    [House Hearing, 108 Congress]
    [From the U.S. Government Publishing Office]

                     HELP EFFICIENT, ACCESSIBLE, LOW-COST,
                     TIMELY HEALTHCARE (HEALTH) ACT OF 2003
    =======================================================================

                                    HEARING

                                   BEFORE THE

                           COMMITTEE ON THE JUDICIARY
                            HOUSE OF REPRESENTATIVES

                          ONE HUNDRED EIGHTH CONGRESS

                                 FIRST SESSION

                                       ON

                                     H.R. 5

                                   __________

                                 MARCH 4, 2003

                                   __________

                                  Serial No. 3

                                   __________

             Printed for the use of the Committee on the Judiciary

        Available via the World Wide Web: http://www.house.gov/judiciary

                                      _______

                            U.S. GOVERNMENT PRINTING OFFICE

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                           COMMITTEE ON THE JUDICIARY

                F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman
    HENRY J. HYDE, Illinois              JOHN CONYERS, Jr., Michigan
    HOWARD COBLE, North Carolina         HOWARD L. BERMAN, California
    LAMAR SMITH, Texas                   RICK BOUCHER, Virginia
    ELTON GALLEGLY, California           JERROLD NADLER, New York
    BOB GOODLATTE, Virginia              ROBERT C. SCOTT, Virginia
    STEVE CHABOT, Ohio                   MELVIN L. WATT, North Carolina
    WILLIAM L. JENKINS, Tennessee        ZOE LOFGREN, California
    CHRIS CANNON, Utah                   SHEILA JACKSON LEE, Texas
    SPENCER BACHUS, Alabama              MAXINE WATERS, California
    JOHN N. HOSTETTLER, Indiana          MARTIN T. MEEHAN, Massachusetts
    MARK GREEN, Wisconsin                WILLIAM D. DELAHUNT, Massachusetts
    RIC KELLER, Florida                  ROBERT WEXLER, Florida
    MELISSA A. HART, Pennsylvania        TAMMY BALDWIN, Wisconsin
    JEFF FLAKE, Arizona                  ANTHONY D. WEINER, New York
    MIKE PENCE, Indiana                  ADAM B. SCHIFF, California
    J. RANDY FORBES, Virginia            LINDA T. SANCHEZ, California
    STEVE KING, Iowa
    JOHN R. CARTER, Texas
    TOM FEENEY, Florida
    MARSHA BLACKBURN, Tennessee

                 Philip G. Kiko, Chief of Staff-General Counsel
                   Perry H. Apelbaum, Minority Chief Counsel

                                C O N T E N T S

                                  ----------

                                 MARCH 4, 2003

                               OPENING STATEMENT

                                                                       Page
    The Honorable Lamar Smith, a Representative in Congress From the
      State of Texas, and Chairman, Subcommittee on Courts, the
      Internet, and Intellectual Property............................     1
    The Honorable John Conyers, Jr., a Representative in Congress
      From the State of Michigan, and Ranking Member, Committee on
      the Judiciary..................................................     3

                                   WITNESSES

    Mrs. Sherry Keller, Conyers, GA
      Oral Testimony.................................................     4
      Prepared Statement.............................................     6
    Mrs. Leanne Dyess, Member, Coalition for Affordable and Reliable
      Health Care
      Oral Testimony.................................................     7
      Prepared Statement.............................................     9
    Dr. Donald J. Palmisano, M.D., President-Elect, American Medical
      Association
      Oral Testimony.................................................    11
      Prepared Statement.............................................    12
    Mr. Lawrence E. Smarr, President, Physician Insurers Association
      of America
      Oral Testimony.................................................    38
      Prepared Statement.............................................    40

                                    APPENDIX
                  Statements Submitted for the Hearing Record

    Statement of the Alliance of Specialty Medicine..................   910
    Statement of Mary R. Grealy, President, Healthcare Leadership
      Council........................................................    98
    Statement of Frank Clemente, Director, Public Citizen's Congress
      Watch..........................................................    99
    Statement of the American College of Physicians-American Society
      of Internal Medicine...........................................   178
    Statement of the College of American Pathologists................   180
    Statement of the American Academy of Family Physicians...........   182
    Statement of Rodney C. Lester, President of the American
      Association of Nurse Anesthetists..............................   183
    Statement of the American College of Obstetricians and
      Gynecologists..................................................   186
    Statement of Mr. John McCormack, Pembroke, Massachusetts
      submitted by Representative Delahunt...........................   189

                   Material Submitted for the Hearing Record

    Department of Health and Human Services report: Addressing the
      New Health Care Crisis: Reforming the Medical Litigation System
      to Improve the quality of Health Care, March 3, 2003...........   192
    Ten questions and answers on H.R.5, the HEALTH Act...............   238
    Remarks by the President on Medical Liability Reform at the
      University of Scranton.........................................   246
    The Washington Times Editorial by Bruce Bartlett, ``Toll of
      Torrential Torts''.............................................   252
    The Washington Times Editorial by Gary J. Andres and Michael
      McKenna, ``Malpractice Remedies''..............................   253
    Letter from Premier to the Honorable Jim Greenwood, a
      Representative in Congress From the State of Pennsylvania, in
      support of H.R. 5..............................................   254

    HELP EFFICIENT, ACCESSIBLE, LOW-COST, TIMELY HEALTHCARE (HEALTH) ACT OF
                                      2003

                                  ----------

                             TUESDAY, MARCH 4, 2003

                      House of Representatives,
                                    Committee on the Judiciary,
                                                        Washington, DC.
        The Committee met, pursuant to call, at 9:20 a.m., in Room
    2141, Rayburn House Office Building, Hon. Lamar S. Smith
    presiding.
        Mr. Smith. [Presiding.] The Judiciary Committee will come
    to order. Today's hearing is on H.R. 5, the ``Help Efficient,
    Accessible, Low-Cost, Timely Healthcare Act of 2003'',
    otherwise known as the HEALTH Act.
        We will start with opening statements by me and by the
    Ranking Member, Mr. Conyers, and without objection, the opening
    statements of all other Members will be made part of the
    record.
        Mr. Smith. After the opening statements, we will look
    forward to hearing from our witnesses.
        I will recognize myself first for an opening statement.
        Today America faces a national insurance crisis that is
    destroying our health care system. Medical liability insurance
    rates have soared, causing major insurers either to drop their
    coverage or raise premiums to unaffordable levels.
        Doctors and other health care providers have been forced to
    abandon patients and practices, particularly in high-risk
    specialties such as emergency medicine, brain surgery,
    obstetrics and gynecology.
        Women are particularly hard hit, as are low-income
    individuals and rural residents. This is an intolerable problem
    that cries out for action.
        H.R. 5, the HEALTH Act, is modeled after California's
    quarter-century-old and highly successful health care
    litigation reforms. Like California's Medical Injury
    Compensation Reform Act, known as MICRA, the HEALTH Act
    includes a $250,000 cap on noneconomic damages, limits on the
    contingency fees lawyers can charge, and authorization for
    defendants to introduce evidence to prevent double recoveries.
        As a result of MICRA, since 1975 premiums paid in
    California increased only 167 percent, while premiums paid in
    the rest of the country increased 505 percent, or three times
    as much. What works in California might work across America.
        The Congressional Budget Office has found that, ``In States
    that currently do not have controls on malpractice torts, the
    HEALTH Act would significantly lower premiums for medical
    malpractice insurance from what they would otherwise be under
    current law.''
        If California's legal reforms were implemented nationwide,
    we could spend billions of dollars more annually on patient
    care.
        Nothing in the HEALTH Act limits in any way the award of
    economic damages. Economic damages include anything of value
    that can be quantified, including lost wages, lost services,
    medical costs, and the cost of pain-reducing drugs and lifetime
    rehabilitation care. Reasonable legal reforms, such as those in
    the HEALTH Act, still allow for very large multimillion-dollar
    awards to deserving victims. In just the last year, for
    example, an injured child in California received an award of
    $84 million, and a 30-year-old homemaker received an award of
    $12 million for economic damages.
        According to the Department of Health and Human Services,
    ``Unless a State has adopted limitations on noneconomic
    damages, the cost of these awards is paid by all other
    Americans through higher health care costs, higher health
    insurance premiums, higher taxes, reduced access to quality
    care, and threats to quality of care.''
        The American people understand this problem. A poll
    conducted in early February shows that 59 percent of Americans
    believe the crisis should be solved, either by reining in
    personal injury lawyers or by placing caps on the amounts
    juries can award. The obvious cause of skyrocketing medical
    liability premiums is escalating jury verdicts. The median
    malpractice jury award doubled between 1995 and 2000 from a
    half a million to $1 million, and that doesn't reflect the huge
    cost of cases that don't result in jury awards. In fact, 70
    percent of all medical malpractice claims result in no
    payments, because claims are either dismissed or withdrawn.
        The CEO of Methodist Children's Hospital in San Antonio,
    and also one of the only three pediatric neurosurgeons in the
    area, someone I met with just a few weeks ago, has seen his
    premiums increase from less than $20,000 to $85,000 over the
    last 10 years. He has been sued three times. In one case his
    only interaction with the person suing was that he stepped into
    her child's hospital room and asked how the child was doing.
    Each jury cleared him of any wrongdoing, and the total amount
    of time all three juries spent deliberating was less than 1
    hour. Of course, the doctor's insurance company did spend a
    great deal of time, money and effort on his defense.
        Another doctor from Texas, a family physician, was sued 12
    times in 13 years. All of the suits were dropped, but her
    insurance went up nearly 200 percent.
        An out-of control health care litigation system also costs
    taxpayers billions of dollars annually. As former Democratic
    Senator George McGovern has written, ``The legal fear drives
    doctors to prescribe medicines and order tests, even invasive
    procedures, that they feel are unnecessary. Reputable studies
    estimate that this defensive medicine squanders $50 billion a
    year, enough to provide medical care to millions of uninsured
    Americans.''
        As Representatives of the American people, Congress has a
    choice. Will we help solve the current health care crisis by
    passing the HEALTH Act?
        Now, that concludes my opening statement, and now I will
    recognize the gentleman from Michigan, Mr. Conyers, for his
    opening statement.
        Mr. Conyers. Thank you, Mr. Chairman. Good morning, Members
    and friends. I am happy to be here. We are confronted with a
    very important problem, and like many legislative problems, it
    depends on what perspective you are looking at; it depends on
    what experience you bring to the subject.
        So I would like to begin with an economic consideration.
    The reason malpractice insurance premiums are rising, the basic
    reason, is that investment income by insurance companies is
    plummeting. As we all know, insurers make their money, really,
    mostly from investment income. During years of high stock
    market returns and interest rates, malpractice premiums go
    down. When investment income decreases, and we are in the
    middle of a 4-year bear market, the industry responds by
    sharply increasing premiums and reducing coverage, creating a
    liability insurance crisis. This boom-bust cycle took place in
    the 1970's and 1980's, and it is happening again now.
        Another reason is that draconian laws capping damages do
    not reduce insurance premiums. A comparison of States that have
    enacted severe tort restrictions and those that have not, which
    was performed by the Center for Justice and Democracy, found no
    correlation between tort reform and insurance rates. Indeed,
    some of the resisting States experienced lower increases in
    insurance rates, while some States that enacted tort reforms
    experienced higher rate increases relative to the national
    trends.
        For example, last year's data showed that in the practice
    of internal medicine, States with caps on damages had higher
    premiums than States without caps. For general surgeons,
    insurance premiums were 2.3 percent higher in States with caps
    on damages. On average, malpractice premiums were no higher in
    the 27 States that have no limitation on malpractice damages
    than in the 23 States that do have such limits.
        Now, Mrs. Sherry Keller is here, so I am not going to tell
    you about her situation, but with this bill the big insurance
    companies are trying to convince us that the cause of
    skyrocketing medical malpractice premiums is trial lawyers. And
    they have really been bashed these last few years, haven't
    they?
        My colleagues, the reality is grossly negligent health care
    professionals unfortunately have more to do with the high
    awards than the lawyers. The reality is approximately 100,000
    people die each and every year from medical malpractice.
    Whatever the reasons for the anger the President has toward
    lawyers, and he is one, his proposal doesn't hurt lawyers
    nearly as much as it hurts innocent victims of medical
    malpractice. We will all be watching very carefully and
    listening to his remarks before the American Medical
    Association, which will come on shortly.
        I thank you for this opportunity, Mr. Chairman.
        Mr. Smith. Thank you, Mr. Conyers.
        I would like to thank all Members for their attendance
    today. This is an important subject, and we appreciate their
    interest and their presence, and also the interest shown by
    those who are in the audience today as well.
        Let's proceed to our witnesses, and our first witness is
    Sherry Keller. Mrs. Keller is here today to tell us how her
    experience with medical care left her severely injured.
        Our next witness is Leanne Dyess, from Vicksburg,
    Mississippi. She is here to testify about how this patient
    access crisis has affected the lives of herself and her family.
    Her husband Tony suffered from permanent brain injury because
    neurosurgeons near the site of the car accident had been priced
    out of the profession by unaffordable medical malpractice
    liability insurance rates.
        Our third witness is Donald J. Palmisano, who is a doctor
    and a lawyer, as well as the president-elect of the American
    Medical Association, which represents the Nation's physicians.
    Dr. Palmisano is a general and vascular surgeon from New
    Orleans, Louisiana, where he was selected recently as one of
    the top doctors in New Orleans. Dr. Palmisano is also on the
    board of directors of the National Patient Safety Foundation.
        Our final witness is Lawrence E. Smarr, President of the
    Physician Insurers Association of America. The Physician
    Insurers Association of America is a trade association of more
    than 60 medical professional liability companies owned and
    operated by doctors and dentists. Collectively these companies
    insure 60 percent of America's private practice physicians as
    well as dentists, hospitals and other health care providers.
        I thank you all for being with us here this morning. I need
    to alert you to the fact that testimony will be limited to 5
    minutes or less, if you want to summarize it, and we appreciate
    your participating today. As I mentioned a while ago, your
    complete statements will be made part of the record.
        Speaking of that, let me take care of one matter here.
    Without objection, I would also like to be made a part of the
    record a new Health and Human Services report on medical
    liability that was released yesterday, and two articles in The
    Washington Times from yesterday on the President's speech at
    the University of Scranton, in Pennsylvania on January 16th in
    regard to medical malpractice reforms, and also 10 questions
    and answers regarding the HEALTH Act. And without objection, so
    ordered.
        [The information referred to follows in the Appendix]
        Mr. Smith. The gentleman from Massachusetts.
        Mr. Delahunt. Thank you, Mr. Chairman. And before we begin,
    I would also like to submit for the record a statement by Mr.
    John McCormack of Pembroke, MA, who is a constituent of mine.
    In there he explains what happened to his daughter as a result
    of medical errors that had severe and profound consequences,
    not just resulting in her death, but for the entire family.
        Mr. Smith. Without objection, that will be made a part of
    the record as well, Mr. Delahunt. Thank you.
        [The information referred to follows in the Appendix]
        Mr. Smith. Let's begin. Mrs. Keller, if you will start,
    please.

                STATEMENT OF SHERRY KELLER, CONYERS, GA

        Mrs. Keller. Good day, ladies and gentlemen. I thank you
    for the opportunity to speak to you today. My name is Sherry
    Keller. I am a victim of medical malpractice, and I beg for
    your consideration of my story and the McConnell amendment.
        I come here at risk of my own best interests, but my
    commitment to this cause commands my heart to do so without any
    reservation. This is the issue, not the money. One week after a
    complete hysterectomy, the staples were removed from my
    incision site. That night the wound oozed, and upon
    notification to my doctor, she told me to come into the office
    so she could clean the wound.
        I was placed up on the gyno bed. She began to clean the
    wound, and when she did so, she pulled on it. And when she
    pulled on it, I opened up like a Ziplock bag, hip to hip. While
    I was now going to take a little bit more time than what she
    had planned, she left me there like that, in the interim, to
    see other patients, make a few phone calls. I had gone into
    shock, lost consciousness, and fell from the bed, hitting my
    head on the way down, C2 through C7 spinal cord injury, quite
    similar to that of actor Christopher Reeve or that killed Dale
    Earnhardt.
        I lost and regained consciousness at least five times on
    the floor of the doctor's office, in an effort to try to get
    out into the hallway, in order to be found. Making it out to
    the hallway, I called, ``Help me.'' the doctor and the nurses
    then scrambled, saw me laying there like that, naked from the
    waist down, my intestines hanging out, in severe shock. They
    picked me up from the hallway, and that is when I began
    screaming in pain and lost the use of my arms.
        My husband was called back from the waiting room; an
    argument between the two of them about whether or not I needed
    an ambulance. She wanted him to take me to the ER on his own,
    and he insisted that he could not handle me in that condition.
    An ambulance was called, but I was not even afforded a neck
    collar due to the doctor's orders of transport only.
        Patient care meant nothing. Doctor's power meant
    everything. Unbeknownst to me, she had called ahead to the ER
    and let them know that I was her patient, and she would take
    care of it.
        I was left in the ER for 2\1/2\ hours before she was able
    to get to the ER to dress my wound, my complaints of pain, the
    obvious contusion to my head ignored, arm function limited by
    that point, unable to stand completely on my own. I was just
    sore from the fall. Go home. I was sent home with a broken neck
    because of doctor power and doctor protocol. Patient care meant
    nothing.
        This is not to impugn all doctors. This is not to say all
    doctors are bad. I do not hold resentment toward all doctors.
    My neurosurgeon was a miracle worker. He saved me. But just as
    there are good and bad lawyers, good and bad policemen, there
    are good and bad doctors.
        Our bad doctors need to be held accountable. Just as
    President Bush has called for the executives of Enron to be
    held accountable, doctors need to be held accountable, and the
    only recourse I as a citizen have is our jury system. That is
    my right. That is the only right and the only venue I have to
    hold the physician accountable for the care and trust that we
    are conditioned to give them. Even in a doctor office visit
    they hold our lives in their hands, and far too often with far
    too cavalier an attitude.
        I had chosen to give up any form of a career in order to
    raise my children, both college scholarship award winners, both
    academically excelling very well, my younger is now straight
    A's, both contributing to this society. But because of my
    choice to bring in responsible members to society, my value
    through this, through the McConnell bill, will be nothing.
    Because I had no economic input, my value as a person is
    nothing. The only award, the only recourse, the only
    accountability I will have is through the pain and suffering.
        I have heard several Representatives mention a malpractice
    lawsuit is like winning the lottery. Well, I would like to ask
    any of you who would turn over a limb or a lung or a life for a
    lottery ticket. It is not a lottery. I am not in the position
    to win anything. I would gladly give back Bill Gates' money if
    I could trade it back for my spinal cord. No amount of
    compensation is going to pay me back for what I have lost, the
    ability for me to reach for this paper takes extraordinary
    effort; the ability to just go to the bathroom, gone. Things
    that we take--everyday movement, taken from me. I will never
    have the freedom a healthy body has; never the complete use of
    my arms, legs. I suffer every day, 24 hours a day. Every time I
    have to try to reach for something, the pain is excruciating.
    No amount of medicine can take the pain away. It can subside,
    but it is always there. In my dreams I suffer. I am awakened
    many times during the night because of problems in my spinal
    cord. I can't even sleep through the night.
        What kind of money is going to compensate that? None. But
    to say that $250,000 is more than enough is an insult. I now
    have to hire cleaning people, a driver to do basic errands, go
    to the bank. A 10-minute trip to the grocery store now takes 3
    hours, of which I have to hire somebody to do. I will have to
    do so forever. These are out-of-pocket expenses that would not
    be covered. All of the chores, the errands, gardening,
    landscaping, cleaning, you name it, and for the rest of my life
    I now have to hire somebody else to do it, and not only is it
    degrading, but it is coming out of my pocket.
        Mr. Smith. Mrs. Keller, thank you for your testimony.
        [The prepared statement of Mrs. Keller follows:]
                      Prepared Statement of Sherry Keller
        First, I want to thank Chairman Sensenbrenner and Congressman
    Conyers. I greatly appreciate the opportunity you have given me. My
    name is Sherry Keller and I am a victim of medical malpractice.
        I am 44 years old. I live with my husband in Conyers, Georgia, a
    suburb of Atlanta, and have two college-age sons. This is my story.
        About 4 years ago, I underwent a complete hysterectomy. The doctor
    failed to suture and staple the incision site, instead only stapling me
    shut. One week after the staples were removed, I noticed that one area
    of the wound was oozing. After reporting this to my doctor, I was
    called into her office the next day so she could clean the wound.
        Once there, she had me lie on the examination table. She pulled on
    the incision, and I opened up like a zip-lock bag, just as though I
    were in surgery. The doctor said she was going to call a wound care
    specialist and then left me alone for 35-45 minutes while she saw other
    patients and made personal calls to her home.
        I went into shock, lost consciousness and fell from the table,
    hitting my head on the counter on the way down, causing c2-c7 spinal
    cord injury similar to that sustained by actor Christopher Reeve and
    deceased race car legend Dale Earnhardt. I also suffered traumatic
    brain injury and a severe concussion.
        Eventually, after going in and out of consciousness at least 5
    times, drenched in sweat and with my guts hanging out, I was able to
    pull myself out into the hallway to get help. I was immediately picked
    up out of the hallway so that other patients wouldn't see me, causing
    me to lose all function in my arms.
        The doctor then began arguing with my husband about why he, not an
    ambulance, should take me to an emergency room. My husband finally
    prevailed, and the doctor called for an ambulance. When the ambulance
    came, I was not given a neck collar, because, as I later found out, the
    doctor had requested transport only and the EMS workers were required
    to follow her orders.
        After arriving at the emergency room, I was basically given no
    medical attention, because my doctor had instructed the ER that she
    would take care of me when she arrived at the hospital. Two and a half
    hours later, the doctor arrived, cleaned my wound and sent me home,
    explaining that any pain and soreness I was experiencing were caused by
    the fall. I was never given steroids, which could have reduced some of
    the swelling and prevented the damage from progressing. Once home, I
    kept falling down and could barely walk.
        Now, four years later, I am an incomplete quadriplegic. I will
    never have the freedom a healthy body has, never be able to use my arms
    for the simplest of tasks, never walk holding a child's hand, never
    explore and see the splendour of this country. Even a simple trip to
    the bathroom is now gone. Every day, each and every day, for the rest
    of my life.
        We, as victims, endure pain and suffering 24 hours a day, with
    physical pain that no amount of medicine can take away. Suffering comes
    even in sleep, in dreams and in one's physical state every day and
    every night. It will be so for the rest of my life, all at the hands of
    one negligent physician, whom we as a society are conditioned to trust.
        Far too cavalier an attitude within the medical ranks regarding
    public trust results in untold pain and suffering within the general
    public, to be lived constantly for our entire lives. The inability to
    reach, sit, anything and everything the average person takes for
    granted, also produces incalculable suffering. If pain and suffering
    cannot be measured, how can it possibly be capped?
        I gave my life to raising my 2 sons and taking care of my family. I
    feel I've contributed more to society by the choice I made. But under
    H.R. 5, my value is nothing. Despite the extent of my physical pain and
    suffering, which forced me to abandon my hopes of becoming a painter,
    the only compensation I would receive is $250,000. So when I hear
    doctors and legislators say that medical malpractice awards are like
    winning the lawsuit lottery, it really burns my butt.
        It is an outrage that victims of medical malpractice are to be
    trivialized for the profit margin of big business. In the shadow of
    Enron, where President Bush called for the accountability of all
    responsible, how can physicians not be held accountable for the extent
    to which their errors have devastated lives?
        Limiting compensation to victims while still fully protecting
    doctors is not only terribly unfair, it is immoral, outrageous and
    reeks of injustice. We are the innocent victims. To punish us a second
    time literally adds insult to injury.
        Doctors are meticulously trained to cure us, keep us alive and
    improve our quality of life. They take a solemn oath to ``do no harm.''
    It is a noble profession, a calling of sorts. We put our trust in
    doctors unlike any other profession. They are human. Mistakes are made,
    sometimes honest mistakes and sometimes blatantly incompetent ones.
    Mistakes cost lives, create medical nightmares and destroy the lives of
    victims and their families.
        The goal must be to reduce medical negligence. This can only happen
    if physicians are held accountable. Laws and proposals that increase
    the obstacles sick and injured patients face in the already difficult
    process of prevailing in court are the wrong way to respond to any
    medical malpractice insurance ``crisis.'' Tort restrictions only reduce
    the financial incentive of institutions like hospitals and HMOs to
    operate safely, when our objectives should be deterring unsafe and
    substandard medical practices while safeguarding patients' rights.
        Caps cannot be allowed, not in a great society like ours that bases
    itself on fairness and equality to all.
        Thank you for your time and consideration.

        Mr. Smith. Mrs. Dyess.

    STATEMENT OF LEANNE DYESS, MEMBER, COALITION FOR AFFORDABLE AND
                          RELIABLE HEALTH CARE

        Ms. Dyess. Chairman Smith, Ranking Member Conyers,
    distinguished Members of the House Judiciary Committee, it is
    an honor for me to sit here before you this morning to open up
    my life and the life of my family in an attempt to demonstrate
    how medical liability costs are hurting people across America.
        While others may talk in terms of economics and policy
    today, I want to speak to you from the heart. I want to share
    with you the life my two children and I are now forced to live
    because of a crisis in health care that I believe can be fixed.
    And when I leave and the lights are turned off and the
    television cameras go away, I want you and all America to know
    one thing, and that is this crisis isn't about insurance. It is
    not about doctors or even hospitals or personal injury lawyers.
    It is a crisis about individuals and their access to what I
    believe is otherwise the greatest health care in the world.
        Our story began on July 5 of last year when my husband Tony
    was returning from work in Gulfport, MI. We had started a new
    business. Tony was working hard, as I was. We were doing our
    best to build a life for our children, and their futures were
    filled with promise. Everything looked bright.
        Then in an instant everything changed. Tony was involved in
    a single-car accident. They suspect he may have fallen asleep,
    though we will never know. What we do know is that after
    removing him from the car, they rushed Tony to Garden Park
    Hospital in Gulfport. He had injuries and required immediate
    attention.
        Shortly thereafter, I received a phone call I pray no other
    wife will ever have to receive. I was informed of the accident
    and told the injuries were serious, but I cannot describe to
    you the panic that gave way to hopelessness when they told me,
    we don't have the specialists necessary to take care of him. We
    will have to airlift him to another hospital.
        I couldn't understand this. Gulfport is one of the fastest
    growing and most prosperous regions in Mississippi. Garden Park
    is a good hospital. Where were the specialists who could have
    taken care of my husband?
        Almost 6 hours passed before Tony was airlifted to
    University Medical Center, 6 hours for the damage to his brain
    to continue before they had a specialist capable of putting a
    shunt into the back of his head to relieve the pressure on the
    brain, 6 unforgettable hours that changed our life.
        Today Tony is permanently brain-damaged. He is mentally
    incompetent, unable to care for himself, unable to provide for
    his children, unable to live the vibrant, active and loving
    life he was living just moments before the accident.
        I could share with you the panic of a women suddenly forced
    into the role of both mother and father to her teenaged
    children, of a women whose life is suddenly caught in limbo,
    unable to move forward or backwards. I could tell you about a
    woman who now had to worry about the constant care of her
    husband, who had to make concessions she never thought she
    would have to make in order to be able to pay for his care and
    therapy.
        But to describe this would be to take us away from the most
    important point and value of what I have learned. Mr. Chairman,
    I have learned that there was no specialist on staff that night
    in Gulfport because rising medical liability costs had forced
    physicians in that community to abandon their practices. In
    that area, in that time, there was only one doctor who had the
    expertise to take care of Tony, and he was forced to cover
    multiple hospitals, stretching him thin and unable to care for
    everyone. Another doctor quit his practice just days before
    Tony was admitted because his insurance company terminated all
    of the medical liability policies nationwide. That doctor could
    not obtain affordable coverage. He couldn't practice. And on
    that hot night in July, my husband and our family drew the
    short straw.
        I have also learned that Mississippi is not unique, that
    this crisis rages in States all across America. It rages in
    Nevada where young expectant mothers cannot find OB-GYNs. It
    rages in Florida where children cannot find pediatric
    neurosurgeons. It rages in Pennsylvania, where the elderly who
    have come to depend on their orthopedic surgeons are being told
    that those trusted doctors are moving to States where
    practicing medicine is affordable and less risky.
        The real danger of this crisis is that it is not readily
    seen. It is like termites in the structure of a home. They get
    into the woodwork, but you cannot see the damage. The walls of
    the house remain beautiful, but you don't know what is going on
    beneath the surface, at least not for a season. Then one day
    you go to hang a picture or a shelf, and the whole wall comes
    down. Everything is destroyed.
        Before July 5, I was like most Americans, completely
    unaware that just below the surface of our Nation's health care
    delivery system serious damage was being done by excessive and
    frivolous litigation.
        Mr. Smith. Could I ask you to summarize the rest of your
    testimony?
        Ms. Dyess. In all of these cases, all across America, if
    you go somewhere, to an emergency room, you expect there to be
    a doctor there, all of us. We have to do whatever it takes,
    whatever it takes, to get your child some care, your parents,
    your grandparents, ourselves care when we need it. If we don't
    do something, down the road she might not have a doctor to take
    care of her, one that really does her the--like the
    neurosurgeon she was talking about. We might not have anybody
    to take care of us, any of us. We don't need to stand still.
        Mr. Smith. Thank you, Mrs. Dyess.
        [The prepared statement of Mrs. Dyess follows:]
                       Prepared Statement of Leanne Dyess
        Chairman Sensenbrenner, Ranking Member Conyers, distinguished
    members of the House Judiciary Committee:
        It's an honor for me to sit before you this afternoon--to open up
    my life, and the life of my family, in an attempt to demonstrate how
    medical liability costs are hurting people all across America. While
    others may talk in terms of economics and policy today, I want to speak
    from the heart.
        I want to share with you the life my two children and I are now
    forced to live because of a crisis in health care that I believe can be
    fixed. And when I leave and the lights turn off and the television
    cameras go away, I want you--and all America--to know one thing, and
    that is that this crisis is not about insurance. It's not about
    doctors, or hospitals, or even personal injury lawyers. It's a crisis
    about individuals and their access to what I believe is, otherwise, the
    greatest health care in the world.
        Our story began on July 5th of last year, when my husband Tony was
    returning from work in Gulfport, Mississippi. We had started a new
    business. Tony was working hard, as was I. We were doing our best to
    build a life for our children, and their futures were filled with
    promise. Everything looked bright. Then, in an instant, it changed.
    Tony was involved in a single car accident. They suspect he may have
    fallen asleep, though we'll never know.
        What we do know is that after removing him from the car, they
    rushed Tony to Garden Park hospital in Gulfport. He had head injuries
    and required immediate attention. Shortly thereafter, I received the
    telephone call that I pray no other wife will ever have to receive. I
    was informed of the accident and told that the injuries were serious.
    But I cannot describe to you the panic that gave way to hopelessness
    when they somberly said, ``We don't have the specialist necessary to
    take care of him. We need to airlift him to another hospital.''
        I couldn't understand this. Gulfport is one of the fastest growing
    and most prosperous regions of Mississippi. Garden Park is a good
    hospital. Where, I wondered, was the specialist--the specialist who
    could have taken care of my husband?
        Almost six hours passed before Tony was airlifted to the University
    Medical Center--six hours for the damage to his brain to continue
    before they had a specialist capable of putting a drain into his head
    to relieve the pressure on his brain--six unforgettable hours that
    changed our life.
        Today Tony is permanently brain damaged. He is mentally
    incompetent, unable to care for himself--unable to provide for his
    children--unable to live the vibrant, active and loving life he was
    living only moments before his accident.
        I could share with you the panic of a woman suddenly forced into
    the role of both mother and father to her teenage children--of a woman
    whose life is suddenly caught in limbo, unable to move forward or
    backward. I could tell you about a woman who now had to worry about the
    constant care of her husband, who had to make concessions she thought
    she'd never have to make to be able to pay for his therapy and care.
    But to describe this would be to take us away from the most important
    point and the value of what I learned.
        Chairman Sensenbrenner, I learned that there was no specialist on
    staff that night in Gulfport because rising medical liability costs had
    forced physicians in that community to abandon their practices. In that
    area, at that time, there was only one doctor who had the expertise to
    care for Tony and he was forced to cover multiple hospitals--stretched
    thin and unable to care for everyone. Another doctor had recently quit
    his practice just days before Tony was admitted because his insurance
    company terminated all of the medical liability policies nationwide.
    That doctor could not obtain affordable coverage. He could not
    practice. And on that hot night in July, my husband and our family drew
    the short straw.
        I have also learned that Mississippi is not unique, that this
    crisis rages in states all across America. It rages in Nevada, where
    young expectant mothers cannot find ob/gyns. It rages in Florida, where
    children cannot find pediatric neurosurgeons. And it rages in
    Pennsylvania, where the elderly who have come to depend on their
    orthopedic surgeons are being told that those trusted doctors are
    moving to states where practicing medicine is affordable and less
    risky.
        The real danger of this crisis is that it is not readily seen. It's
    insidious, like termites in the structure of a home. They get into the
    woodwork, but you cannot see the damage. The walls of the house remain
    beautiful. You don't know what's going on just beneath the surface. At
    least not for a season. Then, one day you go to hang a picture or shelf
    and the whole wall comes down; everything is destroyed. Before July
    5th, I was like most Americans, completely unaware that just below the
    surface of our nation's health care delivery system, serious damage was
    being done by excessive and frivolous litigation--litigation that was
    forcing liability costs beyond the ability of doctors to pay. I had
    heard about some of the frivolous cases and, of course, the awards that
    climbed into the hundreds of millions of dollars. And like most
    Americans I shook my head and said, ``Someone hit the lottery.''
        But I never asked, ``At what cost?'' I never asked, ``Who has to
    pay for those incredible awards?'' It is a tragedy when a medical
    mistake results in serious injury. But when that injury--often an
    accident or oversight by an otherwise skilled physician--is compounded
    by a lottery-like award, and that award along with others make it too
    expensive to practice medicine, there is a cost. And believe me, it's a
    terrible cost to pay.
        Like most Americans, I did not know the cost. I did not know the
    damage. You see, Mr. Chairman, it's not until your spouse needs a
    specialist, or you're the expectant mother who needs an ob/gyn, or it's
    your child who needs a pediatric neurosurgeon, that you realize the
    damage beneath the surface.
        From my perspective, sitting here today, this problem far exceeds
    any other challenge facing America's health care--even the challenge of
    the uninsured. My family had insurance when Tony was injured. We had
    good insurance. What we didn't have was a doctor. And now, no amount of
    money can relieve our pain and suffering. But knowing that others may
    not have to go through what we've gone through could go a long way
    toward helping us heal.
        Congressman Sensenbrenner, I know of your efforts to see America
    through this crisis. I know this is important to you, and that it's
    important to the President. I know of the priority Congress is placing
    upon doing something... and doing it now. Today, I pledge to you my
    complete support. It is my prayer that no woman--or anyone else--
    anywhere will ever have to go through what I've gone through, and what
    I continue to go through every day with my two beautiful children and a
    husband I dearly love.

        Mr. Smith. Dr. Palmisano.

