[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
ASSESSING THE NEED TO ENACT MEDICAL LIABILITY REFORM
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
FEBRUARY 27, 2003
__________
Serial No. 108-2
__________
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 JIM DAVIS, Florida
MARY BONO, California THOMAS H. ALLEN, Maine
GREG WALDEN, Oregon JANICE D. 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 Health
MICHAEL BILIRAKIS, Florida, Chairman
JOE BARTON, Texas SHERROD BROWN, Ohio
FRED UPTON, Michigan Ranking Member
JAMES C. GREENWOOD, Pennsylvania HENRY A. WAXMAN, California
NATHAN DEAL, Georgia RALPH M. HALL, Texas
RICHARD BURR, North Carolina EDOLPHUS TOWNS, New York
ED WHITFIELD, Kentucky FRANK PALLONE, Jr., New Jersey
CHARLIE NORWOOD, Georgia ANNA G. ESHOO, California
Vice Chairman BART STUPAK, Michigan
BARBARA CUBIN, Wyoming ELIOT L. ENGEL, New York
HEATHER WILSON, New Mexico GENE GREEN, Texas
JOHN B. SHADEGG, Arizona TED STRICKLAND, Ohio
CHARLES W. ``CHIP'' PICKERING, LOIS CAPPS, California
Mississippi BART GORDON, Tennessee
STEVE BUYER, Indiana DIANA DeGETTE, Colorado
JOSEPH R. PITTS, Pennsylvania CHRISTOPHER JOHN, Louisiana
ERNIE FLETCHER, Kentucky JOHN D. DINGELL, Michigan,
MIKE FERGUSON, New Jersey (Ex Officio)
MIKE ROGERS, Michigan
W.J. ``BILLY'' TAUZIN, Louisiana
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Hiestand, Fred J., CEO and General Counsel, Californians
Allied for Patient Protection.............................. 42
Hurley, James, on behalf of the American Academy of Actuaries 34
Lewinski, Heather............................................ 29
Palmisano, Donald J., President, American Medical Association 120
Rosenbaum, Sara, Hirsch Professor of Health Law and Policy,
George Washington University Medical Center, School of
Public Health and Health Services.......................... 84
Rosenfield, Harvey, President, Foundation for Consumer and
Taxpayer Rights............................................ 48
Smarr, Lawrence E., President, Physicians Insurers
Association of America..................................... 88
Material submitted for the record by:
American Academy of Family Physicians, prepared statement of. 171
American College of Obstetricians and Gynecologists, prepared
statement of............................................... 172
American College of Physicians--American Society of Internal
Medicine, prepared statement of............................ 179
College of American Pathologists, prepared statement of...... 182
Grealy, Mary, President, Healthcare Leadership Council,
prepared statement of...................................... 183
Lester, Rodney C., President, American Association of Nurse
Anesthetists, prepared statement of........................ 184
(iii)
ASSESSING THE NEED TO ENACT MEDICAL LIABILITY REFORM
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THURSDAY, FEBRUARY 27, 2003
House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Health,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:08 a.m., in
room 2123, Rayburn House Office Building, Hon. Michael
Bilirakis (chairman) presiding.
Members present: Representatives Bilirakis, Barton, Upton,
Greenwood, Deal, Burr, Norwood, Shadegg, Pickering, Buyer,
Pitts, Ferguson, Tauzin (ex officio), Brown, Waxman, Pallone,
Eshoo, Stupak, Green, Strickland, Capps, DeGette, and Dingell
(ex officio).
Staff present: Cheryl Jaeger, majority professional staff
member; Nandan Kenkeremath, majority counsel; Patrick Morrisey,
deputy staff director; Eugenia Edwards, legislative clerk;
Steve Tilton, health policy coordinator; David Nelson, minority
economist; Jonathan Cordone, minority counsel; Nicole Kenner,
minority staff member; and Jeff Donofrio, minority staff
intern.
Mr. Bilirakis. The subcommittee will come to order.
Without objection, the subcommittee will proceed pursuant
to committee rule 4(e). No objection having been heard, so
ordered.
The Chair recognizes himself for an opening statement.
First, I would like to thank our witnesses for appearing
before this subcommittee today. Our committee certainly values
your expertise, and we are grateful for your cooperation and
attendance.
The Health Subcommittee held a hearing last year,
hearings over a period of time have been held on this
subject, to learn more about a major crisis in our health care
system, namely how spiralling professional liability insurance
premiums are adversely affecting patient access to care.
I know that during our hearing, the last hearing, there
were did diverging views about what was causing this spike in
insurance premiums and what potential solutions might look
like. However, there was no debate about the fact this crisis
is beginning to have a devastating effect on patient access to
health care; and I know that my constituents--and I would like
to think all of our constituents--are demanding that Congress
act in some way to control these run-away insurance premiums.
Fortunately, Congress does have a model to draw on.
California's Medical Injury Compensation Reform Act, or MICRA,
has helped shield our Nation's largest and most diverse State
from the huge increases in insurance premiums that so many
other States like Florida are struggling with. In fact,
according to data compiled by the National Association of
Insurance Commissioners, California's medical malpractice
insurance premiums have increased 167 percent from 1976 to
2000, while the rest of the country has experienced increases
of 505 percent. California's experience suggests to me that
meaningful tort reforms can have a very positive effect in
terms of controlling increases in professional liability
insurance premiums.
MICRA was the foundation of H.R. 4600, the Health Care Act
which the House of Representatives passed during the last
Congress. While I was disappointed in our inability to send a
bill to the President for his signature, I am looking forward
to the opportunity that we have before us during this Congress.
The crisis has certainly not gone away and nor has our need to
act.
While I believe that last year's Health Subcommittee
hearing provided members--and we had much debate during our
markup--with an excellent opportunity to learn more about this
issue, I think we can all benefit from further discussion. I
remain especially interested in learning more about how
insurance premiums are determined. I know we have heard from
many people on the other side and from witnesses that much of
the problem has to do with the insurance industry and whatnot.
Well, we need to know that. We need to learn more about it. So
we also need to know about how meaningful tort reform is going
to control increases and professional liability and insurance
premiums.
Again, I would like to extend a warm welcome to all of our
witnesses. I would like to take a minute to welcome back Mr.
Hurley, Jim Hurley, Chairperson of the American Academy of
Actuaries, Medical Malpractice Subcommittee. I thought your
testimony, Mr. Hurley, at last year's hearing was invaluable;
and I know that we all appreciate the independent, objective
perspective your organization provides on how actuarial
standards relate to how insurance companies develop premium
levels.
While I am well aware of the range of opinions regarding
this issue in the Health Subcommittee, I sincerely hope that
members take advantage of the expertise. Frankly, I would love
it if we could all focus on the one area that we keep hearing
about and that is the effect that the insurance companies have
on this particular problem. But I can't really shut off what
one might choose to do with our time. But I do hope we will
take advantage of the expertise we have before us to learn
about the causes of this crisis and potential solutions.
I now yield to the ranking member, my friend from Ohio, for
an opening statement.
Mr. Brown. Thank you, Mr. Chairman; and thank you for your
cooperation in this issue and your willingness to work with
both sides and come up with a real solution to medical
malpractice.
I ask unanimous consent to enter into the record member
statements, including Mr. Dingell's here if I could.
[The prepared statement of Hon. John D. Dingell follows:]
Prepared Statement of Hon. John D. Dingell, a Representative in
Congress from the State of Michigan
Mr. Chairman, thank you for holding this hearing to assess the
issue of medical liability. Although this hearing has been broadly cast
to cover a wide range of interests that extend beyond doctors and
patients, it is an appropriate opportunity to address the rising cost
of malpractice insurance, which is a very real problem for doctors and
patients alike.
These high insurance rates are leaving doctors with few options.
Those who can afford to pay the increased cost of providing medical
services, will. Those who cannot afford the increase are forced to
assume significant personal liability, leave high-risk specialties, or
leave the profession altogether. At best, health care will become more
expensive for patients. At worst, in addition to higher prices,
patients will be denied access to care, and lifesaving treatments will
not be provided.
This is a serious problem that deserves deliberate consideration.
Unfortunately, legislation pending before this committee, H.R. 5,
focuses on drastic reforms of the judicial system that extend well
beyond the issue of medical malpractice. While inefficiencies in our
courts may be a contributing factor to this crisis, it is by no means
the only cause--or even the single largest cause--of the current
crisis.
As the subject of this hearing appropriately indicates, the
protections of H.R. 5 extend well beyond the doctor-patient
relationship. The provisions contained in this bill will shield HMOs,
insurance companies, and drug and device manufacturers from liability.
No evidence has been presented to the Committee demonstrating that
these privileged industries need additional protections, yet H.R. 5
grants them a special status under the law that is unprecedented.
Moreover, these dramatic protections hurt the rights of injured
patients in an equally unprecedented manner. There is a human cost to
this legislation that we must not forget. We will hear from a
courageous and impressive young woman today, Heather Lewinsky. She will
explain how her life has been affected by the malpractice of a plastic
surgeon. The pain, suffering, fear, and trauma that Heather has
courageously confronted are real, and she should be compensated. And
the loss of seventeen year old Jesica Santillan must be devastating to
her family. If malpractice is to blame for young Jesica's passing, as
it certainly appears, her family should be compensated for their loss.
Neither Heather nor the Santillan family would qualify for significant
economic damages. The harm caused to both is almost exclusively non-
economic in nature, but it unquestionably is still great harm.
While claiming to provide unlimited economic damages, H.R. 5 would
disproportionately hurt women, seniors, and low-income families by
limiting non-economic damages to $250,000. Because a significant
component of economic damages is an individual's income, such a system
would disproportionately value the lives of those with high incomes
over low-wage earners, stay-at-home moms, and senior citizens. For
example, if the CEO's of the very drug companies and HMO's that this
bill protects were injured, their economic damages would be worth
millions upon millions of dollars. By comparison, if a stay-at-home mom
were injured in an identical manner, she would have very limited
economic damages awarded to her.
H.R. 5 also limits the amount of time in which an injured patient
can seek just compensation to three years from the date an injury
manifests itself. The concept of manifestation is not established in
law nor is it clearly defined in the legislation. There are certainly
circumstances when an injury could manifest itself without a patient
knowing of its existence for three or more years. An illness such as
HIV could manifest itself and not be discovered--nor expected to be
discovered--by a patient for many years. This legislation would prevent
that patient, and many others, from being compensated at all.
Unfortunately, my Majority colleagues are quite determined to move
quickly and harshly. Their legislation reaches well beyond malpractice
and offers no guarantees of assistance to providers and communities.
Physicians and patients are asked to cross their fingers and hope that
some of the benefits given to insurance companies and large
corporations will trickle down to them. And women, seniors, and low-
income families are left to pay the very real price of these benefits.
It is wrong.
But the rising cost of malpractice insurance is a real problem--
requiring careful, balanced, and targeted legislation. I am in the
process of finalizing legislation that will provide direct, targeted
assistance to physicians and communities to assist with the current
crisis. It will also institute limited, common sense tort reforms to
weed out frivolous lawsuits and provide stability in our courts while
protecting the fundamental rights of patients. Lastly, the legislation
I will propose would create an independent commission to examine every
aspect of the current insurance crisis, propose additional solutions to
address the current crisis, and make recommendations to avoid any
future malpractice insurance crisis. I hope that at some point in the
process a balanced approach such as this will prevail, but I'm not
holding my breath.
Mr. Bilirakis. Without objection, the opening statements of
all members will be made a part of the record.
Mr. Brown. First of all, thank you to all the witnesses;
special thanks to Heather Lewinski for her courage and for
joining us. Thank you, Heather, and thank you all of you.
I would suggest that our efforts in this legislative
process be guided by the following principle: A good medical
malpractice reform bill should prevent outrageous increases in
medical malpractice premiums and improve access to quality
medical care.
This principle embodies two concepts: We should ensure that
the bill will--not may but will--address premium spikes and
improve access to care, and we should ensure that the bill does
not reform away the medical malpractice liability system's role
in promoting responsible quality medical care.
Let me briefly explore each of these ideas, Mr. Chairman.
The professed goal of medical malpractice caps is to
introduce more predictability into the system. Uncertainty, our
friends in the insurance industry say, is what really endangers
patient's access to health care. This is an important point.
Insurers make an actuarial calculation of the additional
premiums needed to counter uncertain jury awards. They
literally put a number on it. It follows, insurers tell us,
that we can easily stem the medical malpractice premium crisis
by capping jury awards. No more uncertainty means no more
premium spikes.
The industry doesn't explain, though, how uncertainty,
which has been a part of the system for years, can possibly
explain the recent spike in premiums, but it would be a shame
to let a silly little thing like logic ruin a good story.
The industry balks when anyone dares suggest that insurers
demonstrate that they are, in fact, reducing premiums in
response to the caps. The insurance industry and my friend Mr.
Greenwood, who helped kill an amendment to last year's bill
that would establish this requirement, claimed that it can't be
done. Apparently, insurers can make an actuarial calculation
and increase premiums to compensate for uncertainty, but they
cannot make an actuarial calculation and decrease premiums,
decrease premiums when that uncertainty is diminished.
I understand why insurers and the bill's sponsor would fend
off attempts to require proof that this bill accomplishes its
ostensible goal. After all, liability caps are reversible. But
because liability caps raise serious equity issues, serious
ethical issues, I would suggest that any measure that fails to
ensure that insurance company savings from damage caps are
passed on to doctors, that savings from caps are passed on to
doctors in reduced premiums, they simply can't meet the first
part of our test for malpractice legislation. It cannot ensure
that our actions will improve access to care.
Let me suggest a way to reduce doctor premiums and increase
access to quality medical care. It is pretty straightforward.
All we need to do find out what the problem is and fix it.
Insurance companies won't provide the information we need
to understand recent premium increases. They won't demonstrate
how their bottom line has actually been affected by jury
awards, by investment income or the lack thereof, by past rate-
setting decisions and the like. When asked to provide this
information, the industry says that is proprietary information.
We can't give that to you.
So Congress--get this. Congress is expected to pass
legislation that caps compensation to patients whose lives have
been irreparably harmed by medical malpractice without any
concrete evidence that the cause of the crisis stems from
higher unpredictable jury awards because the insurance industry
won't tell us. It is more important to protect proprietary
accounting information for that industry than it is to protect
patients who have been injured. Have our values drifted that
far off course?
Mr. Chairman, this subcommittee doesn't have to legislate
in the dark. We have the power to subpoena, to subpoena
insurance company records and discover for ourselves what is
actually going on here. I have offered this suggestion to the
majority before but to no avail. It is not too late. We can
dispense with the glossy arguments and competing statistics. We
can get to the bottom of this problem. We can pass a bill that
addresses it. But to do that we need to subpoena the records of
medical malpractice insurers. It is irresponsible to move
forward without doing that.
The second element of our guiding principle is equally
straightforward. Our actions must not compromise the
effectiveness of America's medical malpractice liability
system. Doctors are as close to miracle workers as we have in
our society, but, like the rest of us, they are not perfect and
in a few cases there are a few bad guys. When doctors don't do
their jobs, patients suffer. As Heather Lewinski's testimony
today amply demonstrates, that suffering is personal, and it is
lifelong.
Proponents of Mr. Greenwood's health bill say the bill is
actually patient friendly. After all, it doesn't cap economic
damages. But Heather was 8 years old when a doctor's negligence
changed her life forever. She obviously had no job, she had no
prospects for employment when she was 8 in the foreseeable
future, and she was awarded as a result no economic damages.
Under the health bill, Mr. Greenwood's bill, the punitive
cap is kept at the lower of $250,000 or double the economic
damages.
One more moment, Mr. Chairman.
Mr. Chairman, two times zero is still zero. This bill would
literally tell children like Heather that the value of
punishing people who harm them is, in fact, zero.
The issue of medical malpractice is an important one,
deserving a serious sincere effort by this committee. We can
still develop legislation that improves both access to and
quality of care. I hope that this subcommittee will do that.
Thank you, Mr. Chairman.
Mr. Bilirakis. Mr. Greenwood, for 3 minutes or would you
defer?
Mr. Greenwood. I think I will take my 3 minutes, Mr.
Chairman.
Mr. Bilirakis. I am not surprised.
Mr. Greenwood. It is my bill, after all.
What can we agree on? I don't think it is difficult for us
to agree that we have a crisis with regard to the availability
and the cost of medical liability insurance. I don't know
anyone who disagrees with that.
In my State of Pennsylvania, the crisis is particularly
acute. We have lost 900 doctors. The trauma center that would
serve my family and the families of most of the people that I
represent closed its doors in December because it could--
because of its incredibly exorbitant increase. I think the
insurance rates went from $7 million a year to $21 million a
year. They are only open now on the promise from Governor
Rendell that he will do something before this, and I remain
very skeptical that that will happen. So there is a crisis.
The question, of course, is how do we fix the crisis? Mr.
Brown has agreed we ought to fix the crisis. Mr. Brown assigns
blame to the insurance companies. I can assure you that if I
thought that there was a fix there I would fix it. I have no
particular reason, I don't know of anybody who has a particular
reason to not go after the insurance companies if that is where
the problem is.
But here is the problem with that argument: 60 percent of
the doctors in this country get their medical liability
insurance from physician-owned companies. Physician-owned
companies have as their purpose trying to provide physicians
with the lowest available priced policies.
Now, if these physician-owned companies are not able to
underbid the private insurance companies that some are claiming
are price gouging, then where is the logic? Where is the logic
that says that the price spikes are caused not by the
environment of the courtroom and the excessive noneconomic
damages that are paid but somehow lies in the management
practices of the insurance companies when, again, 60 percent of
the doctors in this country get their malpractice, if they can,
from physician-owned companies, and 30 percent in my State of
Pennsylvania get their medical liability insurance from
physician-owned companies?
The gentleman from Ohio suggested that, gee, all we need to
do is get the insurers in here to open their books and get the
information. My understanding is that the Democrats did not
invite any insurance companies to come in and be questioned at
this hearing. We have had actuaries testify at hearing after
hearing as to the causes of the price spikes. I think their
testimony has been very direct and supports the logic of the
bill.
The bottom line is we need to get this crisis resolved. We
need to find a bipartisan way to do it. We need to do it in the
House and the Senate. I personally am open to whatever works,
but it will be a failure of the Congress and a waste of our
time if we pass legislation that becomes so watered down that
we get 218 votes in the House and 51 votes in the Senate and 60
votes to break a filibuster and sign it into law and it doesn't
solve the crisis. I think we ought to be focused on solving the
crisis, solving it rationally and not being partisan about it.
Thank you, Mr. Chairman.
[The prepared statement of Hon. James C. Greenwood
follows:]
Prepared Statement of Ho. James C. Greenwood, a Representative in
Congress from the State of Pennsylvania
Mr. Chairman, I thank you for holding this hearing. Today, I look
forward to hearing from our witnesses as we explore, examine and
confront the medical liability insurance crisis.
The word ``crisis'' is often thrown around in Washington DC but let
me tell you something that fits this term, under any definition: From
December 21 until January 3 of this year, for thirteen days, the trauma
center of Abington Hospital, in Abington, PA closed its doors because
the doctors staffing this critical facility could not obtain the
affordable medical liability insurance they needed to practice. For
those thirteen days, fundamental 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 people across the country to find a doctor. What
is more, we need to understand why americans in many states can no
longer go about their daily lives knowing that if the worst happens--
the doctor is in place and on call.
In the Philadelphia region we 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 been a leader in health care. Even
today, almost one in seven doctors in the United States did some part
of their medical training in Philadelphia, which is home to a host of
excellent medical schools and institutions.
But the signs appear ominous and 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. Why? And what hardships have been visited upon the
expectant mothers who counted on those services?
This crisis affects more than just patients and doctors. In an
Energy and Commerce Oversight and Investigation Subcommittee hearing I
chaired on this crisis in my home district on February 10, 2003 we
heard from two hopsitals and trauma centers operating in southeastern
Pennsylvania, St. Mary Medical Center and 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 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 health care institutions--all to the detriment of the
people desperately in need of skilled medical treatment.
Again I ask: Why? that is the question we seek to answer here
today.
Let me tell you what I know so far. The access to health care has
been restricted because the individuals and institutions delivering
that care cannot find the affordable insurance required to practice
medicine. Insurance 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 risk--the amount they estimate they will have
to pay. You would naturally expect to pay more to insure a $50,000 home
than a $500,000 home. What do you think an insurance company would say
to someone who wanted to insure a house, but could not tell the value
except that it could be worth either $10,000 or millions? Pennsylvania
medical liability insurers face a similar quandary. 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 the entire State of California. In 2000, Pennsylvania had 19
awards individually exceeding $5 million.
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%? Does this help us start to recognize why 72% 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?
I asked ``why'' earlier. Let's trace the problem back to this fact:
Insurers cannot properly, reasonably and competitively offer insurance
to medical providers because of an unpredictable tort system prone to
``jackpot'' awards.
No one 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 put a price tag on suffering, loss of enjoyment of life, or
embarrassment? A jury of peers is the best and fairest system of
justice we have. They make decisions of profound importance every day
across the country based first on the rule of law but second on their
sense of justice.
But we must ask: What informs, what creates this sense of justice
and gives it proportion? How have we set benchmarks for putting a
dollar value on another person's pain or embarassment? Are we guided by
the amounts we see in sensational headlines or advertisements of
lawyers trumpeting huge recoveries? Are we guided by the woman who won
millions for spilled McDonald's coffee? Where ever we found that price
tag we hang on another's suffering--it is clear that all sense of
proportion seems to have be lost.
Reasonable caps on such subective damages, in my estimation, when
teamed with a specific package of other reforms, will bring juries,
verdicts and insurance rates back to earth.
I have recently introduced legislation in the House designed to
address this root problem. However, I am ready to work with members on
both sides of the aisle, in both chambers to achieve a solution that
will be signed into law by the President.
Again, thank you to the two committees for holding this joint
hearing.
Mr. Bilirakis. I thank the gentleman.
Ms. Eshoo for 3 minutes, unless she would prefer to defer.
Ms. Eshoo. Good morning, Mr. Chairman. Thank you for having
this hearing.
For 2 years now we have been discussing and debating what
to do with medical malpractice premiums. Clearly, there is a
problem. What is not so clear is what our solution should be.
I am a Californian, and in my State we have a law that we
have heard mentioned many, many times, MICRA. The bill was
passed by a Democratic legislature, and it was signed by a
Democratic Governor in 1975. It has been on the books ever
since without a single change. While it may not be the sole
reason why premiums in California have stayed reasonable and
stable, I think that it has contributed.
Representative Greenwood has introduced a bill that he has
described as a Federal version of MICRA. What I want to use my
time for respectfully is to dispute that assertion. Because it
is not the same. The bill places a $250,000 cap on noneconomic
damages for suits against physicians, insurers, HMOs, nursing
homes and drug and medical device manufacturers. MICRA limits
that cap solely to physicians. H.R. 5 also places a cap on
punitive damages. MICRA does not.
One of the reasons MICRA has worked is because it is
proscribed in its scope. If we want to get to the heart of this
problem, we should focus our efforts on those who really need
the help. I am very concerned that extending these provisions
to those outside of the physician community will have a
deleterious effect on patient care and on our legal system. We
can do tort reform and weed out frivolous lawsuits. We have
done it before. I was a part of that.
Additionally, H.R. 5 doesn't set up any mechanism to review
the insurance industry. They are clearly a part of this. It is
not about assigning blame. You have to look at all the
stakeholders. California's MICRA has never been updated for
inflation since it became law.
I think there is a downside of it I think that is worth
mentioning. $250,000 from 1975 is worth approximately $68,000
today. We should think about indexing for inflation if we are
to do anything at the Federal level. Patients should be fairly
compensated for any wrongs that are visited upon them because
every life has worth, regardless of whether they have an income
or not.
So I look forward to hearing our witnesses giving their
testimony today on these issues and others, and I thank the
chairman for holding this hearing.
Mr. Bilirakis. I thank the gentlelady.
The chairman of the full committee, Mr. Tauzin.
Chairman Tauzin. Thank you, Mr. Chairman. Thanks for
holding this hearing as we try to, as the gentlelady from
California indicated, use the experience of States like
California and my own in Louisiana to try to help with the
problem that has now become a huge national crisis.
I don't have to dwell on the problem. I think we all
understand it. When trauma units close down and obstetric
services are denied people and pregnant women can't find a
doctor to help them deliver a child because the doctors have
gone out of business in their community. The system is creating
health care victims that have nothing to do with lawsuits and
medical errors. It just has to do with people that can't get
health care.
In Louisiana, we are seeing an extraordinary occurrence.
Let me be honest with you. We in Louisiana passed medical
liability reform. I voted against it when I was in the
legislature. I am a convert to the principle. I watched it
work. I watched it have the good effects in Louisiana that we
saw in California. I watched in Louisiana incredibly as more
and more physicians from the neighboring State of Mississippi
are moving into our State because they can't anymore stand the
pressure of lawsuits and insurance costs in the State of
Mississippi.
