incur $1 billion in GL/
        PL claims in 2002 alone. Extrapolated to a national basis, this 
        exposure is a multi-billion dollar a year cost to the nursing 
        home industry.
 The average size of a GL/PL claim has tripled from $67,000 in 
        1990 to $219,000 in 2001.
 Florida and Texas were leaders in driving the increase in GL/
        PL costs for the long-term care industry. With trends during 
        the 1990's in the range of 25% to 35% a year, costs in these 
        two states have risen to close to $11,000 per bed in Florida 
        and $5,500 per bed in Texas.
 Numerous states across the country are indicating similar 
        annual trends including Georgia (50%), West Virginia (50%), 
        Arkansas (45%), Mississippi (40%), Alabama (31%), and 
        California (29%). With current costs in these states up to 
        $3,300 per bed, it won't take long at these annual trend rates 
        to reach Florida level loss costs.
 GL/PL claim costs have absorbed 20% ($3.78) of the $18.47 
        increase in the country wide average Medicaid reimbursement 
        rate from 1995 to 2000.
 Almost half of the total amount of claim costs paid for GL/PL 
        claims in the long-term care industry is going directly to 
        attorneys.

                                 ACCESS

    AHCA believes that a landslide of lawsuits and the associated 
insurance affordability and availability crisis endangers patient 
access to quality care. Access to care is at risk if insurance is not 
available or so expensive it is unobtainable. According to AON Risk 
Consultants, Inc., insurance markets have responded to this claim 
crisis by severely restricting their capacity to write long term care 
GL/PL insurance. Insurance companies continue to exit the marketplace 
and cannot provide coverage when faced with this magnitude of losses, 
explosion in growth of claims, and extreme unpredictability of results. 
Some states have laws that require long term care facilities to carry 
insurance as Florida now does. Facilities unable to obtain insurance as 
required by their states face a crisis in their ability to continue to 
serve patients.
    An alarming reality revealed by the AON report is Medicaid 
reimbursement increases are being offset by increasing costs of 
insurance premiums. Increased Medicaid funds as provided by Governors 
and state legislatures, were intended to help increase the quality of 
care for seniors in nursing homes, but instead the new funds are 
substantially consumed by rising insurance costs. Critical health care 
dollars are being diverted out of patient care for the nation's poorest 
and most vulnerable seniors. We ask that you take steps to maintain the 
funding that Congress and the states' intended for quality long-term 
care for seniors.
    Additionally, we ask that you consider additional safeguards for 
long-term care including limiting the evidentiary use of documents 
designed for ensuring Medicare and Medicaid compliance, limiting the 
use of self-reported data used to improve care, and specifically 
codifying under the law the extension of these legal protections to 
assisted living settings.
    AHCA and NCAL again commend Chairman Bilirakis and the Energy and 
Commerce Health Subcommittee for examining this issue and its impact on 
the frail elderly and the disabled who rely on long-term care.
    The following letter is from a patient of a nursing home in 
Tavernier, Florida:

                                  Margaret Limerick
                    48 High Point Road, Tavernier, FL 33040
                                                      July 17, 2001
The Honorable Mike Bilirakis
Chairman, Health Subcommittee
House Committee on Energy and Commerce
Room 2125 Rayburn House Office Building
Washington, DC 20515
    Dear Chairman Bilirakis: My name is Margaret Limerick but my 
friends call me Louise, please feel free to call me Louise. I live in 
Plantation Key Convalescent Center in Tavernier, FL for almost a year 
now. In my life-time, I have been married twice, have a wonderful 
daughter Bonnie who I am very close with. Have a super granddaughter 
who is an airline pilot for American Airlines. I graduated from High 
School and attended trade school. I worked in a Physicians office and 
as a travel agent. I loved my travel agent job and to travel myself. I 
had great opportunities after WWII. Our company started the first 
Travel Agencies in Cuba, Bahamas, and Miami. I thoroughly enjoyed when 
I ``island hopped'' with tours of 20-25 people and acted as their tour 
guide. It was a great opportunity to meet so many different people. I 
treasure all of those memories and would be glad to tell you more. I 
was born in West Virginia and grew up in Virginia, but have enjoyed the 
Florida key for some time now. Although I never planned on going to a 
skilled nursing facility (who does?) I needed one. Tracy Greene 
administrates my facility. I think she and her staff do a great job of 
making life not only a little easier for my family and I, but pleasant. 
If I had to need a nursing facility, this is the one for me!
    I count on my caregivers for support and care although I am lucky 
enough to do a lot for myself. Not all are as lucky as I am. I have 
heard about the number of lawsuits. With more comes increases in 
expenses and I am aware that insurance is really hard to get for this 
and other facilities. I wonder if it keeps going up that some 
facilities, will close and the residents might have to move. In my 
case, if this facility closed I would have to move at least an hour 
away to the next one at best. I see the time that some staff spend to 
address lawsuits (they make copies, and review, and sort, and mail, and 
call their attorney, etc.) and I have heard our home does not have as 
many as some. Lawsuits take important staff time away from the 
residents. I know that no one is perfect and maybe some times there are 
situations that have to be looked at. I can't quote these numbers but 
have seen the paper, TV spoken with our Administrator, Risk Manager, my 
family, etc. to learn this.
    I think that we live in a great Country, but wonder if people have 
forgotten that we who live here now are citizens, paid taxes, have 
lives, enjoy families, and so forth. I think that the answer is for our 
government to step in and deal with this problem today. I think our 
congress should pass legislation that will stop the large number of 
lawsuits today or we may not have enough facilities tomorrow. This 
worries me greatly, as I will soon be one of four generations when my 
granddaughter and her husband make me a great grandmother this August.
    I urge you Sir, please don't let us lose our home(s).
            Sincerely,
                                       Margaret ``Louise'' Limerick
                                 ______
                                 
       Prepared Statement of the American Osteopathic Association
    Chairman Bilirakis and Members of the Subcommittee, the American 
Osteopathic Association (AOA) and its 47,000 members nationwide 
appreciate the opportunity to submit comments on this issue. The AOA, 
like each group here today, is very concerned with the instability of 
the nation's professional liability insurance market, and the 
escalating premiums that have resulted. We agree with the Committee 
that excessive litigation is harming patients access to care.

                               BACKGROUND

    As you know Mr. Chairman, the medical liability insurance system 
has severe problems. Physicians, hospitals, and other health care 
providers face increases in their liability insurance coverage that 
range from 30% to 300%. Dramatic increases in jury awards have forced 
numerous liability insurance providers to no longer write policies in 
certain states or geographical areas. This trend makes it difficult for 
thousands of physicians, to secure liability insurance coverage. The 
dramatic increase in liability insurance premiums and lack of available 
coverage are forcing physicians around the country to make impossible 
decisions: do they limit the services they provide their patients; do 
they cease to perform certain high-risk procedures; do they move to a 
different state that has enacted real reforms, do they ``self-insure'' 
through bonds or lines of credit, or, do they simply close their 
practices? The AOA believes that physicians should not be forced to 
make these decisions. Furthermore, we believe that when physicians are 
forced to make these decisions, the patients that we serve suffer the 
greatest consequences.
    The current medical liability crisis is creating significant 
``access-to-care'' problems across the country. It is well documented 
that physicians in several states are being forced to limit services, 
move to neighboring states, or close their practices as a result of the 
medical liability crisis in their states. This departure of physicians 
threatens patient access to quality health care. Furthermore, since 
hospitals are also impacted, the problem is expanded, putting patient 
access to essential health care services at serious risk.
    It is important to note that this is not simply a ``specialist'' 
problem. The crisis has a devastating impact upon the nation's primary 
care providers, including family physicians such as myself. 
Additionally, if a rural or underserved community loses a primary care 
provider, the access to care issue is compounded since that community 
likely lost its only physician.
    Mr. Chairman, there are other entities facing severe problems as a 
result of this crisis. Our nation's osteopathic and allopathic medical 
schools, teaching hospitals, and teaching clinics also face dramatic 
increases in their liability insurance premiums. A majority of our 19 
colleges of osteopathic medicine and our teaching programs have 
experienced dramatic increases in premiums.
    As you know, medical schools and teaching institutions are 
essential elements of our health care delivery system. Not only do they 
educate and train future physicians, they also provide essential health 
care services to indigent patients. When medical schools and teaching 
hospitals are forced to increase spending on their medical liability 
coverage, they must find budget offsets. In an effort to reduce overall 
spending, they curtail spending on academic programs and/or limit 
services to patients. This type of action not only damages the 
educational process, but it also greatly limits access to health care 
for our most vulnerable citizens.