       STATEMENT OF DONALD J. PALMISANO, M.D., PRESIDENT-ELECT,
                      AMERICAN MEDICAL ASSOCIATION

        Dr. Palmisano. Thank you, Mr. Chairman. Good morning. I am
    Donald Palmisano, president-elect of the American Medical
    Association, and a surgeon from New Orleans.
        The policy of the American Medical Association is decided
    through a democratic policymaking process involving physician
    delegates representing every State, nearly 100 national
    specialty societies, Federal service agencies and other group
    sections. AMA policy dictates support for national medical
    liability reform. My testimony represents this policy.
        So again, Mr. Chairman, thank you for inviting the AMA to
    participate in today's hearing. I want to express our gratitude
    to you and the other cosponsors of H.R. 5 for your efforts to
    bring reasonable reforms to our broken medical liability
    system.
        Mr. Chairman, you know that our health care system is
    facing a crisis when patients have to leave their State to
    receive urgent surgical care, or when a pregnant woman cannot
    find an OB-GYN physician to monitor her pregnancy and deliver
    her baby, or when community health centers have to reduce their
    services or close their doors because of liability insurance
    concerns.
        You know that our health care system is facing a crisis
    when efforts to improve patient safety and quality are stifled
    because of lawsuit fears. Escalating jury awards and the high
    costs of defending against lawsuits, even meritless suits, are
    causing medical liability insurance premiums to soar. Several
    recent Government and private sector reports referenced in our
    written testimony confirm this. Over the past 2 years, many
    physicians have been hit with medical liability premium
    increases of 25 percent to 400 percent, and reports show that
    the average jury award is reaching $3.5 million.
        The medical liability crisis is a growing national problem
    that affects more than just physicians and other health care
    professionals and institutions. The medical liability crisis
    has become a serious problem for patients, affecting their
    ability to access health care services that would otherwise be
    available to them, including services provided to Medicare and
    Medicaid patients. As medical liability insurance becomes
    unaffordable or unavailable, physicians are being forced to
    close their practices or drop vital services, seriously
    affecting patient access to care.
        There are now 18 States that are in crisis, up from 12
    States last year, and in many other States a crisis is looming.
    A key provision of H.R. 5 is a $250,000 limit on noneconomic
    damages.
        There is a direct and compelling Federal interest in
    reforming our outmoded medical liability system. According to
    estimates by HHS, excessive medical liability adds $47 billion
    annually to what the Federal Government pays for Medicare,
    Medicaid and other Government programs. We need a national
    solution. And I mention--that is why the AMA is supporting H.R.
    5, and that is why we join with numerous other members of a
    broad-based coalition known as the Health Coalition on
    Liability and Access to urge this Congress to promptly reform
    the medical liability system.
        A key provision is the $250,000 noneconomic cap, and there
    is flexibility in the bill for States to adjust the cap to suit
    their particular circumstances. In Florida, a nonpartisan task
    force recently found that the greatest long-term impact on
    health care provider liability insurance rates is a $250,000
    cap on noneconomic damages, which would eliminate crisis of
    availability and affordability of health care in Florida.
        As discussed in our written statement, this limit on
    noneconomic damages has worked in California, and it can work
    nationwide.
        Mr. Chairman, as you have recognized, the time for action
    is past due. We must act now to fix our broken medical
    liability system. Recent polls show that the American public is
    in favor of reasonable limits on noneconomic damages. We must
    bring common sense back to our courtrooms so patients can have
    access to their physicians, whether in emergency rooms,
    delivery rooms or operating rooms. Thank you very much.
        Mr. Smith. Thank you, Dr. Palmisano.
        [The prepared statement of Dr. Palmisano follows:]
               Prepared Statement of Donald J. Palmisano, MD, JD
        On behalf of the physician members of the American Medical
    Association (AMA), I appreciate the opportunity to testify before you
    today regarding an issue that is seriously threatening the availability
    of and access to quality health care for patients. I would especially
    like to express our gratitude to you, Mr. Chair, and other Members of
    the Committee who are cosponsors of H.R. 5, for providing a much needed
    focus for action at the national level.
        I am Donald Palmisano, MD, JD, President-elect of the AMA and a
    general and vascular surgeon from New Orleans, LA. The policy of the
    AMA is decided through its democratic policy-making process in the AMA
    House of Delegates, which meets twice a year. Our House is comprised of
    physician delegates representing every state, nearly 100 national
    medical specialty societies, federal service agencies (including the
    Surgeon General of the United States), and six sections representing
    hospital and clinic staffs, resident physicians, medical students,
    young physicians, medical schools, and international medical graduates.
    AMA policy dictates support for national medical liability reform. In
    particular, the AMA supports H.R. 5, the HEALTH Act.
        Mr. Chair, you know that our health care system is facing a crisis
    when patients have to leave their state to receive urgent surgical
    care. You know that our health care system is facing a crisis when
    pregnant women cannot find an OB/GYN to monitor their pregnancy and
    deliver their baby. You know that our health care system is facing a
    crisis when community health centers have to reduce their services or
    close their doors because of liability insurance concerns. You know
    that our health care system is facing a crisis when dedicated
    professionals, who have trained for years, want to give up the work of
    a lifetime and retire. You know that our health care system is facing a
    crisis when physicians and other health care professionals believe they
    work in a culture of fear, rather than a culture of safety. You know
    that our health care system is facing a crisis when efforts to improve
    patient safety and quality are stifled because of lawsuit fears. An
    unrestrained medical liability system is driving our health care system
    into crisis.
        As you have recognized, the time for action is past due. Physicians
    across the country are making decisions now, and more and more patients
    are wondering, ``Will their doctor be there?'' We must act now to fix
    our broken medical liability system. That is why we are here supporting
    H.R. 5, and that is why we join with numerous other members of a broad-
    based coalition known as the Health Coalition for Liability and Access
    to urge this Congress to promptly reform the medical liability system.
                           access to care is at risk
        The crisis facing our nation's medical liability system has not
    waned--in fact, it is getting worse. Escalating jury awards and the
    high cost of defending against lawsuits, even frivolous ones, have
    caused medical liability insurance premiums to reach unprecedented
    levels. As a result, a growing number of physicians can no longer find
    or afford liability insurance. Over the past two years, many physicians
    have been hit with medical liability premium increases of 25 to 400
    percent. Some hospitals have seen premiums increase 140 percent in the
    same time period.
        The most troubling aspect of this crisis is its impact on patients.
    As insurance becomes unaffordable or unavailable, physicians are being
    forced to close their practices or drop vital services--all of which
    seriously impede patient access to care. Emergency departments are
    losing staff and scaling back certain services such as trauma units.
    Many obstetrician-gynecologists and family physicians have stopped
    delivering babies, and some advanced and high-risk procedures (such as
    neurosurgery) are being postponed because physicians can no longer
    afford or even find the liability insurance they need to practice.
    According to the American Hospital Association's 2002 TrendWatch 1,
    more than 26% of health care institutions have reacted to the liability
    crisis by cutting back on services, or even eliminating some units.
        A 2002 survey conducted by Wirthlin Worldwide shows that 78 percent
    of Americans say they are concerned about access to care being affected
    because doctors are leaving their practices due to rising liability
    costs.
        Virtually every day for the past year there has been at least one
    major media story on the plight of American patients and physicians as
    the liability crisis reaches across the country. Access to health care
    is now seriously threatened in states such as Florida, Georgia,
    Mississippi, Nevada, New Jersey, New York, Ohio, Oregon, Pennsylvania,
    Texas, Washington, and West Virginia. On top of this, we expect at
    least five more states to be in a full blown crisis in the near future,
    with a crisis looming in at least 26 other states. A sample of media
    reports in the appendices to this testimony illustrates the problems
    faced by patients and physicians in some of these states--problems many
    other states will face if effective tort reforms are not enacted.
        We must bring common sense back to our courtrooms so that patients
    have access to their emergency rooms, delivery rooms, operating rooms,
    and physicians' offices.
                  the litigation system is causing the crisis
        The primary cause of the growing liability crisis is the
    unrestrained escalation in jury awards that are a part of a legal
    system that in many states is simply out of control. While there have
    been several articles published since the mid-1990s indicating that
    increases in jury awards lead to higher liability premiums, in the last
    year a growing number of government and private sector reports show
    that increasing medical liability premiums are being driven primarily
    by increases in lawsuit awards and litigation expenses.
        In his State of the Union Address last month, President Bush
    stressed that we all are threatened by a legal system that is out of
    control. The President stated that ``Because of excessive litigation,
    everybody pays more for health care and many parts of America are
    losing fine doctors.'' The President's remarks are substantiated in
    several recent government and private sector reports--reports making
    clear that the medical liability litigation system in the United States
    has evolved into a ``lawsuit lottery,'' where a few patients and their
    lawyers receive astronomical awards and the rest of society pays the
    price as access to health care professionals and services are reduced.
    RECENT FEDERAL GOVERNMENT REPORTS
        In a July 2002 report released by the U.S. Department of Health and
    Human Services (HHS), the federal government concluded that the
    excesses of the litigation system are threatening patients' access to
    health care. This federal government report states that insurance
    premiums are largely determined by the litigation system, and that the
    litigation system is inherently costly, unpredictable, and slow to
    resolve claims. Just to defend a claim now costs on average over
    $24,000. Further, the fact that about 70 percent of claims end with no
    payment to the patient indicates the degree to which substantial
    economic resources are being squandered on fruitless legal wrangling--
    resources that could be used to reduce health costs so that more
    Americans could find health insurance.
        Even when there is a large award in favor of an injured patient, a
    large percentage of the award never reaches the patient. Attorney
    contingent fees, added with court costs, expert witness costs, and
    other ``overhead'' costs, can consume 40-50 percent of the compensation
    meant to help the patient.
        On September 25, 2002, HHS issued an update on the medical
    liability crisis. This update reported on the results of a survey
    conducted by Medical Liability Monitor (MLM), an independent reporting
    service that tracks medical professional liability trends and issues.
    According to MLM, the survey determined that the crisis identified in
    HHS's July report had become worse. The federal government reported
    that:

            The cost of the excesses of the litigation system are reflected
            in the rapid increases in the cost of malpractice insurance
            coverage. Premiums are spiking across all specialties in 2002.
            When viewed alongside previous double-digit increases in 2000
            and 2001, the new information further demonstrates that the
            litigation system is threatening health care quality for all
            Americans as well as raising the costs of health care for all
            Americans. (emphasis added)

        This federal government update further highlights that liability
    insurance rates are escalating faster in states that have not
    established reasonable limits on unquantifiable and arbitrary non-
    economic damages. The government's report states that:

            . . . 2001 premium increases in states without litigation
            reform ranged from 30-75%. In 2002, the situation has
            deteriorated. States without reasonable limits on non-economic
            damages have experienced the largest increases by far, with
            increases of between 36-113% in 2002. States with reasonable
            limits on non-economic damages have not experienced the same
            rate spiking. (emphasis added)

        HHS also compared the range of physician liability insurance
    premiums for certain specialties in California, which has established
    reasonable limits on awards for non-economic damages, to the premiums
    in states that have not enacted similar limits. The results reveal how
    excessive awards for non-economic damages affect premiums. For example,
    in 2002, OB/GYNs in California paid up to $72,000 in medical liability
    premiums. In Florida, which does not limit non-economic damage awards,
    OB/GYNs paid up to $211,000 for liability coverage.
        Further, a 2002 Congressional Budget Office study on H.R. 4600
    (107th Congress), which included a limitation on non-economic damages,
    asserts that:

            CBO's analysis indicated that certain tort limitations,
            primarily caps on awards and rules governing offsets from
            collateral-source benefits, effectively reduce average premiums
            for medical malpractice insurance. Consequently, CBO estimates
            that, in states that currently do not have controls on
            malpractice torts, H.R. 4600 would significantly lower premiums
            for medical malpractice insurance from what they would
            otherwise be under current law.

        In Florida, as indicated in the example given above, medical
    liability premiums are among the highest in the nation. The situation
    in Florida has become so dire that Governor Bush created a special Task
    Force to examine the availability and affordability of liability
    insurance. This Task Force held ten hearings over a five month period
    and received extensive testimony and information from numerous, diverse
    sources.
        Among the many findings in its report released on January 29, 2003,
    the Governor's Task Force found that the level of liability claims paid
    was the main cause of the increases in medical liability insurance
    rates. The Task Force ultimately concluded that ``the centerpiece and
    the recommendation that will have the greatest long-term impact on
    healthcare provider liability insurance rates, and thus eliminate the
    crisis of availability and affordability of healthcare in Florida, is a
    $250,000 cap on non-economic damages.''
    RECENT PRIVATE SECTOR REPORTS
        Evidence that the litigation system is broken, and that the medical
    liability crisis is growing, is further established in a study released
    by Tillinghast-Towers Perrin on February 11, 2003. Tillinghast reported
    that ``The cost of the U.S. tort system grew by 14.3% in 2001, the
    highest single-year percentage increase since 1986,'' which is
    ``equivalent to a 5% tax on wages.'' This is the only study that tracks
    the cost of the U.S. tort system from 1950 to 2001 and compares the
    growth of tort costs with increases in various U.S. economic
    indicators. Some of the key findings of this study are stunning:

             The U.S. tort system is a highly inefficient method
            of compensating injured parties, returning less than 50 cents
            on the dollar to people it is designed to help and returning
            only 22 cents to compensate for actual economic loss.

             As of 2001, U.S. tort costs accounted for slightly
            more than 2% of GDP, signaling an increase after a 13-year
            decline in the ratio of tort costs to GDP.

             While the cost of the U.S. tort system has increased
            one hundred fold over the last fifty years, GDP has grown by a
            factor of only 34.

             Medical malpractice costs have risen an average of
            11.6% a year since 1975 in contrast to an average annual
            increase of 9.4% for overall tort costs, outpacing increases in
            overall U.S. tort costs.

        The study also adds that ``These trends continued in 2002, with no
    sign of abatement in the near future.'' In a press release accompanying
    this study, a Tillinghast principal stated that, ``Absent sweeping tort
    reform measures, we expect most of these trends to continue in 2003 and
    beyond.''
        In a 2001 report by Jury Verdict Research, data show that in just a
    one year period (between 1999 and 2000) the median jury award increased
    43 percent. Further, median jury awards for medical liability claims
    grew at 7 times the rate of inflation, while settlement payouts grew at
    nearly 3 times the rate of inflation. Even more telling, however, is
    that the proportion of jury awards topping $1 million increased from 34
    percent in 1996 to 52 percent in 2000. More than half of all jury
    awards today top $1 million, and the average jury award has increased
    to about $3.5 million.
        These are just a few examples of growing evidence that reveal that
    out-of-control jury awards are inexorably linked to the severe
    increases in medical liability insurance premiums. It is clear that
    corrective action through federal legislation is urgently needed.
    BLAMING INSURANCE INDUSTRY INVESTMENTS IS A RED HERRING
        Organizations opposing H.R. 5 have claimed that soaring medical
    liability insurance premiums are the result of declining investments in
    the insurance industry, and that liability reforms do not stabilize the
    insurance market. The reports discussed above, as well as several other
    authoritative and credible studies, reveal such claims to be
    misleading, based on flawed analysis, and contrary to the facts.
        Last month, Brown Brothers Harriman & Co. (BBH) released a report
    (``Did Investments Affect Medical Malpractice Premiums?'') that
    analyzed the impact of insurers' asset allocation and investment income
    on the premiums they charge. BBH concluded that there is no correlation
    between the premiums charged by the medical liability insurance
    industry, on the one hand, and the industry's investment yield, the
    performance of the U.S. economy, or interest rates, on the other hand.
        In addition, on February 4, 2003, BBH released an addendum to this
    study that analyzed National Association of Insurance Commissioners
    (NAIC) data to determine whether investment gains by medical liability
    insurance companies declined in the recent bear market. BBH asked the
    question: ``Did medical malpractice companies raise premiums because
    they had come to expect a certain percentage gain that was not achieved
    due to market conditions?'' BBH determined that the decline in equities
    (which are a small percentage of insurance company investments) was
    more than offset by the capital gains by bonds (which make up a
    substantial part of insurance company investments) due to a decline in
    interest rates. BBH concluded that ``investments did not precipitate
    the current crisis.''
        BBH's findings are corroborated by other recent reports. On
    September 25, 2002, HHS released an update on the medical liability
    crisis addressing claims that the crisis is caused by the management
    practices of the insurance industry. HHS concluded that such claims are
    not supported by facts, stating ``Comparisons of states with and
    without meaningful medical liability reforms provide clear evidence
    that the broken medical litigation system is responsible.''
        In addition, a summary of medical liability insurer annual
    statement data in A.M. Best's Aggregates & Averages, Property-Casualty,
    2002 edition shows that the investment yields of medical malpractice
    insurers have been stable and positive since 1997. A.M. Best reports
    that medical liability insurers have approximately 80% of their
    investments in the bond market. Also, recent NAIC data show that
    physicians' medical liability insurance premiums between 1976-2000 have
    risen 167% in California (which established effective liability reforms
    in 1975) compared to 505% in the rest of the United States.
        The report on which H.R. 5 opponents base most of their
    speculations, produced under the direction of J. Robert Hunter for the
    Americans for Insurance Reform (AIR), is flawed in a number of ways.
    The AIR/Hunter study purports that there is no current explosion in
    medical liability insurance payouts, and that the explosion in medical
    liability insurance premiums is due to the insurance underwriting
    cycle. While medical liability insurance premiums, medical liability
    award payouts, and tort law factors differ across states, the premium
    and payout data presented in AIR's report are at the national level.
    One cannot use national data to draw valid conclusions about how state-
    specific changes in premiums may be related to state-specific changes
    in payouts. Conclusions about what has or has not caused recent premium
    escalation without accounting for the state-level factors listed above
    are unsupportable.
        In addition to claiming that the current medical liability crisis
    is an insurance issue, there have been attempts to argue that medical
    liability insurance premium rates in California have remained stable
    because of Proposition 103, not because of the successful medical
    liability reforms (known as MICRA-discussed later) that have been in
    place in California since 1975. Such claims are misguided. Proposition
    103, also known as the Insurance Rate Reduction and Reform Act, applies
    to all lines of insurance, not just medical liability insurance. It was
    passed as an initiative by the voters in 1988 (thirteen years after
    MICRA), yet did not take effect until 1989. This is when the state's
    high court struck down its rate rollback provisions while maintaining
    the remainder of the law.
        Proposition 103 implemented a basic standard that ``no rate shall
    be approved or remain in effect which is excessive, inadequate,
    unfairly discriminatory or otherwise in violation of this chapter.''
    However, Proposition 103 provides that ``every insurer which desires to
    change any rate shall file a complete rate application with the
    commissioner.'' Proposition 103 also requires that the Department of
    Insurance grant a hearing for a challenge to any increase above 15
    percent for commercial lines of insurance.
        According to Californians Allied for Patient Protection, ``Insurers
    have regularly applied for and obtained significant rate increases in
    all lines of insurance, except medical liability where MICRA has kept
    the rates from rising astronomically. Between September and the end of
    October, 2002, for instance, the Insurance Department approved more
    than 75 applications for double-digit increases in insurance rates.''
    None of these approved increases included medical liability insurance.
    This illustrates that Proposition 103 is not responsible for keeping
    medical liability premiums down. Rather, as we discuss later, it is
    MICRA that has been the force behind California's success.
        Such misdirected claims as discussed above are a disservice to
    patients who are losing access to health care services, and an affront
    to the physicians and other health care professionals who dedicate
    their lives to healing and caring for the sick and working to find ways
    to improve the quality of care. America's medical liability crisis is
    too serious and the consequences of inaction too grave for the public
    and Congress to use anything but the facts to make decisions about
    reform. In short, these claims are counterproductive to the debate on
    resolving the medical liability crisis.
    FEDERAL SOLUTION
        The medical liability crisis is a growing national problem that
    requires a national solution. If the crisis was just a matter of
    physicians obtaining or affording medical liability insurance in one
    state, we might agree that a national approach would not necessarily be
    required. However, the problem goes far beyond physicians and other
    health care professionals and institutions. The medical liability
    crisis has become a serious problem for patients and their ability to
    access health care services that would otherwise be available to them,
    including services provided to Medicare and Medicaid patients.
        Also, the premise that it is within the ability of every state to
    enact legislation to effectively resolve their respective medical
    liability crisis has been shattered by the fact that many state
    liability reform laws have been nullified by activist state courts or
    stripped of their most effective provisions under state constitutions
    that limit reforms. Taking into consideration that studies show the
    litigation system to be an ineffective, and often unfair, mechanism for
    resolving medical liability claims, we believe that the time is ripe
    for a uniform, federal approach to resolving the liability crisis.
        Moreover, there is a direct and compelling federal interest in
    reforming our outmoded medical liability system. According to estimates
    by HHS, altogether medical liability adds $60 billion to $108 billion
    to the cost of health care each year. This means higher health
    insurance premiums and higher medical costs for all Americans, and
    especially for the federal government given that one-third of the total
    health care spending in our country is paid by the Medicare and
    Medicaid Programs. Further, HHS estimates that excessive medical
    liability adds $47 billion annually to what the federal government pays
    for Medicare, Medicaid, the State Children's Health Insurance Program,
    Veterans' Administration health care, health care for federal
    employees, and other government programs.
    THE LIABILITY CRISIS AND PATIENT SAFETY
        The AMA's policy is to be part of the solution to improving patient
    safety and quality. The AMA believes that one preventable error is one
    error too many. In fact, the AMA helped launch the National Patient
    Safety Foundation (NPSF) in 1996 to address patient safety issues, well
    before publication of the IOM report. The NPSF's approach is to create
    a culture of cooperative learning and mutual improvement, as opposed to
    a culture of shame and blame.
        Quality of care improves when there is greater access to physicians
    and health care services. A culture of safety requires a legal
    environment that encourages professionals and organizations to work
    together to identify problems in providing care, evaluate the causes,
    and use that information to improve care for all patients. An over-
    litigious system is anathema to building a strong and effective
    national patient safety program.
        Under our current liability system, the reality of being sued is
    daunting to just about everyone in the medical community. A 2002 Harris
    Interactive study (The Fear of Litigation Study--The Impact on
    Medicine) illustrates just how detrimental the litigious nature of our
    society is to physicians and other health care professionals. This
    study reveals the extent to which the fear of litigation affects the
    practice of medicine and the delivery of health care--``From the
    increased ordering of tests, medications, referrals, and procedures to
    increased paperwork and reluctance to offer off-duty medical
    assistance, the impact of the fear of litigation is far-reaching and
    profound.''
        The study shows, among other things, that more than three-fourths
    (76%) of physicians believe that concern about medical liability
    litigation has negatively affected their ability to provide quality
    care in recent years, and nearly all physicians and hospital
    administrators feel that unnecessary or excessive care is provided
    because of litigation fears. It also shows that an overwhelming
    majority of physicians (83%) and hospital administrators (72%) do not
    trust the current system of justice to achieve a reasonable result to a
    lawsuit.
        The Harris study found that a majority (59%) of physicians believe
    (``a lot'') that the fear of liability discourages open discussion and
    thinking about ways to reduce health care errors. The AMA has long
    believed that health professionals and organizations should be
    encouraged to report and evaluate health care errors and to share their
    experiences with others in order to prevent similar occurrences.
    However, this ``culture of fear'' caused by our over-litigious society
    suppresses such information.
        The AMA strongly supports the principle underlying the 1999
    Institute of Medicine (IOM) report entitled, To Err is Human: Building
    a Safer Health System, that the health care system needs to transform
    the existing culture of blame and punishment, which suppresses
    information about errors, into a ``culture of safety'' that focuses on
    openness and information-sharing to improve health care and prevent
    adverse outcomes. The AMA also supports the IOM's focus on the need for
    a system-wide approach to eliminating adverse outcomes and improving
    safety and quality, instead of focusing on individual components of the
    health system in an isolated or punitive way.
        Toward this end, the AMA supports H.R. 663, the ``Patient Safety
    and Quality Improvement Act,'' which was favorably reported by the
    House Energy & Commerce Committee on February 12, 2003. H.R. 663 would
    provide a framework to create a ``culture of safety'' by establishing a
    confidential, non-punitive, and evidence-based system for reporting
    health care errors. There is a very broad and strong consensus of
    agreement on this legislative approach within the health care
    community. By implementing this approach, errors can be identified and
    analyzed to improve patient safety by preventing future errors.
        In addition to patient safety and quality improvement, the fear of
    litigation stifles the advancement of new medical treatments and
    medications, encourages physicians to practice defensive medicine,
    overwhelms the health care system with paperwork--leaving less time for
    patient care, and discourages qualified candidates from pursuing a
    career in medicine or from moving to a state with a bad liability
    climate.
    THE PRACTICAL SOLUTION
        The AMA recognizes that injuries due to negligence do occur in a
    small percentage of health care interactions, and that they can be as
    devastating or worse to patients and their families than injury due to
    natural illness or unpreventable accident. When injuries occur and are
    caused by a breach in the standard of care, the AMA believes that
    patients are entitled to prompt and fair compensation.
        This compensation should include, first and foremost, full payment
    of all out of pocket ``economic'' losses. The AMA also believes that
    patients should receive reasonable compensation for intangible ``non-
    economic'' losses such as pain and suffering and, where appropriate,
    the right to pursue punitive damages.
        Unfortunately, our medical liability litigation system is neither
    fair nor cost effective in making a patient whole. Transformed by high-
    stakes financial incentives, it has become an increasingly irrational
    ``lottery'' driven by open-ended non-economic damage awards. As
    mentioned above, studies show that our tort system, in general, is an
    extremely inefficient mechanism for compensating claimants--returning
    less than 45 cents on the dollar to claimants and only 20 cents of tort
    cost dollars to compensate for actual economic losses.
        To ensure that all patients who have been injured through
    negligence are fairly compensated, the AMA believes that Congress must
    pass fair and reasonable reforms to our medical liability litigation
    system that have proven effective. Toward this end, we strongly urge
    Congress to pass the ``Help Efficient, Accessible, Low-Cost, Timely
    Healthcare (HEALTH) Act,'' a bipartisan bill that would bring balance
    to our medical liability litigation system.
        The major provisions of the HEALTH Act would benefit patients by:

             Awarding injured patients unlimited economic damages
            (e.g., past and future medical expenses, loss of past and
            future earnings, cost of domestic services, etc.);

             Awarding injured patients non-economic damages up to
            $250,000 (e.g., pain and suffering, mental anguish, physical
            impairment, etc.), with states being given the flexibility to
            establish or maintain their own laws on damage awards, whether
            higher or lower than those provided for in this bill;

             Awarding injured patients punitive damages up to
            $250,000 or up to two times economic damages, whichever is
            greater;

             Establishing a ``fair share'' rule that allocates
            damage awards fairly and in proportion to a party's degree of
            fault; and

             Establishing a sliding-scale for attorneys'
            contingent fees, therefore maximizing the recovery for
            patients.

        These reforms are not part of some untested theory--they work. The
    major provisions of the HEALTH Act are based on the successful
    California law known as MICRA (Medical Injury Compensation Reform Act
    of 1975). MICRA reforms have been proven to stabilize the medical
    liability insurance market in California--increasing patient access to
    care and saving more than $1 billion per year in liability premiums--
    and have reduced the time it takes to settle a claim by 33 percent.
    MICRA is also saving California from the current medical liability
    insurance crisis brewing in many states that do not have similar
    reforms. In fact, according to MLM, as discussed above, 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.
        MICRA-type reforms are effective, especially at controlling non-
    economic damages. Several economic studies substantiate this point. One
    study looked at several types of reforms and concluded that capping
    non-economic damages reduced premiums for general surgeons by 13% in
    the year following enactment, and by 34% over the long term. Similar
    results were shown for premiums paid by general practitioners and OB/
    GYNs. It was also shown that caps on non-economic damages decrease
    claims severity (i.e., amount of the claim) (Zuckerman et al. 1990).
        Another study published in the Journal of Health Politics, Policy
    and Law concluded that caps on non-economic damages reduced insurer
    payouts by 31%. Caps on total damages reduced payouts by 38% (Sloan, et
    al. 1989). Another study concluded that states adopting direct reforms
    experienced reductions in hospital expenditures of 5% to 9% within
    three to five years. If these figures are extrapolated to all medical
    spending, a $50 billion reduction in national health spending could be
    achieved through such reforms (Kessler and McClellan, Quarterly Journal
    of Economics, 1997).
        Further, as discussed above, a 2002 Congressional Budget Office
    study on H.R. 4600 (107th Congress) asserts caps on non-economic
    damages have been extremely effective in reducing the severity of
    claims and medical liability premiums. Conversely, a 1996 American
    Academy of Actuaries study shows that medical liability costs rose
    sharply in Ohio after the Ohio Supreme Court overturned a liability
    reform law in the 1990s that set limits on non-economic damages. (Ohio
    recently enacted a new liability reform law.)
        Furthermore, a Gallup poll released on February 5, 2003, show that
    72% of those polled favor a limit on the amount patients can be awarded
    for pain and suffering. This Gallup poll is consistent with a 2002
    survey conducted by Wirthlin Worldwide showing that three-quarters of
    Americans understand the detrimental effect that excess litigation has
    on our health care system. The Wirthlin survey shows that the vast
    majority of Americans agree we need common sense medical liability
    reform. In addition to the 78 percent discussed above who said that
    they are concerned about access to care, the survey found that:

             71 percent of Americans agree that a main reason
            health care costs are rising is because of medical liability
            lawsuits.

             73 percent support reasonable limits on awards for
            ``pain and suffering'' in medical liability lawsuits.

             More than 76 percent favor a law limiting the
            percentage of contingent fees paid by the patient.
    CONCLUSION
        Physicians and patients across the country realize more and more
    every day that the current medical liability situation is unacceptable.
    Unless the hemorrhaging costs of the current medical liability system
    are addressed at a national level, patients will continue to face an
    erosion in access to care because their physicians can no longer find
    or afford liability insurance. The reasonable reforms of the HEALTH Act
    have brought stability in those states that have enacted similar
    reforms.
        By enacting meaningful medical liability reforms, Congress has the
    opportunity to increase access to medical services, eliminate much of
    the need for medical treatment motivated primarily as a precaution
    against lawsuits, improve the patient-physician relationship, help
    prevent avoidable patient injury, and curb the single most wasteful use
    of precious health care dollars--the costs, both financial and
    emotional, of health care liability litigation. The modest proposals in
    the HEALTH Act answer these issues head on and would strengthen our
    health care system.
        The AMA appreciates the opportunity to testify on the adverse
    effect that our current medical liability litigation system imposes on
    patient access to health care and urges Congress to pass H.R. 5, the
    HEALTH Act.

                                   APPENDIX B

                Medical Liability Crisis Affects Access to Care
                                 Crisis States
               the medical liability crisis--a nationwide problem
    Florida
     Women are facing waiting lists of four months before being
    able to get an appointment for a mammogram because at least six
    mammography centers in South Florida alone have stopped offering the
    procedure as a result of increasing medical liability insurance
    premiums. ``This trend is troubling. There are a growing number of
    older people and less and less people to provide mammograms,'' said
    Jolean McPherson, a Florida spokeswoman for the American Cancer
    Society. South Florida Sun Sentinel, Nov. 4, 2002.

     Aventura Hospital in South Florida closed its maternity ward
    and cited $1,000 in insurance premiums for each delivery as the prime
    factor. Aventura is one of six maternity wards to close in recent
    months. Now, patients will be forced to drive to other counties and
    other facilities. ``There may be waits getting into a labor-room
    floor,'' said OB/GYN Aaron Elkin, MD. Miami Herald, Oct. 19, 2002.

     ``Without a doubt, access to health coverage is being
    affected. Some of our emergency rooms are losing their effectiveness,''
    said Dr. Greg Zorman, neurosurgery chief at Memorial Regional Hospital
    in Hollywood. His unit gets several patients a week from smaller ERs
    that have lost neurosurgery coverage. South Florida Sun Sentinel,
    February 5, 2003.

     Port Charlotte cardiologist Leonardo Victores, MD, left for
    Kansas in the face of medical liability premiums that were going to
    increase 100 percent. ``He's moving to Kansas because that state has
    caps on malpractice awards,'' said colleague Mark Asperilla, MD. Sun
    Herald, Jan. 1, 2003.

     Despite having no malpractice claims or disciplinary actions
    on his record, Lakeland OB/GYN John Kaelber, MD, was forced to close
    his practice and leave the state in the wake of insurance premiums that
    doubled. Lakeland Ledger, Nov. 21, 2002.

     More than 50 Bradenton patients had to postpone elective
    surgeries and more than 100 office visits were canceled because two
    physicians were unable to obtain liability insurance. The insurer may
    leave the state altogether. Bradenton Herald, Jan. 24, 2003.

     After recently receiving notice of a premium spike coming in
    July 2002, Vladimir Grnja, MD, decided that he would ``go bare'' and
    drop all medical liability insurance coverage. Rates for the Hollywood,
    FL radiologist were to rise to $112,000 from $35,000 a year (a 220%
    increase), mainly because of litigation over mammograms. ``No doctor
    wants to go bare,'' said Dennis Agliano, MD, chairman of the Florida
    Medical Association's special task force on the Florida medical
    liability crisis. But with significant premium hikes in Florida for
    specialties like OB/GYN, neurosurgery, thoracic surgery, radiology and
    even primary care, ``some doctors have no choice,'' he says. Some
    neurosurgeons in South Florida, are paying a $200,000 premium for
    coverage of $250,000 per occurrence, making insurance practically
    meaningless. The Florida Medical Association reports that more than
    1,000 doctors in Florida have no medical liability insurance. Doctors
    in West Virginia and Ohio are also reportedly going bare. Modern
    Physician, April 1, 2002.

     Ob/Gyns in the ``Sunshine State'' face the highest premiums
    in the nation, some as high as $208,000. Many surgeons also are facing
    premiums in excess of $200,000.

     Fourteen of the 16 neurosurgeons in Broward County cannot
    afford insurance and are going ``bare.'' Neurosurgeons in Pinellas
    County are considering doing the same rather than face increases of 55
    percent or greater to more than $100,000.

     The Miami Herald reports one radiologist saw his premiums
    increase from $32,000 to $112,000 in one year due to ``mushrooming
    lawsuits involving mammograms.'' Another radiologist told the St.
    Petersburg Times he would no longer read mammograms because of the high
    risk of being sued.

     Cardiologists and internists also are seeing insurance rates
    double or triple this year.

     An insurance executive told the South Florida Sun-Sentinel
    that insurance companies are paying out $1.30 for every $1.00 they
    collect in premiums, a fact that cries out for medical liability
    reform.

     And, what's worse $100,000 only buys about $1 million in
    coverage, a small amount compared to soaring jury verdicts. Tallahassee
    Democrat, June 30, 2002.

     PHICO, the third largest professional liability insurer in
    Florida was forced into liquidation earlier this year. Zurich American
    Insurance Co., and Clarendon National also are leaving the Florida
    market. Remaining insurers are on record as saying they will draw
    sharper lines between which physician specialty they will and will not
    insure.

     Florida's community hospitals are considering the drastic
    step of no longer requiring physicians to carry professional liability
    insurance to ensure the hospitals can remain open.

     ``The squeeze is hitting South Florida extremely hard, and
    it's gradually spreading out to the rest of the state,'' Dennis
    Agliano, MD, FMA secretary and chair of its tort reform task force.
    (The South Florida Business Journal)

     Several Florida Supreme Court rulings have weakened tort
    reforms in Florida.

     ``Litigation was and always will be the problem in Florida
    until there are caps,'' said Bob White, COO of First Professionals
    Insurance Co., Florida's largest carrier.

     Medical Specialists of the Palm Beaches, a 50-physician
    group, saw its premiums rise from $800,000 to $2.5 million this year.

     American Physicians Assurance announced on July 17, 2002 that
    it is leaving the state

     Farmer's Insurance has announced its intent to leave the
    state. Among other insurers, MAG is still writing policies, while
    Medical Protective and ProNational are being very selective. FPIC, the
    largest medical liability carrier in the state, endorsed by FMA, is
    only writing very selectively. Both Clarendon and St. Paul have pulled
    out entirely.

     According to the FMA's General Counsel, Florida's existing
    caps simply do not work and are never used. The caps only apply in
    cases where the physician agrees to arbitration and in order for the
    case to go to arbitration the physician must admit liability. In
    addition, the original intent of this Florida provision was to have the
    cap apply to each incident, but it has been interpreted to apply to per
    claimant, which obviously also decreases its effectiveness. The lack of
    a straight cap is the primary reason for the current crisis in Florida.
    Unlike such States as Kansas, Florida, has not seen an increase in
    frequency of claims, but there has been an increase for severity in
    jury awards.

     In a presentation before FMA, the medical liability insurance
    carrier, EPIC, presented facts that demonstrate the medical liability
    crisis in Florida. During 1975, there were 380 health care lawsuits in
    Florida, resulting in $10.8 million in jury awards and costing $1.5
    million to defend. In 2000 there were 880 lawsuits alleging
    malpractice, resulting in awards of $219 million and costing $36
    million to defend.

     Dr. Oliver Bayouth says his medical-malpractice premiums are
    skyrocketing. The Orlando obstetrician is paying about $100,000 for
    insurance this year, up at least 25 percent from two years ago.
    Frustrated, Bayouth says he is thinking about moving his practice out
    of Florida. Orlando Sentinel, January 20, 2002.

     In South Florida, where insurers say litigation is the
    heaviest, ob/gyns pay as much as $202,949 a year--the highest rates in
    the country, according to Medical Liability Monitor, a Chicago-based
    newsletter. Orlando Sentinel, January 20, 2002.

     Dr. Alan Appley, an Orlando neurosurgeon, moved his practice
    to Lafayette, Louisiana, last year in part to escape Florida's soaring
    malpractice rates. Orlando Sentinel, January 20, 2002.

     Dr. Joseph Boyer, an Orlando cardiologist, says his rates
    rose 64.6 percent, to $99,000, in 2002. Orlando Sentinel, January 20,
    2002.

     Central Florida Cardiothoracic Surgery in Orlando says it
    will pay about $140,000 to insure two surgeons in 2002, compared with
    about $54,000 last year. Orlando Sentinel, January 20, 2002.

     Dr. Alexander Jungreis, an Orlando neurosurgeon, said his
    liability insurance premiums tripled this year. Orlando Sentinel,
    January 20, 2002.

     Dr. Jorge Perez, an Orlando internist, said his insurer
    canceled his policy last year even though he never had a claim filed
    against him. His new company is charging him $18,000 per year, compared
    with the $11,000 he previously paid, on top of a $25,000 fee to cover
    possible lawsuits from prior incidents. Orlando Sentinel, January 20,
    2002.

     Nationwide, one out of every 12 doctors gets sued each year,
    while in Florida it's one out of every six, said Bob White, chief
    operating officer of Jacksonville-based First Professionals Insurance
    Co., the state's largest provider of medical liability insurance with
    about 33 percent of the market. Orlando Sentinel, January 20, 2002.
    Georgia
     According to a Georgia Board for Physician Workforce study
    released in January 2003, 2,800 physicians in Georgia are expected to
    stop providing high-risk procedures to limit medical liability.

     The study also indicated that 1,750 physicians reported that
    have stopped or plan to stop providing ER coverage and 630 physicians
    plan to quit practicing or leave the state. In addition, 1 in 5 family
    physicians and 1 in 3 Ob-Gyns reported plans to stop providing high-
    risk procedures, including delivering babies.

     But numbers alone do not tell the whole story; there is a
    very human side to this crisis. For instance, although she is only in
    her first year of medical school at Medical College of Georgia, the
    liability crisis has already caused Thandeka Myeni, 26, to reconsider
    her preference for obstetrics, one of the specialties hardest hit by
    medical liability increases. ``I definitely think it could be
    discouraging,'' she said. The Augusta Chronicle, Nov. 13, 2002.

     Evans Memorial, a rural hospital in Claxton, decided to ``go
    bare''--have no coverage at all-instead of paying what it considered an
    exorbitant medical liability premium. Only one insurer offered a
    malpractice policy for the hospital and its nursing home, and the
    annual premium for $1 million in coverage would have been $581,000, up
    from $216,000 last year. ``We just thought it was outrageous,'' said
    Eston Price, Evans Memorial administrator. The Atlanta Journal-
    Constitution, Oct. 7, 2002.

     The largest hospital in the state's health system has bought
    a new policy--with a deductible of $15 million--covering 953-bed Grady
    Memorial, a nursing home and clinics. On each paid claim below that
    mark, Grady is responsible for every dollar. The $15 million deductible
    starts again with each claim. ``Grady faces open-ended liability,''
    said Timothy Jefferson, Grady Health System executive vice president
    and chief counsel. The Atlanta Journal-Constitution, Oct. 7, 2002.

     Knowing that malpractice premiums were rising for everyone in
    the industry, Ty Cobb Health System CEO, Chuck Adams earmarked enough
    money for a 100 percent increase. The bill arrived by fax this summer,
    just 24 hours before a check was due. Not only was the insurance
    company increasing his deductible tenfold, but the premium jumped from
    $553,000 to $3.15 million--a 469 percent increase. ``We were numb,''
    said Adams, who eventually got an extension and another cheaper policy
    at $1.65 million. ``There goes our expansions, like a renovation of the
    Hart County Emergency Room.'' The Atlanta Journal-Constitution, Aug.
    11, 2002.

     ``Dr. Edmund Wright, a Fitzgerald family practitioner who
    performed Caesarian sections, has given up that part of his practice.
    His premiums quadrupled to $80,000 in 2002 and would have been $110,000
    if he had continued the surgical delivery procedure.'' Wright said, ``I
    don't know if I really want to do this anymore.'' The Atlanta Journal-
    Constitution, Aug. 11, 2002.

     Insurance costs are rising so high and so quickly because of
    medical malpractice lawsuits that many doctors are quitting medical
    practice, said Michael Greene, who has a family practice in Macon. The
    problem is increasing so fast that Georgia will soon face a critical
    shortage of physician, Greene said. ``It hasn't hit with a tidal wave
    yet, but the waves are beginning to lap at the shore,'' Greene
    continued. The Macon Telegraph, Aug. 3, 2002.