I talked to Mr. Pickering about that. I go hunting in
Mississippi a lot. I wouldn't ask everybody from Mississippi to
move from Louisiana. Doctors, okay, but that is not a good way
for them to make a choice. The fact of the matter is that when
people who have dedicated their lives to serving the health
care needs of their neighbors find they have to leave their
home State, go live in another State because the liability
system is driving them to a point where they no longer look at
patients as people who need care but they look at them as
potential plaintiffs----
I have a young member of the family who is a physician. He
is a urologist in Thibodaux. He is my younger sister's husband.
I watched him go to medical school, brilliant young man. I
watched him go through his medical training. I watched him come
back home to Thibodaux. He performed amazing surgery on my
father. It made such a difference in his health. And I watched
him perform those medical miracles on friends of mine
throughout my community. He got roped into one of these suits
not too long ago, and he defended it successfully. He was roped
into a suit brought against the hospital he works in. It has
changed him. I have seen what was such an incredible feeling he
had about his work and his life and what he was doing to help
people become a much more cautious and cynical sort of
approach. He still loves his work and does great work, but he
is a changed man, having gone through that experience.
I know that doctors who might help one another avoid
medical error don't share information today because of fear of
lawsuits. I know doctors prescribe a lot more medical tests and
drugs and all sorts of things to people in my home community,
even with our medical reform, because they are afraid if they
don't do these things, even though they don't think they are
necessary, somebody is going to call that malpractice and drag
them through the courts.
Now, I am a lawyer. I am a recovering lawyer I keep telling
people. I used to handle plaintiff cases when I was in
practice, and I value a legal system that gives people a right
of redress when they have been harmed. But the legal system
needs always to be balanced and sometimes rebalanced to make
sure it doesn't do more harm than good.
While we need to preserve the right of people to recover
when somebody wrongfully kills their child because of
malpractice or wrongfully hurts someone's mouth because of bad
dentistry, whatever, it may be we need to preserve those rights
and make sure there is adequate and fair recovery. We also need
to be concerned about the young men and women who dedicate
their lives to taking care of parents and neighbors and their
friends and who suddenly today look upon their patients with
fear instead of the kind of loving attention that they came out
of medical school determined to show whenever they entered a
hospital or surgery room to do a medical procedure. I think it
is time for to us balance this out on the Nation.
This medical liability reform bill patterned after what was
done in California, my home State of Louisiana is I think the
kind of medicine we need to make sure we aren't creating more
victims unnecessarily in this system, to make sure that, in
fact, people get rewarded properly when there has been an
injury but we don't encourage lawsuits where 60 percent of them
today are either dismissed or withdrawn and where 58 percent of
the recovery goes to somebody other than the victim, the
patient.
We need some work here. We need to balance this out a
little better. We need to give the doctors and nurses and
health care personnel in our country a little bit of credit. We
need to understand they didn't dedicate their lives to service
just to be in a lawsuit every other day.
I thank you, Mr. Chairman.
[The prepared statement of Hon. W.J. ``Billy'' Tauzin
follows:]
Prepared Statement of Hon. W.J. ``Billy'' Tauzin, Chairman, Committee
on Energy and Commerce
Thank you, Mr. Bilirakis for holding this timely hearing.
Mr. Chairman, our legal justice system is out of balance. Excessive
litigation is driving up health care costs, forcing doctors to leave
their practices, causing hospitals to shut down and leaving America's
patients in a state of ``code red.''
We have seen this issue all over the news in recent years. Last
year, we heard about a Level 1 trauma center in Las Vegas closing,
forcing severely injured patients to travel an additional 500 miles for
equivalent care. In Mississippi, one-third of the neurosurgeons have
left the state--an incredible number especially when you consider the
substantial toll stroke has on the state. In West Virginia and
Pennsylvania, obstetrics units have closed, leaving some pregnant women
without direct access to a qualified physician to deliver their baby.
The stories go on and on. Patients are being victimized by a lack of
access to certain health care services across our country, partially
because of a runaway tort system.
For those of us who have served in our state legislatures, this
issue is not new. Louisiana once faced a similar patient access to care
crisis. My state responded by enacting medical liability reform that
has withstood constitutional challenges as well as attempts to dilute
its effectiveness. Their guidelines for health care lawsuits ensure
that injured patients receive greater compensation while at the same
time deter frivolous lawsuits that extort health care professionals and
drive doctors from the practice of medicine. While medical liability
insurance rates have skyrocketed across the country, doctors are not
leaving their practices in the state of Louisiana. In fact, over the
past year, doctors in neighboring states have sought refuge in
Louisiana. Of course, we love having more people come to our state, but
I don't think this is the way we want to accomplish it.
I know those advocating for federal legislation modeled after
California's Medical Injury Compensation Act feel quite the same way as
the doctors in Louisiana do: medical liability reforms work and they
really do have an impact on patient care. Without medical liability
reform, fear of lawsuits deters doctors from sharing information that
is critical to learning how to prevent systematic mistakes, stymieing
efforts to reduce medical errors and improve patient safety. Without
medical liability reform, doctors will continue to engage in defensive
medicine, performing tests and prescribing medicines that are not
necessary to better the health of the patient, driving up health care
costs for all Americans.
And the costs to the system are not insignificant. Some analysts
estimate tort reforms could lead to reductions of well over $50 billion
per year in health care expenditures, without serious adverse
consequences for patients. Without medical liability reform, insurance
rates will continue to force doctors out of practice, leaving some
patients without access to health care. Because when doctors spend less
time thinking of a patient as a ``potential lawsuit'' and more time
treating the patient, the patient receives better care.
I have said it before, and I will say it again. When injured
patients have to wait, on average, 5 years before a medical injury case
is complete, our judicial system has failed. When injured patients lose
58 percent of their compensation to attorneys and the courts, our
judicial system has failed. When 60 percent of malpractice claims
against doctors are dropped or dismissed, but the fear of litigation
still forces doctors with twenty-five years of experience to retire
early, our judicial system has failed.
Members of this Committee have taken the lead in drafting
legislation to help restore some degree of common sense to our tort
system. We realize that our current system is too slow, too expensive,
too inefficient and most importantly, fails to improve the health of
our country. I applaud the Members of this Committee for the leadership
and thoughtfulness they have shown in advancing legislation to address
this critical issue.
Today, I look forward to the witness testimony. And I encourage all
of my colleagues, on both sides of the aisle, to listen carefully to
the information presented by the witnesses today. It will, no doubt,
prove useful as we move forward H.R. 5, the HEALTH Act, through
subcommittee and full committee mark-ups next week.
Mr. Bilirakis. Mr. Stupak.
Mr. Stupak. I will waive, Mr. Chairman.
Mr. Bilirakis. All right. Ms. DeGette.
Ms. DeGette. Thank you, Mr. Chairman.
The highest maxim of the medical profession is ``first do
no harm.'' in other words, unless a patient will benefit from
amputation, the doctor should not cutoff their leg. As
legislators, I think we should also be served by following the
same maxim. Unless the people will benefit from a reduction in
their rights, we should not reduce their rights.
Now, we all know that doctors, particularly doctors in some
practice groups and subspecialties, are suffering from high
insurance rates. But what we have learned from hearings both
last year and last month is that there are serious reasons to
question claims that capping damages in medical malpractice
lawsuits will actually reduce premiums for those doctors. If we
pass reforms with caps, we will be denying victims their rights
to sue and recover damages for medical malpractice while at the
same time passing those caps do nothing to help doctors.
Mr. Chairman, we have several charts which all, for some
reason, are labeled Exhibit 1 that I am going to ask to have
entered into the record of this hearing which show that, in
States like California, when you put caps on medical
malpractice damages, it absolutely did not reduce premiums. So
I would ask unanimous consent to put those charts in, and I
will be showing those later.
Mr. Bilirakis. Without objection.
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Ms. DeGette. It is also ridiculous to address medical
malpractice reform when we don't look at the cost of insurance
and other factors in pricing of malpractice premiums. Among the
contributors of rising malpractice premium costs are issues
totally related to victim's compensation, the cyclical nature
of the insurance business cycle, management or mismangement of
investments and reserves and even pressures health care
financiers and the creation of restrictive delivery systems
such as managed care have wrought. Managed care and the
pressures that health care financiers place on providers share
the blame in part because, as insurers and companies put
pressure on physicians to reduce the amount of time they spend
with patients as well as cut down on the number of referrals to
specialists, mistakes are often made.
Focusing on damage caps as the height of malpractice reform
ignores these and other issues acknowledged to be factors. I
would like to say that many say, well, we are not capping
noneconomic--we are not capping economic damages, we are only
capping noneconomic damages. But in the case of Ms. Lewinski,
in the case of stay-at-home moms, in the case of children, when
you cap noneconomic damages to a proportion of economic damages
you are leaving them with no compensation.
Now, in fact, I think this is your traditional
congressional problem or solution in search of a problem.
Because of all of the medical malpractice cases, 88 percent of
patients did not sue when there was bona fide medical
malpractice, 22 percent have sued, and the reason is because of
patient-doctor relationships. So let's look at the real reasons
this is going on.
Mr. Chairman, I do look forward to this hearing.
Mr. Bilirakis. I thank the gentlelady.
Mr. Upton.
Mr. Upton. I have a statement for the record, and I defer.
Mr. Bilirakis. Let's see. Mr. Norwood.
Mr. Norwood. Thank you, Mr. Chairman. I would like to make
an opening statement, please.
I thank you very much and the authors of this bill for
bringing this critical legislation to us this morning. I think
all of you are to be commended for your efforts.
This bill is before us today because we have a crisis in
this country. Call it professional liability insurance, call it
medical malpractice insurance, whatever you call it, the
premiums providers pay for insurance are skyrocketing. The
impact of these skyrocketing premiums are affecting access
people have to health care. I think probably all can agree with
that.
Now I understand that the reasons for the recent premium
increases are very complex. I happen to believe we should
examine the insurers' antitrust exemption. I do believe we
should look at ways to make sure that investment losses don't
create premium crisis. However, there is one area we can
immediately address that can change the insurance market. We
can limit the damages available to an injured patient. That
will bring a much-needed stability to insurers, to the
providers of health care and, ultimately, to premiums.
Is a $250,000 limit on noneconomic damages the right
amount? I am not sure it is. I can tell you I don't know what
the right number is. I am certain, though, that there must be a
number out there that we can agree upon that is reasonable and
just.
We are not limiting recovery for economic damages in any
way. We allow punitive damages to be as much as twice economic
damages. But to say that there never can be any limit, any
limit on noneconomic damages, no matter how high, is not a
reasonable position to take today.
Mr. Chairman, this bill is about access, but it is also
about defensive medicine and a lot of money that is being
wasted in health care. If we don't address the issue of medical
malpractice insurance, we run, in my opinion, the risk of
jeopardizing the health of patients because they cannot get in
to see a doctor when they need one. We can do without many
lawyers, but since our health care facilities are stretched as
thin as they are we really cannot afford to do without our
physicians today.
It is of interest to me, I wonder, should we come to some
reasonable limit, some reasonable number on noneconomic
damages, might we have a lawyers' strike? Maybe that is not at
all a bad idea. But a physicians' strike scares me to death.
I strongly encourage members to support this bill. It is
like any other bill I ever voted for: I hate some of it, and I
love some of it. Even my own bills I feel that same way about.
But we are dealing with a crisis, and this is one of the ways
we can help with the crisis, save money in health care by
defensive medicine and make it reasonable so our physicians can
protect themselves and their families and go about the business
of treating patients.
Mr. Chairman, I yield back the balance of my time.
Mr. Bilirakis. The Chair thanks the gentleman.
Ms. Capps for 3 minutes.
Ms. Capps. I will submit a statement, and I will wait.
Mr. Bilirakis. So you will have 8 minutes.
Mr. Deal.
Mr. Deal. I reserve my time, Mr. Chairman.
Mr. Bilirakis. You reserve your time. You also have 8
minutes.
Let's see who is next here. Mr. Strickland.
Mr. Strickland. I would defer at this time and keep my time
for the questioning, sir.
Mr. Bilirakis. All right.
Mr. Shadegg.
Mr. Shadegg. I reserve my time.
Mr. Bilirakis. Eight minutes.
Mr. Green.
Mr. Green. Thank you, Mr. Chairman. I will give my
statement.
Mr. Chairman, I appreciate you holding this hearing on
assessing the need for enactment of medical liability reform.
This is an important topic, and it is correct it is a
nationwide concern.
Without question, medical malpractice premiums have been
increasing for physicians throughout our country, particularly
in my home State of Texas. I have heard from many of my
physicians who are experiencing significant increases in the
premiums. These doctors have been serving patients in my area
for decades and are being forced to decide whether they should
keep practicing, restrict their service or move to another
area.
The situation is unacceptable, and something must be done.
But I am very wary of the Federal Government wading into this
area of tort reform, an area that has traditionally been under
the jurisdiction of States. In my experience in 20 years as a
State legislator it has been dealt with in the State of
California and even in my own State of Texas now with the
legislature in session. There will be an issue, there will be a
legislation to address this, because these medical malpractice
lawsuits are typically only filed in State courts. That is
where the States should be dealing with it.
To nationalize this type of issue, one, I think is asking
for trouble. Because once Congress passes legislation, unlike
our States who can change things very--fairly quickly, we do
not. Are we going to force these cases to Federal courts? Are
we going to provide Federal rules that our States have to live
by? Which, again, I have a lot of elected State judges in Texas
who have concerns about that.
My colleagues on the other side of the aisle cite the
success of MICRA, the California experience; and there is a
legitimate question on whether MICRA has, in fact, been
successful in reducing medical malpractice premiums. But,
again, we are looking at a successful case, if it is in
California, but it is California who dealt with their issue.
I hope that we would as Members of Congress respect that
the States can deal with it, the States are going to address
it, and the States have addressed it, those States who have
been in session.
I do have some concern about H.R. 5. I think it absolutely
goes very much further than any medical malpractice. In fact, I
am somewhat offended that if we are going to pass a medical
malpractice reform for our physicians that we are also
including HMOs, pharmaceutical manufacturers and medical device
manufacturers. I think it is a sad day that we send out a
doctor who is serving our patients as a smoke screen to be able
to protect industries that really can stand on their own. If
they need to have medical malpractice liability relief, then
let them come on their own and not use our everyday physicians
as a screen.
Thank you, Mr. Chairman.
Mr. Bilirakis. I thank the gentleman.
Mr. Buyer.
Mr. Buyer. I reserve.
Mr. Bilirakis. Mr. Pallone.
Mr. Pallone. Thank you, Mr. Chairman.
Several weeks ago in New Jersey thousands of physicians
planned a work stop Statewide in response to skyrocketing
insurance premiums. Although I sympathize with doctors,
especially those in high-risk specialties such as obstetricians
and other surgeons, I have to express that H.R. 5 is not the
solution to the current medical malpractice crisis.
I have several concerns with this legislation. First of
all, if we are here to address the issue of medical
malpractice, I see no reason why the scope of H.R. 5 must
include protections for a broad variety of medical participants
including HMOs, nursing homes, nurses, doctors and drug and
device manufacturers. This bill is not limited to medical
malpractice, and I am astonished that provisions in this bill
protect manufacturers, distributors or suppliers of drugs or
medical devices from punitive damages.
It seems to me that what we have here is a very political
effort to not only mention medical malpractice but also try to
deal with a lot of other types of tort reform or even product
liability reform. I don't think that the public understands
that no effort has really been made to reach out to the
Democrats and do anything on a bipartisan basis and rather just
ram something through that is going to go to the floor that
probably has no chance of ever passing.
Additionally, I find the statute of limitations outlined in
the bill to be unacceptable. In most States, the time allowed
for statute of limitations does not usually begin until the
harm or injury is discovered or reasonably should have been
discovered. Moreover, for children, many State statute of
limitations does not begin until the child turns 18. I am
particularly concerned about this bill being detrimental to
children. I have three children of my own. So it is very much
of a concern to me.
Basically, what I think the authors are saying is that, if
we have legislation that limits noneconomic damages to
$250,000, then the problem of medical malpractice premiums is
simply going to go away. I don't buy that. It is a one-size-
fits-all approach. It doesn't look at the actual underlying
issue of health care and medical malpractice.
I think we have a major problem with insurance premiums.We
have bad accounting or bad business judgment on the part of the
insurance industry that hasn't been taken into consideration
here.
What we should do is provide some kind of Federal
reinsurance program. I have proposed that with H.R. 485, the
Federal Medical Malpractice Insurance Stabilization Act.
I just want to say one more thing. I really don't think
that the opportunity has been given today in terms of who is
testifying here to really even have the option of understanding
what the problem is all about.
I read in the papers yesterday about the Santillan family
and this person, 17-year-old woman, named Jessica Santillan who
lost her life on Saturday. This is a perfect example of someone
whose representative should have been here testifying today. I
don't know exactly why there isn't anyone here. I know they
have asked to be here to have the opportunity to present
testimony about why this legislation would not allow for a
satisfactory outcome in a case like that. I think between the
witnesses and the way the majority is going about this it is
really not giving us an opportunity to learn what the root
cause of this problem is.
Thank you, Mr. Chairman.
Mr. Bilirakis. Mr. Pitts.
Mr. Pitts. Thank you, Mr. Chairman, for holding this
important hearing today. This is one issue on which we cannot
afford to waste time. The situation in my State of Pennsylvania
is dire. Pennsylvania hospitals and physicians face
skyrocketing premiums, causing major insurers to drop coverage
or raise premiums. It is ridiculous that in some cases the new
premiums are more than the actual income a health care provider
earns annually.
What this really means is that we have a serious problem--
not just a serious problem, actually, it is a crisis--with
access to care in Pennsylvania. The continued deterioration of
the medical liability market in Pennsylvania threatens the
viability of hospitals, of health systems and physician
practices.
Brandywine Hospital in my district was forced to close its
trauma center in June of last year due to lack of trauma
surgeons. And the CEO Allen Larson, who cited, quote, soaring
medical malpractice premiums that are driving surgeons out of
State or into retirement, close quote, said that he tried to
recruit new trauma surgeons only to find that all Pennsylvania
graduates of trauma surgery left the State to start practicing
elsewhere. This means that severely injured patients must be
transported to Philadelphia, almost an hour away, or other
cities many miles away.
Chester County Hospital, another in my district, came very
close to taking the drastic step of closing its maternity ward
when insurance for obstetricians skyrocketed. The doctors
reported that they would have to discontinue offering care at
that hospital, and the hospital stepped in at the last minute
with a temporary solution and actually put these independent
physicians on their payroll in order to provide coverage for
them through the hospital captive insurance company. Since
Chester County Hospital does 2,100 or so deliveries a year,
this load was too big for other providers in the area to pick
up; and women would have to leave our county to have their
babies.
Mr. Chairman, we will hear many arguments today from
doctors and trial attorneys and insurance companies, but I hope
we can see clearly through all of this to the bottom line: The
current system is not working. Patients are being denied care
because large numbers of physicians are leaving the State. And
this is one case in which we need to have uniform minimum
standards. Doctors should not have to choose where to live or
work due to their malpractice insurance.
As you know, the Pennsylvania State legislature did pass
legislation this year that included numerous tort reforms and
some economic relief. However, the financial pressures created
by the escalating medical liability crisis will not be resolved
by these limited tort reforms. Passage of the health act is
critical because it contains important reforms. Key among them
is the establishment of a cap on noneconomic damages.
Let's be honest, at the end of the day, this legislation is
not about doctors or insurance. It is about mothers having
places to deliver their babies and accident victims having a
nearby trauma center to go to.
I strongly support this legislation and look forward to
hearing from our witnesses before us today. I yield back.
Mr. Bilirakis. I thank the gentleman.
Mr. Ferguson.
Mr. Ferguson. Thank you, Mr. Chairman. Appreciate you
holding this hearing.
In New Jersey, where I am from, we are fortunate to have
one of the greatest health care systems anywhere. We have top-
notch hospitals. We have some the best doctors and nurses
anywhere. We have some the best medical research anywhere in
the world. Our medical professionals are devoted to their work
and to the people that they serve. They serve on the front
lines of our Nation's health care system in a way that I think
really exemplifies the best of the American spirit.
But in New Jersey today we face a perfect storm. The
dramatic rise in lawsuits, coupled with the skyrocketing
liability insurance costs for doctors and hospitals, they are
jeopardizing patient care. If we don't take corrective action
now, the situation is only going to become more severe. After
all, without insurance, doctors can't practice. But high
insurance costs are forcing many doctors in our State to
abandon their practices. With too many frivolous lawsuits too
many of our doctors are being forced to settle cases for large
amounts of money, even when they haven't committed an error.
In New Jersey, in the year 2000, more than $190 million was
paid out to cover jury awards, a figure that put our State in
the top ten in the Nation. These lawsuits have caused doctors'
liability insurance premiums to mushroom and increased the cost
of health care for all of us. Because premiums and lawsuits are
threatening doctors in an unpredictable and unlimited manner,
many doctors in New Jersey can't afford to get affordable
insurance coverage at all.
What is most disheartening is that litigation fears not
only increase the cost of health care but also have discouraged
doctors from helping individuals who are most in need and who
can't afford their services. Many doctors can't volunteer their
services for patients who can't pay, and the proportion of
physicians who provide any charity care at all has declined
nationwide. This deprives patients of long-term, trusted
relationships and sometimes leaves them without a doctor
altogether.
My family, as many others, has personally experienced the
effect of this crisis in New Jersey firsthand. Three weeks ago,
my wife and I were blessed with our third child. My wife's due
date was the very week of the job action that Mr. Pallone had
referenced before. Over the last few months, we have seen many
physicians leaving their practice; and in my wife's doctors OB/
GYN practice my wife's doctor's partner left the State recently
because of her insurance premiums. My wife's doctor's premiums
went up 40 percent just this year.
While our physician gave us every guarantee that she would
be there for us when the day came, and she was, there are
fathers and mothers and loved ones who I fear for. I fear that
the bond between patients and their doctors will be broke and
that these patients will not have access to the trusted
professionals because of the frivolous lawsuits and the
resulting insurance premiums which are forcing doctors to
abandon their practices.
There is no reason it has to be like this. It is simply not
right when those physicians who want to provide their services
are discouraged from doing so because of the fear of
litigation. Patients should have their day in court, and this
legislation allows patients to have their day in court. But the
legislation also protects patients by preserving and not
breaking the bond of the doctor-patient relationship.
I want to thank Mr. Greenwood for introducing this
important legislation. I look forward to hearing the testimony
from the witnesses today. Thank you.
Mr. Bilirakis. I thank the gentleman.
Mr. Burr.
Mr. Burr. Thank you, Mr. Chairman.
Let me take this opportunity to thank our witnesses here
today. I am sorry we couldn't provide better weather for you,
and hopefully you won't get stuck here.
Let me respond to something that was said earlier. I have
worked very successfully with people on the other side of the
aisle to produce health care legislation with those individuals
who look for solutions, and I look across the aisle today with
the same intent and with the previous history with them of one
of accomplishment. I also make no bones about the fact that I
choose not to work with those on the other side of the aisle or
on my side of the aisle that choose to use this only for
political purposes. Because we have reached the point in health
care where we need answers, and we need answers now.
After working on health care for now 8 years, I am well
aware of the complexity of the health care delivery system.
Some people today are going to say that enacting Federal
medical malpractice reform is not going to help our health care
delivery system. Other people are going to say that this
legislation will serve two important purposes: first, that it
will decrease health care costs through reductions in the
malpractice insurance premiums; and, second, it is a positive
step toward reigning in a litigious society.
If it were up to me, the debate on this issue would be a
looser pay system where we take a much bigger bite at getting
at the frivolous lawsuits that I think have become prevalent in
society. It is somewhat ironic to me that the same individuals
that criticize us being here debating this and proposing this
legislation today are in fact the ones that use the argument on
other health care issues that it is doctors, it is hospitals,
it is nurses, it is health professionals who we should empower
to make more decisions.
It is not insurance companies and so on, but it is health
care professionals that should be empowered to play a bigger
role in the health care solution in this country. In fact, it
is doctors and hospitals and nurses and health care
professionals that have over and over and over again said to us
that the first thing we need to do to try to curb the inflation
cost in health care is reign in the lawsuits that are currently
taking place. We are attacking exactly the place that health
care professionals have said is the first place we need to go.
There is no question in my mind that this legislation will
help our health care system. As long as medical malpractice
premiums continue to increase, our overall health care costs
will increase. I want patients to have the access to high-
quality and reasonably priced health care and, yes, to have the
right to pursue when harmed. I think we have protected that.
I urge my colleagues to support Representative Greenwood;
and I yield back, Mr. Chairman.
Mr. Bilirakis. I thank the gentleman.
Mr. Pickering.
Mr. Pickering. Mr. Chairman, thank you for this very
important hearing.
As we look at Medicare, Medicaid, veterans' health care,
prescription drugs, the delivery of health care, rural health
care, health care in States like mine in Mississippi which over
the past few years has been in a State of crisis and we look at
our responsibilities as a committee and as a Congress as to how
do we have a comprehensive health care policy for our country
that we have access to insurance for the individuals that are
providers can practice without the fear of being bankrupted by
an excessive jury verdict, what can we do to contain the cost,
make health care available to all Americans and my State of all
Mississippians?
This is a very important piece, a very important part, a
very important component of a comprehensive health care policy.
