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



 THE MEDICAL LIABILITY INSURANCE CRISIS: A REVIEW OF THE SITUATION IN 
                              PENNSYLVANIA

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

                                HEARING

                               before the

                            SUBCOMMITTEE ON
                      OVERSIGHT AND INVESTIGATIONS

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                           FEBRUARY 10, 2003

                               __________

                            Serial No. 108-4

                               __________

       Printed for the use of the Committee on Energy and Commerce


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



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                            WASHINGTON : 2003
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                    COMMITTEE ON ENERGY AND COMMERCE

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

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

                  David V. Marventano, Staff Director

                   James D. Barnette, General Counsel

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

                                 ______

              Subcommittee on Oversight and Investigations

               JAMES C. GREENWOOD, Pennsylvania, Chairman

MICHAEL BILIRAKIS, Florida           PETER DEUTSCH, Florida
CLIFF STEARNS, Florida                 Ranking Member
RICHARD BURR, North Carolina         DIANA DeGETTE, Colorado
CHARLES F. BASS, New Hampshire       JIM DAVIS, Florida
GREG WALDEN, Oregon                  JAN SCHAKOWSKY, Illinois
  Vice Chairman                      HENRY A. WAXMAN, California
MIKE FERGUSON, New Jersey            BOBBY L. RUSH, Illinois
MIKE ROGERS, Michigan                JOHN D. DINGELL, Michigan,
W.J. ``BILLY'' TAUZIN, Louisiana       (Ex Officio)
  (Ex Officio)

                                  (ii)


                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Dench, Edward H., Jr., President, Pennsylvania Medical 
      Society....................................................    45
    Diener, Scott, President and Chief Operating Officer, PMSLIC.   120
    Dyess, Leanne................................................    57
    Eskin, David J., Chief of Staff, Abington Memorial Hospital..    41
    Hurley, James, Chairperson, Medical Malpractice Subcommittee, 
      American Academy of Actuaries..............................   113
    Johansson, Julia W...........................................    32
    Lewinski, Heather............................................    60
    Menio, Diane A., Executive Director, Center for Advocacy for 
      the Rights and Interests of the Elderly....................    85
    Mundy, James.................................................   230
    Nasca, Thomas J., Dean, Jefferson Medical School.............   123
    Palmisano, Donald J., Member, AMA Board of Trustees..........    48
    Reed, John H.................................................   213
    Rendell, Hon. Edward G., Governor, Commonwealth of 
      Pennsylvania...............................................     6
    Rosenbloom, Alan G., President and Chief Executive Officer, 
      Pennsylvania Health Care Association and Center for 
      Assisted Living Management.................................    79
    Rosenfield, Harvey, President, Foundation for Consumer and 
      Taxpayer Rights............................................   130
    Smarr, Lawrence E., President, Physicians Insurers 
      Association of America.....................................    93
    Vidmar, Neil, Professor of Law, Duke Law School..............   227
    Wozniak, Gregory T., President and Chief Executive Officer, 
      St. Mary Medical Center....................................    36
Additional material submitted for the record:
    Rosenfield, Harvey, President, Foundation for Consumer and 
      Taxpayer Rights, letter dated February 21, 2003, to Hon. 
      James Greenwood............................................   249

                                 (iii)

  

 
 THE MEDICAL LIABILITY INSURANCE CRISIS: A REVIEW OF THE SITUATION IN 
                              PENNSYLVANIA

                              ----------                              


                       MONDAY, FEBRUARY 10, 2003

                  House of Representatives,
                  Committee on Energy and Commerce,
              Subcommittee on Oversight and Investigations,
                                                     Langhorne, PA.
    The subcommittee met, pursuant to notice, at 10 a.m., at 
St. Mary Medical Center, Sister Claire Carty Auditorium, 
Langhorne-Newton Roads, Langhorne, Pennsylvania, Hon. James C. 
Greenwood (chairman) presiding.
    Members present: Representatives Greenwood, Deutsch, and 
Schakowsky.
    Also present: Representative Gerlach.
    Staff present: Anthony M. Cooke, majority counsel; Yong 
Choe, legislative clerk; and David Nelson, minority 
professional staff.
    Mr. Greenwood. Good morning. I am Congressman Jim Greenwood 
and I want to welcome everyone to St. Mary Medical Center for 
the field hearing of the Oversight and Investigations 
Subcommittee of the House Energy and Commerce Committee. On 
behalf of the committee, I would like to welcome Governor Ed 
Rendell and thank him for joining us today. I would also like 
to thank our witnesses and our host, St. Mary Medical Center. 
And if I may make a personal note, just a few years ago my 
father was very close to not making it and came to St. Mary and 
had triple bypass surgery, and after some complications he 
emerged well enough to 6 months later challenge me to go 
skydiving with him. So the Greenwood family owes a lot to St. 
Mary Medical Center. My mother is still a little annoyed that 
they put him in such good shape that he could go skydiving, but 
there you go.
    Finally, I would also like to welcome our Congressional 
colleagues. To my left is the ranking member of this 
subcommittee, Peter Deutsch of Florida, who has traveled to be 
with us; and to his left is his counsel; and to his left is Ms. 
Jan Schakowsky, a member of the U.S. House of Representatives 
from Chicago. And there may be other members of the 
subcommittee and/or members of the Pennsylvania Delegation who 
join us later on.
    We are here this morning at the front lines of a crisis. 
Today we will explore, examine, and confront the medical 
liability insurance crisis here in Pennsylvania. The word 
``crisis'' is often tossed around in Washington, DC, but let me 
describe for you something that fits this term under anyone's 
definition. From December 21 until January 3 of this year, for 
13 days, the nearby trauma center at Abington Hospital closed 
its doors because the doctors staffing this critical facility 
could not obtain the affordable medical liability insurance 
that they need to practice. For those 13 days, lifesaving 
protections to the health and the lives of the families in this 
area ceased to exist. How have we come to this?
    The purpose of this hearing is to help this committee and 
the public learn and understand the events and forces 
contributing to the growing inability of the people of 
Pennsylvania to find doctors. What is more, we need to 
understand why Pennsylvanians can no longer go about their 
daily lives knowing that if the worst happens, emergency 
physicians are in place and on call. We in the Philadelphia 
region have a special obligation and a proud legacy to protect. 
Since 1751, when the founders of Pennsylvania Hospital, 
Benjamin Franklin and Dr. Thomas Bond, opened the doors to the 
Nation's first hospital, we have led in healthcare. Even today, 
almost one is seven doctors in the United States did some part 
of their medical training in Philadelphia, home to a host of 
excellent medical schools and institutions, but today, the 
signs are ominous. This legacy is threatened. Recently, 
Methodist Hospital in South Philadelphia, which has served that 
community for more than 100 years, was forced to close its 
obstetrics practice. How could this happen? And what hardships 
have been visited upon the expected mothers who had counted on 
these service.
    This crisis affects more than just patients and doctors. 
You will hear today from this excellent hospital, St. Mary 
Medical Center, as well as from Abington Hospital, about the 
problems growing day by day to find and retain the physicians 
needed by these facilities to keep open their doors. I am 
deeply saddened and I am angered that this crisis is having 
permanent and long-term effects, weakening hospitals, 
debilitating medical schools, reducing the number of doctors 
who practice, and destabilizing healthcare institutions, all to 
the detriment of the people desperately in need of skilled 
medical treatment. Again I ask, how could this happen? That is 
the question we seek to answer here today.
    Let me tell you what I know so far. Access to healthcare 
has been diminished and threatened because the individuals and 
institutions delivering that care cannot find the affordable 
insurance required to practice medicine. I am sure the 
companies are raising their rates across the State and turning 
down doctors looking to find new policies. What is happening to 
insurers? Insurance companies set their premiums based on their 
projected risk, the amount they estimate they will have to pay. 
Yet, they simply cannot make reasonable business decisions of 
their risk when they don't know with each passing year what 
juries will award. In the past 3 years, according to a recent 
Wall Street Journal editorial, juries in Philadelphia have 
awarded more in medical damages than were awarded in the entire 
State of California. In the year 2000, Pennsylvania had 19 
awards individually exceeding $5 million each. In light of 
this, can we begin to understand why Pennsylvania insurers 
facing the unpredictability of Pennsylvania court verdicts 
continue to increase their rates? Can we then see why 
Pennsylvania's largest physician insurer this year raised its 
premiums an average of 54 percent? Does this help us to start 
to recognize why 72 percent of Pennsylvania doctors, according 
to a 2001 survey, deferred the purchase of new equipment or the 
hiring of new staff because of malpractice costs. And now can 
we see why since January 2001, more than 900 Pennsylvania 
physicians have closed their practice, moved out of State, or 
refused to do high risk procedures.
    Earlier, I asked how could this happen. The fact is 
insurers cannot properly, reasonably, and competitively offer 
insurance to medical providers within an unpredictable court 
system prone to jackpot awards. No one here will argue that 
patients injured by the negligence of a medical provider do not 
deserve compensation, but we have lost all sense of proportion 
in the area of non-economic intangible damages. How do we 
reform the current system in a way which balances the interest 
of fairly compensating injured patients and the need to ensure 
all Pennsylvanians have access to quality healthcare? 
Reasonable caps on the subjective non-economic damages, in my 
estimation, when teamed with a specific package of other 
reforms, will bring juries, verdicts, and insurance rates back 
to earth and keep Pennsylvania doctors where they belong, 
treating Pennsylvania families.
    I have recently introduced legislation in Congress designed 
to address this problem, however, please know I am, as are all 
my colleagues here today, and all of us in the U.S. Congress, 
House, and Senate, wanting to learn. We are here to be 
persuaded and to be informed. Again, I thank all our witnesses 
and the members of the public for joining us here on the front 
lines of this medical crisis. And now I yield to Mr. Deutsch 
for his opening statement.
    Mr. Deutsch. Thank you, Mr. Chairman. I have an opening 
statement that I would like to submit for the record and just 
make some initial comments. First, I want to thank the chairman 
for having this hearing. Actually, in this session of Congress, 
this is our Oversight and Investigations Subcommittee first 
hearing, and I think it appropriate that we take testimony, 
especially, in this type of setting, on an issue in terms that 
would be as important as any other issue that the Congress will 
face in this session. I also am very happy that the Governor is 
joining us on the first panel. I have had the good fortune of 
knowing your Governor in other capacities in his life, and I 
also see one of the wisest decisions he has made since 
governing is bring onto his staff Congressman Borski, who I had 
the pleasure of serving with for 10 years in the Congress.
    I would just note as we take testimony, I would agree with 
the chairman completely that we are here, really, to listen; 
not to debate. We are here to learn and not to teach today. But 
I would say that I don't think, at least at this point in terms 
of, you know, spending fair amounts of time on the issue in the 
past, that there aren't any easy solutions, and anyone who says 
there is an easy solution doesn't understand the problem. The 
chairman mentioned, you know, caps and non-economic damages. I 
think we will get testimony today that discuss that that is not 
a panacea that has been presented by many people. The other 
thing I would note is that, really, one size might not fit all. 
At this point, we have been, you know--our tort system and 
malpractice area has been a State endeavor and it is not just a 
hearing. There is legislation that has been introduced by the 
chairman of this committee and supported by the President at 
this point in time which would nationalize tort reform.
    Florida has a crisis as well, but in Florida the 
legislature has been dealing with it in a different way than 
has been proposed in Pennsylvania, and it is unclear if our 
challenges are the same as the challenges in South Dakota, or 
South Carolina, or Minnesota would be similar or the same. So I 
am not sure we are ready yet to nationalize this issue, and 
that is something which I look forward to hearing testimony 
today. Thank you, Mr. Chairman.
    Mr. Greenwood. Thank you, Mr. Deutsch. The gentlelady from 
Chicago is recognized for an opening statement.
    Ms. Schakowsky. Thank you, Mr. Chairman. This is my first 
hearing as a new member of the Energy and Commerce Committee 
and of your subcommittee, and I feel very privileged to be here 
today to discuss an issue that is my top priority, which is the 
quality and accessibility of healthcare, and honored also to be 
here with Governor Rendell and my former colleague, Bob Borski. 
Thank you for being here, Governor.
    I share the belief that physicians and other healthcare 
professionals should not be burdened with unreasonable 
insurance rates, and I would like to work with you, Mr. 
Chairman, and all the Members of Congress to find solutions to 
the problem. However, to the extent that a tax on the civil 
justice system are offered as solutions, I would strongly argue 
that those solutions stem from a misdiagnosis of the problem. 
The medical malpractice insurance crisis is not created by the 
victims. For my opening statement, I wanted to briefly 
enumerate some of the findings of a public citizen report 
called Medical Misdiagnosis and asked that the entire report be 
entered into the record, Mr. Chairman.
    One point they made is that there is an epidemic of medical 
errors and unsafe practices. Between 44,000 and 98,000 
Americans die in hospitals each year due to preventable medical 
errors, just in hospitals. According to the Institute of 
Medicine, by comparison, the annual death toll is 43,000 from 
automobile accidents, 42,000 from breast cancer, and 15,000 
from AIDS. Second point, there is no growth in the number of 
new medical malpractice claims. According to the National 
Association of Insurance Commissioners, the number of new 
medical malpractice claims declined about 4 percent between 
1995 and 2000. Third, the spike in medical liability premiums 
was caused by the insurance cycle, not by new claims or 
skyrocketing jury verdicts. Premiums charged to not track 
losses paid, but instead, rise and fall in concert with the 
state of the economy. In any case, malpractice insurance costs 
have risen at half the rate of medical inflation and it is 
slower paced than health insurance premiums.
    Fourth, 5 percent of doctors are responsible for 54 percent 
of malpractice in the United States. Of these, only 7.6 percent 
have ever been disciplined by State medical boards. In 
Pennsylvania, only one doctor has lost his license because of 
incompetence in 20 days. And fifth, few, if any, malpractice 
lawsuits are frivolous. Plaintiffs drop ten times more claims 
than they pursue. Data reported in the study shows that only 
one in eight medical errors committed in hospitals results in a 
malpractice claim.
    I am concerned, Mr. Chairman, that the sweeping legislation 
that you introduced this past week would unnecessarily punish 
people who have truly suffered. I am especially concerned about 
the effects of the caps on compensatory non-economic damages, 
and punitive damages on women, children, people of color, and 
the elderly. Under the bill, a drug company or HMO will almost 
certainly pay less if they injure a working woman. If they 
injure a working woman, they will pay less than if they injure 
a working man since women earn 76 cents on the dollar that men 
earn. They will pay less if they injure a working African-
American woman who earns 69 cents on the dollar, or a Latina 
who earns 56 cents on the dollar. They will pay less if they 
injure or kill a senior citizen. And the caps will tell a stay-
at-home mom that the loss of her fetus because an HMO refused 
the proper care is worth no more than $250,000. Or a poor woman 
who can't have children any longer, that her loss is worth 
little more than $250,000. I could go on with those examples, 
but I find the notion of a politician imposing a one-sized fits 
all remedy and substituting for juries that can listen to each 
individual case to be very, very disturbing.
    I strongly support doctors and other frontline healthcare 
providers and want to work with them, but this bill goes way 
beyond them, to nursing homes, to pharmaceutical companies, to 
medical device manufacturers. Our medical practice insurance 
system needs to be reformed. We could have an experience rating 
for doctors just as we do for drivers so that the few bad 
apples can be weeded out. Doctors who practice medicine in a 
safe and responsible manner should not have to shoulder the 
burden for those who don't.
    And finally, just a few words about insurance reform. There 
is no compelling evidence that caps on damages will lower 
premiums. In California, as we will hear today, it was not 
MICRA, which imposed caps that lowered medical malpractice 
rates, but Prop 103 which required rates to be lowered. We need 
to open up insurance company books to find out why rates 
fluctuate so widely. We should wait for the results of the GAO 
studies and the relationships among medical malpractice rates, 
lawsuits, and insurance industry practices. We should proceed 
carefully to make sure that victims of medical malpractice are 
not forced to pay for the mistakes of others. And I applaud, 
Mr. Chairman, your idea that we all work together, that your 
legislation is not set in stone, and look forward to working 
with you to improve it for the sake of all of us. Thank you.
    Mr. Greenwood. The Chair thanks the gentlelady and now 
calls forward our first witness, the Honorable Ed Rendell, His 
Excellency, the Governor of Pennsylvania. Welcome, Governor 
Rendell.
    Governor Rendell. Good morning, Mr. Chairman and members of 
the committee, and let me begin----
    Mr. Greenwood. Before you begin----
    Governor Rendell. Oh, I have to be sworn in. Okay.
    Mr. Greenwood. I believe, as you and I had a conversation, 
you understand this is an investigative hearing, and when 
holding investigative hearings it is the practice of this 
committee to take testimony under oath. Do you have any 
objections to giving your testimony under oath?
    Governor Rendell. No, sir.
    Mr. Greenwood. Seeing that you don't, the Chair then 
advises you that pursuant to the rules of this committee and 
the House, you are entitled to be represented by counsel. Do 
you choose to be represented by counsel?
    Governor Rendell. No, sir.
    Mr. Greenwood. Okay. In that case, if you would stand, 
rise, and raise your right hand?
    [Witness sworn.]
    Mr. Greenwood. Okay. You are under oath and we now welcome 
your opening statement, Governor.