     David Cook, executive director of the Medical Association of
    Georgia, said the malpractice crisis is driving more doctors into early
    retirement. ``One-third of doctors 55 and older say they plan to reduce
    their hours or get out altogether,'' he said. ``These are physicians at
    the peak of their diagnostic powers.'' The Times (Gainesville), July
    17, 2002).

     40 percent of the State's hospitals have seen have seen
    medical liability premium go up 50 percent or more in 2002. A rural
    hospital in Bainbridge actually faced increases from $140,000 to
    $970,000.

     St. Paul was the second largest carrier in Georgia before its
    pull-out. The remaining insurers are raising rates for some specialties
    by 70 percent or greater. Some ER physicians, Ob-Gyns and radiologists
    have not yet found new coverage.

     On average, Georgia physicians are facing premium increases
    of 30 percent or greater for 2002.

     Georgia physicians paid more than $92,000,000 to cover jury
    awards for 2000. That amount was the 11th highest in the nation despite
    Georgia ranking only 38th in total number of physicians in the United
    States.

     The median jury award increased from $225,000 in early 1990s
    to $480,000 by late 1990s.

     The number of paid claims totaling $1 million or more
    increased from one in 1990 to 13 in 2000. There was one claim of $2
    million or more in 1991, and more than 5 so far in 2002; according to
    MAG Mutual, which insures 70% of Georgia physicians. Atlanta Journal &
    Constitution Aug. 11, 2002
    Mississippi
     Although Mississippi enacted some medical liability reforms
    late last year, it is still too early to see if this will stem the
    exodus of physicians from the State. The reason: the Mississippi cap on
    non-economic damages has broad exceptions and the trial bar is looking
    for ways to get around its limits. In short, Mississippi remains in
    crisis.

     The Mississippi State Medical Association still estimates
    that the state could lose as many as 10 percent of its 4,000-4,500
    physicians.

     Obstetricians in Mississippi still worry about what is going
    to happen to their patients who face longer trips to the hospital while
    already in labor. Women who used to walk or make a short drive for both
    prenatal visits and delivery now face a 45-minute drive by car to the
    only physician in their area who can still treat OB patients.

     Pregnant women who are considered high-risk, such as someone
    with diabetes, cannot be treated at the Kosciusko Medical Clinic
    because it is too risky for physicians, where seven physicians formerly
    practiced obstetrics and gynecology. Only three were predicted to
    remain in January 2003. The Clarion-Ledger, Aug. 26, 2002.

     Only two neurosurgeons remain in practice in the Gulf Coast-
    area of Mississippi, and general surgeons are in short supply because
    of the state's medical liability crisis. ``Everybody is reduced to the
    same low level of trauma care that we had 20 years ago,'' said Steve
    Delahousey, vice president of operations at American Medical Response
    ambulance service. Jan. 29, 2003 Biloxi Sun Herald

     Neurologist Terry Smith, MD said he had applied with 14
    companies, and Medical Assurance was his last hope to find coverage
    before his current policy expired on Aug. 4, 2002. His premium went
    from $55,000 a year to potentially $150,000 with a $132,000 tail to his
    old insurer. ``I'm looking at writing a check for $300,000,'' said
    Smith, who does brain surgery at three hospitals in Jackson and
    Harrison counties. Associated Press, July 11, 2002.

     Four rural hospitals in Ocean Springs faced closure, as their
    insurer, Medical Assurance Company of Alabama, was not renewing their
    coverage because the insurer was leaving Mississippi.

     Greenwood Hospital--the only trauma center in a 55-mile
    radius--was unable to keep its Level-II trauma center rating because
    area neurosurgeons have left, citing the high cost of liability
    insurance. Greenwood also has lost 2 of its 4 Ob-Gyns.

     At least 15 insurers, including St. Paul, have left
    Mississippi in the previous five years.

     Nursing homes in Mississippi have faced insurance increases
    as high as 900 percent in the previous two years according to industry
    representatives.

     Tupelo has lost 3 of its 5 neurosurgeons in the previous two
    years because of the State's legal climate. A physician-delegate to the
    Mississippi Economic Council predicts nearly 100 physicians will leave
    Tupelo in the near future.

     In Cleveland, Mississippi, three of the town's six Ob-Gyns
    have stopped delivering babies. Yazoo City's 14,550 residents have no
    ob-Gyns. According to the Mississippi State Medical Association,
    insurance rates for Ob-Gyns have increased from 20--400 percent in the
    previous year.

     Since 1995, Mississippi has been home to 21 verdicts of $9
    million or greater. Before 1995, there were none. In the first quarter
    of this year, $31 million was awarded in such cases. The total for the
    entirety of last year was $32 million. Daily Mississippean (Oxford,
    MS), July 30, 2002.

     A Natchez doctor's group is seeking to build a $6 million
    medical office building across state lines in Louisiana rather than
    face continuing lawsuits and skyrocketing insurance premiums in
    Mississippi.

     Mississippi has been voted the nation's worst liability
    climate by the U.S. Chamber of Commerce, which has warned businesses
    away from doing business in the state. Rural areas are particularly
    hard hit by the state's liability crisis. Twenty-five of Mississippi's
    80 counties have fewer physicians today than they did in 1990. 21 of
    those counties have 10 or fewer physicians.

     ``The legislative process has slammed the proverbial door in
    the face of the entire business and medical communities,''
    Mississippi's director of the National Federation of Independent
    Business told the Associated Press.

     Mississippi needs doctors like Kirk Kooyer, MD. He is the
    only pediatrician in Sharkey and Issaquena Counties, where the majority
    of patients live below the poverty level. Kooyer moved to the
    Mississippi Delta to serve those who cannot otherwise get medical
    treatment. Because of increasing litigation risks and high insurance
    premiums, Kooyer has decided to leave the Delta. His absence will put a
    strain on the community hospital because there is no pediatrician to
    take his place.

     In 2001, Bolivar County in western Mississippi had six
    physicians 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. The Wall Street Journal, May 1,
    2002

     In neighboring Sunflower County, all four physicians who
    delivered babies have quit private practice. The Wall Street Journal,
    May 1, 2002

     In the northern half of the state last year there were nine
    practicing neurosurgeons; now there are just three on emergency call.
    The Wall Street Journal, May 1, 2002

     In 1998, 227 Mississippians filed malpractice suits. Based on
    the suits filed during the first quarter of 2002, the Medical
    Association Company of Mississippi predicts over 550 medical liability
    suits will be filed this year.

     Across the State, there is a veritable litigation explosion,
    in Jefferson County, for example, there are only about 9,740
    residents--but the number of lawsuits filed in 1999 numbered 10,000. A
    year later, in 2000, the number of plaintiffs on the docket increased
    to 27,000, or nearly three times the number of residents. The
    Washington Times, May 11, 2002.
    Nevada
     In August, Nevada Governor Guinn called a special legislative
    session to address medical liability issues. In just four days, Nevada
    legislators enacted a meaningful liability reform bill.

     Unfortunately, while Nevada passed needed reforms, the crisis
    there has not yet been averted due to continued lack of availability
    and affordability of medical liability insurance. Insurers in Nevada
    have not yet reduced their premiums and physicians are still leaving
    the state, particularly in Southern Nevada.

     Why? Because the trial bar has threatened to institute legal
    challenges to this new law that could thwart and delay its
    implementation. Without the full force and effect of reforms right now,
    the scenario that has crippled access to medical care in Nevada will
    continue.

     60 percent of Las Vegas-area Ob-Gyns have said they would
    stop delivering babies in 2002 because of the out-of-control legal
    system and skyrocketing liability premiums.

     as Vegas' only trauma center, which treated more than 11,000
    patients in 2001, closed for 10 days in July 2002 because it did not
    have enough surgeons to staff the center.

     When a trauma center closes, ``some patients are going to die
    that wouldn't die . . . the quicker you're at the trauma center, the
    better chance you have of survival,'' a Las Vegas surgeon told NPR. The
    next closest trauma center is at least 5 hours away.

     ``There is an unavailability of [medical liability]
    insurance,'' said Nevada State Insurance Commissioner Alice Molasky-
    Arman, at a March 4, 2002 hearing where insurance officials testified
    they would no longer insure any new obstetricians, surgeons and other
    high-risk specialists.

     A Las Vegas Ob-Gyn was forced to close her practice and leave
    30 pregnant patients behind because her liability insurance increased
    from $37,000 to $150,000 in one year. She now practices in Los Angeles
    and pays only $17,000. Some Nevada women have had to call as many as 50
    Ob-Gyns just to find one who is accepting new patients.

     Nevada ranks 5th among states with the highest physician
    liability premiums (at $94,820 per year), but only 47th out of 50
    states in the number of physicians for its population, according to the
    American College of Obstetricians and Gynecologists. An ACOG survey
    concludes that 6 out of 10 Nevada Ob-Gyns will no longer practice
    obstetrics.

     ``Approximately 100 Las Vegas physicians have already left
    Nevada to practice elsewhere, announced they will be closing their
    practices, or retire early because they cannot afford doubling,
    tripling, or quadrupling rates,'' according to the Nevada State Medical
    Association.

     In Las Vegas, it is expected that more than 10% of the
    physicians will stop practicing or relocate, further adding to the
    crisis in the state. Los Angeles Times, March 4, 2002.

     Recently, five trauma surgeons and 26 specialty surgeons made
    the difficult decision to resign or request leave from the University
    of Las Vegas Medical Center's trauma center. Some plan to leave June 30
    and others July 31. This was expected to reduce by half the number of
    urologists, spinal surgeons, neurosurgeons, orthopedic surgeons, and
    cardiothoracic surgeons who could be on call to aid patients with life-
    threatening injuries. Las Vegas Review-Journal, June 6, 2002.

     Obstetricians and gynecologists remain particularly hard hit,
    who, like trauma centers, face premium increases of as much as 500
    percent. Las Vegas Review-Journal, March 6, 2002.

     Earlier this summer President Bush spoke with Jill Barnes, a
    Nevada resident who is more than two months pregnant. Mrs. Barnes and
    her husband were recently told by their home physician that he would
    not be accepting any new obstetrics patients. Unable to find a Las
    Vegas-area obstetrician to treat her, Mrs. Barnes has been forced to go
    out of state to find one. ``When she goes into labor, she'll have to
    drive across the desert for two hours'' to Arizona, her husband told
    the Las Vegas Review-Journal. The Washington Times, July 31, 2002.

     Point in fact, Dr. Shelby Wilbourn, a Las Vegas-area
    obstetrician-gynecologist has cut staff, stopped taking new patients
    and decided to leave the state (he's going to Maine) after his
    insurance premium jumped from $33,000 to $80,000 this year. The
    Washington Times, July 31, 2002.
    New Jersey
     A multi-physician practice in Teaneck, NJ, was forced to
    layoff employees and reduce the number of deliveries it performed
    because of medical liability insurance premium increases of more than
    120 percent. ``All of my colleagues are experiencing the same
    pressures,'' said George Ajjan, MD. Bergen Record, May 22, 2002.

     One out of every four hospitals--nearly 27 percent--has been
    forced to increase payments to find physicians to cover Emergency
    Departments. Physicians are increasingly reluctant to take on such
    assignments because of the greater liability exposure. Hospitals report
    that more and more physician specialties are being hit by the crisis.
    While a previous New Jersey Hospital Association survey in March 2002
    found that OB/GYNs and surgeons were primarily affected, the new survey
    finds a deepening impact for neurologists/neurosurgeons, radiologists,
    orthopedists, general practitioners and emergency physicians. New
    Jersey Hospital Association, Jan. 28, 2003 news release.

     ``We have as much to lose as they have,'' said Joan Hamilton,
    a patient who attended a recent rally in New Jersey in support of her
    physician. Bergen Record, Oct. 6, 2002.

     Physicians, nursing homes and hospitals are all in jeopardy.
    Liability premiums for hospitals increased more than 150% over the past
    3 years. A N.J. American Hospital Association survey found that nearly
    2/3 of hospitals had one or more instances where physicians were forced
    out of medicine because of high premiums.

     64.8 percent of all New Jersey hospitals said they have had
    physicians stop practicing medicine or plan to stop because of the
    state's liability crisis.

     New Jersey's largest insurer, the MIIX company, declared May
    9, 2002, it is getting out of the medical liability business.
    Previously, MIIX insured 7,000 physicians--nearly 40% of the state.
    MIIX previously left the medical liability insurance markets in Ohio,
    Pennsylvania and Texas, citing those states' out-of-control legal
    climates as an unacceptable business risk.

     After years of only a few large jury awards, New Jersey had
    26 greater than $1 million in 2001, and is averaging one a week in
    2002, MIIX President Patricia Costante told the Philadelphia Inquirer
    June 4. New Jersey has no limits on non-economic damages in medical
    liability cases.

     New Jersey physicians are also facing difficulty finding new
    insurance because PHICO, which insured 9%, and St. Paul, with 6% of the
    market, have pulled out.

     After making the difficult decision to no longer deliver
    babies, one New Jersey obstetrician will see his liability insurance
    rates plummet from $82,000 to $8,000. ``I'm devastated,'' one of
    patients told the Atlantic City Press.

     New Jersey physicians are predicting as many as 25% of the
    state's Ob-Gyns will be unable to afford liability insurance if nothing
    is done to stabilize the market. According to the Medical Society of
    New Jersey, premiums for Ob-Gyns have risen 50% to 200% over the past
    year.

     The New Jersey Supreme Court ruled May 29, 2002, that ER
    doctors are not immune from lawsuits under the state's good Samaritan
    law and may be sued for malpractice.

     Some general surgeons are seeing rate increases from $30,000
    to $110,000. Zurich, one of the remaining liability insurance carriers
    has informed physicians it will raise rates 120 percent.
    New York
     New York physicians still pay, in most instances, the highest
    medical liability premiums in the country. Ob-Gyns' average premium is
    $144,973, according to the American College of Obstetricians and
    Gynecologists.

     New York continues, by far, to lead the country in total
    medical liability payouts, with $633 million total in 2000. That is 80%
    more than the state with the second highest total, Pennsylvania (at
    $352 million), and 300% more than California (at $200 million). Average
    medical liability verdicts have skyrocketed recently, going from an
    average of $1.7 million in 1994 to $6 million in 1999.

     ``The number of doctors leaving Erie County last year doubled
    from the previous year, a trend that continues in 2002,'' wrote Donald
    Copley, MD, an officer of the Erie County Medical Society in Business
    First of Buffalo. ``I've watched sadly as valued colleagues have left
    Erie County and even the profession. A competent young specialist
    recently quit doing high risk diagnostic procedures to become a
    business consultant. Several local obstetricians have stopped
    delivering babies to reduce their insurance expenses. A half dozen
    nationally-known doctors have quietly left Western New York. The number
    of doctors leaving Erie County last year doubled from the previous
    year, a trend that continues in 2002.'' Buffalo Business First, April
    15, 2002.

     The Medical Society of New York says the trend of physicians
    leaving New York State or retiring early is happening across the state.

     ``The rising cost of malpractice coverage is becoming one of
    the most important factors driving inflation for physicians'
    services,'' said a managing director of the Carlyle Group, the
    investment group for The New York Times.
    Ohio
     The Ohio Supreme Court has overturned three tort reform
    measures in the past 15 years. Following the state Supreme Court's 1995
    overturning of the state's tort reforms, premium increases and jury
    verdicts began rising. Family physicians in rural areas are
    increasingly no longer performing obstetrical services. Recently, Ohio
    again enacted medical liability reforms, but it is too soon to tell if
    the courts there will let these reforms take root.

     Meanwhile, according to a recent Ohio State Medical
    Association survey, 79% of Ohio physicians reported an increase in
    their medical lawsuit insurance costs over the last two years, with an
    average increase of 41%. And 51% of Ohio physicians are contemplating
    early retirement, while 15% are considering or have relocated their
    practices, as a result of rising costs.

     Physician groups in Cincinnati are seeing increases between
    20 and 100%. ``I expect this to get worse,'' Ken Folz, CEO of Patient
    First, told the Cincinnati Business Courier.

     According to Daniel J. McLaughlin, a vascular surgeon in
    Cleveland, some specialists in the region have seen their malpractice
    premiums increase 600 percent this year, and typical premiums for
    surgeons with just three or four years of experience have doubled or
    tripled, to from $50,000 a year to as much as $100,000 or more. Health
    Leaders Magazine, Sept. 2002.

     In July, Westlake oncologist Dr. Romeo Diaz was faced with an
    insurance premium of $80,000--double what he paid last year. He would
    have gone out of business had it not been for his patients, who raised
    the needed $40,000 to help Diaz stay insured. ''At first I thought he
    was playing,'' said Kathy Fritsch, a patient of Diaz for 10 years.
    ''But when he looked up at me, he was crying. He said his insurance
    rose from $40,000 last year to $80,000 this year. It used to be
    $20,000.'' Morning Journal, July 31, 2002.

     Dr. William Hurd, chairman of the department of obstetrics
    and gynecology at the Wright State University School of Medicine, said
    the liability insurance issue already is driving young doctors out of
    the Dayton area. ``In the last two years, not a single one of our (OB/
    GYN) residents has set up a practice in Dayton, or even Ohio,'' Hurd
    said. Dayton Daily News, Aug. 28, 2002.

     The average jury verdict in Ohio was $11.7 million in 2001.
    In 2000, it was $8.6 million.

     Physicians in Cleveland are being forced to lay-off staff and
    discontinue high-risk procedures, reported the Cleveland Plain Dealer
    February 18, 2002.

     After not replacing a retiring office manager and moving to a
    smaller office, a 55-year-old Cleveland-area surgeon who was only sued
    once quit practicing medicine rather than accept an 80% liability
    premium insurance increase. Another surgeon, who has never been sued,
    no longer performs high-risk procedures and saw his insurance rates
    jump from $40,000 to $90,000 in one year.

     ``If I were advising medical students now, I would tell them
    to take a real hard look at going into some of these high-risk
    specialties,'' John Bastulli, MD, told the Plain Dealer.

     Ohio ranked among the top five states for premium increases
    according to the Medical Liability Monitor.

     ``My premium jumped this year from $14,000 to $35,000. I
    can't afford to continue obstetrics at that price. I'll have to give up
    delivering babies as of Jan. 1, 2003. I practice in a primarily rural
    area, and there isn't any other obstetrical care here, so expectant
    women will have to drive long distances to receive prenatal care. Some
    75% of my patients don't have the financial resources to do so. Yet,
    studies have shown that proper prenatal care fosters healthier newborns
    and healthier newborns cost society less money. I find it difficult to
    accept that my liability insurance premiums will force me to give up a
    side of my practice that has meant a lot to me and to my patients, but
    I'll have no recourse.''--A Mt. Gilead family practitioner.

     ``We've done the math: If we're going to take care of this
    debt (our annual insurance payment will increase from $100,000 to more
    than $500,000), our service is going to go out the window. To recoup
    the loss, we'd have to add 400 patient visits a month. You can't turn
    Ob-Gyn into a factory.''--A Columbus obstetrician-gynecologist.

     ``I just sat down with paper and pencil, and it became not
    financially rewarding to stay.''--An Athens obstetrician-gynecologist,
    in reference to why he retired from his practice early.

     ``I practice in southern Ohio in a town of 7,000. We have a
    small community hospital with a family birth center. There are three of
    us who do obstetrics--two family practitioners and one OB/GYN. In order
    to break even, our unit needs 150 deliveries a year. That is 50
    deliveries each. If we go over 30 deliveries now, our premiums are in
    the $40-60,000 range, which is impossible financially. We are
    struggling with limiting our ob to 30 each, but that will cause the OB
    unit to go under and close. We all love ob, and are well trained in
    providing high-risk OB care, but we're going to be forced to stop. If
    this occurs, there will be no OB care between Athens and Lancaster,
    Ohio. Tort reform needs to occur yesterday!''--A Logan family
    practitioner

     ``I'm just postponing the inevitable. If the situation
    doesn't change, I could be insolvent in five years and have to close my
    practice. I'm only 49. Who will care for my patients? Discontinuing
    obstetrics is not an option. We need help!''--A Dayton obstetrician

     ``In the past two years, my medical liability premiums have
    increased more than 50%. I have no claims, graduated first in my
    medical school class, and was chief resident at OSU. I had been
    treating some of my chronic pain patients with acupuncture (medical
    research documents decreased pain and decreased inflammation with
    acupuncture). Due to the skyrocketing medical liability premiums, I
    will have to stop offering this treatment for these patients to try to
    decrease my costs of insurance.''--A Columbus physical medicine and
    rehabilitation physician.

     ``My premiums increased significantly, but my reimbursement
    level is down because of the Medicare cuts. In order to stay in
    practice, I had to float a loan from my pension fund. I am actively
    looking to leave this state. I know of one colleague who gave up his
    private practice and went to work at the local VA hospital, so they
    would cover his liability premium.--A Warren cardiologist.

     ``This five physician practice recently had to give up
    obstetrics due to our rates. We have been committed to delivering full-
    range family practice...true womb to tomb medicine. We had to send our
    patients to local OBs. We and our patients are devastated by this turn
    of events.''--A Medina family practitioner

     ``After a mad scramble to obtain insurance, it came down to
    5:45 p.m. on the day before my insurance expired to obtain insurance. I
    was literally 15 minutes from having to close a practice that cares for
    over 4,000 people in this town.''--A Coldwater family practitioner

     ``We have an obstetrician-gynecologist retiring because his
    insurance company pulled out of Ohio. To buy a tail and the new policy
    would cost this man $140,000, which he couldn't afford to do.''--A
    Rossford obstetrician-gynecologist.

     ``I was told two months ago that I will have no insurance
    after the 11th of September. I have had no claims filed against me.''--
    An Akron general surgeon

     ``My carrier has refused to cover me for bariatric
    procedures. I have had to turn patients away who need this service.''--
    A Massilon general surgeon
    Oregon
     Rural families in John Day, Hermiston, and Roseburg counties,
    Oregon have either lost obstetric care or have seen services
    drastically reduced. The Business Journal of Portland, Jan. 10, 2003.

     Only by dropping obstetrics were two Hermiston physicians
    able to afford their liability insurance premiums. ``It's something you
    don't like to tell patients,'' said Doug Flaiz, MD. The Oregonian, Oct.
    29, 2002.

     ``No one with $100,000 in debt from medical school wants to
    start a practice in a place where they could find themselves completely
    broke and having to pick up and go somewhere else to start all over
    again,'' said Rosemari Davis, CEO of Willamette Valley Medical Center,
    who has seen three of her center's family practitioners stop delivering
    babies. The News Register, Jan. 28, 2003.

     In 1999, the Oregon Supreme Court overturned the State's law
    capping non-economic damages. Since then, multi-million dollar claims
    have become commonplace, according to the Oregon Medical Association.

     Since the 1999 decision, Oregon physicians are experiencing
    rapidly rising premiums and insurers becoming more reluctant to offer
    policies to physicians, such as Ob-Gyns and surgeons, who perform high-
    risk procedures.

     Recent jury verdicts include: $8 million, $8.5 million, $10
    million and $17 million.

     Rural patients in Oregon are being particularly hard hit. A
    small town clinic, Roseburg Women's Healthcare, which delivered 80% of
    the babies for the area, closed its doors in May 2002 because its
    liability insurance was canceled after one large lawsuit. ``We consider
    this a medical crisis for the community,'' Mercy Medical CEO Vic
    Fresolone told the Associated Press.

     The Roseburg clinic physicians paid $17,000 per physician per
    year in 2001 for medical liability insurance and are now receiving
    quotes for $80,000-100,000 per physician.

     Oregon's only academic health center--the Oregon Health &
    Science Center--reports fewer medical students are applying for its Ob-
    Gyn residency positions. Ob-Gyn residents elsewhere reportedly are
    increasingly concerned about setting up practice in Oregon due to the
    state's broken liability system.

     A major liability insurer, Northwest Physicians Mutual
    Insurance Company, announced in 2002 it would not write new policies to
    obstetricians. Remaining insurers are raising rates by 60% or more.

     ``We lost $12.5 million last year (2001),'' Jim Dorigan, CEO
    of Northwest Physicians Mutual, told the Portland Business Journal June
    21st. Dorigan also said the company no longer is renewing policies for
    any physician who delivers babies.

     A level-III trauma center in Rogue Valley is dropping its
    trauma designation to obtain professional liability insurance. Rates
    would have been unaffordable if neurosurgery continued to be performed.
    Pennsylvania
     According to the Pennsylvania Medical Society Alliance, 919
    doctors have decided to leave the Keystone State or have scaled back
    their practices as premiums spiraled upward over the past three years.
    The Baltimore Sun, Feb. 5, 2003.

     Dr. Anthony Clay never thought he would have to leave
    Philadelphia. He has spent his whole life there--growing up and
    attending college, medical school, and residency to become a
    cardiologist. He treats families he has known since boyhood. He likes
    knowing where his patients live, work, and shop. All nine of his
    siblings still live there. But, Dr. Clay is leaving his practice in
    Philadelphia this Spring because of surging malpractice insurance
    rates. He is starting over in Delaware, where his insurance costs will
    drop from roughly $70,000 a year to $8,000. ``It's been terrible,''
    said Dr. Clay, 40. ``In this field, you've been with the patient, and
    also the family, in some of their most life-defining moments--in the
    throes of a heart attack with no blood pressure. Wrongly or rightly,
    the patient credits you with being there when they weren't doing so
    well. You realize you've created a bond. I take that very seriously.''
    Baltimore Sun, February 5, 2003.

     Brian Holmes, MD, is one of an estimated 18 percent of
    Pennsylvania neurosurgeons to have left the state, retired, or limited
    his or her practices because of the medical liability crisis. ``It
    saddened me to move, but I had no choice. It was either move or go out
    of business.'' Philadelphia Business Journal, Sept. 25, 2002.

     After 25 years of practice, OB/GYN Michael Horn, MD, stopped
    delivering babies in 2002 because of the fear of getting sued. ``It's
    just the potential, the not knowing if someone will seek an outlandish
    reward. I don't want to expose myself or my family.'' Burlington County
    Times, Oct. 2, 2002.

     Medical students are less likely to seek residencies in
    Philadelphia, and residents are less likely to stay and practice in the
    area because of ``prohibitively high'' medical liability insurance
    rates, according to Jefferson Medical College professor Stephen L.
    Schwartz, MD. Associated Press, Oct. 4, 2002.

     OB/GYN Lawrence Glad, MD, used to deliver about 500 babies a
    year--40 percent of all the babies born in Fayette County annually.
    After his premiums skyrocketed from $57,000 to $135,000, however, he
    closed his practice in the fall of 2002. Pittsburgh Business Times,
    Nov. 18, 2002.

     Mercy Hospital chief of surgery Charles Bannon, MD, has
    watched numerous physicians leave Scranton and Lackawanna County--
    creating a shortage of surgeons, fewer medical school applications and
    residencies. ``It will take generations to get back the quality of
    medicine in Philadelphia.'' Scranton Times, Nov. 20, 2002.

     Physicians across the ``Keystone State'' have left, retired,
    and stopped performing high-risk procedures. Those who have stayed face
    skyrocketing premiums, extremely nasty legal climate. Methodist
    Hospital in South Philadelphia closed its maternity ward and prenatal
    program last year because of unaffordable medical liability insurance
    rates. Mercy Hospital of (South) Philadelphia announced June 19, 2002
    it would closed its ob ward August 23rd.

     Pennsylvania has the second highest payouts in the country
    for medical liability lawsuits. Pennsylvania's total in 2000 was
    $352,309,905--nearly 10 percent of the national total despite having
    less than five percent of the national population.

     Orthopedic surgeons in Pennsylvania face insurance premiums
    of nearly $100,000. In California, which has strong tort reforms,
    orthopedic surgeons pay an average of $36,310 for yearly liability
    insurance coverage.

     A recent poll, conducted by Susquehanna Polling Research,
    shows that 31 percent of doctors participating in the study had their
    existing liability insurance cancelled or non-renewed for 2002.

     72% of Pennsylvania doctors have deferred the purchase of new
    equipment or hiring of new staff because of out-of-control liability
    costs.

     270 employees at the Jefferson Health System in Philadelphia
    have recently lost their jobs to skyrocketing liability insurance
    costs. The Einstein Network laid-off 127 workers and eliminated 52
    vacant positions in April 2002, citing rising liability costs as the
    prime factor.

     Philadelphia County, which has one of the worst liability
    climates in the nation, has seen its surgical specialist population
    decrease 13.4% from 1995 to 1999. The average jury award in
    Philadelphia County is $970,000 while the rest of state's average is
    $420,000.

     A shortage of radiologists willing to read mammograms has
    increased the wait time for screening mammograms at most major
    hospitals to two to three months, according to the Pennsylvania patient
    advocacy group Concerned Citizens for Care.

     The Level-II trauma center at Brandywine Hospital in
    Coatesville closed June 10th, because of rising malpractice insurance
    rates. Area trauma patients are now being transported more than 30
    miles away to hospitals in Philadelphia and Lancaster. The Washington
    Times, July 17, 2002.

     ``As I look around and see my friends retiring early or
    leaving Pennsylvania, I wonder who will be next,'' Meadville physician
    Tom Arno, MD, wrote in USA Today.

     414 medical liability lawsuits were filed in Philadelphia
    County in February 2002--five times the average number filed during the
    month over the previous decade, reported the Philadelphia Inquirer.

     One-quarter of respondents to an informal poll conducted by
    the American College of Obstetricians and Gynecologists say they have
    stopped or are planning to stop practicing obstetrics.

     Statistics compiled for the Pennsylvania Medical Association
    by Caso Consulting indicate it costs $96,199 to cover an orthopedic
    surgeon in Pennsylvania, compared with $37,783 in Delaware, and $36,291
    in New Jersey. Best's Insurance News, January 7, 2002.

     Howard A. Richter, a neurosurgeon and president of the
    Pennsylvania Medical Society, said a 2001 survey by the medical society
    showed that 72% of doctors have either deferred the purchase of new
    medical equipment or have not hired needed staff because of ``sudden
    and sharp increases'' in insurance rates. Best's Insurance News,
    January 21, 2002.

     ``To lower their risk and insurance premiums, doctors who
    normally would take on high-risk medical procedures are opting not to
    do so. For example, we've seen obstetrician/gynecologists give up
    delivering babies. Virtually every medical liability insurance carrier
    increased their rates in recent years. From the beginning of 1997
    through September 2001, major liability insurance carriers writing in
    Pennsylvania increased their overall rates between 80.7 percent and
    147.8 percent.'' York Daily Record, January 20, 2002.

     Driving premiums through the roof are excessive sums awarded
    in malpractice suits. Medical liability payments for physicians in 2000
    totaled $3,908,113,303. York Daily Record, January 20, 2002.
    Texas
     In the ``Lone Star State'' medical liability insurance
    premiums for physicians have skyrocketed as much as 300 percent in some
    regions and for some specialties, acccording to the Texas Medical
    Association. As a result, there is only one neurosurgeon serving
    600,000 people in the McAllen area.

     In the past two years, four South Texas patients with head
    injuries died before they could be flown out of the area for medical
    attention. As reported in a July 10, 2002, article in The Courier, a
    community family practice clinic in Conroe (just north of Houston) was
    recently forced to turn away half of its normal patient load because
    its liability insurance provider would not provide coverage while
    ``highly lawsuit-risky obstetrics training was conducted.''

     Even though the Texas legislature has passed medical
    liability reforms, the Texas Supreme Court has regularly overturned
    them.

     Medical liability premiums were expected to increase by at
    least 20 percent and perhaps as much as 75 percent in 2002, according
    to the Texas Department of Insurance. San Antonio Express-News, April
    8, 2002.

     In 1999, 17 companies offered malpractice coverage to doctors
    in Texas. Today, the field has dwindled to only four, and Texas is
    considered the least profitable state for liability carriers. The
    Dallas Morning News, September 1, 2002.

     Moreover, premiums this year have climbed at triple-digit
    rates for many of Texas' 36,000 physicians. That's on top of double-
    digit increases in prior years. Now it's not uncommon for doctors in
    high-risk specialties such as trauma surgery, emergency medicine, and
    orthopedic surgeries and obstetrics to pay more than $ 100,000 annually
    for coverage. This means that some 6,100 Texas physicians are
    scrambling to find liability insurance.

     The Doctor's Company, a national insurer, told the Dallas
    Morning News the company is selective about which types of physicians
    it will cover. ``Texas is a very dangerous venue, and we don't really
    encourage . . . [growth] from there--not without tort reform,'' said
    senior vice president Jack Myer.

     In South Texas, one jury awarded $43 million to a woman who
    claimed a diabetes drug damaged her liver, while another gave $15
    million to three women who received faulty hip implants. The Wall
    Street Journal, May 1, 2002.

     6 of every 7 medical liability claims in Texas are closed
    with no fault found on the doctor's part. Nonetheless, tens of millions
    of dollars are spent fighting these cases.

     Family physician Marissa Iniga, MD, has been sued 12 times in
    the past 13 years. All of the lawsuits were dropped but her insurance
    premiums still went up 200 percent. Her situation is mirrored by many
    physicians throughout Texas.

     Several physicians in Corpus Christi have been sued by
    patients they have never seen, but it required thousands of dollars to
    have the cases dismissed.

     Currently obstetrician/gynecologists in Cameron, El Paso and
    Hidalgo Counties are paying one carrier a premium of $102,584 annually
    compared to their counterparts in Dallas County who pay $59,221.
    Another carrier charges thoracic surgeons in Cameron, El Paso and
    Hidalgo Counties $79,218 annually compared to $57,395 for those
    practicing in Dallas County.

     70% of Texas physicians who practice near the U.S.-Mexico
    border have had medical liability claims filed against them, and 60%
    have been sued, according to the Texas Medical Association. 55% of
    physicians there are inclined to leave the border and practice
    elsewhere or retire during the next 12 months; 71% to 76% of border
    doctors say they cannot recruit new doctors to the border due to
    lawsuit crisis, and 1 out of 3 border physicians have had insurance
    carriers decide to stop writing coverage.

     The high cost of malpractice insurance for local doctors is
    driving them away from Laredo. The three main issues for this exodus
    are the high price of malpractice insurance for border area physicians,
    tort reform and the fact that Medicaid and Medicare do not reimburse
    border area physicians proportionate to what they do farther north,
    director of Community education/Physician Relations Mindy Casso said.
    Laredo [Texas] Morning Times.

     The second-highest premiums for obstetricians/gynecologists
    are paid in Houston, Dallas and Galveston, Texas, where the bills
    amounts to some $160,746 a year. Orlando Sentinel, January 20, 2002.

     ``Dr. William F. Tucker, an orthopedic surgeon, figured he'd
    try to curb the cost of his malpractice insurance premium by abandoning
    spinal surgeries and reducing his emergency room calls. Both decisions
    cut down on his income but provided him with a greater sense of
    security as malpractice lawsuits against doctors become more common in
    Texas and the nation. Then came the shocking news that his premium
    would rise by 63 percent to $38,000.'' The Dallas Morning News, January
    20, 2002.

     The problem is particularly acute in Texas, where 51.7
    percent of all physicians in 2000 had claims filed against them,
    according to the Texas Medical Examiners Board. Although no concrete
    numbers are available as a comparison, several industry experts say the
    frequency is twice the national average. The Dallas Morning News,
    January 20, 2002.

     In Texas, about 85 percent of cases are closed without
    payment to plaintiff, yet they still cost money to resolve, said Texas
    Medical Liability Trust president W. Thomas Cotton. The Dallas Morning
    News, January 20, 2002.

     Insurance carriers in Texas paid more than $381 million in
    claims in 2000, according to the Texas Department of Insurance--costs
    passed on to policyholders. That's an 87 percent increase since 1995.
    Nationally, the median malpractice award more than doubled from 1994 to
    1999, to $800,000. The Dallas Morning News, January 20, 2002.

     Texans filed 4,501 claims in 2000, up 51 percent from 1990,
    according to the Texas Medical Examiners Board. More troublesome is the
    rise in expenses involved in resolving a case. Each claim cost an
    average of $68,681 to litigate in 2000, compared with $46,079 in 1995.
    The figure does not include the amount of settlement or award. The
    Dallas Morning News, January 20, 2002.

     Meanwhile, physicians in the Rio Grande Valley are in crisis,
    said Texas Medical Liability Trust president W. Thomas Cotton. An Ob-
    Gyn in North Texas pays $47,500 annually for $500,000 in coverage,
    while his Rio Grande Valley counterparts pay $82,300. Neurosurgeons pay
    even higher premiums. The Dallas Morning News, January 20, 2002.

     Seven in 10 Rio Grande Valley doctors have had medical
    liability claims filed against them. A February 2001 survey by the
    Texas Medical Association found that 1 in 3 Valley doctors say their
    insurance providers have stopped writing liability insurance. The
    Dallas Morning News, January 20, 2002.

     In Rio Grande Valley, half of the physicians admitted to
    being inclined to leave the area or to retire, according to a survey
    conducted in February 2001 by the Texas Medical Association. Many
    doctors in the Valley said they profile patients and refuse to treat
    some, because they fear the patients are prone to sue. They said they
    deny care for people who pay with cash, because the patients are most
    likely poor and may look at a lawsuit like a lottery opportunity. Some
    physicians are even hesitant to respond to a ``code blue,'' which
    indicates a medical crisis, in a hospital. Dr. Carlos Cardinez, a
    gastroenterologist in McAllen, said he doesn't want to respond anymore
    because of the legal uncertainty. The Dallas Morning News, January 20,
    2002.

     Increases in medical practice costs have outstripped revenue
    increases over the last 10 years, according to the Medical Group
    Management Association's 2000 cost survey. Operating costs for
    multispecialty groups went up an average of 35 percent over the past 10
    years, while revenue increased 21 percent over that same period. The
    Dallas Morning News, January 20, 2002.
    Washington
     ``There is a growing crisis in medical malpractice in
    Washington state and nationally,'' state insurance commissioner Mike
    Kriedler said in an April 2002 news release.

     `Patients in many communities are finding that their
    physicians have either started limiting their services or have closed
    their doors completely due to rising malpractice premiums,'' said Dr.
    Maureen Callaghan, president of the Washington State Medical
    Association. PR Newswire, Feb. 3, 2003.

     ``I went through my mourning and my grieving, and now I have
    to find a place for my [380] patients,'' said a South Send internist
    who has not been sued but can no longer afford liability insurance
    coverage.

     The cost of medical malpractice insurance has soared so high
    that Mount Vernon obstetrician Robert Pringle, MD, has stopped
    delivering babies, according to the Puget Sound Business Journal.

     So have his two colleagues at the North Cascade Women's
    Clinic, and so have others. ``Of the nine obstetricians in our
    community, six have stopped delivering babies or left the area,''
    Pringle said.