Later this year, we will be working on Medicare reforms. We
will be working on a prescription drug benefit. The Veterans
Committee will be looking at what they have to do to get
veterans' health care. If we look at all components, this issue
about out-of-control lawsuits and the cost increase that is put
into every system and every place and every community, because
of it we have to act on this piece of it just as we have to act
on all those other things.
I want to join with Congressman Burr. In my home State of
Mississippi, a bipartisan compromise was reached this past
year, legislation was passed, and we believe that it will make
a significant difference in our State.
Now the caps in the State legislature and Mississippi that
were passed were higher than the caps passed in this
legislation, a $500,000 cap on noneconomic damages, and then
over time it would increase with inflation, $750,000 cap by
2011, $1 million by 2017. It is a reasonable and a common-sense
approach to solving the problem in Mississippi.
I hope the same type of common-sense approach, bipartisan
approach can be found here in Congress. As we look at overall
health care, we have to have this piece as part of our strategy
and part of our policy to be able to make health care
affordable and available and at a high quality to all
Americans.
So, Mr. Chairman, I look forward to working with you on
this and hope that we can find a way to find a common ground
and consensus just as we did in Mississippi this past year.
Mr. Bilirakis. I thank the gentleman.
I believe that takes care of all the opening statements. As
we said earlier, any written opening statements could be made a
part of the record.
[Additional statements submitted for the record follow:]
Prepared Statement of Hon. Fred Upton, a Representative in Congress
from the State of Michigan
Mr. Chairman, I commend you for holding today's hearing to assess
the need to enact medical liability reform to address the growing
malpractice insurance crisis affecting physicians, hospitals, and other
health care providers in many states and address some of the factors
fueling the double-digit increases in health care premiums with which
large and small employers and individuals and families across the
nation are grappling.
My state of Michigan has already put in place a number of the
important reforms similar to the federal reforms we are contemplating.
As a result, Michigan is not experiencing the malpractice insurance
crisis that is gripping many other states. But we are certainly not
immune from such experiences as sharp increases in premiums and
insurers withdrawing from our market. Last year, for example, the
emergency physician group serving one of the largest hospitals in my
district almost lost its malpractice insurance. Had help not come at
the very last minute, an entire community could have lost access to
emergency care. Similarly, a large physician practice serving the poor
and uninsured in Southwest Michigan could not afford to renew its
malpractice insurance policy because of a sharp increase in the
premium. They were eventually able to find more affordable insurance,
but only by increasing their exposure.
While I have thus been very supportive of federal medical liability
reform, I hope that as this process moves along, we will be mindful one
potential problem that a federal pre-emption of certain state laws
could pose for physicians. Specifically, many Michigan physicians are
concerned that by pre-empting our state joint-and-several liability
provision and replacing it with a ``fair share'' provision, they may
face higher malpractice liability insurance premiums and be forced to
purchase considerably more coverage than they now typically carry. I
hope that during the course of these hearings, we can explore these
concerns.
Again, Mr. Chairman, thank you for your leadership on medical
liability reform. I look forward to working with you again this year as
we seek to address this issue that is critical to continued access to
affordable, community-based care across Michigan and our nation.
______
Prepared Statement of Hon. Steve Buyer, a Representative in Congress
from the State of Indiana
Mr. Chairman. Thank you for bringing this measure, H.R. 5, before
the Subcommittee. This is timely legislation to ensure that our
constituents have access to health care.
H.R. 5 strikes an appropriate and reasonable balance between the
need for patients who have been harmed to seek redress and the need of
all patients to have access to health care services.
The State of Indiana has been at the forefront of ensuring an
effective medical liability system. More than 20 years ago, the State
of Indiana enacted reform to its medical liability system. This system
has served the State and its citizens very well and has served as a
model for other States, including the State of our fine full Committee
Chairman.
Nothing in the legislation we are moving today would inhibit
Indiana from keeping its current medical liability system. In Indiana,
a medical review panel is convened to review the validity of the
medical claims in the case. Indiana law places limits on the liability
of health care providers. Recovery over this limit is provided by a
compensation fund managed by the State. Total recovery is capped and
attorneys' fees are capped. Injured patients receive compensation in a
timely fashion.
It is my understanding that under the intent of H.R. 5, Indiana
will be able to retain the core aspects of its medical liability
system. These include, the medical review panel requirement, the total
compensation cap, and the limits on providers' liability. It is also my
understanding that, should this legislation be enacted, other States
could follow Indiana's lead and adopt similar reform to their systems.
With these understandings, Mr. Chairman, I urge that the
Subcommittee move this legislation forward.
______
Prepared Statement of Hon. Ernie Fletcher, a Representative in Congress
from the State of Oklahoma
Mr. Chairman, thank you for conducting this hearing today. As a
physician, I have always tried to do what is best for my patients. As a
Member of Congress, I still try to do what is best for patients in
Kentucky and across America.
I hear stories about women who have to drive 75 miles or more to
have their babies delivered and end up delivering in their cars,
because their doctor quit delivering babies or the nearby maternal
wards have closed due to out of control medical liability premiums.
What is best for the patient? I believe that unlimited medical
liability awards are bad for patients, because they cause malpractice
insurance prices to climb, resulting in more expensive care, fewer
doctors, and an access to care problem. Trial lawyers argue that
limiting awards is bad for patients because it means that the most
serious injuries aren't properly compensated. However, H.R. 5, the Help
Efficient, Accessible, Low-Cost, Timely Healthcare (HEALTH) Act of
2003, which I support, actually ensures fair compensation for everyone.
We need to keep in mind that everyone is entitled to full compensation
for their actual losses, medical bills and wages under H.R. 5. This is
very fair.
Punitive damages under the HEALTH Act would be two times economic
damages--which are not capped, or $250,000, whichever is greater.
Punitive damages are meant to send a message, not to compensate the
victims. Unfortunately, trial lawyers have been winning outlandish
punitive damage awards--mainly for themselves--at the expense of the
patients, providers, and all Americans.
Its not unusual to hear stories of doctors moving from Kentucky to
Indiana or from Nevada to California to take advantage of the lower
cost of medical liability insurance. Passing H.R. 5, the HEALTH Act,
which reasonably reforms our liability system, will enable insurers to
hold premiums at a lower, more constant rate without arbitrarily
setting price controls on premiums that further exacerbate the access
to care problem we face.
We will hear today from some who do not support comprehensive
liability reform, claiming that it is the stock market's fault that we
are seeing malpractice liability premiums rising. Yet the stock market
hit the insurers in Kentucky and Nevada as much as they did in
California and Indiana. Furthermore, insurance rates did not jump in
states like California in the past couple of years, as they did in
Nevada, Pennsylvania, and West Virginia. Having a reasonable limit on
pain and suffering, which is unquantifiable, and other reforms in H.R.
5 will help improve the current unhealthy cycle, which trial lawyers
are currently perpetuating.
Lawsuits are a poor answer to medical events. They don't prevent
injuries and they don't reduce medical errors. But they do create an
atmosphere of fear, defensiveness, and distrust in the physician-
patient relationship. As a physician, I took an oath ``to do no harm.''
The only bill today that will help physicians to keep that oath is one
that safeguards safe and timely access to care through reasonable,
comprehensive and effective health care liability reform, and H.R. 5
does just that.
The rapid escalation in medical malpractice awards and the
resulting rise in medical liability premiums are major problems that
demand action now. It affects patients' access to quality care,
especially women and patients in rural areas. It is clear that these
excessive awards are driving the cost of health care up, which is a
major concern for most Kentuckians and Americans. Legislation must be
passed to control this critical problem both at the state and federal
levels. I have strongly supported previous attempts to pass reform and
will continue to support passage of significant medical liability
reform.
Mr. Bilirakis. We will go right now to the panel. I want to
welcome all of you.
Ms. Heather Lewinsky is, I know, from the Pittsburgh area
or that is an address, the Buffalo. But we thank her for her
courage in wanting to come here. There is nothing to be afraid
of.
Mr. Jim Hurley is here on behalf of the American Academy of
Actuaries; Mr. Heistand is CEO and General Counsel for
Californians Allied for Patient Protection; Mr. Rosenfield is
the President of the Foundation for Consumer and Taxpayer
Rights; Ms. Rosenbaum is Hirsch Professor of Health Law and
Policy at G W.; Mr. Lawrence C. Smarr is President of
Physicians Insurance Association of America; and Dr. Donald J.
Palmisano is President of the American Medical Association.
Again, welcome. I am going to set the clock to 5 minutes,
and your written statement is already a part of the record so
we would hope that you complement it more than anything else.
Ms. Lewinski, please proceed when you are ready.
STATEMENTS OF HEATHER LEWINSKI; JAMES HURLEY, ON BEHALF OF THE
AMERICAN ACADEMY OF ACTUARIES; FRED J. HIESTAND, CEO AND
GENERAL COUNSEL, CALIFORNIANS ALLIED FOR PATIENT PROTECTION;
HARVEY ROSENFIELD, PRESIDENT, FOUNDATION FOR CONSUMER AND
TAXPAYER RIGHTS; SARA ROSENBAUM, HIRSCH PROFESSOR OF HEALTH LAW
AND POLICY, GEORGE WASHINGTON UNIVERSITY MEDICAL CENTER, SCHOOL
OF PUBLIC HEALTH AND HEALTH SERVICES; LAWRENCE E. SMARR,
PRESIDENT, PHYSICIANS INSURERS ASSOCIATION OF AMERICA; AND
DONALD J. PALMISANO, PRESIDENT, AMERICAN MEDICAL ASSOCIATION
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. 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 that 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 I 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 about all of 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 would get frightened and always
thinking about the surgery and the pain I would be in. It would
get so bad that I actually would have to sleep with my mother
for many nights before the surgery. That went on with all of my
operations, and it did not matter whether I was 9 or 13 or 14
years old. This makes me feel stupid. Here I am a teenager, but
I end up sleeping with my mom because I am so afraid of
surgery, the hospital and everything that goes with it.
After every surgery I had I would be forced to stay in the
hospital for awhile. Then when I go home where I would be in
bed or on the sofa for weeks. 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.
I remember 1 day we were driving to the hospital for one of
my surgeries, and it was around Christmas time. There was a
song on the radio called, It's a Marshmallow World. I started
to cry, and I said 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 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 my whole body would
hurt so bad. I wanted to hide away because I did not want
anyone to see me. My appearance was so gruesome that no one
should have to see me.
From third grade through 8th grade, I missed so much school
from all 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 until the rest of the
school year. In fifth, sixth, seventh, and eighth grades, I
missed anywhere from 3 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 have always been a good student they had to
label me ``special ed'' because I missed so much time. 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 the 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 is those scars on my
face, and they stare. From third grade until now, every time I
walk into the halls or into class or in the cafeteria people
are staring. The kids in school constantly tease me and called
me names like Two Face, the character from the Batman movie. I
hated to eat in the cafeteria because I could not close my
mouth, and I would drool. Because of the corner of my mouth,
the way 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. And
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 two to three 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 that I
could just make myself invisible to other people and 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 kissed 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 his table with his
friends, and they started laughing and pointing at me, and I
realized it was just a joke.
The only school dance I ever attended was in ninth grade.
It was a 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, and he was so nice that he could not 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 I looked
like a princess, and 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 the
dog shows. I think one of the reasons that I like dog training
so much is that animals can't stare or laugh at you.
I will be graduating from high school on time in a few
months, and I have already been accepted into college. Because
of my fears of meeting new people. I chose a college that is
close to my house so I do not have to stay in a dorm with other
kids.
My biggest wish is that someday I will find a boy who will
look at and see me for what is on the inside of my heart and 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 that 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 for 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 she should be responsible for
all the harm they cause and not just part of it. I know that
nothing could be done to change what has 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.
[The prepared statement of Heather Lewinski follows:]
Prepared Statement of Heather 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. 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 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 I 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 ten years and I can't even
begin to tell you about all of 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 was approaching, I would
get very frightened and always thinking about the surgery and the pain
I will be in. It 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 of my operations, and it did not matter whether I was 9, 13 or 14
years old. This makes me feel stupid. Here I am a teenager, but I end
up sleeping with mom because I am so afraid of surgery, the hospital,
and everything that goes with it.
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. 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 Christmas time. 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 did not want anyone to see me. My
appearance was so gruesome that no one should have to see me.
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 til the rest of the school year. In fifth,
sixth, seventh and eighth grades, I missed anywhere from 3-5 months of
school each year. I had to have tutors and be home schooled all this
time. I remember that, even though I have 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 is those
scars on my face, and they stare and glare at me. From third grade
until now, every time I walk in the halls or into 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 could not close my mouth, and I would drool profusely.
Because of 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 always stay 2-3 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 kissed 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 his table
with his other friends, and they all started laughing and pointing at
me, and I then realized lit was just a big joke. I heard him say
something like ``Why would I go out with an ugly two-face loser?''
The only school dance I ever attended was in 9th grade. It was the
Valentine's Day dance, and I wanted to go so bad, but no one asked me.
I finally asked our a boy that lives next to me if he would go with me,
and he was so nice that he could not say no. I was so excited and my
parents really bought me the works--a new dress, new shoes, make up,
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
weekend in New York and some other states. I have been real 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 at you.
I will be graduating from high school in a few months, and I have
already been accepted into 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 someday I will find a boy who will look and
see me for what is on the inside 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 babysitting kids and being around them.
Little children do not stare so much, and they just accept you for
what's 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 for the last ten 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 very much.
Mr. Bilirakis. Thank you, Heather, and you are going to be
a tough act for anyone to follow.
But Mr. Hurley is next.
STATEMENT OF JAMES HURLEY
Mr. Hurley. It is indeed a tough act to follow. Chairman
Bilirakis, Ranking Member Brown and members of the
subcommittee, thank you for inviting me to testify today on
behalf of the American Academy of Actuaries. The Academy is the
public policy and professionalism organization for actuaries
practicing in all specialities 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 develops 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 liability to be carried
related to coverage already provided.
The Academy appreciates this opportunity to comment on
issues related to the availability and pricing of medical
malpractice insurance. In the time available, I would like to
highlight a few key 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. This
was contributed to by favorable reserve development on prior
coverage years and healthy investment returns. Insurers
competed aggressively. Health care 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. 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.
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 or
reporting from AM Best Company, a company that offers
comprehensive data to insurance professional and tracks these
results. The combined ratio is an indication about how the
company is doing in its insurance underwriting. For all
companies reporting to AM Best, the combined ratio of 130
percent and 134 percent for 1999 and 2000 respectively,
deteriorated to 153 percent for 2001. For underwriting this
represents a loss of 53 cents on each dollar of premium written
in 2001.
Preliminary projections for 2002 are for a combined ratio
of just under 140 percent. A measure of the overall
profitability of insurers is the operating ratio. The AM Best
operating ratio adjusts the combined ratio for other expense
and income items primarily investment income but it is before
Federal income tax. The operating ratio for 1999/2000 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.
Given lower interest income, the 2002 operating ratio will
probably not improve as much as the projected improvement in
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.
This data is clear. Today the loss in operating environment
has deteriorated. Benefits of favorable reserve development
appear to be gone and the available investment income offset
has declined. In fact, some see that the 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 their 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 AM Best. The results for these companies are more favorable
than the overall industry, but reflect similar deterioration.
In chart B on page 6 of my testimony, the total after-tax
operating income for these companies is shown. 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 impact on surplus chart E
on page 8 of my testimony demonstrates the change in surplus
from year to year for these same companies. Surplus increased
through 1999 but at a decreasing rate. 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 insurers ability to
absorb any adverse development on business written in prior
years.
This, coupled with voluntary and involuntary withdrawals,
for example, Saint Paul, MIIX, reciprocal of America has
contributed to availability problems in addition to
affordability problems. Companies continuing to write medical
malpractice insurance must interpret the current experience and
determine what rates to charge for prospective coverage. In
addition, tort reform is discussed as one means to address the
current challenges. The Academy, which takes no position for or
against tort reform, has previously reviewed and commented on
this subject. These observations include, one, a package that
performs is more likely than individual reforms to affect
losses and premiums.
Two, key among reforms is a per medical injury non-economic
cap at a relatively low level and mandatory collateral source
rule.
Three, poorly crafted reforms can actually increases losses
and therefore rates.
Four, we must have reasonable expectations. Reforms may not
yield immediate rate reductions, particularly given the rate
increases being implemented today, since the actual effect
including judicial confirmation will not be immediately known.
Such reforms do not affect the economic components of the claim
costs, and thus severity will still likely drive the need for
increases in the future, but perhaps at some lower level. Such
reform should make the loss environment more predictable,
encourage market participation and reduce concerns of insurers
about large subjective non economic damage components to
claims.
In closing, I should comment on some frequent
misconceptions. One misconception is that companies are
increasing rates to recoup stock market losses. This is not
true. The rate making process is forward looking and does not
reflect loadings for past pricing inadequacy or past investment
losses. It reflects expectations of future loss costs and on
the investment side primarily prospective interest yields. In
general, when prospective bond yields decline, rates will
increase, all else being equal. Additionally, rates and
investments are subject to regulatory oversight in most States.
A second misconception is that companies cause the current
problems. Medical malpractice is difficult to price and
underwrite successfully which is, in part, why companies
specializing in the coverage dominate it. Companies made
decisions in the mid to late 1990's expecting continuation of
recent stable----
Mr. Bilirakis. Please finish up, would you, sir.
Mr. Hurley. Yes, sir. Unfortunately, the environment
changed and loss costs increased, favorable reserve development
ceased and investment yields declined and reinsurance costs
jumped. This caused rates that need to increase. The Academy
and I appreciate the opportunity to provide an actuarial
perspective to these important issues, and we will be glad to
provide the subcommittee with any additional information that
would be helpful in your deliberation.
Mr. Bilirakis. Thank you. Thank you, sir. I am sure we will
give you an opportunity during the inquiry to finish up.
[The prepared statement of James Hurley follows:]
Prepared Statement of James Hurley, Chairperson, Medical Malpractice
Subcommittee, American Academy of Actuaries
INTRODUCTION
The American Academy of Actuaries appreciates the opportunity to
provide comments on issues related to patient access to health care
and, in particular, the availability and pricing of medical malpractice
insurance. The Academy hopes these comments will be helpful as Congress
considers related proposals.
This testimony discusses what has happened to medical malpractice
financial results and its likely effect on rates, tort reform, and some
discussion of frequent misconceptions.
MEDICAL MALPRACTICE--WHAT HAS HAPPENED?
The medical malpractice insurance marketplace is in serious turmoil
after an extended period of reported of high profitability and
competitiveness during the 1990s. This turmoil began with serious
deterioration in financial results, continued with some consequences of
these results and, at least at this point, gives rise to an uncertain
future. Industry-wide financial results reflect a 2001 combined ratio
(the measure of how much of a premium dollar is dedicated to paying
insurance costs of the company in a calendar year) that reached 153
percent and an operating ratio (reducing the combined ratio for
investment income) of about 135 percent; the worst results since
separate tracking of this line of business began in 1976. Projections
for 2002 are for a lower combined ratio of approximately 140 percent
and probable lesser improvement in the operating ratio. This follows
1999 and 2000 operating ratios of 106 percent.
The consequences of these poor financial results are several.
Insurers have voluntarily withdrawn from medical malpractice insurance
(e.g., St. Paul, writer of approximately nine percent of total medical
malpractice insurance premium in 2000) or have selectively withdrawn
from certain marketplaces or segments of medical malpractice insurance.
In addition, several insurers have entirely withdrawn due to poor
financial results (e.g., Phico, MIIX, Frontier, Reciprocal of America,
some of which are under regulatory supervision). Overall, premium
capacity has been reduced by more than 15 percent. These withdrawals
fall unevenly across the states and generally affect those identified
as jurisdictions with serious problems more severely than others.
Capacity to write business would have decreased even more if not
for the fact that much medical malpractice coverage is written by
companies specializing in this coverage, some of whom were formed for
this specific purpose.
The future outlook is not positive, at least in the short term.
Claim costs are increasing more rapidly now than they were previously.
Further, the lower interest rate environment would require higher
premium rates, even if losses were not increasing. The combined effect
is that there are likely to be more poor financial results and
additional rate increases.
Background
Today's premium increases are hard to understand without
considering the experiences of the last decade. Rates during this time
period often stayed the same or decreased relative to the beginning of
the period due to several of the following factors:
Favorable Reserve Development--Ultimate losses for coverage
years in the late 1980s and early 1990s have developed more
favorably than originally projected. Evidence of this emerged
gradually over a period of years as claims settled. When loss
reserves for prior years were reduced, income was contributed
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 for 30 provider-owned medical
malpractice insurers whose results are shown in Chart A. What
is evident from that chart is that favorable reserve
development (shown as a percentage of premium) was no longer a
significant factor in 2001 for these insurers as the effect
approached zero. In contrast to the experience of these
provider-owned insurers, the prior-year reserves for the total
medical malpractice line of business actually deteriorated in
2000 and in 2001.
Low Level of Loss Trend--The annual change in the cost of
claims (frequency and severity) through most of the 1990s was
lower than expected by insurers, varying from state to state
and by provider type. This coincided with historically low
medical inflation and may have benefited from the effect of
tort reforms of the 1980s. Rates established earlier
anticipated higher loss trends and were able to cover these
lower loss trends to a point. As a result, rate increases were
uncommon and there were reductions in several states. This was
justified in part because the rates established at the
beginning of the last decade proved too high, inasmuch as
carriers had assumed higher loss trends.
Insurers responded to the emerging favorable loss trend in
different ways. Some held rates stable and paid policyholder
dividends or gave premium discounts. Some reduced filed rates.
Others increased rates modestly and tried to refine pricing
models to improve overall program equity. In general, however,
premium adequacy declined in this period. Collected rates came
into line with insurers' costs, but competitive actions pushed
rates even lower, particularly in some jurisdictions.
High Investment Yields--During the 1990s, investment returns
produced a real spread between fixed income rates of return and
economic inflation. Counter to what some may believe, medical
malpractice investment results are based on a portfolio that is
dominated by bonds with stock investments representing a
minority of the portfolio. Although medical malpractice
insurers had only a modest holding of stocks, capital gains on
stocks also helped improve overall financial results. These
gains improved both the investment income ratio and the
operating ratio.
Reinsurers Helped--Many medical malpractice insurers are not
large enough to take on the risks inherent in this line of
insurance on their own. The additional capacity provided by
reinsurers allows for greater availability of medical
malpractice. Similar to what was happening in the primary
market, reinsurers reduced rates and covered more exposure,
making the net results even better.
Insurers Expanded Into New Markets--Given the financial
results of the early-to-mid-1990s, some insurers expanded into
new markets (often with limited information to develop rates).
They also became more competitive in existing markets, offering
more generous premium discounts. Both actions tended to push
rates down.
What Has Changed?
Although these factors contributed to the profitability of medical
malpractice insurance in the 1990s, they also paved the way for the
changes that began at the end of the decade.
Loss Trend Began to Worsen--Loss cost trends, particularly
claim severity, started to increase toward the latter part of
the 1990s. The number of large claims increased, but even
losses adjusted to eliminate the distortions of very large
claims began to deteriorate. This contributed to indicated rate
increases in many states.
Loss Reserves Became Suspect--As of year-end 2001, aggregate
loss reserve levels for the industry are considered suspect.
Reserve reductions seem to have run their course. As mentioned
earlier, the total medical malpractice insurance industry
increased reserves for prior coverage year losses in 2000 and
2001, although results vary on a company-by-company basis. Some
observers suggest that aggregate reserves will require further
increases, particularly if severity trends continue or
intensify.
Investment Results Have Worsened--Bond yields have declined
and stock values are down from 1990s highs. The lower bond
yields reduce the amount of expected investment earnings on a
future policy that can be used to reduce prospective rates. A
one percent drop in interest rates can be translated to a
premium rate increase of two to four percent (assuming no
changes in other rate components) due to the several year delay
in paying losses on average. A 2.5 percent drop in interest
rates, which has occurred since 2000, can translate into rate
increases of between 5 percent and 10 percent. Note that this
factor may discourage an insurer from maintaining market
presence and also may discourage new entrants.
The Reinsurance Market Has hardened--Reinsurers' experience
deteriorated as their results were affected by increased claim
severity and pricing changes earlier in the decade. Because
reinsurers generally cover the higher layers of losses, their
results are disproportionately influenced by increases in claim
severity. This, coupled with the broadly tightened reinsurance
market after Sept. 11, has caused reinsurers to raise rates
substantially and tighten reinsurance terms for medical
malpractice.
The bottom line is that these changes require insurers to increase
rates if they are to preserve their financial health and honor future
claim payments.
The Results
To obtain a better understanding of the effect of these changing
conditions, we focus on the results of 30 specialty insurers that are
primarily physician owned or operated and that write primarily medical
malpractice business. Their results reflect the dynamics of the medical
malpractice line. This sample represents about one-third of the insured
exposures in the United States.
These insurers, achieving more favorable financial results than
that of the total industry, showed a slight operating profit (four
percent of premiums) in 2000. This deteriorated to a 10-percent
operating loss in 2001 (see Chart B).