TESTIMONY OF HON. EDWARD G. RENDELL, GOVERNOR, COMMONWEALTH OF 
                          PENNSYLVANIA

    Governor Rendell. Let me begin by thanking members of the 
committee for coming here, and particularly, for coming to St 
Mary's, because St. Mary's is a good example of a hospital that 
was on the cutting edge of this crisis. And Mr. Chairman, you 
are indeed right, it is a crisis in every definition of the 
word. St. Mary's does a wonderful, wonderful job, but came very 
close--you mentioned Abington. The President of St. Mary's was 
just telling me that they came within hours of closing their 
trauma center early in January, so St. Mary's is a good example 
of what doctors and hospitals are facing all throughout 
Pennsylvania. And I do commend the committee for wanting to 
learn more about this crisis because I don't think it is a 
simple crisis and I think there are many things that have 
brought us to where we are today.
    Let me first talk about the efforts that Pennsylvania has 
made. Today's hearing is entitled, A Review of the Situation in 
Pennsylvania, and early on in the year 2002, the Pennsylvania 
legislature and then Governor Mark Schwiker tried to take steps 
to remediate what they saw as a growing crisis. They passed 
something called Act 13, and although Act 13 did not go nearly 
as far as advocates of tort reform wanted, it made some 
positive steps. It did away with and imposed the collateral 
source rule, it shortened the length of time for people to 
bring lawsuits, it had some very positive steps in medical 
safety, and it was passed into law in March. Unfortunately, the 
crisis had reached such a level in Pennsylvania that Act 13 
did, virtually, nothing to change the rate of premium increases 
that came out in July of that year. But in June of that year, 
the legislature took a step that had a tremendous impact, and I 
will explain this a little bit later, for hospitals; less of an 
impact for doctors but a tremendous impact for hospitals. 
Although this legislation was not targeted solely to hospitals 
and doctors, the legislature passed for the first time in 
Pennsylvania a threshold on joint and several liability. Prior 
to that, a hospital, for example, if it had 5 percent of the 
blame, let us say, an attending nurse was in a room and the 
majority of the blame laid with the doctor. But if the doctor's 
coverage was capped at a certain level, as all doctors are in 
Pennsylvania, the hospital, responsible for only 5 percent of 
the harm, paid the entire verdict to the extent of their 
coverage, and hospitals carry far more mandated coverage than 
doctors do. So raising the threshold on joint and several 
liability to 60 percent, saying nobody could be held liable 
beyond their share of the harm unless they had been responsible 
for 60 percent of the harm was a tremendous positive step for 
hospitals. That legislation came far too late to have an effect 
on the July 1 premiums, far too late. The premiums were already 
set in motion.
    In the fall of this year, the legislature passed a fairly 
important piece of legislation restricting venue in lawsuits, 
in medical malpractice lawsuits. That was a very, very 
important step, because as you noted in your remarks, a lot of 
the problem with the large verdicts occur in Philadelphia, and 
lawyers were using the remotest possible legal theories to get 
venue to bring a lawsuit, let us say, a procedure that happened 
here at St. Mary's, rather than have that tried before a Bucks 
County jury, they found the remotest elements to bring it back 
into Philadelphia. The venue statute made it clear that in 
almost all cases the site of the venue of a malpractice lawsuit 
has to be where the injury occurred, and that was an important 
step.
    The Supreme Court Rules Committee was not silent during 
2002 either. In August 2002, the Supreme Court Rules Committee 
enacted the equivalent of the Federal Rule 11, and I am sure 
you are all aware of Federal Rule 11, which allows judges to 
assess damages against plaintiffs and plaintiff attorneys for 
bringing frivolous lawsuits. That power had never existed with 
Pennsylvania trial judges before, but the Supreme Court gave 
that power to judges in August. Those steps also began to 
accumulate, and interestingly, a new insurance company was 
certified by the Insurance Commission in late December. That 
new insurance company was able to reduce rates because they 
only handled prospective claims, and on all the prospective 
claims, the steps that the Pennsylvania legislature had taken 
kicked in. Now, it wasn't so for outstanding premiums because 
outstanding premiums went back in time.
    And then in January of this year, at my request, Chief 
Justice Ralph Cappy in the Supreme Court in December ordered 
the Rules Committee to move swiftly to come up with a rule on 
certificate of merit. And the rule on certificate of merit was 
very important. It now requires that a previously certified 
medical expert must submit an affidavit to every medical 
malpractice lawsuit that is filed. The insurance defense 
lawyers estimate, and the Bar Association estimates, that that 
will reduce almost 25 percent of the number of lawsuits that 
come into the system. Now, as the Congresswoman said, most of 
those lawsuits are eventually decided against the plaintiffs, 
but they run up insurance company costs. The run up the cost 
because in medical malpractice cases there is so much pretrial 
discovery so at the time the lawsuits are eventually dismissed, 
the insurance company may have run up $40,000, $50,000, 
$80,000, $90,000 of costs just in defending what is a frivolous 
lawsuit. If, in fact, the Bar Association studies are right, 
and that will delete 25 percent of the number of lawsuits that 
are filed, that will also have a great effect on rates here in 
Pennsylvania.
    So all of these steps were in the process of being done or 
had been done in Pennsylvania during the year 2002. But when I 
became Governor elect of the State of Pennsylvania, the crisis 
was by no means abated by these steps because as I said, most 
of them hadn't even been factored into rate setting. And in 
fact, in Pennsylvania we went from 17 private insurance 
companies writing coverage at the beginning of the 1990's to 
only 2 until that additional company joined us in the year 
2002. So it wasn't a question often of how much your coverage 
was; it was a question of could you obtain coverage by anybody 
other than JUA. The JUA is the Joint Underwriters Association, 
set up by act of the legislature, and they are the insurer of 
the last resort, and they are specifically mandated not to be 
competitive in their price setting. The legislature didn't want 
them to compete with existing private companies, but they were 
the insurer of the last resort, and the premiums that the JUA 
charged were astronomical, because as the premiums for the 
private companies went up, the JUA had to stay higher than 
them.
    So the crisis was acute even though the legislature had 
made some very good steps when I became Governor elect. And on 
my first day as Governor elect, I appointed a medical 
malpractice taskforce to look at this problem, to look at 
short-run solutions and long-run solutions. The taskforce 
included defense attorneys, it included trial lawyers, 
plaintiff attorneys. It included practicing doctors, it 
included hospital administrators, it included the head of the 
Pennsylvania Medical Society and the Executive Director of the 
Hospital Association of Pennsylvania. It included 
representatives of the Chamber of Commerce and the AFL-CIO, who 
are the most frequent users of healthcare in the Commonwealth 
of Pennsylvania. It also had the benefit of joining forces with 
a study that was being done by the Pew Charitable Trust, and I 
would recommend to this committee that you make contact with 
Pew. Pew has allocated $3 million to study the medical 
malpractice crisis across the country, and they have hired some 
of the best experts to do this work all throughout America, and 
I am sure that Rebecca Rimel, the Executive Director of Pew, 
would make their findings, and their research, and what they 
have come up with available to the committee, and it has been 
very helpful to our committee as we have gone down the road.
    I asked the committee to come back to me by January 20, the 
day before my inauguration, with recommendations for abating 
the short-term crisis, and by May 31, with recommendations to 
try to deal with the long-term problems. Unfortunately, in the 
weeks that followed, the crisis became more acute. And when 
Abington Hospital closed its trauma center, State 
Representative Ellen Bard, who I think is with us today----
    Mr. Greenwood. Who is with us today.
    Governor Rendell. Representative Bard asked me to come out 
and meet with doctors and administrators of Abington, and I 
did, and they convinced me that the crisis was so acute that we 
couldn't wait until January 20 to make our short-term 
recommendations. So on December 30, myself and Governor Mark 
Schwiker, Representative Bard, and Representative Kurt 
Schroeder from Chester County held a press conference and we 
announced that I would be asking the legislature to eliminate 
the premiums, 100 percent of the premiums charged by our 
catastrophic loan fund, which is now called MCare. In 
Pennsylvania, for the other representatives, doctors were 
mandated to carry $500,000 of private insurance, and at one 
point $750,000 of CAT Fund insurance; Act 13 dropped that to 
500. But to put it in context, Pennsylvania doctors are 
required to carry $1 million of mandated coverage. In 
California, they are required to carry $100,000 of mandated 
coverage, and I will get to that as we get on a little later.
    I have asked the legislature to enact legislation that for 
the four most challenged specialties, and they are obstetrics 
and gynecology, orthopedic surgeons, neurosurgeons, and general 
surgeons. For those four specialties, that we relieve them of 
100 percent of the necessity to pay premiums into the MCARE 
fund for the year 2003 only. For all other physicians, to 
reduce their MCARE payments to 50 percent of what they had been 
paying for the year 2003. This was a 1-year fix to try to give 
us time to work out the long-term solutions. I also proposed a 
way of paying for it to the legislature, surcharging excessive 
surpluses of health insurance companies that are here in 
Pennsylvania, that operate here in Pennsylvania. The 
legislature hasn't taken any action yet, but I have only been 
Governor for 3 weeks. It hasn't taken any action yet. It has to 
take action by May 1. The reason they have to take action by 
May 1, Governor Schwiker, before that press conference, had 
suspended or pushed back the time period that doctors had to 
make payments into the MCARE fund for 4 months. He said, for 
the first 4 months, you don't have to make any payments. He 
didn't reduce the amount of payments; he just delayed the 
payment schedule. So on May 1, doctors will have to pay into 
the MCARE fund. And if the legislature hasn't enacted our 
short-term solutions, we will see on May 1, and I think the 
physicians here and the hospital administrators here will tell 
you, we will see on May 1 the exact same crisis that we averted 
in Pennsylvania at the last second, the same crisis that has 
plagued West Virginia and New Jersey, where doctors literally 
walked off the job.
    Because of the action we took, Abington trauma center 
reopened a couple of days later, St. Mary's trauma center never 
closed, and two other trauma centers out of the 26 in 
Pennsylvania that had threatened to close never closed. There 
was no doctor walkout. And no one on the committee, on my 
taskforce, believes for 1 second that the short-term remedy did 
anything but buy us time. It stopped the walkout and bought us 
time. I asked the committee to come back to me by April 1 with 
their long-term recommendations so that the legislature would 
have time to enact them before they recessed for the summer. 
Our committee is looking at a number of things, and I should 
mention also, as part of our short-term relief, we advocated 
the passage of a bill that Representative Schroeder had 
introduced, giving relief to our trauma centers, where the 
Commonwealth of Pennsylvania will underwrite the cost of the 
operation of those trauma centers to the tune of $25 million, 
roughly, $1 million a center, although, in the formula it 
doesn't break it out that evenly.
    We are looking at a number of things. Caps are one of the 
things the committee is looking at, although, as you are aware, 
Congressmen, of the Pennsylvania Limitation and the 
Pennsylvania Constitution, our constitution has language that 
has been held would bar caps on non-economic damages. The 
constitution can be amended. It usually takes 3 to 4 years. 
There is a process that can speed it up to 2 years. We can't 
wait for 3 to 4 years, we can't wait for 2 years. So we are 
looking at a number of things. We are looking at reducing the 
level of mandated coverage, as Act 13 did, from $1.25 million 
to $1 million. We are looking at a more significant reduction 
in mandated coverage. We are looking at using a long-term bond 
issue to, basically, get rid of the CAT Fund or the MCARE fund. 
We are looking at a number of different things to try to bring 
back insurance companies to Pennsylvania and quoting a 
reasonable premium for doctors.
    Now, let me say that in this effort, I have had discussions 
with three head of claims departments from three insurance 
companies that left Pennsylvania, and they have asked not to be 
identified, but I asked them a number of things about what 
would cause them to come back to Pennsylvania. The first 
question I asked is, if we enacted California style caps, that 
is all we did, we enacted California style caps, would they 
come back and write insurance in Pennsylvania? The answer was 
uniformly no. The main problem that these three insurance 
companies cited, and this might be a surprise to the 
Congresswoman, was the high number of lawsuits that are filed, 
particularly, in southeast and northeast Pennsylvania, that 
those lawsuits, most of them are dismissed or the jury verdict 
is not guilty, run up the cost of insurance so significantly 
because of the high number of them. And also, because of the 
existence of the CAT Fund or what we now call the MCARE fund, 
because in Pennsylvania, to settle a medical malpractice suit, 
the lawyer representing the private insurance carrier has to 
want to settle and the lawyer representing the CAT Fund has to 
want to settle. The CAT Fund has taken, in an effort to delay 
premiums and spread out the impact, they have taken what could 
best be described as a stalling posture. For example, they 
won't settle. They won't engage in settlement conversation 
until the eve of trail. Well, that is not very productive, 
because for an insurance company, most of the costs are 
incurred prior to the eve of trial, during the pretrial 
discovery period. What those insurance companies told me, if 
you could limit the number of lawsuits and if you could get rid 
of the CAT Fund, they would come back to Pennsylvania and begin 
writing again. And I think that is very instructive.
    I would join with Congressman Deutsch and the Congresswoman 
from Chicago in saying, very respectfully, Mr. Chairman, that 
caps are not the sole solution to the problem. There is no 
magic bullet here. People have been looking for magic bullets 
everywhere. West Virginia has caps and they have a walkout far 
in excess of Pennsylvania. And even if you do enact California 
style caps, the litany that the Congresswoman cited to you is 
correct. For the first 10 years after California instituted its 
caps, which everyone here thinks is nirvana, insurance costs 
continued to rise, and rise substantially. It wasn't until the 
second ballot referendum which mandated reductions plus the 
reduction in mandated coverage to $100,000. That was the key, 
because the mandated coverage drives settlement costs. If you 
are the plaintiff's lawyer, and you know the mandated coverage 
is $1,000,000 in Pennsylvania and $100,000 in California, you 
are going to accept a different settlement offer in each State, 
and that is really the key. You cited all of those statistics 
about how incredibly high the dollar number of verdicts in 
Philadelphia were as opposed to the entire State of California. 
Well, in most of those jury verdicts they are never paid. They 
are set aside by the trial judge, they are set aside by the 
appellate court, or they are above the mandated coverage. No 
doctor in Pennsylvania has ever had his personal assets gone 
against by a lawyer in a medical malpractice suit, which means 
that even before Act 13, the total amount of payment that a 
doctor's insurance company and the CAT Fund would give out, 
even if the verdict was $30 million against that doctor, the 
total amount of the payment was $1.25 million. Hospitals would 
get hurt badly because they were a minor participant, and 
without joint and several liability, they could cover a lot of 
that verdict up to their cap. But the joint and several 
liability threshold that the legislature passed, basically, 
eliminated that. So I am not saying that high verdicts are not 
a problem, because high verdicts, again, affect settlement, but 
it is not the problem.
    Think for a second, Congressman--I think before you were in 
the Congress, in the late 1980's and then even in the early 
1990's, we had no tort reform in Pennsylvania. None of the 
things I have delineated this morning existed. We had no caps, 
we had no joint and several, we had no venue, we had no Act 13, 
we had no certificate of merit, we had no Rule 11. And what was 
happening in the 1980's and the 1990's, do you recall, 
Congressman? The insurance companies were low bidding each 
other, low-balling each other, to sign up doctors in 
Pennsylvania. So if tort reform were the reason, that the need 
for tort reform were the reason that insurance costs have risen 
so high, there was no tort reform and they were low-balling 
because they made a miscalculation in their pricing and they 
thought the cost of paying claims would be less than what they 
could invest in the market, and to that end, I would like to 
pass up--and I didn't come with prepared testimony, but I did 
come with one article.
    You quoted, I think, Mr. Chairman, in your remarks, the 
Wall Street Journal, and I want to pass up to you a June 26, 
2002 article in the Wall Street Journal, and I will just quote 
very briefly from it. The headline is Insurers Missteps Help 
Provoke Malpractice Crisis. Lawsuits alone didn't cause 
premiums to skyrocket; early price war was a factor. And this 
it the Journal, no foe of insurance companies The Journal, on 
its front page says, but while malpractice litigation has a big 
effect on premiums, insurers' pricing and accounting practices 
have paid an equally important role. Following in a cycle that 
recurs in many parts of the business, a price war that began in 
the early 1990's led insurers to sell malpractice coverage to 
obstetricians, gynecologists, at rates that proved inadequate 
to cover claims.
    And then there is a quote from Donald Zuck, the Chief 
Executor of SCPIE Holdings, a leading malpractice insurer in 
California. Mr. Zuck said, ``I don't like to hear insurance 
company executives say it is the tort injury law system. It is 
self-inflicted.'' And then the Journal goes on to say some 
doctors are beginning to acknowledge that the conventional 
focus on jury awards deflects attention from the insurance 
industry's behavior. The American College of Obstetricians and 
Gynecologists for the first time is conceding that carriers' 
business practices have contributed to the current problem. 
Says Alice Kirkman, a spokesman for that professional group, 
``We are admitting that it is a much more complex problem than 
we had previously talked about.'' Pretty shocking coming from 
the Wall Street Journal and the American College of 
Obstetricians and Gynecologists, but they are right. Not only 
did the pricing in the 1990's cause this, not only did the bad 
investments in the late 1990's cause this, but do you know what 
is shocking--and I forget which one of the Congressmen and 
women in their opening statements said this, but what is 
stunning to me, when I came out and met with Abington that 
night, the Abington Orthopedic Group had never had a claim 
settled or a jury verdict against them, and their claims were 
skyrocketing through the roof.
    We have an insurance pricing system and it is one of the 
things that through the Insurance Commission I intend to try to 
take hold of. We have an insurance pricing system that doesn't 
give the good doctor the same benefits that the automobile 
insurance industry gives the good driver. Why should those 
doctors who have never lost a claim, who have never had a case 
settled against them, why should their premiums go up? I asked, 
again, one of the people I talked to in the insurance. He said, 
well, because by the nature of their practice, they have a lot 
of claims filed against them. And it is interesting. And you 
can tell that I am not an advocate for caps, but I think the 
statistics that opponents of caps quote, about 5 percent of the 
doctors having 52 percent of the claims, that is a little 
misleading, because the orthopods, the obstetricians and 
gynecologists, the neurosurgeons, they do the complex surgery. 
They are involved in high risk surgery. High risk means we are 
going to succeed often and do miraculous things, and the 
doctors in this State I think are the best in America, and they 
do miraculous things. But by the nature of the complex 
surgeries they undertake, that lends itself to a lot of claims.
    Why does Philadelphia get the most claims? Well (1) because 
we had lousy venue rules, but (2) the great doctors at CHOP, 
and at University of Pennsylvania Hospital, and Jefferson, and 
Hahnemann. These are the great teaching hospitals in America. 
The great doctor that is there undertakes complex surgery, and 
those complex surgeries mean there will be claims. And the way 
our system is structured, the insurance companies pay on those 
claims even if the verdict is no liability or even if the cases 
are out of court. So we have to look at the insurance industry, 
too, and that is a difficult problem. It is a problem for the 
States at the insurance commissioner level, but I think it is a 
problem that I would welcome the Congress taking a look at. I 
think insurance pricing in this area is way out of whack. I 
think there should be some curb to investing all of the premium 
money into investments so when the market crashes, we have this 
crisis. As bad as the medical malpractice problem was in 
Philadelphia, you didn't hear a peep--you heard some problem, 
but it didn't escalate the way it did until after the market 
crashed.
    And I just want to say two more things, if I might. A 
couple of the Congress people talked about the need for medical 
safety, and Act 13 in Pennsylvania did take some significant 
steps in the area of medical safety. We have got to do better, 
but it is a balancing test. We do want to discipline physicians 
who clearly are guilty of repeated negligence, but we don't 
ever want to structure a system where physicians are unwilling 
to take that risk, that risk that can save a life, that risk 
that can allow a child to walk again, that risk that can maybe 
reverse serious brain damage. Those are the things we want. We 
want the best physicians in America and I do believe we have 
them here. We want them to continue to feel free to break new 
ground and do new things, so it is a balance.
    And the last thing I would like to say is the doctors often 
refer to the perfect storm, and they are right when they refer 
to the perfect storm. The perfect storm can be best summed up 
as this. All of here on the panel and myself, if we were in the 
widget business, we manufactured widgets, and the cost of our 
insurance went up, what would we do? We would, very 
reluctantly, but we would raise our prices and pass the cost of 
that increased insurance onto our customers. Physicians, at 
least in Pennsylvania, are in the perfect storm because they 
have no ability to do that. Our managed care--and I don't know 
if this is true in Florida or in Illinois--but our managed care 
system, except for the poor, our managed care private providers 
system has broken down to the fact that in almost every region 
in Pennsylvania, there is one carrier that dominates 65 to 70 
percent of the market. That carrier tells physicians what they 
are going to get paid for a hysterectomy, what they are going 
to get paid for an appendectomy, what they are going to get 
paid for delivering a baby, take it or leave it. That is it. 
And since there is very little competition, there is not much 
doctors can do. A couple of States have allowed doctors to 
enter into joint physician negotiation, but that carries some 
risk because those increased costs are passed onto the 
consumer, and the consumer is having all sorts of problems 
dealing with healthcare costs, as you know.
    Second, Medicaid and Medicare. The Balanced Budget Act of 
1997, in my judgment, and the constant it rendered to the 
Medicaid and Medicare system, has done more harm than anything 
else to the healthcare delivery system in America. I know it 
was well intentioned, I know it was part of trying to get the 
Federal deficit under control, I know it was part of trying to 
get better management practices into hospital and medical 
practices that are fiscal management processed, but it has gone 
beyond the point of any usefulness. In November, as you will 
recall, Congressman, I wrote you a letter, as I did to every 
member of the delegation and to Senator Specter, Senator 
Santorum, and the leaders in the House and Senate. I wrote a 
letter asking you in this past session to pass legislation 
stopping any further phase-out in Medicare and Medicaid costs 
for doctors, for hospitals, for nursing homes, and the like. I 
know Congress adjourned without having time to deal with that 
and we were told by legislative leaders that that would be 
dealt with in a comprehensive healthcare package that included 
prescription drugs. I can't emphasize how important that is. I 
cannot emphasize. Not only should you freeze any further cuts, 
you should--and I know the Federal Government has terrific 
budget problems and I am not going to get into a discussion of 
tax cuts. That wouldn't be very productive, although, it is 
interesting to note all my fellow Republican Governors who ran 
on the platform of never raising taxes having to raise taxes, 
but leave that aside for a moment because that is not directly 
relevant to us.
    But I would really, seriously, urge the Congress, if you 
are interested in when President Bush came to Scranton to talk 
about this issue, and he talked about caps, I said, it is okay 
to talk about caps, but talk about raising the level of 
Medicaid and Medicare reimbursement to our doctors, to our 
hospitals, and to our nursing homes. Nursing homes lose 10 
percent each day for every Medicaid patient they keep, 10 
percent. They take that loss. And it is a system that in my 
judgment is out of whack, and fixing that is as important, and 
probably more important because it has even broader long-term 
ramifications than fixing the medical malpractice crisis.
    So it is a complex issue. We have to look at insurance 
costs. We have to continue to look at tort reform. We, 
certainly, can't turn our back in tort reform. And Pennsylvania 
has, as I said, taken some terrific steps, and we have to do 
more. We have to find a way to alleviate this crisis. We should 
look at medical safety, we should look at insurance costs, we 
should look at tort reform, and we should look at Medicaid and 
Medicare reimbursements. If we do all of those things, I 
believe we can bring this crisis under control. Nobody is 
assigning blame. There is plenty of blame to go around and 
assigning blame doesn't do much good in my judgment. But I 
think this committee's efforts are sincere and I hope you will 
address all of those issues as you go down the road and do your 
work. Thank you very much, Mr. Chairman.
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    Mr. Greenwood. Thank you, Governor. We appreciate it. As a 
matter of housekeeping, without objection, the Wall Street 
Journal article of June 24 submitted by the Governor will be 
entered into the record. The Chair recognizes himself for 10 
minutes to question the Governor.
    Governor Rendell, you have stated repeatedly that caps are 
not the only answer, and we all agree with that. And first, let 
me be clear about what I am talking about and what my 
legislation does with caps. It places, as I think you know, no 
cap whatsoever on economic damages. So any individual harmed in 
Pennsylvania by medical error, or anywhere else in the country, 
under that legislation would be able to recover 100 percent 
healthcare costs, doctors, hospitals, drugs, rehab. They would 
be able to recover 100 percent of lost wages for a lifetime if 
it is a newborn, for instance; any services that they cannot 
provide for themselves, if they need someone to mow their lawn, 
or go shopping for them, or walk their dog, 24-hour nursing, 
they are all reimbursable. Punitive damages in those relatively 
rare cases where punitive damages apply are payable under the 
legislation up to twice the economic damages. So the cap only 
refers to and only applies to the non-economic damages, the so 
called pain and suffering. And our legislation sets that at 
$250,000 as a floor. We set it at that number because the 
Californians do not want us to trump their existing $250,000 
cap, but we allow State legislatures and Governors to raise 
that cap on non-economic damages to wherever they choose, so it 
has been referred to as draconian but it is only as draconian 
as the States choose it to be. So I wanted to make that clear.
    Now, you said in your testimony that you believe caps are 
not the panacea. If you only do caps, you don't solve the 
problem. Agreed. And that is why the legislation that I have 
introduced does many things, including some of the items that 
you referred to, but it does the cap. The question is not 
whether caps are a sufficient response. The question is whether 
they are necessary. Let me just continue here, because I would 
argue that while they are not sufficient, they are certainly 
necessary. You referred to some discussions that you had with 
medical liability carriers, and I happened to be at the 
Pennsylvania Society when you spoke and talked about your 
discussion with the head of Princeton Insurance Company, who 
said--and I think you paraphrased it today--if you just do 
caps, we are not coming back.
    Here is what he said in the letter to us, February 7, 2003. 
President of Princeton Insurance Company, William McDonough, 
wrote that his company has always supported our efforts to 
establish caps on non-economic damages as part of a package of 
tort reforms and adds, ``Princeton believes these initiatives 
will serve to bring stability to the medical malpractice 
market, ensuring the malpractice coverage our physicians need 
is available and affordable, especially, in the New Jersey and 
Pennsylvania regions.''
    Now, does this conflict with your understanding of their 
position, because this is critical. They want caps.
    Governor Rendell. Well, they want caps, but they wouldn't 
come back to Pennsylvania if that is all we did.
    Mr. Greenwood. That is agreed, and that is why none of us--
--
    Governor Rendell. But if I were in the insurance----
    Mr. Greenwood. Let me just finish, Governor. None of us 
propose to do caps and caps alone. All of us propose to take a 
series of steps. And as I listen to the things, the items under 
consideration by your taskforce, caps was one of them, and you 
admitted that you are not a fan of caps. You admitted, or you 
noted, that the Constitution doesn't allow the legislature to 
set that cap, which is precisely why I have gone the Federal 
route to go ahead and do that. You have talked about reducing 
coverage. Well, you can reduce coverage, but I think that there 
are many who would argue in favor of the legitimately harmed 
patient that you don't want to reduce coverage to the point 
where patients can't--legitimately injured patients can't 
achieve legitimate coverage or verdicts.
    Governor Rendell. California has reduced coverage to 
$100,000, and I would argue that that would reach the standard 
you just said.
    Mr. Greenwood. Okay. And that does begin to get to the 
liability issue, because you talked to a bond issue, you have 
talked about going after a one-time tax on the insurance 
company surpluses. What those things do is just put more money 
into the pot. It becomes taxpayers' money and premium payers' 
money, but I guess what I want to get from you is a clear 
understanding of do you think that critical to resolving this 
crisis is to limit in someway the exposure, the liability of 
the insurance companies, so that when they are confronted with 
these claims, these cases, that they can decide whether they 
can afford to go to court and risk a trial or whether they have 
to settle because their exposure is so unlimited, as it is now 
in Pennsylvania, that they can't take the risk?
    Governor Rendell. I think if you had to choose between 
caps, let us say at 250, and reducing the mandated coverage, I 
think most defense lawyers would tell you reducing the mandated 
coverage is far superior. For us to have a $1 million coverage, 
in California you have $100,000, makes no sense. I agree with 
you, $100,000 is probably too low, but I think mandated 
coverage, the level of mandated coverage, is probably more 
important than caps in my judgment. Again, the caps aren't 
paid; the $30 million you read about is never paid by a doctor, 
never paid by the insurance company. It just affects the 
settlement discussions. But reducing the mandated coverage, I 
think would have a better effect on reducing the coverage. But 
I am not arguing with you. Would caps have an impact overall in 
reducing premiums? Absolutely. The question is, and it is a 
question for all of you, and it is a question for my taskforce, 
and myself, and the Pennsylvania Legislature, at what cost?
    And I know what you said is correct, and I know you are 
genuine in your desire to see a victim totally taken care of, 
but let us take a young person, a young person who at the age 
of 5 or 6 goes in for a procedure, and let us posit for a 
moment that that young person because of clear-cut negligence 
comes out of that procedure as a quadriplegic. We are going to 
take care of that young person's medical needs and the 
attendant needs for the rest of their life. Well, that young 
person is likely to live another 70 years, and capping the 
damages for non-economics to that young person, trying to in 
some way compensate that young person for the loss of 
everything and for the emotional distress of knowing that they 
have lost every basic activity that a normal human being can do 
at $250,000 for 70 years, that is probably, if you factored in 
inflation, that is probably about $2,000 a year for that young 
person.
    Mr. Greenwood. What is the point of having a cap that is 
higher than the coverage? If you are going to limit the 
coverage, and you just said we should limit the coverage.
    Governor Rendell. Right.
    Mr. Greenwood. Okay. And you said that these big awards 
aren't actually paid because there is a limit on the coverage. 
Now, if you limit the coverage, as you have suggested, and now 
you want to have juries award verdicts that exceed that 
coverage, what have you accomplished?
    Governor Rendell. Well, it depends if there is hospital 
liability, et cetera, et cetera. I mean, the bottom line----
    Mr. Greenwood. You also said that you want to have 
hospitals only bear their fair share of the burden.
    Governor Rendell. Right.
    Mr. Greenwood. And you don't want a deep pocket system.
    Governor Rendell. Well, we have done that in Pennsylvania, 
as I said, and most--I think we were one of the last large 
States to have a threshold on joint and several. You know, 
there comes a point where, I agree with you, if you mandate 
coverage too low--and I don't want to mandate coverage anywhere 
close to $100,000.
    Mr. Greenwood. What is a good number?
    Governor Rendell. I don't know. I am waiting for the 
committee to recommend that.
    Mr. Greenwood. But you would have the power in the State of 
Pennsylvania to match the cap with coverage. So if you think 
$100,000 is too low, and here we are talking about in my bill 
unlimited economics. I don't want a coverage limit on economic 
damages. I want that person who is a quadriplegic who might 
need round-the-care nursing coverage, around the clock, and a 
lifetime of lost wages, I want that person to get $10 million 
if he or she needs it because they need it, and they were 
legitimately harmed and they need that. The question is that 
when a quadriplegic is lying in the bed getting nursing care, 
and having his services covered for him, and his wages covered, 
and all of that, then is there a point to having that jury 
award an extra $5 million or $10 million for non-economic 
damages, much of which ends up in the pocket of the attorney, 
or do you want to put some limits on this?
    Governor Rendell. The only way it ends up in the pocket of 
the attorney, if a check is cut. The verdict doesn't determine 
what an attorney gets. It is only when the check is cut. That 
is another misconception that people throw around. A $30 
million verdict means the attorney gets $10 million. Well, that 
$30 million verdict, assuming now that we have got joint and 
several for the hospital, could be a $1 million payment and the 
attorney gets $333,000. If there is hospital liability, it 
would be higher.
    Mr. Greenwood. But then, of course, the physician--you said 
that physicians don't necessarily wind up spending their 
personal assets, but if you----
    Governor Rendell. No physician has ever been sued in 
Pennsylvania.
    Mr. Greenwood. Well, my guess is that part of that is 
because they have coverage, that they buy coverage sufficient 
to protect their personal assets. But if you are recommending a 
system in which the physician is only required to have a cap on 
their coverage, and yet, you don't want to cap their exposure, 
the insurance company's exposure, which is really what you are 
talking about, the insurance company's exposure, then the 
hospital and the doctors are stuck with unlimited exposure out 
of their other assets because they have got a cap on their 
coverage, no cap on their liability.
    Governor Rendell. Right. But again, let me repeat, at least 
for physicians, no physician has ever been sued for collection 
of a verdict above and beyond mandated coverage.
    Mr. Greenwood. Well, my guess is that is because they have 
covered themselves. Has my time expired? My time has expired. 
Then I will yield 10 minutes to the gentleman from Florida.
    Mr. Deutsch. Thank you, Mr. Chairman. Can we bring up 
number 5? That is number 6. All right. You can leave it. I have 
a question on number 6; that is fine. Okay. That is not very 
helpful. All right. I don't know if you can make it out, but, 
you know, in Florida we are proud of being No. 1 in a lot of 
things. This is not something we are proud of being No. 1 in. 
This is a survey from the Medical Liability Monitor of the cost 
of malpractice premiums by State, with Florida, as it shows, is 
the highest State. Pennsylvania, as bad as things are, again, 
it is somewhat dated data, 2001, but Pennsylvania is less than 
one-third of Florida in terms of rates. And as you can see by 
the chart as well, it ties into the conversation that we have 
been having. Non-economic damage caps have been instituted by 
the State in Florida, and you know--I mean, Governor, I don't 
know if you want to respond to it--it lists a number of States. 
In fact, the top 2, or 4 of the top 5 States, in terms of 
premiums have some type of non-economic damages.
    Governor Rendell. You mean, caps?
    Mr. Deutsch. Caps on non-economic----
    Governor Rendell. Yes, although, the advocates for the 
other side would say they are not California style caps. But I 
agree. I mean, I don't believe that caps is as a significant 
factor as mandating coverage, as joint and several, as 
eliminating frivolous lawsuits, as curbing the number of 
lawsuits. I think there are so many factors that kick in and 
are far more influential than caps.
    Mr. Deutsch. You mentioned, and again, I am not familiar 
with most of the specifics of Pennsylvania or tort law, but you 
mentioned several times this $1 million mandatory coverage. 
Could you explain that a little bit, how that works? Is that by 
State statute?
    Governor Rendell. It is by State statute. We were mandated, 
actually, before Act 13 at the beginning of 2002, we were 
mandated, a doctor was mandated to cover $500,000 of coverage 
from a private insurance company and pay in a premium that 
amounted to a $750,000 coverage in the CAT Fund. Act 13 reduced 
the $750,000 to $500,000.
    Mr. Deutsch. So every physician that practices in the State 
of Pennsylvania has that level of coverage?
    Governor Rendell. It depends on the level--well, I am not 
sure of that. To be honest, Congressman, I am not sure of that.
    Mr. Deutsch. Okay. I mean, the million dollar number, 
though, that you were talking about--because again, the Florida 
experience is much different. In fact, actually, I asked the 
staff to check. You mentioned California, and again, this is, 
you know, sort of how statistics are tough to grab a hold of 
everything. I am not aware that in Florida there is any 
requirement of a minimum requirement.
    Governor Rendell. Many States have no mandated coverage.
    Mr. Deutsch. Right. And so, you know, that is not to say, 
you know, that would be evidence if we look at high rates in 
Florida but, in fact, again, it is interesting. My 
understanding is, particularly in certain subspecialties, and 
this is, you know, just kind of talking through things. It is 
not a solution that I would recommend, but in a sense, in 
Florida two things have occurred. One is a huge number of 
physicians, particularly, in very high premium areas, have 
gotten bare and have really dealt with asset protection as a 
response in terms of not having coverage. The other thing that 
has happened in Florida is because of sovereign immunity issues 
in certain subspecialties, physicians have entered into 
contracts with hospitals that have protection of sovereign 
immunity to, basically, continue their practices under the 
umbrella of sovereign immunity. Could you just talk a little 
bit about----
    Governor Rendell. In terms of going bare, I would suggest 
that as a short-term remedy, to me, that we allow physicians to 
just go without coverage for a 6-month or 1-year period while 
we are trying to sort all this out. The problem is, and I don't 
know if--I am sure you have got hospital personnel here. The 
hospital personnel object vociferously to allowing--and I think 
most Pennsylvania hospitals would not allow a physician with no 
coverage to practice in their hospitals, and that would cause 
at least in Pennsylvania a breakdown of the whole medical 
system.
    Mr. Deutsch. What about the issue of--again, I am not 
familiar with Pennsylvania and how it works with sovereign 
immunity issues. St. Mary's, I assume, is a not for profit 
hospital. Is it benefited by sovereign immunity?
    Governor Rendell. No, and we have no State run hospitals. 
We have a couple of mental institutions, but no State run 
medical facilities in Pennsylvania.
    Mr. Deutsch. So there is no community hospice, there is 
nothing----
    Governor Rendell. Nothing that has sovereign immunity.
    Mr. Deutsch. And so not for profit's do not avail 
themselves of that type of immunity?
    Governor Rendell. Well, they can't under Pennsylvania law.
    Mr. Deutsch. Is that something that has been looked at in 
terms of----
    Governor Rendell. Well, again, I mean, you are back to what 
Congressman Greenwood says. You don't want to create a system 
where there can be no recovery at all, because the most 
important thing is that medical costs and lost wages, but 
particularly, medical costs, are covered. If you have sovereign 
immunity, I assume sovereign immunity imposes some sort of cap 
in Florida?
    Mr. Deutsch. Well, actually, it ends up being an 
interesting procedure that those cases go directly to the 
legislature in terms of a, basically, arbitration process 
through the legislative process.
    Governor Rendell. And we had sovereign immunity in the city 
of Philadelphia when I was mayor. Sovereign immunity limited in 
some instances what our total liability was; in some instances 
we had no liability at all. And that can obviously work and 
have some negative consequences as well.
    Mr. Deutsch. Can we bring up chart number 6? Okay. This 
chart, as you can see, it tells us that most of Pennsylvania 
does not have the medical malpractice problems as Philadelphia 
County and the counties that surround it. Even as close as 
Lancaster, medical malpractice premiums are only about 60 
percent of Bucks and Montgomery. And when we look at the 
breakout of types of practice, obviously, the highest ratios 
and State charges, in fact, you know, in the area, I guess, for 
family practitioners, some of them pay as little as $5,000 per 
year. OB-GYN's in Philadelphia pay about $90,000 a year. This 
is something that you talked a little bit about in your 
testimony, but is it, you know, your sense that the problem is 
really local and limited to relatively few physicians?
    Governor Rendell. No. I don't know that is affecting--the 
problem is intense in the southeast, but also extremely intense 
in Lackawanna, and I don't know Luzerne, but particularly, 
Lackawanna, Luzerne, Monroe. Those doctors were about to walk 
off before we did our short-term remedy, and even across the 
State. Do you see little Fulton County down in the southern 
part of the State? I was campaigning, I was the first Democrat. 
Actually, I was the first candidate for Governor to come to 
Fulton County in 40 years, and I came this summer. And there 
aren't a lot of Democrats in Fulton County so the people who 
came to my press conference, I got to know personally. And one 
of them--I was on a first name basis with all of them. One of 
them was the county's only physician, only physician who lives 
in Fulton County. He had a general practice and he told me that 
he had no problem with his premiums because he didn't do the 
complicated work. When someone in Fulton needed orthopedic 
surgery, a doctor from a hospital in Chambersburg, which is 
Franklin County and Green, would come over and perform that 
surgery in the General Hospital in Fulton.
    I saw him--that was in July. I saw him about 7 months later 
at my inaugural ball. I just, you know, was greeting people at 
the inaugural ball, and he came up to me and said, do you 
remember me, I am the doctor from Fulton. I said, yes. He said, 
my medical malpractice has increased two-and-a-half times since 
I talked to you, and that is in little Fulton, which you have 
in the purple, which is the least consequential of all. And if 
you were to ask doctors in--and maybe some of the physicians 
and maybe the hospital administrators can talk about this. If 
you were to ask doctors in Pittsburgh, which is Allegheny 
County, southwest Pennsylvania, Erie, they would tell you that 
their medical malpractice premiums have increased a large 
percentage.
    But because of the work that is done, and it goes back to 
that original point I made about the 5 percent, most of the 
high risk surgery that goes on in Pennsylvania goes on in those 
dark blue counties in the southeast, a little bit of it in 
Allegheny County and a little bit of it in Lackawanna County, 
and then that is the problem. If you were to look at the 
percentage of the physicians in the four challenged specialties 
where I eliminated 100 percent of their MCARE payments, a high 
percentage, a very high percentage, would be in those purple 
counties. So it is a little bit of the type and practice. That 
physician from Fulton County was, basically, your old fashioned 
GP, and your old fashioned GP hadn't gotten hit yet, but has 
started to get hit. Now, his medical malpractice premium that 
has increased two-and-a-half times, any OB-GYN in Philadelphia 
or the Philadelphia suburbs would give their right arm to have 
his premium, but it is all relative because remember, it is the 
premium compared to the amount of gross revenue that comes into 
the doctor's practice. And the gross revenue in the practice is 
far greater in those purple, and yellow, and red counties than 
it is in most other parts of the State. Allegheny County is the 
one anomaly in that chart.
    Mr. Greenwood. The time of the gentleman from Florida has 
expired. The chairman welcomes the gentleman, the new Member of 
Congress from Chester and Lancaster Counties, and Montgomery 
County, and Bucks County, Congressman Gerlach, and you are 
recognized for 10 minutes for questions.
    Mr. Gerlach. Thank you. Good morning, Governor.
    Governor Rendell. Good morning.
    Mr. Gerlach. First of all, let me commend you on the handle 
you have on this issue. You seem to have gotten started very 
quickly in your term with understanding what is going on all 
across Pennsylvania. And anecdotally, one of those blue 
counties up there that was not indicated as being a high or a 
great area of concern is Clarion County. My sister happens to 
work for an orthopedic surgery group in Clarion County, a very 
rural, small county in Pennsylvania that, relatively, their 
rates have been going up very, very rapidly. And again, based 
upon what the reimbursement rates are for Medicare and 
Medicaid, as well as third party payer, that has been a very 
high cost that they have been absorbing in the past few years, 
and it is at a very difficult level for them as well.
    Governor Rendell. Absolutely. And can I interject, Mr. 
Chairman, one of the things that, as you know, Medicare and 
Medicaid reimburse differently, urban and rural. So a physician 
in Philadelphia will get a higher rate of reimbursement for 
operation A than that physician in Clarion County.
    Mr. Gerlach. Absolutely.
    Mr. Greenwood. Right. Because of the high tax rates in 
Philadelphia, they have higher overhead.
    Mr. Gerlach. When I was in the legislature, and you covered 
a number of things that were done in the past year to deal with 
this issue, and a lot of good things were done, no question 
about it. One of the things I was involved in, specifically, 
was the frivolous lawsuit issue, and we had a bill, Senate Bill 
406, that would have amended our Dragonetti section of the 
Pennsylvania Judicial Code to strengthen those provisions, to 
identify or allow an opportunity for a victim of a frivolous 
lawsuit to collect attorney's fees and costs against the 
plaintiff that brought a case that did not have any real basis 
in law or in fact. And rather than that legislation ultimately 
getting all the way through the legislature and to the 
Governor's office was the fact that that also is an issue 
involving rural support in Pennsylvania, and so that is the 
constitutional end of the purview of the Pennsylvania Supreme 
Court. And they, in turn, if you are aware, did amend 
Pennsylvania Rules of Civil Procedure 1023.1 to, in essence, 
give us a Federal 11 here at the Pennsylvania State court 
level.
    Additionally, just recently, you know, they amended the 
Rules of Civil Procedure again to provide for a certificate of 
merit that will identify, hopefully, and weed out frivolous 
litigation at the outset if there is not clear grounds for that 
suit to begin. And you would think based upon those two rule 
changes that those are a sufficient way to address your point 
that one of the reasons there is a high cost of doing business 
as an insurance company in Pennsylvania, to write medical 
malpractice insurance, is the number of lawsuits that are being 
filed. Are those two changes to the Rules of Civil Procedure 
sufficient enough in your opinion, or do you need to go further 
either by either a procedural rule change through the court, or 
statutorily, through legislation, to again address the issue of 
the number of lawsuits that are filed in Pennsylvania that in 
turn then impact the cost of insurance?
    Governor Rendell. Well, first, let me commend you for 
trying to take your legislative action to deal with this 
problem, because like I said, the insurance companies 
identified this as the No. 1 problem. The answer to your 
question is I don't know, and we have asked our committee to 
look at that. There may be a need for some form of arbitration 
system for lower level claims to continue to weed out those 
discovery costs and those trial costs, et cetera. But I think 
those two steps, the American Bar Association and some other 
group estimated 25 percent of the medical malpractice lawsuits 
in any State would get knocked out by those two provisions. And 
that is a significant number.
    Mr. Gerlach. There was also, you mentioned, arbitration 
back in 1996 the legislature passed, I think it was Act 35, 
that had a number of forms in it, including a mediation process 
to mediate medical malpractice cases before they get to a writ 
of summons being filed, or a complaint being filed, and the 
civil litigation process starting. That was suspended, that and 
other provisions were suspended by the court back in 1996, and 
had they been in place over the past 6 or 7 years, there might 
have been a different story in the medical malpractice 
situation in Pennsylvania. Do you, as Governor, intend, if you 
have not already, to go back to the court and have them 
reconsider that suspension, because again, it is only a 
suspension. It was not deemed to be constitutionally invalid at 
this point, as I understand it. It has just been suspended by 
the court through their King's bench power. Would you look at 
going back to the court and requesting a review by the court of 
whether that mediation process ought to be reauthorized by the 
court and allowed to be brought into place in Pennsylvania to 
allow a process to mediate or arbitrate these cases before you 
get into the civil justice system?
    Governor Rendell. Absolutely. That is one of the things the 
taskforce is looking at. Of course, Congressman Greenwood 
understands, but for the other Congressman, we have a 
particular clerk in Pennsylvania where a lot of the Supreme 
Court controls procedural forms, the legislature controls 
substantive reforms. And of course, the difference between 
substantive and procedure is what the Supreme Court says it is. 
In 1996, the legislature passed a fairly comprehensive set of 
reforms. The Supreme Court voided all of them and said they 
were all procedural, but then didn't take any action on its own 
to refer to its own rules committee. I will say there is real 
hope on the horizon because the new Chief Justice, Ralph Cappy, 
is very responsive. In December, I asked him to expedite the 
process in looking at the certificate of merit, and they came 
out with a rule just about a week ago on certificate of merit, 
as you know. So we are looking at all of the 1996 work of the 
legislature, which I thought was also good work, and by the 
way, agreed upon by both sides. As was, interestingly, the 
certificate of merit rule had the support of the vast majority 
of trial lawyers in Pennsylvania, because the substantial trial 
lawyers would never bring a lawsuit without having a certified 
medical expert's opinion in hand. So the legislature in 1996 
crafted out a good area of agreement, and unfortunately, it was 
voided. We are looking at recommending all of those. Our 
recommendations will not just be to the legislature, but they 
will be to the Supreme Court Rules Committee as well.
    Mr. Gerlach. Okay. Good. Well, thank you very much.
    Mr. Greenwood. The Chair thanks the gentleman and 
recognizes for 10 minutes the gentlelady from Chicago.
    Ms. Schakowsky. Thank you so much, Governor, for all of 
your testimony. I am wondering if I could go back to chart 
number 5. Well, the point I wanted to make out of chart number 
5 is that at the bottom half, you see, the darkest line is the 
average, and then below that are those that paid less than 
average. And what you find in there is that below the line 
there are 14 States that have no caps, and above the line there 
are 12 States that have no caps. In other words, there are more 
States that have caps above the line as a percentage than below 
the line, and I wanted to just point out a State that may be 
somewhat comparable to Pennsylvania, Minnesota, which does have 
large cities and has no caps at all, and has insurance premiums 
that are much lower, that are third or fourth from the bottom, 
and just comment that there is this disconnect between the 
notion that if there were caps, that somehow those premiums 
would be lower, which I think, really, just reinforces what you 
were saying.
    But I wanted to show you chart number 1 to show in terms of 
verdicts, and this may reinforce also with what Congressman 
Gerlach was saying. In terms of payouts here in Pennsylvania, 
you find that they have, actually, dramatically, been reduced 
when it comes to verdicts over the years, and are at a low 
level. So if what these insurers are telling you, that it is 
the number of lawsuits, then it would seem to me that the 
critical reason perhaps, or a more critical factor anyway, 
would be the certificate of merit solution to deal with a 
number of lawsuits.
    Governor Rendell. Well, we won't know the effect of the 
certificate of merit or the Rule 11 that Congressman Gerlach 
talked about, because, again, they were too late to factor into 
the January 1 premiums. But we believe they will factor into 
the July 1 premiums that are coming out. You know, again, I 
have seen this chart and this statistic, and these are the ones 
that go to trial, and there is no question, juries, I think, 
have been sensitized about all of the publicity about the 
crisis and are less--I think a lot of juries in Philadelphia 
said, well, we will let the insurance company pay. That was 
their sort of belief, you know, this poor little girl. In fact, 
there was a quote in the paper, I think on Sunday, saying, 
well, we didn't think there was any negligence, but the poor 
little girl was so nice that we wanted her to get something. I 
think because of the growing knowledge of the crisis this year, 
I think juries are a little bit more in tune to that. But the 
key factor here which would make this chart, and I have asked 
the trial lawyers to come up with it, is the amount of large 
settlements as well. If that amount had also gone down as 
dramatically, then you could see there was real progress being 
made.
    Ms. Schakowsky. Let me just point out that Minnesota does 
have a certificate of merit, so that may be one of the factors 
that will lower the premiums. I wanted to also argue that what 
you refer to as tax cuts, and I know none of us want to go into 
that, but it, in fact, may be more relevant, in fact, than 
caps, because you in your campaign endorsed a 10 to 15 percent 
enhancement in Medicaid for high risk specialties, some of 
which, a good deal of which, would come from the Federal 
Government.
    Ms. Schakowsky. I wondered if you want to----
    Governor Rendell. Well, I was going to have Pennsylvania 
actually chair some of that, enter into a joint agreement. 
Again, I go back to what Congressman Greenwood said, and it was 
the right thing. There is no one answer to this, but clearly, 
increasing Medicaid and Medicare reimbursements is a crucial 
step to this. It is a crucial step to this, and again, it is 
something that we have to do for a whole boatload of reasons, 
not just the medical malpractice crisis. But we have to 
alleviate the pressure on the doctors and hospitals from both 
ways, the rising premium cost and the fixed reimbursement cost. 
If we can do that, I think we can bring this situation under 
control. There are a lot of different answers to this, but that 
is clearly one of them.
    Ms. Schakowsky. Well, I know that Governors across the 
country, including our new Governor, Governor Blagojevich in 
Illinois, are certainly facing huge budget deficits largely 
driven by healthcare costs. I am wondering if you have gotten 
any response from the Bush administration or the Republican 
Congress.
    Governor Rendell. No. I have gotten some good indications 
from some of our Senators and Congressmen here that they intend 
to work on that this year, as I told you, as part of the 
comprehensive prescription drug crisis. But you know, if I 
could put in a plug, in general, before the economic stimulus 
program was released, all the news media had it that the 
President was going to include direct relief for the States to 
the tune of $40 or $50 billion. That disappeared from the 
President's economic stimulus program on the day it was 
announced. We were told it would be covered in the budget 
message. It does not appear to be in the budget message as 
well. And that direct aid to the states would be one way of 
alleviating this crisis. And I made the comment about my 
Republican colleagues having to raise taxes, you know. The 
States will have by the end of this year $75 billion in 
accumulated deficits by the end of this fiscal year. Last year 
the States raised almost $9 billion in taxes, and in my 
judgment, we are just tax shifting. We are not really reducing 
taxes; we are tax shifting. But again, that may be another 
issue.
    Ms. Schakowsky. Well, I mean, I think that certainly 
relates to the notion of how much money, absolutely. Let me ask 
you this. You referred pretty knowledgeably to the notion of 
the responsibility of the insurance industry itself, which was 
low-balling some of its premiums. How can we address the issue 
of the insurance cycle itself, which often is unrelated I think 
to the issue of the payouts. And what are you doing in 
Pennsylvania to address this?
    Governor Rendell. Well, I am asking our taskforce to look 
at that, and that is a complicated issue, because you wouldn't 
want ever to have a system where the premiums were set at a 
level that covered the claims and allowed the insurance company 
to make a profit, because that would jack premiums way up. The 
insurance companies are allowed to and can keep premiums down 
because they do have the ability to invest that money, but 
there should be some oversight and some restrictions on the 
level of investments and some restrictions on the speculative 
nature of that investment, and I think that is crucial. If you 
made the investment more diversified and a percentage of that 
investment in relatively safe investments, you would have less 
of a spike. I think you can control that by having some monitor 
on the type of investments, you know. The insurance companies, 
like so many other people, invested too heavily in dotcoms, and 
the rest, as they say, is history. And maybe there is a way to 
have a monitoring on the type of investments they can make and 
the type of safe reserves they have to have, things that are in 
bonds, or in T-bills, or things like that. And again, it is a 
fine line, because that is going to drive up premiums a little 
bit, but it would keep from having these terrible spikes.
    Ms. Schakowsky. Let me ask you, also, what Pennsylvania is 
doing to weed out bad doctors. I mean, we know that in addition 
to a malpractice insurance crisis, there is also a malpractice 
crisis, that we have a large number of people who die from 
preventable causes--well, worse than that, from negligence of--
--
    Governor Rendell. We aren't doing enough and that is 
something we are studying as well. Act 13 was the first act 
that tried to do something about patient safety. It didn't go 
nearly far enough and I think that is acknowledged by a lot of 
people, and we are trying to make sure that there is reporting, 
we are trying to make sure that the public is aware, and we are 
trying to make sure that there is some disciplinary procedure 
in place. Not that the discipline and review process for 
lawyers is necessarily a good one, but every year in 
Pennsylvania, my guess is somewhere between 10 and 20 lawyers 
lose their license to practice law, and that has a deterrent 
effect.
    Ms. Schakowsky. Thank you very much.
    Mr. Greenwood. The Chair thanks the gentlelady. Governor, a 
couple of questions. My father, a year ago, when we had snow 
like this, and shoveling snow at age 80, threw out three 
vertebrae in his back, and his doctors told him he was doing to 
have to sit in a chair for the rest of his life and do pain 
management. I found him a great surgeon, Dr. Simeon from your 
great city of Philadelphia, operated on my father, and in days, 
he was recuperated and he could go skydiving again today. Now, 
Dr. Simeon tells me in a letter that his medical malpractice 
insurance rates are over $600,000 a year, I think $660,000 a 
year, and he has to do 400 surgeries a year just to pay his 
malpractice rates. His partners left and went to Indiana and 
pays practically nothing for the same coverage. Now, that is 
not because in Indiana doctors don't make mistakes, or that 
they have worse doctors. They don't have worse doctors in 
Pennsylvania than they do in Indiana. Do they?
    Governor Rendell. No. I think we have the best doctors in 
the country.
    Mr. Greenwood. So our doctors aren't accident prone or 
particularly negligent, so that is not what is causing the 
difference. Okay. The insurance companies in Indiana invest in 
the same stock market as insurance companies in Pennsylvania. I 
don't think you are here to tell us that investors in 
Pennsylvania are dumber than investors in Indiana.
    Governor Rendell. No.
    Mr. Greenwood. Okay. But the cost of the premium is 
extraordinarily by a factor of 300 fold smaller in Indiana. 
Now, there are certain things you can do. You can put more 
money into the system here, and you have proposed taxing the 
insurance premiums, the surpluses. The problem you have with 
that is when we saw the map there, all those counties, all 
those legislators from the light blue counties, are not fond, 
and you have heard this, of passing legislation to transfer 
money from the premiums paid by their constituents, because 
they see the problem as being--I will let you answer, Governor. 
Let me finish here. So that may not happen. I am for raising 
the Medicare payments to physicians, but at some point, putting 
more money into this crisis is putting gasoline on the fire.
    Now, the other thing you can do is limit what goes out. Put 
all the money in the pot and you have to limit what goes out, 
and that is where you get the caps, or coverage limits, or 
something to limit what goes out. Or the third thing you can 
argue is that what is really the problem is the insurance 
companies. You can say that, actually, there is enough premium 
money coming in to pay for reasonable exposure. It is just that 
the insurance companies are the culprits. They are either price 
gauging or they are doing something wrong. But I look at 
PMSLIC, which is the Pennsylvania Medical Society Liability 
Insurance Company, the biggest physician owned insurance 
company in Pennsylvania. They are not there for profit, they 
don't invest wildly, they invest in treasury bills and AAA 
corporate equities. They raised their premiums on their doctors 
that they are serving 54 percent last year. Now, they will tell 
you, and they are going to testify a little while later. They 
will tell you it has nothing--the investment piece of this was 
about 4 to 5 percent of that 54 percent, and the rest is the 
liability exposure environment.
    So my question to you, sir, is if a physician owned 
insurance company can't figure out how to provide affordable 
premiums to its own members, then how does insurance reform, 
without putting some limitation to the exposure, solve the 
problem?
    Governor Rendell. Well, first of all, no one is saying that 
you can do one and not the other, and no one should be saying 
that. Look at what the Pennsylvania legislature, Congressman 
Gerlach said it, that he is proud of what they did last year, 
and he should be. And I said in my remarks at the press 
conference on December 30, that the Governor and the 
legislature deserve credit. Act 13 was a substantial step, 
joint and several was a substantial step, the venue legislation 
was a substantial step, certificate of merit, Rule 11, the 
Dragonetti proposal which got transferred and Rule 11, those 
were substantial steps. So no one is saying we shouldn't do 
tort reform, but I think there should be further tort reform, 
and again, I am willing to consider caps if the committee 
recommends them.
    Mr. Greenwood. I am glad to hear that.
    Governor Rendell. But you cited that PMSLIC went up 54 
percent last year. Do you know what the California rates went 
up last year? Thirty-four percent. So it is not like the 
States--I mean, again, it is everything. Of course, we should 
do tort reform, but you can't let the insurance companies off 
the hook anymore than you can let----
    Mr. Greenwood. Well, no one is suggesting that we let them 
off the hook, but if you look at the California situation, 
Governor, since 1975, the increase in premiums there has been 
167 percent while the rest of the Nation faced 505 percent. And 
the reason, the big difference between Pennsylvania, where Dr. 
Simeon's partner left, and Indiana, where he wound up, is that 
they have a cap on non-economic damages. And if you look at the 
nationwide map, the most direct correlating factor between 
premiums, relating to premiums, is whether or not they have 
some limitation whatsoever, be it $250,000, be it $350,000, be 
it $550,000 on non-economic damages.
    Governor Rendell. Except California, again, let me repeat, 
the first 10 years after California imposed its caps, they went 
up 100-and-some percent----
    Mr. Greenwood. Well, as you testified, yourself, Governor, 
that has a lot to do with the tail. You said that when you do 
prospective reform, you get immediate results, but you can't 
get immediate results when you are bringing in the whole tail.
    Governor Rendell. I understand. But it was only after they 
passed another proposition mandating the rates for them, plus 
the coverage dropped in California that you got the real thing. 
And look at this chart, and I know this chart is dated, and for 
us it certainly is dated. We are much higher up in this chart 
and I want to concede that, but look at this chart. Florida, 
Michigan, Texas, West Virginia, 4 out of the 5 States that have 
the biggest premiums of all have caps. How do you explain that? 
And the answer is--do caps help? Of course, caps would help. 
Every legislative body has to weigh whether caps help enough to 
justify the potential harm that they do. Every legislative body 
has to look at everything. All my plea is here today is 
consider the legislation, consider caps, but please don't 
totally ignore the insurance industry, don't totally ignore the 
medical safety issue, don't totally ignore the caps that the 
Federal Government has placed on Medicaid and Medicare. If we 
are going to solve this, let us not look for villains, let us 
not look for bogeymen. Let us try to look for the right result 
for all of our citizens. Nobody out there--and you said it in 
your remarks, and I know you well enough to believe this--you 
don't want to take away the individual's right to sue. You 
don't want to take away the individual's right for fair 
compensation. Nobody wants to create a system where doctors 
don't have to worry about how they practice and whether they do 
shoddy things or not shoddy things. Nobody wants to do that. 
Conversely, nobody wants to put so much pressure on doctors 
that they become risk diverse. Risk is what allowed your father 
to walk again. Risk is what allows our medical community to do 
wonderful things. We have to find an answer that includes 
looking at all these different solutions, and we are looking at 
all these different solutions, but we shouldn't hold out caps 
as--and I am not saying that you do, but there are too many 
people out there, including some of the doctors--and I love our 
doctors. I think they do great work. They are looking for a 
silver bullet, they are looking for the magic cure. If I were 
them, I would probably be looking for the silver bullet and the 
magic cure as well. Those of us who have the responsibility of 
looking at the broad picture should not try to feed into the 
fact that there is a magic cure. There isn't a magic cure. We 
have to work hard to make progress on all these fronts, and if 
we hold out anything as a magic cure, we are missing the point 
and we are disillusioning people. And again, you are absolutely 
right about the statistics you quote, but in Pennsylvania, so 
much of that increase has been from the early 1990's until 
today, in the last 10 years. And so much of it came from a 
time--I mean, you close your eyes and go back 10 years ago in 
Pennsylvania, and there were 17 companies out there competing 
to sign up doctors, and they were low-balling each other, and 
we had no tort reform; not only no caps, but we had none of the 
tort reform that then Senator Gerlach and his colleagues 
enacted. So it is not that easy and that is all I am saying. 
And I don't envy you your task, and I don't envy me my task. 
All we know is--and you may not like the suggestion of what I 
am going to say--is Highmark, which has the biggest excess 
surplus by any rendering, well over $1 billion in excess 
surplus. Most of that surplus that Highmark has is because they 
purchased Pennsylvania Blue Shield. Most of the customers of 
Pennsylvania Blue Shield who contributed to that surplus come 
from those purple counties in the southeast. So Highmark should 
not try to make this a regional battle because the reason they 
have that surplus is they got it on the backs of southeastern 
customers. So again, enough said about that. I know you are 
trying, but all I am saying is look at everything. Let us look 
at everything, let us try to find some long-term relief here, 
and that is all I am saying, and I thank you for your efforts.
    Mr. Greenwood. We thank you, Governor, and when--I will 
leave you with this. As the chairman, I get to have the last 
word.
    Governor Rendell. Sure.
    Mr. Greenwood. When I come to Harrisburg, you get the last 
word. When you said that we need to consider everything, and 
you say that legislatures, as you said, need to consider caps, 
you and I are in 100 percent agreement. We need to consider 
this is a complicated problem and we need to confront it from 
all of its facets. I think the difference is I don't think caps 
are sufficient; I think they are necessary. You might have not 
got yourself to believe they are necessary yet, but I am going 
to make your job easier by putting the caps on at the Federal 
level, and you can do the rest here in Pennsylvania. Thank you, 
sir.
    All right. We are now going to call forward the witnesses 
on our second panel and ask them to come forward and be seated. 
The first of them is Julia W. Johansson, Dr. Johansson from 
Doylestown; Mr. Gregory Wozniak, President and Chief Executive 
Officer of St. Mary Medical Center; Dr. David J. Eskin, Chief 
of Staff, Abington Memorial Hospital; Dr. Edward H. Dench, Jr., 
President of Pennsylvania Medical Society; Dr. Donald J. 
Palmisano, Member of the AMA Board of Trustees, the American 
Medical Association; Ms. Leanne Dyess from Vicksburg, 
Mississippi; and Ms. Heather Lewinski. I am not going to ask if 
there is a doctor in the house because there obviously is, but 
is Dr. Palmisano in the house? He is probably chasing Governor 
Rendell down the hall on the way to his car.
    Okay. We welcome all of the witnesses on this panel. We 
thank you so very much for being here and for helping us to get 
to the bottom of this problem. I think all of you have been 
made aware that this is an investigative hearing, and when this 
committee holds investigative hearings, it is our custom to 
take testimony under oath. Do any of you object to giving your 
testimony under oath this morning? Okay. Seeing no such 
objection, I would then advise you that pursuant to the rules 
of this committee and the House of Representatives, that you 
are entitled to be represented by counsel. Do any of you choose 
to be represented by counsel this morning? All right. Seeing no 
such interest, then I would ask you all to rise and raise your 
right hand, and I will swear you in.
    [Witnesses sworn.]
    Mr. Greenwood. Okay. Answering in the affirmative, you are 
all under oath, and we will now recognize each of you for 5 
minutes for your opening statement. We are going to ask you 
to--most of you have not testified before Congress. You will 
see these little boxes on the table. The green light means take 
your time, the yellow light means speed it up, and the red 
means shut up. And then we will give you plenty of time to 
respond to questions. And I guess we will start with Dr. Julia 
Johansson.

TESTIMONY OF JULIA W. JOHANSSON; GREGORY T. WOZNIAK, PRESIDENT 
AND CHIEF EXECUTIVE OFFICER, ST. MARY MEDICAL CENTER; DAVID J. 
 ESKIN, CHIEF OF STAFF, ABINGTON MEMORIAL HOSPITAL; EDWARD H. 
DENCH, JR., PRESIDENT, PENNSYLVANIA MEDICAL SOCIETY; DONALD J. 
  PALMISANO, MEMBER, AMA BOARD OF TRUSTEES; LEANNE DYESS; AND 
                        HEATHER LEWINSKI

    Ms. Johansson. Ladies and gentlemen, thank you for the 
opportunity to speak to you today. My name is Julia Johansson. 
I am a physician specializing in obstetrics and gynecology at 
Abington Memorial Hospital. I am also a life long resident of 
Pennsylvania. I am here today to discuss my reasons for leaving 
my home, how my leaving will affect my family, my patients, and 
the group in which I practice.
    I feel it is important to tell you something about me so 
that you may understand what a difficult decision leaving has 
been for me. I was born at Holy Redeemer Hospital. The only 
time I was ever outside the State was to attend college in 
Boston to pursue my undergraduate degree. After graduation I 
returned home to the house I grew up in, married the boy who 
lived a mile away, and attended and graduated Temple University 
School of Medicine. While at Temple, I rotated through Abington 
Memorial Hospital and so enjoyed the experience that it was one 
of the only two residency programs to which I applied. 
Thankfully, I was chosen for the residency program there.
    While at Abington, I came to know the members of my group 
very well. As a matter of fact, members of my group delivered 
each of my children. When my partners offered me a position 
with the group, I was ecstatic. It was truly my dream job. My 
family was thrilled that I landed a position so close to home 
since my family still lives in the house I grew up in, as well 
as my in-laws live in Bucks County. I was looking forward to 
spending the next 30 years of my life practicing at Abington. 
All that changed last year. While I knew that southeastern 
Pennsylvania was a fairly litigious are when I first started, 
only a scant 6 years later the situation has gone from bad to 
worse and then intolerable. As a matter of fact, I cannot think 
of an OB-GYN that I know that has not had a lawsuit filed 
against them. Most times these physicians talk in term of the 
number of lawsuits they have outstanding rather than if they 
have pending litigation.
    Some within the legal community will have you believe it is 
only the bad doctors who get sued. I am here to tell you that 
some of the best, most respected doctors I know have lawsuits 
filed against them. I am not saying there are not legitimate 
lawsuits; there are. But it seems to me when so many OB-GYN's 
are being sued, they cannot all be malpractice. There is a 
difference between a bad outcome and malpractice, and in the 
ridiculous situation we find ourselves in, a lawsuit does not 
even require a bad outcome in order to be filed.
    Malpractice lawyers will have you believe that they file 
these suits to weed out bad doctors. At the rate things are 
progressing in Pennsylvania, all doctors will be weeded out. It 
seems to me we are creating a dust bowl within the medical 
community with physicians fleeing the State, decimated by the 
scourges of legal abuse, the ever decreasing reimbursements, 
and the soaring medical malpractice insurance premiums.
    About a year ago, my husband noticed I had become crankier, 
and I am generally an upbeat person. We had long discussions on 
the looming malpractice crisis and how things only seem to 
change for the worse. I am working longer hours, seeing more 
patients, in part, to cover the increase in malpractice, and 
have had my earnings decreased over the past year. And still, 
the workload increases as more doctors leave the area and 
entire groups disband or discontinue the practice of 
obstetrics. I started to notice that I could not take the time 
to get to know my patients on a more personal level as I had 
been doing in the past. This personal approach had helped me to 
tailor their treatments to their lifestyles, beliefs, and 
culture.
    In my practice we have gotten so busy that people sometimes 
have to wait as long as 3 months for their regular exams. Those 
patients with problems can get inserted into an already 
overbooked schedule. Today, for example, I have reduced the 
number of patients I will see in order to speak to you. Of the 
50 patients I was scheduled to see today, about 30 of them 
rescheduled. They will be reinserted into my already full 
schedule over the course of the next week and I will see the 
remaining ones later today.
    So there I was 5 years into my practice and my dream job 
seemed to be slipping away. I was working more, making less, 
practicing defensive medicine, and not having the opportunity 
to spend as much time as I would like to have with my patients, 
my family, or friends. My husband suggested that maybe we need 
to relocate for our own piece of mind. I can only begin to 
understand how devastating it is to be a victim of true 
malpractice, but I don't think people understand how truly 
devastating it is to be named in a lawsuit. I cannot tell you 
how many times I have heard people say, I am not really suing 
the doctor; I am suing the insurance company. I believe that 
people should be fairly compensated for legitimate malpractice, 
but the damages have gotten out of hand, especially, in 
Philadelphia. If a lawsuit gets to trial, it is like the 
plaintiff has won the lottery. Even if the doctor is not at 
fault, juries have awarded large sums of money because they do 
feel sorry for the plaintiff.
    As a result, an increasing number of physicians and 
insurance companies have elected to settle these cases, even if 
there is no fault on the part of the physician. It is these 
attitudes that have cemented my decision to leave. Although my 
leaving the are will not have far reaching effects or cause 
some catastrophe, it has affected all those around me. The 
members of my practice have told me it will be a great loss to 
them when I leave. We are actively trying to recruit a 
replacement but thus far have been unsuccessful. It is nearly 
impossible to find somebody who wants to start practicing in 
Pennsylvania given the hostile environment that awaits them. I 
don't think they will find a suitable replacement before I 
leave. I feel sorry for my patients. They have come to know and 
trust me, and given the intimate nature of OB-GYN, this is not 
insignificant. They will now be forced to find another doctor 
with which to build a trusting relationship. They will face 
longer wait times as well.
    If something is not done to change our current situation, 
in the not too distant future it will not only become 
impossible to recruit new physicians to practice in 
Pennsylvania, it will begin to affect training programs as 
future doctors will not choose to train in a State where they 
will not practice. And in the distant future it looks even 
darker as the dust bowl spreads and our best and brightest 
choose not to pursue careers in medicine at all.
    In short, I am leaving Pennsylvania to practice medicine in 
what I hope will be a less hostile environment. I hope to be 
able to make a comfortable living while practicing effective, 
rather than defensive, medicine in a place where I can get to 
know my patients well and not live with the constant threat of 
a lawsuit. I understand there is no utopia but I want to enjoy 
the practice of medicine again as much as I had before. If you 
do not act to establish medical review boards to decide if 
cases have merit and meaningful tort reform to place caps on 
damages, the dust will spread and cover the entire country. 
Thank you for your consideration.
    [The prepared statement of Julia W. Johansson follows:]

                Prepared Statement of Julia W. Johansson

    Ladies and gentlemen, thank you for the opportunity to speak to you 
today.
    My name is Julia Johansson and I am a physician specializing in OB-
GYN at Abington Memorial Hospital. I am also a life long resident of 
Pennsylvania. I am here today to discuss my reasons for leaving my 
home, how my leaving will affect my family, my patients and the group 
in which I practice.
    I feel it is important to tell you something about me, so that you 
may understand what a difficult decision leaving has been for me. I was 
born at Holy Redeemer Hospital in Meadowbrook, Pennsylvania. The only 
time I have lived outside the state was to attend College in Boston to 
pursue my undergraduate degree. After graduation I returned home to the 
house I grew up in. I married a boy who lived 1 mile away and I 
attended and graduated from Temple University School of Medicine. While 
at Temple I rotated through Abington Memorial Hospital and so enjoyed 
the experience that it was one of only two residency programs to which 
I applied. Thankfully I was chosen for the residency program in OB-GYN. 
While at Abington I came to know the members of the group to which I 
now belong very well. As a matter of fact, members of my group 
delivered each of my children. When my partners offered me a position 
with the group I was ecstatic. It was truly my dream job. My family was 
thrilled that I had landed a position so close to home since my family 
still lives in the house I grew up in and my in-laws still live in 
Bucks County as well. I looked forward to spending the next 30 years of 
my life practicing at Abington.
    That all changed last year. While I knew that Southeastern 
Pennsylvania was a fairly litigious area when I first started 
practicing, only a scant 6 years later the situation has gone from bad 
to worse and then to intolerable. As a matter of fact, I cannot think 
of an OB-GYN that I know who has not had a lawsuit filed against them. 
Most times, these physicians talk in terms of the number of lawsuits 
they have outstanding rather then if they have pending litigation.
    Some within the legal community will have you believe it is only 
the ``bad''' doctors who get sued. I am here to tell you that some of 
the best, most respected Doctors I know have lawsuits filed against 
them. I am not saying that there are not legitimate lawsuits, there 
are, but it seems to me that when so many OB-GYNs are being sued they 
cannot all be malpractice. There is a difference between a bad outcome 
and malpractice and in the ridiculous situation we find ourselves in a 
lawsuit does not even require a bad outcome in order to be filed. 
Malpractice attorneys will have you believe that they file these suits 
to weed out the bad doctors. At the rate things are progressing in 
Pennsylvania all doctors will be weeded out. It seems to me that trial 
attorneys are creating a dust bowl within the medical community with 
physicians fleeing the states decimated by the scourges of legal abuse, 
the ever decreasing reimbursements and soaring medical malpractice 
insurance premiums.
    About a year ago my husband noticed I had become crankier and, 
believe it or not, I tend to be a pretty upbeat person. We have had 
long discussions on the looming malpractice crisis here and how it only 
seems to change for the worse. I am working longer hours, seeing more 
patients in part to cover the increase in malpractice insurance and 
have had my earnings decreased over the past year. And still the 
workload increases as more doctors leave the area and entire groups 
disband or discontinue the practice of Obstetrics. My 2 year old always 
asks, ``Where are you Mommy?'' and invariably my answer is, ``Work''. 
Even my 12 year old, who has a very active life of her own, has become 
annoyed at the amount of time I am spending at work. I started to 
notice that I could not take the time to get to know my patients on a 
more personal level, as I had been able to do in the past. This 
personal approach helps me to tailor their treatments to their 
lifestyles, beliefs and culture. In my practice we have gotten so busy 
that people sometimes have to wait as long as 3 months for their 
regular exams. Those patients with problems can get inserted into an 
already overbooked schedule. Today, for example, I have reduced the 
number of patients I will see in order to speak to you. Of the 50 
patients I was scheduled to see, about 30 have been rescheduled. They 
will be inserted in my already full schedule over the course of the 
next week.
    So there I was, 5 years into my practice and my dream job seemed to 
be slipping away. I was working more, making less, practicing defensive 
medicine and not having the opportunity to spend as much time as I 
would have liked with my patients, my family or my friends. My husband 
suggested that maybe we needed to relocate for our own peace of mind.
    I do not think people understand how truly devastating it is to be 
named in a lawsuit. I cannot tell you how many times I have heard 
people say, ``I'm not really suing the doctor, I'm suing the insurance 
company.'' I agree that people should be fairly compensated for 
legitimate malpractice but the non-economic damages have gotten out of 
hand, especially in Philadelphia. If a lawsuit gets to trial it is like 
the plaintiff has won the lottery. Even if the doctor is not at fault, 
juries award large sums of money because they feel sorry for the 
plaintiff and they hope that if their turn comes the jury will be 
equally generous. It bears repeating, that bad outcomes are not 
necessarily the result of medical malpractice. As a result, an 
increasing number of physicians and insurance companies have elected to 
settle cases even though there may be no fault on the part of the 
physician. It is these attitudes that have cemented my decision to 
leave the area.
    Although my leaving the area will not have a far-reaching affect or 
cause some catastrophe, it has affected all those around me. My 
parents, to whom I have always been close, tell me that they feel as if 
their ``children'', meaning my husband and our children and I are being 
ripped away from them. While my mother cannot bring herself to speak 
with me about our move, she has written to you directly to express her 
feelings and, I am sure, the feelings of thousands of members of other 
families across the Commonwealth as their sons and daughters, fathers 
and mothers, and grand daughters and grand sons say good bye.
    The members of my practice have told me that it will be a great 
loss to them when I leave. We are actively trying to recruit a 
replacement but we have been unsuccessful thus far. It is nearly 
impossible to find someone who wants to start practicing in 
Pennsylvania given the hostile environment that awaits him or her. I do 
not think they will find a suitable replacement before I leave, which 
will place an even larger burden on the remaining members of my group. 
I also feel sorry for my patients. They have come to know and trust me. 
Given the intimate nature of OB-GYN this is not insignificant. Now they 
will be forced to find another doctor with which to build a trusting 
relationship. They will likely face longer wait times to be seen as 
well.
    If something is not done to change our current situation, in the 
not too distant future it will not only become impossible to recruit 
new physicians to practice in Pennsylvania, it will begin to affect 
training programs as future doctors will not choose to train in a state 
where they will not practice. And the distant future looks even darker 
as the dust bowl spreads and our best and brightest choose not to 
pursue careers in medicine at all.
    In short I am leaving Pennsylvania to practice medicine in a less 
hostile environment. I hope to be able to make a comfortable living 
while practicing effective rather than defensive medicine in a place 
where I can get to know my patients well and not live with the constant 
threat of a lawsuit. I understand that there is no utopia but I want to 
enjoy the practice of medicine again as much as I had before. If you do 
not act to establish medical review boards to decide if cases have 
merit, and meaningful tort reform to place caps on non-economic damages 
the dust will spread and cover the entire country.
    Thank you for your consideration.

    Mr. Greenwood. Thank you, Dr. Johansson. I feel badly you 
rush through your practice, and then you come here and I make 
you rush through your testimony, but we are trying to stay 
within the limits.
    Mr. Wozniak, thank you, again, for hosting this.