                              THE PROBLEM

    Statistics and history allow us to understand that the professional 
liability insurance crisis begins when physicians in a state or region 
face limited availability of professional liability insurance coverage. 
Availability problems typically originate when insurance companies 
refuse to provide coverage to physicians in certain states or 
geographic areas, leave the medical liability market, or become 
insolvent. A major factor in an insurance company's decision to write 
policies in a particular state is the stability of that state's tort 
system. States that face the worst availability problems are the same 
states that have seen dramatic increases in the number and severity of 
jury awards in the past few years. Jury awards have skyrocketed in the 
past 10 years. A report by Jury Verdict Research demonstrates that jury 
awards and settlements doubled from 1995 to 2000. The median award in 
1995 was $500,000. Five short years later it was over $1 million and 
the upward spiral in jury awards continues.
    Affordability is a byproduct of availability. With fewer and fewer 
insurance companies willing to write policies, physicians must pay more 
for coverage. Companies that do elect to provide coverage do so at much 
higher prices. A multi-specialty practice in Boca Raton was recently 
informed that its insurance premiums, currently $80,000 per year, would 
rise to $2.5 million--an increase of over 3,000 percent. A radiologist 
in Southeast Florida who specializes in the reading of mammograms was 
recently informed that his premiums would increase from $30,000 to 
$120,000.
    The final phase is risk-management. In an effort to obtain 
affordable coverage, physicians are forced to conduct risk assessments 
of their practices. As a result of these assessments, physicians limit 
services and eliminate high-risk procedures in an effort to secure 
affordable premiums. In many cases, physicians are unable to find a 
company willing to underwrite a policy or provide affordable coverage. 
The only recourse is to close their practices or move to a different 
state.

                                SOLUTION

    Mr. Chairman, the AOA is committed to quality health care and 
improving patient safety. We fully support initiatives that seek to 
decrease medical errors and adverse events. Programs of continuing 
medical education, the Healthcare Facilities Accreditation Program that 
works to enhance and enforce quality standards at all hospitals in 
which osteopathic medicine is practiced, along with other initiatives 
designed to improve quality and safety of care demonstrate this 
commitment. We will continue these efforts that begin in our 
osteopathic medical school and continue throughout our member's 
careers.
    The AOA recognizes that in a small percentage of cases, injuries 
due to negligence do occur. We also recognize that these injuries can 
have devastating impact upon the patients and their families. The AOA 
fully supports an individual's right to seek fair compensation when 
injured as a result of substandard care. The AOA fully supports 
patients receiving appropriate reimbursement for ``economic'' losses, 
including current and future medical expenses, lost wages, and other 
economic factors. Unfortunately, our medical liability litigation 
system is ineffective in making a patient whole. Recent studies suggest 
that less than 50 cents of every dollar awarded goes to the injured 
patient.
    Comprehensive medical liability insurance reform legislation must 
be passed this year. This issue, if left uncorrected, will have 
significant and devastating consequences into the foreseeable future.
    The AOA strongly supports the ``Help, Efficient, Accessible, Low-
Cost, Timely, Health Care Act of 2002'' (H.R. 4600). We urge Congress 
to pass this bipartisan legislation now. H.R. 4600 is based on the 
health care liability reforms enacted in California under the Medical 
Injury Compensation Reform Act (MICRA) of 1975.
    For over 25 years, MICRA has demonstrated that patients' rights can 
be protected at the same time that medical liability costs are kept 
stable. A recent study shows the impact of the MICRA laws on medical 
liability premiums. Premiums in 2002 for a family physician in Los 
Angeles County, California are approximately $12,000. Premiums for a 
family physician in Dade County, Florida are approximately $52,000. 
This trend is consistent across all specialties and subspecialties. Mr. 
Chairman, we believe the only explanation for this dramatic difference 
in premiums is the simple fact that California has meaningful medical 
liability laws.
    The AOA, through its Council on Federal Health Programs, endorsed 
six basic principles that we believe, when enacted together, will 
stabilize the medical malpractice insurance market and ensure patients 
have access to health care without limiting injured patients access to 
compensation. Each of these provisions is included in the HEALTH Act. 
The AOA endorsed principles are: a uniform statute of limitations, a 
cap on non-economic damages, collateral source payment offsets, 
periodic payment of future damages, joint and several liability 
reforms, limitation of plaintiff attorney contingency fees.
    The AOA is not alone in its support for medical liability insurance 
reforms. Seventy-five percent of Americans questioned in a new Wirthlin 
Worldwide survey believe that excess litigation has a detrimental 
effect on our health care system. Conducted for the Health Care 
Liability Alliance (HCLA), of which AOA is a member, the survey shows 
that 71 percent of Americans agree that a main reason health care costs 
are rising is because of medical liability lawsuits, 78 percent say 
they are concerned about access to care being affected because doctors 
are leaving their practices due to rising liability costs, and 73 
percent support reasonable limits on awards for ``pain and suffering'' 
in medical liability lawsuits. A majority of Americans support common 
sense medical liability reforms.