There are two key drivers of these financial results:
Insurance Underwriting--For these companies, a simplified
combined ratio was calculated by dividing calendar year loss
and loss adjustment and underwriting expenses by premium. The
combined ratios were 124 percent and 138 percent in 2000 and
2001, respectively. That means in 2001, these insurers incurred
$1.38 in losses and expenses for each $1.00 of premium. The
preceding five years were fairly stable, from 110 percent to
115 percent. Deterioration of the loss and loss adjustment
expense ratio drove these results; the underwriting expense
ratio remained relatively constant (see Chart C).
Investment Income--Pre-tax investment income (including
realized capital gains and losses) derives from policyholder-
supplied funds invested until losses are paid as well as from
the company capital (``surplus''). The ability of investment
income to offset some of the underwriting loss is measured as a
percentage of earned premiums. This statistic declined during
the measurement period from the mid-40 percent to the mid-30
percent level and, in 2001, to 31 percent (see Chart D).
This offset will continue to decline because (i) most insurer-
invested assets are bonds, many of which were purchased before recent
lower yields, and interest earnings do not yet fully reflect these
lower yields; and (ii) the premium base is growing due to increased
rates and growth in exposure. Invested assets are not increasing as
rapidly as premium and, therefore, investment income as a percentage of
premium will decline.
The effect of these results on surplus is reflected in Chart E,
which shows the percent change in surplus from one year to the next.
Surplus defines an insurer's capacity to write business prospectively
and to absorb potential adverse loss development on business written in
prior years (see Chart E).
Tort Reform
Some states enacted tort reform legislation after previous crises
as a compromise between affordable health care and an individual's
right to seek recompense. The best known is the Medical Injury
Compensation Reform Act or MICRA, California's tort reform package.
Since MICRA's implementation in 1975, California has experienced a more
stable marketplace and lower premium increases than have most other
states.
Tort reform has been proposed as a solution to higher loss costs
and surging rates. Many are suggesting reforms modeled after
California's MICRA, although some have cautioned against modifying the
MICRA package. The Academy, which takes no position for or against tort
reforms, has previously reviewed and commented on this subject. Based
on research underlying the issue, we observe the following:
A coordinated package of tort reforms is more likely than
individual reforms to achieve savings in malpractice losses and
insurance premiums.
Key among the reforms in the package are a cap on non-economic
awards (on a per-event basis and at some level low enough to
have an effect; such as MICRA's $250,000) and a mandatory
collateral source offset rule.
Such reforms may not assure immediate rate reductions,
particularly given the size of some increases being implemented
currently, as the actual effect, including whether or not the
reforms are confirmed by the courts, will not be immediately
known.
These reforms are unlikely to eliminate claim severity (or
frequency) changes but they may mitigate them. The economic
portion of claims is not affected if a non-economic cap is
enacted. Thus rate increases still will be needed.
These reforms should reduce insurer concerns regarding dollar
awards containing large, subjective non-economic damage
components and make the loss environment more predictable.
Poorly crafted tort reforms could actually increase losses
and, therefore, rates.
FREQUENT MISCONCEPTIONS
In closing, it might 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. The vast 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.
Stocks 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 by stock 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. In many cases, 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 very
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 benefited from favorable reserve
development from prior coverage years. Unfortunately, the environment
changed on several fronts ( loss cost levels increased, in several
states significantly; the favorable reserve development ceased;
investment yields declined; and reinsurance costs jumped.
While one can debate whether companies were prudent in their
actions, today's rate increases reflect a reconciliation of rates and
current loss levels, given available interest yields. There is no added
cost for past mispricing. Thus, although there was some delay in
reconciling rates and loss levels, the current problem reflects current
data.
Misconception 3: ``Companies are reporting losses to justify increasing
rates.''
This is a false observation. Companies are reporting losses
primarily because claim experience is worse than anticipated when
prices were set. 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, is now in
the process of withdrawing from this 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.
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[GRAPHIC] [TIFF OMITTED] T6049.009
Mr. Bilirakis. Let's see. Mr. Hiestand. Is that correct?
Mr. Hiestand. Hiestand.
Mr. Bilirakis. Thank you.
STATEMENT OF FRED J. HIESTAND
Mr. Hiestand. There was once a Member of Congress, actually
there were two by that name. But I don't know whether we are
re- lated. Anyway I appreciated hearing the opening remarks of
every- one, and sort of feel from listening to that, that I am
not sure how much we have to teach you. You seem to be well
versed on it. But it does sound to me simply like deja vu all
over again, as Yogi Berra would say. Because when I first had
my baptism over this issue, it was back in California in 1974
through 1976 when Henry Waxman, who was then the chairman of
the Assembly Health Committee, asked if I would be the
consultant on medical mal- practice because a number of health
care providers, professional as- sociations, had said to him at
the time as the chairman of the Health Committee, that this was
a burgeoning problem.
They had experienced just a couple of years previously,
some very large increases in their malpractice rates, and they
wanted him to look into it and see what could be done. I think
Mr. Wax- man asked me to get involved because we worked
together, and I knew nothing about the subject, meaning I
didn't have a bias one way or the other, though I suppose since
my background was as a poverty and public interest lawyer up
until then, I had a bias, it was sort of plaintiff-oriented.
The notion that we would all had been taught in law school was
the purpose of the tort system was to restore people to whole
and restoring people to whole meant every kind of damage that
could be brought to bear on the subject in the way of
compensation.
But I did what you are all familiar with doing when I
became the consultant of this committee, and that is, go around
and inter- view all the experts on the subject, the self-
identified and other rec- ognized experts, and then we set up
hearings and we held a num- ber of hearings and produced a
committee report that made rec- ommendations that are now
mirrored in H.R. 5 the heart of it I would say, the
recommendations on collateral source, you know, other sources
of income that injured people are entitled to receive for the
injuries they are suing on, besides just the damages from the
defendant, periodic payments for future injuries that people
are going to get, or future damages that they would get;
sliding contin- gency fee scale so that the more seriously
injured patients got a larger share of the income than the
attorney and so forth.
Now, one of the recommendations that fell on the cutting
room floor and turns out to be the heart of MICRA was the limit
on non- economic damages. That was felt when the preliminary
report came out in June 1974 predicting that there was going to
be a cri- sis, but, of course, we predicted what everybody told
us with the exception of the organized plaintiffs bar that
there was a crisis and that was going to hit some time soon.
You predict those things and you never know whether you are
going to be accurate or not. We, unfortunately, were more
accurate than we wanted to be because December of that year,
California physicians, hospitals and oth-
ers were hit with 400 percent increases in their malpractice
insur- ance premiums.
And Mr. Waxman left and came back to Congress. I was still
sort of stuck there as consultant to the Select Committee,
which Howard Berman had taken over at the time. And we had been
discussing what we were going to do with that committee in his
office when the calls came in from the reporters about the
increase in the malpractice rate.
So the crisis hit California, but at least we had some
recommendations about what to do about it that had been based
on a 2-year study and a lot of hearings. And Governor Brown
called a special session and asked if I would be his advisor on
malpractice, and that is when he really put his finger on what
I think is one of the early seminal views about why you
probably need to limit non-economic damages when you have this
kind of a crisis. He asked me if anything had been left on the
cutting room floor, Governor Brown did in the way of
recommendations, and I said yeah, the limit on non-economic
damages. He asked why. I said it was felt to be maybe too
draconian, too controversial, so we just left it out.
And he said, well, what is controversial about it and I
said limiting people for non economic damages just didn't
strike people right. And his remark to me was, have you read
Roger Traynor's dissenting opinion in the case of Seffert
versus L.A. Transit Authority? And to those of you not familiar
with Roger Traynor, he was the chief justice for the California
Supreme Court for a number of years, one of the most respected
liberal jurists and the father of modern products liability
law, a big believer in loss spreading. Roger Traynor's
dissenting opinion in that case, which was, in 1962, over an
award of about $54,000 said, you know, you can't continue to
pay people for non-economic damages if you really want to
compensate them for their true losses.
But that is not for the courts to decide, he said. It is
for the legislature. So Governor Brown suggested that we do
limit non-economic damages, and when the democratically
controlled legislature faced with that crisis, they came up
with a limit of $250,000, which seems, according to the Office
of Congressional Office of Technology Assessment, the Rand
Corporation and the Health and Human Services Agency, has been
the single most important factor responsible for keeping
malpractice premiums from skyrocketing out of hand in
California.
So we like what you are doing in H.R. 5. We think things
have been stable in California for more than a quarter of a
century now as a result of MICRA. We wish we never had to face
the crisis, but it turns out we came up with a solution that
seems to work. And we hope it would work for everybody else.
Thank you.
[The prepared statement of Fred J. Hiestand follows:]
Prepared Statement of Fred J. Hiestand, CEO and General Counsel,
Californians Allied for Patient Protection
Mr. Chairman and Members of the Committee: Thank you for the
invitation to share with you the background of how California learned
to control what was once its own runaway medical liability insurance
crisis.
From 1974-76, I was immersed in an emergency over the cost and
availability of medical liability insurance for California doctors and
hospitals--first as the consultant to the Legislative Committee that
studied its causes and predicted its occurrence, and then as advisor to
the Governor and the Legislature who had to come to grips with it
through the enactment of legal reforms. Now and for the past four years
I have served as CEO and General Counsel to CAPP, a broad based
organization of health care providers, professional medical
associations, medical liability carriers and community clinics
dedicated to preserving and protecting those very legal reforms that
took effect in 1976 and tamed our state's medical liability crisis.
This almost thirty year journey of biography as history underscores
that what we learn from the past may help us to avoid repeating its
unfortunate excesses. It also counsels CAPP and our allies to support
federal efforts to bring uniformity and certainty to the malpractice
crises now afflicting numerous states through legislation modeled on
California's experience, such as HR 5. Here, in a ``nutshell'' is that
history.
the california experience, or deja vu all over again
In late 1974 California physicians and hospitals were shocked by
announcements from the major insurance companies writing medical
liability coverage for them that their premiums needed to be raised
400%. This calamity was predicted by the Assembly Select Committee on
Medical Malpractice in a report issued earlier that summer by its
chairman, Assemblyman Henry A. Waxman, which warned that:
[M]edical malpractice group insurance rates for doctors have
increased more than four hundred percent (400%) in just two
brief years between 1968 and 1970; [moreover,] [t]he medical
malpractice insurance market is a highly unstable one and, if
rates continue to escalate as they have in the past few years,
malpractice insurance carriers may be priced outside the
market.
(Preliminary Report, Assembly Select Committee on Medical Malpractice,
June 1974, Pp. 3-4.)
Waxman's warning was prescient, though it did not anticipate the
suddenness or severity of California's medical malpractice insurance
crisis. Alarmed hospitals and physicians responded to it by restricting
medical care to emergencies. Access to needed health care was
jeopardized for Californians in the same way it is today threatened for
citizens in Florida, New York, Nevada, Kentucky, Ohio, Pennsylvania,
West Virginia and other states undergoing their own medical malpractice
insurance crises. Within a few months newly elected Governor Jerry
Brown called an extraordinary session of the Legislature in which he
proclaimed:
The cost of medical malpractice insurance has risen to levels
which many physicians and surgeons find intolerable. The
inability of doctors to obtain such insurance at reasonable
rates is endangering the health of the people of this State,
and threatens the closing of many hospitals. The longer term
consequences of such closings could seriously limit the health
care provided to hundreds of thousands of our citizens.
(Proclamation of Governor Edmund G. Brown, Jr. to Leg. (May 16, 1975)
Stats. 1975 (Second Ex. Sess. 1975-1976) p. 3947.)
Not everyone agreed at the time that there was a real crisis in
California. Personal injury attorneys charged, as they do today about
the catastrophes sweeping other states, that California's malpractice
insurance emergency was ``contrived,'' a result of bad stock market
losses by insurers. To separate fact from fantasy California's Joint
Legislative Audit Committee ordered the Auditor General to undertake a
study to determine the reasons for the crisis. In December 1975 that
study, contracted by the Auditor General to Booz-Allen Consulting
Actuaries, reported that ``premiums paid by California doctors for
medical malpractice insurance have increased significantly over the
past fifteen years, but have not kept pace with increasing claim costs;
[and] the average premium in 1976 is expected to be about five times
higher than the 1974 average.'' (California Medical Malpractice
Insurance Study, Report by Booz, Allen & Hamilton, Inc. for the Office
of the Auditor General, State of California, Dec. 5, 1975, Pp. 1-2.).
By the time the Auditor General reported that California's
malpractice insurance crisis was indeed ``real,'' the Legislature
enacted the Medical Injury Compensation Reform Act of 1975 (``MICRA'').
MICRA's purpose is stated in its preamble:
The Legislature finds and declares that there is a major health
care crisis in the State of California attributable to
skyrocketing malpractice premium costs and resulting in a
potential breakdown of the health delivery system, severe
hardships for the medically indigent, a denial of access for
the economically marginal, and depletion of physicians such as
to substantially worsen the quality of health care available to
citizens of this state. The Legislature, acting within the
scope of its police powers, finds the statutory remedy herein
provided is intended to provide an adequate and reasonable
remedy within the limits of what the foregoing public health
and safety considerations permit now and into the foreseeable
future.
(Stats. 1975, Second Ex. Sess. 1975-1976, ch. 2, Sec. 12.5, p. 4007.)
the ``key legal reforms'' for taming runaway malpractice litigation and
LIABILITY PREMIUMS
The ``statutory remedy'' that tamed runaway malpractice premium
costs was comprehensive and dealt with major changes in the regulation
of the medical profession, insurance and legal reforms. Most of these
reforms were recommended by the Assembly Select Committee on Medical
Malpractice that Henry Waxman chaired in 1974 and Governor Jerry Brown
urged be adopted in his proclamation calling the Legislature into a
special session to solve the crisis. MICRA's legal reforms curbed
unfair practices and inefficiencies in our system for resolving medical
malpractice disputes. It put a ceiling of $250,000 on exploitive non-
economic ``pain and suffering'' damages, and assured full compensation
for economic losses: wages, medical bills, rehabilitation and custodial
care for as long as necessary.
MICRA also permits arbitration of medical liability disputes, lets
the jury know of other payments a plaintiff is receiving for the same
injuries sued on, marshals and preserves resources for ongoing care of
the plaintiff by allowing periodic payment of future damages, and
assures that the most severely injured plaintiffs get a proper share of
any recovery by requiring that attorneys' contingency fees be paid on a
sliding scale--the larger the recovery the smaller the lawyer's
percentage.
MICRA achieved for California stable and, in comparison to the rest
of the country, reasonably affordable malpractice insurance premiums
charges. States without MICRA reforms are now experiencing their own
version of California's mid-1970s medical liability crisis. Since 1975,
California's premiums have risen 168 percent, while the average U.S.
premium has increased 420 percent. Today, as the chart below shows, the
average annual liability premium for an Ob/gyn doctor in California is
$48,700, half the average doctors pay in the rest of the country.
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the importance of the $250,000 ceiling on non-economic damage
A seminal opinion upholding the validity of MICRA against
constitutional attack affirmed that ``the goal of [the $250,000 limit
on recoverable non-economic damage] [is] to ensure the availability of
health care and the enforceability of judgments against health care
providers by making medical malpractice insurance affordable. The
amount of non-economic damages is still limited to $250,000 for each
injured plaintiff and thus will not result in ``the unknown possibility
of phenomenal awards for pain and suffering that can make litigation
worth the gamble . . .'' (Fein v. Permanente Medical Group (1985) 38
Cal.3d 137, 163.)
Courts have consistently and repeatedly made clear the purpose of
MICRA and its non-economic damage provision:
The legislative history of MICRA does not suggest that the
Legislature intended to hold down the overall costs of medical
care but instead demonstrates . . . that the Legislature hoped
to reduce the cost of medical malpractice insurance, so that
doctors would obtain insurance for all medical procedures and
would re- sume full practice; indeed, in this respect
[available] statistics suggest that MICRA was in fact
successful. The statistical information before the Legislature
indicated, however, that insurance costs amounted to only a
small percentage of overall medical costs (see, e.g., Assem.
Select Com. on Medical Malpractice Preliminary Rep. (June 1974)
p. 49), and thus in an era of substantial infla- tion--as
experienced in the late 1970's--even the total elimination of
mal- practice insurance premiums could not reasonably have been
expected to reduce the overall cost of medical care.
(American Bank & Trust Co. v. Community Hosp. of Los Gatos (1985) 36
Cal. 3d 359, 373; italics added.)
Restricting recovery for non-economic loss is neither a novel nor
radical notion. Former Chief Justice Roger Traynor, the father of
modern products liability law and advocate for ``spreading the loss''
of injury compensation through insurance, long ago recognized the need
to cabin these subjective and highly elastic damages. In Seffert v.
L.A. Transit Authority (1961) 56 Cal.2d 498, Traynor dissented from
approval of a non-economic damage award of $134,000 in a negligence
action to a woman whose foot was injured while boarding a city bus and
whose economic losses were about $54,000.
There has been forceful criticism of the rationale for awarding
damages for pain and suffering in negligence cases. Such
damages originated under primitive law as a means of punishing
wrongdoers and assuaging the feelings of those who had been
wronged. They become increasingly anomalous as emphasis shifts
in a mechanized society from ad hoc punishment to orderly
distribution of losses through insurance and the price of goods
or of transportation. . . . [para. ] [A]ny change in this
regard must await reexamination of the problem by the Legisla-
ture.
When the Legislature followed Justice Traynor's suggestion and
reexamined the problem of non-economic damage awards in the context of
the malpractice insurance crisis of 1975, it decided to cap them at
$250,000. The considered judgment of the Legislature and the Governor
was that limiting recovery for non-economic damages to that amount
would dampen the skyrocketing cost of medical malpractice insur- ance.
This policy decision has withstood numerous legal challenges because it
is right.
The continuing availability of adequate medical care depends
directly on the availability of adequate insurance coverage,
which in turn operates as a func- tion of costs associated with
medical malpractice litigation. Accordingly, MICRA includes a
variety of provisions, all of which are calculated to reduce
the cost of insurance by limiting the amount and timing of
recovery in cases of profes- sional negligence. [para. ] MICRA
thus reflects a strong public policy to contain the costs of
malpractice insurance by controlling or redistributing
liability for dam- ages, thereby maximizing the availability of
medical services to meet the state's health care needs. With
specific reference to [the ceiling on non-economic dam- age],
this court has also observed that ``[o]ne of the problems
identified in the legislative hearings was the unpredictability
of the size of large non-economic dam- age awards, resulting
from the inherent difficulties in valuing such damages and the
great disparity in the price tag . . . different juries place
on such losses. The Legislature . . . reasonably . . .
determined that an across-the-board limit would provide a more
stable base on which to calculate insurance rates.''
(Western Steamship Lines, Inc. v. San Pedro Peninsula Hospital (1994) 8
Cal.4th 100, 112, citing and quoting from Fein v. Permanente Medical
Group, supra, 38 Cal.3d at 163.)
MICRA's non-economic damage cap and those from nineteen other
states echoing it have arrested spiraling malpractice insurance premium
charges. As one scholarly study 1 states:
---------------------------------------------------------------------------
\1\ Bovbjerg & Sloan, No-Fault for Medical Injury: Theory and
Evidence (1998) 67 U. Cin. L. Rev. 53, 62 (italics added). For
empirical evidence on the impact of tort reforms, see Danzon, The
Frequency and Severity of Medical Malpractice Claims (1984) 27 J.L. &
Econ. 115; Hamilton, Rabinowitz, & Alschuler, Inc., Claim Evaluation
Project (1987); Danzon, The Frequency and Severity of Medical
Malpractice Claims: New Evidence (1986) 49 Law & Contemp. Probs. 57;
Sloan et al., Effects of Tort Reforms on the Value of Closed Medical
Malpractice Claims: A Microanalysis (1989) 14 J. Health Pol. Pol'y & L.
663.
---------------------------------------------------------------------------
The weight of empirical evidence suggests that . . . some of
the legal reforms had the intended effect of stabilizing
liability insurance markets and reducing the overall level of
medical malpractice payments. The largest reductions in pay-
ments and premiums were attributable to a few provisions,
notably caps on awards and modifications of the collateral
source rule . . .
Other studies about the benefits of the damage cap on malpractice
insurance rates reached the same conclusion. A 1995 study by the
American Academy of Actuaries found, for example, that in California
(since MICRA was enacted) medical mal-
practice costs have fallen substantially from about 28 percent of the
national total in 1975 to about 10 percent in 1994--while California's
share of physicians held steady at 15 percent.2 Paralleling
this decrease, the state's portion of national malpractice premium
costs was sliced in half. In New York, however, where a damage cap was
never enacted despite the adoption of other piecemeal reform measures
over the years, there were no observable improvements in the state's
relative costs. New York's physician population hovered between 12 and
14 percent of the national total, but its malpractice losses zigzagged
from just above 16 percent of the national cost in 1975 to 22 percent
in 1979, to about 15 percent in 1985, and back to above 22 percent in
1993.3 Ohio experienced a gradual decline--about one percent
from 4 to 3 percent--in costs following tort reforms enacted in
1975.4 This package included a cap on damages that was
challenged in court in 1982, resulting in sharp increases that peaked
in 1985 (at 6 percent) when the cap was overturned. Ohio's loss
payments remained fairly constant until this year, when premium charges
spiraled over the top for doctors in high risk specialties.5
---------------------------------------------------------------------------
\2\ Actuaries Use States' Experiences To Argue For Comprehensive
Malpractice Reforms, 22 Health Legislation & Regulation 47 (Nov. 27,
1996)(Faulkner & Gray, Inc.).
\3\ Id.
\4\ Id.
\5\ ``A study released this week by Medical Liability Monitor . . .
found that four insurers are charging Cleveland-area obstetricians from
$74,581 to $152,496 this year for malpractice coverage . . . A bill
pending with the Ohio legislature would place a $300,000 cap on non-
economic awards for pain and suffering in medical malpractice . . .
Nineteen states already have limits, ranging from $200,000 to $1
million . . . [T]he average premium for obstetricians nationwide was
$56,546. In states with tort reform, that figure ranges from $17,786 to
$55,084.'' (Powell, Docs Preach at Practices--Physicians Say Limiting
Malpractice Awards will Lower Insurance Costs, Akron Beacon Journal,
Oct. 10, 2002, p. 1.)
---------------------------------------------------------------------------
In 1995, the congressional Office of Technology Assessment also
confirmed that ``caps on damage awards were the only type of State tort
reform that consistently showed significant results in reducing the
malpractice cost indicators.'' 6 This same conclusion was
recently reached by the federal Department of Health and Human Services
(HHS), which reported that ``a major contributing factor to the most
enormous increases in liability premiums has been the rapidly growing
awards for non-economic damages in states that have not reformed their
litigation system to put reasonable standards on these awards.''
7 The HHS report emphasizes that the medical malpractice
insurance crises now engulfing twelve states ``is less acute in states
that have reformed their litigation systems. States with limits of
$250,000 or $350,000 on non-economic damages have average combined
highest premium increases of 12-15%, compared to 44% in states without
caps on non-economic damages.'' 8
---------------------------------------------------------------------------
\6\ U.S. Congress, Office of Technology Assessment, Impact of Legal
Reforms on Medical Malpractice Costs, OTA-BP-H-119, p. 64 (Washington,
D.C.: U.S. Gov't. Printing Office, Oct. 1995).
\7\ Confronting the New Health Care Crisis: Improving Health Care
Quality and Lowering Costs by Fixing our Medical Liability System 12
(Health and Human Services: July 24, 2002).
\8\ Id. at p. 14.
---------------------------------------------------------------------------
The HHS study credits MICRA, especially its ceiling on recoverable
non-economic loss, for holding down medical malpractice insurance rate
increases and keeping open access to health care:
California has more than 25 years of experience with this
reform. It has been a success. Doctors are not leaving
California. Insurance premiums have risen much more slowly than
in the rest of the country without any effect on the quality of
care received by residents of California. Insurance premiums in
California have risen by 167% over this period while those in
the rest of the country have increased 505%. This has saved
California residents billions of dollars in health care costs
and saved federal taxpayers billions of dollars in the Medicare
and Medicaid programs.9
---------------------------------------------------------------------------
\9\ Id. at p. 17.
---------------------------------------------------------------------------
MICRA's substantial public benefits through reduced malpractice
premium costs have not come at the expense of plaintiffs' ability to be
fairly compensated for their losses. ``Leading malpractice carriers
report that between 1984 and 1997 payments to [medical] malpractice
plaintiffs . . . increased 139 percent while inflation grew less than
half that amount (54.5%) and health care costs rose less than 120
percent.'' 10
---------------------------------------------------------------------------
\10\ Hiestand, MICRA Management, Los Angeles Daily J., March 4,
1999, p. 6.
---------------------------------------------------------------------------
A plaintiff in a $400,000 medical malpractice case in 1984,
where half the award was for non-economic damage, today would
receive $1.195 million, or $442,500 more than what the injury
is worth measured by the rise in the cost of living. This
result is likely due to plaintiffs' attorneys creatively
exploiting what they get (unlimited economic loss) to offset
the MICRA limit [on non-economic loss].11
---------------------------------------------------------------------------
\11\ Id.
---------------------------------------------------------------------------
Numerous scholarly studies show that the $250,000 ceiling on non-
economic damages is a major factor accounting for the principal
difference between California's stability and the chaos of other states
in professional liability coverage costs. Despite these savings, the
average malpractice settlement and award in California, adjusted for
post-MICRA inflation, is greater today than it was before MICRA.