                 TESTIMONY OF GREGORY T. WOZNIAK

    Mr. Wozniak. You are welcome. Good morning. I am Greg 
Wozniak, I am the President of St. Mary Medical Center. The 
medical liability crisis has threatened people's access to 
healthcare. This is not a new issue, but rather, an old one, 
which like so many, does not seem to get addressed until a 
crisis point is reached. I can assure you that crisis point has 
been reached. In Bucks County and all across this Nation States 
are struggling, physicians are struggling to provide care.
    The debate about medical liability is complex and there are 
no easy answers. Today I am going to focus on the negative 
impact the medical liability crisis is having on people and 
their access to care. First and foremost, access to care is 
directly depending upon doctors. Without doctors, people cannot 
receive care. And without doctors, hospitals cannot provide the 
services to their community. Like so many communities across 
the country, Bucks County residents are growing older. In fact, 
Pennsylvania is the second oldest State by the age of its 
population following only Florida. What does the aging of our 
society have to do with the medical liability crisis? 
Everything. Research shows that people over the age of 45 are 
two to three times more likely to use healthcare services than 
people under age 45. And this need again doubles when they 
reach age 65.
    Over the last 3 years, the number of people our doctors 
have cared for at St. Mary has increased by narrowly 60 
percent. We expect that number of people needing care to 
continue to grow, so much so, we are expanding our 287 
inpatient beds to nearly 400 over the next 3 years. Our No. 1 
concern is not the nursing shortage, but is the shortage of 
physicians, are we going to have them to care for the people in 
our community.
    In the last 18 months, 20 physicians on our medical staff 
have left and more than 50 in Bucks County due directly to the 
cost and availability of medical liability insurance. We cannot 
recruit new physicians to replace those who have left, let 
alone recruit physicians to meet the growing need. Our 
community has only seen an increase in the number for families 
as well, and access to care has been a longstanding issue for 
this population, and I am afraid that once again they are being 
forgotten as the medical liability crisis is negatively 
impacting their access to care. On a month-to-month basis, we 
have evaluated whether St. Mary has enough physicians to 
continue many of our services. This is particularly true for 
our trauma center and our Mother Bachmann Maternity Center.
    The St. Mary Trauma Center is one of only 26 designated 
trauma centers in Pennsylvania and is the only one in Bucks 
County, a county of 600,000 people, providing 24-hour, 7 days 
per week continuous trauma care requires multiple physician 
specialties. Unfortunately, each of these physicians have 
experienced significant challenges in affording medical 
liability insurance. For example, in our county, we only have 
two practicing neurosurgeons, only two. Both surgeons have been 
faced with skyrocketing liability insurance costs which have 
doubled over the last 2 years. One is now paying in excess of 
$280,000 per year when he was just paying 2 years ago $100,000.
    Over the last 2 years, the trauma centers repeatedly have 
been faced with possible closure due to doctors' inability to 
obtain liability insurance. If we close the trauma center, the 
services would not be available for the over 1,400 people a 
year we care for in the trauma center. Just as we were speaking 
today, at ten until eight, a 17 year old involved in an 
automobile accident is in our OR as we talk today. If we did 
not have that trauma surgeon, a neurosurgeon, he would not be 
receiving the care he so justly deservers. Our trauma is not 
the only service affected by the medical liability crisis.
    In 1991, St. Mary conducted a community health needs 
assessment and identified the need for prenatal care and 
maternity care for poor families. Since 1991, our Mother 
Bachmann Maternity Center has provided care to more than 1,600 
mothers. In fact, last year we delivered 197 babies. During the 
past 2 years, we have lost 3 of the 4 obstetricians who provide 
care. The sole remaining obstetrician has had difficulty 
obtaining medical liability insurance and we have been unable 
to recruit additional OB-GYN physicians.
    Who will be impacted most by this potential closure? Poor 
and underserved people, but yet, they are the ones who need 
improved access to care most. To put a face on these people, 
let me share with you a real life person who was cared for at 
the Mother Bachmann Center. A woman in her 30's who has 
experienced the first pregnancy came to the Mother Bachmann 
Maternity Center. She had fled an abusive relationship and was 
living in her car. She was 4 months pregnant and uninsured. She 
asked for help for herself and unborn child. We provided that 
care for her. Who will be available if we don't have that one 
physician remaining?
    Finally, hospitals and physicians across the country are 
committed to continually improving the quality of care and 
patient safety. That is unquestioned. Unfortunately, the rising 
cost of medical liability insurance is draining our resources 
which can be used for these very improvements. Over the last 2 
years, our medical liability insurance at St. Mary had more 
than doubled. This increase in cost could have been better 
utilized to employ 40 more nurses, to purchase a state-of-the-
art radiation cancer treatment unit to care for our cancer 
patients, which is the third leading cause of illness in Bucks 
County. Or to build 20 new inpatient rooms to accommodate the 
growth of care in our community.
    Members of the committee, thank you for your time and 
consideration. This is a very complex issue, one which we need 
to solve this year before it becomes worse. If you have any 
questions, I will be more than happy to answer them for you.
    [The prepared statement of Gregory T. Wozniak follows:]

 Prepared Statement of Gregory T. Wozniak, President and CEO, St. Mary 
                             Medical Center

    Members of the Committee, I am Greg Wozniak, President and CEO of 
St. Mary Medical Center. On behalf of the entire St. Mary Medical 
Center family--470 physicians, 2000 employees, 400 volunteers, 
patients, and community, I would like to welcome you today.
    The debate about medical liability is complex and there are no easy 
answers. The answers entail the delicate balance between:

 ensuring access to healthcare--our ability to provide health 
        care services is directly dependent upon the availability of 
        physicians;
 the health care industry's absolute commitment to continually 
        improving the quality of care and patient safety;
 controlling the rising cost of health care service; at a time 
        when physicians are being forced to practice ``defensive 
        medicine;''
 and a patient having appropriate remedies if they are injured 
        because of negligence.
    I recognize that there are many opinions about the best way to 
solve the medical liability crisis and I am not here today to advocate 
one solution over another. Rather, I want to highlight the impact that 
the medical liability crisis is having on the ability of patients to 
access health care services.
    St. Mary was founded in 1973 by the Sisters of St. Francis of 
Philadelphia. Our mission is to improve the health and wellness of our 
community with a particular emphasis on providing access to care for 
the poor and under-served. St. Mary has grown from a small, community 
hospital to a 287-bed full service medical center offering a wide array 
of patient care programs to a population of more than 400,000 in Lower 
Bucks County, Pennsylvania. These services include a comprehensive 
heart center, a primary stroke center, the county's only accredited 
trauma center, and Mother Bachmann Maternity Center, which provides 
obstetrical services to poor and under-served patients. Together, our 
medical staff, employees, and volunteers care for nearly 18,000 
inpatients, more than 120,000 outpatients, and nearly 38,000 emergency 
room patients each year.
    Like so many other communities across the country, the community we 
serve is growing older. Bucks County has the third oldest population in 
the Commonwealth of Pennsylvania, and Pennsylvania has the second 
oldest population--following only Florida. Within St. Mary's community, 
aging baby boomers, that is, those 45 to 64, and those over age 65 are 
the largest and fastest growing segments of our population. What does 
this mean for health care providers? Research shows that people over 
age 45 are two to three times more likely to use health care services 
than people under age 45, and that this need again doubles when they 
reach age 65. Unfortunately, our community has also seen an increase in 
the number of poor and uninsured families.
    The result of these demographic shifts is an increase in the need 
for health care services. Over the last three years St. Mary has seen 
the number of people we care for increase by nearly 60%. Yet at a time 
when the need for health care services in our community is at its 
greatest and growing, our ability to attract new physicians or retain 
physicians already in the community is declining.
    Over the last several years, many highly qualified physicians have 
left our community. And the cost and availability of medical liability 
insurance is one of the primary reasons physicians leave a practice. 
Our analysis shows that more than 50 Bucks County physicians left their 
practices last year. Some have relocated, some sought early retirement, 
and others changed their clinical practice in order to afford medical 
liability insurance. Orthopedists, OB/GYNs, and surgeons have been 
impacted the most.
    Moreover, St. Mary, as well as other area hospitals and existing 
physician practices have experienced tremendous difficulty recruiting 
new physicians to fill the gaps caused by departing physicians and 
increased patient need. Although this is a significant and growing 
concern for St. Mary across all of our specialties and services, it is 
particularly true for our trauma program and the Mother Bachmann 
Maternity Center.
    The St. Mary Trauma Center is one of only 26 designated trauma 
centers in the Commonwealth of Pennsylvania and the only one in Bucks 
County. Without the St. Mary Trauma Center, we would need to transfer 
patients to trauma centers in neighboring Philadelphia or Montgomery 
County by either ambulance or helicopter. In caring for the trauma 
patient, timeliness of treatment is a critical element. The outcomes 
for the trauma patient improve significantly if the patient is treated 
within the ``golden hour''--the first 60 minute--immediately following 
an injury. Transferring trauma patients decreases the timeliness of 
care and reduces the chances for a complete recovery.
    Providing a high level of quality trauma care requires multiple 
physician specialties--specifically dedicated trauma surgeons, 
anesthesiologists, neurosurgeons and orthopedic surgeons and nurses--
available 24-hours-a-day, seven-days-a-week. St. Mary has only two 
neurosurgeons on staff, the only two neurosurgeons practicing in Lower 
Bucks County. Both physicians have had significant challenges obtaining 
affordable medical liability insurance. If one of these physicians 
decides that he or she can no longer obtain or afford medical liability 
insurance, we will be forced to close the Trauma Center.
    Over the last two years, as every medical liability renewal period 
approached, we faced the very real threat that we will have to close 
our trauma program because we won't have the necessary physicians to 
provide around-the-clock trauma care. During the last medical liability 
insurance renewal period, St. Mary was not sure it could keep its 
trauma unit open on January 1, 2003 because our orthopedic surgeons and 
neurosurgeons could not afford medical liability insurance. We made the 
decision to keep it open at 2 p.m. on December 31, 2002. The only 
reason we were able to keep it open was through the commitment and 
dedication of our physicians to their patients and the promise made by 
Governor Rendell of a short-term initiative to contain the cost of 
medical liability insurance. But this was only a stop gap measure--
still being considered by our Pennsylvania General Assembly.
    Both of our neurosurgeons have seen their insurance premiums more 
than double over the last two years. One is paying in excess of 
$280,000/year to maintain the ability to care for people. The only 
reason he is still practicing today is Governor Rendell's proposed 
short term solution which would provide a one year premium reduction of 
approximately $50,000. If a permanent solution is not enacted this 
year, it is not a matter of if, but when the trauma center will be 
forced to close.
    Each year we provide care to approximately 1,400 trauma patients. 
Several days after our decision to keep the trauma unit open, an 
ambulance delivered a young woman to our emergency room. She had been 
involved in a very serious automobile accident. The trauma team 
immediately evaluated her condition. She was stabilized and taken for a 
CT scan of her head, spine, chest, and abdomen. The Trauma team quickly 
learned that she had a lacerated spleen, three lacerations on her 
colon, and a major abdominal wall tear. Within 30 minutes--well within 
the ``golden hour''--she was in surgery to repair the injuries caused 
by the accident. Thankfully, the surgery was successful and she was 
discharged a week later. The injuries that this young woman suffered 
were life threatening. As with all trauma patients, time was critical. 
The additional 30 to 40 minutes that it would have taken to transport 
this patient to a neighboring trauma center could have resulted in very 
serious consequences. If the St. Mary Trauma Center had closed at the 
end of 2002, the dedicated trauma team that cared for this patient 
would not have been available.
    Our trauma center is not the only service affected by the current 
medical liability crisis. In 1991, St. Mary conducted a health needs 
assessment focused on the needs of the poor in our community. The 
assessment identified the need for pre-natal and maternity care for 
low-income families in Lower Bucks County. In response to this need, 
St. Mary Medical Center established the Mother Bachmann Maternity 
Center in Bensalem, Pennsylvania. Since 1991, more than 1,600 mothers 
received pre-natal care and maternity services from the staff of the 
Mother Bachmann Maternity Center.
    Mother Bachmann is the only program of its kind in Lower Bucks 
County that accepts pregnant women regardless of their ability to pay. 
Certified nurse midwives with appropriate OB/GYN back-up provide high 
quality care services. However, the current medical liability crisis 
has had a significant impact on this program and the program's long-
term survival is threatened. As members of this panel know, OB/GYN 
physicians have been particularly hard hit by the medical liability 
crisis. During the past two years, we have lost 3 of the 4 OB/GYN 
physicians who provided physician coverage to the Mother Bachmann 
Maternity Center. Should the sole remaining obstetrical physician 
providing coverage continue to experience significant problems in 
obtaining affordable medical liability insurance, it will jeopardize 
the ability of the Mother Bachman Maternity Center to continue to 
provide care to under-served women and children in Lower Bucks County. 
Without physicians, the Mother Bachmann Maternity Center will be forced 
to close.
    Last year, the Center delivered 197 babies, and in 2003 we expect 
to deliver 240 babies. However, numbers tell only a small part of the 
Mother Bachmann Maternity Center story.
    Recently, a 35-year-old woman experiencing her first pregnancy came 
to the Mother Bachmann Maternity Center. She had fled an abusive 
relationship and was living in her car. She was four months pregnant 
and uninsured. She asked for help for herself and her unborn child. We 
provided her with pre-natal care, testing, vitamins, and social work 
services. She underwent postpartum depression screening for increased 
risk factors that too often accompany homelessness and domestic 
violence. We were able to offer her counseling at the Maternity Center.
    This is only one of hundreds of success stories. We expect that 
there will be many more success stories--but only if we have the 
physicians, and in today's environment, many physicians are not able to 
provide care, because they don't have access to affordable medical 
liability coverage.
    Although much of the national debate has focused on the cost and 
availability of medical liability insurance for physicians, the crisis 
has also had a significant impact on hospitals. Over the past two 
years, St. Mary's liability insurance costs have more than doubled. In 
the year 2000 we paid $2,133,000. In 2002 our insurance costs increased 
to $4,630,411. This increase is the equivalent to approximately 40 
nurses who could be providing care to our aging population; or a state 
of the art radiation oncology unit to treat cancer patients. These 
increased premiums directly impact our ability to develop new programs 
and expand to meet the growing health care needs of our community.
    Although our insurance costs continue to rise, we are very proud of 
our longstanding, proactive approach to ensuring patient safety and 
continuing improvement of the care and service that we provide.
    St. Mary has established a full-time Patient Safety Officer and a 
Patient Safety Committee that involves hospital staff, physicians, and 
members of the community in patient safety initiatives. These resources 
are dedicated to continuously examining our systems and processes of 
care in order to improve patient safety and the quality of care that we 
provide. We established a dedicated patient safety hotline allowing 
staff members and physicians to report safety concerns and issues to 
the Patient Safety Officer.
    St. Mary has also embarked on a number of initiatives to address 
medication safety. Our new system links numerous databases, helping us 
find known drug allergies and drug-to-drug interactions before they 
happen. We established pharmacy rounds for all intensive care patients 
to ensure appropriate medication protocols are being followed. We 
established a bar code system that ensures that the patient gets the 
correct drug, dose, timing and mode of administration. St. Mary has 
also incorporated patient safety information into our Patient Handbook, 
explaining to patients their role, responsibilities, and rights.
    This is just a small sample of the numerous safety and quality 
initiatives underway at St. Mary. I am very proud of the time, energy, 
and effort that St. Mary physicians and clinical staff expend every day 
to improve the quality of care that we provide to our patients.
    Members of the committee, on behalf of the St. Mary family, and in 
particular our current and future patients, I want to thank you for 
your time and consideration. This is a complex problem, but a problem 
we need to solve this year--before it is too late! Without physicians 
St. Mary Medical Center cannot deliver services to our community.
    Thank you. I will be happy to answer any questions or provide 
additional information that you may need.

    Mr. Greenwood. Thank you, Mr. Wozniak. Dr. Eskin.

                   TESTIMONY OF DAVID J. ESKIN

    Mr. Eskin. Mr. Chairman and committee members, good 
morning, and thank you for the opportunity of presenting this 
crucial material to you. I am Dr. David Eskin. I have practiced 
cardiology at Abington Memorial Hospital in Montgomery County, 
Pennsylvania for the past 29 years, and for the past 17 years 
have served as Chief of Staff, or the chief medical officer for 
that institution. Today I would like to review with you some of 
the painful circumstances leading to the closure of our trauma 
center for 13 days in late December 2002, extending into 
January of this year.
    Abington Memorial Hospital is an independent, not for 
profit, tertiary care, teaching hospital that has served our 
community for 89 years. We are the only accredited trauma 
center in Montgomery County which serves a population of 
greater than 750,000 people, and we are the third largest 
admitting hospital in the Philadelphia area. Only Thomas 
Jefferson University Hospital and the Hospital of the 
University of Pennsylvania admit more patients. Our emergency 
trauma center treated more than 65,000 patients last year. We 
are the largest obstetrical hospital in eastern Pennsylvania, 
having delivered more than 4,500 babies last year, and we are 
the largest employer in Abington Township with more than 4,600 
employees. This makes us the third largest employer in 
Montgomery County behind only Merck and the U.S. Government.
    For the past 4 years, it has become progressively more 
difficult for our hospital and for our physicians to obtain 
affordable malpractice insurance. In fact, Abington Memorial 
Hospital has seen its medical liability insurance premiums 
increase over the past 4 years from $6 million in the year 
2000, to $8 million in the 2001, to $19 million in 2002, and 
now to an astounding $23 million per year. During this same 
period, our physicians in the high risk specialties of 
orthopedic surgery, neurosurgery, general and trauma surgery, 
and obstetrics have seen marked increases in their annual 
premiums as well.
    In Pennsylvania, one cannot legally practice medicine 
without malpractice insurance; it is the law. The physicians 
who provide vital trauma services at Abington have all been in 
private practice. They have each paid their own malpractice 
premiums. In the last several years several large malpractice 
insurers in Pennsylvania have gone bankrupt and a number of 
other companies have ceased writing insurance in our State. In 
a number of cases, outstanding physicians of the caliber that 
you and I would choose to care for our own families, and in 
many cases with no--repeat, no adverse legal awards against 
them--were unable to obtain commercial insurance. If they were 
quoted premiums, they were so high as to be unaffordable. If a 
physician is unable to obtain a commercial quote in 
Pennsylvania, one turns to the Joint Underwriting Association, 
but historically, their quoted premiums are often one-and-a-
half to three times the comparable commercial rate. And in some 
instances, the JUA has quoted rates that were in excess of 
$250,000; that is, per physician per year.
    Despite an offer by our hospital to offset a portion of the 
premium, our orthopedists felt they could not afford the quoted 
rates. Also, by late December, our neurosurgeons had not 
received a commercial quote. It became clear that without these 
necessary trauma specialists, we could not meet the staffing 
requirements required by the Pennsylvania Trauma Systems 
Foundation. We ceased operations as a designated trauma center 
on December 21. The decision was painful. We have tried for 
years to improve the services we provide to our community and 
the closure of our trauma center was a calamitous step 
backwards. The following 13 days were truly the most trying of 
my professional career. We feared, and truly feared, that we 
would not be able to provide critically needed services for a 
victim of trauma.
    Had it not been for the intervention of then Governor-elect 
Rendell, as he explained to you this morning, I suspect our 
trauma center would have remained closed for much longer than 
13 days. The creation of the taskforce in conjunction with his 
pledge to create short and long-term solutions to this 
intractable problem were enough to bring our doctors back to 
work. But to date, we have, if you will, an IOU that will 
require legislative support at the State level and possibly a 
State constitutional amendment which could take as long as 3 to 
4 years to obtain. We endure a crisis that a growing number of 
States across this Nation have, and that is the inability to 
obtain affordable malpractice insurance. Changes are clearly 
necessary and one that demands immediate consideration is the 
placement of a ceiling on non-economic damages.
    What are the consequences of the circumstances that I have 
described? Our community members suffer by the loss of 
potential--of vital healthcare service, care for the victims of 
trauma. During this period that we closed, ambulances were 
diverted to other hospitals from Abington, and patients who 
arrived on their own were in some cases transferred elsewhere. 
We now spend $17 million more a year on malpractice than we did 
just 4 years ago. How many new nurses could be hired with $17 
million or a portion of that money? Our employees openly 
express fear for the security of their jobs as do the staffs of 
our many private practice physicians.
    More than 15 members of our medical staff have chosen to 
retire earlier than planned, have altered their scope of 
practice, or have chosen to practice elsewhere for reasons 
directly related to the cost of their insurance. This includes 
the loss of our previous chief of neurosurgery, who is now 
practicing in North Carolina. Another one of our limited number 
of neurosurgeons has moved to Ohio. Three obstetricians have 
moved to New England, and a fourth who has testified before you 
today will be moving to Utah. Although we often emphasize those 
practicing high risk surgical specialties, please be aware that 
this crisis clearly affects primary care physicians as well. 
Data obtained from the Pennsylvania Medical Society indicate 
that more than 500 physicians have chosen to leave Pennsylvania 
for reasons directly related to this crisis, and that is a 
conservative estimate. In addition, approximately 100 have 
chosen to retire early.
    This does not include those who have altered the scope of 
their practices. For example, to practice gynecology and no 
longer deliver babies, or to limit their practices to non-
operative orthopedics in their office. These circumstances 
create a significant access to care problem for our patients. 
And possibly of even great consequence than the loss of a 
number of physicians is the growing difficulty in recruiting 
young, well-trained physicians to practice in this 
Commonwealth. We have five medical schools in the Philadelphia 
area with many wonderful residency training program. Yet, in 
the high risk surgical areas, most trainees choose to leave our 
State. All of us suffer the consequences when we cannot recruit 
an adequate number of well trained physicians and surgeons.
    Last, it is emotionally devastating to practice in constant 
fear of being used. All of us, as Dr. Johansson said earlier, 
practice defensive medicine; in fact, more so than ever before, 
and this clearly drives up the cost of healthcare. Also, the 
time required to document every risk and potential hazard at 
the time of every office visit--and clearly, I am not referring 
to informed consent prior to major procedural intervention--
clearly, it detracts from time spent with our patients, and 
that is wrong. We hear so often that suits without merit are 
usually dismissed. Please realize that the time and dollars 
spent defending even a frivolous lawsuit are significant, and 
the emotional burden of being named in a suit is very real.
    Patient safety must be foremost. Mistakes are made and 
patients should be compensated for injuries caused by proven 
negligence. However, bad outcomes often do not reflect bad 
care. There must be some meaningful balance to all of this so 
that our patients can continue to receive the excellent medical 
care that they have, in fact, come to expect.
    Members of this committee, in conclusion, throughout our 
country there are warning signs of a system which is 
collapsing. Physicians in Nevada, West Virginia, and Florida 
have for periods of time within the past year stopped practice. 
Just last week, physicians in New Jersey demonstrated in their 
State capitol. To preserve access to care, I respectfully urge 
you to take appropriate action. Meaningful national tort reform 
is necessary, critical, and appropriate form the perspective of 
patients as well as physicians and hospitals. It is not 
appropriate--and I repeat, it is not appropriate--for 
individual States to compete for medical talent based on the 
cost of medical liability insurance. There has to be a level 
playing field and I urge you to correct this problem now. Thank 
you very much.
    [The prepared statement of David J. Eskin follows:]

Prepared Statement of David J. Eskin, Chief of Staff, Abington Memorial 
                                Hospital

    Good morning and thank you for the opportunity of presenting this 
crucial material to you. I am Dr. David Eskin. I have practiced 
cardiology at Abington Memorial Hospital in Montgomery County, 
Pennsylvania for the past 29 years and for the past 17 years have 
served as chief-of-staff (chief medical officer) for that institution. 
Today I would like to review with you some of the painful circumstances 
leading to the closure of our trauma center for 13 days in late 
December and early January.
    Abington Memorial Hospital is an independent, not for profit, 
community teaching, tertiary care hospital that has served our 
community for 89 years. We are the only accredited trauma center in 
Montgomery County and the third largest admitting hospital in the 
Philadelphia area behind only Thomas Jefferson University Hospital and 
the Hospital of the University of Pennsylvania. Our emergency trauma 
center treated more than 65,000 patients last year. We are also the 
largest obstetrical hospital in eastern PA having delivered more than 
4500 babies last year. We are the largest employer in Abington Township 
with more than 4600 employees. This makes us the third largest employer 
in Montgomery County.
    For the past 4 years it has become progressively more difficult for 
our hospital and our physicians to obtain affordable malpractice 
insurance. In fact, Abington Memorial Hospital has seen its medical 
liability insurance premiums increase over the past four years from $6 
million in the year 2000 to $8 million in 2001, to $19 million in 2002 
and now to an astounding $23 million dollars this year. During the same 
period our physicians in the ``high risk'' specialties of orthopedic 
surgery, neurosurgery, general and trauma surgery and obstetrics have 
seen corresponding increases in their annual premiums.
    In Pennsylvania, one cannot legally practice medicine without 
malpractice insurance. The physicians who provide vital trauma services 
at Abington are all in private practice! They each pay their own 
malpractice premiums. In the last several years several large 
malpractice insurers in PA have gone bankrupt and a number of other 
companies have ceased writing insurance in our State. In a number of 
cases, outstanding physicians--of the caliber that you and I would 
choose to care for our own families--and in many cases with NO adverse 
legal awards against them--were unable to obtain commercial insurance. 
If they were quoted premiums, they were so high as to be unaffordable. 
If a physician is unable to obtain a commercial quote in PA, one turns 
to the Joint Underwriting Association but historically their quoted 
premiums are often 1.5-3 times a comparable commercial rate. In some 
instances the JUA quoted rates that were in excess of $250,000--per 
physician per year!
    Despite an offer by our Hospital to offset a portion of the 
premium, our orthopedists felt they could not afford the quoted rates. 
Also, by late December, our neurosurgeons had not received a commercial 
quote. It became clear that without these necessary trauma specialists 
we could not meet the staffing requirements of the Pennsylvania Trauma 
Systems Foundation and therefore notified the State and the Foundation 
of our plans to suspend our trauma designation. We ceased operations as 
a designated trauma center on December 21st. This decision was painful. 
We have tried for years to improve the service we provide to our 
community and the closure of our trauma center was a calamitous step 
backwards. The following thirteen days were the most trying of my 
professional career. We feared that we would not be able to provide 
critically needed services for a trauma victim.
    Had it not been for the intervention of then Governor-elect 
Rendell, I suspect our trauma center would have remained closed for 
much longer than thirteen days. The creation of Gov. Rendell's Task 
Force, in conjunction with his pledge to create short and long term 
solutions to this intractable problem were enough to bring our doctors 
back to work. But to date, we have ``if you will--an I.O.U. that will 
require legislative support and possibly a State constitutional 
amendment. The latter could take as long as 3-4 years to obtain. We 
endure a crisis that is shared by physicians and hospitals in a growing 
number of states across this nation: the inability to obtain affordable 
malpractice insurance. Changes are clearly necessary and one that 
demands immediate attention is the placement of a ceiling on non-
economic damages.
    What are the consequences of the circumstances described above?

 Our community members suffer by the loss and potential future 
        loss of a vital health care service: care for the victims of 
        trauma. During this period ambulances were diverted to other 
        hospitals from Abington and patients who arrived on their own 
        were, in some cases, transferred elsewhere.
 Abington Memorial Hospital now spends $17 million more on 
        malpractice insurance premiums than it did four years ago. How 
        many new nurses could be hired with $17 million dollars?
 Our employees openly express fear for the security of their 
        jobs as do the staffs of our many private practice physicians. 
        It is an emotionally trying time for those providing health 
        care in Pennsylvania and many other states.
 Fifteen members of our medical staff have chosen to retire 
        earlier than planned or have chosen to practice elsewhere for 
        reasons directly related to the cost of their insurance. This 
        includes the loss of our previous chief of neurosurgery who is 
        now practicing in NC. Another neurosurgeon has moved to Ohio. 
        Two obstetricians have moved to New England and a third, who 
        will be testifying before you later today, will be moving to 
        Utah. Although we often emphasize those practicing high-risk 
        surgical specialties, the crisis clearly affects primary care 
        physicians as well. Data obtained from the Pennsylvania Medical 
        Society indicates that more than 500 physicians have chosen to 
        leave Pennsylvania for reasons directly related to this crisis. 
        In addition approximately 100 have chosen to retire early. This 
        does not include those who have altered their scope of practice 
        and chosen to practice gynecology only and no longer deliver 
        babies or those choosing to practice, for example, non-
        operative orthopedics. These circumstances create a significant 
        access to care problem for our patients.
 Possibly of even greater consequence than the loss of a number 
        of physicians, is the growing difficulty in recruiting young, 
        well-trained physicians to practice in PA. We have FIVE medical 
        schools in the Philadelphia area with many residency training 
        programs. Yet in the high-risk surgical areas most trainees 
        choose to leave our state. All of us suffer the consequences 
        when we cannot recruit an adequate number of well-trained 
        physicians and surgeons.
    Lastly, it is emotionally devastating to practice in constant fear 
of being sued. All of us, I believe, practice defensive medicine--in 
fact, more so than ever before. This clearly drives up the cost of 
health care. Also the time required to document every risk and 
potential hazard at the time of every office visit (I am not referring 
to ``informed consent'' prior to major procedural intervention) clearly 
detracts from time spent with patients. This is wrong. Also, we hear so 
often, that suits without merit are usually dismissed. Please realize 
that the time and dollars spent defending even a frivolous lawsuit are 
quite significant. Also, the emotional burden of being named in a suit 
is very real!
    Patient safety must be foremost. Mistakes are made and patients 
should be compensated for injuries caused by proven negligence. 
However, bad outcomes often do not reflect bad care. There must be some 
meaningful balance to all of this so that our patients can continue to 
receive the excellent medical care that they have come to expect.
    Members of the Committee, throughout our country there are warning 
signs of a collapsing system. Physicians in Nevada, and West Virginia 
have, for periods of time within the past year, stopped practice. Just 
last week physicians in New Jersey demonstrated in their State Capitol. 
To preserve access to care, I respectfully urge you to take appropriate 
action. Meaningful NATIONAL tort reform is necessary, critical and 
appropriate from the perspective of patients, physicians and hospitals. 
It is not appropriate for individual states to compete for medical 
talent based on the cost of medical liability insurance. There really 
MUST be a level playing field. I urge you to correct this problem now.
    THANK YOU VERY MUCH! I will be glad to try to answer any questions 
that you may have.

    Mr. Greenwood. Thank you, Dr. Eskin. Dr. Dench.

                TESTIMONY OF EDWARD H. DENCH, JR.

    Mr. Dench. Chairman Greenwood, thank you for conducting 
this important hearing and allowing the Pennsylvania Medical 
Society to describe how lawsuit abuse is negatively affecting 
patient care in Pennsylvania.
    I am Ed Dench, the President of the Pennsylvania Medical 
Society, and a practicing anesthesiologist from State College. 
The Pennsylvania medical Society represents 20,000 physicians 
and medical students, along with the millions of patients our 
physicians care for. In addition, we listen closely to the 
thoughts and concerns of our 1,400 member patient advisory 
board. There are countless anecdotal stories about doctors 
retiring early, giving up high risk procedures, or moving out 
of Pennsylvania as a result of the liability insurance crisis. 
Scranton lost a neurosurgeon who moved to Hagerstown, Maryland 
because liability insurance rates are lower there. Some of his 
patients make the 3-hour drive to continue care with him. Erie 
lost a prominent pain management physician. His patients are 
now likely to drive to Pittsburgh or Cleveland for specific 
treatment that may no longer be offered in his community. In 
Philadelphia a young cardiologist is packing up and moving to 
Delaware. One of his elderly patients said she will follow him 
into treatment. Her daughter told us, ``Naturally, my mom wants 
to follow his practice. It is real difficult to make dramatic 
change when a person has made so much of a difference in her 
life.'' I could go on with real life stories, but for the sake 
of time, I will stop with these three examples.
    For those who prefer statistics instead of anecdotal 
stories, the Pennsylvania Medical Society used State provided 
data from March 2002 to conduct a survey of high risk 
specialists during the summer of 2002. The survey found that 17 
percent of obstetrician-gynecologists, and 18 percent of 
neurosurgeons had changed to non-operative status, to part-time 
surgery, decided to move the majority of their practice out of 
the State, left Pennsylvania, or retired early. A survey of the 
Pennsylvania Orthopedic Society found similar results for 
orthopedic surgeons.
    You should also know that the liability insurance crisis 
has been linked to defensive medicine, which drives up the cost 
of healthcare. Studies from the Pennsylvania Medical Society in 
2001 showed that 89 percent of physicians are practicing 
defensive medicine to avoid frivolous lawsuits. The American 
Association of Health Plans has linked defensive medicine to 
increases in health insurance costs. In addition, a 2001 study 
by the Pennsylvania Medical Society found that 72 percent of 
doctors have had to defer the purchase of updated equipment or 
hiring of much needed staff because of the skyrocketing 
liability insurance costs. Therefore, without a doubt, there is 
direct evidence that the liability insurance crisis is 
negatively impacting patients.
    The Pennsylvania Medical Society believes that it would be 
helpful to look at California as a model to correct the 
problems. California MICRA law has kept rates in California 
lower than States without similar laws. For the sake of 
comparison, the independent Medical Liability Monitor based in 
Chicago reported in an October 2002 rate trend study that an 
obstetrician-gynecologist in Los Angeles, their highest market, 
could be expected to pay $65,389 for $1 million worth of 
coverage through NORCAL. The same doctor in Philadelphia would 
first pay $64,314 for the first $500,000 of coverage through 
PMSLIC, which is also owned by NORCAL, and then another $35,731 
for the next $500,000 worth of coverage through the MCARE fund. 
Thus, to pay for the required $1 million worth of liability 
insurance coverage in Pennsylvania, a doctor would pay about 
$35,000 more in Philadelphia than in Los Angeles. Ultimately, 
the rest of the country needs to learn what the Californians 
learned in the 1970's, that they can get these runaway costs 
under control by limiting attorneys' contingency fees so that 
the injured get more of the award, and by placing reasonable 
limits on non-economic awards after a person has been fully 
compensated for all financial losses. We must do this now to 
preserve our world renowned healthcare system.
    Representative Greenwood, each and every day that passes 
without Congress acting on this serious crisis puts patients at 
risk. They risk losing their doctors, they risk losing trauma 
centers, they risk losing ambulance units. Healthcare is 
hanging by a thread as the patient-doctor relationship is 
threatened by lawsuit abuse. The time is to clean up lawsuit 
abuse and protect all patients, and that time is now.
    [The prepared statement of Edward H. Dench, Jr. follows:]

  Prepared Statement of Edward H. Dench, Jr., President, Pennsylvania 
                            Medical Society

    Chairman Greenwood and members of the United States House Energy 
and Commerce Committee. Thank you for conducting this important hearing 
and allowing the Pennsylvania Medical Society to describe how lawsuit 
abuse is negatively impacting patient care in Pennsylvania.
    I am Edward H. Dench, Jr., President of the Pennsylvania Medical 
Society and a practicing anesthesiologist from State College. The 
Pennsylvania Medical Society represents more than 20,000 physician 
members and the millions of patients our members care for. In addition, 
we pay close attention to the concerns and thoughts of our 1,400-member 
patient advisory board. This board consists of a demographic cross-
section of patients from throughout the commonwealth.
    Let me start by reinforcing what you already know: There is a 
serious liability insurance crisis that is driving a wedge between 
patients and their doctors. This crisis in our commonwealth, which the 
Pennsylvania Medical Society has termed a ``Code Blue Emergency,'' can 
be traced to 1996 when medical liability insurance rates started 
climbing. In 1996, there was a 100 percent emergency surcharge by the 
state's Medical CAT Fund. Then, from 1997 until September 11, 2001, 
rates for major private insurance carriers in Pennsylvania rose between 
80.7 and 147.8 percent. Well before problems with the stock market and 
the terrorist attacks, there were signs of a brewing crisis. Then in 
2002,the increase in filed rates ranged from 40 to 50.3 percent. For 
2003, similar rate increases were filed.
    Any businessperson knows that when expenses increase and revenue 
remains stagnant, drastic changes must be made to survive.
    A 2001 study by the Pennsylvania Medical Society indicated that 72 
percent of doctors had deferred the purchase of new equipment or the 
hiring of new staff due to skyrocketing medical liability insurance 
costs.
    Of course, there are countless anecdotal stories about doctors 
retiring early, giving up high-risk procedures, or moving out of the 
state as a result of the liability insurance crisis. For those 
interested in statistics, the Pennsylvania Medical Society used state-
provided data from March 2002 to conduct a survey of high-risk 
specialists during the summer of 2002. The survey found that 17 percent 
of obstetricians/gynecologists and 18 percent of neurosurgeons had 
changed to non-operative status, changed to part-time surgery, decided 
to move the majority of their practice out of state, left Pennsylvania, 
or retired early. A survey by the Pennsylvania Orthopaedic Society 
found similar results for orthopedic surgeons.
    I should also mention that the liability insurance crisis has been 
linked to defensive medicine, which drives up the cost of health care. 
Studies from the Pennsylvania Medical Society in 2001 showed that 89 
percent of physicians are practicing defensive medicine to avoid 
frivolous lawsuits. The American Association of Health Plans has linked 
defensive medicine to increases in health insurance.
    So, without a doubt, there is direct evidence that the liability 
insurance crisis is negatively impacting patients.
    We all agree that this crisis is very complex. You've heard the 
arguments during the past several years as to what caused the crisis. 
One area that must be addressed is lawsuit abuse reform.
    Just recently, Governor Ed Rendell claimed that the new certificate 
of merit would weed out 25 percent of bad lawsuits. That seems like 
proof of a high level of lawsuit abuse in Pennsylvania. But, when you 
consider that seven out of 10 malpractice claims are dropped, 
dismissed, withdrawn, or found in favor of the defendant, there's proof 
that more work needs to be done. When 70 percent of all claims result 
in no payment to the plaintiff, it's clear that the system urgently 
needs to be fixed.
    The Pennsylvania Medical Society is currently compiling a list of 
meritless claims, and early in our efforts, we have collected hundreds 
of examples, such as the one in which a female patient sued her doctor 
claiming she couldn't get pregnant due to a treatment he recommended 
for her. The suit was later dropped when she got pregnant. Another good 
example is the one in which a female patient branded herself with a hot 
iron after having a cast removed from her arm. She then tried to blame 
her doctor for the burn mark. Luckily, the patient's husband turned her 
in. Interestingly, a lawyer filed each of these frivolous cases. These 
ridiculous cases must be stopped in their tracks before thousands of 
dollars are wasted along with many hours of lost time that could be 
better spent in patient care.
    In addition to the 70 percent of meritless claims, more than 28 
percent of medical liability claims are settled, and we suspect there 
are a significant percentage of claims settled due to ``legal 
blackmail.'' One recent example happened at Holy Spirit Hospital in 
Camp Hill. An inmate at the Camp Hill Prison committed suicide after 
taking himself off psychotropic medicines, which were prescribed 
through the hospital. Holy Spirit Hospital was sued and ended up 
settling for about $20,000 to get rid of the case, simply because it 
would be less expensive to do so. If they had fought the case to a jury 
verdict, they would have not only wasted their time, but also wasted 
more money. According to the Physician Insurers Association of America, 
in 2000 the median cost for a defendant to win a case in front of a 
jury was $66,767. Likely, it's higher today.
    Only one explanation can be given for these types of lawsuits--
personal gain. Personal injury lawyers often take up to 40 percent of 
awards as part of their fees. Sadly, they have no incentive to clean up 
lawsuit abuse.
    Ultimately, the Pennsylvania Medical Society believes that it would 
be helpful to look at California as a model to correct the problems in 
our state. California's MICRA law, that has gained so much national 
attention, has kept rates in California lower than states without 
similar laws.
    For the sake of comparison, the independent Medical Liability 
Monitor based in Chicago reported in their October 2002 rate trends 
study that an obstetrician/gynecologist in Los Angeles could have 
expected to pay $65,389 for $1 million worth of coverage through 
NORCAL. It appears from the report that Los Angeles is the most 
expensive market in California for liability insurance.
    That same doctor in Philadelphia would first pay $64,314 for the 
first $500,000 of coverage through PMSLIC, which is owned by NORCAL, 
then another $35,731 for the next $500,000 worth of coverage through 
the Mcare Fund. In other words, for $1 million worth of liability 
insurance coverage, a doctor would pay about $35,000 less in Los 
Angeles than in Philadelphia.
    Furthermore, if you look at the percentage of change, as reported 
in the 2002 Medical Liability Monitor study, obstetricians/
gynecologists in California saw their rates change between a minus 
three (-3) to plus fourteen (+14) percent. In Pennsylvania for the same 
period, rates for an obstetrician/gynecologist increased about 40 
percent.
    Since there is no restriction on economic loss and lost wages, and 
cost of living in Los Angeles is greater than Philadelphia, this lower 
premium is even more significant.
    Clearly, MICRA is doing its job.
    The two parts of the California MICRA law that are not in place in 
Pennsylvania include limiting attorney contingency fees on a sliding 
scale and placing a reasonable limit on non-economic awards after a 
person has been fully compensated for financial losses.
    That's what Pennsylvania is missing, and that's what we still 
desperately need.
    Ultimately, Pennsylvania and the rest of the country needs to learn 
what Californians learned in the 1970s--limiting attorney contingency 
fees on a sliding scale and placing reasonable limits on non-economic 
awards after a person has been fully compensated for financial losses 
are necessary to keep trauma centers open, hospital units functioning, 
ambulance crews operating, and simply to preserve our world-renowned 
health care system.
    MICRA does not limit economic recovery. It does not deprive injured 
individuals of full economic compensation. Instead, it provides fair 
compensation in a timely manner with lower legal expenses. In a 
nutshell, MICRA proved that providing fair and equitable compensation 
for those negligently injured can stabilize the insurance marketplace 
and maintain access to quality health care.
    We believe that the most significant changes that can be enacted 
from the federal level are limiting attorney contingency fees on a 
sliding scale and placing reasonable limits on non-economic awards 
after a person has been fully compensated for financial losses.
    Thank you.

    Mr. Greenwood. Thank you, Dr. Dench. Dr. Palmisano.

                TESTIMONY OF DONALD J. PALMISANO

    Mr. Palmisano. Good morning. Thank you, Mr. Chairman, for 
inviting the American Medical Association to participate in 
today's field hearing. I am President-elect of the American 
Medical Association and a surgeon in New Orleans. The remarks 
presented today and the written statement submitted is on 
behalf of the AMA, a professional organization whose policy is 
determined by vote of the House of Delegates comprised of all 
50 State medical associations and over 100 specialty societies.
    There is something terribly wrong when thousands of 
physicians across the country are forced to take time away from 
their patients to petition a government that has failed them 
and their patients. There is something terribly wrong when 
patients have to bypass the nearest hospital because the 
specialist who used to care for them have stopped practicing, 
eliminated certain procedures, or moved out of State because of 
the liability mess. There is something terribly wrong when 
dedicated professionals who have trained for years want to give 
up the work of a lifetime and retire. There is something 
terribly wrong when medical students make decisions about 
residency training based upon a State's legal climate.
    Pennsylvania is a State in crisis. Last month, President 
Bush came to Pennsylvania to speak about the medical liability 
crisis and to proclaim the need for elected officials to pass 
effective liability reforms. Pennsylvania is not alone. At 
least 11 other States face the same crisis as Pennsylvania. In 
many others a crisis is looming. Reports confirm that the cause 
of the liability crisis is the unrestrained escalation of jury 
awards. A nonpartisan taskforce in Florida found 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.'' This limit on non-economic damages has 
worked in California and it can work nationwide. The National 
Association of Insurance Commissioners, NAIC, studied 24 years 
of premiums in California. They found that premiums across the 
Nation increased three times faster than premiums in 
California. Opponents claim 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. These claims are misleading, 
based on Florida analysis, and contrary to the facts.
    In its 2002 edition, A.M. Best reports that medical 
liability insurers have approximately 80 percent of their 
investments in the bond market and investment yields have been 
stable and positive since 1997. Other credible stories, 
including Brown Brothers Harriman's recent study, conclude 
that, ``Investments did not precipitate the current crisis.'' 
Opponents' flawed arguments are a disservice to patients who 
are losing access to healthcare and an affront to physicians 
and other healthcare professionals. These professionals 
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 great for the public and Congress to use anything 
but the facts to make decisions about reform.
    In conclusion, enacting meaningful medical liability 
reforms is essential to resolve the current crisis and preserve 
access to medical services. We must bring common sense back to 
our courtrooms so patients have access to their physicians 
whether in emergency rooms, delivery rooms, or operating rooms. 
Thank you very much.
    [The prepared statement of Donald J. Palmisano follows:]

  Prepared Statement of Donald J. Palmisano, Member, American Medical 
                              Association

    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 thanks to Representative Jim Greenwood (R-PA) for 
his continued leadership on this issue. Introduction of H.R. 4600 in 
the 107th Congress and H.R. 5 in the current session have provided a 
much needed focus for action at the national level.
    Mr. Chair, you know there is something terribly wrong when 
thousands of physicians in the state to our east (New Jersey) feel 
compelled to leave their patients, to leave the work they love doing, 
and stand in the rain in Trenton just to get noticed. There is 
something terribly wrong when patients have to by-pass the nearest 
hospital because the specialists who used to care for them have stopped 
practicing, eliminated certain procedures, or moved out of state 
because of the liability mess. There is something terribly wrong when 
dedicated professionals, who have trained for years, want to give up 
the work of a lifetime and retire. There is something terribly wrong 
when medical students make decisions about residency training based 
upon the legal climate in various states.
    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.

                                OVERVIEW

    In his State of the Union Address two weeks ago, 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.
    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.
    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. And, a crisis is looming in more 
than 30 other states. 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.
    We must bring common sense back to our court rooms 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.
    According to 2001 Jury Verdict Research data, 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.
    In a July 2002 report prepared 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. HHS reports that insurance premiums are largely determined 
by the litigation system. The report states that the litigation system 
is inherently costly, unpredictable, and slow to resolve claims. The 
cost just to defend a claim averages over $24,000. 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 diverted from 
patient care to fruitless legal wrangling.
    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. HHS 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.
    The update further highlighted that liability insurance rates are 
escalating faster in states that have not established reasonable limits 
on unquantifiable and arbitrary non-economic damages. HHS reported 
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.
    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 Florida, which 
does not limit non-economic damage awards, OB/GYNs paid up to $211,000.
    In Florida, as indicated in the example just given, 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.''
    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.
    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.
    Public Citizen and other trial lawyer supported groups claim 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. Beyond the reports 
discussed above, several authoritative and credible studies reveal 
Public Citizen's claims to be misleading, based on flawed analysis, and 
contrary to the facts.
    The report on which Public Citizen bases most of its speculations, 
produced under the direction of J. Robert Hunter for the advocacy group 
Americans for Insurance Reform (AIR), is flawed in a number of ways. 
The AIR/Hunter study purports to prove 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.
    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 by trial lawyers 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.'' A 
summary of medical liability insurer annual statement data in AM Best's 
Aggregates & Averages, Property-Casualty, 2002 edition shows that the 
investment yields of medical malpractice insurers have been stable and 
positive since 1997. AM Best reports that medical liability insurers 
have approximately 80% of their investments in the bond market. 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.
    Public Citizen's misdirected claims 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, 
Public Citizen's claims are counterproductive to the debate on 
resolving the medical liability crisis.