                               CONCLUSION

    Without effective reforms, our medical liability litigation system 
will continue to destabilize the medical liability insurance market, 
increase health care costs, and limit patients' access to quality 
health care.
    I feel it also important to highlight other factors that 
contribute, on a secondary level, to this issue. We are all aware that 
reimbursements to physicians by third party payers, Medicare, Medicaid, 
and other entities are decreasing or have been ``flat'' for a number of 
years. Although we firmly believe the liability crisis is independent 
of the reimbursement issue, we do believe that they jointly contribute 
to a decrease in access for our patients. Physicians can no longer 
afford to offer care at dramatically reduced prices and, as a result, 
they are no longer accepting Medicaid and/or Medicare patients.
    The AOA appreciates the leadership you and other Members of the 
Committee demonstrated in June by approving the ``Medicare 
Modernization and Prescription Drug Act of 2002'' (H.R. 4954). That 
legislation takes initial steps to restore reimbursements to physicians 
and hospitals, and the AOA appreciates your efforts.
    We also feel that we must address the role of insurance companies 
in the current crisis. We understand that the insurance industry has 
made choices to leave the medical liability market based upon out-of-
control court systems and the escalating payments awarded by juries in 
medical liability cases. We also recognize that there is a growing 
sentiment to examine the industry with eye to systemic change. The AOA 
welcomes any ideas or solutions to the current crisis that promise to 
increase the availability of companies willing to write policies and 
decrease the cost of medical liability insurance for our members. We 
believe that this will guarantee patients continued access to quality 
medical care. We also must stress that we do not view insurance reform 
as a replacement for meaningful tort reforms. Tort reforms must be 
approved and if Congress feels that there is a need to address the 
insurance industry, it should be in addition to the approval of H.R. 
4600.
    The ``litigious environment'' surrounding physicians will continue 
to lead them to the practice of defensive medicine in an effort to 
eliminate future lawsuits. This type of behavior only increases the 
cost of health care for the patient and our society.
    Physicians, hospitals, nursing homes, medical schools, and patients 
across the country realize that the current medical liability situation 
is unacceptable. Unless the escalating costs of the current medical 
liability system are addressed at a national level, patients in many 
states will be forced to deal with a shortage of health care providers. 
The HEALTH Act would provide the same reforms on the national level 
that have brought stability to states that have enacted similar 
reforms.
    By passing the HEALTH Act, Congress can increase access to medical 
services, eliminate the practice of defensive medicine, improve the 
patient-physician relationship, improve patient safety, and slow the 
wasteful use of health care dollars.
    The AOA and our members stand ready to work with you, Mr. 
Greenwood, and all Members of Congress to ensure that osteopathic 
physicians can continue to provide high quality care to our patients 
across the nation.
                                 ______
                                 