Without MICRA, pay outs by California carriers on behalf of health care
providers sued for professional liability would mirror the claims
experience of other states and send corresponding coverage costs
through the roof.
California's medical malpractice disputes are settled 23 percent
faster than in the rest of the country. The cost of settlements is 53
percent lower than the national average. The Congressional Budget
Office stated that medical malpractice reform like California's will
result in savings of $1.5 billion over ten years. The congressional
study does not include the hidden costs of defensive medicine. A
Stanford University study shows that California's medical liability
reforms would save the national health care system $50 billion a year
in defensive medicine costs. Reducing health care costs safeguards
access to medical care for those who lack basic health coverage.
MICRA is a proven success. Medical liability no longer deprives our
citizens of access to health care. Congress and other states now look
to the California experience as they try to fashion solutions to the
growing emergency with medical liability insurance. MICRA continues to
prove that providing fair and equitable compensation for those
negligently injured can be achieved in ways that preserve an orderly
insurance marketplace and maintain access to quality health care. It is
a success for Californians, and if enacted by Congress will benefit
patients and taxpayers nationally.
Mr. Bilirakis. Thank you very much Mr. Hiestand.
Mr. Rosenfield.
STATEMENT OF HARVEY ROSENFIELD
Mr. Rosenfield. Thank you, Mr. Chairman. Good morning,
members of the committee. My name is Harvey Rosenfield. I am
the president of the, Foundation for Taxpayer and Consumer
Rights, which is a Los Angeles-based consumer and citizen
advocacy organization. Mr. Chairman, what brought us to the
table at this hearing today, would be an effort to stop the
epidemic of medical malpractice, which claimed the lives of
between 100- and 150,000 Americans every year in hospitals
alone.
Instead, we are worrying about how much doctors have to pay
for medical malpractice coverage, though for most of them, it
is between 1 and 5 percent of their annual revenues, and it is
tax deductible. And all the premiums for medical malpractice
and all the payments by insurance companies for claims amount
to an infinitesimal fraction of our national health care
expenditures.
Nevertheless, because of the doctors on strike and some
doctors experiencing tremendous rate increases, we are here
today to talk about whether MICRA will lower insurance premium.
And on that, California can give some guidance because there is
a law in California that lowered insurance premiums for doctors
and that refunded $135 million in premiums to physicians. I was
the author of that law. It was not MICRA. It was proposition
103.
If I could have Exhibit 1, please, on the presentation. If
you look at the chart that is contained in the second page of
our testimony, you will see the following: In 1975 the
legislature passed MICRA in the midst of a crisis, panicked,
doctors striking, special session of the legislature. Rates
after MICRA passed, between then and 1988 with a brief dip
after the insurance crisis of the 1970's ended and the
insurance industries performance in the economy improved,
premiums for physicians rose between 1975, and 1988, under
MICRA, 450 percent.
Physicians point out that MICRA, the cap in MICRA was not
upheld until February 1985. Between 1985 and 1988, which was
the second insurance crisis in the last three decades when the
insurance companies ran into trouble with their investments and
interest rates dropped, between those years, after the MICRA
cap was upheld as constitutional, premiums went up 47 percent
alone in those 3 years. During the 13 years of MICRA, insurance
companies, medical malpractice insurers operating in
California, paid out only 31 cents in claims for every dollar
they took in.
In 1988, the voters got fed up with the absence of lower
insurance premiums, despite repeated so-called tort reform in
California, and so they put proposition 103 on the ballot.
Proposition 103 mandated a rate freeze, a 20 percent rollback,
stringent regulation of the profits expenses, and most
importantly for our debate today, projections of future losses.
It repealed the industry's antitrust exemption, created an
elected insurance commissioner, and gave the public the right
to challenge unjustified rate changes.
Insurance companies spent $80 million to try to defeat prop
103 at the ballot box, which gives you some idea of the amount
of fear that is reflected in the fact that to this day, and
before this committee, you are going to be told that it didn't
work, even though the results are in disputable. Proposition
103's $1.2 billion in rate refund checks included $135 million
from medical malpractice insurers to physicians.
And don't you believe that when they tell you today that
oh, these insurance companies were going to roll back their
rates anyhow, because they fought prop 103 bitterly in the
courts. They spent tens of millions of dollars on attorneys'
fees to try to stop that initiative, and only when they lost
everything did they finally understand as an industry that they
had to role back $1.2 billion in premiums. After proposition
103 passed in the 13 years that we have data for, premiums went
down 20 percent in the first 3 years, and then between then,
1988 and 2001, premiums in California for medical malpractice
went down an average of 2 percent.
Tort reform has never lowered insurance premiums anywhere
in the country at any time, any kind of tort reform. The
insurance industry itself has admitted that in Florida and
other States. Why does 103 work? 103 works because the crisis
concerns the investment and interest rate and investment income
of the insurance companies and the fear of regulation and the
actual regulation of prop 103 lowered insurance premiums. Mr.
Chairman, I have 1 minute to talk about MICRA if I may, please.
If you will indulge that.
Mr. Bilirakis. Go ahead, sir.
Mr. Rosenfield. Here is what MICRA has done in California.
For those of you who really want to understand what it has
done, it has prevented innocent victims of medical malpractice
from getting lawyers because the combination of the caps on the
damages, the sliding scale caps on the attorney's fees, and the
requirement that taxpayer programs pay for the victims before
the doctor or the negligent hospital or the insurance company
pay, has made it financially economically impossible for
attorneys to take all but the most serious cases involving all
but the most wealthy people. Health care, which HMO based
financial driven health care, in which bean counters make
decisions about how the quality of medicine is delivered,
combined with the MICRA caps, have been a disaster for this
State.
I want to conclude with this, Mr. Chairman. For 200 years,
American juries have been deciding how to allocate personal
responsibility in our country. I want to say that the principle
that should guide this committee as the Congresswoman suggested
at the beginning, should be the principle that ought to be
followed by the American Medical Association and the minority
of American doctors who are following the AMA in this campaign
against the rights of patients. First do no harm. With all due
respect to members of this committee, I ask you, why you should
substitute your judgment for juries. I ask you to search your
hearts and explain to us, tell us who are you to tell Heather
Lewinski how much her pain and suffering is worth? Thank you
very much, Mr. Chairman.
[The prepared statement of Harvey Rosenfield follows:]
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Mr. Bilirakis. Thank you very much, sir.
Ms. Rosenbaum.
STATEMENT OF SARA ROSENBAUM
Ms. Rosenbaum. Good morning Mr. Chairman, members of the
subcommittee. I am a law professor at the George Washington
University Medical Center, and I am particularly cognizant of
the problems that malpractice insurance premium cost increases
are causing for my colleagues. And I have great hope that this
committee and Congress ultimately can find a legislative
approach to this problem that will give them some relief. My
background as a law professor has me regularly read statutes
and my conclusion about the legislation that is before you
today is that this bill, read in its most common sense fashion,
goes far, far beyond the problem that, it is my understanding,
you are here to address.
There are two problems or two issues that this bill really
deals with, and it has two pieces of operating legislative
proposals in them. One is provisions designed to regulate the
procedures that are used in the health care lawsuit, as the
bill defines them. The other is a preemption of certain kinds
of claims against health care providers and manufacturers in
health care lawsuits. It is the preemption part of this bill
that I want to focus on.
In the legislation, the term health care lawsuit is defined
as any health care liability claim concerning the provision of
health care, goods and services, regardless of the theory of
liability on which the claim is based. A liability claim is a
demand by any person, whether or not against a health care
provider, which is based on the provision of use of or payment
for health care services.
Because of the choices made in drafting this bill, the
concept of who are plaintiffs, who are defendants and what is a
claim covered by the preemption provisions of the bill are
enormous. Plaintiffs, because the word any is used in
describing any person, could be State attorneys general, could
be an assistant United States attorney, it could be government
officials acting under the color of law, pursuing civil or
criminal charges that result in monetary award or monetary
damages, civil money penalties, anything that results in the
payment of money.
It is really not clear where the limits end on who is a
plaintiff. And in addition, the--because the bill reaches both
actions and claims, the use of the word ``action'' is quite
distinct from the use of the word ``claim.'' an action is a
common term of art in drafting used to describe enforcement
actions as well as individual civil actions. Defendants, of
course, are limitless in this bill because of the use of the
term ``manufacturer,'' provider of health care goods and
services. The kinds of claims that would fall within the ambit
of this bill, even though the procedural provisions might not
apply, but the claims that would be preempted go far, far
beyond common law or statutory claims arising under State law
that involve professional negligent on the part of physicians.
Claims that sound in fraud, claims that sound in unfair
practices, violations of civil rights laws, violations of labor
laws, potentially violations of criminal laws, violations of
consumer protection statutes, violation of antitrust laws,
violations of environmental laws. All of these claims,
potentially, are swept into the preemption provisions of the
statute. And the preemption provisions reach Federal laws as
well, because the bill is quite clear in which laws are saved.
But interestingly, it saves defenses, but it doesn't save
claims. So Federal fraud claims, Federal antitrust claims,
Federal civil rights claims, criminal claims, environmental law
claims, labor claims. I could not find the end point of the
claims in this bill.
My testimony provides you with examples actually drawn
mostly from either cases that have been litigated in court or
that are pending at this point involving the kinds of claims
resulting in large financial recoveries that might or might not
be a preempted claim under this bill. The examples range from
hundreds of millions of dollars in restitution as a result of
RICO violations by large health care corporations to toxic
waste dumping, by manufacturers of medical care goods and
devices, to, obviously, billions of dollars in claims brought
by people injured when they use a pharmaceutical drug or device
as directed.
All of this seems to fall within the ambit of this bill,
and I think that, in that sense, the bill goes well beyond what
you need to do in order to provide reliever to physicians.
Thank you.
[The prepared statement of Sara Rosenbaum follows:]
Prepared Statement of Sara Rosenbaum, Harold and Jane Hirsh Professor,
Health Law and Policy, Interim Chair, Department of Health Policy, The
George Washington University Medical Center, School of Public Health
and Health Services
Mr. Chairman and Distinguished Members of this Subcommittee: I am a
professor of health law and policy at the George Washington University,
specializing in health services law. I am the co-author of one of the
nation's leading health law textbooks and have regularly appeared as a
Congressional witness over the past 25 years.
Thank you for inviting me to present testimony on H.R. 5, The Help
Efficient, Accessible, Low Cost, Timely Healthcare (HEALTH) Act of
2003. My testimony will focus on the scope of the legislation's
proposed shield against non-economic damages with respect to the
plaintiffs whose claims would be affected, the corporate defendants
that would benefit from the shield, and the types of injuries that
would be shielded.
H.R. 5 is drafted broadly and is ambiguous in its use of terms and
definitions. However, reading the bill in a common sense fashion, I
have concluded that this measure is so vast in scope that it reaches
every conceivable health care claim against every health care
corporation or manufacturer of health care products, regardless of
whether the violation of law in question bears any relationship to what
would reasonably be considered the types of injury commonly associated
with the concept of medical liability. In this sense the measure
extends far beyond its popular billing as one related to the crisis
facing physicians and other medical professionals in individual
practice.
KEY ELEMENTS OF H.R. 5
H.R. 5 would establish federal standards for causes of action that
fall within a new federal definition of ``health care lawsuit.'' The
term ``health care lawsuit'' is defined as
``any health care liability claim concerning the provision of
health care goods or services affecting interstate commerce, or
any health care liability action concerning the provision of
health care goods or services affecting interstate commerce,
brought in a State or Federal court or pursuant to an
alternative dispute resolution system, against a health care
provider, a health care organization, or the manufacturer,
distributor, supplier, or market, promoter or seller of a
medical product, regardless of the theory of liability on which
the claim is based * * *'' Sec. 9(7)
A health care liability claim means
A demand by any person, whether or not pursuant to ADR against
a health care provider, health care organization, or the
manufacturer, distributor, supplier, marketer or promoter or
seller of a medical product * * * which are based on the
provision of, use of, payment for (or the failure to provide,
use or pay for) health care services or medical products,
regardless of the theory of liability on which the claim is
based * * * Sec. 9(9)
The term ``health care goods or services'' means
Any goods or services provided by a health care organization,
provider or by any individual working under the supervision of
a health care provider that relates to the diagnosis,
prevention or treatment of any human disease or impairment or
the assessment of the health of human beings.'' Sec. 9(12)
The term ``medical product'' encompasses both drugs and devices as
defined under the federal Food, Drug and Cosmetic Act. Sec. 9(14).
Because it would be the Sense of Congress that a ``health insurer
should be liable for harm caused when it makes a decision as to what
care is medically necessary and appropriate,'' Sec. 13, I interpret
this provision to extend a shield to managed care organizations for
both acts of medical negligence and negligent medical decision-making
in the context of coverage of coverage determinations.
THE SCOPE OF THE SHIELD AGAINST DAMAGES IN H.R. 5
The popular understanding of this legislation, as reflected in
press coverage, is that it is intended to shield individual clinical
practitioners against punishing liability judgments. However, the
bill's actual reach is breathtaking.
Plaintiffs
Because the definitions reach actions by ``any'' person, I
interpret this to cover individual, private legal claimants as well as
State Attorneys General and the U.S. Attorney General representing the
public interest under public laws that permit financial recoveries of
any kind (money damages, civil money penalties, fines, and other
financial penalties).
I have reached this conclusion based on the fact that the bill
specifically reaches both ``action'' and ``claim,'' and that a
customary use of the term ``action'' is to describe governmental
enforcement actions that may carry criminal, injunctive or monetary
penalties. The bill appears to contain no provision that exempts
enforcement actions brought by federal or state public officials.
Defendants
The sweep of the above-cited definitions mean that any corporate
defendant engaged in the ``health care'' business would be covered by
the shield, regardless of the size of the corporation or the nature of
the offense. The only exception to the shield would be if an individual
plaintiff could prove either a deliberate failure on the defendant's
part to avoid unnecessary injury or a malicious intent to injure, which
is defined as ``intentionally causing or attempting to cause physical
injury other than providing health care goods or services.''
Sec. 9(13).
Claims
The measure appears to encompass within the scope of the claims to
which the shield applies every conceivable health care liability claim
under law, not simply claims involving professional medical negligence
of a clinical nature. Thus, criminal laws, laws to prevent
anticompetitive conduct, civil rights law, worker protection law, and
environmental laws all appear to fall within the ambit of the
protection. Every conceivable claim appears to be affected regardless
of underlying theory (defenses would be preserved). Examples of State
law claims theories are:
common law or statutory medical negligence claims (either
individual or against medical care corporations under vicarious
or direct theories)
common law and statutory law theories of product liability
such as breach of express or implied warranty, failure to warn,
general corporate negligence, defective design, defective
manufacturing
fraud and deceit
unfair trade practices
civil rights laws
labor law (including worker protection statutes)
criminal law
consumer protection
antitrust law
environmental laws
Examples of Federal law claims apparently covered by the Act are:
fraud and abuse (e.g., RICO, False Claims Act)
antitrust (Sherman Act, Clayton Act, other laws)
civil rights laws
criminal statutes
federal food and drug laws including standards for the
production and sale of prescription and over-the-counter drugs
and devices and dietary supplements
federal environmental health laws
federal labor laws
federal contract enforcement laws that provide for liquidated
damages
restitution to the extent that restitution is not understood
to be part of economic damages
The only federal law that appears to be saved is the federal
Vaccine Injury program. Otherwise, only federal defenses are preserved.
H.R. 5, Sec. 10.
EXAMPLES OF CLAIMS AFFECTED BY THE LEGISLATION
The following examples are meant to be illustrative of the types of
claims that are filed (or could be filed) against providers of health
care goods and services or manufacturers, suppliers, or promoters of
medical products:
A nationwide, publicly traded managed care corporation, with
full access to the medical records of an exceedingly high risk
pregnant woman, denies round-the clock inpatient preterm
management care and orders part day home care instead. An hour
after the nurse leaves for the day, the woman goes into preterm
labor and loses her baby before they can be transported to the
hospital. The corporation rebuffed both the overwhelming
evidence in her case (including a similar previous labor) as
well as all appeals by her physician.
A renowned organ transplant medical center fails to institute
the most basic ``redundancy'' safeguards within its organ
transplant surgery program, such as deliberate and repetitive
matching of donor and recipient blood types. As a result, the
wrong organs are transplanted and the patient dies.
A national health care corporation is sued by the United
States Attorney for knowingly and deliberately overcharging
ERISA subscribers hundreds of millions of dollars in premiums
by deliberately concealing the actual cost of goods and
services covered, even while promising to pay 80% of
subscribers' claims. In some cases, subscribers actually paid
nearly 80% of the claim as a result of fraud. The federal
government seeks billions of dollars in restitution.
A restraint of trade action is brought by generic drug
manufacturers against large pharmaceutical companies for price-
fixing, with the potential for recovery of treble damages under
U.S. antitrust law.
A False Claims Act case is instituted against a large for
profit hospital chain for deliberately overcharging the federal
government by manufacturing unnecessary surgeries through its
cardiac care centers.
A national nursing home chain is accused by HHS and the U.S.
Attorney of deliberately incentivizing its members to engage in
a series of unsafe practices, ranging from over-medication to
the unlawful use of restraints. The same chain is accused by
the Department of Labor of numerous violations of federal
occupational safety violations.
A manufacturer of medical devices develops a form of
contraceptive that when used as directed causes death and
injury including rare and oftentimes fatal septic abortions.
A pharmaceutical company manufacturers a drug which, when used
as directed, causes a rare form of malignant vaginal cancer.
A device manufacturer develops a heart valve that when
inserted as directed, actually results in valve failures caused
by fractures at the point at which struts were welded to the
valve rings.
A large manufacturer of health care goods and services fails
to exercise reasonable care when getting rid of toxic
manufacturing materials and succeeds in poisoning the water
supply of a community.
A pharmaceutical manufacturer produces an appetite suppressant
that when taken as directed causes heart valve abnormalities,
disability and death.
Virtually none of these claims relates to specific acts of
professional negligence by individual clinicians while furnishing
health care to patients. They all involve acts by in many cases
enormous corporations, and range from violations of health laws to
violations of every conceivable form of state or federal law that
relates to health care services or the manufacturing of health care
products.
I am happy to answer questions.
Mr. Bilirakis. Thank you, Ms. Rosenbaum.
Mr. Smarr.
STATEMENT OF LAWRENCE E. SMARR
Mr. Smarr. Chairman Bilirakis, Congressman Brown and
committee members, I am Larry Smarr, and I am the president of
the Physician Insurers Association of America. The PIAA is an
association comprised of professional liability insurance
companies that are owned and/or operated by doctors, dentists
hospitals and other health care providers. Our 43 member
companies really can be characterized as health care
professionals caring for the professional liability risk of
their colleagues, doctors insuring doctors, hospitals insuring
hospitals. We believe that our member companies insure over 60
percent of the private practicing physicians in the United
States.
Over the past 3 years, medical liability insurers have seen
their financial performance deteriorate substantially due to
the rapidly rising costs of medical liability claims. The
primary driver of the deterioration has been paid claims
severity or the average cost of a paid claim. This has been
confirmed by the president of the National Association of
Insurance Commissioners in its February 7 letter to Senator
Gregg, which is attached to my written testimony.
Exhibit A before you shows the average dollar amounts paid
in indemnity to plaintiffs on behalf of the individual
physicians since 1988. The mean payment amount has risen by a
compound annual growth of 6.9 percent over the past 10 years,
as compared to 2.6 percent for the consumer price index. The
data for this exhibit comes from the PIAA data-sharing project,
which is 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 by the PIAA
member companies.
Right now there are over 180,000 claims and suits in this
data base. One very troubling aspect is the proportion of those
claims and suits filed, which are ultimately determined to be
without merit. As shown on Exhibit B, 61 percent of all claims
closed in 2001 were dropped or dismissed by the Court. An
additional 5.7 percent were won by the doctor at trial. Only
33.2 percent of all claims closed were found to be meritorious,
with most of these being made through settlement.
When claims are concluded at verdict, the defendant
prevailed an astonishing 80 percent the time. As shown in
Exhibit C, the mean settlement amount on behalf of an
individual defendant was just over $299,000. Most medical
malpractice cases have multiple defendants, and thus these
values are below those which may be reported on a case basis.
The mean verdict amount last year was almost $497,000.
Exhibit D shows the mean expense payment for claims by
category or 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. And we win 80 percent of
these. Exhibit E shows the distribution of claim payments at
various payment thresholds. It can be readily seen that the
number of larger payments represented by the upper bars on this
chart 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 the individual practitioners in 2001 as shown in
exhibit F.
This percentage has doubled in the past 4 years. Insurers
rely on investment income to offset premium needs. Medical
malpractice insurers are primarily invested in high grade bonds
and have not lost large sums in the stock market. Brown
Brothers Harriman, a leading investment and asset management
firm in a recent investment research report states that over
the last 5 years, the amount medical malpractice companies have
invested in equities has remained fairly constant.
In 2001, the equity allocation was 9.03 percent. As Exhibit
G shows, medical liability insurance companies invested
significantly less in equities than did all property casualty
insurers with med mal being the short black bar on that
exhibit. While insurer interest income has declined due to
falling market interest rates, when interest rates declined,
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 on Exhibit
H. Thus the assertion that insurers have been forced to raise
their rates because of bad investments is simply not true. The
answer to the current problem, the PIAA firmly believes is the
adoption of effective Federal health care liability reform
similar to the California MICRA reforms enacted in 1975.
The keystone of the MICRA reforms is the $250,000 cap on
non-economic damages. These reforms are similar to the
provisions of H.R. 5 passed by--which is before you now. Last
year's bill, H.R. 4600, was scored by the CBO as providing over
$14 billion in savings to the Federal Government, and an
additional $7 billion to the States. Using annual data
published by the National Association of Insurance
Commissioners, Exhibit I documents the savings California
practitioners and health care consumers have enjoyed since the
enactment of MICRA over 25 years ago.
As shown, total malpractice premiums reported to the NRC
since 1976 have grown in California by 167 percent, compared to
505 percent in the rest of the Nation. These savings are
clearly demonstrated in the rates charged to California doctors
as shown on Exhibit J. Successful experience in California and
other States, such as Wisconsin, make it clear that MICRA style
tort reforms do work without lowering health care quality or
limiting access to care. Now we have heard about prop 103. Prop
103 actually had no effect on California medical liability or
premiums.
In an effort to derail desperately needed tort reforms, the
Association of Trial Lawyers of America and related individuals
and groups have stated that the beneficial effects shown on
Exhibits I and J are due to prop 103. This is just not true.
Medical liability insurers were not the intended target of prop
103, but were nonetheless subject to it. However, given the
high level of dividends being paid by medical malpractice
insurers at the time, they were not required by the insurance
commissioner to roll back rates. While malpractice insurers did
make one-time refunds equal to 20 percent of 1 year's premium,
which, in these amounts, were improved in normal dividends they
were paying during that period of time.
Prop 103 did not result in the lowering of insurance rates
and did not result in the return of additional moneys that
would have ordinarily been paid through the normal insurance
dividend process. The PIAA strongly urges members of the
committee to support and pass legislation, which will assure
full payment of a truly injured payment's economic losses as
well as up to $250,000 in noneconomic damages, thereby assuring
fair compensation for patients, and also assuring Americans
that they will be able to receive necessary health care
services. Thank you.
[The prepared statement of Lawrence Smarr follows:]
Prepared Statement of Lawrence E. Smarr, President, Physician Insurers
Association of America
INTRODUCTION
Chairman Bilirakis, Congressman Brown and Committee Members, I am
Lawrence E. Smarr, President of the Physician Insurers Association of
America (PIAA). Thank you for allowing me the opportunity to appear
before you today and speak about the need for the enactment of H.R.5,
The Help Efficient, Accessible, Low-cost, Timely Healthcare (HEALTH)
Act of 2003.
As we all know, professional liability insurance premiums for
doctors and hospitals are rapidly rising in many states to levels where
they cannot afford to pay them. These increased premiums are caused by
the ever-increasing size of medical liability insurance payments and
awards. The unavoidable consequence is that physicians are moving away
from crisis states, reducing the scope of their practices, or leaving
the practice of medicine altogether. Likewise, hospitals are being
forced to close facilities and curtail high-risk services because they
can no longer afford to insure them.
DOCTORS INSURING DOCTORS
The PIAA is an association comprised of professional liability
insurance companies owned and/or operated by physicians, dentists, and
other health care providers. Collectively, our 43 domestic insurance
company members insure over 300,000 doctors and 1,200 hospitals in the
United States and our nine international members insure over 400,000
health care providers in other countries around the world. The PIAA
member insurance companies can also be characterized as health care
professionals caring for the professional liability risks of their
colleagues--doctors insuring doctors, hospitals insuring hospitals. We
believe that the physician owned/operated company members of the PIAA
insure over 60% of America's doctors. Unlike the multi-line commercial
carriers, medical liability insurance is all that the PIAA companies
principally do, and they are here in the market to stay.