     When he began his practice 20 years ago, Pringle paid a
    premium of $1,000 for medical malpractice insurance, which covers
    physicians against claims of injury resulting from negligent medical
    care. ``Now it's in the neighborhood of $60,000,'' he said. ``From an
    economic standpoint, you would have to be a lunatic to continue private
    practice of obstetrics.'' Puget Sound Business Journal.

     The severe premium hikes besetting many doctors ``could not
    come at a worse time,'' said Dr. Sam Cullison, president of the
    Washington State Medical Association. Cullison said the high cost of
    malpractice insurance has combined with low reimbursement rates from
    Medicaid, Medicare and private insurers to clamp many doctors in a
    financial squeeze. As a result more physicians are retiring early, or
    leaving the State, he said. Also, it's increasingly difficult to
    recruit doctors from other states.'' Puget Sound Business Journal.

     ``Everyone is in the same situation in terms of increasing
    premiums, increasing overhead and decreasing reimbursement,'' said
    Olympia neurologist Maureen Callaghan, MD. ``The final end point,'' she
    added, ``is that people are not to be able to get in to see a doctor.''
    Puget Sound Business Journal.

     During the past five years, medical liability premiums paid
    by orthopedic surgeons increased 30 percent, to nearly $40,000, and
    premiums paid by family physicians who neither deliver babies nor do
    surgery rose 29 percent, to almost $10,000. Washington State Medical
    Association.

     In Washington, from 1999 to 2000, the median jury award rose
    43 percent. Last year, seven medical malpractice verdicts or
    settlements exceeded $1 million. They totaled $44.7 million, and ranged
    from $1.2 million to $16.2 million.

     Washington's Supreme Court overturned the state's tort reform
    law in 1989. As a result skyrocketing medical liability insurance
    premiums are forcing physicians to limit patient loads and services.
    Some physicians are choosing to move out of State and retire early as
    well.

     In the past five years, the average medical liability premium
    for a family physician has increased a staggering 74 percent, according
    to the Washington State Medical Association. For obstetricians, the
    increase has been more alarming--79 percent since 1997.

     The departure of liability insurers St. Paul and Washington
    Casualty Company from Washington have left thousands of physicians
    scrambling to find coverage.

     The Steck Medical Group, which serves 60,000 patients in
    mostly rural Washington, was forced to close its doors for a few days
    this year because it could not find liability insurance coverage. It
    re-opened only after the state insurance commissioner intervened, but
    the new policy was at a 160% increase.

     Clinics in Lewis County and Waterville also have been forced
    to close temporarily according to The Olympian.

     Recent large jury awards in Washington State include $13
    million and $16 million verdicts.
    West Virginia
     The ``Mountaineer State'' was one of the first states to
    experience wide-spread medical liability insurance problems.

     According to the West Virginia State Medical Association,
    some 100 doctors have already retired early or moved out of the state
    within the previous two years.

     That has helped drive 1 out of every 20 doctors out of West
    Virginia or into early retirement in the past two years. CNN, Jan. 2,
    2003.

     General surgeon Gregory Saracco, MD, only 49 years old, was
    forced to borrow money twice in 2002 to pay $73,000 for his liability
    insurance. His premiums for 2003 are expected to rise to $100,000. He
    is considering leaving West Virginia and while he has taken time away
    from his practice this year to decide what his options are, he said
    ``my job is to help people--I couldn't drive past an accident on the
    road and not stop. I don't know any doctor that could.'' Associated
    Press, Jan. 2, 2003.

     Although orthopedic surgeon George Zakaib, MD, was raised and
    went to school in Charleston, WV, he and his family left because of the
    state's medical liability crisis. Dr. Zakaib's premiums had increased
    to $80,000 plus $94,000 in ``tail'' coverage. Charleston Daily Mail,
    July 27, 2002.

     Fourth-year medical school student Jennifer Knight isn't sure
    she'll stay in West Virginia. The Charleston Area Medical Center says
    fewer medical students are applying to its residency programs, and
    fewer students are applying to Marshall University's medical school.
    ``I think the problem is, we have too many frivolous lawsuits,'' said
    Ms. Knight. Sunday Gazette-Mail, Nov. 24, 2002.

     The state legislature has been trying for more than a year to
    come up with a solution that will prevent more physicians from
    curtailing services or leaving the state. A state medical association
    poll found that 40% of the State's doctors are considering similar
    action to stop practicing or leave the State.

     ``It's a 'code blue' emergency'' threatening the state's
    trauma centers and other health care services in the state, WVSMA
    President Ahmed D. Faheen, MD, told The New York Times.

     Wheeling, West Virginia, has no remaining neurosurgeons,
    forcing closure of its only trauma center. Trauma patients must be
    flown by helicopter for care elsewhere.

     Across the State, the pattern is the same, trauma centers are
    closing or headed in that direction, and there is incredible difficulty
    in recruiting high-risk specialty residents.

     Earlier this year, in the State Capital, the Charleston Area
    Medical Center (CAMC) was able to keep its level-I trauma center open
    only after agreeing to help surgeons pay their liability premiums. The
    one part-time and three full-time surgeons are paying $800,000 in
    liability premiums this year, according to a report in the April 25,
    2002 Charleston Gazette.

     Now, after the loss of several orthopedic surgeons, CAMC can
    no longer offer 24-hour coverage seven days a week. That means patients
    with serious multiple injuries, usually car wreck victims, must be
    transported to other cities. Precious time that could mean the
    difference between life and death will be lost. The Charleston Daily
    Mail, August 29, 2002.

     The Medical Liability Monitor reported that West Virginia
    surgeons paid premiums of $36,094 to $56,371 a year in 2001--the
    seventh highest in the nation. This year these premiums have continued
    climbing dramatically. The Charleston Daily Mail, August 29, 2002.

     As the The New York Times has reported, the Bluefield
    Regional Center--a rural hospital--has lost 12 physicians in the
    previous two years but only has been able to find two physicians to
    replace them.

     A survey of state Ob-Gyn residents by the American College of
    Obstetricians and Gynecologists found more than half plan to leave when
    they finish training.

     Without action, the future is not bright. The Charleston
    hospital faces an 11%-41% drop in residency applications this year.
    ``We are concerned that students will not think the residency
    opportunities in West Virginia favorable in light of the recent
    problems with malpractice insurance,'' Dean James Griffith, MD, told
    the Charleston Gazette.
                                   __________
                                   APPENDIX C
                Medical Liability Crisis Affects Access to Care
                     Selected States Showing Problem Signs
               the medical liability crisis--a nationwide problem
    Alabama
     The severe liability crisis in the neighboring States of
    Mississippi, Georgia and Florida has not left Alabama untouched.

     Atmore Community Hospital has had to close its maternity ward
    because of soaring medical liability premiums, forcing pregnant mothers
    to travel 15 miles to the nearest hospital with an obstetrics
    department.
    Arizona
     Arizona has not been immune to the medical liability crisis.
    Serious access problems are already developing.

     The Copper Queen Community Hospital, was forced to stop
    delivering babies in January after a group of family physicians said
    they could no longer afford medical liability insurance.

     Pregnant mothers in this part of Arizona must now travel over
    35 miles to the nearest hospital--the only hospital left in that County
    that is still delivering babies.
    Connecticut
     The crisis may be spreading to Connecticut as evidenced by
    the recent decisions of 28 OB/GYNs to stop delivering babies.

     Some OB/GYNs in Connecticut are now paying between $120,000-
    160,000 per year in insurance premiums, according to state medical
    society executive Tim Norbeck.

     Connecticut already is on a ``watch'' list issued by the
    American College of Obstetricians and Gynecologists. Hartford Courant,
    Jan. 3, 2003.

     The average payment made by one of Connecticut's major
    insurers to resolve a claim rose from $271,000 in 1995 to $536,000 in
    2001.

     OB/GYN Jose Pacheco, MD's, insurer stopped offering medical
    liability insurance, and he had to seek another carrier. However,
    because of the high cost of new insurance--estimated around $60,000--
    combined with ``tail'' coverage of $80,000, Dr. Pacheco retired after a
    27-year career. Hartford Courant, Nov. 17, 2002.
    Kentucky
     Health care access problems will worsen in the ``Blue Grass
    State,'' as medical liability premiums continue moving rapidly upward.

     Based on a survey by the Kentucky Medical Association,
    physicians in Kentucky have faced a recent average increase in medical
    liability premiums of 78 percent.

     Kentucky emergency department physicians have reported an
    average increase of 204 percent, with orthopedists facing a 122 percent
    increase; general surgeons facing an 87-percent average increase, and
    Ob-Gyns seeing an average increase of 64 percent.

     Deep in Appalachia, the only provider of obstetrical services
    in Barbourville soon may have to close its practice due to the
    liability crisis. Previously, this physician group had liability
    insurance coverage through St. Paul Company, the nations second largest
    malpractice insurer that pulled out of the market last year.

     This same 9-physician practice also has an office in Corbin,
    where two resident physicians from the University of Kentucky College
    of Medicine train in conjunction with Baptist Regional Medical Center.
    If the physicians are forced to close the practice, the residents will
    have to be placed out of State for the remainder of their training.
    leaving a tremendous access problem for the Kentucky women they treat.
    Massachusetts
     In the Bay State, eight of 55 OB/GYNs in Springfield,
    Massachusetts, a state which has broad exceptions to the state limits
    on non-economic damages, will no longer be offering Obstetrics care to
    their patients because of sharply escalating liability insurance costs.
    ``I got into obstetrics because it's a very happy specialty. But there
    comes a point where you can't make ends meet,'' said James Wong, MD,
    one of two OB/GYNs at a western Massachusetts clinic giving up
    delivering babies. Boston Globe, Jan. 8, 2003.

     ``The real issue is runaway juries,'' according to Barry
    Manual, MD, who serves as insurer ProMutual's chairman, and said the
    number of $1 million-plus claims paid out doubled between 1990 and
    2001. Boston Globe, Jan. 8, 2003.
    Missouri
     The State of Missouri is starting the slide into a full-blown
    medical liability crisis.

     Missouri Ob-Gyns are routinely seeing premium increases of
    200-300 percent and even upwards of 1,000 percent in some cases,
    forcing some physicians to close part or all of their practice.

     A recent survey completed by the Missouri State Medical
    Association found that 31.4 percent of the responding physicians were
    considering leaving their practice, and 28.6 percent said they would
    consider limiting their practice because of rising liability insurance
    premiums.

     This same survey showed an average premium increase for
    medical liability insurance of 61.2 percent for 2002, on top of a 22.4
    percent average increase last year.

     Neurosurgeons in Kansas City are facing an increase in
    premiums of $12,000 to $42,000 this year, with further increases
    expected next year.

     The 2002 premiums for Ob-Gyns have increased by as much as
    $50,000 from 2001. Again, further increases are expected next year.

     According to a separate survey by the Metropolitan Medical
    Society of Greater Kansas City, 40% of practices are looking for new
    coverage because their insurer has stopped writing medical liability
    coverage.

     Predictably, an access crisis to needed health care is
    developing. The St. Joseph Health Center in Kansas City recently lost
    another trauma doctor. It is now down to three. The situation is even
    worse because a local nearby trauma center has been virtually shut
    down, meaning St.Joseph's must treat double the number of patients, and
    it is having trouble finding other surgeons willing to cover trauma.

     According to the St. Louis Business Journal, access issues
    are spreading. Dr. John Anstey, an obstetrician/gynecologist, recently
    faced a difficult choice. He knew he had to cut expenses after learning
    his medical malpractice insurance premium, which cost about $26,000
    this year, would jump to $50,000 next year. Consequently, he closed his
    office in St. Ann effective July 30th. Previously, Anstey and his
    partner, Dr. Fred Monterubio, Jr., deliver about 400 babies a year
    through their practice, St. Ann OB/GYN. As a stopgap measure, Drs.
    Anstey and Monterubio were forced to move their practice to a hospital-
    based setting where they await news of their 2003 premium by October.

     The current medical liability insurance market in Missouri is
    extremely tight, with at least three insurers having pulled out of the
    market over the past year.

     Intermed Insurance Company, based in Springfield, is the
    largest provider of medical liability insurance coverage in Missouri.
    The Missouri Department of Insurance said the company had a 34 percent
    market share in 2001. The company imposed an 18 percent hike, effective
    July 1, and also put a moratorium on writing new business in Missouri.

     Andy Bennett, president and chief executive of Intermed, said
    rates went up because the severity, or average amount paid per
    settlement or verdict, has continued to go up fairly dramatically in
    Missouri. St. Louis Business Journal.
    North Carolina
     The ``Tar Heel'' state is on the verge of lapsing into a
    full-scale medical liability crisis that could seriously endanger
    access to needed health care.

     Hospitals in the Charlotte area are currently facing
    liability insurance premium increases of up to 400% this year.

     Dr. Harold Pollard, a physician with Lyndhurst Gynecological
    Associates, said ``North Carolina is on its way to being one of those
    crisis states.'' Dr. Pollard has said that liability costs are creating
    a shortage of necessary health care services. ``What that results in is
    a lack of good obstetricians. We have counties in this State that have
    no obstetricians.''

     Recently, Dr. John Schmitt, an Ob-Gyn whose insurance
    premiums tripled from $17,000 to $46,000, causing him to give up his
    practice to join the medical school faculty at the University of
    Virginia. Former patient Laurie Peel said, ``he was a great doctor.
    When you are a woman, you try to find a gynecologist who will take you
    through lots of things in life. I suffered a miscarriage. You develop a
    relationship with your doctor. To lose someone like that is very
    hard.'' Charlotte Observer, Jul. 25, 2002.

     According to the North Carolina State Administrative Office
    of the Courts, the number of medical malpractice lawsuits filed has
    increased 18 percent in the past five years.

     A greater number of medical malpractice lawsuits are ending
    in multi-million jury awards or settlements across North Carolina. In
    2001, 21 lawsuits in North Carolina resulted in multi-million awards or
    settlements. According to N.C. Lawyers Weekly, the top five recoveries
    ranged from $4.5 million to $15 million.

     Facing a 660% increase in medical liability premiums from
    $53,000 to $350,000 a year, a practicing physician who runs a chain of
    six North Carolina urgent care clinics fears that soon he will have to
    stop practicing medicine and close his clinics' doors. He needs
    liability coverage for both himself and nine other physicians employed
    by the clinics. For this year, the insurer agreed to renew at a 79
    percent increase, allowing the clinics to stay open for now. Increases
    like this will make staying in business and treating patients very
    difficult if not unsustainable.
    Oklahoma
     Oklahoma physicians are beginning to face problems in
    obtaining affordable medical liability coverage. The Oklahoman, July
    17, 2002

     According to The Tulsa World, that makes Oklahoma one of 30
    states with a problem in this area.

     The World cites the example of a Tulsa pediatrician whose
    malpractice insurance doubled this year. The Oklahoman, July 17, 2002

     Oklahoma pediatricians have far less to worry about than the
    State's obstetricians and surgeons, whose rates in Oklahoma in 2003are
    expected to rise by 25 percent to 30 percent, says the Oklahoma State
    Medical Association.
    South Carolina
     The medical liability crisis is rapidly spreading to the
    Palmetto State.

     A 10-physician OB/GYN group in Columbia had to take out a
    $400,000 loan this year to continue to provide OB services and pay
    malpractice premiums.

     In rural Oconee County, just four physicians deliver babies
    now, down from 11 physicians one year ago.

     A family practice group in Seneca was forced to drop OB
    coverage for four of their six physicians because of skyrocketing
    premiums. There are currently a total of four physicians in Seneca
    treating pregnant women.

     A solo practitioner practicing geriatrics in Charleston has
    had to quit treating patients in nursing homes because of high
    premiums.
    Tennessee
     Professional liability premiums for physicians in Tennessee
    have been steadily rising in recent years.

     According to State Volunteer Mutual Insurance Company, which
    covers most practitioners in Tennessee, premiums have increased by 45%
    over the past three years, in order to keep up with rapidly escalating
    losses in medical liability lawsuits.

     Only approximately 4% of this 45% increase was related to
    lower investment yield, with the remainder being due to increasing
    medical malpractice losses. (State Volunteer Mutual Insurance Company
    is a policyholder owned mutual company with no outside investors).

     In recent years both juries and judges in Tennessee have made
    multi-million dollar awards for non-economic damages, over and above a
    patient's actual economic losses.

     In one recent case, a jury awarded only $25,000 in economic
    damages but awarded non-economic damages of $1.6 million.

     Another case resulted in a jury award of $100,000 economic
    loss and $1.9 non-economic damages.

     A judge in another cases awarded $1,062,080 in economic loss
    and gave $4.5 million in non-economic damages. Yet another court
    awarded $687,691 in economic loss and gave $3 million in non-economic
    damages. One other jury awarded $7,811 in economic loss and a
    staggering $2.65 billion in non-economic damages.

     Award in PI and wrongful death cases are dramatically
    increasing. Tennessee's Administrative Office of the Courts reported
    that in FY 2001, even though fewer cases were disposed of in Tennessee
    than in the previous fiscal year, damages awarded statewide were more
    than $94 million, representing an increase of more than $51 million
    over the previous year. These totals were the largest since the courts
    began reporting these statistics.

     According to the same report, the average award for FY01 was
    $209,284 up $95,064 from the previous year.
    Vermont
     The current medical liability insurance crisis continue to
    show that events in one State can have a devastating effect and cause
    severe problems elsewhere.

     The failure of medical liability insurer, PHICO, which was
    shut down by the Pennsylvania Insurance Department on February 1 of
    this year, left more than a quarter of Vermont's physicians scrambling
    for medical liability insurance.

     Whenever medical liability insurance becomes too expensive or
    difficult to obtain, access to needed health care is threatened and
    typically results.
    Virginia
     Physicians in Virginia are starting to see the warning signs
    of a full-blown medical liability crisis that has engulfed their
    neighbors to the north in West Virginia, Pennsylvania and other States.
    The telltale sign is a sharp upswing in liability premiums. Over the
    past two years physician premiums have increased on average over 30
    percent.

     For some specialists, medical liability premiums in Virginia
    have increased upwards of 60 percent for this same recent two-year
    period.

     A case in point is Manuel Belandres, MD, a general surgeon
    who was is in the twilight of his career but still practicing until
    recently when he was unable to obtain tail coverage. He subsequently
    closed his practice rather than expose himself to open-ended future
    liability.

     In Virginia's western border, many physicians are no longer
    treating West Virginia patients who cross the State-line due to
    aggressive personal injury attorneys attempting to bring suit against
    Virginia physician in West Virginia courts. This has further aggravated
    the access problem for pregnant West Virginia Medicaid patients, in
    particular, and their access to needed care.

        Mr. Smith. Mr. Smarr.

     STATEMENT OF LAWRENCE E. SMARR, PRESIDENT, PHYSICIAN INSURERS
                         ASSOCIATION OF AMERICA

        Mr. Smarr. Thank you, Mr. Chairman. I am Larry Smarr,
    president of the Physician Insurers Association of America. The
    PIAA is an association comprised of professional liability
    insurance companies owned and/or operated by physicians,
    dentists, hospitals and other health care providers.
        The PIAA members can be characterized as health care
    professionals caring for the professional liability risks of
    their colleagues; doctors insuring doctors, hospitals insuring
    hospitals. But we believe that the physician-owned/operated
    insurance company members--that PIAA insures over 60 percent of
    America's doctors.
        Over the past 3 years, medical liability insurers have seen
    their financial performance deteriorate substantially, due to
    the rapidly rising costs of medical liability claims. According
    to A.M. Best, the leading insurance industry rating agency, the
    medical liability insurance industry incurred $1.53 in losses
    for every dollar of premium it collected in 2001. The industry
    data for 2002 is not yet available, but we expect this to be a
    losing year as well.
        The primary driver of the deterioration in the medical
    malpractice insurance performance has been paid claims
    severity, or the average cost of a paid claim. This has been
    confirmed by the president of the National Association of
    Insurance Commissioners in his February 7, 2003, letter to
    Senator Gregg, which is attached to my written testimony.
    Exhibit A, and you have these exhibits before you, shows the
    average dollar amounts paid in indemnity to plaintiffs on
    behalf of individual physicians since 1988. The mean payment
    amount has risen by a compound annual growth of 6.9 percent
    over the past 10 years, as compared to 2.6 percent for the
    Consumer Price Index.
        The data for this exhibit comes from the PIAA data-sharing
    project, a medical cause of loss database which was created in
    1985 for the purpose of identifying common trends among
    malpractice claims, which are used for patient safety purposes
    by the PIAA member companies.
        To date over 180,000 claims and suits have been reported.
    One very troubling aspect is the proportion of those claims and
    suits filed which are ultimately determined to be without
    merit. As shown on Exhibit B, 61 percent of all claims closed
    in 2001 were dropped or dismissed by the court. An additional
    5.7 percent were won by the doctor at trial. Only 33 percent of
    all claims were found to be meritorious, with most of these
    being paid through settlement. When claims were concluded at
    verdict, the defendant prevailed an astonishing 80 percent of
    the time.
        As shown on Exhibit C, the mean settlement amount on behalf
    of an individual defendant was just over $299,000. Most medical
    malpractice cases have multiple defendants, and thus these
    values are below those which may be reported on a case basis.
    The mean verdict amount last year was almost $497,000.
        Exhibit D shows the mean expense payment for claims by
    category of disposition. As can be seen, the cost for taking a
    claim for each doctor named in a case all of the way through
    trial is fast approaching $100,000.
        Exhibit E shows the distribution of claims payments at
    various payment thresholds. It can be readily seen that the
    number of larger payments, represented by the top segments on
    this exhibit, are growing as a percentage of the total number
    of payments. This is especially true for payments at or
    exceeding $1 million, which comprise almost 8 percent of all
    claims paid on behalf of individual doctors in 2001, as shown
    on Exhibit F. This percentage has doubled in the past 4 years.
        Investment income is very important to insurers. We rely on
    it to offset premium needs. Medical malpractice insurers are 80
    percent invested in high-grade bonds and have not lost large
    sums in the stock market. Brown Brothers Harriman, a leading
    investment and asset management firm, in a recent investment
    research report states that over the last 5 years the amount
    medical malpractice companies have invested in equities has
    remained fairly constant.
        In 2001, the equity allocation was 9 percent. As Exhibit G
    shows, medical liability insurance companies invested
    significantly less in equities than did all property casualty
    insurers. While insurers' interest income has declined due to
    falling market interest rates, when interest rates declined,
    bond values increased. This has had a beneficial effect in
    keeping total investment income level when measured as a
    percentage of total assets. This is shown on Exhibit H. Thus
    the assertion that insurers have been forced to raise their
    rates because of bad investments is simply not true.
        The PIAA firmly believes that the adoption of effective
    Federal health care liability reforms as embodied in H.R. 5
    will have a demonstrable effect on professional liability
    costs. The keystone of these reforms is the $250,0000 cap on
    noneconomic damages as passed in California over 25 years ago.
    These reforms are similar to the provisions of H.R. 4600 passed
    by the House last year and scored by the CBO as providing over
    $14 billion in savings to the Federal Government, an additional
    $7 billion to the States, because tort reforms works.
        Using annual data published by the NAIC, Exhibit I
    documents the savings California practitioners and health care
    consumers have enjoyed since the enactment of MICRA over 25
    years ago. As noted by the Chairman at the opening, total
    malpractice premiums reported to the NAIC since 1976 have grown
    in California by 167 percent, while premiums for the rest of
    the Nation have grown by 505 percent. These savings are clearly
    demonstrated in the rates charged to California doctors as
    shown on Exhibit J.
        Successful experience in California and other States with
    tort reform, such as Wisconsin makes it clear that MICRA style
    tort reforms do work without lowering health care quality or
    limiting access to care.
        The PIAA strongly urges Members of the Committee to support
    and adopt H.R. 5, which will ensure full payment of a truly
    injured patient's economic losses, as well as up to a quarter
    of a million dollars in noneconomic damages, thereby assuring
    fair compensation for patients, and also assuring Americans
    that they will be able to receive necessary health care
    services. Thank you.
        Mr. Smith. Thank you, Mr. Smarr.
        [The prepared statement of Mr. Smarr follows:]
                    Prepared Statement of Lawrence E. Smarr

                                  introduction

        Chairman Sensenbrenner, Congressman Conyers and Committee Members,
    I am Lawrence E. Smarr, President of the Physician Insurers Association
    of America (PIAA). Thank you for allowing me the opportunity to appear
    before you today and speak about the need for the enactment of H.R.5,
    The Help Efficient, Accessible, Low-cost, Timely Healthcare (HEALTH)
    Act of 2003.
        As we all know, professional liability insurance premiums for
    doctors and hospitals are rapidly rising in many states to levels where
    they cannot afford to pay them. These increased premiums are caused by
    the ever-increasing size of medical liability insurance payments and
    awards. The unavoidable consequence is that physicians are moving away
    from crisis states, reducing the scope of their practices, or leaving
    the practice of medicine altogether. Likewise, hospitals are being
    forced to close facilities and curtail high-risk services because they
    can no longer afford to insure them.

                            doctors insuring doctors

        The PIAA is an association comprised of professional liability
    insurance companies owned and/or operated by physicians, dentists, and
    other health care providers. Collectively, our 43 domestic insurance
    company members insure over 300,000 doctors and 1,200 hospitals in the
    United States and our nine international members insure over 400,000
    health care providers in other countries around the world. The PIAA
    member insurance companies can also be characterized as health care
    professionals caring for the professional liability risks of their
    colleagues--doctors insuring doctors, hospitals insuring hospitals. We
    believe that the physician owned/operated company members of the PIAA
    insure over 60% of America's doctors. Unlike the multi-line commercial
    carriers, medical liability insurance is all that the PIAA companies
    principally do, and they are here in the market to stay.
        The PIAA was formed 26 years ago at a time when commercial
    insurance carriers were experiencing unanticipated losses and exited
    the market, leaving doctors, hospitals and other health care
    professionals no choice other than to form their own insurance
    companies. A quarter century has passed, and I am proud to say that the
    insurers who comprise the PIAA have become the driving force in the
    market, providing stability and availability for those they insure.
        When the PIAA and many of its member companies were formed in the
    1970's, we faced a professional liability market not unlike that which
    we are experiencing today. At that time, insurers, all of which were
    general commercial carriers, were experiencing rapidly increasing
    losses, which caused them to consider their continuance in the market.
    Many of the major carriers did indeed exit the market, leaving a void
    that was filled by state and county medical and hospital associations
    across the country forming their own carriers. Again we see the
    commercial carriers, such as St. Paul, exiting the market. But, this
    time, the provider owned carriers are in place and are indeed providing
    access to insurance and stability to the market.
        Unfortunately, the recent exodus from and transformation of the
    market is of such magnitude that the carriers remaining do not have the
    underwriting capacity to take all comers. Facing ever-escalating losses
    of their own, many of the carriers remaining in the market are forced
    to tighten their underwriting standards and revise their business plans
    with regard to their nature and scope of operations. This includes the
    withdrawal from recently expanded markets, which adds to the access to
    insurance problem caused by carriers exiting altogether.
        My goal here today is to discuss what the PIAA sees as the
    underlying causes of the current medical liability crisis. I want to
    stress that I believe that this situation should be characterized as a
    medical liability crisis, and not a medical liability insurance crisis.
    The PIAA companies covering the majority of the market are in sound
    financial condition. The crisis we face today is a crisis of
    affordability and availability of insurance for health care providers,
    and more importantly, the resulting growing crisis of access to the
    health care system for patients across the country.
                  insurance industry underwriting performance
        Medical liability insurance is called a long-tail line of
    insurance. That is because it takes on average two years from the time
    a medical liability incident occurs until a resulting claim is reported
    to the insurer, and another two and one-half years until the average
    claim is closed. This provides great uncertainty in the rate making
    process, as insurers are forced to estimate the cost of claims which
    may ultimately be paid as much as 10 years after the insurance policy
    is issued. By comparison, claims in short-tail lines of insurance, such
    as auto insurance, are paid days or weeks after an incident.
        Over the past three years medical liability insurers have seen
    their financial performance deteriorate substantially due to the
    rapidly rising cost of medical liability claims. According to A.M. Best
    (Best), the leading insurance industry rating agency, the medical
    liability insurance industry incurred $1.53 in losses and expenses for
    every dollar of premium they collected in 2001. While data for 2002
    will not be available until the middle of this year, Best has forecast
    that the industry will incur $1.41 in losses and expenses in 2002, and
    $1.34 in 2003. The impact of insurer rate increases accounts for the
    improvement in this statistic. However, Best also calculates that the
    industry can only incur $1.14\1/2\ in losses and expenses in order to
    operate on a break-even basis. This implies that future rate increases
    can be expected as the carriers move toward profitable operations.
        The physician owned/operated carriers that I represent insure a
    substantial portion of the market (over 60%). Each year, an independent
    actuarial firm (Tillinghast Towers-Perrin) provides the PIAA with a
    detailed analysis of annual statement data filed by our members with
    the National Association of Insurance Commissioners (NAIC). This
    analysis is very revealing with regard to the individual components of
    insurers financial performance.
        Exhibit 1 below details the operating experience of 32 physician
    owned/operated insurance companies included in the analysis. A widely
    relied upon insurance performance parameter is the combined ratio,
    which is computed by dividing insurers' incurred losses and expenses by
    the premiums they earn to offset these costs. For these companies, this
    statistic has been deteriorating (getting larger) since 1997, with
    major increases being experienced in 2000 and 2001.

        For calendar year 2001, the combined ratio (including dividends
    paid) was 141, meaning that total losses and dividends paid were 41%
    more than the premiums collected. Even when considering investment
    income, net income for the year was a negative ten percent. This
    follows a meager 4 percent net income in 2000. This average experience
    is indicative of the problems being experienced by insurers in general,
    and demonstrates the carriers' needs to raise rates to counter
    increasing losses. All of the basic components of the combined ratio
    calculation (loss and loss adjustment expense, underwriting expense)
    have risen as a percentage of premium for all years shown. The only
    declining component has been dividends paid to policyholders.
        To compare this group of PIAA companies with the industry, Exhibit
    2 is taken from the 2002 edition of Best's Aggregates and Averages.
    This shows that medical malpractice is the least profitable property
    and casualty line of insurance in 2001, following reinsurance, which
    has been greatly impacted by the World Trade Center losses. The
    adjusted combined ratio for the entire industry is 153, as compared to
    141 for the PIAA carriers represented on Exhibit 1.

                         the role of investment income

        Investment income plays a major role for medical liability
    insurers. Because medical liability insurance is a ``long tail'' line
    of insurance, insurers are able to invest the premiums they collect for
    substantial periods of time, and use the resulting investment income to
    offset premium needs. As can be seen on Exhibit 3, investment income
    has represented a substantial percentage of premium, and has played a
    major role in determining insurer financial performance. However,
    investment income as a percentage of premium has been declining in
    recent years primarily due to historic lows in market interest rates.

        Contrary to the unfounded allegations of those who oppose effective
    tort reforms, medical liability insurers are primarily invested in high
    grade bonds and have not lost large amounts in the stock market. As can
    be seen in Exhibit 4, the carriers in the PIAA survey have been
    approximately 80% invested in bonds over the past seven years.

        As shown on Exhibit 5, stocks have averaged only about 11% of cash
    and invested assets, thus precluding major losses due to swings in the
    stock market. Unlike stocks, high grade bonds are carried at amortized
    value on insurer's financial statements, with changes in market value
    having no effect on asset valuation unless the underlying securities
    must be sold.

        The experience of the PIAA carriers is confirmed on an industry-
    wide basis through data obtained from the NAIC by Brown Brothers
    Harriman, a leading investment and asset management firm. Brown
    Brothers reports that ``Over the last five years, the amount medical
    malpractice companies has invested in equities has remained fairly
    constant. In 2001, the equity allocation was 9.03%.'' As Exhibit 6
    shows, medical liability insurers invested significantly less in
    equities than did all property casualty insurers.

        Brown Brothers states that the equity investments of medical
    liability companies ``. . . had returns similar to the market as a
    whole. This indicates that they maintained a diversified equity
    investment strategy.
        The Brown Brothers report further states:

            Since medical malpractice companies did not have an unusual
            amount invested in equities and what they did was invested in a
            reasonable market-like fashion, we conclude that the decline in
            equity valuations is not the cause of rising medical
            malpractice premiums.

        While insurer interest income has declined due to falling market
    interest rates, when interest rates decline, bond values increase. This
    has had a beneficial effect in keeping total investment income level
    when measured as a percentage of total invested assets. This is shown
    in Exhibit 7 below. Thus, the assertion that insurers have been forced
    to raise their rates because of bad investments is simply not true.

                              the insurance cycle

        Opponents of effective tort reform claim that insurance premiums in
    constant dollars increase or decrease in direct relationship to the
    strength or weakness of the economy, reflecting the industry's
    investment performance. The researchers at Brown Brothers also tested
    this theory, and found no correlation between changes in generally
    accepted economic parameters (Gross Domestic Product (GDP) and 5-year
    treasury bond rates) with direct medical liability premiums written. In
    fact, Brown Brothers conducted 64 different regression analyses between
    the economy, investment yield, and premiums, and found no meaningful
    relationship. The report produced by Brown Brothers states:

            Therefore, we can state with a fair degree of certainty that
            investment yield and the performance of the economy and
            interest rates do not influence medical malpractice premiums.

                                insurer solvency

        A key measure of financial health is the ratio of insurance loss
    and loss adjustment expense (amounts spent to handle claims) reserve to
    surplus. This ratio has deteriorated (risen) for the PIAA carriers
    since 1999 to a point where it is approximately two times the level of
    surplus, as shown on Exhibit 8 below.

        The relationship between reserves (amounts set aside to pay claims)
    and surplus is important, as it is a measure of the insurer's ability
    to contribute additional amounts to pay claims in the event that
    original estimates prove to be deficient. At the current approximately
    two-to-one ratio, these carriers in aggregate are still in sound
    financial shape. However, any further deterioration in surplus due to
    underwriting losses will cause a deterioration in this important
    benchmark ratio indicating an impairment in financial condition. Under
    current market conditions, characterized by increasing losses and
    declining investment interest income, the only way to increase surplus
    is through rate increases.
        Net premiums written as compared to surplus is another key ratio
    considered by regulators and insurance rating agencies, such as A.M.
    Best. This statistic for the companies in the PIAA survey has also been
    deteriorating (rising) since 1999, showing a 50% increase in the two
    years ending in 2001. The premium-to-surplus ratio is a measure of the
    insurer's ability to write new business. In general, a ratio of one-to-
    one is considered to be the threshold beyond which an insurer has over-
    extended its capital available to support its underwritings.
        As can be seen on Exhibit 9, this statistic has also deteriorated,
    and the carriers in aggregate are approaching one-to-one. As the
    carriers individually approach this benchmark, they will begin to
    decline new risks, causing further availability problems for insureds.
    Rate increases the carriers are taking also have an impact on this
    important ratio as well as new business written.

                            the cause of the crisis

        The effects described in the previous pages were caused by the
    convergence of six driving factors making for the perfect storm, as
    follows:

             Dramatic long term paid claim severity rise

             Paid claim frequency returning and holding at high
            levels

             Declining market interest rates

             Exhausted reserve redundancies

             Rates becoming too low

             Greater proportion of large losses

        The primary driver of the deterioration in the medical liability
    insurance industry performance has been paid claim severity, or the
    average cost of a paid claim, and their associated expenses. The
    National Association of Insurance Commissioners (NAIC) confirmed this
    in a February 7, 2003 letter to Senator Judd Gregg, which states in
    part: ``The preliminary evidence points to rising loss costs and
    defense costs associated with litigation as the principal drivers of
    medical malpractice prices.'' (letter attached)

        Exhibit 10 shows the average dollar amount paid in indemnity to
    plaintiffs on behalf of individual physicians since 1988. The mean
    payment amount has risen by a compound annual growth of 6.9% during
    this period, as compared to 2.6% for the Consumer Price Index (CPIu).
    The data for Exhibit 10, as well as that for slides which follow, comes
    from the PIAA Data Sharing Project. This is a medical cause-of-loss
    database, which was created in 1985 for the purpose of identifying
    common trends among malpractice claims. PIAA member companies use the
    database for risk management and patient safety purposes. To date, over
    180,000 claims and suits have been reported to the database.
        Allocated loss adjustment expenses (ALAE) for claims reported to
    the Data Sharing Project have also risen at alarming rates. ALAE are
    the amounts insurers pay to handle individual claims, and represent
    payments principally to defense attorneys, and to a lesser extent,
    expert witnesses. Average amounts paid for three categories of claims
    are shown below. As can be seen, the average amount spent for all
    claims in 2001 has risen to just under $30,000.

        One very troubling aspect of medical malpractice claims is the
    proportion of those filed which are ultimately determined to be without
    merit. Exhibit 12 shows the distribution of claims closed in 2001 as
    reported to the PIAA Data Sharing Project. Sixty-one percent of all
    claims filed against individual practitioners were dropped or dismissed
    by the court. An additional 5.7% were won by the doctor at trial. Only
    33.2% of all claims closed were found to be meritorious, with most of
    these being paid through settlement. Of all claims closed, more than
    two-thirds had no indemnity payment to the plaintiff. When the claim
    was concluded at verdict, the defendant prevailed an astonishing 80% of
    the time. This data clearly shows that those attorneys trying these
    cases are woefully deficient in recognizing meritorious actions to be
    pursued to conclusion.
        Analyses performed by the PIAA have shown that of all premium and
    investment income available to pay claims, only 50% ever gets into the
    hands of truly injured patients, with the remainder being principally
    paid to attorneys, both plaintiff and defense. Something is truly wrong
    with any system that consumes 50% of its resources to deliver the
    remainder to a small segment of those seeking remuneration.

        A review of the average claim payment values for the latest year
    reported to the PIAA Data Sharing Project (2001) is revealing. As shown
    on Exhibit 13, the mean settlement amount on behalf of an individual
    defendant was just over $299,000. Most medical malpractice cases have
    multiple defendants, and thus, these values are below those, which may
    be reported on a per case basis. The mean verdict amount last year was
    almost $497,000 per defendant.

        Exhibit 14 shows the mean expense payment for claims by category of
    disposition. As can be seen, the cost of taking a claim for each doctor
    named in a case all the way through trial is fast approaching $100,000.

        Exhibit 15 shows the distribution of claims payments at various
    payment thresholds. It can be readily seen that the number of larger
    payments are growing as a percentage of the total number of payments.

        This is especially true for payments at or exceeding $1 million,
    which comprised almost eight percent of all claims paid on behalf of
    individual practitioners in 2001 (Exhibit 16). This percentage has
    doubled in the past four years, and clearly demonstrates why insurers
    are facing dramatic increases in the amounts they have to pay for
    reinsurance. While medical liability insurers are reinsured by many of
    the same companies having high losses from the World Trade Center
    disaster, their medical liability experience was rapidly deteriorating
    prior to September 11, 2001.