   Prepared Statement of the American Society for Clinical Pathology

    On behalf of the 151,000 pathologists, clinical scientists, medical 
technologists and technicians represented by the American Society for 
Clinical Pathology, thank you for the opportunity to submit a statement 
for the hearing record on the medical liability system and its impact 
on access to health care.
    As an organization representing the pathology and laboratory 
medicine team, we are involved in many aspects of the health care 
system, including cancer screening. We are concerned over the 16,000 
new cases of cervical cancer that are diagnosed annually. 
Unfortunately, approximately 4,800 women die from cervical cancer each 
year.
    More women (80%) die of cervical cancer because they have never had 
a Pap smear or they have not had a Pap smear in the last five years 
than those that die of a misread Pap smear. The Pap smear is directly 
attributable to a 70% decline in deaths due to cervical cancer in the 
last 50 years. With annual screening, the chance of developing cervical 
cancer can be reduced to less than 1%.
    Pap smears have an irreducible false negative rate (10%-40%) due to 
sampling errors on the part of health care providers and screening 
errors occurring in laboratories. According to a March 1997 report in 
the Archives of Pathology and Laboratory Medicine, the continued 
availability of Pap cancer screening test is threatened by lawsuits 
because the legal system demands a zero error rate which is 
mathematically unachievable even in the most competent professional 
hands.
    Changes must be made to the current liability system so that 
patients continue to have access to critical tests, such as the Pap 
smear. We believe the Help Efficient, Accessible, Low Cost, Timely 
Health Care Act of 2002, or ``HEALTH'' Act, will assist in taming the 
growing concern over the professional liability crisis in this country 
and ultimately improve patient access to care.
                                 ______
                                 
                      American Society of Anesthesiologists
                                                      July 17, 2002
The Honorable Michael Bilirakis, Chairman
Subcommittee on Health
Committee on Energy and Commerce
2125 Rayburn Building
Washington, D.C. 20515
    Dear Chairman Bilirakis: I write on behalf of the American Society 
of Anesthesiologists (ASA) to thank you for having scheduled today's 
oversight hearing on health care litigation reform. ASA is a national 
medical specialty organization of some 37,000 physicians or other 
scientists engaged or specially interested in the practice of 
anesthesiology.
    A study released by the Institute of Medicine in December 1999 
refers repeatedly to the specialty of anesthesiology as having assumed 
a patient safety leadership role over the past two decades. Since the 
late 1970s, this specialty has achieved a 50-fold decrease in 
anesthesia mortality, from about one death in every 5,000 anesthetics 
to less than one death in 250,000 anesthetics. In ASA's judgment, this 
radically improved mortality rate was principally the result of a 
multifaceted effort by ASA, at a total approximate cost of $15 million. 
The purpose of this effort was:

 bto determine the causes of adverse anesthesia-related events,
 to focus the attention of anesthesia providers on those causes 
        and the ways in which to avoid them,
 to establish national practice parameters designed to raise 
        the quality of anesthesia care in all locations,
 to foster continuing research on additional means to improve 
        patient safety, and
 to insist that nonphysician anesthesia providers be supervised 
        by a physician.
    A major byproduct of this ASA patient safety initiative has been, 
until the very recent past, a significant decline or stabilization in 
the cost to anesthesiologists of professional liability insurance. As 
the risks attendant upon anesthesia care declined, so also did the cost 
of professional liability insurance for members of our specialty.
    Regrettably, this pattern of declining or stable liability premiums 
has now ended, and members of our specialty are now experiencing 
radically escalating premiums in most states--and indeed, as widely 
reported, our members in a number of states have this year encountered 
extreme difficulty in obtaining any insurance coverage at all. We 
believe this state of affairs is in part attributable to changes in 
reserve and investment policies of professional liability insurers, but 
without question it is equally do to the explosion, both in size and 
frequency, of professional liability awards in general.
    ASA firmly believes that any patient injured as a result of the 
delivery of substandard medical care is entitled to be fairly 
compensated for his or her loss. The difficulty, however, is that under 
the laws of many states, the extent of an injured patient's loss is 
simply unrestrained by common sense or any reasonable measure of actual 
loss.
    For this reason, although ASA will continue aggressively to pursue 
its successful patient safety initiatives, ASA has joined other medical 
organizations in supporting the Help Efficient Accessible Low-cost 
Timely Healthcare Act of 2002 (HEALTH) (H.R. 4600) introduced by Mr. 
Greenwood, a member of this Subcommittee. ASA believes that passage of 
this proposed legislation represents the one true hope at the federal 
level for bringing some semblance of sanity back to the medical 
liability insurance scene.
    Again, we are grateful to you for shedding light on this important 
issue through the scheduling of these hearings, and to Mr. Greenwood 
for his authorship of the HEALTH bill.
            Sincerely,
                                      Barry M. Glazer, M.D.
                                                          President
                                 ______
                                 