The PIAA was formed 26 years ago at a time when commercial
insurance carriers were experiencing unanticipated losses and exited
the market, leaving doctors, hospitals and other health care
professionals no choice other than to form their own insurance
companies. A quarter century has passed, and I am proud to say that the
insurers who comprise the PIAA have become the driving force in the
market, providing stability and availability for those they insure.
When the PIAA and many of its member companies were formed in the
1970's, we faced a professional liability market not unlike that which
we are experiencing today. At that time, insurers, all of which were
general commercial carriers, were experiencing rapidly increasing
losses, which caused them to consider their continuance in the market.
Many of the major carriers did indeed exit the market, leaving a void
that was filled by state and county medical and hospital associations
across the country forming their own carriers. Again we see the
commercial carriers, such as St. Paul, exiting the market. But, this
time, the provider owned carriers are in place and are indeed providing
access to insurance and stability to the market.
Unfortunately, the recent exodus from and transformation of the
market is of such magnitude that the carriers remaining do not have the
underwriting capacity to take all comers. Facing ever-escalating losses
of their own, many of the carriers remaining in the market are forced
to tighten their underwriting standards and revise their business plans
with regard to their nature and scope of operations. This includes the
withdrawal from recently expanded markets, which adds to the access to
insurance problem caused by carriers exiting altogether.
My goal here today is to discuss what the PIAA sees as the
underlying causes of the current medical liability crisis. I want to
stress that I believe that this situation should be characterized as a
medical liability crisis, and not a medical liability insurance crisis.
The PIAA companies covering the majority of the market are in sound
financial condition. The crisis we face today is a crisis of
affordability and availability of insurance for health care providers,
and more importantly, the resulting growing crisis of access to the
health care system for patients across the country.
INSURANCE INDUSTRY UNDERWRITING PERFORMANCE
Medical liability insurance is called a long-tail line of
insurance. That is because it takes on average two years from the time
a medical liability incident occurs until a resulting claim is reported
to the insurer, and another two and one-half years until the average
claim is closed. This provides great uncertainty in the rate making
process, as insurers are forced to estimate the cost of claims which
may ultimately be paid as much as 10 years after the insurance policy
is issued. By comparison, claims in short-tail lines of insurance, such
as auto insurance, are paid days or weeks after an incident.
Over the past three years medical liability insurers have seen
their financial performance deteriorate substantially due to the
rapidly rising cost of medical liability claims. According to A.M. Best
(Best), the leading insurance industry rating agency, the medical
liability insurance industry incurred $1.53 in losses and expenses for
every dollar of premium they collected in 2001. While data for 2002
will not be available until the middle of this year, Best has forecast
that the industry will incur $1.41 in losses and expenses in 2002, and
$1.34 in 2003. The impact of insurer rate increases accounts for the
improvement in this statistic. However, Best also calculates that the
industry can only incur $1.14\1/2\ in losses and expenses in order to
operate on a break-even basis. This implies that future rate increases
can be expected as the carriers move toward profitable operations.
The physician owned/operated carriers that I represent insure a
substantial portion of the market (over 60%). Each year, an independent
actuarial firm (Tillinghast Towers-Perrin) provides the PIAA with a
detailed analysis of annual statement data filed by our members with
the National Association of Insurance Commissioners (NAIC). This
analysis is very revealing with regard to the individual components of
insurers financial performance.
Exhibit 1 below details the operating experience of 32 physician
owned/operated insurance companies included in the analysis. A widely
relied upon insurance performance parameter is the combined ratio,
which is computed by dividing insurers' incurred losses and expenses by
the premiums they earn to offset these costs. For these companies, this
statistic has been deteriorating (getting larger) since 1997, with
major increases being experienced in 2000 and 2001.
For calendar year 2001, the combined ratio (including dividends
paid) was 141, meaning that total losses and dividends paid were 41%
more than the premiums collected. Even when considering investment
income, net income for the year was a negative ten percent. This
follows a meager 4 percent net income in 2000. This average experience
is indicative of the problems being experienced by insurers in general,
and demonstrates the carriers' needs to raise rates to counter
increasing losses. All of the basic components of the combined ratio
calculation (loss and loss adjustment expense, underwriting expense)
have risen as a percentage of premium for all years shown. The only
declining component has been dividends paid to policyholders.
To compare this group of PIAA companies with the industry, Exhibit
2 is taken from the 2002 edition of Best's Aggregates and Averages.
This shows that medical malpractice is the least profitable property
and casualty line of insurance in 2001, following reinsurance, which
has been greatly impacted by the World Trade Center losses. The
adjusted combined ratio for the entire industry is 153, as compared to
141 for the PIAA carriers represented on Exhibit 1.
THE ROLE OF INVESTMENT INCOME
Investment income plays a major role for medical liability
insurers. Because medical liability insurance is a ``long tail'' line
of insurance, insurers are able to invest the premiums they collect for
substantial periods of time, and use the resulting investment income to
offset premium needs. As can be seen on Exhibit 3, investment income
has represented a substantial percentage of premium, and has played a
major role in determining insurer financial performance. However,
investment income as a percentage of premium has been declining in
recent years primarily due to historic lows in market interest rates.
Contrary to the unfounded allegations of those who oppose effective
tort reforms, medical liability insurers are primarily invested in high
grade bonds and have not lost large amounts in the stock market. As can
be seen in Exhibit 4, the carriers in the PIAA survey have been
approximately 80% invested in bonds over the past seven years.
As shown on Exhibit 5, stocks have averaged only about 11% of cash
and invested assets, thus precluding major losses due to swings in the
stock market. Unlike stocks, high grade bonds are carried at amortized
value on insurer's financial statements, with changes in market value
having no effect on asset valuation unless the underlying securities
must be sold.
The experience of the PIAA carriers is confirmed on an industry-
wide basis through data obtained from the NAIC by Brown Brothers
Harriman, a leading investment and asset management firm. Brown
Brothers reports that ``Over the last five years, the amount medical
malpractice companies has invested in equities has remained fairly
constant. In 2001, the equity allocation was 9.03%.'' As Exhibit 6
shows, medical liability insurers invested significantly less in
equities than did all property casualty insurers.
Brown Brothers states that the equity investments of medical
liability companies ``. . . had returns similar to the market as a
whole. This indicates that they maintained a diversified equity
investment strategy.
The Brown Brothers report further states:
Since medical malpractice companies did not have an unusual
amount invested in equities and what they did was invested in a
reasonable market-like fashion, we conclude that the decline in
equity valuations is not the cause of rising medical
malpractice premiums.1
---------------------------------------------------------------------------
\1\ Did Investments Affect Medical Malpractice Premiums? Raghu
Ramachandran, Brown Brothers Harriman, January 2003.
---------------------------------------------------------------------------
While insurer interest income has declined due to falling market
interest rates, when interest rates decline, bond values increase. This
has had a beneficial effect in keeping total investment income level
when measured as a percentage of total invested assets. This is shown
in Exhibit 7 below. Thus, the assertion that insurers have been forced
to raise their rates because of bad investments is simply not true.
THE INSURANCE CYCLE
Opponents of effective tort reform claim that insurance premiums in
constant dollars increase or decrease in direct relationship to the
strength or weakness of the economy, reflecting the industry's
investment performance. The researchers at Brown Brothers also tested
this theory, and found no correlation between changes in generally
accepted economic parameters (Gross Domestic Product (GDP) and 5-year
treasury bond rates) with direct medical liability premiums written. In
fact, Brown Brothers conducted 64 different regression analyses between
the economy, investment yield, and premiums, and found no meaningful
relationship. The report produced by Brown Brothers states:
Therefore, we can state with a fair degree of certainty that
investment yield and the performance of the economy and
interest rates do not influence medical malpractice
premiums.2
---------------------------------------------------------------------------
\2\ Did Investments Affect Medical Malpractice Premiums? Raghu
Ramachandran, Brown Brothers Harriman, January 2003.
---------------------------------------------------------------------------
INSURER SOLVENCY
A key measure of financial health is the ratio of insurance loss
and loss adjustment expense (amounts spent to handle claims) reserve to
surplus. This ratio has deteriorated (risen) for the PIAA carriers
since 1999 to a point where it is approximately two times the level of
surplus, as shown on Exhibit 8 below.
The relationship between reserves (amounts set aside to pay claims)
and surplus is important, as it is a measure of the insurer's ability
to contribute additional amounts to pay claims in the event that
original estimates prove to be deficient. At the current approximately
two-to-one ratio, these carriers in aggregate are still in sound
financial shape. However, any further deterioration in surplus due to
underwriting losses will cause a deterioration in this important
benchmark ratio indicating an impairment in financial condition. Under
current market conditions, characterized by increasing losses and
declining investment interest income, the only way to increase surplus
is through rate increases.
Net premiums written as compared to surplus is another key ratio
considered by regulators and insurance rating agencies, such as A.M.
Best. This statistic for the companies in the PIAA survey has also been
deteriorating (rising) since 1999, showing a 50% increase in the two
years ending in 2001. The premium-to-surplus ratio is a measure of the
insurer's ability to write new business. In general, a ratio of one-to-
one is considered to be the threshold beyond which an insurer has over-
extended its capital available to support its underwritings.
As can be seen on Exhibit 9, this statistic has also deteriorated,
and the carriers in aggregate are approaching one-to-one. As the
carriers individually approach this benchmark, they will begin to
decline new risks, causing further availability problems for insureds.
Rate increases the carriers are taking also have an impact on this
important ratio as well as new business written.
THE CAUSE OF THE CRISIS
The effects described in the previous pages were caused by the
convergence of six driving factors making for the perfect storm, as
follows:
Dramatic long term paid claim severity rise
Paid claim frequency returning and holding at high levels
Declining market interest rates
Exhausted reserve redundancies
Rates becoming too low
Greater proportion of large losses
The primary driver of the deterioration in the medical liability
insurance industry performance has been paid claim severity, or the
average cost of a paid claim, and their associated expenses. The
National Association of Insurance Commissioners (NAIC) confirmed this
in a February 7, 2003 letter to Senator Judd Gregg, which states in
part: ``The preliminary evidence points to rising loss costs and
defense costs associated with litigation as the principal drivers of
medical malpractice prices.'' (letter attached)
Exhibit 10 shows the average dollar amount paid in indemnity to
plaintiffs on behalf of individual physicians since 1988. The mean
payment amount has risen by a compound annual growth of 6.9% during
this period, as compared to 2.6% for the Consumer Price Index (CPIu).
The data for Exhibit 10, as well as that for slides which follow, comes
from the PIAA Data Sharing Project. This is a medical cause-of-loss
database, which was created in 1985 for the purpose of identifying
common trends among malpractice claims. PIAA member companies use the
database for risk management and patient safety purposes. To date, over
180,000 claims and suits have been reported to the database.
Allocated loss adjustment expenses (ALAE) for claims reported to
the Data Sharing Project have also risen at alarming rates. ALAE are
the amounts insurers pay to handle individual claims, and represent
payments principally to defense attorneys, and to a lesser extent,
expert witnesses. Average amounts paid for three categories of claims
are shown below. As can be seen, the average amount spent for all
claims in 2001 has risen to just under $30,000.
One very troubling aspect of medical malpractice claims is the
proportion of those filed which are ultimately determined to be without
merit. Exhibit 12 shows the distribution of claims closed in 2001 as
reported to the PIAA Data Sharing Project. Sixty-one percent of all
claims filed against individual practitioners were dropped or dismissed
by the court. An additional 5.7% were won by the doctor at trial. Only
33.2% of all claims closed were found to be meritorious, with most of
these being paid through settlement. Of all claims closed, more than
two-thirds had no indemnity payment to the plaintiff. When the claim
was concluded at verdict, the defendant prevailed an astonishing 80% of
the time. This data clearly shows that those attorneys trying these
cases are woefully deficient in recognizing meritorious actions to be
pursued to conclusion.
Analyses performed by the PIAA have shown that of all premium and
investment income available to pay claims, only 50% ever gets into the
hands of truly injured patients, with the remainder being principally
paid to attorneys, both plaintiff and defense. Something is truly wrong
with any system that consumes 50% of its resources to deliver the
remainder to a small segment of those seeking remuneration.
A review of the average claim payment values for the latest year
reported to the PIAA Data Sharing Project (2001) is revealing. As shown
on Exhibit 13, the mean settlement amount on behalf of an individual
defendant was just over $299,000. Most medical malpractice cases have
multiple defendants, and thus, these values are below those, which may
be reported on a per case basis. The mean verdict amount last year was
almost $497,000 per defendant.
Exhibit 14 shows the mean expense payment for claims by category of
disposition. As can be seen, the cost of taking a claim for each doctor
named in a case all the way through trial is fast approaching $100,000.
Exhibit 15 shows the distribution of claims payments at various payment
thresholds. It can be readily seen that the number of larger payments
are growing as a percentage of the total number of payments.
This is especially true for payments at or exceeding $1 million,
which comprised almost eight percent of all claims paid on behalf of
individual practitioners in 2001 (Exhibit 16). This percentage has
doubled in the past four years, and clearly demonstrates why insurers
are facing dramatic increases in the amounts they have to pay for
reinsurance. While medical liability insurers are reinsured by many of
the same companies having high losses from the World Trade Center
disaster, their medical liability experience was rapidly deteriorating
prior to September 11, 2001.
In addition to rising claim severity, like all other investors,
medical liability insurers have faced declining market interest rates.
Eighty percent of PIAA insurers' investments are placed in high-grade
bonds. Exhibit 17 shows the long-term decline in high-grade bond
earnings. As can be seen, this is not a recent phenomenon, but a long
term trend.
Critics of the medical liability insurance industry say that
insurers' reliance on investment income to offset premiums has caused
turmoil in the marketplace, implying that the use of investment income
is a bad thing. Nothing could be further from the truth. If insurers
did not ever use investment income to offset premium needs, then rates
would always be 30--40% higher than otherwise necessary. The role
market interest rates play in determining pricing in medical liability
insurance (and other lines as well) is a fact of life which we cannot
control.
THE ANSWER
Medical liability insurers and their insureds have faced dramatic
long-term rises in paid claim severity, which is now at historically
high levels. Paid claim frequency (the number of paid claims) is
currently remaining relative constant, but has risen significantly in
some states. While interest rates will certainly rise and fall in
future years, nothing has been done over the past three decades to stem
the ever-rising values of medical malpractice claim payments or reduce
the number of meritless claims clogging up our legal system at great
expense--except in those few states that have effective tort reforms.
In many states not having tort reforms, costs have truly become
excessive, and insurers are forced to set rates at levels beyond the
abilities of doctors and hospitals to pay. States having tort reforms,
such as California, provide a compelling example that demonstrates how
such reforms can lower medical liability costs and still provide
adequate indemnification for patients harmed as a result of the
delivery of health care.
The following reforms are those which the PIAA advocates be adopted
at the federal level, which we also feel should be the standard for any
state reforms enacted. They are based on the reforms found in the
Medical Injury Compensation Reform Act (MICRA) which became effective
in California in 1976 and which have been successful in compensating
California patients and ensuring access to the health care system since
their enactment.
The keystone of the MICRA reforms is the $250,000 cap on non-
economic damages (pain and suffering) on a per-incident basis. Under
MICRA, injured patients receive full compensation for all quantifiable
damages, such as lost income, medical expenses, long-term care, etc. In
addition, injured patients can get as much as one-quarter million
dollars for pain and suffering. Advising juries of economic damages
that have already been paid by other sources serves to reduce double
payment for damages. An important component of MICRA is a reasonable
limitation on plaintiff attorney contingency fees, which can be 40% or
more of the total amount of the award. Under MICRA, a trial lawyer must
be satisfied with only a $220,000 contingency fee for a $1 million
award.
A Gallup poll published on February 5, 2003 by the National Journal
indicates that 57% of adult Americans feel there are too many lawsuits
against doctors, and 74% feel that we are facing a major crisis
regarding medical liability in health care today. Seventy-two percent
of respondents favored a limit on the amount that patients can be
awarded for their emotional pain and suffering. Only the trial lawyers
and their front groups disagree, seeing their potential for
remuneration being reduced. Especially displeasing to them is MICRA's
contingency fee limitation, which puts more money in the hands of the
injured patient (at no cost reduction to the insurer).
The U.S. House of Representatives adopted legislation containing
tort reforms similar to MICRA, including a $250,000 cap on non-economic
damages, for the seventh time in September of last year. HR 4600, known
as the HEALTH Act, was introduced and adopted on a bi-partisan basis.
The Congressional Budget Office (CBO) conducted an extensive review of
the provisions of HR 4600, and reported to Congress that if the reforms
were enacted, ``. . . premiums for medical malpractice insurance
ultimately would be an average of 25 percent to 30 percent below what
they would be under current law.''
The CBO found that HR 4600 reforms would result in savings of $14.1
billion to the federal government through Medicare and other health
care programs for the period 2004--2012. An additional $7 billion of
savings would be enjoyed by the states through their health care
programs. The CBO's analysis did not consider the effects that federal
tort reform would have on reducing the incidence of defensive medicine,
but did acknowledge that savings were likely to result.
The US Department of Health and Human Services published a report
on July 24, 2002, which evaluated the effects of tort reforms in those
states that have enacted them. As stated in Exhibit 20, HHS found that
practitioners in states with effective caps on non-economic damages
were currently experiencing premium increases in the 12--15% range, as
compared to average 44% increases in other states.
Annual data published by the National Association of Insurance
Commissioners (NAIC) also documents the savings California
practitioners and health care consumers have enjoyed since the
enactment of MICRA over 25 years ago. As shown in Exhibit 21, total
medical liability premiums reported to the NAIC since 1976 have grown
in California by 167%, while premiums for the rest of the nation have
grown by 505%. These savings can only be attributed to MICRA.
These savings are clearly demonstrated in the rates charged to
California doctors as shown in Exhibit 22. Successful experience in
California and other states makes it clear that MICRA style tort
reforms do work without lowering health care quality or limiting access
to care.
PROP 103 HAD NO EFFECT ON CALIFORNIA MEDICAL LIABILITY PREMIUMS
In an effort to derail desperately needed tort reforms as described
above, the Association of Trial Lawyers of America and related
individuals and groups have stated that the beneficial effects of MICRA
as shown on Exhibit 21 are due to Proposition 103, a ballot initiative
passed in 1988 aimed primarily at controlling auto insurance costs. The
ballot initiative passed by a 51% majority vote, with voters in only 7
of California's 58 counties approving the measure. The major changes
made by Prop 103 include:
Making the insurance commissioner of California an elected,
rather than appointed, official;
Giving the insurance commissioner authority to approve rate
changes before they can take effect;
Requiring insurers to reduce rates by 20 percent from their
levels on November 8, 1987;
Requiring auto insurance companies to offer a 20 percent
``good driver discount.''
Requiring auto insurance rates to be determined primarily by
four factors;
Allowing for payment of ``intervenor fees'' to outside groups
that intervene in hearings conducted by the Department of
Insurance 3.
---------------------------------------------------------------------------
\3\ Ironically, the Proposition 103 Enforcement Project headed by
Harvey Rosenfeld, a self-proclaimed consumer advocate who led the fight
for the adoption of Prop 103, has received almost $1.5 million in
intervenor fees through 1997. In total, ``consumer organizations'' and
individuals have received over $7.1 million in intervenor fees and
administrative costs through 1997. Source: Personal Insurance
Federation of America,
---------------------------------------------------------------------------
Medical liability insurers were not the intended target of Prop
103, but were covered by the resulting regulations. However, Prop 103
did not have any substantive effect on reducing medical liability
insurance rates. Prop 103 did have the effect of freezing most
insurance rates in California until as late as 1994.4 This
all came at a time when medical liability insurers across the nation
were seeing their rates level off or even decline.
---------------------------------------------------------------------------
\4\ Background on Insurance Reform--A Detailed Analysis of
California Proposition 103,.
---------------------------------------------------------------------------
Prop 103 added a provision to the California Insurance Code at
Section 1861.01, which required insurers to roll back their rates to 20
percent lower than those in effect on November 8, 1987. However, this
is not what happened to medical malpractice insurers.
One major California insurer, the NORCAL Mutual Insurance Company
reached the very first consent agreement of any insurer with the
California Department of Insurance in November of 1991. To satisfy the
requirements of Prop 103, NORCAL was specifically permitted to declare
a one-time 20% return of premium for policyholders insured between
November 8, 1988 and November 8, 1989 as a dividend by March 31, 1992.
NORCAL was not required to roll back its rates as a result of Prop 103.
As NORCAL was already paying dividends exceeding 20% per year during
the period in question, no additional monies were returned to
policyholders as a result of Prop 103. The experience of other
California physician owned companies, such as The Doctors' Company and
the Medical Insurance Exchange of California, was similar to that of
NORCAL. Even if California medical liability insurers had been required
to reduce rates by 20%, this in no way could explain the wide gap in
experience shown on Exhibit 21.
CONCLUSION
Increasing medical malpractice claim costs, on the rise for over
three decades, have finally reached the level where the rates that
insurers must charge can no longer be afforded by doctors and
hospitals. These same doctors and hospitals cannot simply raise their
fees, which are limited by government or managed care companies. Many
doctors will face little choice other than to move to less litigious
states or leave the practice of medicine altogether.
Legislators are now challenged with finding a solution to the
medical liability insurance affordability and availability dilemma--a
problem long in coming that has truly reached the crisis stage. The
increased costs being experienced by insurers (largely owned/operated
by health care providers) are real and documented. It is time for
Congress to put an end to the wastefulness and inequities of our tort
legal system, where only 50% of the monies available to pay claims are
paid to indemnify the only 30% of claims filed with merit and the
expenses of the remainder. The system works fine for the legal
profession, which is why trial lawyers and others fight so hard to
maintain the status quo.
The PIAA strongly urges members of the House to pass effective
federal health care liability reform, thereby stopping the exodus of
health care professionals and institutions which can no longer afford
to fund an inequitable and inefficient tort system which benefits
neither injured plaintiffs or the health care community.
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National Association of Insurance Commissioners
February 7, 2003
Honorable Judd Gregg
Chairman, Committee on Health, Education, Labor, and Pensions
United States Senate
Washington, DC 20610-6300
Dear Chairman Gregg: On behalf of the National Association of
Insurance Com- missioners (NAIC), I am pleased to respond to your
letter of January 31, 2003 re- questing information on medical
malpractice insurance. Many states are experi- encing escalating
premium costs for this critical insurance coverage for doctors, while
also encountering problems of availability and insufficient capacity to
support a healthy competitive market.
State insurance commissioners share the concerns you and other
Members of Con- gress are raising about improving the availability and
affordability of medical mal- practice insurance. We are vested with
the responsibility of protecting the rights of consumers and assuring
that insurers remain financially solvent and able to meet their claims
obligations. While the recent trends in some states over limited avail-
ability and escalating premiums make oversight critical, we would
caution that any reforms be considered carefully, especially in
recognition of reforms already enacted in several states.
In September 2002, we established a Market Conditions Working Group
to look at these issues more closely and based upon that review make
recommendations to regulators. The working group has scheduled a public
hearing on Saturday, March 8, 2003. We are hopeful this hearing and
other efforts will help guide state and fed- eral policymakers as they
work to explore potential solutions. We will look forward to sharing
with you the results of this hearing.
Our responses to the questions in your letter are as follows:
(1) Are medical malpractice insurance rates subject to state law
prohibitions on ex- cessive, inadequate, or unfairly
discriminatory rates?
Almost all states have rating laws for property and casualty
insurance, in- cluding medical malpractice. These rating laws
require that insurance rates not be excessive, inadequate, or
unfairly discriminatory.
(2) If a state determines that a rate is excessive, inadequate, or
unfairly discrimina- tory, does the insurance regulator have
the authority to reject or modify such a rate?
If a state receives a filing from an insurer that contains a rate
that is believed to be out of compliance with the statutory
rating standards, there are remedies available to address the
problem. The most common regulatory approach avail- able to
insurance regulators is the ability to order a hearing on the
non-com- plying rate. In states with prior approval laws, the
commissioner generally has
authority to disapprove the non-complying rate, however the
insurer is gen- erally provided an opportunity for a hearing if
it disagrees with the commis- sioner's decision. Only in rare
instances does an insurance commissioner have authority to
unilaterally modify a filed rate. Because of extremely high
loss ra- tios in many states, regulator concerns have been with
rate inadequacy, and not excessiveness or unfair
discrimination.
(3) If states do have this authority, can you provide any examples
where a state insurance regulator has rejected or modified an
excessive or unfairly discriminatory medical malpractice
insurance rate?
We are not aware of any recent state actions in this regard.
State insurance regulators generally do have the authority to
prevent anti-trust activities by insurers. These state laws are
based on the NAIC model rating laws, which contain the
following provisions.
``No insurer or advisory organization shall attempt to
monopolize, or combine or conspire with any other person to
monopolize an insurance market or engage in a boycott, on a
concerted basis, of an insurance market.''
``No insurer shall agree with any other insurer or with an
advisory organization to mandate adherence to or to mandate
use of any rate, prospective loss cost, rating plan, rating
schedule, rating rule, policy or bond form, rate
classification, rate territory, underwriting rule, survey,
inspection or similar material, except as needed to
facilitate the reporting of statistics to advisory
organizations, statistical agents or the commissioner. The
fact that two or more insurers, whether or not members or
subscribers of an advisory organization, use consistently
or intermittently the same rates, prospective loss cost,
rating plans, rating schedules, rating rules, policy or
bond forms, rate classifications, rate territories,
underwriting rules, surveys or inspections or similar
materials is not sufficient in itself to support a finding
that an agreement exists.''