                       ACCESS TO CARE IS AT RISK

    The most troubling aspect of the current medical liability 
litigation system is its impact on patients. Unbridled lawsuits have 
turned some regions in our country--and in several cases entire 
states--into risky areas to be sick, because it is so risky to practice 
medicine. Due to large jury awards and the burgeoning costs of 
defending against lawsuits (including frivolous claims), medical 
liability insurance premiums are skyrocketing. As insurance becomes 
unaffordable or unavailable, physicians are being forced to leave their 
practices, stop performing high-risk procedures, or drop vital 
services--all of which seriously impede patient access to care.
    Four states--Pennsylvania, Florida, West Virginia, and New Jersey--
illustrate the crisis many states are experiencing and the problems 
many other states will face if effective tort reforms are not enacted.

PENNSYLVANIA
    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 only one of an estimated 18 percent of 
Pennsylvania neurosurgeons to have left the state, retired, or limited 
their 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).

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).

WEST VIRGINIA
    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).

NEW JERSEY
    A multi-physician practice in Teaneck, NJ was forced to layoff 
employees and reduce the number of deliveries it performed because of 
professional 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).

OTHER STATES
    Liability costs for Texas physicians skyrocketed as much as 300 
percent in some regions and for some specialties. 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.''
    In Nevada more than 30 private-practice OB/GYNs have left the state 
in 2002 and another 20 are poised to leave in 2003. About half of the 
OB/GYNs in the state are actively interviewing for positions out of 
state. ``Right now it's almost impossible to recruit an obstetrician in 
Las Vegas,'' said University Medical Center obstetrician, Warren 
Volker, MD. (Las Vegas Sun, Sept. 27, 2002). Long-time obstetrician, 
Frieda Fleischer, MD, gave up obstetrics because her premiums rose from 
$30,000 annually to $80,000. ``So far, I've had about 40 pregnant 
patients to refer elsewhere and it's been tough.'' Fleischer's office 
manager, Dawna Gunning adds, ``What do you do when you have patients 
coming to your door crying and saying they cannot find a doctor and 
you've called every colleague?'' (Las Vegas Review Journal, Jan. 10, 
2003). The story of a woman who had to wait six months to have 
suspicious lumps removed from her uterus and ovaries because she 
couldn't get an appointment for the surgery illustrates that pregnant 
women are not the only patients affected by the exodus of Las Vegas 
obstetricians in recent months. (See, Las Vegas Review Journal, Nov. 5, 
2002).
    Obstetricians in Mississippi 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. Of the seven doctors in 
Kosciusko that were practicing obstetrician/gynecologists last year, 
three will still be delivering babies by January. Right now, pregnant 
women who are considered high-risk, such as someone with diabetes, 
can't be treated at the Kosciusko Medical Clinic because it is too 
risky for physicians. (The Clarion-Ledger, Aug. 26, 2002.). Neurologist 
Terry Smith, MD said he has applied with 14 companies, and Medical 
Assurance is his last hope to find coverage before his current policy 
expires on Aug. 4. His premium will go 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).
    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).
    A 10-physician OB/GYN group in Columbia, South Carolina 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 doctors 
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.

                         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. A 2002 
study by Tillinghast-Towers Perrin shows 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. This study also reveals that the cost of our tort system is 
significantly higher than other countries and almost twice the average.
    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 H.R. 5, the ``Help Efficient, Accessible, Low-Cost, 
Timely Healthcare (HEALTH) Act of 2003,'' a bipartisan bill that would 
bring balance to our medical liability litigation system. We applaud 
Representative Greenwood (R-PA) and the other 65 Republican and 
Democrat original cosponsors of the HEALTH Act for championing this 
bill in the 108th Congress.
    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 two times 
        economic damages or $250,000, 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 of MICRA, 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 (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, three-quarters of Americans understand the detrimental 
effect that excess litigation has on our health care system. A 2002 
survey conducted by Wirthlin Worldwide shows that the vast majority of 
Americans agree we need common sense medical liability reform. Among 
the findings:Q02
 71 percent of Americans agree that a main reason health care 
        costs are rising is because of medical liability lawsuits.
 78 percent say they are concerned about access to care being 
        affected because doctors are leaving their practices due to 
        rising liability costs.
 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.
    These findings are consistent with the results of 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.

                               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 the HEALTH 
Act.

    Mr. Greenwood. Thank you, Dr. Palmisano. Our next witness 
is Leanne Dyess. Am I pronouncing that right?
    Ms. Dyess. Leanne.
    Mr. Greenwood. Say it again?
    Ms. Dyess. Leanne.
    Mr. Greenwood. Leanne Dyess from Vicksburg, Mississippi. We 
welcome you and you are recognized for your testimony.

                    TESTIMONY OF LEANNE DYESS

    Ms. Dyess. Thank you. Congressman Greenwood, distinguished 
ladies and gentlemen, it is an honor for me to be here this 
morning to share with you the devastating consequences of the 
crisis surrounding medical liability costs. Others today have 
talked in terms of economics and policy. 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 rising 
liability costs that many doctors in many parts of the country 
cannot afford.
    I am a teacher. For 20 years I have taught the brightest 
young minds in Mississippi. I know the value of a good story to 
make an important lesson memorable, but never did I think that 
my life and the life of my children would become that story for 
this important issue. The story began on July 5 of last year 
when my husband, Tony, was returning from work in Gulf Port, 
Mississippi. We had just started a new business and Tony was 
working hard. We were doing our best to build a life for our 
children. Everything looked great, and then, suddenly, 
everything changed. Tony was involved in a car accident. They 
suspect he fell 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. He had head injuries 
and required immediate attention. Shortly thereafter, I 
received a phone call that I pray no other wife should 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 told me the 
specialist that Tony needed was not there to take care of him, 
we will have to airlift him to another hospital.
    I couldn't understand this, Mr. Chairman. Gulf Port is one 
of the fastest growing most prosperous regions in Mississippi. 
Garden Park is a good hospital. Where, I wondered, was the 
specialist who could have taken care of my husband?
    Almost 6 hours passed before Tony was airlifted to the 
University Medical Center, 6 hours for the damage to his brain 
to continue before they had a specialist capable of putting a 
shunt into his brain to drain the fluids, 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 
our 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 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. I could tell you 
about a woman who had to worry about the constant care of her 
husband, who had to make concessions she never thought she 
would have to make to be able to pay for his therapy and his 
care. But to describe this would be to take us away from the 
important point and the value of what I have learned, and that 
is that there was no specialist on staff that night in Gulf 
Port because rising medical liability costs had forced 
physicians in that community to abandon their practice. 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, stretching him thin and unable to care for everyone. 
Another doctor had recently quit his practice because of 
medical practice liability costs. And on that hot night in 
July, my husband drew the short straw.
    I have also learned that Mississippi is not unique to this 
crisis. It rages all across America. It rages in Nevada, where 
young expectant mothers cannot find OB-GYN's. it rages in 
Florida, where children in the extremities cannot find 
pediatric neurologists. It rages here 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 medical liability costs are less and practicing 
medicine is affordable and less risky.
    The crisis, Mr. Chairman, is like termites in the structure 
of a home. They get into the woodwork but you can't see the 
damage they are doing. The walls of the house remain beautiful. 
You don't know what is going on just beneath the surface, at 
least not for a season. Then 1 day you go to hang a picture 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 healthcare delivery system, 
serious damage was being done by excessive, 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 
just shook my head and said someone hit the lottery. I didn't 
know the damage it was doing to the system. Just think about 
it--it is not until your spouse needs a specialist, it is not 
until you are the expectant mother who needs an OB-GYN, or your 
child who needs a pediatric neurosurgeon, that you realize that 
the termites work beneath the surface.
    From my perspective, sitting here today, this problem far 
exceeds any other challenge facing America's healthcare, even 
the challenge of the uninsured. The uninsured can go to the 
emergency room and find care; hospitals won't turn them away. 
But if doctors aren't able to practice, if they are unable to 
provide the expertise they are trained years to provide, then 
there is nothing anyone can do. My family had insurance when 
Tony was injured; we had good insurance. What we didn't have 
was a doctor.
    Mr. Greenwood, I know of your efforts to see American 
through this crisis. I know of your legislation and of its 
importance to the President. I know of the priority you, and 
Congress, and many in the Senate are placing upon doing 
something and doing something 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 have gone through 
and what I continue to go through every day with my two 
children and a husband I dearly love. Thank you.
    [The prepared statement of Leanne Dyess follows:]

                   Prepared Statement of Leanne Dyess

    Congressman Greenwood, Governor Rendell, distinguished guests, 
ladies and gentlemen, it's an honor for me to be here this afternoon--
to share with you the devastating consequences of the crisis 
surrounding medical liability costs. Others today will talk in terms of 
economics and policy. 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 rising liability costs that many doctors in the many parts of the 
country cannot afford.
    I am a teacher. For twenty years, I have taught some of the 
brightest young minds in Mississippi. I know the value of a story to 
make an important lesson memorable; but never did I think that my 
life--and the life of my children--would become the cautionary tale on 
this important issue.
    Our story began on July 5th of last year, when my husband Tony was 
returning from work in Gulf Port, Mississippi. We had just started a 
new business. Tony was working hard. We were doing our best to build a 
life for our children. 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. 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, Mr. Chairman. Gulf Port 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 shunt into his brain 
to drain the swelling--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.
    Congressman Greenwood, I learned that there was no specialist on 
staff that night in Gulf Port 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. And on that hot night in July, 
my husband 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 in the extremities cannot find pediatric neurosurgeons. And it 
rages here 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 medical liability costs are less and 
practicing medicine is affordable and less risky.
    The crisis, Mr. Chairman, is 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 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.''
    I did not know the damage it was doing to the system. You see, 
Congressman Greenwood, 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 there are termites 
at work 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. The uninsured can go to the emergency room and find 
care. Hospitals will not turn them away. But if doctors are unable to 
practice--if they're unable to provide the expertise they've trained 
years to provide--then there's nothing anyone can do. My family had 
insurance when Tony was injured. We had good insurance. What we didn't 
have was a doctor.
    Mr. Greenwood, I know of your efforts to see America through this 
crisis. I know of your legislation, and that it's important to the 
President. I know of the priority you and Congress and many in the 
Senate are 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. Greenwood. Thank you, Ms. Dyess. I am going to go just 
out of order to make a comment. About 20 years ago, right up 
the road from where this hospital is located, a woman, a 
constituent of mine--I was in the State legislature--was in a 
very bad accident, and we didn't have a trauma center in Bucks 
County and she was flown to the nearest one. She didn't make it 
because she didn't get there in that golden hour, and as a 
result of that, I went back to Harrisburg and wrote legislation 
to create the trauma centers, and it has been a remarkable 
success, but it is unbelievably frustrating to me now to see 
trauma centers close down because of the lack of physicians.
    Our next witness has been waiting patiently, and she is 
Heather Lewinski. And Heather, I don't have your address. Where 
are you from?
    Ms. Lewinski. Buffalo, New York.
    Mr. Greenwood. Okay. Well, we thank you very much for being 
with us and you are recognized for your testimony.

                  TESTIMONY OF HEATHER LEWINSKI

    Ms. Lewinski. My name is Heather Lewinski. I am a 17 year 
old high school senior. I recently saw President Bush on 
television saying that Congress should pass a law saying that 
doctors or hospitals who injure people through their medical 
mistakes should never have to pay the patients more than 
$250,000 for their pain and suffering. I do not believe that 
doctors should be blamed for everything bad that happens to a 
patient, but if they make a mistake, the patient's pain and 
suffering can be way more than $250,000. Unfortunately, I know 
this from personal experience.
    When I was 8 years old, a doctor performed a surgery on my 
face that never should have been done.
    Mr. Greenwood. Take your time, sweetheart.
    Ms. Lewinski. He told my parents that he had tried this 
surgery successfully on many other patients with my condition, 
but my parents and I later found out that that was not true. 
This doctor had never done the surgery before, and in fact, we 
were told that no doctor in the whole United States had ever 
recommended this surgery for a condition like mine. I feel like 
the doctor was using me as a guinea pig.
    The doctor told my parents that he would be able to take 
care of my problem with two easy surgeries a few months apart. 
He also told my parents I would have no visible scars. I wish 
that doctor had just told the truth. I ended up with horrible 
scars all over my face and have gone through 14 major surgeries 
on my face to try to correct what he did. I have had so much 
pain over the past 10 years, I can't even begin to tell you all 
about it.
    I never had any surgery before this doctor operated on me, 
so I never knew what to expect. After I went through the first 
surgery, I had so much pain like I had never felt before. Since 
then it has never gotten better with any of my surgeries, and 
in addition, has instilled a horrible fear. Every time one of 
my surgeries is approaching, I will get very frightened and 
always think about the surgery and the pain I will be in. I 
would get so bad that I would actually have to sleep with my 
mother for many nights before the surgery. That went on with 
all my operations, and it did not matter whether I was 9, 13, 
or 14 years old. It just makes me feel stupid. Here I am a 
teenager but I end up sleeping with my mom because I am so 
afraid of the surgery, the hospital, and everything that goes 
with that.
    After every surgery I had, I would be forced to stay in the 
hospital for a while. Then when I go home, where I would be in 
bed or on the sofa for weeks and weeks and my mouth would be 
wired shut. My face would be swollen, my entire head would be 
wrapped in bandages. Sometimes the pain was so bad it would 
feel like my whole face was going to explode. It was like 
someone had a hammer and kept hitting me and hitting me.
    I remember one day we were driving to the hospital for one 
of my surgeries and it was around Christmastime. There was a 
song on the radio called, It's a Marshmallow World, and I 
started crying and saying to myself, it really isn't a 
marshmallow world.
    I will never forget the first time I looked at my face 
after surgery. The doctor told us that I wouldn't have any 
noticeable scars. I took the bandages off my face and looked in 
the mirror and I just cried. I could not believe what he had 
done to my face. He tried to do another surgery to fix it, but 
that only made things worse. I not only had these thick red 
scars all over my face, but now the corner of my mouth was all 
pulled down. I looked like I had a stroke.
    After all of my surgeries, my face and whole body would 
hurt so bad. I wanted to hide away because I didn't want anyone 
to see me. My appearance was so gruesome that no one should 
have to see me like that.
    From third grade through eighth grade, I missed so much 
school from all of the surgeries that I had trouble keeping up. 
In third grade, I missed from March until the end of the year. 
In fourth grade, I missed from Thanksgiving break to the rest 
of the school year. In fifth, sixth, seventh, and eighth 
grades, I missed anywhere from 3 months to 5 months of school 
each year. I had to have tutors and be home schooled all this 
time. I remember that even though I had always been a good 
student, they had to label me as special ed because I missed so 
much time from school. I hated that label.
    I still cannot believe I have gone through 14 surgeries. 
You never get used to the pain and the fear never goes away. 
But by far, the worst part about everything that has happened 
to me is the way my face looks and how people treat me. I wish 
people could see the inside of me and know the kind of person I 
really am, but all they see are those scars on my face, and 
they stare. From third grade until now, every time I walk in 
the halls, or into the class, or in the cafeteria, people are 
staring, and I hate it. The kids in school have constantly 
teased me and called me names like Two Face, the character from 
the Batman movie. I hated to eat in the cafeteria because I 
couldn't close my mouth and I would drool. Because the way the 
corner of my mouth looked, the kids would walk around school 
and pull down their lip and mock me like they had a stroke.
    I hate to go out in public because adults stare, and some 
of them even come up to me and ask questions. I remember once 
being in an ice cream parlor with my family, and there was a 
lady with her son, and she just kept pointing to my face and 
then talking to her son. This sort of thing happens to me all 
the time.
    I really like people but I have only one close friend, my 
girlfriend, Angela, who I grew up with. It is so hard for me to 
meet new people and make friends because they just stare. Even 
a few other kids who are supposedly my friends at school will 
not walk with me in the halls, and it seems like they are 
always 2 or 3 steps behind me. I quit riding the bus from 
school a long time ago because it was torture. My mom has to 
take me to school and pick me up. Sometimes I wish so hard that 
there was some magic and I could just make myself invisible to 
other people but still be able to enjoy them.
    I am now a high school senior and I have never had a boy 
ask me on a date. I will be 18 in a few months and I have never 
been kissed by a boy. I remember one time sitting in the 
cafeteria a few years ago and a boy came up to me and asked me 
if I was doing anything on Friday. I was so excited that I 
almost fell over, but then he went back to the table with his 
other friends and they all started laughing and pointing at me, 
and then I realized that it was just a joke, and I heard him 
saying that why would I go out with a big ugly loser like you.
    The only school dance I have ever attended was in ninth 
grade. It was the Valentine's Day dance and I wanted to go so 
bad but no one asked me. I finally asked out a boy that lives 
next to me if he would go with me, and he was so nice that he 
couldn't say no. I was so excited and my parents really bought 
me the works, a new dress, new shoes, makeup, hair. My dad told 
me that I looked like a princess, and then I just remember 
looking in the mirror and seeing my face and hoping that the 
boy would not be looking at my scars.
    I have never really been involved in school activities 
because I just do not have that many friends. The one activity 
that I have that I really love is training and showing dogs. I 
have been doing that for a few years. Other people hire me to 
train and show their dog and I also train and show my own dogs. 
I usually compete in dog shows on the weekends in New York and 
some other States. I have been really lucky and have been able 
to win several awards competing against adults at these shows. 
I think one of the reasons that I like dog training so much is 
that animals can't stare or laugh.
    I will be graduating from high school in a few months and I 
have already been accepted to college. Because of my fears of 
meeting new people, I chose a college that is close to my house 
so that I do not have to stay in a dorm with other kids. My 
biggest wish is that some day I will find a boy who will look 
and see me for what is on the inside of my heart and in my mind 
and not my appearance. I would love to get married and have a 
family some day, but if I am honest with myself, I do not know 
if that will ever happen so I have made other plans. I will 
finish college and become a kindergarten teacher. I have always 
loved baby-sitting kids and being around them. Little children 
do not stare so much and they just accept you for what is 
inside. I will teach school and live in the country with lots 
of dogs and I will be self-sufficient.
    I know that the President is trying to make good decisions, 
but if he could see everything that I have gone through the 
last 10 years and everything that I am going to go through for 
the rest of my life, I think he would realize that he is wrong 
about this law and that every patient is entitled to be judged 
as an individual based on what they have gone through. I think 
that most doctors try to do the best they can for people, but 
sometimes they do things that should not be done, and when that 
happens, I think they should be responsible for all of the harm 
they cause and not just part of it.
    I know that nothing can be done to change what happened to 
me, but I hope that if we keep the laws strong, maybe a doctor 
will be more careful in the future and no other little girl 
will have to go through what I have. Thank you.
    Mr. Greenwood. Thank you, Heather. I have a daughter just 
your age, and let me tell you, it is a courageous thing for you 
to come here and help us understand this issue. I want you to 
know that kids are awful, but the adults in this room can see 
exactly who you are and what is in your heart and it looks 
pretty good.
    Ms. Lewinski. Thank you.
    Mr. Greenwood. Can you tell me, Heather, what was the cause 
of your need for surgery? Was it a congenital birth defect or 
was it an injury or disease?
    Ms. Lewinski. It was caused by trauma. When I was 3 years 
old I fell down the stairs.
    Mr. Greenwood. You fell down the stairs when you were 3 
years old. Was the doctor ever subjected, do you know, to 
criminal charges for his----
    Ms. Lewinski. No.
    Mr. Greenwood. Okay. And there was a lawsuit. Is that 
settled now?
    Ms. Lewinski. Yes.
    Mr. Greenwood. Do you know what the settlement was or are 
you able to share that?
    Ms. Lewinski. No, I don't know.
    Mr. Greenwood. You don't know what the settlement was. 
Okay. All right. Well, thank you again for being here with us.
    Let me address a question to Dr. Dench. Some parties might 
dispute that there is a loss of doctors in the Commonwealth of 
Pennsylvania. In fact, that has been the subject of some 
speculation. The parties point to particularities of 
Pennsylvania's licensure, MCARE fund, participation, and the 
like to make their case. Why is there any confusion at this 
point and how can we know the truth about the impact situation 
here in Pennsylvania on doctors leaving the State as Dr. 
Johansson has said she is about to?
    Mr. Dench. We have done some studies in looking at even 
anecdotal studies where we look at when physicians have left. 
The auxiliary or alliance has accumulated the names of doctors 
that are leaving, and we have come up with as many as 900 that 
are leaving, but by no means is that complete. What we really 
know, of course, is that throughout the State the patients are 
telling us that they can't find their doctor, their lines are 
getting longer, they are having a very difficult time finding 
physicians. In fact, many of the physicians who have sought to 
get care, to get a new partner, cannot find anyone to come to 
Pennsylvania. If you talk to the headhunters, or the people who 
go out seeking to find physicians, they don't even bring them 
here. They don't even show us those people, and the reason they 
don't is because the reimbursement is lower, the malpractice 
crisis has led to the reputation in this State as a problem, 
and as a result, physicians don't want to practice here.
    One of the reasons--what you were asking, one of the 
reasons why it is so difficult is because it takes 2 years 
before the licenses come back up and physicians tend not to 
drop the license. Hopefully, a lot of those physicians that 
have left the State will be able to come back when you fix it 
at the national level. They love this State, they love the 
patients here, and they would like to be here, but they have 
left, but they don't give up the license because it takes so 
long to acquire a license in this State.
    Mr. Greenwood. Dr. Dench--actually, I want to pose this 
question to Dr. Dench and also to Dr. Eskin. You heard the 
Governor say that he has a short-term proposal, and that the 
short-term proposal is, essentially, to throw money at the 
problem, to put a one-time tax, if you will, on the premium 
surpluses of health insurers and use that to subsidize the 
medical liability premiums. I think that is a good answer in 
the short run, and I have said for a long time that in the 
short run, there is nothing that we can do except throw money 
at it until we change the liability situation. But I am worried 
because when I attended the Governor's inaugural, I ran into 
one of the lobbyists for one of the big Blue's, and I asked 
him, how much do you expect the Governor's proposal is going to 
cost you when it is finished, and he said zero. And I said, why 
is that? And he said, because it isn't going to pass because we 
have the votes to block it. So my question--and the reason I am 
addressing this to Dr. Dench, as head of the Pennsylvania 
Medical Society, but also, to Dr. Eskin, who has testified 
that, essentially, it has an IOU. You have got that trauma 
center in Abington held open by baling wire until, and in 
hopes, that the legislature will pass the Governor's proposal 
and put some money to subsidize the premiums and get us to 
long-run solutions. So the question is for both of you, how 
confident are you, based on what you know, that this is going 
to happen, that it is going to get through the legislature even 
in the short run?
    Mr. Dench. I am very concerned about it. In fact, I wanted 
to send a letter to all the physicians warning of the 
possibility so that they can notify their representatives of 
the problem. If we don't get short-term relief, there are a lot 
of physicians who have been banking--I mean, literally, banking 
on this relief. Because even with the relief, either the high 
risk specialist or even the rest of the physicians, their 
premium is going up this year. Even with 100 percent relief, 
they are still seeing an increase. And many of them have no way 
of paying for it. So they are going to come around in May and 
owe that bill for the year and have no way to pay it. And they 
are going to be in a position where they don't know what to do, 
and you see the desperation in their voices.
    Mr. Greenwood. And what are your lobbyists in Harrisburg 
telling you about how confident they are that the Pennsylvania 
House and Senate is going to pass these short-term financial 
reforms, or subsidies, I should say, given the fact that I am 
already hearing that State legislators from outside of our 
Philadelphia metropolitan region are not in a hurry to put up 
votes in this State House and State Senate to, essentially, 
transfer money from premium payments of their constituents in 
central, northern, western Pennsylvania to subsidize what is a 
problem that is particularly acute here in the southeast?
    Mr. Dench. I have heard the same thing you have heard. I 
have heard that it isn't going to pass and that is why I am so 
concerned about the situation. The Rendell taskforce which I 
sit on did not recommend a specific way of getting the money. 
We, in fact, had a whole list of proposals of where we should 
get it. This was the choice of the Governor where we should get 
those funds. We only can hope and lobby that the short-term 
funds be found, because if not, I think there will be a 
catastrophe in this State.
    Mr. Greenwood. You are on the taskforce. What has the 
discussion been like with regard to support for caps imposed by 
the Federal Government, let alone getting around to amending 
the Pennsylvania constitution to do it?
    Mr. Dench. Well, clearly, all of the physicians and all the 
defense lawyers feel there should be a cap. Whether or not that 
taskforce was loaded ahead of time with enough----
    Mr. Greenwood. What is your estimate of that?
    Mr. Dench. My estimate is that, actually, we will come out 
in favor of caps, but in any case, there will be a minority 
report if not. Our evidence clearly shows that caps is one of 
the most important things that can be done to limit the 
exposure. I think even the Governor admitted that it was the 
outlandish awards in Philadelphia that caused the problem, not 
the frequency, but the outlandish awards. Obviously, the caps 
would control that. We have many, many examples of awards that 
are well out of reasonableness that are just leading to care 
not being made available and access for our patients.
    Mr. Greenwood. Dr. Eskin, how long can you hold out and 
keep the trauma center open while you are waiting for these 
reforms?
    Mr. Eskin. It is definitely an ongoing concern. While we 
certainly appreciate the Governor's efforts for both short and 
long-term solutions, taking the best case scenario that we have 
now, it is a short-term 1-year fix. The majority of our high 
risk specialist premiums come due in July or January. And while 
we probably, hopefully, maybe will be able to come through the 
summer, I fear that this coming November and December, we will 
be back in the same circumstance that we have been, actually, 
for the last 3 years, in terms of trying to hold together a 
vital service. I remain worried, as I said in my testimony. I 
believe it really is an IOU, but I don't hear a long-term 
solution at this point. And other States, because of 
differences in the degree of liability reform that they have 
enacted, are recruiting away some of our best talent. Thank 
you.
    Mr. Greenwood. Dr. Johansson, you said in your testimony 
that there is a difference between a bad outcome and 
malpractice. What do you mean by that distinction?
    Ms. Johansson. Well, I mean, surgery, there is always 
inherent risks when doing surgery, and sometimes thing--there 
are complications that, I mean, even such a simple complication 
as a minor infection which is treatable with antibiotics, it is 
not the doctor's negligence, necessarily, that caused this 
patient to need a course of antibiotics; it is, you know, a bad 
outcome. There are high risk pregnancies that no matter how 
much we try and how hard we work to get a successful delivery 
out of that patient, things happen that we cannot--we don't 
have control over thing, unfortunately, but a lot of times I 
feel that people assume we are supposed to have control over 
everything that happens, and some things are just beyond our 
control. So a bad outcome does not necessarily mean that 
anybody did anything negligent. I guess that is what I mean by 
that.
    Mr. Greenwood. Okay. My time has expired. I just want to 
make one more comment to our brave Heather Lewinski here. I 
want you to understand that the legislation that I am 
proposing, in a situation like yours, would make sure that your 
doctor, the doctor that did this procedure on you, would be 
responsible to pay all of your successive hospitalizations and 
surgeries, all of your medical bills, and on top of that would 
make you eligible for at least $250,000 for your pain and 
suffering. And if the State in which you live chose for that to 
be $500,000, or $750,000, or $250,000, that they could do that 
and you, certainly, would deserve as much as that as reasonable 
and practical.
    The Chair recognizes the gentleman from Florida for 10 
minutes.
    Mr. Deutsch. Thank you, Mr. Chairman. Dr. Dench, I guess, 
you know, I really have been learning today and, you know, just 
in terms of different States and different issues. And I have 
expressed, you know, somewhat very briefly, the experience in 
Florida, which you very well might be more familiar with than I 
am, since doctors, particularly, heads of medical associations, 
speak to each other and communicate. As I have said, though, in 
Florida, as bad as the situation is, there are sort of these 
two safety valve things that physicians have available to them. 
One is going bare and one is, basically, setting up practice 
through community hospitals. I guess what I am hearing today is 
in Pennsylvania, there is no type of safety valve. I mean, it 
basically is you pay the premium, or you leave the State, or 
you stop practicing, and that is really the options in 
Pennsylvania.
    Mr. Dench. That is correct, but it should be stated that I 
know of no hospital in the country that would let you practice 
without a $1 million coverage. That is generalized and some 
higher.
    Mr. Deutsch. I will tell you for a fact that there are many 
physicians in Florida that have no coverage, period, do not 
have $1 million in coverage.
    Mr. Dench. So they have hospitals that don't require it?
    Mr. Deutsch. Absolutely.
    Mr. Dench. Unfortunately, in this State that is not the 
case; they, of course, require it. But without a doubt, the 
Medical Society does believe that you shouldn't tie licensure 
to malpractice coverage.
    Mr. Deutsch. Right. And I guess the reason I say that, in 
some ways it makes it more acute, what you are describing, 
that, basically--I mean, from a physician perspective--and I, 
again, completely understand. These are real people and I think 
Dr. Johansson spoke very eloquently as well, who have devoted 
their lives, you know, to a very noble--as noble as any 
career--with no expectation when they entered this that this 
would be the result, that they would be facing 10, or 20, or 30 
years into their career. And so I guess--I mean, that is really 
the point. And I guess the numbers that we are talking about in 
terms of premium increases, and I really have a sense of it 
because I have talked to doctors in different communities about 
this, that you are really talking about someone whose net 
income could be $150,000 or $200,000 in a particular specialty, 
getting a $100,000 increase in malpractice insurance. Is that 
the type of situation you have seen? And that might be an 
extreme case but those cases do exist.
    Mr. Dench. Yes. They not only exist, but we are put in that 
problem that government always does. The Secretary of the 
Commonwealth sent a letter right at Christmas saying to us, we 
know you can't get insurance, but you have to practice medicine 
because you can't abandon those patients, but you can't 
practice if you don't have malpractice insurance. And that was 
sent to all the physicians in this State right at the end of 
the year.
    Mr. Deutsch. I mean, is it a fair assessment, I mean, just 
some of the dramatic--I mean, in terms of eating into someone's 
net, just the premium increase, potentially, could be that 
large a percentage of what their income has been in the 
previous year?
    Mr. Dench. Absolutely. The doctors in Scranton whose 
insurance companies left and were forced into the Joint 
Underwriters Association insurance were facing increases that 
were equal to their net income.
    Mr. Deutsch. One of the things you mentioned, and this is 
something I am always curious about when physicians talk about 
medical malpractice issues; you mentioned unnecessary 
procedures. My understanding is you are an anesthesiologist. 
Can you talk about any unnecessary--this is in terms of the 
interview you had with our staff on Saturday--at least what 
they are telling me is that you talked of one of the reasons 
the current tort system is a problem is unnecessary procedures 
or tests.
    Mr. Dench. Oh, I see. I don't know about procedures, but 
certainly, what happens when they are faced with frivolous 
lawsuits, is they will order all kinds of tests to cover 
themselves For example, as I was growing up, I had eight 
sprained ankles at one time or another. I don't think there is 
anyone today that had a sprained ankle and wouldn't get an X-
ray for it because they would be afraid of being sued because 
there might have been a small fracture that you would have had 
to wait 2 weeks before you diagnosed. And those are the kinds 
of tests that, clearly, are out there.
    Mr. Deutsch. All right. Let me just ask you this just to 
sort of dialog a little bit about that. But isn't it the case, 
though, that if there weren't cases where the X-ray, initially, 
on the sprained ankle, shows a fracture which if you didn't do 
the X-ray, doing it 2 weeks later becomes, you know, medically 
problematic. That is the only reason why at some point in time 
someone could say do the X-ray initially?
    Mr. Dench. Well, that is not what they do. They do the X-
rays automatically now, but clearly, the fracture, the small 
fracture that is there, would undergo maybe an extra week or 
two before they were casted and that would be the major 
consequences of not doing it. But no one would--you could be 
sued with no loss. You could be sued for that extra pain and 
suffering, et cetera, et cetera, and the net cost to society is 
tremendous if you have to X-ray every single person whose ankle 
is sprained. But that is just the beginning of the thing. There 
are all kinds of extra lab tests, all kinds of extra procedures 
in the sense that, I guess if I was referring to procedures, 
you don't believe, for example, that the person has a gastric 
ulcer. You have every reason to believe that they are doing 
fine and you would do a wait and see and give some antacids. 
Well, you could be sued tremendously if they turn around and it 
just so happens one out of a million is a cancer, and they then 
try to proceed to claim that that cancer could have been cured 
if you had done the scooping that first week. So you are always 
looking at a cost benefit in any procedure done, and now the 
physicians are asked to be able to do these things right away 
even though their good medical judgment says that they don't 
need to be done right away.
    Mr. Deutsch. Let me, actually, jump around a bit. Dr. 
Johansson, I served 10 years in the State legislature before I 
got to Congress. And in Florida, while I was in the 
legislature, I would see the chairman of the insurance 
committee at the time. We actually adopted what was called the 
bad baby bill. I mean, we basically had no fault for babies. 
Has the legislature here looked at that at all as an option?
    Ms. Johansson. As far as I know, there has been nothing 
discussed about that. And being an obstetrician, I mean, 
obviously, it is very emotional when something happens to a 
baby whether it was the fault of the doctor or beyond our 
control, and no, nothing has been looked at this.
    Mr. Deutsch. And my understanding is that your practice is 
changing from a practice affiliated with the hospital to a 
private practice. Is that accurate?
    Ms. Johansson. Well, our practice was a private practice, 
hospital practice, but again will become a private practice, 
and part of the problem with going back to it is obtaining 
affordable insurance. We couldn't even get a quote, you know, a 
reasonable quote at this point in Pennsylvania.
    Mr. Deutsch. So you might stay as a hospital practice or 
have they----
    Ms. Johansson. Actually, now that is not any longer my 
concern for the group because I am leaving, and that is a 
decision they are going to have to make, unfortunately.
    Mr. Deutsch. But my understanding is in a private practice 
the rates are double what they would be, or 50 percent higher, 
or----
    Ms. Johansson. Actually, our rates when I started, even 
though we are hospital and group, our rates were about $36,000 
my first year. They are hovering just under $90,000, even 
though we are hospital and group. And I mean, that is----
    Mr. Deutsch. Per person?
    Ms. Johansson. Right, per physician per year.
    Mr. Deutsch. First of all, Mr. Wozniak, thank you for 
having us and I appreciate--I know how much work it takes to 
really create one of these hearings. I would like to, I guess, 
just ask you a couple of questions regarding hospitals and your 
concern in terms of both malpractice, but also safety net 
issues as they affect it. My understanding is that from the 
American Hospital Association, the number that the American 
Hospital Association uses, 40 million Americans are basically 
served by hospitals as a safety net, uninsured Americans. And 
obviously, by statute, you are required to treat people 
regardless of their health insurance. How has that affected 
your operation as a hospital at this point in time?
    Mr. Wozniak. Well, I think being a Catholic faith based 
hospital that St. Mary is, we take care of all people, no 
matter the ability to pay. So first and foremost, that is our 
ministry. In fact, we go to great extremes to go out and find 
those people that are often left behind. And as I referenced 
before, the Mother Bachmann Center. How does that affect us? 
Well, I really believe for all of you in Congress, you really 
need to think through those poor people. You and I can find 
healthcare, we can travel, and we can find that healthcare. But 
most of the indigent and the poor are really restricted to 
their local area, and when they need that healthcare, they 
don't know where to turn. Our Mother Bachmann Center, we go out 
and we try to enhance the care for that poor and indigent group 
because that is what our mission calls us to do. As we do that, 
we try to treat the whole individual. And as I mentioned in my 
testimony, we have the Mother Bachmann Center. It has cared for 
over 1,600 women over the last 11 years, and I could tell you 
many of those women would not have access to healthcare because 
they wouldn't know how to find it and they would fall through 
the cracks. So that becomes a challenge. At the same time, to 
provide care for you and I, literally, I use an analogy. It is 
like the old Ed Sullivan show. Do you remember that? And the 
gentleman that was up there spinning plates all the time, and 
he would run from one plate to the next--and as a hospital 
administrator, we literally look at making sure our services 
are available. And without doctors we can't provide those 
services. We are literally behind the scenes, we are spinning 
those plates, daily. In all my career the last 15 years, the 
most difficult have been these past three because people don't 
realize. I think the lady to my right talked about termites 
eating away at the healthcare system; they are very active and 
this is very fragile at this point in time. And those plates 
that we keep spinning are going to fall. You saw it with 
Abington. We are concerned with the Mother Bachmann Center. The 
question that Congressman Greenwood asked earlier of Dench, how 
long can we hold this trauma center together? Our physicians 
have this IOU, and that IOU in their mind comes due April 30. 
We don't have a year, we don't have 6 months. We have April 30, 
and we have to move today. If we don't, like that gentleman 
this morning that came into our trauma center at 7:50 and went 
to the OR, that neurosurgeon won't be there, and that is not 
right.
    Mr. Deutsch. Thank you.
    Mr. Gerlach. Congressman Greenwood has asked that I assume 
the Chair for a few minutes while he is out, and so I am going 
to do that by using that time to ask some questions, and by 
that point maybe he will be back in and we can continue with 
his leadership on the panel here. But I have a couple of 
questions I want to raise. The first one, perhaps to Dr. Eskin, 
and maybe you, Mr. Wozniak, dealing with the trauma center 
issue. In Chester County, I served on the Brandywine Hospital 
Board of Trustees for a number of years, and Brandywine had a 
trauma center. Last year, in part because of the sale of the 
hospital to Community Health Services, a for profit entity out 
of Tennessee, but also because of the increasing costs of 
providing that 24-hour 7-day-a-week coverage that is required 
from a staffing perspective and a medical care perspective, to 
obtain and continue your trauma center certification, the 
partnership between the hospital and the University of 
Pennsylvania, which was providing the staffing and the service 
to the trauma center, that came to an end. And now Chester 
County does not have a trauma center and it is a county 
approaching 500,000 people, and the closest trauma center now 
would be to come to Abington, or go down to Christiana, 
Delaware, or over to Lancaster for that care. In following up 
on the comments by Ms. Dyess, I think--is that how you 
pronounce your last name?
    Ms. Dyess. Yes.
    Mr. Gerlach. That scares a lot of people in Chester County 
not having that kind of trauma center service available to 
folks in the area. So what is the ripple affect if something 
happens with Abington then and you are not able to continue to 
provide trauma center coverage? What does that do to this 
region in terms of the availability of those needed services? 
And what do you think the impact is, generally, on the 
community when trauma center services are not available within 
a certain geographical area?
    Mr. Eskin. I will start if that is okay. It is frightening 
from the perspective of one who lives in that community. We 
are, as I mentioned, the only accredited trauma center in 
Montgomery County, which is a very large county. And if we were 
to close, that means that ambulances would obviously bypass us 
with trauma patients. Patients would have to be either 
ambulanced or helicoptered to another institution further away. 
And as Congressman Greenwood said before, that first hour or 
that first period of time, you define as critical in terms of 
proven outcomes for victims of trauma. So as one who lives in 
this community and whose patients live in our community, it 
really is frightening.
    Also, I would like to add that it is becoming extremely 
difficult to recruit the appropriate specialists to do what we 
need our trauma center to do. A specific example, a year ago we 
had seven neurosurgeons. Now we are down to five and we almost 
lost two of them in the last 2 months to another State. One of 
the neurosurgeons who left to practice in Ohio, married, in his 
40's, wife, four children, believe me, he didn't want to move. 
For 3\1/2\ years this very capable individual attempted to 
recruit someone to join him of high caliber, and it was just--
and I met a number of the people that came through from 
institutions whose name you would know, and a very good offer 
at a very good hospital. They chose to go elsewhere, they chose 
not to practice in our State. But to answer your question, 
specifically, it is a major concern to us in terms of what we 
can provide to our community.
    Mr. Gerlach. And it is one thing where through Life Flight 
or Sky Care, the helicopter service, you are able to make up 
that distance problem pretty effectively through the speed of 
that service. On days like this, inclement weather, when the 
helicopters can't get up into the sky, then that ambulance 
route to the next trauma center becomes very problematic in 
terms of traffic issues and everything else, and then decreases 
the amount of the service and the quality of the service able 
to be provided depending on the time that the patient gets 
there.
    And that really leads in--you are kind of leading me into 
the next question I had about objective data that is now 
tracking what is happening to recent graduates of our medical 
schools, either in this region--and maybe you would know, Dr. 
Dench, being the President of the Medical Society of 
Pennsylvania--or more nationally, Dr. Palmisano, maybe you have 
a sense of this. What is happening to the migration of good 
young physicians into areas where there is not a problem, real 
or perceived, with medical malpractice insurance rates versus 
migration in areas where there is, again, real or perceived 
crisis in medical malpractice rates. What is the short-term and 
long-term impact on the quality of care that a region can 
expect based on its ability to recruit and retain those 
physicians?
    Mr. Dench. Let me just say that when we questioned and 
emailed our residents, almost none of them were considering 
staying in Pennsylvania. And if they did, it was only because 
of family reasons. I am concerned in the near future that we 
are going to also have the difficulty in filing our residency 
programs. This State trains some of the finest physicians all 
over the country, a very high percentage of physicians relative 
to the population here are trained here because we have seven 
MD schools and two DO schools in this State. We see total 
indication that no one wants to say. The numbers don't show it 
again in the medical licensing because, of course, they got a 
license while they were a resident, and they keep the license, 
but they are not staying, they are not practicing here. They 
are leaving the State.
    Mr. Palmisano. We also find on a national level, for 
instance, I had the privilege to visit on behalf of the 
American Medical Association to Wheeling, West Virginia, and I 
met with the family practice residents there. In talking with 
them, none of them indicated they were going to stay in the 
State because of the medical liability situation. In Wheeling, 
for instance, one of the emergency room physicians came up to 
me and said let me tell you what it is like here. If a 9 year 
old boy is knocked unconscious in a football game, even if he 
is unconscious for a minute or 2, and he is brought to me, I 
have to air-evac him because I don't have a neurosurgeon that 
does trauma anymore in the community. So even if the child 
looks okay now, the child could bleed later on and we need to 
intervene at that point. So he said I air-evac the child to 
either Pittsburgh, Pennsylvania or Columbus, Ohio, and 30 
percent of the time the air ambulance can't fly because of fog 
or other adverse weather conditions. So in talking with the 
medical students, they are very much concerned. They hear about 
this, and they want to know what is happening in the States, 
and they are very concerned about the 12 States that have been 
designated as crisis States, and it will affect their location 
in practice, yes.
    Mr. Gerlach. Do you at the national level or at the State 
level have data that maybe comes from the medical schools 
themselves as to where a percentage of their graduates went 
within the first year, within the second year, whatever it is, 
to demonstrate quantifiably that migration, let us say here in 
Pennsylvania, of graduates from medical schools, or perhaps 
being able to do that at the national level by taking data from 
all of the Nation's medical schools to track where those 
graduates are going regionally? Is there a way to do that if it 
doesn't exist now?
    Mr. Palmisano. Well, we certainly want to know that 
information, just like we want to know the numbers of 
physicians who are limiting their practice, retiring early, or 
moving to another State. So we ask all of the States to give us 
that information as they gather it. And the American Medical 
Association is trying to put together an information retrieval 
system so we can present to legislators the facts for their 
consideration, and that very issue is an excellent one to 
pursue.
    Mr. Gerlach. Because just as important as it is to know how 
many of your experienced physicians in all the important 
specialties are leaving a particular area after 10, 15, 25 
years of practice, it is also important for the future of a 
region to know how many young physicians are coming in and 
putting down roots, and are going to want to be in that 
community for their working lives. So if there is some way to 
gather that information and get that to the committee, that 
would certainly be of great use.
    I wondered from Dr. Dench if he heard the testimony 
earlier, particularly, the exchange with Governor Rendell about 
putting some limitation on the mandated coverage in 
Pennsylvania. There was a lowering of that under Act 13 from 
$1.2 million down to $1 million. Do you have a sense of what 
would be the impact if that were lowered all the more in 
Pennsylvania, down to $500,000 or something like that, what the 
impact would be on practicing medicine, and more particularly, 
medical malpractice rates in the State?
    Mr. Dench. Well, clearly, as you saw in my testimony, it 
would cost us less. But I doubt very highly that many doctors 
can afford to have less than $1 million coverage. Presently, 
the hospitals all require that you have $1 million coverage 
independent really of whatever the other law is. We are at $1 
million. Only one other State requires as much as Pennsylvania 
does. There is no question that we require more, but in 
reality, most physicians, for example in California, have $1 
million coverage. So having said that, I don't believe that is 
the answer because as it was pointed out in that testimony, you 
want to be able to cover a person who is injured. And there 
needs to be a coverage, and it seems unusual, to say the least, 
to think that you should lower the cap to $500,000 on economic 
loss and all losses whatsoever, and then be concerned about not 
lowering the non-economic cost to $250,000. What you are saying 
is that someone who has no economic loss should be able to take 
that cap when someone with economic losses is, essentially, 
capped at the same number, and that doesn't make sense to me.
    Mr. Gerlach. And then on the issue, finally, of the premium 
relief that is being talked about for physicians through the 
use of insurance premiums, surpluses by insurance carriers, you 
seem to be pretty pessimistic of the ability to get that kind 
of proposal passed through the legislature. One of the things 
that was raised last year at some point, and I am just curious 
about the taskforce's discussions on this issue of whether or 
not given about $400 million that the Commonwealth is getting 
every year now through the national tobacco settlement 
agreement, whether there ought to be a discussion in the 
legislature and with Governor Rendell about reprioritizing the 
use of those dollars from what was initially passed, I guess 
about 1\1/2\ or 2 years ago, with the initial tobacco 
settlement legislation. It seems to be there was great 
consensus in the legislature that all of that money ought to be 
used for healthcare and health related issues, and it seems to 
me there can't be any higher priority than making sure that we 
retain good quality physicians and hospitals in Pennsylvania to 
provide that healthcare. Is there any discussions on the 
taskforce of using any of the tobacco settlement dollars that 
come in on an annual basis and tie that to premium relief for 
physicians?
    Mr. Dench. That was on the list. As I said, there was a 
whole list of items that we thought were possible places that 
you could get the money, and one of them was there. We had 
thought on the taskforce that that is a political decision, 
where to get the money, and that we just said that we need this 
money in the short run. In fact, we opposed from the Medical 
Society saying that for 3 years. We think this problem may take 
3 years to solve, because that is how long it will take caps. 
But we did not want it put on the back burner because we solved 
the financial crisis for 3 years by throwing gasoline on the 
fire. We believe we have to solve the problem, and the problem 
can only be solved when we get meaningful caps, contingency 
fees, and several other of the proposals we have out there. We 
have a considerable amount of them with Act 13, but the biggie 
is caps and contingency fee limitations.
    Mr. Gerlach. Thank you very much. I appreciate it. 
Congresswoman Schakowsky, do you have questions?
    Ms. Schakowsky. Thank you very much. I appreciate very much 
all of this panel, and I want to direct myself to Dr. 
Palmisano. You know, for the last couple of years, doctors and 
patients have really been on the same side advocating in 
Washington for a patient's bill of rights. We have been trying 
to put power back into the hands of healthcare professionals to 
make decisions about patient care, and we have yet to be 
successful. And I hope that we can continue to do that because 
I think when we talk about the quality of the ability of 
doctors to operate and for the benefit of their patient, that 
we do need to look at power that has been taken from them by 
HMO's and others.
    And also, we have talked about the responsibility of HMO's, 
the accountability when things go wrong because often they tell 
you that you can't practice the kind of medicine that you would 
like to do. And that is really where we should be, patients and 
doctors on the same team. And I agree. I think it was Dr. Dench 
that testified that the liability crisis is ``driving a wedge 
between patients and their doctors''. We agree on the problem, 
that there are particularly some high risk specialties that are 
paying very high rates and that insurance rates are a problem. 
And I was as moved by your testimony, Ms. Dyess, as I was by 
Heather's, where you come to different conclusions. But what I 
don't understand is why, as healers, the profession focuses 
almost entirely on victims rather than on the insurance 
companies that are imposing the high rates.
    You talked about--I think it was you, Dr. Palmisano, that 
talked about caps opponents being an affront to both doctors 
and patients, and I think the focus on caps in many ways is an 
affront. The insurers themselves tell us that rates won't go 
down with caps. ``Insurers never promised that tort reform 
would achieve specific savings from the American Insurance 
Association.'' ``We wouldn't tell you or anyone that the reason 
the passed tort reform would be to reduce insurance rates,'' 
Sherman Joyce, President of the American Tort Reform 
Association. So it is unclear to me from the evidence, just the 
evidence. Given the States you said, you refer to a patient in 
Florida. Florida has caps. They have the caps that we are 
talking about in Mr. Greenwood's bill, so where is the 
evidence?
    And so what I am asking is would the AMA, would the doctors 
support requirements that in legislation that capped victims? 
And I wanted to--let me say something before I finish that 
question to Heather, because I just want to congratulate you. 
Through all that you have gone through, I know that you 
graduated from high school on time. Is that right?
    Ms. Lewinski. Yes.
    Ms. Schakowsky. I mean, that is really remarkable, and I 
want to thank you so much for the courage that it came here--I 
asked you, I thought, well, maybe you have done this before. 
This is your first time testifying before a hearing. You did a 
great job and I congratulate you for your courage not just 
today but over the many years. So I want to thank you and tell 
you how much I really appreciate it. But these bills do not 
require that rates go down. Given States that have caps on 
awards and on settlements, that have caps on non-economic 
damages, the rates haven't gone down in every case. So why are 
you so focused on that as the solution to the problem? Why is 
this your No. 1 answer?
    Mr. Palmisano. Yes, ma'am. Thank you very much for those 
questions. Is it okay if I go down the list? The first thing, 
we believe we are acting on behalf of patients and physicians, 
the issues on the patient's bill of rights. And as you know, 
the American Medical Association continues to advocate a fair 
contract for patients, physicians, and insurance companies. And 
on the AMA website, we have a model managed care contract. It 
is in its at least second edition now, and we believe it is 
fair to insurance companies, physicians, and patients.
    Ms. Schakowsky. I would rather not focus on that.
    Mr. Palmisano. Okay. I will go down the list. And we also 
have just published our market concentration study which shows 
that these insurance companies have too much market power and 
they can control the rates paid to physicians. So we are 
continuing to aggressively move on that particular front. We 
believe that when you look at caps, that you have to go down a 
little deeper and say what kind of caps. For instance, Missouri 
has a cap but it is a cap, it started off around $300,000 or 
$350,000, and its index up and now it is over $500,000. It is a 
cap per claimant and a cap per physician. That is very 
similar----
    Ms. Schakowsky. So you wouldn't support a $500,000 cap?
    Mr. Palmisano. Well, what we have said is we know that the 
$250,000 non-economic cap, a fixed cap in California per 
incident, is one that has worked over a quarter of a century.
    Ms. Schakowsky. Well, we are going to hear testimony that 
disputes that entirely, that after the caps were initiated, 
that rates continued to go up until there was actually rate 
regulations, so we will hear that.
    Mr. Palmisano. Well, yes, but that is Proposition 103 in 
California, and when we looked into that, we tried to look into 
all of the issues that are brought up, because we want the 
legislators to have the facts. We found that Proposition 103, 
actually, the court didn't allow the rate rollback. What they 
did allow was that if someone wants to raise the rates more 
than 15 percent, then they would have to have a public hearing, 
and we have not found any instances where the medical liability 
rates actually were reduced as a result of Proposition 103. We 
also know that the other States, Wisconsin, Colorado, and 
Louisiana, Indiana, New Mexico, they don't have a Proposition 
103. We believe that every insurance commissioner has the duty 
to make sure that the rates are justified based on frequency, 
severity, and actuarial review. So when people say will you 
support--and I think that is the main thrust of your question, 
unless I am mistaken, will you support a measure that forces 
them to reduce the rates. What we are saying is the free 
marketplace ought to allow companies to come in. Right now, we 
see them all running out. We see no one rushing in. What we 
found in Nevada when I had the privilege to testify for AMA, 
right after our level one trauma center, was a joint meeting of 
the House and the Senate. After I gave my testimony, they 
introduced an individual who was brought in to start an 
insurance company just for Nevada, and they had their own 
actuary, and my question--I said, may I ask a question, and 
they said sure. My question was, well, what will the rates be 
for the obstetricians now that you have studied the frequency 
and the severity, and they said around $90,000, as I recall the 
answer. Well, that was about the price that the insurance 
company that was leaving, or the one they were complaining, 
around $90,000 to $100,000, and we know that the physicians 
there who were obstetricians could leave with their same record 
and move to California and their rates drop down----
    Ms. Schakowsky. You know, I am going to ask that we put up 
Exhibit 4, that actually refers to California, if we could put 
it up there. Where we see that after MICRA was instituted, that 
the rates went up, that they went up rather high. From the 
beginning of the chart up to the green line is under MICRA, and 
we can go State by State and look at those. I don't understand 
why you wouldn't say then if your main answer to why rates will 
be reduced if we impose caps, why don't we say you have to 
then?
    Mr. Palmisano. Well, you know, you have to look at the 
whole picture when you compare, and Chairman Greenwood made the 
point about the rates going over a quarter of a century. The 
rates went up around 167 percent in California, compared to the 
rest of the Nation, the average was 505 percent. In one of the 
earlier slides, where they talked about average rates, we need 
to compare apples to apples. We need to compare Los Angeles to 
Miami to Philadelphia, and we need to look at the specialty 
mix. We need to look--all we know is that physicians are 
closing their practice, retiring earlier, or limiting their 
practice, and we find patients at risk of not having access to 
care in that critical moment when they are in need so----
    Ms. Schakowsky. If I could just--on Pennsylvania, if we 
could have number 12 of our exhibits? This, Dr. Eskin, is--you 
told us this, reasons for doctors leaving the State, and the 
yellow being medical malpractice, and the green, new 
professional and personal opportunity. So then we wanted to 
know in the yellow, medical malpractice, where did they go. So 
if we could look at chart number 13, and what we find is that 
the majority moved within Pennsylvania or to States with no 
caps. I mean, you know, the overwhelming majority did. Some 
moved to States that had a much higher cap than is proposed in 
the chairman's legislation. The orange are people who simply 
retired. You may argue they wanted to retire, you know, because 
of this. I don't know. But clearly, most people stayed here in 
Pennsylvania and probably had a lot of reasons for leaving the 
practice that they do. Again, this focus on not only the rates, 
I understand that. I agree with you on that, but as this one 
solution that you don't even want to make as mandatory.
    Mr. Palmisano. Well, Tillinghast just did a study for the 
Medical Society in New Jersey at the request of the Medical 
Society to evaluate two bills that were proposed in their 
legislature as to whether or not it would have any effect, and 
they concluded that the bills would not, but they did state in 
that, and that was a public announcement, there was a press 
conference involved with it, that the $250,000 cap would lower 
rates. And as you increased the fixed cap, when you get to 
$500,000, then it has no further effect. So I think there have 
been enough studies, and that is the challenge that all of you 
as legislators have, to listen to all of these facts, and to 
come out with something that works. All we are saying is that 
the States with the fixed caps are the ones that are the stable 
States, the six States are stable, and what we hope is that 
when the final decision is made, either at the State level or 
at the Federal level, we will have doctors around to take care 
of patients. It is----
    Ms. Schakowsky. Well, let me just end this by saying after 
all is said and done, we have to balance that with people like 
Heather, and say that if the awards and settlements aren't a 
significant enough part of the reason that rates are high, 
which I would contend that that is the case, why would we go 
after people who, especially, people who are ineligible for 
high economic awards--that is going to be women, and children, 
and the elderly, and persons, low income people that have low 
wage earning jobs. Why would we choose to go after victims not 
only of malpractice but of prescription drug manufacturers, of 
nursing homes, of medical device companies, all of which are 
included in this legislation. You are lumped with all of those. 
Do you think you should be lumped with those?
    Mr. Palmisano. Well, what we are advocating for is a way to 
keep the physicians in practice, and we believe that the Bill 
H.R. 5 is a way to keep physicians in practice. Representative 
Greenwood, Chairman Greenwood, is going to be the expert on 
what should be done in Congress to make sure we can get it 
through the Senate at the national level. And so what we are 
saying is you do have to balance everything. You have to 
balance to make sure that physicians are available to treat 
patients. And we know that the models in the six States, the 
California model is the one that AMA has embraced since 1989, 
is a model that works. But it is a difficult task that you have 
and we want to make sure, and that is why we want to help. We 
want to get as much information to you so that you can properly 
evaluate all of this. But the important thing is to come up 
with a mechanism that keeps physicians in practice.
    Ms. Schakowsky. And finally, let me just say that 
Democrats, and myself included, and let me just--those of us 
who oppose caps want to address this problem. We want to be 
partners with doctors. We want to be advocates for patients, 
and for victims, and for doctors to stay in practice. I just 
don't think this notion of caps is the way to go. Thank you.
    Mr. Greenwood. The Chair thanks the gentlelady. I do want 
to correct the record in one regard. The gentlelady from 
Chicago said that Florida has caps. In fact, Florida doesn't 
have caps and, in fact, their Governor's taskforce, the 
Governor's taskforce recommendation is that the legislature 
should in medical malpractice cases cap non-economic damages at 
$250,000 per incident. So the Governor's taskforce on medical 
malpractice doesn't think that it has that cap. I did let the--
--
    Mr. Deutsch. Mr. Chairman, if I can note--I mean, the only 
time caps do not apply in Florida is with a doctor who rejects 
arbitration. There are caps in Florida.
    Mr. Greenwood. All right. Well, we will need to sort that 
out because, obviously, we have different sources. I did want 
to let the gentlelady from Chicago have an extra 3 or 4 
minutes. I just did want to ask Dr. Eskin if he wanted to 
comment about the reasons for doctors leaving Abington Hospital 
and make sure that you feel that information was accurate.
    Mr. Eskin. I will be very brief. The number of physicians 
represented by that entire pie diagram was 15. For example, the 
big orange wedge was one person who, in fact, retired much 
earlier than he had hoped to retire. Of the 15 physicians that 
were in that pie chart, in fact, 3 remained in Pennsylvania; 
the other 12 left. And the point that we have been trying to 
make is just that our physicians are leaving, it is more 
difficult to recruit physicians to replace and enhance the 
skills which we have lost. We really have a problem and we 
really ask for your help in helping to solve that problem. We 
know that it is a complex problem, not a single issue problem, 
and we are asking for help in bringing this to a proper 
solution. Thank you.
    Mr. Greenwood. We appreciate that. And of course, the 
legislation that I proposed is not just about caps. It touches 
on a whole host of remedies which we don't need to enumerate 
right now. I want to thank each of the witnesses, particularly, 
you, Heather, who have traveled from New York; and you, Ms. 
Dyess, who traveled from Mississippi, and not only did you 
travel, but your stories are very personal and very poignant, 
and it took a lot of courage for both of you to be here. Thank 
you all. This panel is excused, and we will call up the next 
panel.
    Our third and final panel consists of Mr. Lawrence Smarr, 
President of Physicians Insurers Association of America; Mr. 
James Hurley, Chairperson of the Medical Malpractice 
Subcommittee of the American Academy of Actuaries; Mr. Scott 
Diener, President and Chief Operating Officer of PMSLIC; Mr. 
Alan G. Rosenbloom, President and Chief Executive Officer of 
the Pennsylvania Health Care Association and Center for 
Assisted Living Management; Thomas J. Nasca, Dr. Thomas J. 
Nasca is the Dean of Jefferson Medical School; Dr. Harvey 
Rosenfield, President of the Foundation for Consumer and 
Taxpayer Rights; Ms. Diane Menio----
    Ms. Menio. Menio.
    Mr. Greenwood. Menio?
    Ms. Menio. Yes, sir.
    Mr. Greenwood. [continuing] Executive Director of the 
Center for Advocacy for the Rights and Interests of the 
Elderly; Mr. John Reed of Selinsgrove, Pennsylvania; Dr. Neil 
Vidmar, Professor of Law at Duke Law School; and Mr. James 
Mundy of Philadelphia.
    We welcome all of you. We thank you for the patience you 
have evidenced so far and the patience you will be required to 
evidence for the next hour or so. We have all but--Okay. I 
think if you were here earlier today, you know that--you have 
heard me say twice now that this is an investigative hearing, 
and it is the custom of this committee to take testimony in 
investigative hearings under oath. And so I would ask if any of 
you have objections to giving your testimony under oath this 
afternoon? Seeing no such objection, I would advise you that 
pursuant to the rules of this committee and the House of 
Representatives, that you are entitled to be represented by 
counsel, and ask if any of you wish to be represented by 
counsel today for your testimony? Seeing no such request, I 
would ask if you would rise and raise your right hand, and I 
will give you the oath.
    [Witnesses sworn.]
    Mr. Greenwood. Okay. You are under oath. Now, we are going 
to ask that the three of our witnesses who are about to be 
identified for me, Ms. Menio, Mr. Rosenbloom, and Mr. Doyg. Are 
you going to testify, Mr. Doyg?
    Mr. Doyg. I think Ms. Menio is going to read a statement. I 
am available for any questions that you might have.
    Mr. Greenwood. Okay. Well, if you need to, you may advise 
her with regard to her testimony, but if you need to speak 
yourself, then we will have to swear you in.
    Mr. Doyg. Certainly.
    Mr. Greenwood. But we are going to ask that Ms. Menio and 
Mr. Rosenbloom give their opening statements first. Then we are 
going to ask questions of them, and that is because Ms. 
Schakowsky needs to get a plane and wants to make sure that she 
participates in this part of the discussion, and then we will 
take statements from the rest of the witnesses. And so we will 
start with Mr. Rosenbloom, President and Chief Executive 
Officer of the Pennsylvania Health Care Association.

