[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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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
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\1\ Did Investments Affect Medical Malpractice Premiums? Raghu
Ramachandran, Brown Brothers Harriman, January, 2003.
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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
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\2\ Did Investments Affect Medical Malpractice Premiums? Raghu
Ramachandran, Brown Brothers Harriman, January, 2003.
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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.
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\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.
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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.
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\4\ Background on Insurance Reform--A Detailed Analysis of
California Proposition 103, www.consumerwatchdog.org/insurance/fs/
fs000159.php3.
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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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[GRAPHIC] [TIFF OMITTED] T6045.113