``No insurer or advisory organization shall make any
arrangement with any other insurer, advisory organization,
or other person which has the purpose or effect of
unreasonably restraining trade or lessening competition in
the business of insurance.''
States generally have adopted the NAIC model law provisions or
equivalent provisions, thus comparable authority currently
exists. Again, due to extremely high loss ratios, the concern
has been with rate inadequacy.
(4) The Leahy legislation presumes that medical malpractice insurance
carriers are engaging in ``price fixing, bid rigging, and
market allocation.'' Does the NAIC, or any of your members have
evidence that medical malpractice insurance carriers are
engaging in these types of criminal behaviors? If so, could you
detail that information for us?
No. To date, insurance regulators have not seen evidence that
suggests medical malpractice insurers have engaged or are
engaging in price fixing, bid rigging, or market allocation.
The preliminary evidence points to rising loss costs and
defense costs associated with litigation as the principal
drivers of medical malpractice prices. A July 2002 report
prepared by the Department of Health and Human Services also
cites the impact of litigation and defense costs on this line
of insurance.
(5) Notwithstanding the McCarran-Ferguson exemption from federal anti-
trust laws, do state insurance regulators and attorneys general
have the authority to prevent ``price fixing, bid rigging or
market allocations'' under current state law? If so, could you
explain the deficiencies in those laws and provide us with
proposed remedies?
As noted in the previous question, states have strong laws that
prohibit price-fixing and anti-competitive practices by
insurers. The sharing of loss data among insurers is permitted,
however, because it is necessary to encourage competition by
giving potential new entrants to the marketplace and smaller
insurers enough underwriting and rate-setting information to
enter and remain viable in the medical malpractice marketplace.
Again, the evident points to high loss ratios, not price-
fixing, as the primary driver of escalating premiums.
(6) What percentage of the medical malpractice insurance market is
composed of non-profit physician-owned mutuals? What incentive
or incentives, if any, do you think these types of medical
malpractice carriers face that would cause them to engage in
``price fixing, bid rigging or market allocations?''
Non-profit physician-owned mutual insurers have developed in
response to market availability concerns. Since the owners of
these mutuals are also the customers, it would appear on the
surface that market allocation might be oc- curring. Careful
inspection will show that a mutual insurer is concerned with
its policyholders' interests. Since each policyholder is also
an owner of the company and the company is a non-profit entity,
the goal of the mutual insurer is to deliver medical malpractice
insurance to its policyholder/owners as inexpen- sively as
possible. To do otherwise would contradict the goals of the mutual
and jeopardize its non-profit status
(7) Finally, if the Leahy legislation were to be enacted, would it
lower the under- lying medical malpractice claims costs and
stabilize medical liability insurance premiums? If yes, in what
way would it do so?
No, we do not believe enactment of the Leahy legislation as
originally drafted would change the underlying costs of malpractice
claims or premiums. We now un- derstand this language is being
modified. The reason insurers are not writing, or are pulling back from
medical malpractice insurance, is because there are many other lines of
insurance that offer more opportunities for profit at a lower risk. The
uncertainties and historical return in this line of business lead many
commercial insurers to commit capital in other lines of commercial
insurance. It is our experi- ence this market will remain volatile in
some states until such time as claims costs stabilize.
Finally, while we are seeing difficult market conditions in some
states, it is by no means widespread in all states. Like all insurance
markets, medical malpractice insurance markets vary from state to
state. However, the cost drivers in all states are closely linked to
claims losses.
I hope this information is helpful, and we look forward to being of
assistance as your Committee continues its review of these issues. The
NAIC and its members stand ready to provide whatever data and resources
we have available to help Con- gress and the states improve the market
for medical malpractice insurance.
Sincerely,
Mike Pickens
Commissioner of Insurance, Arkansas, President, NAIC
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Mr. Bilirakis. Thank you, Mr. Smarr.
Dr. Palmisano.
STATEMENT OF DONALD J. PALMISANO
Mr. Palmisano. Good morning. I am Donald Palmisano,
president-elect of the American Medical Association and a
surgeon in New Orleans. The policy of the American Medical
Association is decided through a Democratic policymaking
process involving physician delegates representing every State,
nearly 100 national specialty medical societies, Federal
service agencies and other group sections. AMA policy dictates
support for national medical liability reform. My testimony
represents this policy. Thank you, Mr. Chair, for inviting the
AMA to participate in today's hearing. I want to express our
gratitude to you, Representatives Greenwood, Cox and Tauzin,
and other cosponsors of H.R. 5 for your efforts to bring
reasonable reforms to our broken medical liability system.
Mr. Chair, you know that our health care system is facing a
crisis when patients have to leave their State to receive
urgent surgical care or when pregnant women cannot find an OB-
GYN physician to monitor their pregnancy and deliver their
baby, or when community health center have to reduce their
services or close their doors because of liability insurance
concerns. You know that our health care system is facing a
crisis when physicians and other health care professionals
believe they work in a culture of fear rather than a culture of
safety, or when efforts to improve patient safety and quality
are stifled because of lawsuit fears.
Escalating jury awards and the high cost of defending
against lawsuits, even meritless claims, are causing medical
liability insurance premiums to soar. Over the past 2 years,
many physicians have been hit with medical liability premium
increases of 25 to 400 percent as reports show the average jury
award reaching $3.5 million.
As medical liability insurance becomes unaffordable or
unavailable, physicians are forced to close their practices or
drop vital services seriously affecting patient access to care.
Twelve states are currently in a crisis, and we are concerned
that more States will be in a full-blown crisis in the near
future. Several recent government and private sector reports
confirm that the cause of the liability crisis is the
unrestrained escalation of jury awards. Opponents claim that
the soaring medical liability insurance premiums are the result
of declining investments in the insurance industry, and that
liability reforms do not stabilize the insurance markets. These
claims are misleading based on flawed analysis and contrary to
the facts.
AM Best recently reported 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 sources, including Brown Brothers
Harriman's recent study, conclude that ``investment did not
precipitate the current crisis.''
In Florida, a nonpartisan taskforce recently found the
recommendation that the greatest long-term impact on health
care provider liability insurance rates, and thus eliminate the
crisis of availability and affordability of health care 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.
In addition, studies show that the tort system is an
extremely inefficient mechanisms for compensating patients,
returning less than 50 cents on the dollar already to
claimants, and less than 22 cents for actual economic losses.
Mr. Chair, as you have recognized, the time for action is
past due. We must act now to fix our broken medical liability
system. That is why the AMA is here supporting H.R. 5, and that
is why we join with numerous members of a broad based coalition
known as the Health Coalition on Liability and access to urge
this Congress to promptly reform the medical liability system.
We must bring common sense back to our courtrooms so that
patients have access to their physicians, whether in emergency
rooms, delivery rooms or operating rooms. In effect, we need to
have balance. We need to make sure that all of the patients in
America have access to care. Thank you.
[The prepared statement of Donald J. Palmisano follows:]
Prepared Statement of Donald J. Palmisano, on Behalf of 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 gratitude to you, Mr. Chair, and Representatives
Jim Greenwood (R-PA), Chris Cox (R-CA), Billy Tauzin (R-LA), and other
cosponsors of H.R. 5 for providing a much needed focus for action at
the national level.
I am Donald Palmisano, MD, JD, President-elect of the AMA and a
general and vascular surgeon from New Orleans, LA. The policy of the
AMA is decided through its democratic policy-making process in the AMA
House of Delegates, which meets twice a year. Our House is comprised of
physician delegates representing every state, nearly 100 national
medical specialty societies, federal service agencies (including the
Surgeon General of the United States), and six sections representing
hospital and clinic staffs, resident physicians, medical students,
young physicians, medical schools, and international medical graduates.
AMA policy dictates support for national medical liability reform. In
particular, the AMA supports H.R. 5, the HEALTH Act.
Mr. Chair, you know that our health care system is facing a crisis
when patients have to leave their state to receive urgent surgical
care. You know that our health care system is facing a crisis when
pregnant women cannot find an OB/GYN to monitor their pregnancy and
deliver their baby. You know that our health care system is facing a
crisis when community health centers have to reduce their services or
close their doors because of liability insurance concerns. You know
that our health care system is facing a crisis when dedicated
professionals, who have trained for years, want to give up the work of
a lifetime and retire. You know that our health care system is facing a
crisis when physicians and other health care professionals believe they
work in a culture of fear, rather than a culture of safety. You know
that our health care system is facing a crisis when efforts to improve
patient safety and quality are stifled because of lawsuit fears. An
unrestrained medical liability system is driving our health care system
into crisis.
As you have recognized, the time for action is past due. Physicians
across the country are making decisions now, and more and more patients
are wondering, ``Will their doctor be there?'' We must act now to fix
our broken medical liability system. That is why we are here supporting
H.R. 5, and that is why we join with numerous other members of a broad-
based coalition known as the Health Coalition for Liability and Access
to urge this Congress to promptly reform the medical liability system.
ACCESS TO CARE IS AT RISK
The crisis facing our nation's medical liability system has not
waned--in fact, it is getting worse. Escalating jury awards and the
high cost of defending against lawsuits, even frivolous ones, have
caused medical liability insurance premiums to reach unprecedented
levels. As a result, a growing number of physicians can no longer find
or afford liability insurance. Over the past two years, many physicians
have been hit with medical liability premium increases of 25 to 400
percent. Some hospitals have seen premiums increase 140 percent in the
same time period.
The most troubling aspect of this crisis is its impact on patients.
As insurance becomes unaffordable or unavailable, physicians are being
forced to close their practices or drop vital services--all of which
seriously impede patient access to care. Emergency departments are
losing staff and scaling back certain services such as trauma units.
Many obstetrician-gynecologists and family physicians have stopped
delivering babies, and some advanced and high-risk procedures (such as
neurosurgery) are being postponed because physicians can no longer
afford or even find the liability insurance they need to practice.
According to the American Hospital Association's 2002 TrendWatch 1,
more than 26% of health care institutions have reacted to the liability
crisis by cutting back on services, or even eliminating some units.
A 2002 survey conducted by Wirthlin Worldwide shows that 78 percent
of Americans say they are concerned about access to care being affected
because doctors are leaving their practices due to rising liability
costs.
Virtually every day for the past year there has been at least one
major media story on the plight of American patients and physicians as
the liability crisis reaches across the country. Access to health care
is now seriously threatened in states such as Florida, Georgia,
Mississippi, Nevada, New Jersey, New York, Ohio, Oregon, Pennsylvania,
Texas, Washington, and West Virginia. On top of this, we expect at
least five more states to be in a full blown crisis in the near future,
with a crisis looming in at least 26 other states. A sample of media
reports in the appendices to this testimony illustrates the problems
faced by patients and physicians in some of these states--problems many
other states will face if effective tort reforms are not enacted.
We must bring common sense back to our courtrooms so that patients
have access to their emergency rooms, delivery rooms, operating rooms,
and physicians' offices.
THE LITIGATION SYSTEM IS CAUSING THE CRISIS
The primary cause of the growing liability crisis is the
unrestrained escalation in jury awards that are a part of a legal
system that in many states is simply out of control. While there have
been several articles published since the mid-1990s indicating that
increases in jury awards lead to higher liability premiums, in the last
year a growing number of government and private sector reports show
that increasing medical liability premiums are being driven primarily
by increases in lawsuit awards and litigation expenses.
In his State of the Union Address last month, President Bush
stressed that we all are threatened by a legal system that is out of
control. The President stated that ``Because of excessive litigation,
everybody pays more for health care and many parts of America are
losing fine doctors.'' The President's remarks are substantiated in
several recent government and private sector reports--reports making
clear that the medical liability litigation system in the United States
has evolved into a ``lawsuit lottery,'' where a few patients and their
lawyers receive astronomical awards and the rest of society pays the
price as access to health care professionals and services are reduced.
Recent Federal Government Reports
In a July 2002 report released by the U.S. Department of Health and
Human Services (HHS), the federal government concluded that the
excesses of the litigation system are threatening patients' access to
health care. This federal government report states that insurance
premiums are largely determined by the litigation system, and that the
litigation system is inherently costly, unpredictable, and slow to
resolve claims. Just to defend a claim now costs on average over
$24,000. Further, the fact that about 70 percent of claims end with no
payment to the patient indicates the degree to which substantial
economic resources are being squandered on fruitless legal wrangling--
resources that could be used to reduce health costs so that more
Americans could find health insurance.
Even when there is a large award in favor of an injured patient, a
large percentage of the award never reaches the patient. Attorney
contingent fees, added with court costs, expert witness costs, and
other ``overhead'' costs, can consume 40-50 percent of the compensation
meant to help the patient.
On September 25, 2002, HHS issued an update on the medical
liability crisis. This update reported on the results of a survey
conducted by Medical Liability Monitor (MLM), an independent reporting
service that tracks medical professional liability trends and issues.
According to MLM, the survey determined that the crisis identified in
HHS's July report had become worse. The federal government reported
that:
The cost of the excesses of the litigation system are reflected
in the rapid increases in the cost of malpractice insurance
coverage. Premiums are spiking across all specialties in 2002.
When viewed alongside previous double-digit increases in 2000
and 2001, the new information further demonstrates that the
litigation system is threatening health care quality for all
Americans as well as raising the costs of health care for all
Americans. (emphasis added)
This federal government update further highlights that liability
insurance rates are escalating faster in states that have not
established reasonable limits on unquantifiable and arbitrary non-
economic damages. The government's report states that:
. . . 2001 premium increases in states without litigation
reform ranged from 30%-75%. In 2002, the situation has
deteriorated. States without reasonable limits on non-economic
damages have experienced the largest increases by far, with
increases of between 36%-113% in 2002. States with reasonable
limits on non-economic damages have not experienced the same
rate spiking. (emphasis added)
HHS also compared the range of physician liability insurance
premiums for certain specialties in California, which has established
reasonable limits on awards for non-economic damages, to the premiums
in states that have not enacted similar limits. The results reveal how
excessive awards for non-economic damages affect premiums. For example,
in 2002, OB/GYNs in California paid up to $72,000 in medical liability
premiums. In Florida, which does not limit non-economic damage awards,
OB/GYNs paid up to $211,000 for liability coverage.
Further, a 2002 Congressional Budget Office study on H.R. 4600
(107th Congress), which included a limitation on non-economic damages,
asserts that:
CBO's analysis indicated that certain tort limitations,
primarily caps on awards and rules governing offsets from
collateral-source benefits, effectively reduce average premiums
for medical malpractice insurance. Consequently, CBO estimates
that, in states that currently do not have controls on
malpractice torts, H.R. 4600 would significantly lower premiums
for medical malpractice insurance from what they would
otherwise be under current law.
In Florida, as indicated in the example given above, medical
liability premiums are among the highest in the nation. The situation
in Florida has become so dire that Governor Bush created a special Task
Force to examine the availability and affordability of liability
insurance. This Task Force held ten hearings over a five month period
and received extensive testimony and information from numerous, diverse
sources.
Among the many findings in its report released on January 29, 2003,
the Governor's Task Force found that the level of liability claims paid
was the main cause of the increases in medical liability insurance
rates. The Task Force ultimately concluded that ``the centerpiece and
the recommendation that will have the greatest long-term impact on
healthcare provider liability insurance rates, and thus eliminate the
crisis of availability and affordability of healthcare in Florida, is a
$250,000 cap on non-economic damages.''
Recent Private Sector Reports
Evidence that the litigation system is broken, and that the medical
liability crisis is growing, is further established in a study released
by Tillinghast-Towers Perrin on February 11, 2003. Tillinghast reported
that ``The cost of the U.S. tort system grew by 14.3% in 2001, the
highest single-year percentage increase since 1986,'' which is
``equivalent to a 5% tax on wages.'' This is the only study that tracks
the cost of the U.S. tort system from 1950 to 2001 and compares the
growth of tort costs with increases in various U.S. economic
indicators. Some of the key findings of this study are stunning:
The U.S. tort system is a highly inefficient method of
compensating injured parties, returning less than 50 cents on
the dollar to people it is designed to help and returning only
22 cents to compensate for actual economic loss.
As of 2001, U.S. tort costs accounted for slightly more than
2% of GDP, signaling an increase after a 13-year decline in the
ratio of tort costs to GDP.
While the cost of the U.S. tort system has increased one
hundred fold over the last fifty years, GDP has grown by a
factor of only 34.
Medical malpractice costs have risen an average of 11.6% a
year since 1975 in contrast to an average annual increase of
9.4% for overall tort costs, outpacing increases in overall
U.S. tort costs.
The study also adds that ``These trends continued in 2002, with no
sign of abatement in the near future.'' In a press release accompanying
this study, a Tillinghast principal stated that, ``Absent sweeping tort
reform measures, we expect most of these trends to continue in 2003 and
beyond.''
In a 2001 report by Jury Verdict Research, data show that in just a
one year period (between 1999 and 2000) the median jury award increased
43 percent. Further, median jury awards for medical liability claims
grew at 7 times the rate of inflation, while settlement payouts grew at
nearly 3 times the rate of inflation. Even more telling, however, is
that the proportion of jury awards topping $1 million increased from 34
percent in 1996 to 52 percent in 2000. More than half of all jury
awards today top $1 million, and the average jury award has increased
to about $3.5 million.
These are just a few examples of growing evidence that reveal that
out-of-control jury awards are inexorably linked to the severe
increases in medical liability insurance premiums. It is clear that
corrective action through federal legislation is urgently needed.
Blaming Insurance Industry Investments Is A Red Herring
Organizations opposing H.R. 5 have claimed that soaring medical
liability insurance premiums are the result of declining investments in
the insurance industry, and that liability reforms do not stabilize the
insurance market. The reports discussed above, as well as several other
authoritative and credible studies, reveal such claims to be
misleading, based on flawed analysis, and contrary to the facts.
Last month, Brown Brothers Harriman & Co. (BBH) released a report
(``Did Investments Affect Medical Malpractice Premiums?'') that
analyzed the impact of insurers' asset allocation and investment income
on the premiums they charge. BBH concluded that there is no correlation
between the premiums charged by the medical liability insurance
industry, on the one hand, and the industry's investment yield, the
performance of the U.S. economy, or interest rates, on the other hand.
In addition, on February 4, 2003, BBH released an addendum to this
study that analyzed National Association of Insurance Commissioners
(NAIC) data to determine whether investment gains by medical liability
insurance companies declined in the recent bear market. BBH asked the
question: ``Did medical malpractice companies raise premiums because
they had come to expect a certain percentage gain that was not achieved
due to market conditions?'' BBH determined that the decline in equities
(which are a small percentage of insurance company investments) was
more than offset by the capital gains by bonds (which make up a
substantial part of insurance company investments) due to a decline in
interest rates. BBH concluded that ``investments did not precipitate
the current crisis.''
BBH's findings are corroborated by other recent reports. On
September 25, 2002, HHS released an update on the medical liability
crisis addressing claims that the crisis is caused by the management
practices of the insurance industry. HHS concluded that such claims are
not supported by facts, stating ``Comparisons of states with and
without meaningful medical liability reforms provide clear evidence
that the broken medical litigation system is responsible.''
In addition, a summary of medical liability insurer annual
statement data in A.M. Best's Aggregates & Averages, Property-Casualty,
2002 edition shows that the investment yields of medical malpractice
insurers have been stable and positive since 1997. A.M. Best reports
that medical liability insurers have approximately 80% of their
investments in the bond market. Also, recent NAIC data show that
physicians' medical liability insurance premiums between 1976-2000 have
risen 167% in California (which established effective liability reforms
in 1975) compared to 505% in the rest of the United States.
The report on which H.R. 5 opponents base most of their
speculations, produced under the direction of J. Robert Hunter for the
Americans for Insurance Reform (AIR), is flawed in a number of ways.
The AIR/Hunter study purports that there is no current explosion in
medical liability insurance payouts, and that the explosion in medical
liability insurance premiums is due to the insurance underwriting
cycle. While medical liability insurance premiums, medical liability
award payouts, and tort law factors differ across states, the premium
and payout data presented in AIR's report are at the national level.
One cannot use national data to draw valid conclusions about how state-
specific changes in premiums may be related to state-specific changes
in payouts. Conclusions about what has or has not caused recent premium
escalation without accounting for the state-level factors listed above
are unsupportable.
In addition to claiming that the current medical liability crisis
is an insurance issue, there have been attempts to argue that medical
liability insurance premium rates in California have remained stable
because of Proposition 103, not because of the successful medical
liability reforms (known as MICRA--discussed later) that have been in
place in California since 1975. Such claims are misguided. Proposition
103, also known as the Insurance Rate Reduction and Reform Act, applies
to all lines of insurance, not just medical liability insurance. It was
passed as an initiative by the voters in 1988 (thirteen years after
MICRA), yet did not take effect until 1989. This is when the state's
high court struck down its rate rollback provisions while maintaining
the remainder of the law.
Proposition 103 implemented a basic standard that ``no rate shall
be approved or remain in effect which is excessive, inadequate,
unfairly discriminatory or otherwise in violation of this chapter.''
However, Proposition 103 provides that ``every insurer which desires to
change any rate shall file a complete rate application with the
commissioner.'' Proposition 103 also requires that the Department of
Insurance grant a hearing for a challenge to any increase above 15
percent for commercial lines of insurance.
According to Californians Allied for Patient Protection, ``Insurers
have regularly applied for and obtained significant rate increases in
all lines of insurance, except medical liability where MICRA has kept
the rates from rising astronomically. Between September and the end of
October, 2002, for instance, the Insurance Department approved more
than 75 applications for double-digit increases in insurance rates.''
None of these approved increases included medical liability insurance.
This illustrates that Proposition 103 is not responsible for keeping
medical liability premiums down. Rather, as we discuss later, it is
MICRA that has been the force behind California's success.
Such misdirected claims as discussed above are a disservice to
patients who are losing access to health care services, and an affront
to the physicians and other health care professionals who dedicate
their lives to healing and caring for the sick and working to find ways
to improve the quality of care. America's medical liability crisis is
too serious and the consequences of inaction too grave for the public
and Congress to use anything but the facts to make decisions about
reform. In short, these claims are counterproductive to the debate on
resolving the medical liability crisis.
FEDERAL SOLUTION
The medical liability crisis is a growing national problem that
requires a national solution. If the crisis was just a matter of
physicians obtaining or affording medical liability insurance in one
state, we might agree that a national approach would not necessarily be
required. However, the problem goes far beyond physicians and other
health care professionals and institutions. The medical liability
crisis has become a serious problem for patients and their ability to
access health care services that would otherwise be available to them,
including services provided to Medicare and Medicaid patients.
Also, the premise that it is within the ability of every state to
enact legislation to effectively resolve their respective medical
liability crisis has been shattered by the fact that many state
liability reform laws have been nullified by activist state courts or
stripped of their most effective provisions under state constitutions
that limit reforms. Taking into consideration that studies show the
litigation system to be an ineffective, and often unfair, mechanism for
resolving medical liability claims, we believe that the time is ripe
for a uniform, federal approach to resolving the liability crisis.
Moreover, there is a direct and compelling federal interest in
reforming our outmoded medical liability system. According to estimates
by HHS, altogether medical liability adds $60 billion to $108 billion
to the cost of health care each year. This means higher health
insurance premiums and higher medical costs for all Americans, and
especially for the federal government given that one-third of the total
health care spending in our country is paid by the Medicare and
Medicaid Programs. Further, HHS estimates that excessive medical
liability adds $47 billion annually to what the federal government pays
for Medicare, Medicaid, the State Children's Health Insurance Program,
Veterans' Administration health care, health care for federal
employees, and other government programs.
THE LIABILITY CRISIS AND PATIENT SAFETY
The AMA's policy is to be part of the solution to improving patient
safety and quality. The AMA believes that one preventable error is one
error too many. In fact, the AMA helped launch the National Patient
Safety Foundation (NPSF) in 1996 to address patient safety issues, well
before publication of the IOM report. The NPSF's approach is to create
a culture of cooperative learning and mutual improvement, as opposed to
a culture of shame and blame.
Quality of care improves when there is greater access to physicians
and health care services. A culture of safety requires a legal
environment that encourages professionals and organizations to work
together to identify problems in providing care, evaluate the causes,
and use that information to improve care for all patients. An over-
litigious system is anathema to building a strong and effective
national patient safety program.
Under our current liability system, the reality of being sued is
daunting to just about everyone in the medical community. A 2002 Harris
Interactive study (The Fear of Litigation Study--The Impact on
Medicine) illustrates just how detrimental the litigious nature of our
society is to physicians and other health care professionals. This
study reveals the extent to which the fear of litigation affects the
practice of medicine and the delivery of health care--``From the
increased ordering of tests, medications, referrals, and procedures to
increased paperwork and reluctance to offer off-duty medical
assistance, the impact of the fear of litigation is far-reaching and
profound.''
The study shows, among other things, that more than three-fourths
(76%) of physicians believe that concern about medical liability
litigation has negatively affected their ability to provide quality
care in recent years, and nearly all physicians and hospital
administrators feel that unnecessary or excessive care is provided
because of litigation fears. It also shows that an overwhelming
majority of physicians (83%) and hospital administrators (72%) do not
trust the current system of justice to achieve a reasonable result to a
lawsuit.