TESTIMONY OF ALAN G. ROSENBLOOM, PRESIDENT AND CHIEF EXECUTIVE 
 OFFICER, PENNSYLVANIA HEALTH CARE ASSOCIATION AND CENTER FOR 
ASSISTED LIVING MANAGEMENT; DIANE A. MENIO, EXECUTIVE DIRECTOR, 
    CENTER FOR ADVOCACY FOR THE RIGHTS AND INTERESTS OF THE 
  ELDERLY; LAWRENCE E. SMARR, PRESIDENT, PHYSICIANS INSURERS 
  ASSOCIATION OF AMERICA; JAMES HURLEY, CHAIRPERSON, MEDICAL 
MALPRACTICE SUBCOMMITTEE, AMERICAN ACADEMY OF ACTUARIES; SCOTT 
 DIENER, PRESIDENT AND CHIEF OPERATING OFFICER, PMSLIC; THOMAS 
J. NASCA, DEAN OF JEFFERSON MEDICAL SCHOOL; HARVEY ROSENFIELD, 
PRESIDENT, FOUNDATION FOR CONSUMER AND TAXPAYER RIGHTS; JOHN H. 
REED; NEIL VIDMAR, PROFESSOR OF LAW, DUKE LAW SCHOOL; AND JAMES 
                             MUNDY

    Mr. Rosenbloom. Thank you, Chairman Greenwood, and also to 
the members of the subcommittee, thank you for the opportunity 
to appear here today. My name is Alan Rosenbloom and I serve as 
President and Chief Executive Officer of the Pennsylvania 
Health Care Association and its sister organization, the Center 
for the Assisted Living Management. The association represents 
about 325 long-term care providers and senior service providers 
across the Commonwealth of Pennsylvania.
    We, especially, appreciate the opportunity to discuss the 
effects of the medical liability insurance crisis on nursing 
homes and other long-term care providers. For too long, State 
and Federal officials have not seen long-term care as part of 
an integrated healthcare delivery system. The challenges facing 
long-term providers, however, mirror and in some areas are more 
acute than those facing physicians and hospitals. Given that 
Pennsylvania is the second oldest State in the Nation as 
defined by the percentage of our population age 65 or older, 
and given that the fastest growing age group in the 
Commonwealth is the 85 and older cohort, it is both necessary 
and appropriate that our Federal and State officials appreciate 
that key legislative and policy changes must encompass long-
term care providers if they and we hope to craft a workable 
healthcare system for today's seniors and for tomorrow's aging 
baby boom.
    Put simply, liability insurance for long-term care 
providers in Pennsylvania increasingly is unavailable and 
unaffordable, and now poses a growing threat to access to care. 
In 1999, seven carriers offered professional liability 
insurance to long-term care providers in this State. By 2001, 
that number had shrunk to four, which dropped to three in 2002. 
For all practical purposes, today, two or fewer carriers now 
appear willing to write new long-term care business in 
Pennsylvania.
    Not surprisingly, insurance and related costs have 
skyrocketed. Since Pennsylvania requires nursing facilities to 
maintain insurance and to participate in the CAT and MCare 
Funds, about which other witnesses have testified, much of my 
commentary will focus on them. I would like you to note, 
however, that the basic trends identified affect the entire 
continuum of long-term care and senior services, from nursing 
homes and assisted living providers, to integrated retirement 
communities, to home care providers and community based 
providers.
    In 2001, rates for primary coverage for nursing homes 
increased by as much as 87 percent. In each year since, primary 
premiums have increased by as much as 500 percent for both 
nursing homes and assisted living residences. In addition, the 
CAT Fund surcharges and MCare Fund assessments have skyrocketed 
as well. In 2002, for example, CAT Fund surcharges for nursing 
homes increased by as much as 121 percent. MCare surcharges for 
2003 increased at least 43 percent for most nursing homes 
across the Commonwealth. I offer a few specific examples. Belle 
Haven is a single site facility, family owned facility, 
providing nursing home and personal care home services. It has 
59 beds, it is located in Quakertown, Pennsylvania. In its 40-
year history, Belle Haven has had no loss experience 
whatsoever, no claims, no judgments, no settlements, no awards. 
From 2001 to 2002, its primary premium increased 336 percent. 
From 2002 to 2003, it increased another 74 percent. During that 
last year, its MCare Fund assessment also increased by 97 
percent.
    Gwynedd Square is a freestanding nursing facility with 181 
beds located in Lansdale. It has had no claims in 15 years. 
From 2000 to 2001, its premium for $10 million in coverage, 
which represented both primary and excess coverage above the 
CAT Fund layer, increased 112 percent. From 2001 to 2002, the 
cost of the policy grew so great that the facility cut its 
coverage in half merely to maintain its existing premium level. 
There are other examples in the written testimony, which in the 
interest of time, I will not present at the moment.
    What is ironic about this is that the loss experience among 
long-term care providers in Pennsylvania does not justify such 
precipitous increases in insurance costs. In 2000, for example, 
the average non-zero claim against a nursing home in this 
State, that is one that actually resulted in the payment of 
money, was $61,000, well below the national average of $246,00 
and well below the current CAT Fund attachment point of $.5 
million. From the inception of the CAT Fund in 1976 until July 
2001, the CAT Fund in this State paid only $2.6 million in 
nursing facility claims, yet, collected more than $41 million 
in surcharges from nursing homes. In other words, nursing homes 
paid in more than 15 times what the CAT Fund paid out on their 
behalf. What is driving our insurance rates in Pennsylvania is 
not our loss experience here; it is loss experience in other 
States, is general market conditions affecting the insurance 
industry, and it is generalized concern about the out of 
control malpractice environment for physicians and hospitals in 
Pennsylvania. This reality underscores the need for reform that 
encompasses the entire healthcare delivery system, including 
long-term care providers, as well as the need for both Federal 
and State reforms if we are to stabilize the insurance 
marketplace.
    While we applaud the various tort reforms adopted by the 
Pennsylvania General Assembly in the past 18 months, we 
reluctantly agree with the Governor, that much remains to be 
done. While we are heartened that the Rendell administration 
has urgently focused on the liability crisis, we are dismayed 
that it has approached to date ignores the long-term care 
component of the Commonwealth's healthcare delivery system. 
Despite the Governor's recognition this morning that a key 
factor in this whole problem is the rising insurance shrinking 
reimbursement vice, as the Governor eloquently noted, about 70 
percent of long-term care in this State is paid for by the 
combination of Federal and State government, so this vice is 
uniquely one that the Federal Government can solve.
    We do appreciate, Congressman Greenwood, H.R. 5, which you 
introduced last week, and which extends relief to the entire 
healthcare delivery system, whether healthcare services are 
provided in hospitals, physicians' offices, long-term care 
settings, or home and community based care settings. Absent 
prompt and meaningful reform, however, it is certain that 
frail, vulnerable seniors in Pennsylvania will face access to 
care difficulties. In fact, we have already begun to see such 
problems manifest. In late December 2002, Temple University 
Hospital announced the closure of the Temple Continuing Care 
Center in North Philadelphia. In addition to this 538-bed 
facility, Temple closed two other nursing homes that year, the 
180-bed Elmira Jeffries Nursing Home and the 140-bed Northwood 
Nursing and Convalescent Center. According to press reports, 
liability insurance costs were cited as a significant 
contributing factor in all three of those closures.
    As a result, some of Philadelphia's most frail and 
vulnerable citizens were relocated from facility to facility 
and some of the Temple's Continuing Care Center's 450 residents 
were transferred as far away as Hazelton, Pennsylvania. The 
added stress of such a long move undoubtedly exacerbated the 
transfer trauma nursing home residents typically suffer during 
any relocation. Given the demographics of the North 
Philadelphia area in which the Temple Continuing Care Center 
was located, it seems unlikely that many family members of 
residents will have easy access to cars, and it is certain that 
travel from North Philadelphia to Hazelton without a car is 
difficult at best and impossible at worse. Consequently, 
closures of this kind may well cut residents off from family 
and friends forever.
    A more prevalent and insidious threat to quality care 
underscores just how crucial it is that we address this problem 
systemically. Due to growing liability costs, fewer physicians 
are available or willing to serve as medical directors or 
attending physicians in nursing homes. Physicians who do 
undertake these roles face increasing difficulties in finding 
specialists for referrals of nursing home residents. Unless we 
take action to stem the rising tide of liability, closures and 
relocations will become all too routine for the more than 
135,000 frail, elderly Pennsylvanians who rely on nursing homes 
and assisted living residences to support their needs. Unless 
we take action, our seniors increasingly will not have the 
access to primary care physicians and specialists they need. 
Unless we take action, the more than 700 nursing facilities and 
1,800 personal care homes in Pennsylvania will face 
increasingly serious financial difficulties, threatening the 
$2.2 billion they pay in salaries to 165,000 employees in 
Pennsylvania and the $30 million they pay in local property 
taxes each year. Indeed, since the government is the primary 
payer of long-term care and senior services in this country, 
through the Medicaid program, and to a lesser extent, through 
the Medicare program, ultimately, the cost of increasing 
liability costs for the long-term care segment of the 
healthcare delivery system are disproportionately born by 
government as those costs are passed along through the system.
    It is noteworthy that in States that have not pursued 
liability reforms that recognize the entire spectrum of the 
healthcare system we have seen situations where Medicare--
Medicaid, pardon me--is now paying as much as 30 percent of 
every single dollar, 30 cents of every dollar that is supposed 
to care for seniors in long-term care settings is going to pay 
insurance costs, it is going to pay settlements and judgments. 
I, respectfully, submit that that is not an appropriate use for 
the public fisc when money is designed to provide quality care 
and services to older citizens and other vulnerable populations 
with special needs.
    In conclusion, the professional liability situation for 
long-term care providers in Pennsylvania is bleak. We are on a 
course that will deprive frail and vulnerable seniors access to 
quality care and services, prevent providers from devoting 
optimal resources to patient care, and compel government to 
devote a growing percentage of scare Medicaid dollars to 
liability rather than patients. We must alter that course 
quickly and effectively for the good of the Commonwealth and 
the good of the Nation. Thank you.
    [The prepared statement of Alan G. Rosenbloom follows:]

     Prepared Statement of Alan G. Rosenbloom, President and CEO, 
  Pennsylvania Health Care Association and Center for Assisted Living 
                               Management

    Chairman Greenwood and members of the subcommittee, thank you for 
the opportunity to testify today. My name is Alan Rosenbloom and I 
serve as President and Chief Executive Officer of the Pennsylvania 
Health Care Association and its sister organization, the Center for 
Assisted Living Management. The association represents 325 long term 
care and senior service providers across the Commonwealth of 
Pennsylvania. Our members include publicly traded companies, closely 
held companies, non-profit facilities and county facilities, and their 
services run the gamut from integrated retirement communities and 
multi-level care campuses, to freestanding nursing homes and assisted 
living/personal care homes to ancillary care and home care enterprises.
    We especially appreciate the opportunity to discuss the effects of 
the medical liability insurance crisis on nursing homes and other long 
term care providers in Pennsylvania. For too long, state and federal 
officials have not seen long term care providers as part of the health 
care delivery system. The challenges facing long term care providers, 
however, mirror and, in some areas are more acute than, than those 
facing physicians and hospitals. Given that Pennsylvania is the second-
oldest state in the nation, as defined by the percentage of our 
population age 65 or older, and given that the fastest-growing age 
group in the Commonwealth is the 85+ cohort, it is both necessary and 
appropriate that our federal and state officials appreciate that key 
legislative and policy changes must consider long term care providers 
if they hope to craft a workable health care system for today's seniors 
and tomorrow's aging Baby Boom.
    Put simply, liability insurance for long term care providers in 
Pennsylvania increasingly is unavailable and unaffordable, and now 
poses a major threat to access to care. In 1999, seven carriers offered 
professional liability insurance to long term care providers in the 
state. By 2001, the number had shrunk to four, which dropped to three 
in 2002. For all practical purposes, two or fewer carriers now appear 
willing to write new long term care business here.
    Not surprisingly, insurance and related costs have skyrocketed. In 
this context, it should be understood that nursing homes in 
Pennsylvania must maintain primary insurance coverage and participate 
in the CAT Fund/MCare Fund 1 as a condition of licensure, 
while personal care homes/assisted living residences and other long 
term care providers are not required by licensure to do so. As a 
result, I will address the situation confronting nursing homes 
separately, unless otherwise noted. The subcommittee should appreciate, 
however, that the basic trends identified affect the entire continuum 
of long term care and senior services.
---------------------------------------------------------------------------
    \1\ As the Subcommittee presumably is aware, from 1976 until 2002, 
Pennsylvania maintained a Catastrophe Loss Fund, or CAT Fund, which 
afforded an initial layer of excess coverage to physicians, hospitals, 
nursing homes and a few other provider types. The CAT Fund was 
administered by the state but funded by surcharges on providers. In 
2002, Pennsylvania replaced the CAT Fund with the Mcare Fund, as part 
of a broader plan to eliminate this intermediate government-
administered insurance layer altogether. During the transition, 
however, the MCare Fund continues to assess providers in a manner 
substantially similar to the CAT Fund.
---------------------------------------------------------------------------
    In 2001, rates for primary coverage increased by as much as 87%. In 
each year since, primary premiums have increased by as much as 500% for 
both nursing homes and assisted living residences. In addition, the CAT 
Fund surcharges and MCare Fund assessments imposed on nursing homes 
have skyrocketed as well. In 2002, for example, CAT Fund surcharges for 
nursing homes increased by as much as 121% for nursing homes throughout 
Pennsylvania. MCare surcharges for 2003 increased at least 43% for most 
nursing homes. I offer a few specific examples to illustrate these 
trends:

 Belle Haven. Belle Haven is a single site, family owned 
        nursing home and personal care home with 59 nursing beds 
        located in Quakertown, Pennsylvania. In its 40 year history, 
        Belle Haven has had no loss experience whatsoever. From 2001 to 
        2002, Belle Haven's primary premium increased 336% and grew 
        another 74% from 2002 to 2003. From 2002 to 2003, the 
        facility's Mcare Fund surcharge increased 97%.
 Gwynedd Square. Gwynedd Square is a freestanding nursing 
        facility with 181 beds located in Lansdale, Pennsylvania. 
        Gwynedd Square has had no claims in 15 years. From 2000 to 
        2001, its premium for $10 million in coverage (both primary and 
        excess above the CAT Fund layer) increased 112%. From 2001 to 
        2002, the cost of the policy grew so great that the facility 
        cut its coverage in half to maintain a level premium.
 Wilmac Corporation. Wilmac Corporation, based in York, 
        Pennsylvania, operates five nursing facilities and a retirement 
        community at various sites in the Commonwealth. Despite no 
        claims during the prior reporting period, Wilmac's premium 
        increased 479% from 2001 to 2002, yet its deductible rose from 
        zero to $50,000 per incident.
 George M. Leader Family Corporation. The George M. Leader 
        Family Corporation, based in Hershey, Pennsylvania, operates 
        assisted living residences and nursing homes across the 
        Commonwealth. In 2000, it purchased $25 million of coverage. In 
        2001, despite modest claims experience, no insurer would offer 
        more than $5 million in coverage, yet the premium for \1/5\th 
        the coverage increased 31%, representing an effective 150% 
        increase.
    Ironically, loss experience among long term care providers in 
Pennsylvania does not justify such precipitous increases in insurance 
costs. In 2000, for example, the average non-zero claim against nursing 
homes was $61,000, well below the national average of $246,000 and the 
$500,000 threshold for CAT Fund attachment. Indeed, from its inception 
in 1976 until July 2001, the CAT Fund paid only $2,670,000 in nursing 
facility claims, yet collected $41,449,325 in surcharges from nursing 
homes. Nursing homes paid surcharges of more than 15 times the amount 
that the CAT Fund paid on their behalf.
    Clearly, factors other than Pennsylvania-specific loss experience 
are causing precipitous increases in professional liability insurance 
costs. Nursing home loss experience in other states, general market 
conditions affecting the insurance industry and generalized concern 
that the ``out-of-control'' malpractice environment for physicians and 
hospitals in Pennsylvania are the true drivers of our costs. This 
reality underscores the need for reform that encompasses the entire 
health care delivery system, including long term care providers, as 
well as the need for both federal and state reforms, if we are to 
stabilize the insurance marketplace.
    While we applaud the various tort reform initiatives adopted by the 
Pennsylvania General Assembly in the past 18 months, we reluctantly 
must conclude that those initiatives have not been sufficient. While we 
are heartened by the Rendell Administration's urgent focus on the 
malpractice crisis, we are dismayed that its approach to date ignores 
the long term care component of the Commonwealth's health care delivery 
system. We do appreciate, however, that H.R. 5, which Congressman 
Greenwood introduced last week, extends to the entire health care 
delivery system, whether health care services are provided in 
hospitals, physicians offices, long term care settings or home-and-
community-based care settings.
    Absent prompt and meaningful reform, it is certain that frail, 
vulnerable seniors in Pennsylvania will face access to care 
difficulties. In fact, we already have begun to see such difficulties 
manifest. In late December of 2002, Temple University Health System 
announced the closure of the Temple Continuing Care Center located in 
North Philadelphia. In addition to this 538-bed facility, Temple closed 
two other nursing homes in 2002, the 180-bed Elmira Jeffries Nursing 
Home and the 148-bed Northwood Nursing and Convalescent Center. 
According to press reports, liability insurance costs were cited as a 
significant contributing factor in all three closures.
    As a result of these closures, some of Philadelphia's most frail 
and vulnerable citizens were relocated from facility to facility, with 
some of the Temple Continuing Care Center's 450 residents transferred 
as far away as Hazleton, Pennsylvania. The added stress of such a long 
move undoubtedly exacerbated the ``transfer trauma'' nursing homes 
residents typically suffer during any relocation process. Given the 
demographics of the North Philadelphia area in which the Temple 
Continuing Care Center was located, it seems unlikely that many family 
members of residents will have easy access to cars and it is certain 
that travel from North Philadelphia to Hazleton without a car is 
difficult at best and impossible at worst. Consequently, closures of 
this kind may well cut residents off from family and friends forever.
    A more prevalent and insidious threat to quality care underscores 
just how crucial it is that we address the malpractice liability crisis 
systemically. Due to growing liability costs, fewer physicians are 
available or willing to serve as medical directors or attending 
physicians in nursing homes. Physicians who do undertake these roles, 
moreover, face increasing difficulties in finding specialists for 
referrals of nursing home residents.
    Unless we take action to stem the rising liability tide, closures 
and relocations will become all too routine for the more than 135,000 
frail, elderly Pennsylvanians who rely on nursing homes and personal 
care homes to support their housing, social and health care needs. 
Unless we take action, our seniors increasingly will not have access to 
the primary care physicians and specialists they need. Unless we take 
action, the roughly 700 nursing facilities and 1800 personal care homes 
in Pennsylvania will face serious financial difficulties, threatening 
the $2.2 billion they pay in salaries to 165,000 employees and the $30 
million they pay in local property taxes each year.
    Unless we take action, taxpayers will bear the brunt of escalating 
liability costs. In the Commonwealth, the Medical Assistance (Medicaid) 
program pays for roughly 70% of nursing home days. Since liability 
costs are apportioned to the Medical Assistance program and since the 
state and federal governments fund Medicaid jointly, the taxpayers 
ultimately will bear the burden of these costs.
    It is noteworthy that the Commonwealth already has acknowledged 
this problem, at least with respect to county nursing homes. Our state 
and county governments have capitalized a captive insurance company to 
offer more affordable liability insurance to the Commonwealth's 40 or 
so county-owned nursing homes. While somewhat beyond the scope of 
today's hearing, this fact both reflects the severity of the problem 
and counsels in favor of affording similar relief to non-governmental 
long term care providers.
    It also is noteworthy that, in states that have not pursued 
liability reforms encompassing the entire health care delivery system, 
the result has been catastrophic not only with respect to claims and 
access, but also with respect to Medicaid costs. In at least one such 
state, fully 30% of every Medicaid dollar paid to nursing homes and 
assisted living residences funds insurance, lawyers, settlements or 
awards rather than patient care and services.
    Frankly, the professional liability situation for long term care 
providers in Pennsylvania is bleak. We are on a course that will 
deprive frail and vulnerable seniors access to quality care and 
services, prevent providers from devoting optimal resources to patient 
care and compel government to devote a growing percentage of scarce 
Medicaid dollars to liability rather than patients. We must alter that 
course quickly and effectively for the good of the Commonwealth and the 
nation.
    Thank you for the opportunity to appear to day. I am happy to 
entertain questions.

    Mr. Greenwood. Thank you, Mr. Rosenbloom. Ms. Menio. Help 
me pronounce that.
    Ms. Menio. Menio.
    Mr. Greenwood. Menio. Okay.

                   TESTIMONY OF DIANE A. MENIO

    Ms. Menio. Thank you, Mr. Chairman, for inviting me. My 
name is Diane Menio and I represent CARIE, which stands for the 
Center for Advocacy for the Rights and Interests of the 
Elderly. Are you hearing me? I am sorry. CARIE stands for the 
Center for Advocacy for the Rights and Interest of the Elderly. 
We have been advocating for older adults for over 25 years. 
Notably, one of the programs we have is a long-term care 
ombudsman, in which we go into nursing homes and personal care 
homes to help resolve complaints that they have. We cover more 
than 7,500 residents in 140 nursing homes in Philadelphia, and 
we also have other programs. We try to be part of the solution 
as well.
    We have an elder abuse prevention training program which 
has been replicated nationwide, in which we go out and try to 
train staff in detecting and preventing abuse and neglect. I 
also should tell you that Mr. Marty Berger sends his regards 
and he is the President of the Pennsylvania Alliance for 
Retired Americans. It is a 250,000 member group of older adults 
who are mostly retired Union members, steelworkers, 
mineworkers, and so on, and he concurs with what I am going to 
be saying.
    Medical liability presents a dynamic issue for advocates 
concerned about older adults. The issue embraces two major 
areas of interest, access and quality, and as Mr. Rosenbloom 
very eloquently talked about the stress on the system and 
residents, we are concerned about those issues as well. As 
medical malpractice is splashed through the headlines, the 
problem of rising premiums and the impact on physicians, 
hospitals, nursing facilities, personal care homes, and other 
providers, presents a compelling problem that needs a 
legislative solution. No one wants to see a caring physician 
forced out of his or her practice or a quality nursing facility 
close its doors. It is also troubling when quality nursing home 
or personal care home providers must be higher insurance 
premiums when those financial resources could be expended on 
caring for residents.
    While residents receive quality care at most long-term care 
facilities, there are serious problems with quality care at 
numerous nursing facilities and personal care homes. Since 
there are about 55,200 residents in approximately 785 nursing 
facilities and 1,800 personal care homes, serving about almost 
80,000 residents in Pennsylvania, there is much at stake. 
Advocates have been fighting for years at the State and Federal 
level for reforms needed to improve the crisis and care 
provided. Pennsylvania, like the rest of the Nation, has a real 
crisis regarding the quality of care provided at long-term care 
facilities. There are numerous studies and research documents 
documenting the extensive problems that exist. In Pennsylvania, 
the Pennsylvania Health Law project recently released a white 
paper that examined data from the Pennsylvania Department of 
Public Welfare. And using the Department's own records, it 
shows how homes have been allowed to operate sometimes for 
years, even when they are jeopardizing the health and safety of 
residents.
    Pennsylvania Auditor General Bob Casey also highlighted 
serious problems with the oversight of nursing facilities and 
personal care homes. All of these things can be found online. A 
quote from his report, ``Health permitted five nursing homes 
with a total of 549 Federal and State deficiencies to continue 
operating with no sanctions.'' So we are seeing problems in 
these places and they are not--the oversight that is in place, 
it doesn't seem to be working.
    Insurance carriers should consider the enforcement actions, 
licensing history, and claims history when determining 
premiums. Certainly, the examples that Mr. Rosenbloom presented 
are of places that haven't had this history, that don't have 
the risk, and we would like to see them not jeopardizing 
resident care because of those benefits. We have talked a lot 
about public citizen, and you know what the statistics show. I 
just wanted to talk about--I have a couple of case examples in 
my testimony, but yesterday, in the Philadelphia Enquirer, on 
the front page, you might have seen a story about a very 
awful--I don't know how to say it, but it was a horrible 
situation of resident abuse not too far away from here in 
Yardley, in which a resident was stomped to death. And in that 
case, according to the article, there were 29 incidents, and 
this comes from the Grand Jury, 29 incidents of abuse or of 
unexplained injury is the way it is described in 8 months 
before this man died. And of those 29 incidents, all but four 
were during the shift of the person who is accused of having 
committed this harm on this individual. In addition, there were 
reports of her having taken drugs from residents, and in fact, 
when one of the staff who saw her do that reported it to the 
administrator, she was fired.
    And so I talk about that case because this is not very 
dissimilar to other cases that we see. I met Congresswoman 
Schakowsky last year at a press conference for staffing in 
nursing homes, and we know that there are very severe problems 
with staffing. I don't know why this person's egregious actions 
were overlooked, but they were, nevertheless, and I do know 
there is a severe staffing shortage. I also noted the average 
wage for personal care home workers in the State of 
Pennsylvania is about $6.50 per hour. I am not a high paid 
person. I work for a non-profit organization, but I can't 
remember the last time I worked for $6.90 an hour. I know that 
I could not take care of my family on that wage. And so we have 
serious, serious problems in this industry that are 
multifaceted.
    The debate as to how to solve the problem with rising 
malpractice premiums has led to this idea of proposing caps. 
While conflicting information exists as to whether the caps 
will reduce the malpractice premiums, and we certainly heard a 
lot about that, we are very concerned about that. This 
gentleman who was stomped to death, if you think about him, a 
gentleman who has Alzheimer's disease, and I don't know how 
many of us have had people with Alzheimer's disease in their 
family, but I have had one and I know how difficult it is for 
families to make decisions, and to make a decision to place 
their loved one in a long-term care facility is very painful in 
and of itself. But then to find out that those you have 
trusted, those you have paid a fair amount to take care of your 
loved one have actually brutally abused that person is very 
difficult. And I speak today for those who have very few 
economic damages but really have non-economic damages, that 
pain and suffering. And families who have people in long-term 
care facilities have pain and suffering as do those residents. 
That man worked many, many, many years not to be stomped to 
death.
    I know my time is up, but as we--the solutions, you know, 
again, I think more needs to be done to distinguish between 
good and poor performing providers. There is no better way to 
decrease liability than to quickly bring poor performing 
providers into compliance, or as a last resort, after other 
remedies have been exhausted, force them out of business. I 
don't propose we close those facilities, because as Mr. 
Rosenbloom said, we are in very critical need of long-term care 
in Pennsylvania. Those providers that have established risk 
reduction program addressing such resident care concerns as 
nutrition and preventing bedsores should be rewarded with lower 
premiums. Ensuring residents receive good care would eliminate 
the need for malpractice suits. Legislators should prohibit 
non-disclosure agreements so that consumers, providers, and 
insurers are aware of the claims against facilities and the 
amounts paid. We are hoping this is a deterrent.
    Finally, it is important for you to consider other factors 
facing providers that make it difficult to operate a facility, 
including Medicare cuts and inadequate Medicaid reimbursement. 
Due to the lack of insurance competition in Pennsylvania for 
patient insurance, physicians receive one of the lowest 
reimbursement rates. These fiscal realities make it difficult 
for providers and physicians to cover the cost associated with 
increasing premiums.
    In conclusion, there are thousands of vulnerable nursing 
home and personal care home residents throughout the 
Commonwealth who deserve better standards of care and better 
enforcement of these standards. There should be no further 
delays in implementing policies that will work to improve the 
standard of care and ensure the health and well being of 
residents. The time for change is long overdue. We hope that 
solutions sought to resolve the malpractice problem will not 
inadvertently be at the expense of frail older victims. Thank 
you, again, for the opportunity to testify and for seeking 
public input into this very important problem.
    [The prepared statement of Diane A. Menio follows:]

 Prepared Statement of David Menio, Center for Advocacy for the Rights 
                      and Interests of the Elderly

    Thank you for convening today's hearing about medical liability in 
Pennsylvania and for the opportunity to present testimony.
    My name is Diane Menio and I represent CARIE, the Center for 
Advocacy for the Rights and Interests of the Elderly. Founded in 1977, 
CARIE is a non-profit organization dedicated to improving the quality 
of life for frail older adults. CARIE's focus of concern spans the 
long-term care continuum of needs from those who are homebound to those 
who are institutionalized. Older adults who experience physical or 
psychological impairment frequently have difficulty advocating for 
themselves and are often a silent group. CARIE works to protect their 
rights and promote awareness of their special needs and concerns. CARIE 
serves as the long-term care ombudsman providing complaint handling and 
general advocacy services for about 7,500 residents of approximately 
140 nursing homes and personal care facilities located in various 
Philadelphia neighborhoods. CARIE also provides a model training 
program that has worked to reduce the incidence of resident abuse and 
neglect. We are also pleased to be initiating a Long Term Care Ethics 
Network for providers in Pennsylvania that is helping them address 
challenging situations at their facilities. It is through this 
experience that we offer the following comments.

                              INTRODUCTION

    Medical liability presents a dynamic issue for advocates concerned 
about older adults. The issue embraces two major areas of interest: 
access and quality. As ``medical malpractice'' is splashed throughout 
the headlines, the problems of rising premiums and the impact on 
physicians, hospitals, nursing facilities, personal care homes and 
other providers, presents a compelling problem that needs a legislative 
solution. No one wants to see a caring physician forced out of his or 
her practice or a quality nursing facility close its doors. It is also 
troubling when quality nursing home or personal care home providers 
must pay higher insurance premiums when those financial resources could 
be expended on caring for residents. While residents receive quality 
care at many long term care facilities, there are serious problems with 
quality care at numerous nursing facilities and personal care homes. 
Since there are about 55,200 residents in approximately 785 nursing 
facilities and about 1,800 licensed personal care homes caring for 
approximately 79,800 residents throughout Pennsylvania, there is much 
at stake. Advocates have been fighting for years at the state and 
federal level for reforms needed to improve the ``crisis in care'' 
provided.

                             CRISIS IN CARE

    Pennsylvania, like the rest of the nation, has a real crisis 
regarding the quality of care provided at long term care facilities. 
There are numerous studies and research documenting the extensive 
problems that exist. In Pennsylvania, the Pennsylvania Health Law 
Project recently released a white paper that examined data from the 
Pennsylvania Department of Welfare (DPW). (The white paper can be found 
at www.phlp.org.) A Report on Pennsylvania's Personal Care Homes and 
Assisted Living Residences: A Call for Reform That has Gone Unheard for 
Over 20 Years provides evidence using DPW's own records to show that 
DPW permits personal care homes to operate, sometimes for years, even 
when they are jeopardizing the health and safety of residents.
    Pennsylvania Auditor General Bob Casey also highlighted serious 
problems with the oversight of nursing facilities and personal care 
homes. (These audits can be found online at www.auditorgen.state.pa.us/
senior/.) An audit found DPW ``seriously deficient'' in its oversight 
of personal care homes. A follow-up audit of the Department of Health 
oversight of nursing facilities found that while there were 
improvements in the Department's response time to investigating 
complaints, there were still serious problems with sanctioning poor 
performing providers. ``Health permitted five nursing homes with a 
total of 549 federal and state deficiencies to continue operating with 
no sanctions.''
    Insurance carriers should consider the enforcement actions, 
licensing history, and claims history when determining premiums. 
Providers that have a good record in terms of the care being provided 
should not have to subsidize the costs of providers that are found to 
repeatedly provide substandard care. Poor performing providers should 
be forced to pay more and improve the care they provide or get of the 
business. These actions would not only work to help consumers but also 
decrease the costs associated with malpractice.
    Public Citizen recently released a report, ``Medical Misdiagnosis 
in Pennsylvania: Challenging the Medical Malpractice Claims of the 
Doctors' Lobby.'' (The report can be found at www.publicitizen.org.) 
According to the report, ``repeat offender physicians are responsible 
for the bulk of medical malpractice costs.'' ``Only 4.7% of 
Pennsylvania's doctors (1,838), each of whom has paid three or more 
malpractice claims, are responsible for 51.4% of all payments.'' Public 
Citizen documents that only a very small percentage of doctors in 
Pennsylvania with multiple malpractice payments are disciplined. Good 
doctors should not be forced to pay for their colleagues' errors. 
Targeting policies that minimize ``repeat offenders'' and improve 
oversight would not only help consumers from becoming victims of poor 
practices but would also help contain malpractice costs.

                             CASE EXAMPLES

    CARIE has visited many facilities that are understaffed, dirty, bug 
infested, and where residents are being neglected. The indignities that 
many residents endure reflect the fears and anxieties that prospective 
residents and families have about turning to a nursing home for care. 
The U.S. Attorney's Office for the Eastern District of Pennsylvania 
lists some very compelling case examples and these lawsuits have had a 
dramatic impact on care provided. The cases can be found at www.usao-
edpa.com/Invest/nursing.htm. One case example describes a 60-year-old 
man with dementia who could walk with a walker when he was admitted to 
the facility and participated in activities. He had no bedsores. Two 
years later, he could no longer walk. He lost a substantial amount of 
weight and continued to lose weight even after a feeding tube was 
inserted. Three years after his admission, he had 15 bedsores. The pain 
associated with the bedsores and his contracting limbs went unattended. 
His autopsy showed that several of his bedsores could have easily been 
prevented with ``simple nursing intervention.''