        In addition to rising claim severity, like all other investors,
    medical liability insurers have faced declining market interest rates.
    Eighty percent of PIAA insurers' investments are placed in high-grade
    bonds. Exhibit 17 shows the long-term decline in high-grade bond
    earnings. As can be seen, this is not a recent phenomenon, but a long
    term trend.
        Critics of the medical liability insurance industry say that
    insurers' reliance on investment income to offset premiums has caused
    turmoil in the marketplace, implying that the use of investment income
    is a bad thing. Nothing could be further from the truth. If insurers
    did not ever use investment income to offset premium needs, then rates
    would always be 30-40% higher than otherwise necessary. The role market
    interest rates play in determining pricing in medical liability
    insurance (and other lines as well) is a fact of life which we cannot
    control.

                                   the answer

        Medical liability insurers and their insureds have faced dramatic
    long-term rises in paid claim severity, which is now at historically
    high levels. Paid claim frequency (the number of paid claims) is
    currently remaining relative constant, but has risen significantly in
    some states. While interest rates will certainly rise and fall in
    future years, nothing has been done over the past three decades to stem
    the ever-rising values of medical malpractice claim payments or reduce
    the number of meritless claims clogging up our legal system at great
    expense--except in those few states that have effective tort reforms.
    In many states not having tort reforms, costs have truly become
    excessive, and insurers are forced to set rates at levels beyond the
    abilities of doctors and hospitals to pay. States having tort reforms,
    such as California, provide a compelling example that demonstrates how
    such reforms can lower medical liability costs and still provide
    adequate indemnification for patients harmed as a result of the
    delivery of health care.
        The following reforms are those which the PIAA advocates be adopted
    at the federal level, which we also feel should be the standard for any
    state reforms enacted. They are based on the reforms found in the
    Medical Injury Compensation Reform Act (MICRA) which became effective
    in California in 1976 and which have been successful in compensating
    California patients and ensuring access to the health care system since
    their enactment.

        The keystone of the MICRA reforms is the $250,000 cap on non-
    economic damages (pain and suffering) on a per-incident basis. Under
    MICRA, injured patients receive full compensation for all quantifiable
    damages, such as lost income, medical expenses, long-term care, etc. In
    addition, injured patients can get as much as one-quarter million
    dollars for pain and suffering. Advising juries of economic damages
    that have already been paid by other sources serves to reduce double
    payment for damages. An important component of MICRA is a reasonable
    limitation on plaintiff attorney contingency fees, which can be 40% or
    more of the total amount of the award. Under MICRA, a trial lawyer must
    be satisfied with only a $220,000 contingency fee for a $1 million
    award.
        A Gallup poll published on February 5, 2003 by the National Journal
    indicates that 57% of adult Americans feel there are too many lawsuits
    against doctors, and 74% feel that we are facing a major crisis
    regarding medical liability in health care today. Seventy-two percent
    of respondents favored a limit on the amount that patients can be
    awarded for their emotional pain and suffering. Only the trial lawyers
    and their front groups disagree, seeing their potential for
    remuneration being reduced. Especially displeasing to them is MICRA's
    contingency fee limitation, which puts more money in the hands of the
    injured patient (at no cost reduction to the insurer).
        The U.S. House of Representatives adopted legislation containing
    tort reforms similar to MICRA, including a $250,000 cap on non-economic
    damages, for the seventh time in September of last year. HR 4600, known
    as the HEALTH Act, was introduced and adopted on a bi-partisan basis.
    The Congressional Budget Office (CBO) conducted an extensive review of
    the provisions of HR 4600, and reported to Congress that if the reforms
    were enacted, ``. . . premiums for medical malpractice insurance
    ultimately would be an average of 25 percent to 30 percent below what
    they would be under current law.''
        The CBO found that HR 4600 reforms would result in savings of $14.1
    billion to the federal government through Medicare and other health
    care programs for the period 2004-2012. An additional $7 billion of
    savings would be enjoyed by the states through their health care
    programs. The CBO's analysis did not consider the effects that federal
    tort reform would have on reducing the incidence of defensive medicine,
    but did acknowledge that savings were likely to result.

        The US Department of Health and Human Services published a report
    on July 24, 2002, which evaluated the effects of tort reforms in those
    states that have enacted them. As stated in Exhibit 20, HHS found that
    practitioners in states with effective caps on non-economic damages
    were currently experiencing premium increases in the 12-15% range, as
    compared to average 44% increases in other states.

        Annual data published by the National Association of Insurance
    Commissioners (NAIC) also documents the savings California
    practitioners and health care consumers have enjoyed since the
    enactment of MICRA over 25 years ago. As shown in Exhibit 21, total
    medical liability premiums reported to the NAIC since 1976 have grown
    in California by 167%, while premiums for the rest of the nation have
    grown by 505%. These savings can only be attributed to MICRA.

        These savings are clearly demonstrated in the rates charged to
    California doctors as shown in Exhibit 22. Successful experience in
    California and other states makes it clear that MICRA style tort
    reforms do work without lowering health care quality or limiting access
    to care.

        prop 103 had no effect on california medical liability premiums

        In an effort to derail desperately needed tort reforms as described
    above, the Association of Trial Lawyers of America and related
    individuals and groups have stated that the beneficial effects of MICRA
    as shown on Exhibit 21 are due to Proposition 103, a ballot initiative
    passed in 1988 aimed primarily at controlling auto insurance costs. The
    ballot initiative passed by a 51% majority vote, with voters in only 7
    of California's 58 counties approving the measure. The major changes
    made by Prop 103 include:

             Making the insurance commissioner of California an
            elected, rather than appointed, official;

             Giving the insurance commissioner authority to
            approve rate changes before they can take effect;

             Requiring insurers to reduce rates by 20 percent from
            their levels on November 8, 1987;

             Requiring auto insurance companies to offer a 20
            percent ``good driver discount.''

             Requiring auto insurance rates to be determined
            primarily by four factors;

             Allowing for payment of ``intervenor fees'' to
            outside groups that intervene in hearings conducted by the
            Department of Insurance.

        Medical liability insurers were not the intended target of Prop
    103, but were covered by the resulting regulations. However, Prop 103
    did not have any substantive effect on reducing medical liability
    insurance rates. Prop 103 did have the effect of freezing most
    insurance rates in California until as late as 1994. This all came at a
    time when medical liability insurers across the nation were seeing
    their rates level off or even decline.
        Prop 103 added a provision to the California Insurance Code at
    Section 1861.01, which required insurers to roll back their rates to 20
    percent lower than those in effect on November 8, 1987. However, this
    is not what happened to medical malpractice insurers.
        One major California insurer, the NORCAL Mutual Insurance Company
    reached the very first consent agreement of any insurer with the
    California Department of Insurance in November of 1991. To satisfy the
    requirements of Prop 103, NORCAL was specifically permitted to declare
    a one-time 20% return of premium for policyholders insured between
    November 8, 1988 and November 8, 1989 as a dividend by March 31, 1992.
    NORCAL was not required to roll back its rates as a result of Prop 103.
    As NORCAL was already paying dividends exceeding 20% per year during
    the period in question, no additional monies were returned to
    policyholders as a result of Prop 103. The experience of other
    California physician owned companies, such as The Doctors' Company and
    the Medical Insurance Exchange of California, was similar to that of
    NORCAL. Even if California medical liability insurers had been required
    to reduce rates by 20%, this in no way could explain the wide gap in
    experience shown on Exhibit 21.

                                   conclusion

        Increasing medical malpractice claim costs, on the rise for over
    three decades, have finally reached the level where the rates that
    insurers must charge can no longer be afforded by doctors and
    hospitals. These same doctors and hospitals cannot simply raise their
    fees, which are limited by government or managed care companies. Many
    doctors will face little choice other than to move to less litigious
    states or leave the practice of medicine altogether.
        Legislators are now challenged with finding a solution to the
    medical liability insurance affordability and availability dilemma--a
    problem long in coming that has truly reached the crisis stage. The
    increased costs being experienced by insurers (largely owned/operated
    by health care providers) are real and documented. It is time for
    Congress to put an end to the wastefulness and inequities of our tort
    legal system, where only 50% of the monies available to pay claims are
    paid to indemnify the only 30% of claims filed with merit and the
    expenses of the remainder. The system works fine for the legal
    profession, which is why trial lawyers and others fight so hard to
    maintain the status quo.
        The PIAA strongly urges members of the House to pass effective
    federal health care liability reform, thereby stopping the exodus of
    health care professionals and institutions which can no longer afford
    to fund an inequitable and inefficient tort system which benefits
    neither injured plaintiffs or the health care community.