                                    Robin A. Bleier
                     P.O. Box 1116, Crystal Beach, FL 34681
                                                      July 19, 2002
The Honorable Mike Bilirakis
Chairman, Health Subcommittee
House Committee on Energy and Commerce
Room 2125 Rayburn House Office Building
Washington, DC 20515
    Dear Chairman Bilirakis: Thank you sir for taking the time to read 
my letter. My name is Robin Bleier. I have worked in health care in 
some way shape or form since 1982 (virtually half my life). I am 
writing this letter as for the first time in my career I am afraid of 
the future for those entrusted in our care. Although we do not know 
each other personally I have worked with Dr. Bilirakis at St, Mark 
Village in Palm Harbor in the mid 90's as a former Director's of 
Clinical Services. I stand for now what I did then, quality care and 
services that I would want my family member to have. I am writing you 
for help to stop this runaway train before it becomes to late.
    I see the ``liability crisis''' as the pivotal problem. Obviously 
legal is tied to perception of the public. The current state of legal/
insurance affairs is amazing not only me but also my professional 
counterparts in this and other states. The company I serve is a small 
one. We have only five SNFs and a hospital organization. We care for 
and employee approximately 1200 people. I serve as the Chief Operating 
Officer but started in the field as a nursing assistant and love my 
roots of care giving. To this day, I find time weekly to provide some 
kind of physical and or psychosocial assistance to some of our 
patients/residents to assure my connection to people is not lost so 
that our processes and system reflect this.
    The time we spend addressing legal issues is out of proportion and 
getting steeper by the week. Obviously time translates into labor, thus 
time with the patient/resident. In Florida, we have steep staffing 
requirements. In one sense the government demands we have more nursing 
staff. The public and advocacy groups saw as good. But the time that 
the legal efforts require takes some of that back. The time facility 
that administrative staff and corporate staff spend away from the 
patient/resident (to pull, review, copy, records, just to start) is 
huge. I can not see how this helps improve ``quality'' patient/resident 
care, services, and outcomes. I think we all know that perceptions are 
reality. When JACHO surveys a hospital they receives a report card 
after the visit. Often the score is 90% or more. That means up to 10% 
was not acceptable. The public sees 90% as an ``A'' and of course 
``A's'' are good. In the SNF world we get a CMS 2567. This is a 
deficiency report and it says that right on it. Deficiencies are 
negative thus ``bad''. Some facilities get very few and low level 
deficiencies assigned to them. Who wants to be bad and who wants to buy 
bad things?
    In closing, I think that we all need to realize that punitive 
action does not result in QUALITY and that should be what we all want. 
Quality is different for all but costs money to have. Please help my 
patients/resident. Please stop this runaway train!
            Very Sincerely Yours,
                               Robin A. Bleier, RN, CLC, CDON, HCRM
                                 ______
                                 