                  $250,000 CAP ON NON-ECONOMIC DAMAGES

    The debate as to how to solve the problem with rising malpractice 
premiums has led some legislators to propose caps of $250,000 for non-
economic damages. While conflicting information exists as to whether 
this cap will help reduce malpractice premiums, we want to testify that 
this proposal will ultimately prevent residents of long tem care 
facilities from obtaining justice from egregious acts against them. 
Limits on non-economic damages discriminate against older adults. Since 
residents do not have damages for lost wages, the non-economic damages 
are the only damages nursing home residents can be awarded. Since 
California instituted its $250,000 cap, virtually no malpractice 
lawsuits have been litigated on behalf of a nursing home resident. 
While it's clear that residents lost rights in California, data shows 
that the cap has done little to decrease malpractice premiums.
    Federal estate recovery policies are another factor to consider. 
The federal government requires states to have estate recovery 
regulations in place for older adults who receive Medicaid services as 
a condition for participation. If they have resources, older Medicaid 
beneficiaries are required to pay the state back for any Medicaid 
expenditures paid on their behalf. As you know, there are many nursing 
home residents who rely upon Medicaid to help pay for their care. 
Obviously, nursing home residents cannot even begin to repay this debt, 
unless there is a property that is sold. However, should a resident 
receive a settlement, they may ultimately receive little or any 
compensation for their pain and loss to their quality of life as the 
money would go to pay their debt.
    Ageism is pervasive in our society and rears its ugly head in many 
ways. For example, as we described the substandard level of care that 
many nursing facility residents receive becomes at times ``acceptable'' 
or ``unavoidable'' because they are old. Very little value is placed 
upon nursing facility residents. The last time nursing home residents 
in Pennsylvania saw a meager increase in their income was when the 
federal government increased their personal needs allowance from $25 to 
$30 per month in 1988.
    Civil lawsuits can help to improve care. We have witnessed that 
when a lawsuit is filed, regulators who may have been unresponsive, 
heighten their attention to that facility and often take action to 
bring the facility into compliance. Lawsuits and even the threat of a 
lawsuit can serve as a deterrent and improve care. Particularly since 
most cases in nursing homes relate to a systemic problem that 
negatively impacted the individual filing the suit, any improvement 
tends to impact other residents in the facility. Oftentimes as part of 
the settlement of civil lawsuits, facilities are required to establish 
policies or implement a follow-up plan to be sure problems are 
corrected. Residents and their families demand that something be done 
to prevent another human being from suffering as they have.

                               SOLUTIONS

    As we described, more needs to be done to distinguish between good 
and poor performing providers. There is no better way to decrease 
liability than to quickly bring poor performing providers into 
compliance, or as a last resort after other remedies have been 
exhausted, force them out of business. Those providers that have 
established risk reduction programs, addressing such resident care 
concerns, as nutrition and preventing bedsores, should be rewarded with 
lower premiums. Ensuring residents receive good care would eliminate 
the need for malpractice suits.
    Legislators should prohibit non-disclosure agreements so that 
consumers, providers and insurers are aware of the claims against 
facilities and the amounts paid.
    Finally, it is important for you to consider other factors facing 
providers that make it difficult to operate a facility including 
Medicare cuts and inadequate Medicaid reimbursement. Due to the lack of 
insurance competition in Pennsylvania for patient insurance, physicians 
receive one of the lowest reimbursement rates from insurance companies. 
These fiscal realities make it difficult for providers and physicians 
to cover the costs associated with increasing malpractice premiums.

                               CONCLUSION

    In conclusion, there are thousands of vulnerable nursing home and 
personal care home residents throughout the Commonwealth who deserve 
better standards of care and better enforcement of these standards. 
There should be no further delays in implementing policies that will 
work to improve the standard of care and ensure the health and well 
being of residents. The time for change is long overdue. CARIE hopes 
that the solutions sought to resolve the malpractice problem will not 
inadvertently be at the expense of frail older victims.
    Thank you again for the opportunity to testify and for seeking 
public input.

    Mr. Greenwood. Thank you for your testimony, and in respect 
for Ms. Schakowsky's need to get to the airport, we are going 
to allow her to question first, so you are recognized for 10 
minutes.
    Ms. Schakowsky. Thank you, Mr. Chairman. I appreciate this 
and all the other courtesies that you have allowed me today, 
going a little over before, et cetera. I appreciate it.
    I was looking at and listening carefully to your testimony, 
Mr. Rosenbloom, and if there is a--I know something about this 
industry. I was Director of the Illinois State Council of 
Senior Citizens before I went into public office, and if there 
were any industry crying out for experience rating; that is, 
not penalizing the good institutions for the bad, I would think 
it would be the nursing home industry. You know, you have to 
know, that there are bad actors in your business. There are 
some places that you would not want your parents to go, and you 
know where they are, and you know that they have inadequate 
care. And then when you tell me in your testimony that the CAT 
Fund paid only $2,670,000 in nursing facilities claims, yet, 
collected $41.4 million in surcharges from nursing homes, it 
boggles my mind then in almost a non sequitur why you would 
turn to those who have been compensated $2 million as opposed 
to those who have collected $41 million. That is, the rates 
don't make sense, and therefore, the solution should not be to 
go after those who have not been compensated very much.
    When you talk about Medicare and Medicaid, I am with you, 
and Ms. Menio, as well, that the underfunding of healthcare 
professionals and the quality of care in nursing homes, I am on 
it, I am with you 100 percent. But why you would--I would 
hope--and let me just ask you this. doesn't experience rating, 
when you have such a variety of quality within your industry, I 
would think it would be your goal to figure out solutions that 
weed out bad actors rather than institutionalizing a system 
that actually helps them exist, which I could think a 
limitation on payouts would.
    Mr. Rosenbloom. Well, first of all, I appreciate that 
question, and I appreciate the information base from which it 
arises. My initial observation is that with respect to bad 
actors, my position is that bad actors should be eliminated 
from the system as promptly as possible. I believe that our 
regulatory system, State and Federal, gives government 
currently the opportunity to do that. Whether they choose to 
exercise it or not is a different question.
    Second, with respect to the question of why not go after 
the insurance companies or at least put those into the mix, I 
circle back a little bit to the dialog between Congressman 
Greenwood and Governor Rendell this morning. In my judgment, 
there are a mix of issues that need to be addressed to crack 
not only the medical liability insurance problems, but also, 
the long-term solutions to providing long-term care and senior 
services for us, for our parents--those of us that are in the 
baby boom are dealing with this right now, and for ourselves as 
we age, and it is a complex mix of issues.
    I agree that, in my view, damage caps, whether it is 
$250,000 or something else, are a necessary but not sufficient 
component of the solution. And the reason I draw that 
conclusion is that in my own investigations of what is driving 
the liability insurance crisis for long-term care providers in 
this State and elsewhere, I have been informed by insurance 
companies, by representatives of insurance companies, that in 
order to stabilize rates--and no one is suggesting that rates 
are going to go down. We have heard a fair amount of dialog 
about that today. I am not suggesting it. I don't think that 
caps will reduce rates, necessarily. I think they might be one 
of the important factors in stabilizing them. What I am told is 
here is what we need to stabilize the insurance market. We need 
predictability and regularity. That is true with respect to the 
number of claims, that is true with the average cost for each 
claim, not just how much is ultimately paid out in judgments 
and awards, but also how much each claim costs to get from 
filing to ultimate disposition, whether it is dismissal, 
settlement, judgment, or award.
    And so from my perspective, that is an important component. 
I believe, frankly, Congresswoman, that if we are going to 
solve this problem, we are going to solve it in part by 
everybody, you know, experiencing a little bit of pain, if you 
will. And I agree with much of the comment that we have heard 
today, that on the quality side of the ledger, there has to be 
more done--excuse me, I have a little cold--more done there, as 
well as more done on the insurance side, as well as more done 
on the civil justice system side.
    Ms. Schakowsky. Okay. I have to tell you, I actually find 
it rather shocking, knowing what I know about the industry from 
personal experience and from GAO reports that were done in my 
Government Reform Subcommittee that I was on before that you 
would be advocating for some of these bad actors to actually 
pay lower rates. It is just shocking to me. It would seem to me 
that some of those nursing homes that are responsible for some 
of the abuses that we know happen every single day in nursing 
homes, that you would seek a solution that would actually lower 
their rates.
    Mr. Rosenbloom. Congresswoman, I, respectfully, disagree. I 
think my solution that I am proposing is to create and actually 
to use the regulatory tools that exist so that those bad actors 
simply are not providing care and services, so that they don't 
exist. But a part of my solution is also to say that if we are 
going to appropriately balance between compensating injured 
parties for legitimate injuries that they have incurred because 
of negligence on the one hand, and otherwise stabilize the 
healthcare delivery system and use public resources as 
effectively as possible, that the balance has to be struck 
somewhat differently from where it is right now.
    Ms. Schakowsky. Could I, in the minute before my taxi 
comes, I wondered if I could ask Ms. Menio--I, actually, just 
would like you to that on behalf of the people who then would 
be limited to $250,000.
    Ms. Menio. Yes. I just, you know, I did already talk about 
some of these things. And certainly, you made some very good 
points, why should we subsidize bad actors. And one of the 
areas I am concerned about is nursing homes closing and 
personal care homes closing. They are a resource, and having 
people that live in our community have to go miles and miles 
away is a severe problem. We need to be----
    Ms. Schakowsky. The regulatory system--is the regulatory 
system working?
    Ms. Menio. No, in some cases it is not. And you know, the 
reports that I have referenced in my testimony will show you 
reports on Pennsylvania. There are GAO reports about, you know, 
and a CMS report that is available on the Nation. But on 
Pennsylvania, and also a GAO report on Pennsylvania that was 
done last year. You will find that the regulatory system 
doesn't always work. And we know that firsthand because we are 
in there reviewing complaints, sitting at exit conferences 
where the regulators talk about what the issues are. And some 
of the places that I talked about were places that have been--
we had a personal care home in Philadelphia that was on a cease 
and desist order for more than 5 years. During those 5 years, 
we were in that facility dealing with residents, severe 
resident neglect. They stole their money, you know, and they 
don't have much money. These are not people that--these are 
poor people we are talking about, and that was allowed to 
happen by the regulatory system that exists.
    I also have to say that we have Federal law that regulates 
nursing homes. We do not have Federal law that regulates 
personal care or assisted living. And in the State, we have 
personal care home regulations which regulates facilities that 
call themselves assisted living as well. They are quite 
minimal. So there aren't strong regulations in place to 
regulate what in some places are called adult care homes, or 
personal care homes, or assisted living in Pennsylvania.
    Ms. Schakowsky. Let me just ask this final question. Could 
you explain to the committee the relationship between 
substantial civil judgments and criminal prosecutions of 
nursing home abuses in southeastern Pennsylvania?
    Ms. Menio. Well, you know, my experience has been in 
working with the Eastern District Office of the U.S. Attorney's 
Office, which a number of years ago did some groundbreaking 
prosecution based on the False Claims Act, because we have 
providers who are taking Medicaid and Medicare moneys to 
provide care, and then lo and behold, they are not providing 
care. Nutrition is a good example. Nutrition is something that 
is included in the Medicaid reimbursement rate. If they are not 
providing adequate nutrition, they are not fulfilling their 
responsibility as a Medicaid provider. And so the judgments 
that have--or the settlements that have taken place here in 
Philadelphia and the Eastern District, which includes 
southeastern Pennsylvania, have actually--we have seen great 
advances, because what the settlements include is not just 
money, but include having solutions put in place, having people 
come in, experts come in and monitor medication administration, 
monitor nutrition, and so there is actually solutions being put 
in place.
    Ms. Schakowsky. Not just for that individual but----
    Ms. Menio. No. To change the system, to raise the bar so to 
speak, so that is what we see the civil suits can sometimes do, 
and on the Federal level civil suits have accomplished that, 
and I can tell you some of the facilities that we dreaded going 
into, that we were in many, many times 10 years ago are better 
today because of those settlements.
    Ms. Schakowsky. Thank you. And thank you, Mr. Chairman.
    Mr. Greenwood. I thank the gentlelady from Illinois for 
coming and recognize that she has a plane to catch so you may 
slink off whenever you choose.
    And now we will return to Mr. Smarr and ask for your 
testimony, sir.

                 TESTIMONY OF LAWRENCE E. SMARR

    Mr. Smarr. Chairman Greenwood, Representative Deutsch, and 
members of the subcommittee, 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, and 
other healthcare providers. The 43 PIAA insurance company 
members, such as the Pennsylvania Medical Society Liability 
Insurance Company, can also be characterized as healthcare 
professionals caring for the professional liability risks of 
their colleagues, doctors insuring doctors and hospitals 
insuring hospitals. We believe that the physician owned/
operated insurance company members of the PIAA insure over 60 
percent of America's doctors.
    Let me get right to the issue. Over the past 3 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, the 
leading insurance industry rating agency, the medical liability 
insurance industry incurred $1.53 in losses and expenses for 
every $1 of premium incurred. The primary driver of the 
deterioration in the medical malpractice insurance industry 
performance has been paid claim severity or the average cost of 
a paid claim.
    Exhibit A, and I believe you have these charts 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. That is compared to 2.6 
percent increase in the consumer price index. The data from 
this exhibit comes from the PIAA data sharing project, a 
medical cause of loss data base created in 1985 for the purpose 
of identifying common trends among malpractice claims which are 
used for patient safety purposes. To date, over 180,000 claims 
and suits have been reported to this data base. One very 
troubling aspect is proportion of claims filed which are 
ultimately determined to be without merit; 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 closed were found to be meritorious, 
and most of these being paid through settlement. Of all claims 
closed, more than two-thirds had no indemnity payment to the 
plaintiff. And when the claim was closed at trial at verdict, 
the defendant prevailed an astonishing 80 percent of the time.
    As shown in Exhibit B, 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 per 
defendant.
    Exhibit C 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 D 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 8 percent of 
all claims paid on behalf of individual practitioners in 2001 
as shown on Exhibit E. This percentage has doubled in the past 
4 years.
    Unfortunately, I am going to spend the rest of my time 
debunking a major myth being propagated by those who oppose 
effective Federal healthcare liability reform. Contrary to the 
unfounded allegations of those who oppose effective reforms, 
medical malpractice insurers are primarily invested in high 
grade bond and have not lost large sums in the stock market as 
we have heard here today. 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 F shows, the medical liability insurance 
companies invest significantly less in equities than did all 
property-casualty insurers. Brown Brothers states that the 
equity investments of medical liability companies had returned 
similar to the market as a whole. This indicates that they 
maintain a versified equity investment strategy. Since medical 
malpractice companies did not have an unusual amount invested 
in equities, and what they did was invest it 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, as this is shown in Exhibit G. Such, the 
assertion that insurers have been forced to raise the rates 
because of bad investments is simply not true.
    The PIAA firmly believes that the adoption and effect of 
Federal healthcare liability reforms similar to the California 
MICRA reforms enacted in 1975, will have a demonstrable effect 
on professional liability costs. The keystone of the MICRA 
reforms is a $250,000 cap on non-economic damages. These 
reforms are similar to the revisions of H.R. 5, the Health Act. 
The same bill was passed by the House last year as H.R. 4600 
and was scored by the CBO as providing over $14 billion in 
savings to the Federal Government and an additional $7 billion 
to the States, because tort reform works. Using annual data 
published by the National Association of Insurance 
Commissioners, Exhibit H documents the savings California 
practitioners and healthcare consumers have enjoyed since the 
enactment of MICRA over 25 years ago. As Chairman Greenwood has 
already pointed out, the total malpractice premiums reported to 
the NAIC since 1976 have grown by 167 percent, while premiums 
for the rest of the Nation have grown by 505 percent. These 
savings are truly demonstrated in the rates charged to 
California doctors as shown on Exhibit I. Successful experience 
in California and other States, such as Colorado, makes it 
clear that MICRA style tort reforms do work without lowering 
healthcare quality or limiting access to care.
    Legislators are now challenged with finding a solution to 
the medical malpractice insurance affordability and 
availability dilemma, a problem long in coming, which has truly 
reached the crisis stage. The increased cost being experienced 
by insurers, largely owned or operated by healthcare 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 percent of the moneys available to pay claims are 
paid to indemnify the only 30 percent of claims filed with 
merit and the expenses of the remainder. The system works fine 
for the legal profession, which is why the trial lawyers and 
others fight so hard to maintain the status quo.
    The PIAA strongly urges members of the House of 
Representatives to pass H.R. 5, the Health Act, thereby 
assuring fair compensation for patients injured in the 
healthcare system and also assuring Pennsylvania's citizens and 
people across the Nation that they will be able to receive 
necessary healthcare services. Thank you.
    [The prepared statement of Lawrence D. Smarr follows:]

   Prepared Statement of Testimony of Lawrence E. Smarr, President, 
               Physician Insurers Association of America

                              INTRODUCTION

    Chairman Greenwood, Representative Deutsch and members of the Sub-
Committee, 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 regarding the medical 
liability crisis as it affects patients and health care providers in 
Pennsylvania and across the nation.
    As we all know, professional liability insurance premiums for 
doctors and hospitals are rapidly rising in many states such as 
Pennsylvania 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 Pennsylvania and other 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. While PIAA 
members, such as the Pennsylvania Medical Society Liability Insurance 
Company, are viable insurance companies, they 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 insurance 
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 a 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 in 
Pennsylvania and other crisis states across the nation. 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 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 the losses and expenses incurred by 
insurers 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 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%.''
    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.1
---------------------------------------------------------------------------
    \1\ Did Investments Affect Medical Malpractice Premiums? Raghu 
Ramachandran, Brown Brothers Harriman, January, 2003.
---------------------------------------------------------------------------
    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 malpractice 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.2
---------------------------------------------------------------------------
    \2\ Did Investments Affect Medical Malpractice Premiums? Raghu 
Ramachandran, Brown Brothers Harriman, January, 2003.
---------------------------------------------------------------------------
                            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 
decline 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.
    Exhibit 10 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% 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 
data base which was created in 1985 for the purpose of identifying 
common trends among malpractice claims which are used for risk 
management purposes by the PIAA member companies. To date, over 180,000 
claims and suits have been reported to the data base.
    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 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 16 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 currently 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 is 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. 
We are very pleased that Chairman Greenwood and his many co-sponsors 
have reintroduced this legislation as HR 5 in the 108th Congress. 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, the same reforms found in HR 5, 
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 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 23, 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 need 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 24 are due to Proposition 103, a ballot initiative 
passed in 1989 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:Q02
 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 for two years 
        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 
        which intervene in hearings conducted by the Department of 
        Insurance 3.
---------------------------------------------------------------------------
    \3\ Ironically, the Proposition 103 Enforcement Project headed by 
Harvey Rosenfeld, a self-proclaimed consumer advocate who led the fight 
for the adoption of Prop 103, has received almost $1.5 million in 
intervenor fees through 1997. In total, ``consumer organizations'' and 
individuals have received over $7.1 million in intervenor fees and 
administrative costs through 1997. Source: Personal Insurance 
Federation of America, www.pifc.org/insurance/prop103.html.
---------------------------------------------------------------------------
    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 medical liability insurance 
rates. Prop 103 did have the effect of freezing most insurance rates in 
California until as late as 1994.4 This all came at a time 
when medical liability insurers across the nation were seeing their 
rates level off or even decline. One major California medical liability 
insurer, the NORCAL Mutual Insurance Company, actually had two rate 
decrease filings (-2%, -12%) which had been made with the department of 
insurance in 1990 and 1991 held up until the conclusion of legal 
challenges and exemption issues were resolved. NORCAL reached a consent 
agreement with the California Department of Insurance in November of 
1991, at which time its rate decreases were granted. 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 and was not required to reduce its rates as a result of Prop 
103. As NORCAL had already paid dividends exceeding 20% during the 
period in question, no monies were returned to policyholders as a 
result of Prop 103. The experience of other California physician-owned 
companies 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.
---------------------------------------------------------------------------
    \4\ Background on Insurance Reform--A Detailed Analysis of 
California Proposition 103, www.consumerwatchdog.org/insurance/fs/
fs000159.php3.
---------------------------------------------------------------------------
                               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 which 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 of Representatives to 
pass HR 5, the HEALTH Act, thereby stopping the exodus from 
Pennsylvania and similar states 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.

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    Mr. Greenwood. Thank you, Mr. Smarr. Mr. Hurley.

                    TESTIMONY OF JAMES HURLEY

    Mr. Hurley. Good afternoon, Chairman Greenwood, Ranking 
Member Deutsch, and members of the subcommittee. Thank you for 
inviting me to testify today on behalf of the American Academy 
of Actuaries. It is an honor to be here in a facility where so 
much good is accomplished.
    The Academy is the public policy and professionalism 
organization for actuaries practicing in all specialties within 
the United States. The Academy is nonpartisan and assists the 
public policy process through the presentation of clear and 
objective actuarial analysis. The Academy also developed and 
upholds actuarial standards of conduct, qualification, and 
practice. For those not familiar with actuaries, actuaries 
collect and evaluate loss and exposure data to advise about 
rates to be charged for prospective coverage and reserve 
liabilities be carried related to the coverage already 
provided.
    I appreciate this opportunity to comment on issues related 
to the availability and pricing of medical malpractice 
insurance, and in the time available, I would like to highlight 
a few points from my written statement. I will start by 
discussing recent experience in the medical malpractice line of 
business. During the 1990's, the medical malpractice line 
experienced favorable operating results. These results were 
contributed to by favorable reserve development on prior 
coverage years and healthy investment returns. Insurers 
competed aggressively. Healthcare providers shared in the 
benefit of improved loss experience and higher levels of 
investment income through stable or decreasing charged 
premiums.
    Recently, however, the cost of medical malpractice 
insurance has been rising, and Pennsylvania is but one State 
with the symptom of several others. Rate increases have been 
precipitated in part by the growing size of claims, more 
frequent claims in some areas, and higher defense costs. The 
decline in expected future bond yields exacerbates the need for 
rate increases. From a financial standpoint, medical 
malpractice results deteriorated for the 3 years ending 2001. 
The 2002 data is not yet available but is projected to reflect 
similar results.
    Two indicators of financial results are the combined ratio 
and the operating ratio. We can obtain these indicators for 
reporting companies from A.M. Best Company, a company that 
offers comprehensive data to insurance professionals and tracks 
these results. The combined ratio is an indication of how the 
company is doing in its insurance underwriting. For all 
companies reporting to A.M. Best, the medical malpractice 
combined ratio of 130 percent and 134 percent for 1999 and 
2000, respectively, deteriorated, as Mr. Smarr noted, to 153 
percent for 2001. For underwriting, as Mr. Smarr noted, this 
represents a loss of 53 cents on each dollar of premium written 
in 2001. Preliminary projections for 2002 are for a combined 
ration just under 140 percent.
    A measure of the overall profitability of insurers is given 
by the operating ratio. The A.M. Best operating ratio adjusts 
the combined ratio for other expense and income items, 
primarily, investment income, but with the exception of Federal 
income tax. The operating ratio for both 1999 and 2000 was 
approximately 106 percent, indicating a net loss of 6 cents on 
every dollar of premium. This deteriorated to 134 percent in 
2001, indicating a loss of 34 cents on every dollar of premium. 
Given lower interest income, the 2002 operating ratio will 
probably not improve as much as the combined ratio. At these 
levels, 2001 and 2002 results are the worst they have been in 
15 years or more, approximating levels of the 1980's.
    As is clear from this data, today, the laws and operating 
environment has deteriorated. Benefits of favorable reserve 
development appear to be gone, and the available investment 
income has declined. In fact, some observe that reserve 
liabilities may require increases to cover current ultimate 
loss obligations. As a result, rates for both insurers and 
reinsurers need to increase to properly align with current loss 
and investment income levels. Companies failing to do this 
jeopardize their surplus base and financial health.
    My written statement summarizes the two key drivers of 
financial results and their effects on operating results and 
surplus for some 30 companies specializing in this coverage. 
These companies represent about one-third of the companies 
reporting to Best. The results for these companies reflect 
similar deterioration. In Chart C on page 6 of my testimony, it 
shows the total after tax operating income for these companies. 
The favorable operating income of the earlier years in the 20 
percent neighborhood declines to a slight profit in 2000 and to 
a 10 percent loss in 2001. Regarding the consequential impact 
on surplus, Chart D on page 7 of my testimony demonstrates the 
change in surplus from year to year for these same companies. 
Surplus increased through 1999 by 5 percent, to as much as 20 
percent at the beginning of the period, but at a decreasing 
rate over the timeframe.
    Importantly, however, surplus declined in 2000, and more 
significantly, in 2001. This is important because surplus 
represents the capital base for these insurers. Its decline 
reduces capacity to write new or renewing business 
prospectively and lessens their ability to absorb any adverse 
development on business written in prior years. And this 
includes their opportunity to write business that is becoming 
available due to companies no longer writing the coverage.
    Companies continuing to write medical malpractice coverage 
must interpret the current experience and determine what rates 
to charge for prospective coverage. The term ratemaking is used 
to describe this process. In ratemaking, the company must 
estimate the cost of the prospective coverage, set a price for 
it, and assume the risk that the cost may differ, perhaps 
substantially, from those estimates. The ratemaking process is 
forward looking and normally does not reflect loadings for past 
pricing inadequacy or past investment losses. In short, 
ratemaking reflects future costs and expectations.
    The ratemaking process starts with historical experience 
for the specific coverage, usually, within a State, and is 
intended to determine rates for that coverage and that 
jurisdiction for a given time period. To appropriately adjust a 
loss experience, a company must incorporate consideration of 
expenses, the time value of money, and an appropriate provision 
for risk and profit associated with the insurance transaction.
    Some liens of business are more predictable than others. 
Medical malpractice is generally viewed as being more difficult 
to predict than most other lines. This is because the 
relatively low number of claims, high and variable size of 
claim paths, and the long delay between occurrence, report, and 
disposition of a claim. Hence, rate setting is more uncertain 
for medical malpractice coverage. My written testimony provides 
a bit more detailed discussion of this process, however, three 
additional observations: (1) It should be noted that rates are 
generally subject to regulatory oversight in most 
jurisdictions; (2) Likely, or in similar fashion, investment 
portfolios of insurance companies are also regulated by the 
insurance code; and (3) Because rates are generally reduced to 
reflect investment income on the insurance transaction based on 
prospective bond yields when interest rates yields decrease, 
rates need to increase.
    In conclusion, I appreciate this opportunity to provide an 
actuarial perspective on these important issues. As the person 
who chairs the Medical Malpractice Subcommittee at the Academy, 
let me say that we are encouraged by the interest the chairman 
and others have shown in working toward long-term solutions in 
this area, and I would be glad to answer any questions you have 
or provide any additional information that would be helpful to 
the committee. Thank you.
    [The prepared statement of James Hurley follows:]

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

    The American Academy of Actuaries is the public policy organization 
for actuaries practicing in all specialties within the United States. A 
major purpose of the Academy is to act as the public information 
organization for the profession. The Academy is non-partisan and 
assists the public policy process through the presentation of clear and 
objective actuarial analysis. The Academy regularly prepares testimony 
for Congress, provides information to federal elected officials, 
comments on proposed federal regulations, and works closely with state 
officials on issues related to insurance. The Academy also develops and 
upholds actuarial standards of conduct, qualification and practice and 
the Code of Professional Conduct for all actuaries practicing in the 
United States.

                              INTRODUCTION

    The American Academy of Actuaries appreciates the opportunity to 
provide comments on issues related to the availability and pricing of 
medical malpractice insurance. The Academy hopes these comments will be 
helpful as the subcommittee considers related proposals.
    This testimony provides some facts about medical malpractice 
financial results updated through 2001, contributing factors, and some 
common misconceptions about the results. Additionally, we provide 
ratemaking information.

Then and Now
    During the 1990s, the medical malpractice insurance line of 
business experienced favorable operating results primarily due to 
favorable development of prior coverage years and healthy investment 
returns. Insurers offering this line of coverage in the 1990s competed 
aggressively. Healthcare providers shared in the benefit of improved 
loss experience and higher levels of investment income through stable 
or even decreasing premium charges. Specialty companies have had a 
substantial market share for this line of business because it has been 
considered a high-risk type of insurance, which requires specialists to 
underwrite policies and administer claims.
    Recently, however, the cost of medical malpractice insurance has 
been rising. Rate increases have been precipitated in part by the 
growing size of claims, more frequent claims in some areas, and higher 
defense costs. The decline in expected future bond yields exacerbates 
the need for rate increases.
    From a financial standpoint, medical malpractice insurance results 
deteriorated significantly during the last three years ending in 2001. 
One measure of financial results is the combined ratio--the ratio of 
all incurred losses and expenses to premium. For all companies 
reporting to A.M. Best (an organization offering comprehensive data to 
insurance professionals), the combined ratio of 130 percent and 134 
percent in 1999 and 2000, respectively, deteriorated to 153 percent in 
2001. Results for 2002 are not yet available, however, preliminary A.M. 
Best projections for 2002 are for a combined ratio slightly under 140 
percent. This means insurers are expected to pay out $1.40 in losses 
and expenses for every dollar of premium they collect.
    A measure of the overall profitability of insurers is the operating 
ratio. The A.M. Best operating ratio adjusts the combined ratio for 
other expense and income items, primarily investment income, with the 
exception of federal income tax. The operating ratio for 1999 and 2000 
was approximately 106 percent, indicating a net loss of six cents on 
every dollar of premium. This deteriorated to 134 percent in 2001, 
indicating a loss of 34 cents on every dollar of premium. Considering 
the lower investment income return likely to be achieved by insurers in 
2002, the 2002 operating ratio will probably not improve as much as the 
combined ratio. At these levels, 2001 and 2002 results are the worst 
they have been in 15 years or more, approximating levels of the 1980s. 
State insurance laws regulate the type of allowable investments for 
insurers and these laws have fairly low limits on the amount of equity 
investments permitted.
    Today, the loss environment has deteriorated, the benefits of 
favorable reserve development appear to be gone, and the expected 
future investment income has declined. As a result, rates for both 
insurers and reinsurers need to increase to properly align with current 
loss and investment income levels. Companies failing to do this 
jeopardize their surplus base and financial health. Counter to what 
some may perceive, the investment results I have mentioned are based on 
a portfolio that is dominated by bonds with equity investments 
representing a minority of the portfolio.

                               SOME FACTS

    The following discussion is based on results of 30 companies (the 
Group), primarily physician-owned and/or operated medical liability 
insurers. Notably, these results exclude St. Paul and other commercial 
insurers, as well as MLMIC, the latter primarily a writer insuring New 
York state physicians. These results represent more than one-third of 
the exposure reported to A.M. Best. Information is shown for the last 
seven years ending 2001 because 2002 results have not been reported.
    Results for these companies reflect a four percent after-tax 
operating profit in 2000. However, the results deteriorate to a 10 
percent operating loss for 2001.
    The following is a discussion and charts summarizing the two key 
drivers of financial results and their effects on operating results and 
surplus:
    Driver #1--Higher combined ratio (defined here as all incurred loss 
and expenses to premium earned). The combined ratio deteriorated by ten 
points in 2000 and a further 14 points in 2001. The ratios were 124 
percent and 138 percent in 2000 and 2001, respectively. The preceding 
five years reflect a rather stable 110-115 percent range. The driver of 
the poorer experience in 2000 and 2001 is the deterioration in the loss 
and loss adjustment expense ratio, because the underwriting expense 
ratio has remained relatively constant. The earlier years reflect the 
benefit of significant reserve reductions from prior coverage years.
    Driver #2--Decreased investment income (shown here as pre-tax 
investment income divided by premium earned). As shown in Chart A, 
these insurers generally spend more money on loss and expense than they 
collect in premium. This is possible because investment income can 
offset a modest underwriting loss.
    In Chart B, pre-tax investment income is divided by earned premium 
to estimate the amount by which the underwriting combined ratio can be 
offset by investment income. This percentage has declined from the mid-
40s in the early years, to the mid-30s in 1999, and in 2001, to 31 
percent. This ``offset'' will continue to decline in the future. Most 
insurance company invested assets are in bonds, which are affected by 
the current lower yield environment. Overall yields going forward will 
be less than they were in the past.
    Effect #1--Net operating income falls (shown in Chart C as a 
percentage of premium). Net operating income represents the net impact 
of the combined ratio and investment income ratio, adjusted for other 
income statement items (primarily policyholder dividends, miscellaneous 
other income, and federal income tax). The strong operating returns of 
the early years have been followed by the slight 2000 profit and 10 
percent loss for 2001 described earlier.
    Effect #2--Chart D shows the percentage change in surplus from one 
year to the next. Surplus represents the capital base for these 
insurers, and its decline in 2000 and 2001 reduces their capacity to 
write new or renewing business prospectively, and lessens their ability 
to absorb adverse loss developments on business written in prior years.

                          CONTRIBUTING FACTORS

    There are several factors contributing to the financial results 
described in Chart D. It is probably best to note the factors 
contributing to the favorable results of the early and mid-1990s and 
then discuss the changes in these factors today.
    Factor #1: Throughout the 1990s, premium rates for the insurance 
industry as a whole were relatively flat or down in several states. 
Rates decreased toward the middle and end of the period in comparison 
to rates at the beginning of the decade. Note that the final price 
charged is a function of several different items, including the filed 
rate and premium discounts.
    Factor #2: Loss-cost trends (the annual change in the frequency and 
severity of claims) during this time period were relatively low. Long-
term indications suggest a low single-digit change, three percent to 
five percent, varying from state to state. Rates established at the 
beginning of the period contemplated higher trends. Companies responded 
to this emerging data in different ways. Some held rates stable and 
paid policyholder dividends or gave premium discounts. Some reduced 
filed rates. Others found they needed to increase rates modestly and 
tried to refine pricing models to improve the equity of their program 
costs. Many insurers employed combinations of these, with resulting 
increases in some programs and decreases in others, depending on 
specific facts and circumstances. However, in general, there was a 
decline in the adequacy of premiums during this period. Collected rates 
came into line with insurers' costs, but competitive actions pushed 
rates even lower in some jurisdictions.
    Factor #3: Ultimate losses for accident years in the late 1980s and 
early 1990s ultimately were lower than originally projected. Evidence 
of this emerged gradually over a period of years as claims settled. 
When loss reserves for prior years are reduced, it contributes income 
to the current calendar years, improving financial results (i.e., the 
combined and operating ratios). That was the pattern during the middle 
to late 1990s, as shown in Chart E. What is evident from that chart is 
that favorable reserve development was not a significant factor in 2001 
for these companies. In contrast, the total medical malpractice line of 
business increased reserves in 2000 and even more significantly in 
2001.
    Factor #4: During the 1990s, there was a real spread between 
returns on fixed-income investments and economic inflation. In 
addition, returns on the Group's modest equity investments contributed 
to produce significant investment gains, improving overall financial 
results. These gains increased the investment income ratio (see earlier 
graph) and improved the operating ratio.
    Factor #5: Given the financial results of the early-to-mid-1990s, 
some companies considered expansion into new markets (although they may 
have had limited information to develop rates), became more competitive 
in existing markets, and offered more aggressive premium discounts. In 
most jurisdictions, ``discounts'' against the manual premium became 
common, reducing the actual premiums paid by health care providers. As 
a consequence, market prices decreased.
    Factor #6: Loss-cost trends, particularly claim severity, began to 
increase toward the latter part of the 1990s. The number of large 
claims increased, but even analyses designed to eliminate the 
distorting effects of very large claims began to show a significant 
increase. This, coupled with the cumulative effect of the low loss-cost 
trend and rate activity in the earlier part of the decade, produced 
rate indications that were increasing rapidly in many states.
    Factor #7: In 2001, there was little favorable loss reserve 
development or ``good news'' from prior coverage years, although 
results varied on a company-by-company basis. By comparison, total 
industry medical malpractice results reflected adverse or unfavorable 
loss development (defined as approximately 20 percent of premium) in 
2001. The increase in loss/cost trends calls into question, however, 
whether current reserve levels will ultimately be adequate to pay all 
future losses.
    Factor #8: Rates of return on bonds declined and equity values 
fell. This affected investment earnings on newly invested assets and 
the expected future investment earnings that are used to offset 
prospective premiums A one percent drop in interest rates can be 
translated into a rate increase of two to four percent. A two and one-
half percent drop in interest rates, which has occurred since 2000, can 
translate into a rate increase of between five and ten percent.
    Factor #9: Reinsurers' experience deteriorated as their results 
were affected by the increased claim severity and pricing changes in 
the early-to-mid-1990s. Many medical malpractice insurers are not large 
enough to take on the risks inherent in this line of insurance on their 
own. They require someone else (reinsurers) to share the risk. There 
would be less medical malpractice insurer capacity without reinsurers. 
Because reinsurers generally cover the higher layers of exposure, their 
results were disproportionately affected by claim severity increases. 
This, coupled with the broadly tightened reinsurance market after the 
events of Sept. 11, 2001, caused reinsurers to substantially increase 
rates and tighten terms of reinsurance for medical malpractice.

                         THE RATEMAKING PROCESS

    Ratemaking is the term used to describe the process by which 
companies determine what premium is indicated for a coverage. In the 
insurance transaction, the company assumes the financial risk 
associated with a future, contingent event in exchange for a fixed 
premium before it knows what the true cost of the event is if any. The 
company must estimate those costs, determine a price for it and be 
willing to assume the risk that the costs may differ, perhaps 
substantially, from those estimates. A general principle of ratemaking 
is that the rate charged reflects the costs resulting from the policy 
and the income resulting from the anticipated policy covered losses, 
not what is actually paid or is going to be paid on past policies. It 
does not reflect money lost on old investments. In short, a rate is a 
reflection of future costs.
    In general, the actuarial process used in making these estimations 
for medical malpractice insurance starts with historical loss 
experience for the specific coverage and, usually, for a specific 
jurisdiction. Rates are determined for this coverage, jurisdiction, and 
a fixed time period. To the appropriately projected loss experience, a 
company must incorporate consideration of all expenses, the time value 
of money and an appropriate provision for risk and profit associated 
with the insurance transaction.
    For a company already writing a credible volume of the coverage in 
a state, the indications of the adjusted ultimate loss experience can 
be compared to its current premiums to determine a change. For a 
company entering the line or state for the first time, obtaining 
credible data to determine a proper premium is often difficult and, 
sometimes, not possible. In the latter situation, the risk of being 
wrong is increased significantly.
    Additionally, some lines of insurance coverage are more predictable 
than other lines. The unpredictability of coverage reflects its 
inherent risk characteristics. Most companies would agree that costs 
and, therefore, rates for automobile physical damage coverage, for 
example, are more predictable than for medical malpractice insurance 
because automobile insurance is relatively high frequency/low severity 
coverage compared to medical malpractice insurance. In the case of auto 
physical damage, one has a large number of similar claims for 
relatively small amounts that fall in a fairly narrow range. In medical 
malpractice insurance, one has a small number of unique claims that 
have a much higher average value and a significantly wider range of 
possible outcomes. There also is significantly longer delay for medical 
malpractice insurance between the occurrence of an event giving rise to 
a claim, the reporting of the claim, and the final disposition of the 
claim. This longer delay adds to the uncertainty inherent in projecting 
the ultimate value of losses, and consequently premiums.
    The following facts explain the ratemaking process:

1. Historical loss experience is collected in coverage year detail for 
        the last several years. This usually will include paid and 
        outstanding losses and counts. The data is reviewed for 
        reasonableness and consistency, and estimates of the ultimate 
        value of the coverage-year loss are developed using actuarial 
        techniques.
2. Ultimate losses are adjusted to the prospective level (i.e., the 
        period for which rates are being made). This involves an 
        appropriate adjustment for changes in average costs and claim 
        frequencies (called trend). Adjustments also would be made for 
        any changes in circumstances that may affect costs (e.g., if a 
        coverage provision has been altered).
3. Adjusted ultimate losses are compared to premium (or doctor counts) 
        to determine a loss ratio (or loss cost per doctor) for the 
        prospective period.
4. Expenses associated with the business must be included. These are 
        underwriting and general expenses (review of application, 
        policy issuance, accounting, agent commission, premium tax, 
        etc.) Other items to consider are the profit and contingency 
        provision, reinsurance impact, and federal income tax.
5. A final major component of the ratemaking process is consideration 
        of investment income. Typically for medical malpractice 
        insurance, a payment pattern and anticipated prospective rate 
        of return are used to estimate a credit against the otherwise 
        indicated rate.
    These five steps, applied in a detailed manner and supplemented by 
experienced judgment, are the standard roadmap followed in developing 
indicated rates. There are a number of other issues to address in 
establishing the final rates to charge. These include recognizing 
differences among territories within a state, limits of coverage, 
physician specialty, and others. The final rates will reflect 
supplemental studies of these various other aspects of the rate 
structure.
    Many states have laws and regulations about how premium rates can 
be set and what elements can or must be included. The state regulators 
usually have the authority to regulate that insurance premium rates are 
not excessive, inadequate, or unfairly discriminatory. It is not 
uncommon for state insurance regulators to review the justification for 
premium rates in great detail and, if deemed necessary, to hold public 
hearings with expert testimony to examine the basis for the premium 
rates. In many states, the insurance regulator has some authority to 
restrict the premium rates that insurance companies can charge.

                        FREQUENT MISCONCEPTIONS

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

Misconception 1: ``Insurers are increasing rates because of investment 
        losses, particularly their losses in the stock market.''
    As we have pointed out, investment income plays an important role 
in the overall financial results of insurers, particularly for insurers 
of medical professional liability, because of the long delay between 
payment of premium and payment of losses. Insurers are restricted in 
their investment activity due to state insurance regulation and 
competition in the market. The majority of invested assets are fixed-
income instruments. Generally, these are purchased in maturities that 
are reasonably consistent with the anticipated future payment of 
claims. Losses from this portion of the invested asset base have been 
minimal, although the rate of return available has declined.
    Equities are a much smaller portion of the portfolio for this 
group, representing about 15 percent of invested assets. After 
favorable performance up through the latter 1990s, there has been a 
decline in the last few years, contributing to less favorable 
investment results and overall operating results. Investment returns 
are still positive, but the rates of return have been adversely 
affected somewhat by equity declines and more so by lower fixed-income 
investment yields.
    In establishing rates, insurers do not recoup investment losses. 
Rather, the general practice is to choose an expected prospective 
investment yield and calculate a discount factor based on historical 
payout patterns. The insurer expects to have an underwriting loss that 
will be offset by investment income. Since interest yields drive this 
process, when interest yields decrease, rates must increase.

Misconception 2: ``Companies operated irresponsibly and caused the 
        current problems.''
    Financial results for medical liability insurers have deteriorated. 
Some portion of these adverse results might be attributed to inadequate 
knowledge about rates in newly entered markets and to being too 
competitive in offering premium discounts on existing business. 
However, decisions related to these actions were based on expectations 
that recent loss and investment markets would follow the same 
relatively stable patterns reflected in the mid-1990s. As noted 
earlier, these results also reflect favorable reserve development from 
prior coverage years or, in other words, ``good news on old business.'' 
Unfortunately, the environment unexpectedly changed on several fronts--
loss/cost levels increased, in several states significantly; the 
favorable reserve development ceased; investment yields declined; and 
reinsurance costs jumped. Today's rate increases reflect a 
reconciliation of rates to current loss and reinsurance cost levels, 
given available interest yields. The ``current problem'' reflects 
current data.

Misconception 3: ``Companies are reporting losses to justify increasing 
        rates.''
    This is a false observation. Companies are reporting losses 
primarily because claim experience is worse than anticipated when 
prices were set. Further, it would seem illogical that companies would 
have reported profitable results during most of the 1990s and, at the 
end of the decade, decide to report unsupported losses in an effort to 
justify higher rates. Several companies have suffered serious adverse 
consequences given these financial results, including liquidation or 
near liquidation. Phico, MIIX, Frontier and, most recently, the 
Reciprocal of America, are all companies forced out of the business and 
in run-off due to underwriting losses. Further, the St. Paul Cos., 
formerly the largest writer of medical malpractice insurance, are now 
in the process of withdrawing from the medical liability insurance 
market. One reason for this decision is an expressed belief that the 
losses are too unpredictable to continue to write the business.
    The Academy appreciates the opportunity to provide an actuarial 
perspective on these important issues and would be glad to provide the 
subcommittee with any additional information that might be helpful.

    Mr. Greenwood. We thank you, Mr. Hurley, very much. Scott 
Diener or Diener?
    Mr. Diener. Diener.
    Mr. Greenwood. Mr. Diener.