        Mr. Smith. And thank you all again for your testimony.
        Mr. Smarr, let me direct my first question to you, and it
    is this: We know for a fact, for example, that jury awards have
    doubled in the last 5 years. We also know that 70 percent of
    all lawsuits filed against health care providers result in no
    payment; they may be frivolous. Those are going to have a
    dramatic impact on insurance premiums. So my question is this:
    If we enact the HEALTH Act, if that becomes law, do you expect
    the medical malpractice insurance premiums to at least not
    increase as projected, to increase as fast as expected?
        Mr. Smarr. Yes. We expect that if the HEALTH Act is
    adopted, and it stands constitutional challenge, that we will
    see medical malpractice stop their increase, and we will
    ultimately see medical malpractice premiums go down. The
    Congressional Budget Office in its scoring of H.R. 4600 stated
    that if that bill were passed into law, that malpractice
    premiums would be 25 to 30 percent lower than they would
    otherwise have been.
        Mr. Smith. Dr. Palmisano, if the HEALTH Act becomes law,
    what impact will that have on health care available to
    Americans generally, and also specifically to health care
    available to women, lower-income individuals, and those who
    live in rural areas?
        Dr. Palmisano. Passage of H.R. 5 would have a favorable
    effect on access to care. And the States that have stable
    liability climates, California, Louisiana, Indiana, New Mexico,
    Colorado and Wisconsin, are States that have patients who have
    access to care. So it would be very favorable.
        Mr. Smith. Thank you, Dr. Palmisano.
        Mrs. Dyess, you today were speaking not only on behalf of
    your husband, but on behalf of thousands and thousands of other
    individuals who might not have received proper care because of
    a broken health care system, and you obviously feel that it is
    not the fault of the doctors that a specialist was not
    available to help your husband when he needed help. A lot of
    people would have suggested that you file suit against the
    hospital. Why did you not think this was the proper action to
    take?
        Ms. Dyess. Never entered my mind. It never--my husband's
    care was of utmost importance to me. I felt like the hospital
    did everything they possibly could do in order to get him the
    help that he needed to have.
        Mr. Smith. You feel it wouldn't solve the problem for you
    to file suit because a specialist wasn't available?
        Ms. Dyess. Filing a suit is not going to bring back my
    husband's brain. It is not going to help anything. It is not
    the right thing to do. It is not their fault.
        Mr. Smith. And again, though, your point is that you want
    to make proper care available to more people, and the way to do
    that is not to have doctors' insurance premiums go up so much
    that they are either priced out of the market, they don't
    practice medicine, or they reduce their practice.
        Ms. Dyess. Absolutely.
        Mr. Smith. Thank you, Mrs. Dyess.
        Mrs. Keller, it is my understanding that no settlement or
    award has been determined in your case yet; is that right?
        Ms. Keller. That is correct. Still in the court system.
        Mr. Smith. I also recognize that whatever the amount might
    be, you would gladly trade it to have your health back and a
    normal life back as well?
        Ms. Keller. Exactly.
        Mr. Smith. You also, I assume, want the victims of medical
    malpractice to be compensated, and I would have to say that we
    all do. If physicians have made a mistake, the victims ought to
    be compensated. But I just wanted to also make you aware that
    in the HEALTH Act that we are considering today, a lot of the
    expenses that you thought were not going to be covered will, in
    fact, be covered. Any expense you have a receipt for, any
    health care provider that helps you with chores, all of those
    individuals, you will be reimbursed for the cost of all of
    those individuals. So it is maybe not as limited as you might
    think.
        I also wanted to point out, in the time that I have left,
    that just because there is a cap on noneconomic damages doesn't
    mean there can't be fair and sufficient and adequate awards.
    The three examples that occurred in California just in the last
    year, you had a 5-year-old boy who received the $84 million
    that I mentioned in my statement, a 3-year-old girl received
    $59 million, and a 30-year-old homemaker with brain damage
    received over $12 million.
        In other words, you do get compensated for lost wages, for
    all medical care, for all rehabilitation expenses and so forth.
    Obviously that can amount to tens of millions of dollars. So I
    don't want you to think that you are going to be left with an
    inadequate amount under the HEALTH Act that we are having a
    hearing on today. There can oftentimes be very substantial
    compensation, and that is simply the point I wanted to make.
        But, again, thank you for your very compelling testimony
    here today. That concludes my questions.
        The gentleman from Michigan, the Ranking Member of the
    Judiciary Committee.
        Mr. Conyers. I will yield to Mr. Berman.
        Mr. Smith. The gentleman from California, Mr. Berman, is
    recognized for his questions.
        Mr. Berman. Well, thank you very much, Mr. Chairman.
        Dr. Palmisano, what this legislation does is essentially
    takes a number of the changes made in California law in 1975
    and seeks to provide it as a Federal law that would preempt any
    less strict limits that now exist in the other 49 States; is
    that a fair statement?
        Dr. Palmisano. It is my understanding, sir, that this law
    has--that this bill, H.R. 5, has a flexibility provision. So if
    the State of Florida, Michigan, Colorado, whatever, that if
    they wanted to have a cap of $500,000, the legislature could do
    that. It also provides----
        Mr. Berman. What, if they have a cap of $500,000 now?
        Dr. Palmisano. It would remain in place.
        Mr. Berman. What if they don't have a cap?
        Dr. Palmisano. The Federal law, H.R. 5, if it was enacted
    into law, would be the cap for that State. They would have the
    flexibility to change it.
        Mr. Berman. And if it were a $5 million cap on pain and
    suffering?
        Dr. Palmisano. If it was a $5 million cap in that State, it
    would remain a $5 million cap in that State.
        Mr. Berman. You are telling States who may not like the
    $250,000 cap on pain and suffering, if you can put a bill
    through and get it signed into law prior to the effective date
    of this law, that cap is okay?
        Dr. Palmisano. No, sir. They can do it after the law, too.
    If this becomes law, they----
        Mr. Berman. The only thing you can't do is be uncapped? You
    can have a cap that has never been reached, but you can't be
    uncapped; is that what you are saying?
        Dr. Palmisano. Yes, sir. For instance----
        Mr. Berman. Okay. Good.
        When California passed its bill--first, I think we should
    just note for the record that the Majority staff report
    incorrectly states, not intentionally, I think they picked up a
    Health and Human Services Department report, I guess is--the
    Department of HHS, in order to sort of stick it to them in a
    way, said that while Henry Waxman, Chairman of the Select
    Committee on Medical Malpractice in 1973 and 1974, proposed the
    limits that became MICRA that are now this law. And
    specifically the cap on pain and suffering of $250,000, Health
    and Human Services got it wrong, and as a result of that, this
    Committee analysis is in error in that sense, because the
    select Committee never proposed a limit on pain and suffering
    of $250,000.
        But that law at that time created a whole series of other
    changes, strengthened medical discipline, made it easier to
    discipline bad doctors, provided higher levels of immunity to
    physicians on a hospital committee who could then testify about
    the practices of a doctor that they felt should have his
    privileges revoked, and protect those people against being sued
    by that doctor, far greater reporting requirements. In other
    words, there was a notion, yes, we are going to put some limits
    on the liability system, but we recognize the problem of
    doctors who aren't performing up to a reasonable standard, and
    we are going to make it tougher for them to practice medicine.
        I notice nothing in this bill that deals--seeks to
    federalize the program or compel States to have certain
    standards of discipline and reporting for doctors who are not
    meeting the appropriate standard of care.
        And I guess aren't you a little embarrassed that you are
    cherry-picking a series of provisions here, claiming that
    California has had great success? You have produced charts, you
    point out those limits, you claim you are taking those limits
    and putting them in Federal law, collateral source rule,
    periodic payments, cap on pain and suffering, limitations on
    contingency fees, and then totally ignoring any efforts to try
    and strengthen regulation of the medical profession such as was
    done in California, including even things like allowing other
    physicians to have immunity if they seek to revoke a bad
    physician's malpractice. Aren't you a little embarrassed by
    that?
        Dr. Palmisano. Well, the California MICRA law has the
    elements that you mentioned, the periodic payments, the
    contingency fee----
        Mr. Berman. Tougher medical discipline, tougher immunity
    provisions to protect doctors who want to testify, requirements
    that every hospital report to the State board of medical
    quality assurance acts of negligence and malpractice suits.
    Aren't you embarrassed that those aren't in this bill?
        Dr. Palmisano. I am not embarrassed, because the Health
    Care Quality Improvement Act, which was a Federal law, which
    was passed later than that, requires that any dollar paid on
    behalf of a physician gets reported to the Federal Government,
    and also gets reported to the State board of medical examiners.
        And so we strongly support State boards of medical
    examiners being adequately funded to do the proper
    investigation so that every case is looked at by the State
    board to make sure if there is any disciplinary situation that
    needs to be done or anyone's license revoked----
        Mr. Berman. Would you be willing to incorporate those--the
    reporting requirements, to the extent that they are stronger
    than that exists at Federal law now, the reporting
    requirements, the immunity provisions, and the disciplinary
    authorities mandating that any State that wants to take
    advantage and have these limits apply also adjust their laws to
    provide that level of protection against malpracticing
    physicians? Would you be willing to accept that kind of an
    amendment to this legislation?
        Dr. Palmisano. Well, the AMA policy would be to look at any
    language that was offered. We do know that we support the----
        Mr. Berman. How about a top-of-the-head reaction?
        Dr. Palmisano. Well, I am not speaking for myself. I am
    speaking for the American Medical Association. The American
    Medical Association believes in strong physician discipline,
    and we have policy on that. It is all on the AMA Website in
    Policy Finder. We also strongly support patient safety. That is
    why we founded the National Patient Safety Foundation.
        Mr. Berman. And where State law doesn't meet the kinds of
    requirements that exist in MICRA, could I then--would it be
    logical to conclude that it would be appropriate for the
    Federal Government to mandate that each State meet that minimum
    standard of discipline, regulation, immunity, encouraging
    testimony by other physicians?
        Dr. Palmisano. Again, anything that would be offered would
    be reviewed by the AMA to see how it fits for policy.
        Mr. Berman. Thank you for your helpful advice.
        Mr. Smith. Thank you, Mr. Berman. The gentleman from
    Florida, Mr. Keller, is recognized for his questions.
        Mr. Keller. Thank you, Mr. Chairman.
        I can tell you there absolutely is a medical liability
    crisis in my home State of Florida. Just this week our major
    hospital in my district, Orlando Regional Medical Center,
    announced it will close its Level 1 Trauma Center, which is the
    only center within 3 or 4 hours to treat head injuries such as
    those suffered by Mrs. Dyess' husband because the neurosurgeons
    can no longer pay the medical liability premiums. So it is a
    real problem facing a lot of physicians throughout this
    country.
        I appreciate you, Mrs. Keller. I especially like your last
    name. I appreciate your courage, which it took quite a bit to
    come here and testify today. I know everybody is very
    sympathetic to your case.
        The Chairman pointed out that we don't yet have a verdict
    or settlement amount in your case, but you said if you had Bill
    Gates' money, you wouldn't trade it for your injuries. I agree.
    You seem like a straightforward person. The challenge facing
    those of us in Congress, though, is if we allowed a jury to
    give you Bill Gates' money, which is approximately $40 billion,
    then you are still not going to be made whole, that hospital is
    going to be shut down, and thousands of people are going to be
    denied access to medical care.
        Ms. Keller. And so what we have got to do is find the
    strike zone somehow, so that you are at least fairly
    compensated and yet we still have access to health care and us
    to of people who need it, and so we are trying to sort our way
    through this to make sure we get the fairest result.
        I would like to play devil's advocate a little bit, Mr.
    Smarr, to you and ask you a few questions here. Some say that
    if Congress passes this $250,000 cap on noneconomic damages,
    the insurance companies aren't going to pass on these savings
    to the doctors. They are just going to put it in their pocket
    and they won't lower premiums. What do you say to that?
        Mr. Smarr. I don't believe that that is correct. As I have
    testified, the majority of doctors in America are insured by
    companies that are owned and are operated by doctors. These
    companies operate largely for the benefit of their insureds and
    are dedicated to providing a stable market and charging a fair
    price for their insurance. And once this law goes into effect,
    this is going to enhance competition. The insurers that have
    gotten out of the market are going to come back in; and that
    competition, if for no other reason, that competition is going
    to drive prices down.
        Mr. Keller. To the best of your knowledge the insurance
    companies you represent will lower their premiums?
        Mr. Smarr. I believe they will once they can be assured
    that the law sticks.
        Mr. Keller. Let me ask you something else that opponents of
    this legislation point out. They say insurance companies are
    just jacking up doctors' premiums this year because they lost a
    bunch of money in the stock market, not because of any medical
    liability crisis. What do you say to that?
        Mr. Smarr. There are two comments here. First of all,
    insurers have not lost large amounts in the stock market; they
    are primarily invested in bonds. And secondly, the State
    insurance departments which approve rates will not allow an
    insurer to take any type of prior-year losses, whether it be
    from underwriting or investment, and impute those values in
    their future rates. It would be illegal for them to do that.
        Mr. Keller. So when you say ``a small percent in the stock
    market,'' give me an idea; for example, one of your major
    companies, what percent?
        Mr. Smarr. Ten percent of their investments are in
    equities.
        Mr. Keller. Okay. And over 90 percent aren't, then.
        Mr. Smarr. Ninety percent aren't. That is correct.
        Mr. Keller. Okay. Another thing opponents say is that that
    1975 California law, MICRA, that capped the noneconomic damage
    at 250 really didn't have anything to do with the malpractice
    premiums being stabilized in California. It was really Prop
    103, a constitutional amendment which dealt mostly with car
    insurance, I guess. But they are saying that is what held
    medical liability insurance premiums down. What are your
    thoughts on that?
        Mr. Smarr. Well Prop 103 had nothing to do with it. As you
    state, it was an auto initiative primarily. However, all
    property and casualty insurance conditions were covered by its
    provisions. Prop 103 required that insurers roll back their
    rates to 20 percent below those in effect on, I believe it was,
    November 8 of 1987. Prop 103 was passed in 1988. This was
    immediately challenged by the insurance industry. And not until
    1991 was some progress made in this regard. The very first
    insurance company that reached agreement with the California
    insurance commissioner about how to handle Prop 103 was one of
    my members called NorCal Mutual Insurance Company. NorCal
    reached a consent agreement with the commissioner whereby they
    were required to refund 20 percent of 1 year's premiums, which
    they could then pay as a normal dividend, but they were not
    required to roll back their rates at all. At that point in
    time, NorCal was paying far in excess of 20 percent annual
    dividends per year.
        Mr. Keller. So if it had any effect, it would have only
    been for 1 year.
        Mr. Smarr. And really had no effect. It was part of the
    normal dividend cycle. Same thing true for other carriers.
        Mr. Keller. Let me ask one more question. Dr. Palmisano,
    some say that this sort of tort reform, this 250 cap on
    noneconomic damages should be left up to the States; that the
    Federal Government shouldn't be meddling. Let me close by
    asking your thoughts. Is this an appropriate bill for Congress
    to be considering?
        Dr. Palmisano. Yes, sir, we believe it is. We believe that
    it affects Medicare beneficiaries. It affects the major health
    programs that I mentioned earlier, and we know that there is a
    crisis in 18 States now. And some States have not been able to
    make changes, and we are concerned about access to care for
    patients. So we believe it is a Federal question.
        Mr. Smith. Thank you, Mr. Keller. The gentleman from New
    York, Mr. Nadler, is recognized for his questions.
        Mr. Nadler. Thank you. Thank you, Mr. Chairman. I think it
    was Dr. Palmisano--you were testifying or answering the
    questions of the gentleman from California a few moments ago
    about noneconomic damages. You testified that under this bill,
    it would not preempt--that the bill, the limit of $250,000 for
    pain and suffering for noneconomic damages would not preempt
    State laws that were more permissive; is that correct?
        Dr. Palmisano. That is correct.
        Mr. Nadler. So if a State now--traditionally State laws
    leave it up to the jury and the courts and have no dollar limit
    in the bill or in the law. Is it your testimony that this
    would--that that would prevail over the $250,000 limit in this
    bill?
        Dr. Palmisano. No. The intent of my statement is that if
    there is no--if there is a cap, then that cap would prevail in
    that particular State.
        Mr. Nadler. If there is a specific money cap listed in the
    law.
        Dr. Palmisano. Yes. If there is no cap, then this would
    become the level.
        Mr. Nadler. Okay. Thank you. Let me ask you the following:
    A number of studies have shown over the years--I particularly
    remember the Harvard study when I was in the New York
    Legislature in 1985 and we put some rather, I don't remember
    what they were, but major changes in the law at that time. They
    were supposed to keep malpractice rates down. And we also
    ordered a study by Harvard which turned out to say that the
    major problem, or a major problem, was that a very small
    proportion of doctors unpoliced by any discipline system were
    causing a very large proportion of the awards, and that the
    premiums were high because this very small number of doctors
    were not properly disciplined.
        This morning, in this morning's New York Times, Dr. Sidney
    Wolfe of the Public Citizen Health Research Group brings up
    some more modern statistics. He says from 1990 to 2002, 5
    percent of doctors were involved in 54 percent of the payouts,
    including jury awards and out-of-court settlements, according
    to the National Practitioner Data Bank of the Department of
    HHS. Of the 35,000 doctors with two or more payouts during that
    period, only 8 percent were disciplined by State medical boards
    in any way. Of the 2,800--27,744 doctors who have made payments
    in five or more cases, five or more judgments or settlements in
    which they had to make payments, only 463, or less than about
    20 percent, 1 out of 6, less than 20 percent had been
    disciplined.
        Would you comment on the assertion, the finding of the
    Harvard study, the assertion currently that one of the major
    problems--one of the major jobs, real causes, of what we all
    agree are high medical insurance premium rates are the failures
    of the States or the medical societies perhaps to crack down on
    the relatively small numbers of doctors who perhaps shouldn't
    be practicing?
        Dr. Palmisano. Well, Mr. Nadler, first off, the American
    Medical Association supports strong State medical boards, and
    we know that any payments paid on behalf of a doctor goes
    before the State medical board. The National Practitioner Data
    Bank, the problem with the data--and the Government Accounting
    Office when they studied the National Practitioner Data Bank
    pointed this out--is that a physician can be listed as having
    multiple claims, when in reality the physician--it may only be
    one incident. And so if different--if different entities such
    as an excess carrier pays on behalf of the physician, that gets
    counted as a claim. If the primary carrier pays some money or
    if the physician also has to pay some money, that will all get
    counted as a claim.
        Mr. Nadler. As a separate claim.
        Dr. Palmisano. It gets counted.
        Mr. Nadler. And there is no way of culling the data to see
    how many actual claims there were.
        Dr. Palmisano. That is what the Government Accounting
    Office criticized the National Practitioner Data Bank. The
    other thing, sir, about that is that it doesn't differentiate.
    It doesn't list the specialties. We were very much interested
    when we heard about that. We wanted to find out who these
    individuals were, their specialties and so on. And we know, for
    instance, in south Florida, a recent study done in South
    Florida points out that every neurosurgeon has been sued in
    this study and the average number of suits against
    neurosurgeons is five in south Florida.
        And so we certainly----
        Mr. Nadler. But that is not the average number of payouts.
        Dr. Palmisano. No, sir. No, an average number of suits. And
    we know in the Harvard study that you mentioned, that one of
    the lead authors, Dr. Troy Brennan, a very respected researcher
    at Harvard, Dr. Brennan wrote in that study that what they
    found in that study, that there was no statistical correlation
    with payment, either as a result of a jury award or the
    insurance company, and negligence. What they did find a direct
    correlation with was disability. And I had the privilege to be
    on a panel, a roundtable Secretary Thompson called a couple of
    months ago, and Dr. Brennan was on the panel with me. And I
    asked him if he still agreed, believed that; and he said yes,
    he did.
        Mr. Nadler. All right. Let me, before my time runs out, ask
    you one more quick question because this goes to the heart of
    this.
        Mr. Smith. Mr. Nadler. Without objection, the gentleman is
    recognized for an additional minute.
        Mr. Nadler. Thank you, sir. Thank you, Mr. Chairman. We
    have any number of statements here which I am not going to read
    for interest of time, by all kinds of insurance companies,
    saying that tort reform that specifically limits noneconomic
    damages would not result in lower--that they could not promise
    lower rates, they could not promise that rates wouldn't go up
    as fast as otherwise. The bill does not require any
    accountability by insurance companies, and in fact we know that
    the truly severe cases where there are large noneconomic
    damages are a small percentage of all claims and the medical
    liability premium dollar that pays the compensation is dwarfed
    by the portion that pays for a lot of other things.
        Given this, why are you so certain that even if we were
    to--that a limit on noneconomic damages would in fact result in
    a solution or any major part of a solution to the premium
    problem?
        Dr. Palmisano. Thank you, Mr. Nadler. The reason we believe
    that is we have observed a quarter of a century of history,
    looking at California, looking at my State of Louisiana, and
    looking at Wisconsin, looking at Indiana, and looking at New
    Mexico, and that is exactly what happened. In 1975 California
    was among the highest. If you went to Los Angeles as an
    obstetrician or you went to Miami as an obstetrician, what
    happened was over these 25, 27 years, now they are paying
    $210,000 in south Florida and the obstetricians in Los Angeles
    will pay anywhere from 57 to 60 or $70,000 per premium. So we
    believe it works. It certainly worked in our case in Louisiana.
    Once the law was passed, my premiums--I didn't have to carry
    excess insurance anymore. My premiums dropped in half.
        Mr. Smith. Thank you, Mr. Nadler.
        The gentleman from North Carolina, Mr. Coble, is recognized
    for his questions.
        Mr. Coble. Thank you, Mr. Chairman. Thank the witnesses.
    Mr. Chairman, last Congress I voted for this med/mal bill in
    Committee because I felt like it deserved full House floor
    attention. When it came to the House floor, you may recall, I
    voted against it because I have problems with legislatures
    imposing caps. I believe when we insert legislative oars into
    those waters, we are invading waters that ought to be more or
    less exclusively reserved for juries. That is my philosophical
    hang-up.
        Now, am I not concerned? You bet I am. When I see that
    specialists are forced to terminate their practices, as you
    pointed out at the outset, Mr. Chairman, that results in a
    crisis and that does bother me. I am also informed by the
    coalition supporting the bill that most of the malpractice
    cases are either dismissed or settled prior to trial. Well,
    even if that is the case, I recognize that defendants incur
    costs even if it never goes to a jury.
        But Dr. Palmisano, if you know, of those that are finally
    litigated and jury awards are forthcoming, do you have any idea
    what the average jury award would be? And if you don't, you can
    get back to us.
        Dr. Palmisano. We will be glad to supply any data we have,
    but I believe Mr. Smarr has some figures that would answer
    that.
        Mr. Coble. Mr. Smarr, do you have that?
        Mr. Smarr. Yes, sir, I do. The mean verdict against an
    individual practitioner----
        Mr. Coble. Oh, you may have said that earlier but repeat it
    for me, if you will.
        Mr. Smarr. It is $496,726 in 2001, and there is usually
    more than one defendant in any case.
        Mr. Coble. Mrs. Keller, the physician you mentioned in your
    testimony, does she continue to practice medicine?
        Ms. Keller. Yes, sir, she does. With more malpractice
    lawsuits filed this year against the same doctor.
        Mr. Coble. In what State does she practice?
        Ms. Keller. Georgia.
        Mr. Coble. Dr. Palmisano, you indicated that the crisis
    States--have been 8 or 10 additional States added to that list
    if I am not mistaken in recent days, in fact, and the total is
    now how many?
        Dr. Palmisano. It is 18, sir. Six additional States were
    added. We will be glad to leave a map with the Committee.
        Mr. Coble. Yeah. In fact I am familiar with that.
        Dr. Palmisano. Yes, sir.
        Mr. Coble. And even though, folks, I have problems with the
    capping and I hope you all understand that, I just think that
    ought to be a jury question. Not to say that I am uncaring or
    insensitive, Mrs. Dyess, for example, about your situation. My
    gosh, you and Mrs. Keller have brought compelling arguments
    that support either side of this issue. And if there was ever
    an issue before us, Mr. Chairman, that invites compelling
    arguments supporting each side, I think it is the matter that
    we have before us today, and I very much appreciate you all
    being here.
        Mr. Chairman, I appreciate the very precise manner in which
    you are conducting this hearing and I yield back my time before
    the red light appears.
        Mr. Smith. It is much appreciated, Mr. Coble. Thank you.
        The gentleman from Virginia, Mr. Scott, is recognized for
    his questions.
        Mr. Scott. Thank you, Mr. Chairman.
        Mr. Smarr, what portion of your income is investment income
    as opposed to the difference between the premium and the
    expected payments?
        Mr. Smarr. In 2001, the insurers that I represent collected
    31 cents for every dollar in investment income for every dollar
    of premium which they collected. They incurred losses in the
    neighborhood of, and I--it is in my written testimony,
    actually.
        Mr. Scott. Well let me--you said $1.53 for every dollar you
    collected in premium. Are those the numbers you said?
        Mr. Smarr. That is for the industry as a whole, yes. That
    includes the commercial carriers.
        Mr. Scott. Now, were you making money doing that?
        Mr. Smarr. Absolutely not.
        Mr. Scott. How long were you charging only--how long were
    you charging only a dollar for $1.53 in premiums in payouts?
        Mr. Smarr. How long?
        Mr. Scott. Yes.
        Mr. Smarr. That statistic is called the ``combined ratio,''
    and we have seen that deteriorate over the past 4 or 5 years.
    The industry turned to negative profitability last year.
        Mr. Scott. I mean you make--I mean you can collect less
    than you pay out and still make money, isn't that right?
        Mr. Smarr. Because we have investment income; that is
    correct.
        Mr. Scott. Okay. And you are collecting, knowing you were
    collecting a dollar for $1.53 in expenses, you are going to
    make up the rest in investments; isn't that right?
        Mr. Smarr. That is the intent, yes.
        Mr. Scott. Okay. Now you mentioned 6.9 percent inflation.
        Mr. Smarr. The average cost of a paid claim is going up by
    6.9 percent per year.
        Mr. Scott. And you compared that to the Consumer Price
    Index.
        Mr. Smarr. 2.6 percent.
        Mr. Scott. Did you compare it to the Health Consumer Price
    Index?
        Mr. Smarr. No, I did not.
        Mr. Scott. Wouldn't that be a more accurate figure to
    compare it to?
        Mr. Smarr. I don't believe it would, sir.
        Mr. Scott. Okay. On the collateral source rule, if a
    wrongdoer has created the problems, the plaintiff has paid a
    premium for the benefit of insurance. Why shouldn't either the
    plaintiff get benefit for that payment or at least get a lower
    premium because Blue Cross/Blue Shield will get their money
    back?
        Mr. Smarr. In health insurance, claims are paid relatively
    soon after the incident, if you will, occurs. Oftentimes they
    are paid within--well, we would hope within a week or a month
    or within the same year. It takes over 5 years to conclude a
    medical malpractice case after the time of the incident. And
    the various flows of cash to pay for the premiums actually
    through the market, adjust themselves to accommodate the true
    costs of the insurance.
        Mr. Scott. So you are saying that the wrongdoer ought to
    get benefit from the plaintiffs--two equal plaintiffs, one with
    health insurance and one without, the benefit of the health
    insurance ought to go to the wrongdoer and not to the
    plaintiff, or Blue Cross/Blue Shield getting the money back?
        Mr. Smarr. No, sir I am not; I don't look at it in----
        Mr. Scott. Under this bill, who gets the benefit of the
    insurance? The wrongdoer, isn't that right?
        Mr. Smarr. The wrongdoer pays for the insurance.
        Mr. Scott. No, the wrongdoer, if there is a--if you caused
    a million dollars' worth of damage and the plaintiff has a
    million dollars' worth of health insurance, who gets the
    benefit of the health insurance? There are three possibilities.
    One, the wrongdoer gets the benefit. Two, the plaintiff gets
    the benefit. And third, Blue Cross/Blue Shield can get their
    money back after the wrongdoer has paid. Your idea is that the
    wrongdoer should get the benefit.
        Mrs. Keller, can you state with specificity what portion of
    your damages were caused by the physician, the hospital, the
    hospital personnel and the ambulance personnel?
        Ms. Keller. Well----
        Mr. Scott. I guess not. That would be an impossible burden
    for you to fulfill, wouldn't it.
        Ms. Keller. Correct. There is no--however, I cannot legally
    hold the ambulance liable even though I was given the bill to
    pay.
        Mr. Scott. And if everybody pointed at the ambulance as the
    cause for your problem, you wouldn't know one way or the other.
        Ms. Keller. Exactly. I also cannot----
        Mr. Scott. Wait a minute. Mr. Smarr, can you explain what
    the rationale is to force the plaintiff to go all over to
    figure out who did what and have a separate duty of care,
    violation of duty of care, and proximate cause for each of what
    in her case could be any number of different persons?
        May I ask for 1 additional minute, Mr. Chairman.
        Mr. Smith. The gentleman from Virginia is recognized for an
    additional minute.
        Mr. Smarr. I am not a lawyer but it is my understanding
    that the courts routinely do apportion fault.
        Mr. Scott. Now, on a joint and several, and you know this--
    on a joint and several, if you get one of them good, they are
    responsible for the full damage. And if they want to get
    contribution then they go chasing after everybody on their
    dime, not on the plaintiff's dime. Can you explain to me what
    the rationale is to force the plaintiff, who doesn't know--all
    they know is they went in and an operation was botched. Why is
    it their responsibility to apportion how much of it was the
    anesthesiologist, how much of it was the surgeon, how much of
    it was the nurse; having to call in extra witnesses to prove
    each and every step of the way, and if they miss 5 percent,
    then all the rest just pay 95 percent? What is the purpose of
    that?
        Mr. Smarr. Well, first of all, plaintiff attorneys normally
    name many defendants in a case, many who were not even involved
    in the case sometimes. Secondly, it is not the plaintiff's
    responsibility to apportion fault. That is the duty of the
    court. The court does that.
        Mr. Scott. Well the court does it based on the evidence.
    Mr. Chairman, the witness is not being----
        Mr. Smith. Mr. Scott----
        Mr. Scott. Can I make----
        Mr. Smith. I think the witness has done the best he can to
    answer the question. But the gentleman is recognized for one
    last question.
        Mr. Scott. He did the best he could because he didn't want
    to answer the question.
        The court makes the decision based on the evidence that is
    presented. If no evidence is presented then the plaintiff, with
    the burden of proof, loses. And if you have got 5 percent over
    here and 10 percent over there and 8 percent over here, and if
    you don't prove the 3 percent over there, then you lose on the
    3 percent. If everybody is pointing to an empty chair or a
    bankrupt or uninsured person, then the plaintiff will lose that
    little 3 or 5 percent. The normal law is under joint and
    several, and this is how you apportion insurance anyway--if you
    get one you have got them all. And if they want contribution
    then they go chasing after everybody. But you put that burden
    where the plaintiff doesn't know anything about what happened.
    Isn't that an unfair claim?
        Mr. Smarr. I don't understand. If somebody is not
    responsible, then why should they have to pay?
        Mr. Scott. If they are not responsible, they don't have to
    pay at all.
        Mr. Smarr. I believe that is true, yes.
        Mr. Smith. And, Mr. Scott, the gentleman's time has
    expired.
        Mr. Scott. But they don't have to apportion it.
        Mr. Smith. The gentleman from Ohio, Mr. Chabot, is
    recognized for his questions.
        Mr. Chabot. Thank you, Mr. Chairman. I think we all
    appreciate you holding this very important hearing on a topic
    that is clearly timely.
        While the issues of rising health care cost and dramatic
    increases in medical malpractice rates are a national problem,
    families in my district back in Cincinnati, they have been
    especially hard hit by this crisis. I have spoken with dozens
    of families who are not only facing large increases in their
    insurance premiums, but who are finding it increasingly
    difficult to find specialists to treat their families. I have
    also met with many doctors in my district and they are
    extremely concerned about the rising cost of medical
    malpractice insurance and the potential long-term effects on
    patient care.
        Excessive medical liability costs have had a serious impact
    on the health care system in Cincinnati. Medical malpractice
    insurance rates have skyrocketed in recent years and patients
    are paying the price, unfortunately. And insurance costs rise
    to astronomical levels. Health care providers have been forced
    to pass those costs on to their patients and cut back on
    services and even taken the drastic step in many instances of
    closing their practices. And I have had a number of doctors
    that have told me that is what they have had to do as a result
    of this.
        Today Dr. Palmisano has testified that patient access to
    care had reached the crisis level in Ohio and in 17 additional
    States, due to unrestrained medical malpractice litigation.
    According to the October 2002 Medical Liability Monitor, Ohio
    ranked among the top five States for premium increases.
        In Cincinnati, in my district, physician groups have
    experienced premium increases between 20 and 100 percent in
    recent years. But Cincinnati is not the only community
    confronting this issue, as we know. This rising cost of medical
    liability insurance is a growing national problem and it
    requires a national solution, and that is why we are here
    today.
        Just a couple of questions. Dr. Palmisano, and Mr. Smarr,
    you had a chart up here before, ``America's Medical Liability
    Crisis: A National View.'' I wonder if somebody could put that
    chart back up for a moment. The white States which are at this
    point currently okay according to the chart. Now obviously,
    California is one in which the reform has already been under--
    in effect for 25 years now. Could you touch on the other
    States. Are there any similarities? Why the other States;
    Colorado, New Mexico, Louisiana, Wisconsin and Indiana also
    seem to be in better shape than the other States?
        Dr. Palmisano. Yes, sir. Those are all States with caps. My
    State of Louisiana is a State that passed a cap in 1975. It is
    a total cap on damages, but future medicals as incurred vary
    similar to New Mexico's law. Colorado has a cap on noneconomic
    damages. Indiana has a total cap and Wisconsin has a cap on
    noneconomic damages.
        Mr. Chabot. Okay. Do any of the other States that are
    either in trouble, or the yellow States which it says they are
    showing problem signs but aren't necessarily in crisis like the
    red States, have any of those enacted any caps?
        Dr. Palmisano. Yes, sir, they have. Some of the States, for
    instance, Missouri, which has now become a crisis State, it has
    a cap. But the cap is a cap per individual, per claimant. So
    you could have multiple caps in one case. Nevada, which closed
    its level one trauma center on July 3, 2000 for 10 days, it
    went into special session and passed a cap but its cap is also
    per claimant and per doctor. So what we have found is that the
    caps that are fixed caps per incident are the ones that have
    resulted in stability.
        Mr. Chabot. Okay, thank you. Could you identify which
    physician specialties are most affected by the medical
    malpractice crisis that we are discussing today and why those
    particular areas would be in difficulty?
        Dr. Palmisano. Yes, sir. The obstetricians, the
    neurosurgeons, the emergency physicians, because these are the
    ones that--the physicians who are involved with complicated
    procedures, with more risky cases, and the outcome sometimes is
    not the--is not a complete cure. The neurologically impaired
    newborn, for instance, can--if a baby is born with neurological
    impairments there can be multiple suits filed as a result of
    babies being born that way.
        A recent study by the American--ACOG, the obstetricians,
    gynecologists, and the pediatricians, their recent studies show
    that the majority of these had nothing to do with events
    surrounding the birth of the child, but were for other reasons,
    in utero, when the baby was in the uterus.
        Mr. Chabot. Thank you. Mr. Chairman, I ask unanimous
    consent for 1 additional minute.
        Mr. Smith. Without objection, the gentleman from Ohio is
    recognized for an additional minute.
        Mr. Chabot. Thank you. Opponents of the HEALTH Act have
    claimed that capping noneconomic damages prevents patients from
    adequately recovering from their injuries. And as you have
    already discussed to some degree, there are still clearly some
    things which are not capped which there are no limits on. Would
    you discuss briefly, again, what you can recover for and where
    there are no limits?
        Dr. Palmisano. The only limit on the damages in H.R. 5 is
    the noneconomic damages, the ones that can't be quantified.
        Mr. Chabot. You are talking about pain and suffering.
        Dr. Palmisano. Pain and suffering-type damages. But
    certainly all medical costs, all rehabilitation, child care,
    and anything that can be economically documented. And I think
    Chairman Smith has pointed out cases in California where
    multiple millions of dollars have been awarded to an individual
    for the rehabilitation, medical expenses, and so on.
        Mr. Chabot. Thank you very much.
        Mr. Smith. Thank you, Mr. Chabot. The gentlewoman from
    Texas, Ms. Jackson Lee, is recognized for her questions.
        Ms. Jackson Lee. Thank you very much, Mr. Chairman. I
    appreciate all of the witnesses' testimony this morning because
    this is an extremely painful process, particularly for the
    victims that are here. And certainly, Dr. Palmisano, I
    appreciate very much the concerns that physicians have. I
    interact extensively with my local medical community and
    realize the importance of having physicians based in the
    community, in the neighborhoods. And representing a
    particularly poor district in this Nation, we face the crisis
    of health care every day. And so I know this is an important
    hearing.
        Let me start with Mrs. Keller, and I want to thank you very
    much. I am not sure if that is a picture of you behind you.
    Maybe I need to put on--it is not yours. Thank you very much. I
    see that. But let me just raise this point with Mrs. Keller. As
    I understand it, you had initially a botched surgery that
    caused you to be in the doctor's office, and you were being
    examined. Is that correct? You were in the doctor's office?
        Ms. Keller. Yes, I was in the doctor's office. Whether or
    not the surgery itself was botched would be argumentative. No
    sutures were used underneath the layers, which is no longer
    substandard of care.
        Ms. Jackson Lee. So you were in there for an examination;
    is that correct? You were in there for an examination?
        Ms. Keller. No, ma'am. I was--the initial surgery, they did
    not use complete and total suturing procedures, which is what
    caused my wound adhesion there in the office a week later.
        Ms. Jackson Lee. Okay. And so you were inside an examining
    room. That is what I am trying to understand.
        Ms. Keller. Yes, ma'am.
        Ms. Jackson Lee. And then you lost consciousness and you
    fell.
        Ms. Keller. Yes, ma'am.
        Ms. Jackson Lee. Okay. The reason why I wanted to just get
    that clear is I wanted to sort of track the scenario. With that
    in mind, let me sort of call the roll of the many people that
    might be involved. I am not in any way suggesting that we have
    all these names, but the doctor whose examining room you were
    in, the nurses, the hospitals, and the surgical individuals who
    may have done the surgery, the nurses, as I said in the
    doctor's office, the ambulances, the ambulance drivers, the
    emergency room staff, physicians and doctors. Ultimately there
    is a long list that may have had some impact on your present
    condition.
        Ms. Keller. Exactly.
        Ms. Jackson Lee. During part of that time you were in great
    pain and during part of that time you were unconscious; is that
    correct.
        Ms. Keller. Correct.
        Ms. Jackson Lee. So part of the legislation that we are now
    talking about would require you to have been at the fullest
    peak of your health, to have a notepad, taking notes, maybe
    even a camera, taking pictures through the entire process of
    this terrible tragedy that has befallen you; is that correct?
    Would that have had to be the case for you to be knowledgeable
    about who you would point the finger at if this legislation we
    are now having a hearing about would pass?
        Ms. Keller. Precisely.
        Ms. Jackson Lee. And let me offer to you my appreciation
    for your courage for being here. I want to cite for the record,
    Mr. Chairman, my State, the State of Texas, approximately 3 to
    7,000 preventable deaths in Texas each year due to medical
    errors. The preventable medical errors in Texas cost between
    1.3 billion to 2.2 billion. Medical malpractice insurance is
    421.2 million. And we have found that medical malpractice
    claims have dropped in the last 2 consecutive years.
        At the same time, we find that Texas is 49 in the quality
    of care. We find that Louisiana is 51, and California is 44. So
    it is interesting to note that States that have had an impact
    by medical malpractice changes or law changes are still at the
    bottom of the totem pole in terms of access to medical care or
    quality of care. And Texas, of course, remains at the bottom of
    the totem pole as well.
        My question, then, is to Dr. Palmisano, to simply ask this
    one question. If, through the devices of the insurance
    companies, they could devise an investment formula or a pricing
    formula that would eliminate or bring down the costs of
    premiums across the Nation, would that be acceptable to the
    American Medical Association?
        Dr. Palmisano. Well, thank you for the question. The
    American Medical Association wants to make sure that patients
    have physicians, and so it is the escalating rates that cause
    us problems. We also are concerned about the number of cases
    that are filed.
        Ms. Jackson Lee. Doctor, you are not answering my question.
    If the insurance companies devise a formula that would bring
    down the rates, would that be acceptable to the American
    Medical Association?
        Dr. Palmisano. If they were reasonable rates and we didn't
    have a crisis, then the American Medical Association wouldn't
    be here today.
        Ms. Jackson Lee. Thank you. Mr. Chairman----
        Mr. Smith. Thank you, Ms. Jackson Lee. The gentleman from
    Virginia, Mr. Goodlatte, is recognized for his questions.
        Mr. Goodlatte. Thank you, Mr. Chairman.
        Gentlemen, I support this legislation because I believe
    that the caps are effective. I think the evidence points to
    that. We have a different type of a cap in Virginia and I think
    it has had some effect in Virginia, and I like the fact that
    that legislation provides some flexibility to the States to
    adjust the amount of the cap on noneconomic losses. But I am
    concerned that I don't think this legislation does a great deal
    to screen out the most frivolous and fraudulent lawsuits.
        If you open up the Yellow Pages here in Washington or any
    other city in the country, you will see ad after ad after ad
    and they have one common theme: It says, ``No fee if no
    recovery'' meaning, no risk to you. So, you know, if you think
    you have got a case, go ahead and take it. Now, the attorney
    has got to impose some screening because they are not going to
    want to take a lot of cases in which they get no recovery.
    However, given the pressures that are on insurance companies to
    settle these cases and given the fact that physicians hate to
    have cases settled that are essentially harmful to their
    reputation if they don't believe that any real malpractice has
    occurred, why isn't there something in this legislation to
    penalize those who bring truly frivolous or fraudulent
    lawsuits?
        Right now in our Federal courts and I imagine in many State
    courts that mirror the rule 11 sanctions in Federal courts,
    those are very weak, they are very rarely applied, and why
    aren't there some greater sanctions in here; for example, some
    form of a loser-pays type of mechanism imposed upon those who
    bring frivolous cases that would encourage insurance companies,
    encourage doctors to be able to defend their case and if they
    win, recover some attorneys' fees and know that because of that
    risk, attorneys on the other side are going to be even more
    diligent in screening out those cases that have no merit?
        Dr. Palmisano.
        Dr. Palmisano. Thank you, sir. Well, certainly, the
    American Medical Association has policy regarding loser pays.
    It is not in this particular bill but we will be glad to submit
    to the Committee our policy on loser pays. We have policy on
    medical--I will read it to you just briefly.
        ``Implementation of the Loser-Pays Rule in Medical
    Liability Litigation. Responsibility for prevailing party's
    legal expenses including attorneys' fees should not be shifted
    to a losing party in medical liability litigation unless (a),
    some provision is made for retrieving fees owed to a prevailing
    party from the losing party's attorney in the event the losing
    party has no available assets; (b), some provision is made to
    calculate fees owed to a plaintiff's attorney on the basis of a
    reasonable value of time expended regardless of the existence
    of a contingency fee arrangement.''
        Mr. Goodlatte. I would love to have a copy of that and I
    would suggest to you that the modified loser-pays provision
    that this Committee has passed out attached to other
    legislation, Y2K liabilities and tort reform passed during the
    Contract With America, would meet those criteria. And I would
    commend to you an examination of that, because I think that is
    a weakness in this matter.
        The second thing that concerns me about this is on the
    other hand, I am not a strong believer in the Government
    stepping in and with regard to an individual's right to
    contract with somebody else, to interfere with that. And this
    bill does put caps on attorneys' fees. Every case is different
    and the merit of whether or not a particular case should be
    taken by an attorney based upon how much work is going to have
    to go into the case is measured into what kind of a contingent
    fee they will charge. And when you start capping that, you are,
    in my opinion, being unfair.
        Now, I understand that the reason for doing that, at least
    one of the reasons is that you are in effect having the
    opportunity to reduce your overall costs if the overall amount
    of money that is paid out by insurance companies is reduced.
    But the same--the same standard applies, it seems to me to
    defense attorneys. Why aren't we capping that? So in my
    opinion, I would not cap defense attorneys' fees. I would also
    not cap plaintiffs' attorneys' fees, and I think that is a
    provision in here that I would prefer not to see.
        And I would welcome Mr. Smarr or Dr. Palmisano's response
    to that.
        Mr. Smarr. Well, insurers try their best, I can assure you,
    to cap defense attorneys' fees. In fact, we pay very close
    attention to that. The plaintiff attorney fees in this bill are
    capped on a sliding scale such that the smaller amounts of
    indemnity amounts that might be paid, the plaintiff attorney
    gets a larger percentage of it. But even so, in a million
    dollar case, the plaintiff attorney still gets $220,000 in
    fees.
        Mr. Goodlatte. But, Mr. Smarr, there are million-dollars'
    cases and there are million-dollars' case. One might be a very
    open-and-shut type of case where you might think the attorney
    has been unjustly enriched with their fee, and there might be
    another million-dollar where it is $900,000 worth of economic
    loss, and the fact of the matter is that that attorney had to
    go to tremendous additional efforts to prove the case and to
    bring in a multitude of witnesses. There might be a multiple
    number of defendants in the case. And you are arbitrarily
    setting that fee based simply on the dollar amount in the case
    without recognizing the fact that there is different amounts of
    work in different cases; just like the defense attorney who in
    an open-and-shut million-dollar case will probably submit a
    small bill because the attorney didn't spend a lot of time on
    it, but another million-dollar case, the attorney might have a
    very substantial bill because a tremendous amount of time was
    put into it.
        Mr. Smarr. I agree that there can be outliers, as you are
    describing. But I think the legislation is intended to treat
    the majority of cases that come forward in some rational
    manner, and this system has worked well in California for over
    25 years.
        Mr. Smith. Thank you Mr. Goodlatte.
        The gentleman from Massachusetts, Mr. Delahunt, is
    recognized for his questions.
        Mr. Delahunt. Mr. Smarr, how do you feel about capping
    CEOs' salaries? You wouldn't.
        Mr. Smarr. I don't think that would apply here.
        Mr. Delahunt. Okay. I see it doesn't apply in this case.
    This legislation also benefits HMOs; is that correct? Mr.
    Smarr.
        Mr. Smarr. Would you say that again, sir?
        Mr. Delahunt. This particular proposal before us benefits
    HMOs; is that correct?
        Mr. Smarr. To the extent that they are included in the
    malpractice claim, yes.
        Mr. Delahunt. Thank you. There have been crises in the
    past, haven't there, in the mid-1970's and the mid-1980's?
        Mr. Smarr. There have been periods where we have seen more
    rapid escalation of multi----
        Mr. Delahunt. Let's call them crises. Would you agree with
    me there have been crises in the past.
        Mr. Smarr. Not to the extent we are seeing today. But if
    you wish, yes.
        Mr. Delahunt. Okay. Is part of the problem the fact--and
    you are correct in your statement in terms of percentage of
    bond holdings that various insurers and insurance companies
    hold, the interest rates have gone down.
        Mr. Smarr. That is true.
        Mr. Delahunt. And is that a significant piece of the
    problem?
        Mr. Smarr. It is a piece of the problem, but at the same
    time bond values have gone up.
        Mr. Delahunt. All right. I understand bond values, but in
    terms of the flow of cash and income, you know when we are
    getting 1, 1\1/2\ percent as opposed to 6 or 7 percent, it
    creates a significant cash flow problem.
        Mr. Smarr. We are getting 4 to 5 percent instead of 7.
        Mr. Delahunt. I want to know where you are getting that 4
    or 5 percent and I will change my portfolio accordingly.
        Mr. Smarr. Long-term corporate bonds.
        Mr. Delahunt. Okay. But, again, those long-term corporate
    bonds, presumably 4 or 5 years ago you'd be getting 9 or 10
    percent. What I am saying is that you know there is great
    disagreement in terms of what is causing this particular spike.
    But there have been crises in the past and we have worked our
    way out of them.
        Let me ask you this. Your association, PIAA, is it a for-
    profit organization, or--you said it is owned by physicians and
    other stakeholders in the health care system.
        Mr. Smarr. The PIAA is an association, is a 501(c)(6)
    nonprofit. The insurance company members are insurance
    companies, for-profit companies.
        Mr. Delahunt. Okay. And those insurance companies were for
    profit. To a large degree, they are owned by physicians and
    other health care providers.
        Mr. Smarr. Correct.
        Mr. Delahunt. So they are making a profit obviously on the
    return of their investment.
        Mr. Smarr. Yes, sir. It is necessary that they make a
    profit. Especially----
        Mr. Delahunt. Okay. Thank you. That is all, I just wanted
    to know.
        Why 250,000? How was that calculated in terms of a cap?
        Mr. Smarr. Two hundred fifty thousand is the cap, as you
    know, that was enacted in California.
        Mr. Delahunt. But wasn't that enacted back in 1975?
        Mr. Smarr. Yes, it was.
        Mr. Delahunt. Okay. That is all. I am just--I just want to
    continue because, again, we don't have too much time. I have
    seen various studies, and maybe you could help me with this,
    that indicate that deaths as a result of medical malpractice
    vary from 48,000 annually to 98,000 annually. Which is the
    right figure? Mr. Smarr.
        Mr. Smarr. Well, the 98,000 figure comes from an
    extrapolation of data of the Harvard medical practice study. In
    that study, 171 people were determined to have died partially
    because of----
        Mr. Delahunt. Which figure do you accept?
        Mr. Smarr. I don't accept either one of them, sir.
        Mr. Delahunt. You don't?
        Mr. Smarr. No. There is some number. I agree that there is
    some number, but I don't accept----
        Mr. Delahunt. Is it closer to 48,000 or closer to 98,000?
        Mr. Smarr. I do not know.
        Mr. Delahunt. You don't know. Okay. In terms of
    confidentiality agreements, I understand most of these
    settlements that are made are subject to a confidentiality
    agreement. Would you have any objection to an amendment to the
    bill that would allow confidentiality agreements be at the
    discretion or at the option of the patient?
        Mr. Smarr. I can't comment on that because I am just not
    aware of the nature of those agreements.
        Mr. Delahunt. Okay. And the statute of limitations, why 3
    years? What if--let me give you a hypothetical. What if, for
    example, the injury is not discovered during the course of a 3-
    year period?
        Mr. Smarr. It's my understanding it is 3 years from the
    time the injury manifests itself.
        Mr. Delahunt. No, you are wrong. It is from the time the
    injury occurred. Would you be willing to change that, 3 years
    from the date that the injury manifests itself?
        Mr. Smarr. I would have to go and look at the legislation,
    sir.
        Mr. Delahunt. Okay. I just have one final question if I
    may. If 1 year after you found out--and, Mrs. Dyess, I know,
    believe me.
        Mr. Smith. Will the gentleman from Massachusetts yield and
    I will read to him from the legislation?
        Mr. Delahunt. I--what I would like to do is have an
    additional minute because I know my questions, and I just want
    to----
        Mr. Smith. Let me read from the legislation and I will be
    happy to grant you an additional minute.
        Mr. Delahunt. Thank you.
        Mr. Smith. The time for the commencement of a health care
    lawsuit shall be 3 years after the date of manifestation of
    injury or 1 year after claimant discovers, or, through the use
    of reasonable diligence, should have discovered the injury.
        Now the gentleman is granted an additional minute.
        Mr. Delahunt. Well, I thank my friend, the Chairman. I
    really--and I know we all sympathize with what you are saying,
    and it really is a problem that has to be addressed in terms of
    access to health care. I recently met a woman who had a son;
    his name, Steve Olsen. He is a 12-year-old from San Diego who
    is blind and brain damaged because of medical negligence. It
    was proven. When he was 2 years old, he fell on a stick in the
    woods. Steve's doctor gave Steve steroids and sent him home.
    Although his parents asked for a CAT scan, the doctor refused.
    The following day Steve returned to the hospital in a coma
    because of the growing brain abscess he had developed which
    would have been detected had the CAT scan been performed. At
    trial, the jury concluded that the doctor had committed medical
    malpractice and awarded $7.1 million in noneconomic damages.
    Remember, this is a 12-year-old. One of the jurors later
    explained that they saw Steve as a boy doomed to a life of
    darkness, loneliness, and pain. He would never play sports,
    work, or enjoy normal relationships with his peers. He would
    have to endure a lifetime of treatment, therapy, prosthesis
    fitting, and around-the-clock supervision. The judge, however,
    was forced to reduce that damage award to $250,000 because of
    the cap in California. What do you say to that mother? What do
    we say to that mother?
        Ms. Dyess. Do we ever hear about the good cases? Do we ever
    hear anything good about what doctors do? No, we are here to
    hear all the bad. We never hear about the good.
        Mr. Delahunt. No, I am not here to bash or criticize
    doctors. And I even think Mrs. Keller in her testimony
    indicated that it was her neurosurgeon who worked a miracle.
    But this is about--it is not about doctors. It is not about
    lawyers. It is not about anything. And it ought to be about
    potential victims and patients like your husband.
        I yield back.
        Mr. Smith. Thank you, Mr. Delahunt. The gentlewoman from
    Pennsylvania, Ms. Hart, is recognized for her questions.
        Ms. Hart. Thank you, Mr. Chairman.
        Mr. Smarr, you noted in your testimony that 61 percent of
    medical malpractice claims are dropped or dismissed. Do you
    find that this is typical across the spectrum of tort claims in
    all different States? I am interested especially in
    Pennsylvania which is my home. Our insurance rates in
    Pennsylvania have increased over 125 percent over the last 4
    years. Have the dropped or dismissed cases impacted our rate
    jump differently and is that a number that changes from State
    to State?
        Mr. Smarr. It is a number that varies slightly from State
    to State. I spent 13 years working in the Pennsylvania market
    and the numbers there are very similar.
        Ms. Hart. Do you think that the dropped or dismissal rate
    is different in States, you know, some of the like white
    States, for example?
        Mr. Smarr. I don't know. I would have to find out.
        Ms. Hart. I would be interested in knowing that.
        Mr. Smarr. I can get that for you.
        Ms. Hart. If you could possibly find that out for us.
        Ms. Hart. Okay. Dr. Palmisano, I happen to be a graduate of
    a liberal arts college and as a result have a lot of friends
    who practice medicine now. They are all in pretty much a good
    spot in their careers, beginning to take over and beginning
    their own practices. One of my best friends is an OB-GYN who
    told me in November that she was going to cease practicing by
    the end of the year because she had lost insurance coverage and
    didn't see any hope of being able to regain it. Aside from that
    problem--fortunately she found insurance at the very last
    minute and is still practicing, but at a much higher rate.
    Eighty percent of the doctors in Pennsylvania, according to the
    Pennsylvania Medical Society, say they can't even recruit new
    physicians for their practices. Do you see that trend in other
    States? Is it more acute in the red States such as mine?
        Dr. Palmisano. Yes, Ms. Hart. We see that in the States
    that are designated as red States in crisis. In Wheeling, West
    Virginia, for instance when I visited there and I met with the
    family practice residents, every one that I--they brought the
    whole residency crew to meet me and every one of them said that
    they were not going to stay in West Virginia because of the
    liability situation. They were going to go somewhere where it
    was more stable.
        Ms. Hart. Okay. Then, as far as this issue--and you say it
    is actually reaching pretty deeply into health care provision.
    Do you find--and it seems to me, from what I have heard about
    Pennsylvania, for example, the Uniontown Hospital, which is in
    Fayette County, which is a very poor area, now doesn't provide
    any obstetric services. It seems that health care for the poor
    has actually been made significantly worse by this crisis. Do
    you see that happening in other regions across the country? Is
    it adversely affecting the poor even more?
        Dr. Palmisano. Yes. We find that people who would volunteer
    to work in clinics are saying that they are unable to do this
    because of the liability problems and some of these clinics are
    closing. We have heard people come forward and say that they
    wouldn't be able to continue their services because of the
    liability for the clinic. We have had physicians come and give
    statements regarding volunteer work that they wanted to do as
    retired physicians and go into areas where they could help,
    where there was no available physicians in that area, that they
    are--because of the liability climate they are unable to do
    that, and they want to do that. So there are a number of people
    that are willing to do that but they are just concerned about
    the liability system.
        Ms. Hart. I read recently in that vein, a story of a
    physician who had wanted to volunteer, had been consistently
    volunteering like 6 months at a time on Indian reservations
    providing medical services, and just recently, just couldn't do
    it because of the liability costs.
        I have one quick final question, and that is--actually I
    think probably both Mr. Palmisano and Mr. Smarr--regarding the
    claim that California's success in this area is not really due
    to MICRA but due to Prop 103. Do either of you have a comment
    on that?
        Mr. Smarr. Yes, I do. Prop 103, as I testified earlier, was
    an auto initiative that also included malpractice insurers. But
    the crux of this matter is that the malpractice insurers
    reached agreements with the insurance commissioner, and I have
    them here and I would like to present them to be included in
    the record, if you would, that they did not have to roll back
    their rates. They made a one-time return of premium equal to 20
    percent of annual premium to be paid as a dividend. This
    happened at a time when the California malpractice carriers
    were paying dividends in excess of 20 percent. And so it was a
    way to break the logjam to get these unintended targets, or
    nontargets rather, out of the way and to go on and deal with
    the auto carriers which were the real focus of the issue. So
    that is--it just didn't have an effect.
        Mr. Smith. Thank you, Ms. Hart.
        The gentleman from California, Mr. Schiff, is recognized
    for his questions.
        Mr. Schiff. I thank the Chairman and in particular want to
    thank Mrs. Keller and Mrs. Dyess for coming today and sharing
    your personal stories with us. I am from California and very
    familiar with the MICRA law out there, and MICRA did impose
    $250,000 limits but that was a quarter of a century ago.
        Doctor, why wouldn't it be appropriate in this bill to
    remedy what many in California see as a flaw of the MICRA bill,
    that MICRA never had a cost-of-living adjustment? Two hundred
    fifty thousand dollars in California a quarter of a century ago
    was very different than today. Why not add a COLA to this bill?
        Dr. Palmisano. That question comes up on a number of
    occasions and what we note is that the California market is
    stable. It is a proven treatment. We know that the Medical
    Society of New Jersey wanted some advice on some bills that
    were introduced in New Jersey and they called in Tilling Haas
    in the last couple of months, and they said that those
    particular bills would not lower rates. But, they did comment
    on caps. They said that a $250,000 fixed cap would stabilize
    the market and decrease the insurance rates, and they said as
    you increase the noneconomic cap to the point that when this
    reaches $500,000 it no longer has any effect. So, that is a
    recent study done by Tilling Haas.
        Mr. Schiff. That really doesn't answer my question. If you
    put a COLA in this bill, then it doesn't get to $500,000 until
    so many years of cost-of-living increases have gone up. Why not
    have a cost-of-living adjustment in this? Plainly it would have
    the same effect on the insurance premiums. It might not be
    quite as dramatic as without the COLA, but isn't what really is
    going on here is that in California there has been an inability
    to pass a COLA because of the institutional difficulty of
    really changing anything in this area? And isn't the lack of a
    COLA in this bill really premised on the same presumption of
    inaction in Congress, that if we pass this bill with no COLA in
    it, it will be at least another quarter of a century before a
    COLA can be provided? What would be unfair about having a cost-
    of-living adjustment so that this amount is not static over the
    years?
        Dr. Palmisano. Well, you know, Missouri did--the State of
    Missouri did pass a cap with--that could increase the cost-of-
    living. And now they have become--they are now over $500,000
    with their cap and now have turned into a red State, a crisis
    State. Also in H.R. 5----
        Mr. Schiff. Doctor, is your contemplation, then, that this
    cap should go on indefinitely at this amount?
        Dr. Palmisano. It depends what the future holds. What we do
    know it has a flexi-cap provision.
        Mr. Schiff. Well let me ask you, then, another question. I
    do think there is a crisis and a problem here. What I want to
    make sure is that the solution is one that works over time but
    also addresses the problem. And if I could, Mr. Smarr, the
    presumption is if we pass this bill, insurance premiums go
    down, correct?
        Mr. Smarr. Correct.
        Mr. Schiff. Would you be willing to support a sunset
    provision, that if we pass this bill and, in fact, insurance
    premiums do not go down, that rather than the difference is
    merely pocketed by the insurance companies, that the bill will
    be sunsetted?
        Mr. Smarr. I can't speak to that because I am speaking for
    my organization. I don't know.
        Mr. Smith. Would the gentleman from California yield for a
    second? A few minutes ago Mr. Smarr testified that they may not
    go down. They just may not increase as quickly as projected. So
    you might want to incorporate that into your question. Thank
    you for yielding.
        Mr. Schiff. Well, I mean this is really a part of what I am
    trying to wrestle with, which is are we merely going to be
    enhancing the bottom line of the insurance firms without doing
    anything for the patients that are really at the core of this?
    This seems to be a struggle between the doctors, the lawyers,
    and the insurance companies. And I am not clear that the
    outcome is going to really benefit the patients yet, at least
    from what I have learned thus far.
        Let me ask about one other point, Doctor, if I could, on
    the preemption question. Because after your testimony I went
    through the bill because I wasn't sure I understood the
    preemptive impacts. As I read the language of the section now,
    it provides that State limits on compensatory or punitive
    damages would be allowed to maintain, unless there were no such
    limits, whether you passed them before this bill or after this
    bill. They would continue on and not be preempted. But other
    than that, and defenses that are available to hospitals or HMOs
    or health care providers which would also not be preempted,
    everything else would be preempted. So the rules about
    statutory limitations in States would be preempted. Fair share
    rules would be preempted, contingent fees would be preempted,
    collateral source rule would be preempted.
        Mr. Schiff. The standard for punitive damages might be
    preempted; is that your reading? If the bill says that only the
    amounts will not be preempted, does that mean that this Federal
    law would change the standard for when punitive damages can be
    demonstrated in the 50 States, such that if one State felt that
    to protect its patients, it needed to make it easier for people
    to prove the punitive damages standard, that that would not be
    preempted by what we are doing now?
        Mr. Smith. The gentleman is recognized for an additional
    minute to get an answer to his question.
        Dr. Palmisano. Let me make sure. I will talk to counsel to
    make sure that I know how to answer this properly.
        Thank you for your patience. If there are punitive
    damages--if there are no punitive damages, for instance, in
    Louisiana there are no punitive damages unless someone is
    killed. There are two exceptions, but it has nothing to do with
    medical malpractice; it has to do with someone who is drunk and
    kills someone while driving intoxicated.
        So it would not give punitive damages in the State of
    Louisiana. What it would do is, it--if the State had a lesser
    standard, this would preempt it as far as the punitive damages,
    the way I understand it.
        Mr. Schiff. So that while a State could continue to
    maintain a certain limit on punitive damages, the standard of
    proof that you would have to meet would be preempted by this
    bill?
        Dr. Palmisano. If it was lesser.
        Mr. Schiff. If it was less rigorous. In other words, if
    California or any other State----
        Dr. Palmisano. If it was a less rigorous State law.
        Mr. Schiff. So it is not only the naked amounts of the
    damages that are not preempted, but the level of protection
    that a State wishes to give in terms of how it defines when
    punitive damages should be awarded, that would be preempted, as
    well as all of the other provisions that I mentioned?
        Dr. Palmisano. That is correct, talking to legal counsel,
    yes.
        Mr. Smith. Thank you.
        The gentleman from Michigan, the Ranking Member of the
    Judiciary Committee, Mr. Conyers, is recognized for his
    questions.
        Mr. Conyers. Thank you, Mr. Chairman.
        I want to thank Mrs. Keller and Mrs. Dyess for being here
    today. Their testimony was very important. We appreciate you
    helping us out.
        Now, I want to talk to the President-elect of the AMA, who
    is a renowned jazz aficionado from New Orleans. And I
    appreciate my earlier talks with him.
        But this conversation is about a board of trustees of the
    American Medical Association, Report 35, that responds to
    Resolution 212 instructing the board of trustees to make
    professional liability reform the association's highest
    priority and to report back to the House of Delegates on the
    activities initiated.
        And here is the part that we have to talk about. For
    several years, insurers kept prices artificially low while
    competing for market share and new revenue to invest in a
    booming stock market. As the bull market surged, investments by
    these historically conservative insurers rose to 10.6 percent
    in 1999, up from a more typical 3 percent in 1992.
        With the market now in a slump, the insurers can no longer
    use investment gains to subsidize low rates.
        The industry reported realized gains of $381 million last
    year, down 30 percent from the high point in 1998, according to
    the A.M. Best Company, one of the most comprehensive sources of
    insurance industry data. Remember that?
        Dr. Palmisano. Yes, sir.
        Mr. Conyers. Okay. And this phrase, or this sentence,
    ``Insurers now acknowledge their miscalculation. 'We should
    have raised prices sooner,' said Mike Miller, the senior
    executive in charge of liability coverage at the St. Paul
    Companies.''
        Remember that?
        Dr. Palmisano. Yes, sir.
        Mr. Conyers. Okay. But in your testimony, Mr. President,
    you made no reference to the economic circumstances that have
    caused malpractice insurance premiums to rise.
        Is that--well, you tell me why there was no reference made.
        Dr. Palmisano. Well, when--this was in the annual report
    2002, Mr. Conyers--and it is good to see you again, sir. We did
    cite the latest information that we could get in our written
    testimony, which talks about the investment income being
    stable. We continue to gather information and knowledge.
        But even if you take this statement, as--the statement that
    the insurers failed to raise the rates sooner, we would have
    had the crisis sooner, because the rates are determined,
    according to these experts, by frequency and severity in the
    defense costs.
        Mr. Conyers. So that is why you left it out?
        Dr. Palmisano. We didn't leave it out intentionally. We are
    just trying to give you something that is the latest
    information that we have.
        Mr. Conyers. I appreciate it.
        If you get any new information along these lines, would you
    make it personally available to me?
        Dr. Palmisano. Yes, sir.
        Mr. Conyers. I am not able to make too many of those
    meetings.
        Dr. Palmisano. Thank you, I will.
        Mr. Conyers. Now, Mr. Smarr, this is known as true or
    false: A comparison of States that have enacted severe tort
    restrictions and those that have not reformed found no
    correlation between tort reform and insurance rates?
        Mr. Smarr. I am not aware of the study.
        Mr. Conyers. But are you aware of the statement?
        Mr. Smarr. I am aware of----
        Mr. Conyers. Is it true or false?
        Mr. Smarr. If it is the statement that I am aware of, then
    that statement is false.
        Mr. Conyers. Okay. Are you aware of the Center for Justice
    and Democracy?
        Mr. Smarr. I am.
        Mr. Conyers. They are the ones that did the report.
        Mr. Smarr. Then the statement is false.
        Mr. Conyers. Because of who it came from?
        Mr. Smarr. Because I have reviewed the work of the Center
    for Justice and Democracy, and I do not agree with it.
        Mr. Conyers. Okay. I see.
        Number two: Some of the resisting States have experienced
    lower increases in rates while some States that enacted tort
    reforms experienced higher rate increases relative to national
    trends. True or false?
        Mr. Smarr. If the source is the Center for Justice and
    Democracy, I do not agree.
        Mr. Conyers. Well, suppose it wasn't from them.
        Mr. Smith. The gentleman is recognized for an additional
    minute.
        Mr. Conyers. But, I mean, in your experience, we are not
    testing the Center for Justice and Democracy, we are testing--
    we are trying to seek your experience in this market, of which
    you are a professional, to determine whether you agree with
    these, regardless of where it came from.
        Do you want me to read it again?
        Mr. Smarr. Please.
        Mr. Conyers. Some of the resisting States experienced lower
    increases in insurance rates, while some States that enacted
    tort reforms experienced higher rate increases relative to the
    national trends.
        Mr. Smarr. That statement could be true depending on the
    context and the States.
        Mr. Conyers. All right.
        Mr. Smith. If you will yield, I will grant the gentleman 2
    additional minutes and hope he can conclude.
        Mr. Conyers. I thank you for your kindness.
        In the practice of internal medicine, States with caps on
    damages in some States had higher premiums than States without
    caps.
        Mr. Smarr. Again, sir, it would depend upon the analysis. I
    have seen studies that show that those are not truthful
    analyses.
        Mr. Conyers. Uh-huh. So what do you think about this as a
    general proposition?
        Mr. Smarr. I think, in general, sir, that States that have
    adopted tort reforms have lower rates and have lower rates of
    increase than States that have not adopted tort reforms.
        Mr. Conyers. Good. Thank you very much.
        Okay. Two more and we are through.
        For general surgeons, insurance premiums have been 2.3
    percent higher in States with caps on damages.
        Mr. Smarr. I don't know that that is true.
        Mr. Conyers. Okay. And here is the last one. On average,
    malpractice premiums have been no higher in the 27 States that
    have no limitations on malpractice damages than in the 23
    States that do have such limits.
        Mr. Smarr. Again, I don't know that that is true.
        Mr. Conyers. All right. Well, you have done very well on
    this true and false test. I want to compliment you.
        And I want to thank the Chairman for the additional time.
        Mr. Smith. Thank you, Mr. Conyers.
        Before we adjourn, I want to recognize two Members so that
    they can each ask an additional question. And what I would ask
    them to do is to keep the exchange short out of fairness to the
    Members who have already left, because they were not expecting
    to be able to ask additional questions.
        The first person to be recognized is the gentleman from
    Virginia, Mr. Scott.
        Mr. Scott. Thank you, Mr. Chairman. And, I will just ask a
    somewhat brief question. We are talking on the joint and
    several problem.
        If Mr. Smarr could indicate what the costs would be in
    terms of expert witness fees to prove all of the cases--in Mrs.
    Keller's case, against the physician, a nurse, an ambulance
    driver, hospital, the neurologist, emergency room at the
    hospital. About what kind of expert witness fees are we talking
    about, and whether or not, under the bill, those fees would be
    covered by--within the attorneys' fees limitation, or would the
    plaintiff just have to pay these out of whatever was left of
    the settlement?
        Mr. Smarr. Those fees--expenses are not paid, generally,
    out of the contingency portion of an award; they are in
    addition to the award.
        As to the level of those fees, I have never seen any data
    on plaintiff expert witness fees and the like. I don't know
    that it is published.
        Mr. Scott. You have expert witness fees on the defense
    side?
        Mr. Smarr. Yes, we do.
        Mr. Scott. How much do you pay your doctors to testify?
        Mr. Smarr. I can't give you an accurate answer. But I do
    have that data, and I will provide it to you and to the
    Committee.
        Mr. Smith. Thank you, Mr. Scott.
        The gentlewoman from Texas, Ms. Jackson Lee, is recognized
    for her question.
        Ms. Jackson Lee. As I indicated, I read some numbers into
    the record that show that whether or not you are in a crisis or
    not, the quality of care, or the quality of care in terms of a
    particular State is no better, no worse--Texas, 49th in quality
    of care; Louisiana, 51; and California, 44. In those States,
    those last two States have implemented some sort of reform.
        Mr. Smith. Are those figures, are they quality of care or
    expenditures, median expenditures?
        Ms. Jackson Lee. Quality of care.
        Mr. Smith. Who did the rankings of those?
        Ms. Jackson Lee. Quality of care, it was reported in the
    Journal for the American Medical Association. It was--the
    source is the American Health Quality Association on Care
    Delivered to Medicare Beneficiaries.
        Mr. Smith. Thank you.
        Ms. Jackson Lee. I don't have a quarrel, Dr. Palmisano,
    with you and the victims that are here in this room. I think
    the important point is, how can we resolve you being able to do
    your job weeding out bad doctors, promoting good doctors and
    saving the lives and helping these victims? So, Mr. Smarr, let
    me ask you these questions regarding who my quarrel actually is
    with.
        First of all, I would like you to provide us with a 5-year
    reading of the profits of your organization. I don't know if it
    is in your documentation. I did not see it. But I would like to
    know whether you would accept amendments regarding the idea
    that if a physician has had a clean record, as many of the
    physicians in my congressional district have had, that they
    will be guaranteed not only a, if you will, tabling or staying
    of their rates, but a decrease in their rates and, as well,
    that we would put in the language that those rates would remain
    in place for 5 years.
        In addition, I would like to ask you the question as to how
    serious is the consideration--I know you are a corporation, and
    I am not sure what the incorporation status is--of your need
    for profits over the ability to ensure those who are seeking
    insurance?
        My understanding is--from the physicians in my community is
    that basically no matter how well they practice medicine the
    insurance rate goes up, up and up, regardless of whether they
    are making profits or not, and mostly it goes up because you
    are attempting to make profits as opposed to serving as
    physicians and helping victims.
        Mr. Smarr. Well, most of the doctors in Texas are insured
    by the Texas Medical Liability Trust, which is a physician-
    owned----
        Ms. Jackson Lee. Let us not speak to the Texas issue. I
    just used them as an example.
        I want to ask whether your organization would accept those
    amendments of staying--of decreasing the cost of any physician
    who could show that they have not been sued and, as well,
    staying those costs for 5 years; and also to give me your
    record of profits over the last 5 years.
        Mr. Smarr. The record of profits, I will be glad to provide
    to you. In fact, that is stated in my written testimony, the
    first exhibit.
        Secondly, in terms of freezing rates for physicians that do
    not have claims experience, I can't commit to the members of my
    association that that would do that. But I----
        Ms. Jackson Lee. Wouldn't that be reasonable, that if you
    are not a problem, that your rates should not go up?
        Mr. Smith. We have been generous in allowing you extra
    time. But we will need to conclude our----
        Ms. Jackson Lee. I appreciate it, Mr. Chairman. I will let
    him answer the question.
        Isn't that reasonable, Mr. Smarr?
        Mr. Smarr. It is reasonable. It is being done now. Because
    insurers do employ merit rating plans where doctors that have--
    do not have significantly adverse loss experience either
    receive discounts, or those doctors that do have significantly
    adverse loss experience receive surcharges.
        Ms. Jackson Lee. So you wouldn't mind its being federalized
    in this bill?
        Mr. Smith. The gentlewoman's time has expired.
        Ms. Jackson Lee, your time has expired.
        Ms. Jackson Lee. Thank you.
        Mr. Smith. I would like to thank all Members for their
    participation today, and also our witnesses for their input.
    You have been instructive and revealing, which will be helpful
    to us as we consider the HEALTH Act.
        The Judiciary Committee stands adjourned.
        [Whereupon, at 11:30 a.m., the Committee was adjourned.]
                                A P P E N D I X