 Prepared Statement of the National Medical Liability Reform Coalition

    Chairman Bilirakis, Ranking Member Brown, members of the 
subcommittee, the National Medical Liability Reform Coalition 
appreciates this opportunity to submit for the hearing record a 
statement noting how excessive litigation negatively impacts patients' 
access to health care.
    The National Medical Liability Reform Coalition (NMLRC) is an 
alliance of associations representing nurses, advanced practice nurses, 
physicians, hospitals, health plans, long-term care providers, and 
other parties dedicated to improving the nation's system for resolving 
healthcare liability claims.
    There is a growing concern that the healthcare liability crisis in 
this country is compromising patient access to care. The goals of the 
system are to fairly, expeditiously, and cost-effectively compensate 
injured patients and deter unsafe practices. Unfortunately, the current 
system does not accomplish these goals.
    Limitless liability negatively affects access to health care. 
According to the Mississippi State Medical Society, 90 percent of the 
obstetricians in Mississippi and 75 percent of the general, orthopedic 
and emergency surgeons have been sued. Every single neurologist in 
Mississippi with more than ten years of experience has been sued. As a 
result, few Mississippi towns under 20,000 residents have a physician 
who will deliver babies.
    The Institute of Medicine issued a report entitled, ``Medical 
Professional Liability and the Delivery of Obstetrical Care,'' in which 
it recommended alternatives to the current tort system. In the mid-70s 
through the mid-80s, the link between diminished access to medical care 
for patients and the rise in liability premiums was clear. A strong 
economy and stock market held this link in abeyance through most of the 
1990s, but this complex link is reemerging as a health care access 
problem--especially in rural areas and especially for those on 
Medicaid. The National Commission to Prevent Infant Mortality stated 
over a decade ago that there is a link between physicians dropping 
pregnancy-related care because they could no longer afford the 
professional liability insurance required to provide this service and a 
loss of access to medical care for women.
    Reports from across the country indicate that access to medical 
care is affected by the healthcare liability crisis, including the 
closing of trauma centers. The Associated Press reported on July 13, 
2002, that Nevada's only top-level trauma center, the University 
Medical Center in Las Vegas, reopened 10 days after it shut down 
because of soaring malpractice insurance rates. ``The county-run trauma 
center closed July 3 after all but one of the medical center's 58 
orthopedic doctors resigned because they said they couldn't afford 
rising malpractice insurance premiums. Physicians say some medical 
malpractice insurance premiums have jumped from $40,000 to $200,000 
annually. To put the trauma center back in business, 10 to 15 private 
practice orthopedic surgeons agreed to become Clark County employees 
for 45 days, meaning they will be covered by the hospital's $50,000 
liability cap.''' The Governor of Nevada is expected to call a special 
session of the legislature by the end of July to address this problem.
    The Los Angeles Times reported, ``Already, specialists are becoming 
harder to find around the country and trauma centers that treat life-
threatening emergencies are closing.'' Other major news outlets, such 
as ABC and CBS, are reporting similar findings.
    For the past 11 years, Medical Liability Monitor has annually 
surveyed underwriters for the premium rates for general surgery and 
obstetrics-gynecology. According to the editor, Carol Golin, because of 
rapidly rising insurance premiums, this is the first year in which the 
newsletter will conduct a second survey (USA Today, December 4, 2001, 
Soaring Malpractice Premiums Stun Many Doctors). According to that 
survey, some states have experienced unusually large liability 
insurance rate increases: Florida, Mississippi, Ohio, Pennsylvania, 
Tennessee, Texas, West Virginia. These premium increases are leading to 
the closing of physician practices and health care facilities in these 
states. In turn, patients who live in smaller or isolated communities 
in these states are the first to feel the loss of a physician's office 
or nursing home.
    Additionally, AON Risk Consultants, Inc. performed an actuarial 
analysis of the trends in general liability/professional liability for 
nursing homes. The study found that the liability costs per nursing 
home bed have increased at an annual rate of 24% a year from $240 in 
1990 to $2360 in 2001. Claim costs have absorbed 20% of the Medicaid 
reimbursement increase nursing homes have received since 1995. This 
shows dollars earmarked for patient care are instead offset to pay for 
increased liability insurance premiums.
    As of January 2002, major medical liability insurance underwriters, 
Frontier, St. Paul Global Health Care, PHICO and Reliance, have all 
left the market or have become insolvent. ``In 2001, eight states saw 
two or more liability insurers raise rates by at least 30 percent last 
year. Physicians in more than a dozen states saw one or more insurers 
take a 25 percent or higher rate increase.'' (AMA News, January 7, 
2002, Professional Liability Insurance Rates Go Up; Doctors Go Away) 
Anticipated percentage increases range from the low to upper double 
digits for those companies that continue to write this insurance 
product.
    Some states are recognizing the link between high professional 
liability insurance premiums and the resulting loss of access to 
medical care. Pennsylvania's Attorney General, Mike Fisher, sent a 
letter to Chief Justice Stephan Zappala of the Pennsylvania Supreme 
Court in which he wrote,
        ``Pennsylvania is facing a potential health care crisis due to 
        the unaffordability and unavailability of medical professional 
        liability insurance. Insurers have requested increases for 2002 
        as high as 20 percent on the heels of 20 to 60 percent hikes in 
        2001 . . . In recent months, two of the states largest insurers 
        stopped issuing medical malpractice insurance. Doctors are 
        retiring early, relocating their offices to neighboring states 
        or discontinuing their practices. Hospitals are faced with the 
        possibility of closing trauma units. Perhaps the most important 
        consequence is the rising cost of health for all 
        Pennsylvanians.''
    Pennsylvania is not alone. For example, according to the 
Mississippi State Medical Society, premiums for pregnancy-related care 
liability insurance have risen from 20 percent to 400 percent. 
According to a Washington Post article, November 23, 2001, ``Waldemar 
`Lanny' Prichard, [a family physician in Indianola, MS] said he would 
stop delivering babies next year unless he gets a break on his 
malpractice insurance bill . . . Prichard's premium for the coming 
year: $70,000. His gross salary last year: $72,000.'' The article goes 
on to cite the lack of physicians willing to deliver babies in rural 
Mississippi. ``Three of six doctors in Cleveland, MS who deliver babies 
ended that part of their practice in October because of the increase in 
premiums. Greenwood (Mississippi) soon will go from four to two. Yazoo 
City, which has 145,550 residents, has no one practicing obstetrics.''
    In Florida, 40 medical liability companies were writing medical 
liability insurance five years ago, today there are six companies left 
and two of those companies will not accept new applications. According 
to the American Academy of Family Physicians, family physicians are 
experiencing increases of medical liability insurance rates anywhere 
from 35 percent up to 300 percent based on location, scope of practice, 
and prior claims.
    In the early 1970s, a medical liability insurance crisis gripped 
California. Liability premiums soared more than 300 percent because of 
more frequent and severe liability claims and larger jury awards. Many 
physicians--including high-risk specialties such as obstetrics and 
neurosurgery--were forced to close their doors, either unable to obtain 
insurance or unable to afford inflated rates. In 1975, California 
enacted the Medical Injury Reform Act (MICRA), a comprehensive 
legislative package of tort reforms that addressed this concern.
    As a result, California's patients and physicians are largely 
unaffected by national increases in insurance rates. While U.S. 
premiums increased 505% from 1976 to 1999, California premiums 
increased only 168%. According to the Doctors' Company, medical 
liability lawsuits in California settle in 1.8 years. The same lawsuits 
in states without limits on non-economic damages settle in an average 
of 2.4 years, or 33% longer.
    To achieve health care access, NMLRC believes that Congress should 
enact a package of effective tort reforms, similar to California's 
MICRA, including:

 limit on pain and suffering (non-economic) awards;
 periodic payment of future damages;
 elimination of double payment of awards;
 a reasonable statute of limitations;
 a sliding scale for contingency fees; and
 proportionate liability among all parties.
    These reforms, which are embodied in HR 4600, the Help Efficient, 
Accessible, Low Cost, Timely Health Care Act of 2002, will meet the 
intended goals of the system by allowing greater access to care, 
adequately compensating injured patients, and allowing quicker 
resolutions.
    Again, thank you for the opportunity to share these views.

          National Medical Liability Reform Coalition Members
American Academy of Dermatology Association; American Academy of Facial 
Plastic and Reconstructive Surgery; American Academy of Family 
Physicians; American Academy of Ophthalmology; American Academy of 
Otolaryngology--Head and Neck Surgery; American Academy of Pediatrics; 
American Association of Blood Banks; American Association of Health 
Plans; American Association of Homes--and Services for the Aging; 
American Association of Neurological Surgeons; American Association of 
Nurse Anesthetists; American Association of Orthopaedic Surgeons; 
American College of Cardiology; American College of Nurse-Midwives; 
American College of Obstetricians and Gynecologists; American College 
of Osteopathic Emergency Physicians; American College of Osteopathic 
Family Physicians; American College of Physicians--American Society of 
Internal Medicine; American College of Radiology; American Dental 
Association; American Gastroenterological Association; American Health 
Care Association; American Insurance Association; American Medical 
Group Association; American Osteopathic Association; American Society 
for Clinical Pathology; American Society for Reproductive Medicine; 
American Tort Reform Association; American Urological Association; 
Cleveland Clinic; Congress of Neurological Surgeons; Healthcare 
Leadership Council; Hospital & Healthsystem Association of 
Pennsylvania; Medical Group Management Association; and VHA Inc.
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