                    TESTIMONY OF SCOTT DIENER

    Mr. Diener. Chairman Greenwood, Ranking Member Deutsch, 
members and staff of the committee, thank you for this 
opportunity----
    Mr. Greenwood. You may want to pull that microphone right 
in front of you, if you would, please.
    Mr. Diener. Our views on the need for Federal medical 
liability reform--is that better? My name is Scott Diener, and 
I am President and CEO of PMSLIC, a physician owned and 
physician managed medical professional liability insurance 
company. PMSLIC was formed by the Pennsylvania Medical Society 
and began to issue policies in 1978 when the Argonaut Insurance 
Company ceased writing. We have been providing medical 
professional liability insurance to Pennsylvania physicians for 
26 years. We insure approximately 7,000 physicians in 
Pennsylvania. We are no longer a subsidiary of the Medical 
Society. We operate independently as a member of the NORCAL 
Group of insurance companies. Our only business mission is to 
be a long-term stable provider of medical liability insurance 
in Pennsylvania. We have stayed true to that mission by using 
cost based pricing strategies that have routinely resulted in 
our rates being the highest in the Pennsylvania market.
    Even with this cost based strategy, the unpredictable 
nature of both the number of lawsuits filed against physicians, 
frequency, and the amount needed to pay injured patients, 
severity, make it very difficult to determine an adequate 
premium. Please allow me to briefly provide some statistical 
background. In 2002, we received 1,800 new claims and lawsuits 
and had 4,300 open at year-end; 85 percent of our claims and 
lawsuits are closed without any payment to patients or their 
lawyers. Our average defense costs are $8,000 on cases closed 
without payment to patients or their lawyers.
    Conceptually, the job of rate setting is relatively simple. 
We first analyze historical data to establish a trend line. We 
use that trend line to estimate the ultimate cost of the claims 
and suits that will be made against our insured physicians 
during the next year. We then estimate the amount of investment 
income that we will earn between the time we collect the 
premium and the time we pay the claims. This we used to 
subsidize the rate we would otherwise have to charge. We then 
add in taxes, expenses, divide by the number of insureds, and 
send out the bills.
    The actual ratemaking process is, naturally, more 
complicated. On average, our claims are generally resolved a 
little over 3 years after they are filed, about 6 years after 
the incident occurs. During that time, the costs of medical 
care go up, new theories of liability are developed, investment 
yields fluctuate, and juries willingness to award money 
changes. Even using the best experts as we do, these factors 
make rate setting very difficult, more of an art than a 
science.
    In our view, a solution to the medical availability crisis 
must include four elements: real medical liability reform, 
improvements in patient safety, increased reimbursements to 
physicians, and improved insurance regulation. PMSLIC supports 
real, proven, time tested reforms such as MICRA. I have been in 
the medical liability insurance business for over 20 years. I 
have worked in Arizona and California, coming to Pennsylvania a 
year ago. I can tell you that MICRA works to produce a more 
stable and predictable insurance market, and is fair to the 
medically injured, and improves access to healthcare.
    Injured parties in California are fully compensated for 
their medical bills, lost wages, and all economic damages. This 
is as it should be. However, here in Pennsylvania and other 
states without caps on non-economic damages, there is always 
the potential in a case that the jury will be persuaded to 
award millions of dollars in non-economic damages. This 
introduces tremendous uncertainty into our process. By capping 
these non-economic damages at $250,000, a large part of the 
lottery system we have in Pennsylvania is removed.
    PMSLIC also supports the limits on plaintiff attorney 
contingency fees in MICRA. This, naturally, makes more money 
available to the injured plaintiff. PMSLIC supports efforts to 
improve patient safety. We have a long history of offering our 
insureds risk management programs with the goal of improving 
patient safety. In 1999, for example, in response to an 
increase in the number of lawsuits alleging diagnostic errors, 
we produced a risk management course entitled, The Diagnostic 
Dilemma, which approximately 4,000 physicians requested. Those 
physicians who completed it successfully earned a 5 percent 
premium reduction. The Pennsylvania Legislature has taken 
aggressive steps to address patient safety in the MCare 
legislation. We look forward to the results of those efforts.
    PMSLIC supports increases in physician reimbursements. 
Physicians need to be able to make a reasonable income so that 
they can pay their costs of doing business and continue to 
provide excellent healthcare to our citizens. PMSLIC supports 
insurance reforms that ensure companies are charging adequate 
rates for medical liability insurance. PIC, PIE, and PHICO are 
insolvent. In Pennsylvania, as in many states, there is a 
guaranty fund that pays the claimants of these insolvent 
carriers. The money for these payments comes from assessments 
on the companies still writing coverage. From 1997 through 
2002, PMSLIC paid $5 million in guaranty fund assessments, 
thus, those physicians insured by properly run carriers, who 
many times have paid higher premiums all along, are now also 
paying for the claims of the insolvent carriers.
    We are committed to ensuring physicians in the Commonwealth 
of Pennsylvania at adequate rates that are based on our loss 
experience. We believe that if we are to restore stability and 
predictability to our medical liability market, all interested 
parties must be willing to seek and accept the comprehensive 
solution.
    In conclusion, we encourage you to enact Federal medical 
liability reform to improve access to healthcare by bringing 
stability and predictability to the medical liability market, 
like that in California, to the rest of the United States. Mr. 
Chairman, thank you, again, for the opportunity to present our 
views. I will be happy to answer any questions.
    [The prepared statement of Scott Diener follows:]

  Prepared Statement of Scott Diener, President and COO, Pennsylvania 
               Medical Society Liabilty Insurance Company

    Chairman Greenwood, Ranking Member Deutsch, members and staff of 
the committee, thank you for this opportunity to present our views on 
the need for Federal medical liability reform.
    My name is Scott Diener and I am President and COO of PMSLIC, a 
physician owned and physician managed medical professional liability 
insurance company.
    PMSLIC was formed by the Pennsylvania Medical Society and began to 
issue policies in 1978 when the Argonaut insurance company ceased 
writing.
    We have been providing medical professional liability insurance to 
Pennsylvania physicians for 26 years. We insure approximately 7,000 
physicians in Pennsylvania.
    We are no longer a subsidiary of the Medical Society. We operate 
independently as a member of the NORCAL Group of insurance companies.
    Our only business mission is to be a long term and stable provider 
of medical liability insurance in Pennsylvania.
    PMSLIC has stayed true to that mission by using cost based 
strategies that have routinely resulted in PMSLIC's rates being the 
highest in the Pennsylvania market.
    Even with this cost based strategy, the unpredictable nature of 
both the number of lawsuits filed against physicians (frequency) and 
the amount needed to pay injured plaintiffs (severity) make it very 
difficult to determine an adequate premium.
    Please allow me to briefly provide some statistical background:

 In 2002 we received 1,800 new claims and lawsuits and had 
        4,300 open at year end.
 85% of our claims are closed with no payment to patients or 
        their lawyers.
 Our average defense costs are $8,000 on cases closed without 
        payment to patients or their lawyers.
    Conceptually, the job of rate setting is relatively simple.
    We first analyze historical data to establish a trend line. We use 
that trend line to estimate the ultimate cost of the claims and suits 
that will be made against our insured physicians during the next year.
    Next we estimate the amount of investment income that we will earn 
between the time we collect the premium and the time we pay the claims. 
This we use to subsidize the rate we would otherwise have to charge. We 
then add in taxes and other expenses, divide by the number of insureds 
and send out the bills.
    The actual rate making process is naturally more complicated.
    On average, our claims are generally resolved a little over three 
years after they're filed, about six years after the incident. During 
that time the costs of medical care go up, new theories of liability 
are developed, investment yields fluctuate and juries' willingness to 
award money changes.
    Even using the best experts as PMSLIC does, these factors make rate 
setting very difficult--more of an art than a science.
    In our view, a solution to the medical availability crisis must 
include four elements: real medical liability reform, improvements in 
patient safety, increased reimbursements to physicians and improved 
insurance regulation.
    PMSLIC supports real, proven, time-tested reforms such as MICRA 
(the Medical Injury Compensation Reform Act) in California.
    I have been in the medical liability insurance business for over 
twenty years. I have worked in Arizona and California, coming to 
Pennsylvania just over a year ago. I can tell you that MICRA works to 
produce a more stable and predictable insurance market and is fair to 
the medically injured and improves access to health care.
    Injured parties in California are fully compensated for their 
medical bills, lost wages and all ``economic damages.'' This is as it 
should be.
    However, here in Pennsylvania and other states without caps on non-
economic damages, there is always the potential in a case that the jury 
will be persuaded to award millions of dollars in non-economic damages.
    This introduces tremendous uncertainty into the process. By capping 
non-economic damages at $250,000 a large part of the ``lottery'' system 
we have in Pennsylvania is removed.
    PMSLIC also supports the limits on plaintiff attorney contingency 
fees in MICRA. This makes more money available to the injured 
plaintiff.
    PMSLIC supports efforts to improve patient safety.
    PMSLIC has a long history of offering our insureds risk management 
programs with the goal of improving patient safety. In 1999, for 
example, in response to an increase in the number of lawsuits alleging 
diagnostic errors, we produced a risk management course entitled The 
Diagnostic Dilemma, which approximately 4,000 physicians completed.
    Those physicians who completed it successfully earned a 5% premium 
reduction.
    The Pennsylvania Legislature took aggressive steps last year to 
address patient safety in the MCARE legislation. We look forward to the 
results of those efforts.
    PMSLIC supports increases in physician reimbursements.
    Physicians need to be able to make a reasonable income so that they 
can pay their costs of doing business and continue to provide excellent 
health care to our citizens.
    Currently they are being squeezed between increasing costs and 
reduced revenue. This needs to be addressed.
    PMSLIC supports insurance reforms that ensure companies are 
charging adequate rates for medical liability insurance.
    PIC, PIE and PHICO are insolvent.
    In Pennsylvania, as in many states, there is a guaranty fund that 
pays the claimants of these insolvent carriers. The money for these 
payments comes from assessments on the companies still writing 
coverage.
    From 1997 through 2002 PMSLIC paid $5 million in guaranty fund 
assessments.
    Thus, those physicians insured by properly run carriers, who many 
times have paid higher premiums all along, are now also paying for the 
claims of the insolvent carriers!
    PMSLIC is committed to insuring physicians in the Commonwealth of 
Pennsylvania at adequate rates that are based on our loss experience.
    PMSLIC has been working for meaningful medical liability reform for 
over twenty years.
    We believe that if we are to restore stability and predictability 
to our medical liability market, ALL interested parties must be willing 
to seek and accept a comprehensive solution.
    In conclusion, we encourage you to enact federal medical liability 
reform to improve access to health care by bringing stability and 
predictability to the medical liability market, like that in 
California, to the rest of the United States.
    Mr. Chairman, thank you, again, for the opportunity to present our 
views this afternoon. I would be happy to answer your questions.

    Mr. Greenwood. Thank you, sir. Dr. Nasca.

                  TESTIMONY OF THOMAS J. NASCA

    Mr. Nasca. Chairman Greenwood, members of the subcommittee, 
thank you for the opportunity to address you today on this 
important issue. By way of introduction, my name is Thomas J. 
Nasca, MD. I am a Board certified nephrologist, I am the Senior 
Vice President of Thomas Jefferson University, the Dean of the 
Medical College, and the President of Jefferson University 
Physicians, the practice plan of Jefferson's 469 full-time 
physician faculty. My curriculum vitae is attached to my 
testimony.
    I would like to address the impact of medical liability 
insurance issues on medical schools, their faculty, students, 
and residents, specifically, using Jefferson as an example. Let 
me start with a story. I was approached by a young physician 
who was completing his training at Jefferson last June. I have 
known him for almost 10 years. He is from Coal Country in 
Pennsylvania and he was a high school quarterback. He was a 
local hero but decided to pursue his dream of becoming a doctor 
rather than play football in college. He came to Jefferson, 
graduated in 1993, he completed his medicine training, and just 
completed 4 years of additional cardiology training. He had a 
budding career in academic medicine. He was offered a position 
on the faculty, which he reluctantly declined. He entered the 
private practice of cardiology less than two miles away, just 
across the river in New Jersey. His reasoning was that he was 
afraid that the medical liability crisis in Pennsylvania could 
never be solved and that he had to be sure that he could 
support his family and pay back his student loans. He clearly 
indicated that this was a pragmatic decision, as he had always 
dreamed of being a teacher of doctors.
    Now, give me a few moments to emphasize four points 
developed in greater detail in my written testimony. First, 
medical schools and their related academic medical centers have 
unique tripartite missions. These missions are public goods and 
are carried out in an environment with significant governmental 
and accrediting agency oversight. They are threefold: the 
mission of education, the mission of discovery and scholarship, 
and the mission of clinical care. Medical schools are much more 
than hospitals. They are not only the germinal centers for the 
miracle cures and clinical innovations which have enhanced the 
lifespan and quality of life of all Americans. They are also 
educational gems, the desired destination of potential 
physicians and researchers around the world. They are a unique 
subset of our American healthcare delivery system.
    Second, the education and research missions of medical 
schools are based on the fundamental ability of the clinical 
enterprise to support the physician cohort of the faculty and 
to subsidize unfunded components of their educational and 
research enterprise.
    Third, academic physicians and their institutions care for 
all patients who come to their doors regardless of their 
ability to pay. Patients with severe or unusual illnesses seek 
out experts at academic medical centers. These patients require 
more time, more effort, and more oversight. Differential 
reimbursement for these services is not routinely provided by 
governmental or third party payers and is often systematically 
inadequate to cover the cost of provision of care. Academic 
physicians have traditionally accepted lower salaries in order 
to participate in this wonderful tripartite mission. Indeed, 
medical schools have utilized this altruistic dimension of the 
academic physician to subsidize the education of medical 
students, residents, and clinical fellows.
    Fourth, the unprecedented escalation in medical liability 
insurance premiums for the 469 clinical faculty at Jefferson 
will result in an increase of over $30 million over the 3-year 
period from 2001 through 2004. Jefferson's physicians--this is 
not the hospital, this is just the physicians--will spend 
approximately $50 million in these 3 years for the opportunity 
to care for the citizens of this region, to teach medical 
students, and to conduct research.
    The impact of these cost increases at Jefferson have been 
significant. The net result of such phenomena is predictable. 
Faculty morale is suffering. There is less and less time 
available to conduct research and to teach and there is less 
and less time to care for each individual patient. This 
phenomena is by no means confined to Jefferson. The impact, if 
continued, is clear. While the country is looking to the 
academic medical community to solve the problems of our 
population, such as cancer, heart disease, neuro-degenerative 
diseases, while providing protection from bioterrorism and 
emerging diseases, the academic medical community may be 
disintegrating.
    Medical schools and their academic medical centers are 
clearly in jeopardy and the message is reaching those who are 
choosing medicine as a career. Applications are down from a 
high of over $45,000 in 1996 to less than $32,000 in the year 
2002. Further, the attitudes of graduating students and 
residents are very concerning. The Association of American 
Medical College graduation questionnaire and the graduate 
medical education tracking system questionnaires indicate 
significant medical student and graduating resident 
dissatisfaction with the practice environment in Pennsylvania. 
Of programs completing the graduate medical education tracking 
survey over the last 2 years, no graduating neurosurgeons--that 
is zero graduating neurosurgeons, orthopedic surgeons, or 
radiologists entered private practice in Pennsylvania last 
year. The number of young obstetricians decreased by nearly 40 
percent entering practice in Pennsylvania. Further, the number 
of anesthesiologists decreased by over 80 percent. Young 
graduates are voting with their feet.
    Another closing story, a young surgeon at Jefferson 
developed a new technology that would permit the safe operation 
of a previously lethal heart condition. He worked on this 
machine day and night for over 5 years, testing it in animals, 
working with engineers from a computer manufacturer, and 
discussing each nuance with a host of other medical 
specialists. His salary was paid by Jefferson from funds 
generated by others. He finally tested his machine on a patient 
and it worked. That test occurred 50 years ago this spring at 
Jefferson. The physician was John Gibbon and the machine he 
tested was the first cardiac bypass machine ever successfully 
used in a human. Dr. Gibbon revolutionized the care of patients 
with heart disease and has saved millions upon million of lives 
because of his invention. He was a clinical scientist, a 
translator of results from the laboratory to the bedside. He 
was doing something that no one thought feasible. Were he 
trying to accomplish a like feat in today's environment, I fear 
that I, as dean, might not have the dollars to support his 
work.
    The physician who educates the next generation of 
physicians is performing a societal good greater than the 
actual provision of individual patient care. She is making it 
possible for thousands of other patients to receive healthcare 
from those she is training. The physician scientist who creates 
a new treatment not only treats the patient on whom the 
treatment is proven efficacious, he gives that treatment to 
others to treat others. We cannot as a Nation learn the 
physician teachers or the physician scientists. We cannot 
permit the medical liability insurance costs to consume tens of 
millions of dollars a year at Jefferson or any other 
institution while similar costs are half as much nearly two 
miles away. These are dollars required to constructively build 
the future of healthcare, its practitioners, and its 
innovations, all with the goal of improving the care of our 
citizens.
    I believe that States such as Pennsylvania, because of 
unique circumstances, may be incapable of fixing this problem. 
Short-term fixes fail to solve the fundamental structural 
issues and merely divert resources from other needs. I wish you 
well as you tackle and hopefully solve for all of us this 
pressing national issue that threatens the fabric of our 
medical schools and their related academic medical centers. 
Thank you.
    [The prepared statement of Thomas J. Nasca follows:]

 Prepared Statement of Thomas J. Nasca, Board Certified Nephrologist, 
Senior Vice President of Thomas Jefferson University, Dean of Jefferson 
                            Medical College

    Chairman Greenwood, Members of the Subcommittee on Oversight and 
Investigations of the Committee on Energy and Commerce, of the United 
States of America House of Representatives:
    Thank you for the opportunity to address you today on the important 
issue at hand. By way of introduction, my name is Thomas J. Nasca, M.D. 
I am a Board Certified Nephrologist, and am the Senior Vice President 
of Thomas Jefferson University, the Dean of Jefferson Medical College, 
the 8th oldest medical school in the United States, and the President 
of Jefferson University Physicians, the ``practice plan'' of the nearly 
500 full time clinical faculty of Jefferson Medical College. My 
curriculum vitae is attached to my written testimony.
    I will not present views concerning the causes of the medical 
liability insurance crisis in this and a number of other states. You 
have many experts providing testimony clarifying prevailing, often 
conflicting views on this very difficult issue.
    Rather, I would like to present to you the impact, both currently 
measurable, and anecdotally not yet measurable (but felt ``on the 
ground'') in at least one major medical school and academic medical 
center which has served the citizens of this country for nearly 200 
years. To do so, I will take the liberty of briefly explaining the 
missions of the academic medical center, the basics of its funding 
streams, and the impact of rapid escalation of costs, in this case 
medical liability insurance costs, on these core missions.
        missions of medical schools and academic medical centers
    The missions of the 125 allopathic medical schools and their 
related academic medical centers are public goods. These missions are 
carried out in an environment with significant governmental and 
accrediting agency oversight. They are threefold:

1. The Mission of Education: education of the next generation of 
        caregivers, including physicians and nurses.
2. The Mission of Discovery and Scholarship: the search for basic and 
        clinically relevant discoveries which lead to prevention of 
        disease, enhancement of survival, or amelioration of suffering 
        of persons. This mission also includes the dissemination of 
        this information to all practitioners to enhance care across 
        the nation and the world.
3. The Mission of Clinical Care: the provision of state-of-the-art 
        care, often research based, which will lead to the patient 
        centered care of the individual, provide the opportunity for 
        education of the next generation of caregivers, and the 
        development and dissemination of knowledge beyond the 
        individual patient.
    These institution are not only the germinal center for the miracle 
cures and clinical innovations which have enhanced the life span and 
quality of life of all Americans. They are also educational gems, the 
desired destination of potential physicians and researchers across the 
world. 

              FUNDING STREAMS TO SUPPORT THE MISSIONS

1. Funding the Educational Mission
    Medical student education is partially supported through tuition 
dollars of medical students. Educational efforts of the faculty in the 
pre-clinical years for medical students are supported largely through 
these dollars.
    In the clinical setting and in the conference room, trainees are 
supervised in the care of patients. This model of progressive 
responsibility under direct faculty supervision ultimately yields 
(after 4 years of medical school, and up to 10 years of graduate 
medical education) a practitioner who is competent to practice medicine 
independent of direct supervision. There are limited dollars from 
tuition to support medical student education. (Tuition supports less 
than 40% of the total costs of provision of medical student education 
at Jefferson Medical College). The majority of clinical education is 
supported through willingness of the physician to perform this 
important task without institutional compensation. This is done at a 
cost of time of the physician faculty.
    Thus, medical student education in the clinical phase is provided 
through the volunteer efforts of clinicians who are faculty members of 
the school, whether they are ``full time'' or ``volunteer'' clinical 
faculty. In essence, the time spent teaching is being subsidized by the 
clinical income of the physicians' practice.
    Medicare (and in some states Medicaid) recognizes faculty expenses 
incurred in the education of residents and fellows, but this is not the 
case for most other insurance providers. Thus, teaching efforts by the 
faculty on behalf of residents and fellows in the clinical setting are 
partially supported by Medicare Direct Graduate Medical Education 
(DGME) funding. These dollars come to the faculty from the hospital, in 
Jefferson's case, Thomas Jefferson University Hospital (TJUH).

2. Funding the Research Mission
    In general terms, direct research awards pay for the actual costs 
of conducting research. Indirect cost recovery is provided by federal 
sponsors and some other sponsors to support the institutional 
infrastructure costs incurred in creation of the research environment. 
Since all direct and indirect costs of the research enterprise are not 
reimbursed, shortfalls must be provided by the institution.
    Of important note in these discussions is the unique role of the 
``Translational Scientist-Clinician.'' These are the specialized 
physician scientists who search for cures for illness found in his or 
her patients. These physician-scientists are the translators of 
discoveries made in the laboratory into relevant clinical treatments, 
procedures, or cures. They are usually highly sub-specialized 
clinicians who care for a group of patients with a particular disease, 
while also conducting laboratory-based research. Thus, they practice 
medicine ``part time,'' usually between 15-50% of their effort. Their 
research time is usually funded through National Institutes of Health 
awards, or other sources of research funding. Their clinical time must 
be supported through their clinical practice. Since their practice is 
part time, high fixed costs, such as medical liability insurance 
premiums, make the economic dimensions of clinical practice 
increasingly difficult, or impossible.
    Shortfalls in research faculty, facility and other related costs 
are born by the institution. Sources of funding for these shortfalls 
are:

a. Institutional Endowments
b. Philanthropy
c. Surplus clinical revenue from the practice plan (the ``dean's tax'')

3. Funding the Clinical Mission
    Clinical care is supported through the clinical revenue generated 
in the care of patients. Institutional support is provided during 
start-up of new faculty, but the clinical enterprise is expected to be 
largely self-supporting. Academic physicians and their institutions 
care for all patients who come to their doors, regardless of their 
ability to pay. Furthermore, patients with severe or unusual illnesses 
seek out experts at academic medical centers. These patients require 
more time, more effort, and oversight. Reimbursement for these services 
is not routinely recognized by third party payors, and is often 
systematically inadequate to cover the costs of provision of care. 
Academic physicians have traditionally accepted lower salaries in order 
to participate in the tripartite mission of the medical school and 
academic medical center. Indeed, medical schools have utilized this 
altruistic dimension of the academic physician to subsidize the 
education of medical students, residents, and clinical fellows over the 
past 100 years, in the post-Flexnerian era of medical education.
     the impact of the current crisis on jefferson medical college
    The tenuous balance between clinical service, education, and the 
funding of research at Jefferson is in jeopardy of disruption due to 
the recent, unprecedented increases in cost for medical liability 
insurance.
    The impact of such dramatic increases, in excess of 100%, are 
significant on the financial health of the organization. With 
approximately $145,000,000 in total revenue and expenses in the 
practice plan (Jefferson University Physicians), malpractice costs in 
the current fiscal year account for 12.8% of all expenses. Furthermore, 
the increase in medical liability insurance costs has not abated since 
it doubled in 2001-2002. The continued annual increase in premiums has 
forced increases in clinical service provision to merely ``keep pace'' 
with the unprecedented costs of insurance. Further, it should be noted 
that Jefferson University Physicians has had a lower than expected 
claims history over the past 15 years than expected (by specialty) 
according to actuarial analysis. It is also important to understand 
that these figures do not include medical liability insurance costs for 
the University Hospital (TJUH), where resident physician liability 
costs hare borne. They are merely the cost of insuring the 469 full 
time clinicians of the faculty.
    It is instructive to review specialty specific data. Below in Table 
1. is listed the per physician medical liability insurance annual 
premiums for Jefferson physicians for 1996-97 to the present. As can be 
seen in this data, the striking increase has not only been seen in 
specialized surgical disciplines such as Obstetrics and Gynecology, but 
also in the primary care discipline of General Internal Medicine. The 
impact on actual salaries of physicians in these disciplines is 
predictable, and seen in Table 2.

                               Table 1. Specialty Specific Medical Liability Insurance Premiums, son University Physicians
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                              2003-2004
                          Specialty                             1997-1998     1998-1999   1999-2000    2000-2001    2001-2002    2002-2003      Proj.
--------------------------------------------------------------------------------------------------------------------------------------------------------
OB/GYN.......................................................       48,400       48,000       51,300       60,948      106,600      122,000      137,188
General Surgery..............................................       41,600       40,300       43,390       48,500       82,600       91,946      100,164
Internal Medicine............................................        9,780        9,702       10,714       12,000       22,185       24,981       29,650
--------------------------------------------------------------------------------------------------------------------------------------------------------


                Table 2. Median Specialty Specific Compensation, Jefferson University Physicians
----------------------------------------------------------------------------------------------------------------
             Specialty               1997-1998     1998-1999   1999-2000    2000-2001    2001-2002    2002-2003.
----------------------------------------------------------------------------------------------------------------
OB/GYN............................      100,000      103,796      114,478      119,544      112,435      110,000
General Surgery...................      196,500      191,350      197,386      172,703      193,734      212,715
Internal Medicine.................      180,983      167,770      157,500      158,713      169,869      147,102
----------------------------------------------------------------------------------------------------------------

    The result of these increases in medical liability insurance costs 
at Jefferson has been threefold.

1. The clinical faculty are providing more clinical services, and 
        spending more time seeing patients.
2. The clinical faculty are seeing compensation decrease in constant 
        dollars, and in many instances decrease in total dollars. This 
        is despite the fact that salaries at Jefferson are, in general, 
        lower than competitive salary scales at our regional 
        competitors, and when viewed in comparison to other 
        Northeastern University Medical Schools (AAMC Salary Survey).
3. The time for teaching, conducting clinical research, and for each 
        patient encounter is decreasing.
    The net result of such phenomena is predictable. Faculty morale is 
suffering, and individual faculty members are questioning the utility 
of spending as much time in direct clinical practice as the physicians 
in private practice, with less and less time able to be dedicated to 
research and education. This phenomena is not confined to Jefferson. In 
a soon to be published study conducted by the Group on Practice Affairs 
of the Association of American Medical Colleges, faculty morale brought 
about by these and related phenomena is dropping significantly. (Lynne 
Davis Boyle, AAMC, unpublished data).
    The impact on faculty, if continued, is clear. Dissatisfaction with 
the academic practice of medicine will lead to loss of faculty from 
medical schools, and the inability to recruit the best and brightest 
young faculty to fill their shoes. Deterioration of the educational and 
translational research efforts will have long-ten-n disastrous effects 
on the public. As the country is looking to the academic medical 
community to solve problems such as cancer, heart disease, while 
providing protection from bio-terrorism and emerging diseases, the 
academic medical community will be disintegrating.
    Much has been written concerning the fragility of the American 
Health Care system. After over a decade of absent capital 
reimbursement, ``cost minus'' adjustments in hospital reimbursement, 
managed care ``discounting'' of physician reimbursement; recent 
reductions in Medicare reimbursement for physician services, and 
dramatic escalations of medical liability insurance premiums for 
hospitals and doctors, the health care system is in a precarious state. 
An important subset of this health care system is the Medical School-
Academic Medical Center. These 125 medical school based delivery 
systems are a national resource. They clearly are jeopardized, and the 
message is reaching those who are choosing medicine as a career. In 
addition to those students who have chosen not to pursue medicine as a 
career (applications are down from a high of >45,000 in 1996 to <32,000 
in 2002, source, AMCAS, AAMC), the attitudes of graduating students and 
residents are instructive. Attached in the Appendix to this testimony 
are two documents obtained from the Association of American Medical 
Colleges (AAMC). The first is a comparison of the results of the 
graduation questionnaire administered to all medical students (>95% 
response rate). In analysis of this question, responses of students 
indicating an intent to ultimately practice in the state of 
Pennsylvania are compared to all other students completing the 
questionnaire. Of note are two important phenomena. First, there was 
little difference between students interested in practicing in 
Pennsylvania and the rest of the country in 2001. Additionally, there 
were 525 students intending to practice in Pennsylvania.
    Second, in 2002, there is a clear trend seen in the students 
interested in ultimately practicing in Pennsylvania, with 92.1% of 
students agreeing or strongly agreeing (with 60.0% strongly agreeing) 
with this statement, in comparison to a stable 84.6% (40.1% strongly 
agreeing) in students interested in practicing in other states. 
Finally, a trend may be developing. There were only 445 students 
indicating intention to practice in Pennsylvania. This is a reduction 
of 80, or 15% over the prior year.

   Table 3. Opinion of Graduating Medical Students (2001 and 2002) on Medical Liability: Students Planning to
                              Practice in Pennsylvania vs. All Graduating Students
    Question: Based on your experiences, indicate whether you agree or disagree with the following statement:
        ``Physicians' legal liabilities and the high cost of malpractice insurance are major problems.''
----------------------------------------------------------------------------------------------------------------
                                      Category of     Strongly               No               Strongly
              Year                    Graduating        Agree    Agree %   Opinion  Disagree  Disagree  Count  %
                                    Medical Student       %                   %         %         %
----------------------------------------------------------------------------------------------------------------
2001............................  Plan to Practice        39.8      46.9      10.3       2.9       0.2       525
                                   in Pennsylvania.
2001............................  All Graduating          34.4     48.10      12.8       4.6       0.1    14,139
                                   Students.
2002............................  Plan to Practice        60.0      31.2       5.6       3.1       0.0       445
                                   in Pennsylvania.
2002............................  All Graduating          40.1      44.2      11.7       3.8       0.2    14,162
                                   Students.
----------------------------------------------------------------------------------------------------------------
Source: 2001 and 2002 Medical School Graduation Questionnaire, Association of American Medical Colleges. Lynne
  Davis Boyle, personal communications.

    Medical students are years away from a practice site choice. 
Residents and fellows make that choice at the end of their training. 
GME Track (AAMC) is a survey intended to follow these and other trends. 
Results from the recent GME Track survey provide more concerning 
information which, if it is a trend, would demonstrated significant 
concerns for the future flow of young physicians to Pennsylvania.

 Pennsylvania-Trained Residents in ``High-Risk'' Specialties: Immediate Career Plans Upon Completion of Training
                                              Programs, 2000-2002*
                                        Source: AAMC GME Track, 2000-2002
----------------------------------------------------------------------------------------------------------------
                                   Of Those Choosing   Of Those Choosing   Of Those Choosing
                                   Private Practice:   Private Practice:   Private Practice:
            Specialty               % Remaining in      % Remaining in      % Remaining in    % Change 2000-2002
                                   Pennsylvania 2000   Pennsylvania 2001   Pennsylvania 2002
----------------------------------------------------------------------------------------------------------------
Neurosurgery....................                25%                  0%                  0%   100% decline
OB/GYN..........................                44%                 42%                 28%   36% decline
Anesthesiology..................                56%                 25%                 10%   82% decline
Orthopedic Surgery..............                50%                 50%                  0%   100% decline
Radiology (Diagnostic)..........                 0%                 40%                  0%   0%
Internal Medicine...............                46%                 45%                 41%   11% decline
----------------------------------------------------------------------------------------------------------------
Summary:
While the table reflects data compiled via a relatively new survey (responses are not high, but are increasing
  over time), preliminary data show a trend of residents leaving the state upon completion of their training
  program.
Although there is no specific evidence of a relationship between residents' choices and the liability issue,
  there is also no evidence that would rule it out.
*Notes on Data:
``GME Track'' surveys residency program directors annually. The survey includes a request for program directors
  to identify the immediate career plans of residents who have completed their training.
Data reflects only those residents who have completed their training, plan to enter private practice, and whose
  program directors responded to the survey.
``High-Risk'' reflects specialties commonly identified by the physician community and the press, as well as
  specialties that have helped lead recent physician strikes''.

    As can be seen from this early data, the Pennsylvania practice 
environment is viewed negatively by young physicians entering 
residencies (graduation questionnaire) and leaving residency and 
entering private practice (GME Track data).
    These data, coupled with the emerging national data on faculty 
morale, the local information I have provided to you raise issues which 
must be addressed. The emerging realization that Medical Schools and 
Academic Medical Centers are nearing their limit of survivability of 
the external economic factors that are buffeting all of health care 
should be of concern to all.
    The physician who educates the next generation of physicians is 
performing a societal good greater than the actual provision of patient 
care. She is making it possible for thousands of other patients to 
receive health care from those she is training. The physician-scientist 
who creates a new treatment not only treats the patient on whom the 
treatment is proven efficacious, he gives that treatment to others, to 
treat others.
    Two anecdotes may help underscore these points.
    I was approached by a young physicians who was completing his 
training at Jefferson last June. I have known him for almost 10 years. 
He was from coal country in Pennsylvania, and was a high school 
quarterback. He was a local hero, but decided to pursue his dream of 
becoming a doctor rather than play football in college. He came to 
Jefferson, graduating in 1993. He completed his hitemal Medicine 
residency at Jefferson, and just complete 4 years of Cardiology 
training. He had a budding career in academic medicine, having already 
written two research papers, and showing tremendous teaching talent as 
well. He was offered a position on the faculty, but reluctantly 
declined. He entered the private practice of Cardiology less than 2 
miles away, across the river in New Jersey. His reasoning was that he 
was afraid that the medical liability crisis in Pennsylvania could 
never be solved, and that he had to be sure that he could support his 
family, and pay back his student loans. He clearly indicated that this 
was a pragmatic decision, as he always had dreamed of being a teacher 
of doctors. (Physician's name withheld).
    A young surgeon at Jefferson developed a new machine that would 
permit the safe operation of a previously lethal heart problem. He 
worked on this machine day and night for over 5 years, testing it in 
animals, working with engineers from a computer manufacturer, and 
discussing each nuance with a host of other medical specialists. His 
salary was paid by the institution, from funds generated by others. He 
finally tested his machine on a patient, and it worked. That test 
occurred 50 years ago this Spring, at Jefferson. The physician was John 
Gibbon, M.D., and the machine he tested was the first cardiac by-pass 
machine ever successfully used in a human. Dr. Gibbon revolutionized 
the care of patients with heart disease, and has saved millions upon 
millions of lives because of his invention. He was a Clinician 
Scientist, a translator of results from the laboratory to the bedside. 
He was doing something that no one thought feasible. Were he trying to 
accomplish a like feat in today's environment, there might be 
inadequate institutional money to support his clinical research.
    We cannot, as a nation, loose the physician teachers, or the 
physician scientists. We cannot permit the medical liability insurance 
costs to consume tens of millions of dollars per year at Jefferson, or 
any other institution. These are dollars required to constructively 
build the future of health care, its practitioners, and its 
innovations, with a goal of improving the care of our citizens. I 
believe that states such as Pennsylvania, because of unique 
circumstances, may be incapable of fixing this problem. Short term 
fixes fail to solve the fundamental structural issues, and merely 
divert resources from other needs. I wish you well as you tackle, and 
hopefully solve for all of us, this pressing national issue that 
threatens the fabric of our academic medical centers.

    Mr. Greenwood. Thank you, Dr. Nasca. Mr. Rosenfield.

                 TESTIMONY OF HARVEY ROSENFIELD

    Mr. Rosenfield. Thank you, Mr. Chairman, members. My name 
is Harvey Rosenfield. There is, indeed, a law in California 
that has lowered malpractice insurance premiums for doctors and 
other medical providers. It is not MICRA. I am the author of 
that law. I was the sponsor of the measure before the voters in 
1988 and ran the campaign that defended the measure against an 
$80 million campaign by the insurance industry, including 
medical malpractice insurers. That law is known as Proposition 
103.
    Prior to Proposition 103, let us go back to 1976 when MICRA 
was passed. We had an insurance crisis in California. Once 
MICRA was passed, between 1976 and 1988, 12 years, medical 
malpractice insurance premiums for doctors rose 190 percent. 
During the critical years, between 1985 and 1988, and as the 
chairman will know, those are the years of the last insurance 
crisis in our Nation, years during which the insurance 
companies were inflating their losses, their projections of 
future losses, in order to show poor financial results, in 
order to justify rate increases; losses, the projections of 
which never came to pass. During that crisis, medical 
malpractice insurance premiums in California rose 47 percent.
    In 1988, the voters of California were confronted with this 
dilemma. The voters had previously enacted insurance industry 
sponsored tort reform; not just MICRA, other tort reforms in 
the mid 1980's, and rates had not gone down. So they put 
Proposition 103 on the ballot and it was approved by the 
electorate. It took effect in May 1989 and it mandated across 
the board rate rollbacks. I want to be very clear about this, 
Mr. Chairman, because the insurance industry and the AMA have 
told people around the country that Proposition 103 did not 
apply to medical malpractice carriers. They have also--and Mr. 
Smarr's testimony states that rollbacks were not paid under 
Proposition 103. These assertions are incorrect. Proposition 
103 applied to all forms of property-casualty insurance. It 
required a 20 percent rollback and stringent regulation of the 
industry thereafter. Of the $1.2 billion in rate refund checks 
issued by insurance companies between 1989 and 1995 under 
Proposition 103, $135 million went to doctors. If the committee 
would like to see them, I have got the actual settlement 
agreements here. These were not, as the testimony suggests, 
dividends. They were rate rollbacks. Here are the actual legal 
documents. I would be glad to make them available to the 
committee.
    Mr. Greenwood. Mr. Rosenfield, is that a copy that we can 
incorporate into our record?
    Mr. Rosenfield. It is my only copy, but if you want to take 
it, could you make me a copy?
    Mr. Greenwood. If it is your only copy, it is going to be 
difficult for us to incorporate it into the record unless we 
take it.
    Mr. Rosenfield. Could I Fed-Ex it to you tomorrow?
    Mr. Greenwood. We will work that out.
    Mr. Rosenfield. Okay. Thank you.
    Mr. Greenwood. Why don't you make it available to our staff 
and we will see if we can find a copier.
    Mr. Rosenfield. Okay. Thank you, Mr. Chairman. Now, after 
Proposition 103 passed, the major insurance carriers that sold 
medical malpractice coverage, as is noted in my testimony, 
dropped premiums 20 percent. They paid the 20 percent rollbacks 
and they dropped their premiums, and that is why between 1988 
and the year 2000, California premiums for medical malpractice 
insurance coverage dropped 2 percent over that period of time.
    My testimony goes into much more detail in this, Mr. 
Chairman, but I want to move to a different area. I want to 
talk about MICRA, because MICRA has become the model, as it 
were, for your bill, for the President's proposal, and I wrote 
a book about it 10 years ago: Silent Violence, Silent Death, 
the Hidden Epidemic of Medical Malpractice. Mr. Chairman, if 
you could be in my shoes as a consumer advocate and take the 
phone calls day after day, month after month, and year after 
year, from people in California who cannot even get a lawyer to 
bring a legitimate lawsuit. Why? The one thing that has not 
been mentioned today is that MICRA not only caps non-economic 
damages, but it caps attorneys' fees. And as we all know, 
unless you are a very wealthy person and can afford to pay a 
lawyer $400 an hour, like insurance companies do, most victims 
of medical malpractice have to find a contingency fee lawyer, 
and they will not take most medical malpractice cases in 
California. It is simply not profitable. As a result, I have 
what I call death bed voicemails where people call and say, 
Harvey, can you please find my next of kin, a lawyer to 
represent them, because I am dying and I couldn't find one.
    The tragic thing here is that the medical profession, whose 
principle is do no harm, is the lead advocate for reforms which 
in California have done harm. And this terrible conflict of 
interest comes on top of a decade of fighting with HMO's and 
profit driven medical care. Our organization--I am the 
President of the Foundation for Taxpayer and Consumer Rights. 
It is a nonprofit, nonpartisan organization. We have led the 
battle in California successfully to force HMO's to focus on 
quality healthcare, not just the bottom line. And doctors have 
been the victims of that battle, yet, today, they side with the 
insurers against the victims of medical malpractice.
    I want to close my testimony by suggesting that this 
committee follow the principle that should be applicable to the 
medical profession. First, do no harm. Come to California, Mr. 
Chairman. Come to California and let us provide some not only 
public input on MICRA, but let us have a real debate. It is the 
debate the insurance company and the AMA do not want to have 
about the alternative, which is rate regulation, which is 
really what lowered premiums in California.
    And finally, if you will come to California, here is one of 
the things you would find. I found it on the California Medical 
Association's website, buried. It is a 2001 report. This is 
before the current ``crisis''. This is a study done by the CMA 
of its physicians and it is titled, And Then There Were None, 
the Coming Physician Supply Problem. This is in California, the 
nirvana of where MICRA exists. I am quoting now, ``43 percent 
of surveyed physicians plan to leave medical practice in the 
next 3 years; 75 percent of physicians have become less 
satisfied with medical practice; more than one-quarter of 
physicians would no longer choose medicine as a career; 58 
percent of physicians have experienced difficulty attracting 
other physicians to join their practice.'' These findings 
foretell a dark and startling picture concerning physician 
supply in California. They predict a future with many fewer 
physicians. A majority say they will express this dramatically 
in the next 3 years by quitting practice. Physician flight from 
California is dramatic.
    There is much to be learned in this debate. A few minutes 
ago one of the panelists here said everybody has to experience 
a little pain. As an advocate working in the legislature and in 
Congress, I know that there is a tendency for people to say let 
us just spread the pain, let everybody force something to 
give--force everybody to give something. I leave you with this 
one thought. Why should Heather Lewinski experience even 1 
second more pain? Thank you, Mr. Chairman, members of the 
committee.
    [The prepared statement of Harvey Rosenfield follows:]

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    Mr. Greenwood. Thank you, Mr. Rosenfield. I think no one 
would suggest that she should. Mr. Reed.

                    TESTIMONY OF JOHN H. REED

    Mr. Reed. Thank you, Mr. Chairman. Members of the 
committee, thank you for inviting me to appear here. 
Notwithstanding the passage of significant remedial legislation 
in Pennsylvania in 2002, the insurance affordability and 
availability problem being faced by hospitals and physicians 
today in the commercial marketplace has not been corrected. 
This problem has confronted healthcare providers across a broad 
front, including those who don't have a record of prior 
lawsuits and who practice in regions of the State where juries 
have consistently proven to be unreceptive to medical 
malpractice claims. Indeed, the cost of traditional coverage is 
escalating sharply, even though the aggregate amount of jury 
verdicts in Pennsylvania in medical malpractice cases has 
declined in each of the last 2 years, with the amount awarded 
last year being 65 percent lower than in 2000.
    The factors that contribute to the current difficulty are 
complex and by no means did they develop overnight. The 
insurance cycle and insufficient regulatory oversight has 
played a role. Carrier insolvency has created added expense for 
all insurers in Pennsylvania, triggering an estimated $30 
million annual additional cost for the Pennsylvania medical 
professional liability CAT Fund, now know as the MCare Fund, at 
the peak of the PIC, PIE, PHICO and Reliance debacle. The 
current situation has also been distorted by the pace of the 
medical malpractice insurance privatization process initiated 
by Act 135, with healthcare providers now having to bear the 
burden of purchasing increased primary limits from private 
insurers before that expense can be offset by the winding down 
of fund obligation which by legislative design were not funded 
in advance.
    Pennsylvania's CAT Fund is one of the Nation's largest 
medical malpractice insurers. During my 7 years there as 
Director, the agency reviewed, administered, and defended more 
than 30,000 reported catastrophic medical malpractice claims. 
While agency staff worked with defense counsel and medical 
experts to succeed in closing 85 percent of those claims 
without payment by the fund, the agency also paid more than 
$2.2 billion in compensation to catastrophically injured 
patients and their families. As part of my testimony, I have 
attached copies of several memoranda that were authored 
addressing a number of the issues discussed here today while I 
was serving as Director of the Pennsylvania fund. In 
particular, I invite your attention to the February 2002 
memorandum, outlining several alternative approaches that would 
immediately reduce the cost of medical malpractice insurance 
and thereby help avert the overall financial crisis in 
medicine.
    The following, however, are some recommended solutions. 
First, I recommend self-insurance or risk retention groups as 
an approach. A risk retention group permits healthcare 
providers to reach substantial and immediate savings on their 
malpractice insurance premiums. Other than a governmental 
mechanism, such as Pennsylvania's fund, RRG's provide the least 
expense, most flexible, self-insurance vehicle available to the 
healthcare community. When designed properly, these programs 
can serve to reduce losses through peer review by the owners 
insured and consequently result in savings.
    Many hospital systems are now using this approach, and this 
past year, a number of new insurers for physicians in 
Pennsylvania have used this model. When operating on a 
nonprofit basis, such programs have the potential to offer 
coverage to Pennsylvania healthcare providers at premium levels 
that are substantially less than what is otherwise available in 
the marketplace today. However, individual physicians are often 
reticent to take advantage of this insurance alternative absent 
some protection in the event of program insolvency. A provision 
in the Federal enabling legislation, 15 United States Code 
Section 3902(a)(2) presently precludes risk retention groups 
from participating in the State guaranty funds. Were Congress 
to address that problem, I am certain that a significant 
percentage of the physician community would elect to benefit 
from the lower cost and long-term assured availability of 
coverage that the risk retention approach can provide.
    I also discussed compressing the rate schedule, and to 
shorten it--I mean, in Pennsylvania, we have multiple rate 
territories and we have a breakout of physicians by specialty. 
At the fund level, premiums ranged on a low from $1,500 last 
year up to, I think it was $44,000 for a neurosurgeon. As I 
pointed out in that memo, if the State were to compress its 
rate schedule into one, premiums for the higher level 
physicians in the Philadelphia area, obviously, would drop by 
one-third. If you were to add $1,000 to the insurance level of 
physicians paying $10,000 or less to the CAT Fund at the 
present time, you would also achieve another one-third savings. 
I did some calculations in the process of representing some 
risk retention groups and other things, and also, again today. 
The cost of malpractice insurance and using the rates that I 
have from the actuaries that I have been working with, a 
governmental model, on average, could insure every physician in 
this Commonwealth from dollar one up to $1 million for under 
$17,000, if you did it on an average basis.
    I am suggesting that we focus more on risk management and 
problem providers. Many medical errors are preventable through 
proper selection, training, and coordination of professional 
personnel and provider programs. In addition, the economic 
stresses faced today by the medical profession have sometimes 
led to business decisions that adversely impact patient care. 
Notwithstanding, risk management has traditionally not ranked 
as a top priority and the medical profession has been slow to 
identify, monitor, and counsel the small subset of providers 
that are responsible for a major portion of medical malpractice 
awards. I submitted a chart that shows that 10 percent of 
Pennsylvania physicians who have practiced since the fund was 
established back, I believe in 1975, are responsible for 100 
percent of the agency's payout, while just 2 percent of the 
physician population account for 41 percent of the payout.
    And yes, while there are physicians in the high risk 
specialties that obviously are at higher risk, even though they 
are great physicians, there are also a number of rogue 
physicians out there who have had multiple paid claims. I have 
seen them at the fund. We have had individuals having as many 
as 17 paid claims by the agency. And one of the frustrations I 
had as director of that agency is that I had no power over the 
pricing. I could not give a doctor with a great claims record a 
lower price and I couldn't charge the guy with a bad claims 
record any more.
    I recommend that we look at fast track arbitration of 
claims. The adoption of a fast track mediation or arbitration 
of claims before a qualified medically knowledgeable panel 
would lower litigation costs and ensure greater consistency and 
fairness of results. The findings of that panel would be 
nonbinding and the case could subsequently be presented to a 
jury, but the arbitration results would be admissible at trial. 
This approach would reduce the risk of aberrant verdicts while 
also assuring that healthcare providers across the State would 
be accountable to a uniform and predictable standard of care.
    I am also suggesting that we look at regional juries. As 
with the suggestions regarding fast track arbitration, this 
would better assure fairness and uniformity of results given 
similar fact patterns. I think we need to closely monitor the 
impact of the reforms already adopted in Pennsylvania. The 
substantial changes were adopted in 2002 and these will 
eventually produce the lowering of claim payments. The venue 
provisions alone will transfer 40 percent of the claims in 
Philadelphia County when you measure them by fund payout to 
courts in suburban counties and elsewhere. This, combined with 
reforms to the collateral source rule, reduce payments for 
future losses and restrictions on joint and several liability 
should serve to lower claim payments for all insurers. The 
impact of these reforms should be monitored to assure that they 
accomplish their intended purpose of maintaining a fair balance 
between the interest of the medical profession and the public 
that they serve.
    In short, I think there are a number of things that can be 
done that will reduce medical malpractice premiums for 
physicians immediately, and I am not certain that caps will. In 
fact, I read just a couple of weeks ago that one of the 
representatives of General Electric was quoted in the Scranton 
Times as saying that caps won't reduce malpractice premiums. 
But reforms such as the ones I am suggesting can reduce 
premiums for doctors immediately without having to lock the 
door to the courthouse.
    A lot has been said today about defense costs. I want to 
just bring a couple of facts to you. Obviously, defense costs 
were a factor. I had to hire a lot of lawyers to defend doctors 
at the CAT Fund. We spent anywhere from $13 to $15 million a 
year defending claims. It was a relatively small portion of our 
overall payout. Defense costs are a higher portion, obviously, 
for the private or the primary carriers. However, looking at 
the National Association of Insurance Committee data for the 
various States, I did this about a year ago, and I found out 
that defense costs in Pennsylvania constitute only about 14 
percent of the total insurance dollar. The vast majority of the 
dollars in Pennsylvania are paid over to victims of claims. The 
total defense cost, obviously, is about $100 million, which is 
relatively small compared to the overall payout.
    Now, a lot has been made recently about the statistic which 
I put out in public for the first time several years ago, about 
the Philadelphia awards equaling what goes on in the State of 
California, and that was true at the time I put it out, and it 
may still be true today. However, I have also since learned a 
lot more and there is some misleading in that, in that the 
insurance premiums in Pennsylvania--excuse me--in California 
aren't as low as people think they are. In fact, I did a survey 
a year ago, and in many places in Pennsylvania, you could get 
insurance for a given professional for less than you could do 
it for in California. And this is another interesting 
observation. While the premiums are up there in California and 
the payouts to the victims are down there, they have a 
tremendous layer that goes for defense costs. It is totally 
different than in Pennsylvania.
    As I mentioned at the outset, through risk retention 
groups, doctors can save a great deal of money because they 
don't have the same cost factors that commercial insurers have 
and I am certainly not critical of PMSLIC. They are a good 
company. And MedPro is a good company. Those are the only two 
insurers left in our State. In fact, our group has recruited a 
number of physicians simply on the basis that PMSLIC and MedPro 
aren't taking on new business. But at any rate, with that said, 
I know that a lot that has been talked about with premiums for 
various groups are sometimes misleading because they relate to 
the Joint Underwriting Association. And from my experience, 
seeing the cost data of the insurance companies, seeing the 
cost data of the medical CAT Fund, and looking at the things 
that MedPro and PMSLIC do, I know that doctors, and working 
with actuaries, can be insured for a lot less than what has 
been said sometimes before in front of this committee.
    Mr. Greenwood. Mr. Reed, I have given you 11 minutes and 44 
seconds of your 5 minutes so far, so we are going to have to 
ask that you reserve the rest of your comments for questions.
    Mr. Reed. I will reserve the rest of my comments.
    [The prepared statement of John H. Reed follows:]

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    Mr. Greenwood. Thank you, sir. Dr. Vidmar.