                                  ----------

                  Statements Submitted for the Hearing Record

            Prepared Statement of the Alliance of Specialty Medicine
              assessing the need to enact medical liability reform
        Chairman Sensenbrenner, and Members of the Committee, the Alliance
    of Specialty Medicine, a coalition of 13 medical organizations
    representing over 160,000 specialty care physicians in the United
    States, appreciates the opportunity to comment on the impact that our
    current medical litigation system is having on patient access to
    medical care and the need to enact medical liability reform
    legislation. The Alliance would also like to take this opportunity to
    thank you for the leadership that you and your committee have shown on
    this issue. We believe that the reforms contained in HR 5, the Help,
    Efficient, Accessible, Low Cost, Timely Health Care Act, which were
    approved by your Committee last year, will go a long way to solve the
    current medical liability crisis.
        And it is a crisis. The media now report on a daily basis that the
    situation has become so critical that many physicians are forced to
    limit services, move to other states where the medical liability system
    is more stable, or retire altogether. Much of the ``face'' of this
    crisis has centered around the great difficulties that pregnant women
    are having in finding obstetricians to deliver their babies, but the
    simple truth is that this is a problem that potentially affects all of
    our citizens: the mother whose little boy has fallen off of the jungle
    gym and needs an orthopaedic surgeon to fix his broken arm; the
    teenager who has been in a serious car accident and needs a
    neurosurgeon to treat his severe head injury; the woman who needs a
    pathologist to evaluate her Pap smear to screen for cervical cancer;
    the elderly man who has a poor heart and needs a cardiologist or
    cardio-thoracic surgeon to unblock a clogged artery or replace a
    failing valve; the woman who has a family history of breast cancer and
    needs a radiologist to perform a mammography to make sure she is cancer
    free; the business man who needs a gastroenterologist to treat his
    ulcer; the man who needs a urologist to screen for prostate cancer; and
    the list goes on and on.
    LCause of the Crisis: The Current Medical Litigation System is Out of
            Control
        The root cause of this problem is quite simple: the unrestrained
    escalation of jury awards and settlements, in even a small number of
    medical liability cases, is driving up doctors' liability insurance
    premiums and is forcing some insurance companies out of business
    altogether. This problem is making it difficult, and sometimes
    impossible, for doctors to obtain affordable liability insurance so
    they can remain in practice. Adding to this is the fact that doctors
    distrust and fear the medical litigation system, causing them to alter
    the way they deliver medical care to their patients, and in some cases
    this fear is causing doctors to cease practicing altogether. There is a
    wide body of evidence to substantiate these conclusions:

        Medical Liability Awards are On the Rise

        LMedical liability awards have been growing steadily, and according
    to Jury Verdict Research data, from 1994 to 2000 the median jury award
    rose by 176 percent. The number of mega-verdicts is also on the rise,
    with the proportion of million dollar plus awards increasing
    dramatically over this same time period. In 1996, 34 percent of all
    jury awards exceeded $1 million. Four years later, the number of
    million dollar awards increased to 52 percent, and the average jury
    award in 2000 was nearly $3.5 million.

        Medical Liability Insurance Premiums are Skyrocketing

        LIt is clear that the increasing number of multi-million dollar
    jury awards is driving up the costs of medical liability insurance and
    insurance companies are now paying out approximately $1.40 for every
    premium dollar collected. Obviously, this is not sustainable, and this
    trend is therefore forcing insurance companies, which must set their
    rates based on anticipated future losses, to steeply increase doctors'
    medical liability premiums to ensure adequate reserves to pay future
    judgments. As a result, over the past several years, physicians across
    the country have faced double, and sometimes triple, digit rate
    increases. Alliance members, including high-risk specialists like
    neurosurgeons, orthopaedic surgeons and emergency physicians, have been
    disproportionately affected by these premium increases. For example:

         According to a national survey of neurosurgeons, between
    2000 and 2002 the national average premium increase was 63%, from
    $44,493 to $72,682. In some states, neurosurgeons are now paying
    medical liability insurance premiums in excess of $300,000 per year.

         Utah orthopaedic surgeons have seen medical liability
    rate increases of 60% since last year and in Texas they are rising by
    more than 50 percent. In Pennsylvania, a survey conducted in June 2002
    revealed rate increases as high as 59 percent. In other areas of the
    country, orthopaedic surgeons are finding that their premiums have
    risen by over 100 percent, even if they have never had a claim filed
    against them.

         Over the past several years, over 95 percent of emergency
    medicine physicians have experienced medical liability premium
    increases, with approximately 69 percent facing increases between 60 to
    500 percent. This is attributed to the fact that emergency medicine
    physicians are almost always named in any litigation that arises from a
    patient encounter that begins in the emergency department. Since most
    hospital admissions now come through the emergency department, these
    doctors are experiencing steep premium rises even though the lawsuits
    against them may have no merit and result in either dismissal or a
    defendant's verdict.

         Even those specialists who are not in high-risk
    categories are affected by this upward trend in premium costs. For
    example, 80 percent of recently surveyed dermatologists reported that
    their premiums increased last year and those dermatologists who were
    insured by a state plan were paying nearly double what their colleagues
    were paying in the private market.

        Medical Liability Insurance is Unavailable

        LNot only are medical liability insurance premiums rising at
    astronomical rates, but many doctors are also finding it increasingly
    difficult to obtain medical liability insurance at any price. Citing
    the increases in liability losses, several companies, including, St.
    Paul, MIXX, PHICO, Frontier Insurance Group and Doctors Insurance
    Reciprocal, have recently stopped selling medical liability insurance
    or have gone out of business, leaving thousands of doctors scrambling
    to find replacement coverage. Of the companies that have remained in
    the market, many are no longer renewing insurance coverage for existing
    policyholders and/or they are not issuing new insurance policies to new
    customers. This is particularly true in states that have no effective
    medical liability reform laws in place, where, for instance, in
    Mississippi fifteen insurers have left the market in the past five
    years. Alliance members have witnessed the impact of this problem first
    hand. For example:

         In 2002, nearly 40 percent of orthopaedic surgeons in
    Pennsylvania were not able to renew their medical liability coverage
    with the same carrier and 31 percent did not find new coverage. Close
    to 50 percent of Pennsylvania orthopaedic surgeons have reported that
    their liability policies will not be renewed for 2003.

         In 2002, 15 percent of dermatologists experienced
    difficulties securing their liability insurance. In some cases,
    dermatologists in solo practice who have never even been sued were
    forced to turn to the state for coverage because the remaining insurers
    in their area made a blanket decision to no longer insure solo practice
    physicians, regardless of specialty.

         Today in Mississippi, the only way a neurosurgeon can
    even be considered for coverage is if he or she joins an existing group
    that already is covered by the state medical society's insurance
    company. The other two companies providing insurance coverage in
    Mississippi will not issue new policies for neurosurgeons at all. In
    addition, neurosurgeons in Florida have been unable to obtain medical
    liability insurance at any cost, forcing them to ``go bare'' or self-
    insure.

         Recently one internationally-recognized pathologist, who
    has never had a claim filed against him, was turned down by three
    insurers and a fourth offered him a policy that was simply too
    expensive.

         Three of four insurance carriers with the largest market
    share in Missouri have stopped writing policies in that state. This
    means that physicians can often obtain a quote from only one company.
    For example, one group of 12 cardiologists could get only one quote
    with an 80 percent increase for 2003.

        Medical Litigation System Breeds Fear in Doctors

        LGiven the litigious nature of our society, every physician faces
    the reality that he or she may at some time be named in a medical
    liability lawsuit, whether meritorious or not, and the current medical
    litigation system breeds fear in all doctors. This fear of litigation,
    particularly among high-risk specialists, is a contributing factor in
    doctors' decisions to change the way in which they are practicing
    medicine. Data from a 2002 Harris Interactive study conducted for the
    Common Good, a bipartisan legal reform organization, validates this
    point. According to the data, nearly all physicians feel that
    unnecessary care is provided because of fear about litigation. To
    protect themselves in the event that they might be sued:

         91 percent of doctors are ordering more tests than are
    medically needed;

         85 percent of doctors refer patients to specialists more
    often than is necessary; and

         73 percent of doctors suggest that patients have invasive
    procedures to confirm medical diagnoses

        LThe report aptly concludes: ``From the increased ordering of
    tests, medications, referrals, and procedures to increased paperwork
    and reluctance to offer off-duty medical assistance, the impact of the
    fear of litigation is far-reaching and profound.''
    Result of the Crisis: Patient Access to Medical Care is in Jeopardy
        There are many casualties of the current medical liability crisis--
    but those affected the most are patients. Because the medical
    litigation system is broken, across the nation patients are finding it
    harder and harder to get access to the care they need, when they need
    it. As medical liability insurance becomes unaffordable or unavailable,
    more and more doctors, especially specialists, are no longer performing
    high-risk procedures, or they are being forced to move their practices
    to states with stable medical liability systems, or they are simply
    retiring from medical practice--all of which seriously impede patient
    access to care. Once gone, these doctors are hard to replace, and those
    states currently facing a medical liability crisis are having a
    difficult time recruiting new physicians to their communities adding to
    the shortage of doctors in many parts of the country. The combination
    of these factors is also now severely straining our nation's already
    stressed emergency medical system, as patients who have no access to
    doctors inevitably end up on the emergency department's doorsteps,
    further exacerbating the hospital emergency department overcrowding
    problem. A growing list of examples demonstrates just how serious this
    crisis is becoming:

        LDoctors are No Longer Performing Complex and High-Risk Medical
        LProcedures

         According to a nationwide survey conducted last year, 43
    percent of neurosurgeons reported that they are no longer performing
    high-risk surgery such as treating brain aneurysms, removing brain and
    spinal tumors, or complex spinal surgery. In addition, many
    neurosurgeons are no longer serving on-call to hospital emergency
    departments or operating on children.

         A recent survey found that 55 percent of orthopaedic
    surgeons nationwide have reduced the type of operational procedures
    they perform, with 39 percent avoiding performing spine surgery and 48
    percent altering their practice in other ways, including eliminating
    emergency room call or trauma call.

         The elderly are particularly affected, as decreases in
    reimbursements for complex medical procedures have declined to the
    point where Medicare no longer even covers the cost of medical
    liability insurance. Specialists with a high volume of Medicare
    patients, such as cardiologists and cardio-thoracic surgeons, and their
    patients who need high-tech, lifesaving heart therapy, will feel the
    effects the most.

        Doctors, Trauma Centers and Other Medical Providers are
        Closing their Doors

         In the case of neurosurgery, in 2001 alone, 327 board
    certified neurosurgeons retired, representing an alarming 10 percent of
    the neurosurgical workforce in the United States. Recently, the only
    neurosurgeon practicing at Cottonwood Hospital in Salt Lake City, Utah
    quit practicing following a steep insurance premium increase.

         Recent press accounts are replete with stories about the
    closure of trauma centers in Pennsylvania, West Virginia, Nevada,
    Mississippi, Missouri and Florida because of a shortage of orthopaedic
    surgeons, neurosurgeons and other specialists available to provide
    emergency medical care. Chicago's trauma centers are also now
    vulnerable to closing or downgrading their status.

         In the last 18 months, nearly 700 mammography facilities
    have closed nationwide. The continued and steady closing of mammography
    facilities throughout the country has led to increased waiting times
    for women seeking both screening mammograms and diagnostic mammograms.
    The longer waiting times are now on the brink of affecting clinical
    outcomes for those women who must wait for a possible diagnosis of
    breast cancer.

        Doctors are Moving to States with a More Favorable Medical
    Liability
        Climate

        LEvery state that is experiencing a medical liability crisis
    reports that doctors are leaving in droves in search of another
    location in which to practice where the medical litigation climate is
    more favorable. The list of states experiencing the exodus of doctors
    continues to grow, and as with other elements of this crisis,
    specialists are most likely to ``hit the road'' in search of a safe
    haven state. For instance:

         Pennsylvania has been especially hard hit, and some
    counties no longer have any practicing orthopaedic surgeons. For
    example, Bedford County's only orthopaedic surgeon left the state in
    October 2001, and Pike and Monroe Counties are down from nine to five
    orthopaedic surgeons. Huntingdon County has just one orthopaedic
    surgeon remaining to take trauma call at two hospitals. The situation
    is the same in West Virginia, and a number of orthopaedic surgeons
    either have left the state or are scaling back their practices. At the
    end of 2002, five orthopaedic surgeons in Parkersburg moved their
    practice to Ohio.

         Neurosurgery's survey data show that nearly 19 percent of
    practicing neurosurgeons either plan to, or are considering, moving
    their practice to another state where the medical liability costs are
    relatively stable. Mississippi, for instance, has lost 35 percent of
    its neurosurgeons in the past two years, and the flight of
    neurosurgeons from Pennsylvania and West Virginia mirrors the
    Mississippi experience.

        The State of America's Health Now and in the Future is at Risk

        LThe combination of all the above factors is clearly placing the
    health of our nation's citizens at considerable risk. Because of the
    medical liability crisis, more and more people are finding it difficult
    to get the specialized medical attention they need, when they need it.
    This is causing a national health care emergency. Thus:

         When patients can't find a specialist close to home, they
    must sometimes travel great distances, often going out of state, to get
    their medical care.

         When fewer specialists are available, hospital emergency
    departments and trauma centers must shut their doors, and patients with
    emergency medical conditions lose critical life-saving time searching
    for an available emergency room.

         When specialists stop performing high-risk medical
    services, patients are often referred to academic medical centers, and
    these medical facilities are already overburdened and are ill equipped
    to handle the increase in patient volume.

         When specialists retire at an early age, the looming
    shortage of doctors is accelerated, which, if left unchecked will place
    additional burdens on the health care system as the population ages and
    requires more medical care from an increasingly shrinking pool of
    practicing doctors.

         When the practice of medicine becomes so uninviting,
    fewer and fewer of our nation's best and brightest will want to become
    doctors, thus jeopardizing our country's status as one of the finest
    health care systems in the world.
    Scope of the Crisis: A National Problem that Requires a Federal
            Solution
        Those who oppose federal legislation to address this crisis cite
    various reasons to support their contention that this is not a national
    problem that merits a federal solution. In particular, they note that
    the regulation of insurance and health care are generally state issues,
    and therefore principles of Federalism preclude federal legislation to
    address this problem. They are, however, wrong. The undisputed truth is
    that this problem now touches nearly every American and a federal
    solution is therefore a national imperative. As the following
    demonstrate:

        Nearly All States are Facing a Medical Liability Crisis

        LThe AMA has identified 12 states that are in a medical liability
    crisis for all physicians. These include: Florida, Georgia,
    Mississippi, Nevada, New Jersey, New York, Ohio, Oregon, Pennsylvania,
    Texas, Washington and West Virginia. However, for many high-risk
    specialties, like neurosurgery and orthopaedic surgery, the situation
    is even more widespread than the AMA reports. A 2002 national survey of
    neurosurgeons identified 25 states that are in a severe medical
    liability crisis, with an additional 12 states in potential crisis. In
    addition to those identified by the AMA, the crisis states for
    neurosurgery include: Alabama, Arkansas, District of Columbia,
    Illinois, Kentucky, Missouri, New Hampshire, North Carolina, South
    Carolina, Rhode Island, Tennessee, Utah and Virginia.

        Every American Pays for the Costs of the Current Medical
        Litigation System

        LAccording to the U.S. Department of Health and Human Services
    (HHS), in its report entitled, ``Confronting the New Health Care
    Crisis: Improving Health Care Quality and Lowering Costs by Fixing our
    Medical Liability System,'' the current medical litigation system
    imposes enormous direct and indirect costs on the health care system.
    These costs are passed on to all Americans in the form of increased
    health insurance premiums, higher out-of-pocket medical expenses and
    higher taxes. The report estimates that enacting federal medical
    liability legislation could save between $60-108 billion in health care
    costs each year. These savings would in turn lower the cost of health
    insurance and make health care more affordable and available to many
    more Americans.

        Federal Medical Liability Reform Will Save the Federal Government
        Money

        LEach year, the Federal Government pays for the increased costs
    associated with the current medical litigation system through various
    health care programs, including Medicare, Medicaid, Community Health
    Centers and other health care programs for veterans and members of the
    armed forces. The Department of Health and Human Services estimates
    that the direct cost of medical liability insurance coverage and the
    indirect cost of defensive medicine, increases the Federal Government's
    costs of these health programs by $28.6 to $47.5 billion each year. In
    the above referenced report, HHS estimates that if reasonable limits
    were placed on non-economic damages, it would reduce Federal Government
    spending by $25.3 to $44.3 billion per year. The Congressional Budget
    Office (CBO), in its cost estimate of HR 4600, the HEALTH Act of 2002,
    confirms that passage of federal medical liability reform legislation
    that includes a cap on non-economic damages will increase federal tax
    revenues, and at the same time reduce the costs of federal health care
    programs.

        States Face Significant Barriers to Implementing Medical Liability
        Reforms

        LMany states face barriers--some legal and some political--to
    enacting effective medical liability reform laws. Some states,
    including Texas, Florida, Ohio and Pennsylvania, have enacted medical
    liability reform laws, only to have their state Supreme Courts strike
    them down as unconstitutional. New laws passed by Mississippi and
    Nevada face certain court challenge, and it will be years before it is
    determined whether these laws pass state constitutional muster.
    Finally, in some other states, the issue has become a political one,
    effectively killing any chances for passage. As a consequence, despite
    the increasing medical liability crisis in many of these states, they
    are effectively powerless to act to effectively solve the problem.
    Solution to the Crisis: Medical Liability Reform Legislation Patterned
            After California's MICRA
        Fortunately, Congress does not need to start from scratch and
    identify and implement a solution that is untested. Faced with a
    similar crisis in the early 1970's, the state of California, with
    bipartisan support, enacted the Medical Injury Compensation Reform Act
    or MICRA. The key elements of MICRA include:

             Providing full compensation for all economic damages,
            including medical bills, lost wages, future earnings, custodial
            care and rehabilitation;

             Placing a fair and reasonable limit of $250,000 on
            non-economic damages, such as pain and suffering;

             Establishing a reasonable statute of limitations for
            filing a lawsuit;

             Allowing for periodic payments of damages rather than
            lump sum awards; and

             Ensuring that the bulk of any award goes to the
            plaintiffs, not attorneys

            The clear and simple truth is that MICRA works. For nearly
            three decades, this law has ensured that legitimately injured
            patients get unfettered access to the courts and receive full
            compensation for their injuries, while at the same time
            providing stability to the medical liability insurance market
            to ensure that doctors can remain available to care for their
            patients. In a similar manner, the HEALTH Act will ensure that
            patients and doctors nationwide will reap the benefits of this
            rational approach to solving the professional liability crisis.
        Consider the following points about the effectiveness of MICRA:

        LMICRA Fully Compensates Injured Patients

        LFirst and foremost, under MICRA, patients receive full
    compensation for legitimate injuries resulting from medical negligence.
    Detractors of federal reform legislation are attempting to obfuscate
    the facts by scaring the public and policymakers into believing that
    injured patients will only receive a maximum of $250,000 to compensate
    them for their injuries. This is simply not the case. Patients receive
    full compensation for all of their quantifiable needs, with up to an
    additional $250,000 for non-economic damages, such as pain and
    suffering. To demonstrate this fact, the Californians Allied for
    Patient Protection recently compiled a sample of total awards
    (including both economic and non-economic damages) provided to injured
    patients. For example:

            December 2002
            $84,250,000 total award
            Alameda County
        5-year-old boy with cerebral palsy and quadriplegia because of
                delayed treatment of jaundice after birth.

            October 2002
            $59,317,500 total award
            Contra Costa County
        3-year-old girl with cerebral palsy as a result of birth injury.

            July 2002
            $12,558,852 total award
            Los Angeles County
        30-year-old homemaker with brain damage because of lack of oxygen
                during recovery from surgery.

            November 2000
            $27,573,922 total award
            San Bernardino County
        25-year-old woman with quadriplegia because of failure to diagnose
                a spinal injury.

        MICRA Significantly Minimizes Premium Increases

        LOpponents of reform cite statistics that over the past several
    years, premiums for doctors in California have also been rising; thus
    proving that MICRA does not have any impact in holding down the costs
    of medical liability insurance. While it is true that premiums are on
    the rise in nearly all states, including California, the rate of
    increase of premiums for California doctors is significantly lower than
    in other states, and over time, MICRA has, in fact, stabilized medical
    liability insurance premiums as compared to the rate of increase in the
    rest of the country. As the following chart demonstrates, from 1976 to
    2000, premiums for physicians in California have risen only 167 percent
    as compared to an increase of 505 percent for the entire United States.

        Data collected from high-risk medical specialties from 2000 to 2002
    also validate these trends. For example, according to a nationwide
    survey of neurosurgeons, the national average premium increase for
    California neurosurgeons was 39 percent as compared to 63 percent for
    neurosurgeons in the entire country. In addition, the same survey
    clearly demonstrated that the rate of increase for an individual
    neurosurgeon in Los Angeles, California, as compared to other
    neurosurgeons who practice medicine in crisis states where there are no
    reforms in place, is significantly lower. The average rate of increase
    for the neurosurgeons in these non-reform states was 143 percent as
    compared to just 8 percent in Los Angeles, CA.

        The Alliance does acknowledge that despite the successful reforms
    contained in MICRA, the average medical liability claim in California
    has outpaced the rate of inflation. This is in large part due to the
    fact that economic damages are not limited under MICRA and have grown
    as a component of medical liability claims. Notwithstanding this,
    however, the undisputed fact remains that MICRA prevents runaway juries
    from awarding outrageous awards for subjective, arbitrary and often
    unquantifiable non-economic damages, which allows insurance companies
    to adequately predict future lawsuit awards, bring stability the health
    care delivery system.

        Federal Government Validates that MICRA Works

        LU.S. Government experts agree that MICRA does in fact hold down
    the costs of medical liability insurance, and over the years there have
    been a number of studies that have identified MICRA's $250,000 cap on
    non-economic damages as a critical element in stabilizing premium
    costs. For example, dating back to September 1993, the former U.S.
    Office of Technology Assessment (OTA), in a report entitled, ``Impact
    of Legal Reforms on Medical Malpractice Costs,'' concluded that caps on
    damages were consistently found to be an effective mechanism for
    lowering medical liability insurance premiums. Most recently, the
    previously referenced HHS report, ``Confronting the New Health Care
    Crisis'' and the CBO cost estimate report of the HEALTH Act, came to
    the same conclusion.
    Justification for Federal Reform Legislation: Americans Overwhelmingly
            Support a MICRA-Style Solution
        Americans are becoming acutely aware of the impact that this crisis
    is having on our nation's health care system, and overwhelmingly favor
    having Congress pass legislation to reform the current medical
    liability system and create one that balances the rights of patients to
    seek and obtain appropriate compensation for injuries caused by medical
    negligence against the right of all our citizens to have continued
    access to medical care. Two recent polls clearly demonstrate this
    support. In January 2003, Gallup conducted a poll on this issue and
    found the following:

             Americans believe that the medical liability
            insurance issue is either a major problem (56%) or a health
            care crisis (18%);

             72 percent favor passing a law that would limit the
            amount that patients can be awarded for their emotional pain
            and suffering; and

             57 percent responded that they think patients bring
            too many lawsuits against doctors

        This Gallup poll confirms the findings of last year's Wirthlin
    Worldwide study conducted for the Health Care Liability Alliance
    (HCLA), which found that:

             78 percent of Americans are concerned that
            skyrocketing medical liability costs could limit their access
            to care;

             73 percent favor a federal law that guarantees
            injured patients full payment for lost wages and medical costs
            and reasonable limits on awards for ``pain and suffering'' in
            medical liability cases; and

             48 percent believe the number of medical liability
            lawsuits against doctors is higher than justified
                                   conclusion
        We have reached a very important juncture in the evolution of the
    U.S. health care system. At a time when lifesaving scientific advances
    are being made in nearly every area of health care, patients across the
    country are facing a situation in which access to health care is in
    serious jeopardy. Thus, as the Congress deliberates the many facets of
    this issue, the Alliance urges you to continue to keep in mind that
    this issue is not about doctors, lawyers and insurance companies.
    Rather, it is about patients and their ability to continue to receive
    timely and consistent access to quality medical care. By reforming the
    medical litigation system, the crisis will ultimately be abated.
    Patients are calling for reform. Doctors are calling for reform.
    President Bush is calling for reform. And the Alliance urges the
    Congress to heed these calls and, at a minimum, pass the HEALTH Act so
    all Americans are able to find a doctor when they most need one.
    Ultimately, when the question ``Will your doctor be there?'' is asked,
    the answer must be an unqualified yes.
        Thank you for considering our comments and recommendations. The
    Alliance of Specialty Medicine, whose mission is to improve access to
    quality medical care for all Americans through the unified voice of
    specialty physicians promoting sound federal policy, stands ready to
    assist you on this and other important health care policy issues facing
    our nation.

                                  ----------

                      Prepared Statement of Mary R. Grealy
        Our liability system is broken. If it is not fixed soon, it will
    break our health care system as well.
        One of the founding principles of the Healthcare Leadership Council
    (HLC) B which represents the CEO's of the nation's leading health care
    companies and organizations B is that patients should have access to
    high quality health care. Skyrocketing liability costs threaten patient
    access to quality care. This is no longer simply about lawyers and
    doctors. This is about patients.
        The cost of excessive jury awards is causing staggering increases
    in medical liability premiums. Between 1996 and 1999, average jury
    awards in medical liability cases have increased by 76 percent. These
    spiraling increases add directly to the cost of health care,
    contributing significantly to premium costs and the growing number of
    uninsured Americans.
        Just as harmful to patients and consumers, however, are the
    indirect costs of the crisis. Patients are increasingly Apaying@ for
    excessive litigation by losing access to medical specialists such as
    obstetricians and surgeons. An estimated 1 in 11 obstetricians/
    gynecologists say they have strictly limited their services solely to
    gynecology due to the malpractice crisis. In some areas, the situation
    is far worse. In Miami, average annual malpractice premiums for Ob-Gyns
    are $210,578, while the average salary for an Ob-Gyn in Florida is
    $118, 435. In Wyoming, premiums average $116,000, while average
    salaries for Ob-Gyns are $108,700.
        As medical malpractice insurance rates skyrocket B or become
    unavailable B medical specialists such as neurosurgeons, orthopaedic
    surgeons and obstetricians/gynecologists are leaving states such as
    Pennsylvania, Mississippi, West Virginia, New Jersey, Florida and
    others. While these states have been in the news lately, the crisis
    goes far beyond the 13 Acrisis@ states. It is estimated that as many as
    30 other states are in Anear crisis@ and will soon join the ranks of
    states where patient access is endangered.
        Patients also are losing access to nearby hospitals, trauma
    centers, and other facilities as a result of the crisis. Patients are
    subjected to, and pay for, unnecessary tests and procedures as
    physicians must practice Adefensive medicine.@ In addition, patients
    ultimately are the ones who suffer when new drug therapies and medical
    technologies are not developed due to litigation or the fear of it.
        The cause of the liability crisis is clear. Medical malpractice
    insurance rates are set prospectively. These rates are set primarily on
    the basis of projections of jury awards. This trend line is in one
    direction: straight up. Solving the cost problem requires dealing with
    the size and unpredictability of these awards. The bottom line is that
    medical malpractice premiums cannot keep up with claims. A typical
    state is Oregon, where a Governor's task force reported that medical
    liability insurers paid out $71 million in losses and defense costs,
    while receiving $50 million in premiums over the same period. In Ohio,
    medical malpractice insurers are losing $1.62 for every $1 in premiums.
    Clearly these trends are unsustainable and will drive more physicians
    out of practice.
        The only proven way to bring these costs under control B while
    actually enhancing patients' ability to recover economic damages for
    injuries B are reforms which include capping non-economic and punitive
    damages, establishing reasonable levels for attorneys' fees, and
    setting fair share rules for joint and several liability.
        HLC strongly supports these and other reforms embodied in the Help
    Efficient, Accessible, Low Cost, Timely Health Care (HEALTH) Act of
    2003 (H.R. 5). We urge that the Committee favorably report H.R. 5 to
    the full House for consideration. We stand ready to work with you to
    address this growing crisis.

                                  ----------

                      Prepared Statement of Frank Clemente
        On behalf of Public Citizen's 125,000 members, I am pleased to
    provide this testimony to the Judiciary Committee for the hearing
    record on H.R. 5, the HEALTH Act of 2003.
        Public Citizen strongly opposes H.R. 5. We sympathize with the
    plight of some medical specialists who are experiencing a large spike
    in malpractice insurance premiums. But that is a temporary problem
    caused by the insurance cycle. Yet, H.R. 5 proposes a permanent--and
    draconian--reduction in patients' access to the courts, which plays no
    role in this temporary ``crisis.'' It would be a travesty of justice
    for Congress to take away patients' legal rights in the name of
    protecting insurance company profits and doctors' income. Caps on
    damages hurt those most seriously injured. The fact is that the legal
    system is all patients have to ensure just compensation for injury and
    to force improvements in patient safety. It's clear that the current
    regulatory system is not up to the task.
        This testimony consists of four elements:

     A summary of the key facts about the medical malpractice
    issue, as reported by reputable government and private sources.

     A summary of Public Citizen's objections to this anti-
    consumer and anti-patient legislation.

     A briefing book prepared by Public Citizen entitled ``Medical
    Misdiagnosis: Challenging the Malpractice Claims of the Doctors'
    Lobby.'' Perhaps the greatest malpractice in this debate has been the
    promulgation of phony facts from the medical lobby. This report cites
    numerous government studies--many from the Bush Administration--and
    reputable academic studies to challenge the claims of H.R. 5's
    proponents.

     Summaries of Public Citizen reports on the medical
    malpractice ``crisis'' in nine states--Arkansas, Florida, Mississippi,
    Nevada, New Jersey, Pennsylvania, Rhode Island, Texas, and West
    Virginia. The American Medical Association has declared most of these
    states ``crisis'' states. The striking thing about the government data
    contained in these reports is that they provide concrete evidence that
    the ``crisis'' is not a result of the legal system.

        In conclusion, we encourage the committee to focus on the true
    medical malpractice crisis--the 50,000 to 100,000 Americans who are
    killed each year from preventable medical errors, and the many more
    people who get injured each year and whose lives have often been
    shattered.
        It is very unfortunate that rather than reducing the real threats
    that current medical care poses to their patients, the doctor's lobby
    has proposed to shift the costs of injuries onto innocent individuals,
    their families, voluntary organizations and taxpayers. Doctors,
    patients and consumers should be allies on this issue--which
    fundamentally comes down to improving the quality of medical care in
    the U.S.--not be pitted against each other.
                        facts about medical malpractice
        The facts do not support the contention that our tort system needs
    radical change. Here is a summary of findings from key government
    reports and academic studies. They are explored in more detail in the
    attached briefing book.
    Costs of Medical Negligence to Patients

     Between 44,000 to 98,000 Americans die in hospitals each year
    due to preventable medical errors. (Institute of Medicine, To Err Is
    Human: Building a Safer Health System, 2000.)

     The annual costs to society for medical errors in hospitals
    at $17 billion to $29 billion. (Institute of Medicine, To Err Is Human:
    Building a Safer Health System, 2000.)

     The total amount spent on medical malpractice insurance in
    2000 was $6.4 billion--at least three to five times less than the
    Institute of Medicine's estimate of the costs of malpractice to
    society. (National Association of Insurance Commissioners, Statistical
    Compilation of Annual Statement Information for Property/Casualty
    Insurance Companies in 2000, (2001).)
    Frequency of Medical Malpractice Claims
     Only one in eight preventable medical errors committed in
    hospitals results in a malpractice claim. (Harvard Medical Practice
    Study Group, Patients, Doctors and Lawyers: Medical Injury, Malpractice
    Litigation, and Patient Compensation in New York, 1990.)

     From 1996 through 1999, Florida hospitals reported 19,885
    incidents but only 3,177 medical malpractice claims. In other words,
    for every 6 medical errors only 1 claim is filed. (The Agency for
    Health Care Administration; Division of Health Quality Assurance.
    Reported malpractice claims by district compared to reported adverse
    incidents 1996, 1997, 1998, 1999.)

     The number of new medical malpractice claims declined by
    about four percent between 1995 and 2000. There were 90,212 claims
    filed in 1995 and 86,480 claims filed in 2000. (National Association of
    Insurance Commissioners, Statistical Compilation of Annual Statement
    Information for Property/Casualty Insurance Companies in 2000, 2001.)

     Punitive Damages are awarded in less than 1 percent of
    medical malpractice cases. (Bureau of Justice Statistics, 1996.)
    Physicians' Costs of Medical Malpractice Insurance
     Malpractice insurance costs amount to only 3.2 percent of the
    average physician's revenues. (Official Transcript, Medicare Payment
    Advisory Commission, Public Meeting, December 12, 2002.)