                    TESTIMONY OF NEIL VIDMAR

    Mr. Vidmar. Thank you very much for--is that on?
    Mr. Greenwood. I think it is, yes.
    Mr. Vidmar. I am here as a professor of law, but I am 
neither a lawyer nor a medical doctor. I have a Ph.D. in Social 
Psychology.
    Mr. Greenwood. Now we have the expert here.
    Mr. Vidmar. Well, only somewhat. I want to say that, 
obviously, we have a serious crisis in many places throughout 
the United States, and I have given two written submissions to 
this committee and I simply want to touch on a couple of 
highlights in those. I have been mapping the litigation system. 
That is what I do; especially, medical malpractice, and I 
published a book called Medical Malpractice and the American 
Jury in 1995. Most recently, I have done some work in 
Mississippi. And although we are talking about Pennsylvania 
today, I just want to make a couple of comments about the 
Mississippi study, and that is part of my written submission.
    Mississippi has been picked on as one of the other States 
where there is a major crisis. The problem is that we so often 
get a distorted picture of what goes on in the litigation 
system. And just to give you an example, during the debate in 
the Mississippi legislature, doctor groups and others were 
saying that there were 52 awards since 1995 that were over $1 
million. And I have heard the American Medical Association make 
some similar sorts of comments. I actually managed to get those 
data of those 52 awards. It turns out there were only seven 
medical malpractice cases over $1 million. The rest were some 
tort things, some contracts. In fact, the second largest award 
in Mississippi turned out to be the State of Mississippi as the 
plaintiff in a contract dispute.
    So the point that I am making is that often we see things 
at a certain surface level that are not so apparent. Over a 
year ago, the Pennsylvania trial lawyers asked me to look at 
Pennsylvania, and I managed to get a little bit of data and I 
thought that I would be able to share that with you. Again, 
these data are in the report that you have before you. In 
Pennsylvania, seven out of ten lawsuits that go to trial are 
won by the doctors. In the year 2000, there were 76 plaintiff 
verdicts. The average verdict was a little bit over $5.5 
million, but the median verdict was $1,200,000. In the year 
2001, there 76 plaintiff verdicts and the average was 
$2,620,000, or a median award of $872,000.
    Now, you ask what is the difference between the mean and 
the median. Well, you can have outlier awards, these large 
awards that actually increase the median. So I looked at those. 
And in fact, the Governor this morning talked about 19 cases 
over $5 million; it turns out I found 22 in these data. But 
what I also found was that the average recovery in these cases 
was 22 percent of the actual verdict, and that is very 
consistent with research that I have done in Florida, and New 
York, and in California. In other words, jury verdicts are not 
necessarily the end result. One of the things that I found in 
Pennsylvania was that in a number of cases there were high-low 
agreements before the case even got to trial. The lawyers in 
advance had said, well, it won't be any higher than this and it 
won't be any lower than this, and in fact, the whole issue was 
one of a planned settlement, but all that is reported is that 
$20 million verdict that appeared in the newspapers when, in 
fact, that is not what the ultimate outcome was. There are post 
trial settlements, judges reduce awards. So that is one of the 
things you have to look at is not what is in the surface in the 
claims that are being made, but rather, what actually happens 
in the system.
    Second, as many people pointed out, the economic costs when 
there is medical negligence are very high. In the 1990's, Frank 
Sloan, an economist, examined bad baby cases and emergency room 
cases and examined with a team of economists only economic 
costs, not the pain and suffering costs. In today's awards, the 
average economic loss for these was $2.1 million, and there was 
a lot of variation around that. So you can think of someone who 
has got a high income could lose a lot more, but let us stick 
with the figure of $2.1 million. I think that caps on pain and 
suffering isn't going to do a lot in a case like that. So one 
of the things you have to look at is what are the actual 
economic costs, and that was probably the most careful study 
that I know of that has been published showing what the actual 
costs are when someone is injured through medical negligence.
    I would make a little side comment, Congressman Greenwood, 
about Pennsylvania versus Indiana. Indiana actually has--I 
think you talked about some physician that was leaving. Indiana 
has a cap on economic damages. I mean, the total award can only 
be $750,000. It is being raised, but there are some clear 
instances of great injustice through that, simply because of 
the actual economic cost, and it is something that needs to be 
taken into consideration.
    I have two final comments to make. Again, many of these are 
continued in the paper. There is the comment about frivolous 
litigation, and I don't deny that there is some frivolous 
litigation, and I do not know the exact situation here in 
Pennsylvania, but what I do know is that the figure that says 
40 percent of cases that are filed end up receiving no payment 
as an instance of frivolous litigation is just not correct. 
When I was doing my work on the medical malpractice in North 
Carolina, we were fortunate in that we convinced three medical 
insurers to give us some samples of their files. So I was able 
to trace--and they kept fairly detailed files of what was going 
on. In the first place, for a lawyer to begin to sue for a 
plaintiff, he has to get, he or she has to get the medical 
records, and doctors often resist this. So they have to file a 
lawsuit to get the medical records. Once they get the medical 
records, then they get someone to examine them. And what I 
learned from the insurers' files was something very 
interesting. After the filing, the plaintiff says I have got 
this expert and we think it is medical malpractice, the 
defendant says, well, I am going to have somebody take a look 
at the case and we will get it. Well, it turns out they often 
get a local doctor who says, no, there is no medical 
malpractice here at all. The next thing is the plaintiff comes 
in with an expert that says, yes, there really is, and here is 
the reason why. And we get this in the deposition. All of a 
sudden, the insurer says--it is the lawyers who are doing this, 
but this is in the insurer's records--oh, my gosh, maybe this 
doctor really didn't have a very accurate estimate of what this 
was. We should go out and get our own insurer--I mean, get our 
own doctor outside the State. They go outside the State and 
they get someone, and then this doctor from the defense side 
says, yes, I think there was negligence here. And this goes on 
for a period of time. That is why it takes so long to resolve 
these kinds of cases, is what we discovered. But ultimately, it 
may turn out that the plaintiff says after they have gotten a 
couple of doctors to look at this, the plaintiff says, you 
know, we thought we had a case, and we don't, and we drop it.
    My point about this is--and 40 percent of the cases in 
North Carolina were dropped in the study that I was doing. But 
the point is these were not frivolous cases; these, ultimately, 
were non-meritorious cases, but through the process of 
discovery, it only turns out that these are complex issues when 
you get involved in medical malpractice, and then the case is 
dropped. That doesn't mean it was frivolous, and therefore, I 
think it is very misleading when you say that these dropped 
cases end up being frivolous cases.
    And finally, I have been studying juries, civil juries, for 
the better part of two decades now. And in fact, doing some 
interesting work in Arizona where I have actually been able to 
videotape the deliberations of 50 civil juries with my 
colleague, Sherry Diamond. This is a court initiated project. 
And the data that we found from seeing real juries deliberating 
and videotaping what they have done, and it is all kept within 
our research group, is consistently, juries have heard and read 
about medical malpractice cases, they have heard about the 
large awards, and juries consistently end up being very 
conservative in what they do.
    And you know, this system wouldn't have lasted if it was as 
crazy as people say that it is. It is part of our American 
Constitution and it is part of the practice that we have had. 
And when you talk to judges who sit side by side with juries 
and hear the same evidence, and you do studies of them asking 
are juries crazy, what they say is no, I agree with the juries 
most of the time, 80 percent of the time. In fact, more 
recently, they show 80 percent of the time, and when I did 
disagree with them, it was close enough because of the cases 
that one would have to say it could have gone either way, and 
therefore, maybe the jury was right and I was wrong. So there 
is a whole body of research that suggests that juries are not 
so crazy as this. They tend to be rather conservative. And so 
all of those need to be looked at.
    Now, that is only part of the problem, but what I am 
suggesting in my paper, in the testimony, is--and this goes 
back to what the Governor was saying, is to me, the focus on a 
single issue like caps on pain and suffering, and trying to 
lose sight of what the major problem is, and blaming it all on 
the litigation process--the tort system is very inefficient. It 
ends up in making bad mistakes, it is very costly, and I would 
be the first person to jump up and say that to you. But it is 
the only system we have got, and it is the only system that we 
have got that allows people to get compensation when they have 
been injured. I could find alternatives, Workmen's Comp of some 
form for this, but our system won't allow it, and so we have to 
stick with what we have. Thank you very much.
    [Material submitted by Neil Vidmar is retained in 
subcommittee files.]
    Mr. Greenwood. Thank you, Dr. Vidmar. Mr. Mundy.

                   TESTIMONY OF JAMES F. MUNDY

    Mr. Mundy. It is Jim Mundy, Mr. Chairman. You and I go back 
to the days when you were in the Pennsylvania Legislature. I 
have known you for many years, and it is a privilege for me to 
be here before this committee. And let me just say that I had 
always heard that Congress works very hard. It is 3:10 in the 
afternoon, there has been no break, you have been here since 10 
this morning, and I think you should be congratulated, all of 
you, on the kind of zeal you have for this project that would 
keep you here with no break at all for the better part of a 
day.
    Mr. Greenwood. Thank you. And by the way, the day is young.
    Mr. Mundy. And I know that, too, and I know there is more 
that you will be doing after this is over.
    Let me tell you the perspective from which I come to this 
problem. First of all, I am a claims lawyer. I represent 
victims, and a good percentage of those victims are medical 
malpractice victims. I am also a patient. I have some great and 
wonderful physicians who have taken care of me. I have great 
friends who are physicians. I have worked on this problem with 
physicians for almost 20 years. I go back to a day when I was 
very perhaps naive, or idealistic, or some combination thereof, 
when the then majority leader of the Pennsylvania Senate, Bob 
Jubelirer, called us in and said we had to come up with a 
solution to the 1985 malpractice problem which had succeeded 
from where the 1974 medical malpractice had left off. And I 
went out on my own, and I went to nine state-wide 
organizations, hat in hand, and I asked them to give me money, 
a minimum of $10,000 each, so we could go out and have a study 
done to find out what in the heck was going on with the medical 
malpractice insurance delivery system in Pennsylvania.
    It was recommended to us that we hire two professors from 
California, two Ph.D.'s from California, because they had done 
a study for the Los Angeles Medical Society and the Los Angeles 
Medical Society said they had done a great job, and we did. We 
hired Al Hofflander and Wayne Nye. If Wayne Nye's name 
registers with you, he was one and the same, a Dallas Cowboys 
offensive guard for a decade. They came to Pennsylvania and did 
an in-depth study. They were given all of the CAT Fund data, 
and the CAT Fund was 10 years old then. They were given all of 
PMSLIC's data because the Pennsylvania Medical Society was one 
of those nine organizations along with the Hospital Association 
of Pennsylvania, the Defense Research Institute, the 
Philadelphia Bar, the Pennsylvania Bar, and the Allegheny 
County Bar. Most of them didn't even know who I was. They put 
up the money, not for me, because they believed in this. And we 
found then that there were myths, things that we had all 
believed which was that if medical malpractice rates or any 
insurance rate is high, there must be too many claims and too 
much payout.
    The reason it is relevant what we did in 1985 is because 
those same professors, Hofflander and Nye, came back here in 
2001 and brought the study up-to-date. And so there is a few 
things that have been said today, and I like to give you a 
little bit of perspective from what I have learned about them. 
First of all, there is nothing more damaging that has been said 
here today to consumers and patients than the concept of 
physicians are leaving this State. The statistics are that in 
the decade from 1990 to 2000, the number of physicians coming 
into this State increased at 12 percent. The general population 
of Pennsylvania increased to 3.4 percent, so there was a 
fourfold influx of physicians into Pennsylvania greater than 
the population growth. But in 2000, according to CAT Fund data, 
we lost 900 physicians, 3.5 percent, and that is a big loss.
    What are the causes for that? One, I am sure, is what you 
hear about, the medical malpractice rates. But there is 
another. We rank in Pennsylvania--and this was alluded to by 
the Governor earlier--almost dead last in physician 
reimbursements across the board, not just Medicare, across the 
board. We have a monopoly of providers here and our doctors are 
being hurt by that. Why they are not saying that here, I can't 
fathom, because that is a fact. I have, part of my practice is 
representing physicians. Usually, they come to me after they 
have been sued by somebody because they know I will do my best 
to help them get through it. But in part of that, just an 
anecdotal story to give an idea how this affects our doctors, 
the chairman of the department of gastroenterology at a major 
hospital called me in and said I need your advice on something. 
I have high risk patients for colon cancer. I want to give them 
a colonoscopy once a year, but the reimbursement I get on that 
costs me more money to use the hospital's facilities to give 
the colonoscopy than I get in reimbursement. In other words, I 
lose money every time I do a medical procedure. That is wrong. 
And his question to me was if I start spreading these patients 
out, the person who should get it every year, the high risk 
person every 2 years, and the person who should get it every 2 
years to every 4 years, and somebody ends up with colon cancer, 
will I be liable? And his next question to me when I said, yes, 
you probably will, because you probably won't testify that it 
was the provider that made me do it, he said, well, why can't 
you barracudas do something about that? Why can't you do 
something about reimbursements? I would like some physicians to 
come forward and talk about that.
    Physicians are victimized in another way rather uniquely in 
Pennsylvania, and maybe it is because we had an absent market 
in the 1970's that was filled by a captive insurance company, 
PMSLIC, when first formed, and it was difficult to compete as a 
noncompetitive carrier, somebody who is trying to service their 
members, with a private carrier that would come in and be a 
very selective carrier. So what we have in Pennsylvania is a 
rate classification distribution, 13 to 16 rate 
classifications. What does that mean? There is a neurosurgeon 
in this audience. There were 250 neurosurgeons in Pennsylvania 
in 1985, approximately. If you put them in one group and say 
you are a rate classification, the basic principle of insurance 
is violated, which is spread the risk. That neurosurgeon may 
have been missing in Mississippi because of a rate 
classification that sent his rates through the roof and his 
partner had to leave. To put it basically, if in 1620 there 
were 20 ships insured in Plymouth, England, instead of 200, and 
one went down, there wouldn't be any insurance today. There is 
a need to come in and what we call collapse the pyramid. We 
started out with three classifications, those who don't 
operate, minor surgery, and major surgery. Now we are at 16.
    We have another problem addressed in both studies, the 
problem of recidivism and an absolute lack of doing anything 
about this. And it is not just--I know neurosurgeons take great 
risk and work with brains and spines and do wonderful things, 
but within the specialties, we have a problem. In 1985, 228 
doctors, 1 percent, were responsible for 25 percent of the 10-
year payout of the CAT Fund; 10 percent of the neurosurgeons 
were responsible for 47 percent of the 10-year payout of that 
specialty; 4 percent of the orthopedic surgeons were 
responsible for 45 percent of the 10-year payout; one 
ophthalmologic surgeon, one alone, was responsible for 25 
percent of the 10-year payout of the CAT Fund for that 
specialty. That was in 1985. We had 17 years to do something 
about that. When Hofflander and Nye came back in, this is what 
they found: less than 2 percent of all the physicians in 
Pennsylvania were responsible for 41.5 percent of the 25-year 
payout, less than 2 percent. That is half the number that left 
Pennsylvania in the year 2000; 151 doctors, all with four paid 
claims or more, .27 percent, were responsible for 12 percent of 
the 25-year payout of the CAT Fund. If something had been done 
about that, we wouldn't be here.
    We have had one physician lose his license in 25 years for 
incompetence, one. If we cannot get the licensure department to 
look at that problem as they did not after 1985,m there is 
another way to do it, and that is to mandate experience rating, 
make it too expensive for someone who is not capable of 
performing adequate medicine to practice here.
    Is there a crisis in torts? The number of filings in 
Pennsylvania, according to the organization that keeps track of 
all filings in all State courts, we are in the middle; 26 
States and the District of Columbia file more medical 
malpractice cases per population than does Pennsylvania. We are 
in the low middle. The mean verdict, according to the National 
Practitioners Data bank, which has been around for 10 years, 
over that 10-year span, nationally, was $209,000 and 
Pennsylvania was $211,000. In fact, if you take away asbestos 
claims, Pennsylvania is one of the least litigious States in 
the whole United States. Only in Maine do they file fewer suits 
per population than does Pennsylvania.
    We have unique problems. We had a unique system in place to 
answer it. We chose to do it--that was the CAT Fund. We chose 
to do away with that at a period of time when there is no 
market. There is no investment market. And in those 30 years 
that I have been around here and testifying before committees, 
every time we have a bear market and no interest rates we have 
a tort reform crisis. They go hand in hand. You first have an 
insurance availability problem because no one wants to write, 
and then when you have a seller's market, you have a price 
problem, too, affordability problem. That is the way it goes, 
that is the cycle.
    The statistics from the CAT Fund in its last 2 years showed 
we have already probably turned around in that cycle and we are 
on our way back down. Does that mean you shouldn't look at it? 
No. We shouldn't be victimized every 13 years or so by these 
horrible fluctuations in the market that are terrible for our 
physicians to try to handle. There is no way to plan for it, 
there is no way to

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    Mr. Greenwood. Thank you. Thank you all for your testimony. 
Without objection, we will enter into the record the document 
provided by Mr. Rosenfield, which is entitled, The Matter of 
Rate Rollback and Refund Obligation of NORCAL Mutual Insurance 
Company. And let me turn to you, Mr. Rosenfield, if I could. 
The Chair recognizes himself for 10 minutes.
    When there is a rate rollback, the money has to come from 
somewhere. I don't think it is too much of an 
oversimplification to say that a medical liability insurance 
company has two sources of revenue. It has premiums coming in 
and it has return on investments which are usually positive. 
Its returns on investments are usually a positive number, not a 
negative number. And then it pays out claims. It made 
investments in order to get that return, but that is, as I 
said, a net plus. And it has some profit and administrative 
costs.
    Now, if we look at the physician owned and operated 
insurance companies, which I believe is 60 percent of the 
market in the United States, and you look at PMSLIC in 
Pennsylvania, if the solution is rollback rates, you have to 
help me understand where that comes from, because PMSLIC isn't 
paying shareholders profits, it doesn't have--it is not a 
privately held company pouring big whopping salaries into its 
administrators, and yet, it is completely competitive with the 
private sector. So what I have a difficulty trying to 
understand is there is a lot of interest in blaming the 
insurance companies, and let me tell you something. If I 
thought the insurance companies were the culprit here, I would 
go get them, both guns blazing. You ask me to name somebody who 
operates a medical liability insurance company, I don't know 
anybody. I can't name them. If you ask if they have come into 
my office, I can't tell you that they have. If you ask me if 
anybody ever contributed to my campaign, I would say I don't 
think so. So I have no vested interest in going easy on those 
guys if those guys are the culprit.
    But when I look at the PMSLIC's of the world and the other 
physician operated systems and see that they are sitting here 
saying it is paid claim severity, I don't know where to squeeze 
that stone and get blood out of it. So why don't you help me 
with that?
    Mr. Rosenfield. Well, first, I do think there is a 
distinction between the commercial carriers and what we call in 
California the bedpan mutuals that were set up largely after 
MICRA passed and the commercial insurers wouldn't come in. But 
we have found--and what happened with Proposition 103 and the 
rollback shows that they had--they were holding too much money, 
and that was the fact of it. There were very specific rollback 
regulations that were approved and litigated, by the way, for 
years.
    Mr. Greenwood. All right. Let me stop you there. Let us 
talk about here and now. Let us not talk about California many 
years ago.
    Mr. Rosenfield. Sure.
    Mr. Greenwood. I would be very surprised if the physicians 
who own and operate PMSLIC, and who pay the premiums that 
PMSLIC sets, are sitting around in this crisis allowing them to 
withhold too much money. Let us assume that is not the case 
here.
    Mr. Rosenfield. Well, let me talk to you about that, let me 
answer that question. My experience is that most physicians 
just want to practice medicine and they aren't such great 
consumers themselves. And that has turned out to be an 
interesting thing in California, where under Proposition 103, 
anybody can challenge a rate increase over a certain percentage 
and obtain a mandatory hearing. No physician has ever done 
that. Now, rates are starting to go up in California because of 
the cycle, and in the absence of any physician group 
challenging a rate increase request--we did about 3 months ago. 
We challenged NORCAL--that is right, I am sorry, we did not 
challenge NORCAL. We challenged SCPIE, which is the second 
largest medical malpractice liability insurer in the State, and 
we--then wanted a 15 percent rate increase. We had an actuary 
examine it, preliminarily, to determine that it was excessive, 
filed the request, filed the demand for hearing, the company 
withdraws its application. All of a sudden, it doesn't want a 
rate increase. And then we made a big deal about that 
nationwide, which is maybe a mistake. And I think what happened 
was it got all of the people all over the country who 
understood the political ramifications of them withdrawing 
their requested rate increase and how that endorsed regulation, 
and so they went to the commissioner and said how about a 
little rate increase, can you do it under the table so you 
don't have to give a hearing, and the commissioner said no.
    Mr. Greenwood. Well, this is a physician operated----
    Mr. Rosenfield. Yes.
    Mr. Greenwood. So explain to me what the motivation is for 
a physician operated medical liability insurance company to 
charge excessive rates.
    Mr. Rosenfield. Well, I can give you two motivations and I 
can't tell you about this one company, but I can tell you this 
for sure. There is two options. One is that they are mistakenly 
projecting claims payments, claims payouts, for this year, for 
the future years. Or two, they may have goofed on their 
investments.
    Mr. Greenwood. So it is incompetence? When you say goofed 
on their investments, now, PMSLIC invested in treasury bills, 
and we are going to go to them, and I think they are going to 
tell you under oath that of their 54 percent rate increase, a 
very small portion of that is attributable to investment 
issues. And we have also heard from Mr. Hurley that the 
investment issue is not about the fall of the stock market in 
the past, it is about projections of what investments are 
likely to yield in the future. Isn't that accurate?
    Mr. Rosenfield. Well, I think that is correct. That is how 
it is supposed to be. But the reason why we set up a regulatory 
system in California is to not have to be in this hearing and 
rely on that kind of discussion. Without being able to have our 
own actuaries, the public and the Department of Insurance own 
actuaries go in there and look at the----
    Mr. Greenwood. So you think that you need to get the 
government and public advocates in between the doctors and the 
insurance companies that they own to protect the doctors from 
their own insurance companies?
    Mr. Rosenfield. Unequivocally, yes. And I know that for 
somebody like you with your particular beliefs, the idea of 
government intervention----
    Mr. Greenwood. No, I don't--government intervention is cool 
with me. I am just trying to figure out why we need it to get 
in between a physician and the insurance company that is his 
own physician nonprofit insurance company.
    Mr. Rosenfield. All I can tell you is this. They paid the 
rollbacks in the early 1990's, without suffering, without going 
into insolvency. There was legal constitutional protection for 
them. They had to roll it back.
    Mr. Greenwood. But you said that is all you can tell me, so 
that is all you are going to tell me. Let us hear on this 
question from Mr. Smarr and Mr. Diener, because to me, this is 
critical, and then I want to go to Mr. Hurley. This is a 
critical issue. What Mr. Rosenfield said is, essentially, that 
the problem here is not severity of paid claims, as you 
gentlemen have testified, but it is really that you need rate 
regulation. Now, I am trying to understand, if for profit 
insurance companies were charging rates up here and you guys 
were out there in the marketplace looking at your exposure to 
liability and you were way down here in your premiums, then I 
would say, well, look what the guys who aren't trying to price 
gouge are doing. But in fact, you can't get a premium--you 
can't sell a premium policy for less than the private sector 
can. So I am trying to figure out where the fat is in the 
process that we are supposed to cut out here if you are owned 
and operated by physicians and you can't find it. Would you 
like to comment? We will start with you, Mr. Smarr.
    Mr. Smarr. Well, you are exactly correct, Mr. Chairman. 
There is no fat in the process. In fact, the physician owned 
carriers lost 10 cents on the premium dollar in 2001, and 
medical malpractice insurance is a line of insurance. Just like 
any other, it is a free open market under our free enterprise 
system. There are a large number of competitors in the market, 
although, dwindling very rapidly in Pennsylvania due to the 
very unfavorable situation with losses.
    Mr. Greenwood. Somebody told me that there are only a 
couple insurance companies. How many people are selling--how 
many companies are selling medical malpractice insurance, 
medical liability insurance in Pennsylvania?
    Mr. Smarr. I am aware of three at this time. The major 
market is PMSLIC and the Medical Protective Company.
    Mr. Greenwood. What percentage of the market do you have, 
does PMSLIC have?
    Mr. Diener. It is a difficult market to identify in size, 
but if you will allow me to use round numbers, probably around 
30 percent if you define the market as physicians who buy their 
own malpractice insurance.
    Mr. Greenwood. Okay. I am sorry. I interrupted you, Mr. 
Smarr.
    Mr. Smarr. And I think First Professionals Insurance 
Company is also writing in the State.
    Mr. Diener. It is our understanding that our company and 
Medical Protective are the only two large companies writing. We 
understand that a new company has begun business in 
Philadelphia, and with the State run Joint Underwriting 
Association, that would make four insurers that we are aware 
of.
    Mr. Greenwood. Let me ask a question of you, Mr. Hurley. In 
your testimony, you say that recently, the cost of medical 
malpractice insurance has been rising, rate increases have been 
precipitated, in part, by the first item you list is growing 
size of claims. The second item you list is more frequent 
claims. The third item you list is higher defense costs. And 
the fourth item you list is the decline in expected future bond 
yields. Now, I guess you must have forgotten to say all of the 
money that was lost by the insurance companies in the stock 
market decline, because that is what we are hearing is the real 
culprit. Why did you not identify that?
    Mr. Hurley. No, sir, I did not forget to include it. It is 
because it should not be included.
    Mr. Greenwood. because it is not a factor?
    Mr. Hurley. It is not a factor in determining----
    Mr. Greenwood. Explain that, because I swear to you my good 
friend, Peter Deutsch, thinks it is.
    Mr. Hurley. As indicated in the testimony, the ratemaking 
exercise is a forward looking process.
    Mr. Greenwood. Is that in all States?
    Mr. Hurley. The ratemaking exercise is forward looking in 
all States. What happens is companies will collect historical 
data. They will adjust that historical data to make it an 
appropriate estimate of what they think their loss experience 
is going to be for the upcoming period. They will consider the 
time value of money; that is to say, investment income they 
think they can make in the future, and they will incorporate 
their costs and a profit contingency load if that is the 
appropriate component to incorporate for that particular 
company, and that will depend. However, that is the process 
that they go through. It is uniform, or I think it is 
consistent across State lines. It is subject to State review in 
many jurisdictions, more thorough in some than in others, but 
it is reviewed at the State level by insurance regulators. It 
is documented, the process is documented in actuarial 
principles of practice, and again, is subject to review at the 
State level. And it does not encompass, it does include a 
provision for prior year's losses in the stock market, for 
example. There is no provision for that.
    Mr. Greenwood. Okay. I itemized the four causes that you 
cite, growing size of claims, more frequent claims, higher 
defense costs, decline in future bond yields. Did you list them 
in that order--are they in any order? Did you mean to list them 
in the order of the sort of percentage of the contribution that 
they make?
    Mr. Hurley. I had not intended them to be in any order in 
terms of order of magnitude, for example, sir, but I would say 
that the interest income component, investment income 
component, is probably less important than the others.
    Mr. Greenwood. So growing size of claims, and frequency of 
claims, and the higher defense costs, which are associated with 
the tort system, are the main drivers, and the decline in 
expected future bond yields, you are saying, is the smaller of 
the causes?
    Mr. Hurley. That is correct.
    Mr. Greenwood. You don't have a dog in this fight. Right? 
You are not paid by the doctors, or the lawyers, or the 
hospitals. Are you?
    Mr. Hurley. I am here as the representative of the American 
Academy of Actuaries. In my work, where I do get paid, I work 
for insurance companies, I work for regulators, I work for 
healthcare providers, so I work for the broad spectrum of folks 
interested in this sort of question. I, actually, do work for 
PMSLIC, as a matter of fact.
    Mr. Greenwood. The final question--I am over, but this will 
be my last series of questions, I think. And I want to address 
this to you, Mr. Diener. In setting your premiums, you take 
into account the investment income you expect to make from the 
premiums that are collected until you make any payments. We 
have been talking about that. And again there is this 
allegation or assumption that is made in some corners that what 
has changed here is the recent--we know what the stock market 
has done. We have all seen it in our 401K's, and IRA's, and so 
forth. What do you currently use as your assumed rate of return 
this year in this poor market, and how have those assumptions 
changed since the bull market of the 1990's? In other words, 
what do you expect now as opposed to then?
    Mr. Diener. If you would allow me a brief digression to a 
point of clarification, I think that SCPIE, the company that 
the gentleman from California alluded to, is in fact, not a 
physician owned company. It is, in fact, a publicly traded, 
publicly held insurance company. I am not certain of that, but 
that is--we have lowered our investment rate assumption in the 
2003 filing, which we filed with the State in October 2002, 
from that we used in our 2002 filing, which we filed with the 
State, in October 2001, from about 6 percent to 5 percent.
    Mr. Greenwood. So that is it. It is a 1 percent difference?
    Mr. Diener. From last year to this, yes, sir, that is 
correct. I am sorry I am not able to tell you what it was from 
the 1990's. I would expect the differential is not anything 
that would astound you. We are 100 percent invested in 
treasury's and investment grade corporate's.
    Mr. Greenwood. Okay. The gentleman from Florida is 
recognized for 10 minutes.
    Mr. Deutsch. Thank you. Mr. Hurley, again, I think this is 
really sort of a follow-up on what the chairman was saying, but 
you know, I think we need to really distinguish between losses 
versus less investment income in the future. I mean, losses are 
not the change at all, but less investment. Could you try to 
follow up a little bit on Mr. Diener's statement. Let us say, 
2000, what would have been, you know, your recommendation for a 
company to use as a rate of return for investment income?
    Mr. Hurley. Well, I can't recollect, specifically, but in 
general, when we make a determination about--or when an actuary 
makes a determination about what investment yield to use, it 
will seek the input of the advisors of the particular 
circumstance he is dealing with. In the case of a company, you 
might ask what yields do you expect to get with this money that 
you are going to collect in the year 2001 in the case of the 
example you are talking about in the year 2000, and based on 
that yield, do a calculation to reflect the implied investment 
credit associated with the assumption of that yield. Those 
yields have come down, as I think is your inference, over the 
course of the last couple of years, not unlike what Mr. Diener 
said. I would say that in most situations, we probably have 
seen occasions where that yield has come down to less than 5 
percent, probably 4 percent. There are some occasions where I 
have seen 3 percent used.
    Mr. Deutsch. And in the past, what is the highest percent 
you ever saw?
    Mr. Hurley. I have seen, historically, as high as 7, 8 
percent.
    Mr. Deutsch. That is the highest you have ever seen?
    Mr. Hurley. I don't want to say that is the highest I have 
ever seen, but I think I can recollect seeing 7, 8 percent.
    Mr. Deutsch. Well, I am not going to hold you on it, but I 
mean, I just, you know----
    Mr. Hurley. Well, this is sworn testimony, so I want to be 
a little careful.
    Mr. Deutsch. Right. Okay. I mean, so even in 1999, 2000, 
2001--I mean, 8, 9 percent, or even going back to, you know, a 
point in time when inflation was higher. Let me, I guess, get a 
sense of let us say you went from 8 percent to 3 percent. What 
effect would that have on rates? The same year, same deal, use 
8 percent, use 3 percent. What would the increase in rates be?
    Mr. Hurley. Maybe 10 percent at the low end and it could be 
as high as 20 percent at the high end, something along those 
lines.
    Mr. Deutsch. Okay. So I mean, just even from the--does 
anyone want to, again, from this panel, offer a different 
estimate of that? Okay. I mean, you are the actuary on the 
panel. Let me--I want to jump around a bit, because really, the 
testimony hasn't really integrated completely, but I think all 
of you have said significant things. Mr. Diener, we have had 
testimony today on a number of occasions saying that, as far as 
people are aware, there is only one physician who has actually 
lost their license in Pennsylvania in the last 20 years because 
of incompetence. I mean, that is my understanding, which is 
interesting. I mean, comparative in terms of other States. You 
told the staff that you cut 50 doctors from coverage because 
the risks were too high. Now, were these bad doctors or, I 
mean, why did you choose to eliminate coverage for those 50 
doctors?
    Mr. Diener. We non-renewed about 50 physicians at year end 
2002 because we felt they represented an exceptional risk to 
the company.
    Mr. Deutsch. And I mean, were they bad doctors? I mean, why 
were these particular doctors problematic for you?
    Mr. Diener. We look at trends. We try and understand 
frequency and severity and the risk that different physicians 
present to our company. We do not non-renew or surcharge as a 
punishment for past losses, but rather, as a projection of 
future losses. I would be unable to characterize the quality of 
care those physicians delivered, but I can tell you that after 
considerable study, we felt their risk profile was exceptional.
    Mr. Deutsch. And again, I just want to be--you know, I 
would want to get some comparative sense from other States 
about this but, you know, one of the things that we really 
haven't touched on today is, really, the issue of maybe looking 
at the whole problem of malpractice at least a little bit 
differently. We have talked about a variety of, you know, 
legislative issues, but I think one of the things that on a 
personal basis, I know stuff is going on. I know hospitals are 
doing risk evaluation things, and you probably give discounts, 
I would assume, for certain programs that physicians or 
hospitals sponsor. And one of the things that I guess, you 
know, I would hope when we finally, if we do come to 
legislation, that we spend a lot of time on, is, ultimately, 
trying to reduce malpractice. You know, not just dealing with 
the premium side, because again, I guess one of the ways I view 
it is if there were no malpractice, there would be no 
malpractice crisis. And ultimately, I guess have enough sense 
in the system. And maybe, you know, we hear these things 
continuously of, you know, unjust rewards. I want to see the 
case where, you know, a $1 million claim was awarded by a jury 
or by a judge where there wasn't malpractice by the standard 
of, you know, reasonable care in the specialty. And you know, 
from a societal basis, it is really sort of putting it on its 
head. And again, I think we have also talked about that the 
procedures by their nature of risk, either it is going to be a 
certain percentage that, you know, just the human condition is 
not perfect, that there are going to be sometimes, you know, 
the wrong leg is going to be amputated, and it is going to 
happen, but how do we prevent that from occurring.
    And I guess--I mean, I open it up really to Dr. Vidmar, if 
you can kind of talk maybe a little bit about that because that 
really addresses the research that you talked about, I mean, in 
terms of malpractice itself, or is there anyone else here that 
can really talk about where from a policy side, because 
ultimately, there is a reasonable chance that there will be 
Federal legislation. Both the chairman and I are well aware of 
the politics. The House is going to pass a bill for sure. The 
House passed a bill in the last Congress and it will be a very 
protracted debate in the Senate in terms of what the 
legislation will be, and hopefully, as it goes to the Senate, 
some of these issues, some of these other concerns, will be 
addressed. And ultimately, you know, I hope that I want to 
reduce malpractice premiums as much as my colleague, and I 
really want to. I think our goal is exactly the same. I mean, I 
have discussed it somewhat in anecdotal conversations during 
this hearing is that not just on a policy basis, but definitely 
on a policy basis--I mean, I have an incredible amount of 
respect for physicians at so many--I mean, I have not met a 
physician in my life who did not get into the profession for 
the best reasons, and I understand, I have plenty, you know, 
friends, relatives who are physicians, and understand, you 
know, the commitment that it takes, and also, some other issues 
related to it. But I think, you know, we have really gotten to 
a point where premiums throughout the country, Pennsylvania 
does seem to be more problematic than most States, where the 
analogy that I use, if there is a doc out there that the net 
income is, let us say, $180,000, and that person has a $30,000 
increase, and we really are in this world, in the malpractice 
rate, where they just can't do anything to generate an 
additional $30,000 more of income. I mean, they are not going 
to get more reimbursement from their managed care company, they 
can't do anymore procedures, they can't see anymore patients, 
and so that person--you know, a lot of people in America have 
more serious concerns, but for that person it is an unfair 
situation. And from the policy side, for us, I think the 
challenge for us is how to deal with that person, specifically, 
and all the implications in terms of the access to care issues.
    But I guess I focus back--I mean, have you looked at that 
at all in terms of things we can do in terms of reducing 
malpractice itself?
    Mr. Vidmar. Well, this is not my area of specialization. I 
probably shouldn't go beyond that, but I can point you to the 
fact that people have been working on that. In fact, just this 
week I was talking with a doctor at Duke Medical Center. He and 
I are going to have a mini-seminar on medical malpractice 
litigation at the end of this month. He informs me that there 
are things, but I think you should turn to someone who is more 
specialized in that area.
    Mr. Deutsch. Let me ask Mr. Diener. In terms of what types 
of programs do you have in place, in terms of discounts for 
physicians who are doing certain things to reduce malpractice?
    Mr. Diener. We offer up to a 15 percent reduction in 
premiums for physicians who stay claims free. That does not 
address your question specifically, but it hasn't been talked a 
lot about today. We do make an effort to differentiate between 
physicians who have not had claims. Every year, in addition, we 
offer a risk management course written by either our risk 
management staff or lawyers and physicians whom we use as 
consultants, successful completion of which gets an addition 5 
percent. We endeavor to make that course responsive to what we 
are seeing in our loss trends.
    Mr. Deutsch. And presently, of your clients, how many are 
actually participating in that risk management?
    Mr. Diener. In any given year, probably about 4,000 of our 
7,000 physicians will take advantage of that.
    Mr. Deutsch. And has your experience been that it is 
justified based on the claims?
    Mr. Diener. I wish I could say we had data that correlates 
risk management activity directly to loss experience. We do 
not. We nonetheless proceed to give those discounts in the 
assumption, in the hope, that it must be in the better interest 
of improving patient care to make physicians more sensitive to 
those situations that are creating losses.
    Mr. Deutsch. Let me take one last question to Mr. Smarr. We 
have spent a lot of time today talking about the $250,000 cap 
in non-economic damages. In one of the perspectives, I am just 
curious from your point of view, if that was applied across the 
Nation in medical malpractice cases, what percentage do you 
think member companies would reduce the premiums that 
physicians would pay?
    Mr. Smarr. Well, for companies writing in States that do 
not already have a $250,000 cap, we could expect that rates 
would decrease significantly. The Congressional Budget Office 
recently did a scoring analysis of H.R. 4600, and in that 
analysis, which they found $14 billion in savings to the 
Federal Government and $7 billion in savings to the States, 
they also state that if H.R. 4600 were to become law, that 
rates would be 25 to 30 percent lower than they would be if 
H.R. 4600 would not be adopted into law. And those estimates 
are consistent with other actuarial estimates I have seen over 
the years as to the effect of the California MICRA reforms.
    Mr. Deutsch. Now, one of the questions, and it would make 
many of us feel a lot better if, in fact, you know, if this 
legislation ends up passing, that there would be, really, a 
requirement that goes along with that. Because I guess, you 
know, I would want to go through the analysis of that 
calculation. But you know, if we actually believe that, I mean, 
would you expect your companies--how aggressively would your 
companies fight mandating that pass through savings? I mean, 
are you willing to say that companies would agree to the 
actuarial savings on that? I mean, the CBO number that comes up 
with a 25 percent savings?
    Mr. Smarr. I think I can tell you that the companies would 
not agree to automatically reduce their rates. We have seen in 
States throughout the country that have adopted tort reforms 
that these tort reforms are automatically challenged on 
constitutional grounds, and the companies would be reticent to 
take any significant reduction actions until any such law 
passed constitutional muster. But what I can tell you is that 
if H.R. 5 would become law, this would immediately take the 
pressure off the marketplace. Carriers that are thinking of 
coming back into the marketplace and new carriers that would 
come into the marketplace would see some potential sign of 
relief because there would be the hope in the future that the 
continuing spiraling cost in severity would be taken care of. I 
think that because of that you would have more competition in 
the market, there would be more providers in the market, more 
doctors would be able to afford insurance. The normal 
competitive model would force rates down somewhat, but I don't 
think you would see any large reductions until there is some 
assurance that this law would not be thrown out.
    Mr. Deutsch. Thank you.
    Mr. Greenwood. I am just going to use the prerogative of 
the Chair to ask a few more questions and then reserve the same 
to the ranking member. Dr. Nasca, have you noticed a decrease 
in the number of medical students who want to specialize in the 
areas that are seeing the greatest rate problems, obstetrics, 
orthopedics, neurosurgeons?
    Mr. Nasca. You know, interpreting these trends are 
difficult because it is a multifactorial influence. It is clear 
that in general surgery there has been over the last 5 years a 
fairly significant reduction in the number of medical students 
choosing general surgery. Anecdotally, the number of graduating 
seniors seeking obstetrics and gynecology seems to be 
decreasing. There has been a shift in gender as well, with 
almost all of the young physicians interested in OB-GYN women, 
and there is some movement of that subgroup more toward some of 
the other primary care disciplines, internal medicine and 
family medicine, and so that may cause those numbers to further 
drop. Neurosurgery is a very small discipline. There are very 
few trainees nationally. The applicant pool is equally small 
and highly qualified. Thus far, that applicant pool, to my 
knowledge, is relatively stable. Orthopedic surgery, because of 
the desirability of the field and the opportunities for the 
excitement of the medical advances, continues to have a strong 
interest, as does ophthalmology, which has seen a resurgence. 
Anesthesiology, a critical discipline, has seen a beginning of 
a resurgence, but has tremendously low numbers interested in 
comparison to a decade ago.
    If I might, there was a question posed about decreasing 
malpractice. I think that the Institute of Medicine report is 
very instructive in that regard, you know. There are numbers 
that are thrown around and they are challenged, but if we take 
it on its face that there is somewhere between 50 and 100,000 
lives lost or major injury caused by the healthcare delivery 
system, one must read that report even further because it 
points out that most of that is not related to individual 
malfeasants in conduct of their duties, that it is a 
fundamental systems issue. I think that--and I did mention, by 
the way, physician reimbursement in passing. I think we are 
approaching a time where the systematic underfunding of the 
healthcare delivery system in this Nation is reaching crisis 
proportion. The analogy of termites is very applicable. We have 
had cost minus escalations in Medicare payments, Medicaid 
payments, across almost 20 years now. We have systematically 
dismantled the ability of institutions, whether it be physician 
groups or hospitals, to cost shift and reap surpluses from the 
commercial side because of managed care, and so we are down to 
the margin for every payer. If you add to that the fact that 
the Federal Government did away, and therefore, all other 
insurers did away with capital reimbursement, you are seeing 
the systematic underinvestment in systems to support patient 
care, and so we are not as a Nation in the healthcare delivery 
side able to take advantage of the information system 
technology that would minimize or do away with medical errors, 
prevent overdosing or underdosing medication because it is not 
possible in a computerized medical system, that would enhance 
the transmission of information with the patient from provider 
to provider.
    There are very few healthcare delivery systems in the 
United States now that are operating with the kinds of 
surpluses necessary to make the tens to multiples of ten 
million dollar investment in information systems necessary to 
take advantage of what is available and has been pointed out 
would dramatically decrease the number of medical errors in 
this system. This has to be addressed. We cannot continue to 
systematically underfund while expanding the responsibilities 
and the numbers of patients, the numbers of uncompensated 
patients, as well as the technology mix that our population 
demands.
    Mr. Greenwood. Amen to that, but the follow-up question 
that I would pose is, of course, there are medical errors 
committed by physicians all across this country. Of course, 
there are things such as the ones you have just suggested that 
we could do to try to reduce medical errors using the best in 
technology, et cetera, but as I look at Pennsylvania, and I 
look at what we are going through here with regard to premiums, 
no one has suggested so far that the fundamental cause of that 
is because Pennsylvania physicians are making higher rates of--
committing higher rates of malpractice, that they are making 
more errors, that our system of preventing those errors are as 
uniquely lacking as our premiums are extraordinarily high.
    Mr. Nasca. I agree with you 100 percent. I was merely 
responding to the question, what can we do to decrease the 
front end, because as a physician, and I think as a member of 
the general public, I would much rather see not worrying about 
limiting pain and suffering awards to have no one having any 
pain and suffering. I think all of us are interested in that.
    Mr. Greenwood. Let me quickly--Mr. Rosenfield, just one 
factual thing we need to get corrected here. You had said that 
this company, SCPIE, or whatever, if that is how that is 
spelled or----
    Mr. Rosenfield. It is the Southern California Physicians 
Insurance Exchange, and you know, I apologize. I don't know for 
sure. It is my impression, but I am a little jetlagged. I will 
write a letter to the committee.
    Mr. Greenwood. We need to know because we have had two 
different statements about whether it is physician owned or 
not.
    Mr. Rosenfield. I will get that information for you.
    Mr. Greenwood. And you representing the Foundation for 
Consumer and Taxpayer Rights. Can you tell me who funds that, 
where does your funding come from?
    Mr. Rosenfield. Seventy-five percent from foundation 
grants, 25 percent from donations from the public.
    Mr. Greenwood. Okay. And are any of those foundations, do 
they tend to be foundations like Pew and so forth?
    Mr. Rosenfield. Yes.
    Mr. Greenwood. Are any of those foundations specifically 
funded primarily by physicians, or trial lawyers, or----
    Mr. Rosenfield. No.
    Mr. Greenwood. Can't get you that way?
    Mr. Rosenfield. No, but we do get--you know, of the 25 
percent or so of our individual donors, defense lawyers, trial 
lawyers, a few insurance company honoraria, so you can get me 
that way if you want.
    Mr. Greenwood. We can get you that way. All right. Very 
well. My last point that I want to make, a question, Mr. Mundy, 
and this goes--some other people made the comment about we need 
to have more money in the system. We need to pay doctors more 
and they need to get more from their HMO's, they need to get 
more from Medicare, and so do hospitals. I am working on all of 
those issues. But again, if what I looked at when I looked 
across the country were fairly uniform premiums, and 
Pennsylvania physicians just not earning enough money to pay 
the same kind of premiums that are affordable in the rest of 
the States, I would say that is the No. 1 culprit, but I don't 
think that is what you are suggesting. Is it? I mean, that is a 
universal problem. It is not the case that we have got 
reasonably priced premiums but docs here don't make enough 
money, as much as it is that we have docs in this State like 
docs in every State, who are underpaid, and in this State, we 
have got these out of reach premiums that they just can't 
afford.
    Mr. Mundy. What I am saying is physicians are willing to 
jump from Pennsylvania to New Jersey, where premiums are just 
as high but they had earned twice as much money. And that is 
why the reimbursement disproportion that Pennsylvania 
physicians have is a big factor in the----
    Mr. Greenwood. Are premiums just as high in New Jersey as 
they are in Pennsylvania, Mr. Diener?
    Mr. Diener. I am sorry, Congressman, I don't know what they 
are in New Jersey.
    Mr. Greenwood. Does anybody know the answer to that? Are 
premiums--nobody knows the answer to that. In that case----
    Mr. Mundy. They just went on strike in New Jersey.
    Mr. Deutsch. I would ask that the record stay open for any 
written questions from any members of the subcommittee.
    Mr. Greenwood. Okay. With that, I would like to thank all 
of our witnesses on this panel, the witnesses on the other 
panel, and I thank Mr. Deutsch and his staff for your help. I 
want to thank my splendid staff in Washington and here in the 
District for all of your work. I thank St. Mary Hospital. This 
hearing is adjourned.
    [Whereupon, at 4 p.m., the subcommittee was adjourned.]
    [Additional material submitted for the record follows:]

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