     While medical costs have increased by 113 percent since 1987,
    the total amount spent on medical malpractice insurance has increased
    by just 52 percent over that time, less than half of medical services
    inflation. (Bureau of Labor Statistics--Medical Services CPI; Best's
    Aggregates and Averages.)

     The median medical malpractice payout by a physician to a
    patient rose 35 percent from 1997 to 2000, from $100,000 to $135,000.
    (National Practitioner Data Bank Annual Reports, 1997 through 2001.)
    But during the same time, the average premium for single health
    insurance coverage has increased by 39 percent. (Kaiser Family
    Foundation and Health Research and Educational Trust, Employer Health
    Benefits Surveys, 1998-2002; National Practitioner Data Bank Annual
    Reports, 1997 through 2001.)
    Medical Malpractice Award Trends
     The size of damage awards has been steady since 1991. The
    mean payout was $135,941 in 2001, up 8.7 percent from $125,000 in 2000.
    Over ten years, malpractice payouts have grown an average of 6.2
    percent per year. That's almost exactly the rate of medical inflation:
    an average of 6.7 percent between 1990 and 2001. (National Practitioner
    Data Bank and the Journal of Health Affairs, as quoted by Lorraine
    Woellert, Commentary: A Second Opinion on the Malpractice Plague,
    Business Week, March 3, 2003.)

     Malpractice payouts by physicians and their insurers were a
    mere $4.5 billion in 2001--less than 1 percent of the country's overall
    health care costs of $1.4 trillion. (National Practitioner Data Bank,
    as quoted in Business Week, March 3, 2003.)

     In 2001, only 895 out of 16,676 payouts, or about 5 percent,
    topped $1 million. (National Practitioner Data Bank, as quoted in
    Business Week, March 3, 2003.)
    Insurance Industry Economics Have Caused the Premium Price Spike
     ``For several years, insurers kept prices artificially low
    while competing for market share and new revenue to invest in a booming
    stock market. As the bull market surged, investments by these
    historically conservative insurers rose to 10.6% in 1999, up from a
    more typical 3% in 1992. With the market now in a slump, the insurers
    can no longer use investment gains to subsidize low rates.'' (American
    Medical Association Report 35 of the Board of Trustees (A-02),
    available at http://www.ama-assn.org/ama1/upload/mm/annual02/
    bot35a02.rtf.)

     Premiums charged do not track losses paid, but instead rise
    and fall in concert with the state of the economy. When the economy is
    booming and investment returns are high, companies maintain premiums at
    modest levels; however, when the economy falters and interest rates
    fall, companies increase premiums in response. (J. Robert Hunter,
    Americans for Insurance Reform, ``Medical Malpractice Insurance: Stable
    Losses/Unstable Rates,'' October 10, 2002. See also: http://
    www.insurance-reform.org/StableLosses.pdf.)
    Small Number of Dangerous Doctors Commit Most Malpractice
     Only 5 percent of doctors (1 out of 20) are responsible for
    54 percent of malpractice payouts. (National Practitioner Data Bank,
    Sept. 1, 1990-Sept. 30, 2002.)

     Only 8 percent of doctors (1 out of 12) with 2 or more
    malpractice payouts have been disciplined by their state medical board.
    (National Practitioner Data Bank, Sept. 1, 1990-Sept. 30, 2002.)

     Only 17 percent of doctors (1 out of 6) who have made 5 or
    more malpractice payouts have been disciplined by their state medical
    board. (National Practitioner Data Bank, Sept. 1, 1990-Sept. 30, 2002.)
                            the unfairness of h.r. 5
        H.R. 5 would do nothing to reduce the incidence of medical errors.
    Instead, it would reduce compensation to victims of malpractice and
    make it harder for them to seek justice. Public Citizen's objections to
    H.R. 5 include:
        Broad scope: not just doctors are let off the hook. While sponsors
    say that H.R. 5 is intended to benefit doctors, other special interests
    are along for the ride. Nursing home operators, medical device
    manufacturers, pharmaceutical companies, hospitals, and even HMOs are
    all covered by the bill's definition of ``health care liability claim''
    and would be equally insulated from liability.
        Reckless conduct no longer subject to punitive damages. Punitive
    damages are rarely awarded in medical malpractice cases, but the threat
    of punitive damages is important to deterring reckless disregard for
    patient safety by HMOs, nursing homes, and drug and medical device
    manufacturers. H.R. 5 would reward these special interests with a
    benefit that even the conservative 104th Congress rejected-a complete
    ban on punitive damages for reckless conduct.
        $250,000 cap on non-economic damages. Awards for non-economic loss
    (pain and suffering resulting from injuries such as lost childbearing
    ability, disfigurement, and paralysis) compensate for the human
    suffering caused by medical negligence and defective medical products.
    Typically, such damages exceed $250,000 only in cases of NAIC Level 6
    injury severity or higher \1\--that is, cases involving permanent
    significant injuries. Thus, the cap will not affect patients with minor
    injuries; instead, it targets only victims of injuries such as
    deafness, blindness, loss of limb or organ, paraplegia, or severe brain
    damage. Since the cap makes no allowance for inflation, its arbitrary
    limits become more unjust as each day passes.
    ---------------------------------------------------------------------------
        \1\ Institute for Legislative Practice, Jury Verdicts in Medical
    Malpractice Cases and the MICRA Cap (1999); ``Jury Awards for Medical
    Malpractice and Post-verdict Adjustments of Those Awards,'' 48 DePaul
    L. Rev. 265 (1998)
    ---------------------------------------------------------------------------
        Caps on attorney fees. Conservatives often say that ``price
    controls reduce supply.'' In H.R. 5 they practice what they preach. By
    limiting attorney fees, the sponsors hope to reduce the supply of
    representation for victims. These price controls will almost certainly
    succeed--they reduce the potential rewards of litigation that already
    carries with it high risks in terms of the expenses attorneys must
    advance and the sympathy that juries have for doctors. By drastically
    altering the risk/reward formula, H.R. 5 will prevent many victims from
    obtaining legal counsel.
        Leaves patients holding the bag when a doctor is insolvent. The
    doctrine of joint and several liability says that when two defendants,
    such as a doctor and a hospital, are both found liable for negligence,
    a plaintiff may collect the entire award from either of them if
    necessary. H.R. 5 would change this rule, and leave patients with no
    recovery for the share of damages assigned to an uninsured,
    underinsured, or bankrupt defendant.
        Lets defendants control payouts for future damages. By instituting
    a ``periodic payment rule'' for future damages over $100,000, the bill
    would allow defendants and insurance companies to string out payments
    for future damages over the life expectancy of the victim, rather than
    have to pay up front. This is money the jury has determined rightfully
    belongs to the plaintiff, yet defendants and insurers would be able to
    invest and earn interest on the vast majority of a plaintiff's damage
    award. Victims would be left to cope with unexpected needs or changing
    medical costs and increased transportation and housing costs. The bill
    would provide no protection to the victim if his or her needs change,
    or if the insurance company becomes insolvent.
        Shortened statute of limitations to one year after discovery of the
    injury. This severe limitation will extinguish many meritorious claims.
    Although in most cases an injury is immediately apparent, a victim may
    not know until much later whether the injury was caused by malpractice.
    The law in most states starts the limitation period running from the
    discovery of the malpractice, not discovery of the injury.

                                  ----------

       Prepared Statement of the 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
    House Committee on the Judiciary for holding this important hearing on
    a subject matter that has more relevance today than ever before. Of the
    College's top priorities for 2003, addressing the health care liability
    crisis and its impact on access to care is one of the most critical to
    our members. ACP-ASIM wishes to thank Committee Chairman Jim
    Sensenbrenner, Jr., Committee Ranking Member John Conyers, Jr., and
    other members, for holding this important hearing to discuss the
    immediate need to enact meaningful medical liability reform.
                                   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 in 2000-2003. 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. Unfortunately, rates continue to rise dramatically
    with no sign of the market beginning to stabilize.
        While obstetricians, surgeons and other high-risk specialists have
    been hit hard, internists have been one of the hardest hit
    specialties--having seen a record nearly 50 percent average increase
    over the last two years. In some cases, physicians, even those without
    a track record of lawsuits, cannot find an insurance company willing to
    provide coverage. These physicians are being forced to decide whether
    to dig deeper and pay the 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. Frontier
    and Reliance are also gone. Other commercials, 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 in which they extended sales.
                               the perfect storm
        At a time when the market is squeezing physician and hospital
    margins, the rise in professional liability insurance may be the
    deciding factor that contributes to whether physician offices and
    emergency rooms keep their doors open. Recently, the costs of
    delivering health care have been driven by increased costs of new
    technologies; increased costs of drugs that define the standard of care
    acceptable for modern medicine; the rising costs of compliance under
    increasing state and federal regulation; the low reimbursement rate
    under Medicare and Medicaid; and the declining fees from managed care
    have all been contributing factors that have affected patient access to
    health care.
        Unquestionably, there is real potential that rising insurance rates
    ultimately will reduce access to care for patients across the country.
    Indeed, press accounts on a daily basis are demonstrating exactly that
    from coast to coast. Physician offices and emergency rooms have been
    closing their doors all across the country due to the exorbitant costs.
    The states most severely hampered by the spiraling out-of-control rates
    are: Florida, Georgia, Illinois, Michigan, Mississippi, Nevada, New
    Jersey, New York, Ohio, Oregon, Pennsylvania, Texas, Washington, and
    West Virginia. 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
    resulted in only band-aid approaches to the more 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--a
    fact 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 been introduced in the 108th Congress to
    help curb the spiraling upward trend in malpractice premiums. H.R. 5,
    the ``Help Efficient, Accessible, Low Cost, Timely Health Care''
    (HEALTH) Act of 2003, will attempt to 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 the 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 damages
            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 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 providers 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 an injured patient's award, leaving
            patients without the money they need for their medical care.
            The sliding scale would look something like this:

                    --LForty percent (40%) of the first fifty thousand
                    dollars recovered

                    --LThirty-three and one-third percent (33 1/3%) of the
                    next fifty thousand dollars recovered

                    --LTwenty-five percent (25%) of the next five hundred
                    thousand dollars recovered

                    --LFifteen 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 largely 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 an increase in patient
    access to care. During this recent malpractice insurance crisis,
    California's rates have changed only slightly, while other states have
    spiraled to out of control levels. ACP-ASIM strongly supports the
    elements contained in MICRA. Further, we believe that any legislation
    proposed must include these basic, proven elements in order to assure
    the stabilization of malpractice premiums.
                                   conclusion
        ACP-ASIM is pleased that the House Committee on the Judiciary
    agreed to conduct this important hearing to address the serious problem
    of soaring medical malpractice premiums that physicians are facing
    across the country. We strongly urge the House Judiciary Committee to
    pass common sense reform contained in the HEALTH Act that would allow
    for greater access to care, while adequately compensating injured
    patients. We thank the Committee and appreciate the opportunity to
    present our views.

                                  ----------

           Prepared Statement of the College of American Pathologists
        The College of American Pathologists (CAP) is pleased to submit
    this statement for the record of the Committee on the Judiciary hearing
    on H.R. 5, the Help Efficient, Accessible, Low-Cost, Timely Healthcare
    Act of 2003. The College is a medical specialty society representing
    more than 16,000 board-certified physicians who practice clinical or
    anatomic pathology, or both, in community hospitals, independent
    clinical laboratories, academic medical centers and federal and state
    health facilities.
        Pathologists, like all physicians, face severe hardships resulting
    from the worsening medical liability insurance crisis. For many, just
    finding coverage has been an arduous task at best and, for some, nearly
    impossible. Those who have found willing insurers are paying
    substantially higher premiums--in some cases, several times the
    previous year's rates--for coverage plans, regardless of their claims
    history.
        The realities of this crisis are clear: Pathologists and other
    physicians can no longer offer certain procedures or are leaving their
    practices altogether because of the exorbitant costs of malpractice
    premiums. These are desperate decisions brought on by a tort system
    with no mechanism to restrain runaway ``pain and suffering'' and
    punitive awards. Damages rise beyond reason and, in the end, all
    patients and providers suffer as the nation's health care costs soar
    and access to quality care declines.
        Real-world examples in the laboratory community highlight the
    problem:

             The chief executive of a small, rural Pennsylvania
            hospital recently told a Senate Appropriations subcommittee
            that he nearly was forced to close the facility when an insurer
            declined to renew a malpractice policy for his pathologist, a
            17-year practice veteran with no claims history. Only through a
            last-minute joint underwriting agreement was the pathologist
            able to retain insurance coverage, which allowed the hospital
            to continue offering laboratory, blood banking and surgical
            pathology services and remain open, the executive said.

             A pathology group that provides services to all
            Hawaii's outer island hospitals and five facilities on Oahu--
            about 20 pathologists, in all--is, like many physician
            practices, shopping for a new insurance carrier. The group's
            current insurer recently sent a renewal notice quoting a four-
            fold increase in premiums compared with 2002 rates.

             In general, malpractice insurance premiums for
            pathologists have doubled in the past year, reports JLT
            Services Corp., the College's member insurance broker. In some
            locations, particularly urban areas, the increases have been
            significantly higher. Pathologists have been particularly hard
            hit by The St. Paul Companies' December 2001 decision to leave
            the medical liability insurance marketplace. The St. Paul,
            which provided about 9 percent of all malpractice insurance
            nationwide at the time, had been the underwriter of the CAP-
            endorsed Professional Liability plan.

        Pathologists and other physicians are increasingly hard-pressed to
    continue providing services, given the heavy burden rising insurance
    premiums have placed on their practices. Insurance rates of $200,000 or
    more for some high-risk specialties have forced many physicians to
    limit services, retire early or move to states where reforms have
    brought greater stability to premiums. The skyrocketing cost of
    liability insurance comes at a particularly critical time for
    physicians, who also face a widening gap between Medicare
    reimbursements and practice costs.
        Severe patient access problems brought on by the liability
    insurance crisis have been documented in at least a dozen states and it
    is expected that 30 more soon will join that list. In the crisis
    states, obstetrician-gynecologists have been forced to stop delivering
    babies, trauma centers have closed and many physicians are grappling
    with how they can continue to provide other high-risk procedures.
        Congress must act now to bring commonsense reforms to America's
    medical liability system. The CAP strongly supports the approach
    contained in the HEALTH Act of 2003. This critically important bill,
    introduced by Rep. Jim Greenwood, R-Pa., would:

             place a reasonable limit ($250,000) on non-economic
            damages and no limit on economic damages;

             create mechanisms to ensure that only justifiable
            punitive damages are paid, with a guideline to limit punitive
            damages to two times economic damages or $250,000, whichever is
            greater;

             structure settlements to be paid in increments,
            rather than lump-sum payments, so that expenses are reimbursed
            as they occur and earnings, as they would have accrued;

             establish a three-year statute of limitations, with
            special provisions for minors.

             establish criteria to ensure that defendants would
            pay damages in proportion to their fault;

             ensure that states with damage caps in place would be
            permitted to retain them; and

             set a sliding scale for attorney contingency fees to
            discourage frivolous lawsuits.

        The HEALTH Act can work because it is modeled on a California law
    that has worked well for nearly three decades. It was enacted in
    circumstances much like those the nation faces today. California
    suffered a meltdown of its health care system in the early 1970s and
    physicians saw their premiums soar more than 300 percent. Liability
    carriers left the state and some physicians closed their office doors.
    The Medical Injury Compensation Reform Act, or MICRA, which came into
    effect in 1976, provided a $250,000 limit on non-economic damages,
    unlimited economic damages, a statute of limitations on claims,
    sliding-scale limits on contingency fees, advance notice requirements
    before claims were filed, binding arbitration of disputes and periodic
    payment of future damages.
        The effect of this legislation was dramatic. The average liability
    premiums decreased 40 percent in the 25-year period ending in 2001
    (expressed in constant dollars). In 2001, the Medical Liability Monitor
    published data that demonstrated that the average premium paid by
    California physicians practicing internal medicine, general surgery and
    obstetrics/gynecology ranged from 43 percent to 51 percent of the
    average premiums of their counterparts in Florida, Illinois, New York,
    Texas and Michigan. This was supported by a 53 percent lowering in the
    dollar amounts of settlements in California, compared with the nation
    as a whole.
        Our current liability crisis is not one of increasing litigation,
    but one of unreasonably high judgment amounts. Patients are not eager
    to sue their doctors. In fact, in 1991, the New England Journal of
    Medicine reported that only 1.53 percent of those injured by possible
    medical actions even file a claim. Severity of awards is the problem,
    and that is what the HEALTH Act of 2003 is designed to address.
        The College supports such reforms to promote the basic goal of
    ensuring access to a wide range of health care services and promoting
    patient safety and quality medical care. In particular, the College
    strongly supports the bill's establishment of limits on non-economic
    and punitive damages. These provisions, combined with a sliding scale
    limit on contingency fees, make for a strong, positive step toward
    reforms that benefit the whole health care system and protect patient
    access to affordable, quality care.
        The CAP appreciates the opportunity to present its views to the
    Committee on the Judiciary and offers its support and continued
    assistance as Congress works to meet the challenge posed by the
    nation's liability insurance crisis.

                                  ----------

        Prepared Statement of the American Academy of Family Physicians
        This statement is submitted to the Judiciary Committee on behalf of
    the 93,400 members of the American Academy of Family Physicians. This
    hearing, concerning
        H.R. 5, The Help Efficient, Accessible, Low Cost, Timely Health
    Care (HEALTH) Act, is especially timely. The current lack of
    professional liability insurance does threaten patient access to care
    in some states. The continued trend of increasing insurance premiums
    drives up the cost of health care and forces physicians to drop certain
    services when they cannot afford professional liability insurance.
          patients 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 major reason for this exodus
    is the unpredictable rise in jury awards that exists 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 the steady rise in record-breaking
    awards, most insurers find it more difficult to predict their risk. The
    remaining insurers have raised rates or refused 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 anywhere between 60 percent and 200
    percent increases for the second year in a row.
        Stories of family physicians closing their practices because of
    liability insurance premiums are turning up across the U.S. Recently,
    for example, AAFP Direct reported
        that AAFP Past President Neil Brooks, M.D., sent a letter recently
    to the Hartford Courant, saying that he was giving up his practice of
    thirty-two years because the liability premiums had become too
    expensive.
        In rural Morrow County, Ohio, Brian Bachelder, M.D., President of
    the Ohio Academy of Family Physicians, decided to stop delivering
    babies after his liability premium increased by $21,000 last year. Dr.
    Bachelder was the only Morrow County physician providing prenatal and
    obstetrical care.
        In rural Chipley, Florida, Greg Sloan M.D., found his malpractice
    premium has risen from $4,500 to $13,600 in one year. This was in spite
    of a 24-year career without a suit being filed against him. Dr. Sloan
    said it has reached the point that he cannot pay his staff and the
    liability premiums.
        Most state laws, hospital accreditation requirements and managed
    care contracts mandate that physicians 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.
        The tools needed to counteract this alarming trend are derived from
    state experiences. Last year, the Department of Health and Human
    Services released a report entitled, ``Improving Health Care Quality
    and Lowering Costs by Fixing Our Medical Liability System.'' According
    to this study, liability premiums have been growing rapidly in states
    that have failed to place reasonable limits 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.
        Over the previous two years, states without caps on these non-
    economic damages have experienced a 44-percent increase in liability
    premiums. In contrast, states with caps on non-economic damages of
    $250,000 experienced on average an increase of only 15 percent in
    medical liability insurance premiums.
        The reforms contained in California's Medical Injury Compensation
    Reform Act of 1975 (MICRA) 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, 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 the ensuring 27 years, medical liability insurance premiums have
    risen 505 percent nationwide compared with California's increases of
    167 percent.
                    aafp support for h.r. 5, the health act
        But the states cannot, by themselves, resolve this national crisis.
    The House of Representatives addressed this issue by passing, H.R.
    4600, The Help Efficient, Accessible, Low Cost, Timely Health Care
    (HEALTH) Act in the 107th Congress. The HEALTH Act has been
    reintroduced into the 108th as H.R. 5. The Academy supports H.R. 5,
    which would bring the same rational reforms contained in MICRA to all
    states' professional liability systems. The AAFP supports federal
    legislation to stabilize the medical tort reform systems in the states
    since spiraling insurance premiums mean increasing numbers of pregnant
    women in rural areas of the U.S. will not be able to find a physician
    to deliver their babies.
        There is an important additional reason that the AAFP supports The
    HEALTH Act. H.R. 5 requires that a party pay damages only to the extent
    that the party was liable for the harm caused. Family physicians
    provide primary care which is 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.
                                   conclusion
        The Academy appreciates the opportunity to support passage of H.R.
    5 out of the Judiciary Committee. We look forward to working with the
    Committee to find a workable solution for patients and physicians.

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                     Prepared Statement of Rodney C. Lester
        Chairman Sensenbrenner, Jr. and Congressman John Conyers, Jr., I am
    Rodney C. Lester, CRNA, PhD, President of the American Association of
    Nurse Anesthetists (AANA). I appreciate the opportunity to submit for
    the record a statement on issues surrounding medical liability reform,
    which are the most challenging facing healthcare today.
        For those of you who may be unfamiliar with the AANA, we represent
    approximately 30,000 Certified Registered Nurse Anesthetists (CRNAs)
    across the United States. In the administration of anesthesia, CRNAs
    perform virtually the same functions as anesthesiologists and work in
    every setting in which anesthesia is delivered including hospital
    surgical suites and obstetrical delivery rooms, ambulatory surgical
    centers, health maintenance organizations' facilities, and the offices
    of dentists, podiatrists, ophthalmologists, and plastic surgeons.
    Today, CRNAs administer approximately 65% of the anesthetics given to
    patients each year in the United States. CRNAs are the sole anesthesia
    provider in at least 65% of rural hospitals, which translates into
    anesthesia services for millions of rural Americans.
        CRNAs have been a part of every type of surgical team since the
    advent of anesthesia in the 1800s. Until the 1920s, nurses almost
    exclusively administered anesthesia. In addition, nurse anesthetists
    have been the principal anesthesia provider in combat areas in every
    war the United States has been engaged in since World War I. CRNAs
    provide anesthesia services in the medical facilities of the Department
    of Defense, the Public Health Service, the Indian Health Service, the
    Department of Veterans Affairs, and countless other public and private
    entities. Given the current state of affairs with Iraq and Afghanistan,
    it is not surprising that our deployed forces depend greatly upon the
    services and skills of CRNAs.
        You may be aware of the widely publicized nursing shortage. While
    we do not have enough rank and file nurses there is an increasingly
    acute shortage of CRNAs. Quite simply, there are not enough CRNAs to
    fulfill the demand. Our News Bulletin tends to be chock full of
    advertisements for vacant positions. Quite simply if the rest of the
    economy was similar to the employment situation for CRNAs, our nation
    would be at full employment.
        Hardly a day goes by for most anesthesia practices when a CRNA is
    not called by an employment recruiter attempting to entice them into
    seeking additional pay at another group or hospital. Practices are
    offering bonuses, attractive benefits, and higher pay in order to
    recruit CRNAs.
        We graduate approximately 1,000 students per year and it is not
    enough to fill the demand. Our Foundation has recently funded a
    manpower shortage study and its results are expected shortly.
    How are CRNAs different from anesthesiologists?
        The most substantial difference between CRNAs and anesthesiologists
    is that prior to anesthesia education, anesthesiologists receive
    medical education while CRNAs receive a nursing education. However, the
    anesthesia part of the education is very similar for both providers,
    and both professionals are educated to perform the same clinical
    anesthesia services. CRNAs and anesthesiologists are both educated to
    use the same anesthesia processes and techniques in the provision of
    anesthesia and related services. The practice of anesthesia is a
    recognized specialty within both the nursing and medical professions.
    Both CRNAs and anesthesiologists administer anesthesia for all types of
    surgical procedures, from the simplest to the most complex, either as
    single providers or in a ``care team setting''.
    What is our experience on malpractice insurance?
        For the past several years, CRNAs have relied largely on two main
    major malpractice carriers--St. Paul and TIG. On December 12, 2001,
    AANA Insurance Services--a wholly owned subsidiary of the AANA--was
    notified by the St. Paul Companies that it would exit this market and
    would seek to sell their malpractice book and eventually transition out
    of the medical malpractice market. We were advised that this difficult
    decision was based upon ``its anticipated worst annual loss in its 148-
    year old history.'' The St. Paul further stated that the decision is
    part of an overall plan ``that will put St. Paul on sound financial
    footing so that they can continue serving their thousands of customers
    in their other businesses.'' Their news release goes into more detail
    concerning losses relative to its losses in malpractice, other
    insurance lines and those associated with the September 11 terrorist
    attack.
        AANA Insurance Services worked to prepare and assist its
    policyholders in this transition period and kept them informed of
    developments relative to their continuing insurance coverage.
        The AANA and AANA Insurance Services Staff prepared strategies to
    respond to this situation proactively to assure a smooth transition for
    our members insured through St. Paul. We contacted our other carrier at
    the time, TIG Insurance, to seek support from them and assessed other
    potential medical malpractice carriers to assure that our members have
    more than one choice for professional liability insurance as we have in
    the past.
        While we were aware that St Paul Companies were experiencing
    difficulties along with the rest of the insurance industry, we--along
    with many other providers and perhaps the general public--were
    surprised by the sudden decision to withdraw completely from the
    medical malpractice market. St Paul stated that they would do
    everything possible to make the transition smooth. We had an excellent
    relationship with the St. Paul and this transition continues.
        Following this announcement, we worked even closer with TIG
    Insurance Company to ensure a smooth transition for the policyholders
    of AANA Insurance Services. A few months ago, TIG Insurance Company
    announced it would no longer be providing medical malpractice
    insurance. Coverage for CRNAs through TIG will not be available after
    June 30, 2003. TIG's announcement comes almost exactly a year after St.
    Paul's announcement that it was withdrawing from the medical
    malpractice marketplace.
        On Monday, December 16, 2002, Fairfax Financial Holdings Limited
    announced that it would be restructuring TIG. Fairfax, the parent
    company of TIG, is a financial services holding company which, through
    its subsidiaries, is engaged in property, casualty and life insurance,
    reinsurance, investment management and insurance claims management.
        As part of the restructuring, TIG indicated that it will be
    discontinuing its program business. Program business, a specialty of
    TIG's that represents a majority of its business, is defined as
    insuring large groups of insured with very similar characteristics.
    According to Fairfax, TIG's program business was not meeting Fairfax's
    financial expectations. Unfortunately, all of TIG's medical malpractice
    business, including the coverage it provides to CRNAs, falls into this
    program business category.
        It should be noted that medical malpractice only accounted for 25%
    of TIG's program business and TIG's CRNA program was only a small part
    of the medical malpractice business. Fairfax representatives have
    informed AANA that the decision to restructure TIG was based neither on
    the performance of its medical malpractice business in general or its
    CRNA business in particular.
        It is no secret that the number of insurance companies willing to
    offer medical malpractice coverage has shrunk dramatically over the
    past few years. Although it's of little consolation, there are many
    classes of healthcare providers who are facing even greater insurance
    challenges than CRNAs. While TIG's decision is disappointing, it is not
    surprising considering the current medical malpractice environment.
        Unlike when St. Paul exited from the medical malpractice
    marketplace, TIG's withdrawal won't be as immediate. TIG will continue
    to offer both new and renewal policies to AANA members through June 30,
    2003. After June 30, 2003, TIG will not provide coverage to new
    applicants.
        Currently AANA Insurance Services provides coverage for members
    through CNA Insurance Company. It is our understanding that CNA has
    been approved to do business in 43 states and the District of Columbia.
    CNA is awaiting approval in the states of Alaska, Nebraska, Nevada, New
    Hampshire, New York, Vermont and Washington. AANA Insurance Services
    expects CNA to have approval in all these states by June 30, 2003.
        Obviously this has become extremely troubling to our members. While
    we have an excellent relationship with CNA Insurance Company, CRNAs are
    increasing concerned that with only one major medical malpractice
    carrier remaining, issues of coverage could become problematic. It
    should be noted that unless a CRNA had a particular issue with claims
    or licensure, coverage could easily be found, whether it was with St.
    Paul or TIG. That remains relatively true today with the CNA Insurance
    Company. But with more carriers leaving the marketplace, what does that
    do to providers? More importantly, what does it mean to patients and
    consumers? How do we attract more carriers to this market? Without
    major reforms, will carriers have any reason to go into the market?
    Patient Safety
        Given the strong safety record of CRNAs, we had no reason to
    believe then, nor do we now, that there was any nexus between the
    decision of either St. Paul or TIG to exit the medical malpractice
    market due to bad claims from CRNAs.
        America's CRNAs are committed to advancing patient safety so that
    actual instances of malpractice are reduced. These commitments
    including active membership in the cross-disciplinary National Quality
    Forum (NQF) and the National Patient Safety Foundation (NPSF), closed-
    claims research that transforms tough cases into educational and
    practice improvements, and the most stringent continuing education and
    recertification requirements in the field of anesthesia care. With
    CRNAs providing two-thirds of all U.S. anesthetics, the Institute of
    Medicine reported in 1999 that anesthesia is 50 times safer today than
    20 years ago.
    Our Dilemma
        Educational programs that prepare nurse anesthetists rely solely on
    hospitals, surgery centers and even office based surgical practices to
    provide students with the required clinical experiences to enable them
    to become competent anesthesia providers. These healthcare facilities
    rely on surgeons and other high-risk specialties for their patient
    admissions. As these high-risk specialties leave, operating rooms close
    and patients have less access to needed care, and students have less
    access to patients for clinical training.
        Looking at Pennsylvania as an example, the hospitals and surgeons
    who are part of a healthcare system located in Southeast Pennsylvania
    have seen their primary premiums increase more than 60%, their CAT fund
    increase more than 30%, and their excess premiums increase more than
    600%, all within the last year.
        The Medical Professional Liability Catastrophe Loss Fund (commonly
        referred to as the CAT Fund) was established to ensure that victims
    of medical malpractice are compensated and that medical malpractice
    insurance is available to health care providers. Health care providers
    (physicians, surgeons, podiatrists, hospitals and nursing homes) are
    required to carry a set minimum amount of primary coverage. The health
    care providers then must pay a surcharge to the CAT Fund in order to
    fund a layer of insurance above the primary insurance coverage. Failure
    to comply with this requirement may result in revocation of one's
    license.
        This is reflective of what other healthcare systems in Pennsylvania
    are experiencing. In addition that system has seen its high-risk
    specialty physicians relocate out of Pennsylvania or give up the
    surgical part of their practice. Each time a physician closes his/her
    office or reduces practice, employees of their practice lose their job.
    Fewer high-risk specialists mean fewer cases requiring anesthesia are
    performed. These are exactly the specialties that nurse anesthesia
    educational programs rely on to provide their students with the
    required clinical cases.
        As surgeons leave the state or reduce surgery because they can not
    afford the malpractice insurance there are fewer surgical cases,
    operating rooms are closed, daily operating room schedules are
    prolonged, overtime costs increase, hospitals' earn less money, layoffs
    occur and hospitals close. This directly affects patients' access to
    needed and timely care, and the ability of our educational programs to
    provide the necessary clinical experiences to educate nurse
    anesthetists. If this trend continues unabated, nurse anesthesia
    educational programs (and other healthcare educational programs) will
    face accreditation issues, declines in student enrollment and delays in
    graduation as they struggle to find enough clinical experiences for
    their students. All of this occurring during a time when there is a
    critical shortage of anesthesia providers nationwide to provide care to
    an older and sicker population.
        The medical malpractice crisis affects all levels of society.
    Unlimited individual awards for pain and suffering will severely limit
    the availability and access to care for the majority. The value we
    place on timely and complete access to care for all our citizens is
    reflected in our allowance of an individual's unlimited right to take
    precedence over the needs of all our people. To insure a healthy
    society, we must insure access to health care even if it means we place
    limits on a single category of damages to the individual.
        If carriers continue to leave the market and if there should be in
    difficulty obtaining coverage, it could ultimately mean a slow down for
    hospitals in providing surgeries. In addition, when CRNAs are employed
    by hospitals or group practices, these entities have to pick up the
    tab. If increasing rates continue to become an issue, hospitals will
    increasingly have to make difficult choices. In those rural hospitals
    where CRNAs are the sole anesthesia provider, hospitals have no choice
    if they wish to keep their doors open.
        That is why the AANA supports medical liability reform. Many can
    point an accusatory finger as to why carriers exit the market. However,
    it makes no sense for an insurer to remain in a market if it cannot do
    so profitably. High costs and runaway juries and large malpractice
    awards have become unrealistic and disproportionately high. This is not
    to say that providers, be they nurses or physicians, should not be held
    responsible for their actions. All providers must take responsibility.
    And those providers who may be disproportionately responsible for rate
    hikes because they have had more than one claim must increasingly take
    responsibility for their actions as do the nursing and medical boards
    regulating providers. But by the same token, awards have become too
    high and many insurers have decided that with the unpredictability of
    determining how to insure a risk that is seems to be increasingly
    incalculable, they simply exit the market.
        In the 108th Congress, the AANA is pleased to support Rep. Jim
    Greenwood's (R-PA) legislation, H.R. 5. The HEALTH Act would permit
    individuals to recover unlimited economic damages and allow for non-
    economic damages or ``pain and suffering'' up to $250,000. The states
    would have the flexibility to establish or maintain their own laws on
    damage awards. Other provisions in the HEALTH Act address the
    percentage of damage awards and settlements that go to injured patients
    as well as allocate damage awards fairly and in proportion to a party's
    degree of fault and works to decrease the time it takes for a case to
    settle or go to trial.
        Ultimately, it will be incumbent upon insurers, providers, and yes
    the trial lawyers to work together to find a common solution that works
    for consumers and patients.
        Again, thank you for the opportunity in allowing us to share our
    views on medical liability reform with the members of this committee.

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          Prepared Statement of the American College of Obstetricians
                               and Gynecologists
        On behalf of the American College of Obstetricians and
    Gynecologists (ACOG), an organization representing more than 45,000
    physicians dedicated to improving the health care of women, we urge you
    to bring an end to the limitless litigation restricting women's access
    to health care.
        ACOG resoundingly supports HR 5, the bipartisan HEALTH Act of 2003,
    and we urge this Committee, and the House of Representatives as a whole
    body, to pass this meaningful medical liability reform legislation,
    which protects women's access to health care.
        Across the country, the meteoric rise in medical liability premiums
    is threatening women's access to health care. Faced with the
    unaffordability and unavailability of insurance coverage, ob-gyns are
    forced to stop delivering babies, reduce the number of deliveries,
    scale back their practices by eliminating high-risk procedures, or
    close their doors entirely.
        This statement will also highlight how the medical liability crisis
    is acutely affecting a growing number of states, 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. medical liability reform: safeguarding patients' access to care
        The common sense provisions of the HEALTH Act safeguard patients'
    access to health care and address the health care crisis:
    PROMOTES SPEEDY RESOLUTION OF CLAIMS
        The Act balances the needs of all parties involved in litigation
    and promotes a fair result. Health care lawsuits can be filed no later
    than 3 years after the date of injury. Additionally, the bill
    acknowledges that in some circumstances, it is important to guarantee
    patients additional time to file a claim. Accordingly, the Act extends
    the statute of limitations for minors injured before age 6.
    FAIRLY ALLOCATES RESPONSIBILITY
        Under the current system, defendants who are only 1% at fault may
    be held liable for 100% of the damages. This bill eliminates the
    incentive for plaintiffs' attorneys to search for ``deep pockets'' and
    pursue lawsuits against those minimally liable or not liable at all.
    COMPENSATES PATIENT INJURY
        HR 5 ensures injured patients are compensated. The Act does not
    limit the amount a patient can receive for physical injuries resulting
    from a provider's care, unless otherwise restricted by state law. The
    Act only limits unquantifiable non-economic damages, such as pain and
    suffering, to no more than $250,000.
    MAXIMIZES PATIENT RECOVERY
        Patients will receive the money needed for their health care. HR 5
    discourages baseless lawsuits by limiting the incentive to pursue
    merit-less claims. Without this provision, attorneys could continue to
    routinely pocket large percentages of an injured patient's award.
    PUTS REASONABLE LIMITS, NOT CAPS, ON THE AWARD OF PUNITIVE DAMAGES
        The Act provides for reasonable punishment without unnecessarily
    jeopardizing a defendant's fundamental constitutional rights or risking
    the defendant's bankruptcy. It does not cap punitive damages, rather,
    it delineates a guideline, allowing for punitive damages to be the
    greater of two times the amount of economic damages awarded or
    $250,000.
    ENSURES PAYMENT OF MEDICAL EXPENSES
        HR 5 ensures that injured patients will receive all of the damages
    to which they are entitled in a timely fashion without risking the
    bankruptcy of the defendant. Past and current expenses will continue to
    be paid at the time of judgment or settlement while future damages can
    be funded over time through the purchase of an annuity or other
    instrument of secured payment.
    ALLOWS STATE FLEXIBILITY
        The HEALTH Act establishes a ceiling on non-economic damages, and
    guidelines for the award of punitive damages, only in those states
    where the state legislature has failed to act. A state legislature may
    also act at any time in the future to impose a cap the limits of which
    differ from those provided for in the HEALTH Act.
         ii. how this crisis compromises the delivery of obstetric care
        Obstetrics-gynecology is among the top three specialties in the
    cost of professional liability insurance premiums. Nationally,
    insurance premiums for ob-gyns have increased dramatically: the median
    premium increased 167% between 1982 and 1998. The median rate rose 7%
    in 2000, 12.5% in 2001, and 15.3% in 2002 with increases as high as
    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, withdrew from that market last year. 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 filed
    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, ob-gyns won more than 65% of the cases resolved by court
    verdict, arbitration, or mediation, meaning only 10% of all cases filed
    against ob-gyns were found in favor of the plaintiff. Enormous
    resources are spent to deal with these claims, only 10% of which are
    found to have merit. The costs to defend these claims can be staggering
    and often mean that physicians invest less in new technologies that
    help patients.
        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
    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.
        This high rate of suits does not equate malpractice. Rather, it
    demonstrates a lawsuit culture where doctors are held responsible for
    less than perfect outcome. And in obstetrics gynecology, there is no
    guarantee of a perfect outcome, no matter how perfect the prenatal care
    and delivery.
            iii. women's health consequences of limitless 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. 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.
        Limitless 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 ob-gyns, our primary concern is ensuring women access to
    affordable, quality health care. It is critical that we maintain the
    highest standard of care for America's women and mothers.
                                 iv. 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 and again urges the passage of HR 5, the HEALTH Act of
    2003. The College looks forward to working with you as we push for a
    solution.

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                   Material Submitted for the Hearing Record

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