The Harris study found that a majority (59%) of physicians believe
(``a lot'') that the fear of liability discourages open discussion and
thinking about ways to reduce health care errors. The AMA has long
believed that health professionals and organizations should be
encouraged to report and evaluate health care errors and to share their
experiences with others in order to prevent similar occurrences.
However, this ``culture of fear'' caused by our over-litigious society
suppresses such information.
The AMA strongly supports the principle underlying the 1999
Institute of Medicine (IOM) report entitled, To Err is Human: Building
a Safer Health System, that the health care system needs to transform
the existing culture of blame and punishment, which suppresses
information about errors, into a ``culture of safety'' that focuses on
openness and information-sharing to improve health care and prevent
adverse outcomes. The AMA also supports the IOM's focus on the need for
a system-wide approach to eliminating adverse outcomes and improving
safety and quality, instead of focusing on individual components of the
health system in an isolated or punitive way.
Toward this end, the AMA supports H.R. 663, the ``Patient Safety
and Quality Improvement Act,'' which was favorably reported by the
House Energy & Commerce Committee on February 12, 2003. H.R. 663 would
provide a framework to create a ``culture of safety'' by establishing a
confidential, non-punitive, and evidence-based system for reporting
health care errors. There is a very broad and strong consensus of
agreement on this legislative approach within the health care
community. By implementing this approach, errors can be identified and
analyzed to improve patient safety by preventing future errors.
In addition to patient safety and quality improvement, the fear of
litigation stifles the advancement of new medical treatments and
medications, encourages physicians to practice defensive medicine,
overwhelms the health care system with paperwork--leaving less time for
patient care, and discourages qualified candidates from pursuing a
career in medicine or from moving to a state with a bad liability
climate.
THE PRACTICAL SOLUTION
The AMA recognizes that injuries due to negligence do occur in a
small percentage of health care interactions, and that they can be as
devastating or worse to patients and their families than injury due to
natural illness or unpreventable accident. When injuries occur and are
caused by a breach in the standard of care, the AMA believes that
patients are entitled to prompt and fair compensation.
This compensation should include, first and foremost, full payment
of all out of pocket ``economic'' losses. The AMA also believes that
patients should receive reasonable compensation for intangible ``non-
economic'' losses such as pain and suffering and, where appropriate,
the right to pursue punitive damages.
Unfortunately, our medical liability litigation system is neither
fair nor cost effective in making a patient whole. Transformed by high-
stakes financial incentives, it has become an increasingly irrational
``lottery'' driven by open-ended non-economic damage awards. As
mentioned above, studies show that our tort system, in general, is an
extremely inefficient mechanism for compensating claimants--returning
less than 45 cents on the dollar to claimants and only 20 cents of tort
cost dollars to compensate for actual economic losses.
To ensure that all patients who have been injured through
negligence are fairly compensated, the AMA believes that Congress must
pass fair and reasonable reforms to our medical liability litigation
system that have proven effective. Toward this end, we strongly urge
Congress to pass the ``Help Efficient, Accessible, Low-Cost, Timely
Healthcare (HEALTH) Act,'' a bipartisan bill that would bring balance
to our medical liability litigation system.
The major provisions of the HEALTH Act would benefit patients by:
Awarding injured patients unlimited economic damages (e.g.,
past and future medical expenses, loss of past and future
earnings, cost of domestic services, etc.);
Awarding injured patients non-economic damages up to $250,000
(e.g., pain and suffering, mental anguish, physical impairment,
etc.), with states being given the flexibility to establish or
maintain their own laws on damage awards, whether higher or
lower than those provided for in this bill;
Awarding injured patients punitive damages up to $250,000 or
up to two times economic damages, whichever is greater;
Establishing a ``fair share'' rule that allocates damage
awards fairly and in proportion to a party's degree of fault;
and
Establishing a sliding-scale for attorneys' contingent fees,
therefore maximizing the recovery for patients.
These reforms are not part of some untested theory--they work. The
major provisions of the HEALTH Act are based on the successful
California law known as MICRA (Medical Injury Compensation Reform Act
of 1975). MICRA reforms have been proven to stabilize the medical
liability insurance market in California--increasing patient access to
care and saving more than $1 billion per year in liability premiums--
and have reduced the time it takes to settle a claim by 33 percent.
MICRA is also saving California from the current medical liability
insurance crisis brewing in many states that do not have similar
reforms. In fact, according to MLM, as discussed above, the gap between
medical liability insurance rates in California and those in the
largest states that do not limit non-economic awards is substantial and
growing.
MICRA-type reforms are effective, especially at controlling non-
economic damages. Several economic studies substantiate this point. One
study looked at several types of reforms and concluded that capping
non-economic damages reduced premiums for general surgeons by 13% in
the year following enactment, and by 34% over the long term. Similar
results were shown for premiums paid by general practitioners and OB/
GYNs. It was also shown that caps on non-economic damages decrease
claims severity (i.e., amount of the claim) (Zuckerman et al. 1990).
Another study published in the Journal of Health Politics, Policy
and Law concluded that caps on non-economic damages reduced insurer
payouts by 31%. Caps on total damages reduced payouts by 38% (Sloan, et
al. 1989). Another study concluded that states adopting direct reforms
experienced reductions in hospital expenditures of 5% to 9% within
three to five years. If these figures are extrapolated to all medical
spending, a $50 billion reduction in national health spending could be
achieved through such reforms (Kessler and McClellan, Quarterly Journal
of Economics, 1997).
Further, as discussed above, a 2002 Congressional Budget Office
study on H.R. 4600 (107th Congress) asserts caps on non-economic
damages have been extremely effective in reducing the severity of
claims and medical liability premiums. Conversely, a 1996 American
Academy of Actuaries study shows that medical liability costs rose
sharply in Ohio after the Ohio Supreme Court overturned a liability
reform law in the 1990s that set limits on non-economic damages. (Ohio
recently enacted a new liability reform law.)
Furthermore, a Gallup poll released on February 5, 2003, show that
72% of those polled favor a limit on the amount patients can be awarded
for pain and suffering. This Gallup poll is consistent with a 2002
survey conducted by Wirthlin Worldwide showing that three-quarters of
Americans understand the detrimental effect that excess litigation has
on our health care system. The Wirthlin survey shows that the vast
majority of Americans agree we need common sense medical liability
reform. In addition to the 78 percent discussed above who said that
they are concerned about access to care, the survey found that:
71 percent of Americans agree that a main reason health care
costs are rising is because of medical liability lawsuits.
73 percent support reasonable limits on awards for ``pain and
suffering'' in medical liability lawsuits.
More than 76 percent favor a law limiting the percentage of
contingent fees paid by the patient.
CONCLUSION
Physicians and patients across the country realize more and more
every day that the current medical liability situation is unacceptable.
Unless the hemorrhaging costs of the current medical liability system
are addressed at a national level, patients will continue to face an
erosion in access to care because their physicians can no longer find
or afford liability insurance. The reasonable reforms of the HEALTH Act
have brought stability in those states that have enacted similar
reforms.
By enacting meaningful medical liability reforms, Congress has the
opportunity to increase access to medical services, eliminate much of
the need for medical treatment motivated primarily as a precaution
against lawsuits, improve the patient-physician relationship, help
prevent avoidable patient injury, and curb the single most wasteful use
of precious health care dollars--the costs, both financial and
emotional, of health care liability litigation. The modest proposals in
the HEALTH Act answer these issues head on and would strengthen our
health care system.
The AMA appreciates the opportunity to testify on the adverse
effect that our current medical liability litigation system imposes on
patient access to health care and urges Congress to pass H.R. 5, the
HEALTH Act.
Mr. Bilirakis. Thank you very much, sir.
A number of the members up here have 8 minutes for their
inquiries, and we will remind you of that. I will just go ahead
and start the questioning.
Mr. Rosenfield, and not that this question is not maybe
appropriate to all of the others too, but I--late in the fall,
I was invited to attend a large gathering, I will call it a
seminar, if you will, because that is really what it turned out
to be. Of an awful lot of medical providers in my part of
Florida where they had, and my part of Florida is the Tampa Bay
area, where they had, I guess, he is an attorney from Miami,
come up and others, to advise doctors on how to go bare, b-a-r-
e, I guess, that bare, advise them how to get rid of their
assets and protect their assets and whatnot, and just go bare,
without any insurance at all.
Now, it has been stated by at least one or two of you,
didn't have to be stated, that we are taking away, in effect,
constitutional rights of some of the--a patient, of Ms.
Lewinski, and others, to be able to get a proper remedy, et
cetera. But I would ask you, if a doctor has gone bare, and
more and more are going that way, now you are talking about, I
mean, if you are talking about a proper remedy, we are talking
about no assets. And is that not more injurious to the patient
than, let's say, a cap would be where there is insurance there,
there is coverage and there is insurance, and certainly, the
economic damages would be covered, would be picked up?
Mr. Rosenfield. Mr. Chairman, that is seriously injurious.
But the premise of your question is that it is an inescapable
reality. I think the experience in California under proposition
103 with stringent regulation is that you can force insurance
companies to reduce their rates. And I think the message you
are hearing from the--and we heard in Langhorne in the
subcommittee hearing was that before the Congress, the 108th
Congress moves to limit how much victims of medical malpractice
can receive, we ought to, it ought to investigate what is
really going on with the insurance industry.
Because of the vast and overwhelming majority of evidence,
even from the insurance industry, and I have included some of
it in my written testimony, and I have an exhibit, with your
permission, I would like to make part of the record. Even the
insurance industry itself acknowledges that there is a cycle
that occurs. And we have had three of them in the last 30
years, when we run into trouble in the market, when insurance
companies' interest rates are lower and their investment income
is reduced and the stock market goes bad, which this is a
double whammy for them this time around.
When all of those things happen, the insurance companies
run into trouble. The investigation should be into whether
there is away to lower insurance premiums. And if the private
insurance companies do not wish to sell insurance to doctors,
the Congress could do many things to make it more--I am sorry.
Mr. Bilirakis. Well, forgive me. But I didn't want you to
take up my entire 5 minutes.
Mr. Rosenfield. I am sorry.
Mr. Bilirakis. You pretty well, I guess, answered my
question.
Mr. Hurley, do you agree with the gentleman?
Mr. Hurley. Agree in the sense that it is caused by
investment losses and things like that?
Mr. Bilirakis. Well, certainly he made that comment here
toward the end.
Mr. Hurley. No, I do not agree that this investment losses
cause companies to increase rates. As I mentioned in my
testimony, rates are developed in a forward looking fashion.
They do not depend on or look back at and recoup past
investment loses. They do not recoup past inadequate rates.
They are made based on projections of expected losses and
expected future rates of return, not past rates of return or
losses.
Mr. Bilirakis. Well, you seem to be awfully positive. Mr.
Rosenfield seems to be awfully positive, and yet you disagree
and we are supposed to leaf through all that and come up with
what--Mr. Smarr. Comment? You are certainly, you certainly
disagreed on proposition 103 and its effect.
Mr. Smarr. I indeed do disagree with that. Medical
malpractice insurers were not the intended target of
proposition 103. It was an automobile insurance initiative.
Nevertheless, prop 103 did cover them. Prop 103 was passed in,
I guess, 1988 and the insurance industry was very opposed to
prop 103. In fact, insurance companies were still negotiating
with the commissioner into the mid 1990's as to how they were
going to fulfill the requirements of prop 103. The very first
insurance company that did come to an accord with the insurance
commissioner was the Norcal Mutual Insurance Company, one of my
physician-owned malpractice insurance companies. And Norcal, in
its agreements with prop 103--now prop 103 required the
rollback of rates to 20 percent below those in effect in some
date in November 1987. It did not require the refund of any
money if you read prop 103.
But Norcal reached an agreement with the insurance
commissioner that it would refund 20 percent of premium for 1
year to its doctors and that would be the entire commitment
they had under prop 103. And this was a sizable amount of
money. And I have the consent order signed by Norcal and two
other of my member companies here, which I would like to have
entered into the record where they did.
Mr. Bilirakis. Without objection.
[The information referred to follows:]
[GRAPHIC] [TIFF OMITTED] T6049.066
Mr. Smarr. Norcal, at the time, showing the exhibit before
you now, was paying dividends in each of the years during the
prop 103 issue in excess of 20 percent. And so Norcal was able
to fulfill its obligation to refund 20 percent through the
normal dividend process. And that is also stipulated in
paragraph 4 of Norcal's consent order. And thus, Norcal did not
pay out any more money than it otherwise would have paid
because of prop 103, and it clearly did not roll back its
rates. And I have talked to my other California member
companies, and I have been told the same story.
Mr. Bilirakis. Thank you, sir. My time is expired.
Ms. DeGette for 5 minutes.
Ms. DeGette. Thank you, Mr. Chairman. Well, just following
up, it is correct, isn't it, Mr. Smarr, that the vast majority
of States require physicians to have malpractice insurance so
the vast majority of physicians would not be able to go bare,
correct?
Mr. Smarr. I believe that is true.
Ms. DeGette. Thank you.
Ms. Lewinski, I want to thank you for coming today. We all
sit around and talk about actuarial issues and this and that.
But we really heard the human face, and I know your mom tells
you this because I am a mom, too. But let me tell you and you
might listen to it from me, you will find a boyfriend because
you are so pure of heart and so articulate and someone's going
to love you very much. So I just want to tell you that. And I
know we all appreciate you being here. I just want to ask you
two questions. First of all, when you--when you had this
terrible injury by your doctor, you were 8 years old, right.
Ms. Lewinski. Right.
Ms. DeGette. And so the jury did not give you any award of
economic damages, correct?
Ms. Lewinski. That is correct.
Ms. DeGette. Mr. Chairman, I would just like the record to
reflect that if this legislation passed, Ms. Lewinski, despite
everything that happened to her, would be entitled to an award
of zero. Now, I have a couple of more questions.
Mr. Hurley, I listened very carefully to your testimony
today and the upshot is, for a variety of reasons, you have no
idea, really, how passage of this bill would affect malpractice
insurance rates for doctors, do you?
Mr. Hurley. I have not made any projection about what the
impact of that bill would be no.
Ms. DeGette. Right. So you don't really know what, if any,
effect this bill would have on these doctors'insurance rates,
right?
Mr. Hurley. I have not projected to answer your question, I
have not made a projection on what the effect would be in terms
of the impact on rate level. I think it is safe to say that
over the long term, a bill of this nature would, in fact,
stabilize price increases because it will stabilize increases
and losses over the long term.
Ms. DeGette. Thank you.
Now, Mr. Smarr, I also want to ask you, you don't really
have any idea, if premiums will go down, if Congress passes
this law either, do you?
Mr. Smarr. I do believe that if Congress passes this law,
and it stands constitutional muster, that rates will be
reduced.
Ms. DeGette. Do you have data to support that contention,
sir?
Mr. Smarr. The data that I have is that produced by the
Congressional Budget Office and by the GAO, which looked at
this issue.
Ms. DeGette. Okay.
Mr. Smarr. Pardon me. I misspoke. It is the Department of
Health and Human Services, not the GAO.
Ms. DeGette. Okay. Mr. Smarr and Mr. Rosenfield, I would
like to have you take a look at Exhibit 2-A. I am sorry. Yeah.
2-A and 2-B, it is this chart right here. It should be on the
back screen, if we could have someone put it up. It is labeled
``premiums and damage caps for top 26 States.'' 2-B is for
bottom 27 States. I don't know if you have that in front of you
or not. There it is, behind you. Now, take a look at the top
five States in terms of premium, Florida, Michigan, Nevada,
Ohio, West Virginia. Do you see that?
Mr. Smarr. Yes.
Ms. DeGette. Now, in all of those states they have caps,
correct, Mr. Smarr? Yes or no?
Mr. Smarr. No, I don't agree with that.
Ms. DeGette. You don't agree that they have caps? Mr.
Rosenfield, do you believe they have caps in those five States,
Mr. Rosenfield.
Mr. Rosenfield. Yes, I do believe that. I will double-
check, but I believe it.
Ms. DeGette. Okay. Now, if you take a look, but yet, what I
am looking at, those are the five States that have the highest
premiums in the country, but they also have caps, correct, Mr.
Rosenfield?
Mr. Rosenfield. You know, I can't--this is not our chart. I
have been to those States. They have caps. I can't tell you
what the amounts are.
Ms. DeGette. What the premium is?
Mr. Rosenfield. Yeah. I can't tell you.
Ms. DeGette. Okay. Take a look at now Exhibit 2-B, if you
will. Take a look at the bottom, at least the bottom State,
Oklahoma, they have the lowest premiums and they also have no
cap; is that correct, Mr. Rosenfield?
Mr. Rosenfield. That is what that chart says.
Ms. DeGette. Do you know if that's true or not?
Mr. Rosenfield. It is not my chart. No, sorry.
Ms. DeGette. Mr. Smarr, do you know if that is true?
Mr. Smarr. I have no idea.
Ms. DeGette. Do you have any reason to disagree with that?
Mr. Smarr. I can't comment on the chart because I don't
know where the data comes from.
Ms. DeGette. The data comes from Medical Liability Monitor.
Are you familiar with that publication?
Mr. Smarr. I am very aware of that publication.
Ms. DeGette. Is that a legitimate publication?
Mr. Smarr. Yes, it is.
Ms. DeGette. Would you have any reason to disagree with
this data?
Mr. Smarr. I might, because I don't know how the data was
extracted from the publication.
Ms. DeGette. Okay. So you think that in Oklahoma they might
have a cap. Do you disagree with these charts which indicate
that the States with the highest premiums also have caps and
the States with the lowest premiums either have very high caps
or no caps whatsoever?
Mr. Smarr. Congresswoman DeGette, I can't agree with
anything on that chart because I do not know how it was
derived.
Ms. DeGette. Do you agree with the concept?
Mr. Smarr. The concept?
Ms. DeGette. Yeah.
Mr. Smarr. Yeah.
Ms. DeGette. Thank you.
Mr. Bilirakis. Mr. Greenwood.
Mr. Greenwood. Thank you, Mr. Chairman. It is difficult for
us to reach a consensus on how to solve the problem since we
can't, haven't reached anything like a consensus on what causes
the problem. And the opponents of this legislation seem
convinced that the cause of the problem has to do with either
bad investments by insurance companies, or price gouging. That
seems to be the mantra that is repeated over and over again.
Mr. Hurley, I know you have been asked this before, but
looking at the chart there, we see a number of States,
California, Colorado, New Mexico, Indiana, Wisconsin and
Louisiana, that don't seem to be in crisis right now. Mr.
Rosenfield believes that he is the hero in California, that the
reason they don't have a problem is because of his efforts.
That is disputed by others. But Mr. Rosenfield didn't pass
propositions in those other States, so do you have any--can you
offer us any wisdom or why there would be such variation among
the States, even though you have said that you do not believe
that investments, bad investments are the causal factors of
these malpractice increases? Can you give us some wisdom as to
why there is a variation in States?
Mr. Hurley. Congressman, I will try. I think that to
reiterate, it is not investments that is driving the prices.
The prices are driven by losses. The losses are driven by the
frequency and severity of claims in each jurisdiction and each
jurisdiction has its own set of rules as to what happens in
that jurisdiction in terms of filing a claim many so it is the
frequency and severity of claims, that is affected by the rules
that operate in each of those several States. And just to touch
on the issue of prop 103, any form of regulation that is in
place is not going to stop a company from going broke. If the
losses are bad, companies will seek increased rates. If a
regulation stops them from getting those increased rates
commensurate with the losses they will go broke. The fact of
the matter is that the losses didn't increase enough to cause
companies to file rates in California that require them to get
higher rates and therefore----
Mr. Greenwood. Okay. Let me stop you in the interest of
time. So what we know is all of the--the stock market applied
to all of those 50 States, even if it were, even if you tried
to make the arguments that this is all about stupid
investments, or not even stupid investments, but loss in the
stock market, you would have the difficulty, I think, you would
have a difficult time, I think, explaining why some States are
insurance companies that provide insurance, liability insurance
in the white States there, somehow had a different investment
history than the States, than the companies providing insurance
in the red States. That is nonsensical.
But you are saying it doesn't have anything to do with
investments. It has everything to do with losses, and losses
are a function of State law and an important function of State
law is caps. And it so happens that the one thing that those
white States all have in common is they all have caps.
Now, let me turn to Mr. Smarr. Mr. Smarr, I said in my
opening statement that I had a hard time believing that this
was, I would be delighted to solve this problem if we could
figure, if we could lay the blame at the fault of the insurers
and do something to fix that. That would be great with me. I
just want to make health care available in my State. But you
represent the physician-owned insurance companies, and would it
be fair to say that the physician-owned insurance companies
fundamentally exist for the purpose of trying to provide
physicians with the lowest possible and most affordable medical
liability premiums?
Mr. Smarr. Yes, sir, it would. The companies were formed
back in the late 1970's, specifically for that purpose to
provide a market for doctors and hospitals and dentists and to
be able to ascertain the two true crosses of medical liability
insurance, because nobody believed the commercial carriers at
that time that things were as bad as they were.
Mr. Greenwood. Right. So you had to get away from those big
bad private insurers which might have been price gouging, and
let the physicians go about it themselves. Have you been able
to significantly offer rates to your physicians, these
companies that you represent, at a different, a significantly
different rate than the private sector has.
Mr. Smarr. No.
Mr. Greenwood. Why is that?
Mr. Smarr. Because the costs were real.
Mr. Greenwood. The costs were real. So it is not that, even
with all of their alleged price gouging and overpricing and all
of their stupid investments and all of the rest, you are out
there trying to find--to make investments that make sense. And
I think it is only 15 percent of all insurance companies, I
think, have--medical liability insurance companies invest in
the stocks, isn't that what you said, Mr. Hurley?
Mr. Hurley. It is approximately.
Mr. Greenwood. It is only 15 percent in stocks to begin
with. Okay. But you are out there, your companies, who provide
insurance for 60 percent of the doctors in the country; is that
right?
Mr. Smarr. That's what we estimate yes?
Mr. Greenwood. So you are out there trying your level best
to be as conservative with your investments, to be as
conservative with your premiums, and you are still not able to
significantly, if at all, offer a product at a lower price than
any of the private sector; correct?
Mr. Smarr. Essentially correct, yes.
Mr. Greenwood. Okay. Thank you, Mr. Chairman.
Mr. Bilirakis. I thank the gentleman.
Mr. Brown, 5 minutes.
Mr. Brown. Thank you Mr. Chairman. I have a couple of quick
questions.
Dr. Palmisano, you are a physician. Do you believe a
$250,000 cap for all victims of malpractice is sufficient, no
matter how severe the injury?
Mr. Palmisano. The American Medical Association's policy is
the MICRA legislation. That has been the policy for a number of
years. And this past year, the American Medical Association
voted to make medical liability reform its No. 1 legislative--
--
Mr. Brown. Is that a yes?
Mr. Palmisano. [continuing] priority.
Mr. Brown. Could you give me a yes or no on that?
Mr. Palmisano. Well, we believe you have to have a balance.
Mr. Brown. Would you give me a yes or no? Do you think
250,000--I mean, you have got a policy. I don't want it
explained. If you----
Mr. Palmisano. I just want you to understand, it is the
American Medical Associations policy. I am not giving my
personal opinion here.
Mr. Brown. Well, the American Medical Association thinks
$250,000, regardless of the severity of the damage, is
sufficient.
Mr. Palmisano. For noneconomic damages, in order to balance
and be sure we have access to care for all of the patients.
Mr. Brown. No, I don't need the editorial comment. I only
have 5 minutes.
Mr. Palmisano. I am giving you the background.
Mr. Brown. I appreciate that. Thank you, Dr. Palmisano. Mr.
Smarr--I apologize for cutting you off like that. I just have
several things I want answered. Studies show that only one in
seven victims of malpractice ever file a claim. Is that too
many? One out of seven?
Mr. Smarr. Is that too many?
Mr. Brown. Yeah.
Mr. Smarr. No.
Mr. Brown. Okay. What percentage of victims--what
percentage of victims are entitled to compensation? If only one
out of seven files.
Mr. Smarr. Well, I personally believe that any victim is
entitled to be made whole.
Mr. Brown. Made whole. Do you think a $250,000 cap is
adequate always in every case?
Mr. Smarr. I believe that a $250,000 cap is an equitable
standard, yes, I do.
Mr. Brown. In every case?
Mr. Smarr. Yes.
Mr. Brown. Okay. That's interesting. Okay. My friend, Ms.
Rosenbaum, my friend Mr. Greenwood, mentioned in his opening
statement there is no reason to subpoena insurance industry
records, because he said because 60 percent of medical
malpractice insurance is provided by physician-owned companies.
The goal of a subpoena is, however, to gather information so we
can justify the kind of sweeping change that this legislation
offers.
Would you tell us what information we should want, we
should need from insurance companies, the information that we
can't, we seem to not be able to get, short of a subpoena? And
the majority party won't allow a subpoena for whatever reason.
They don't want us to know more about the inside workings of
the insurance industry. Should we have to--what should we want,
data on investment practices? Payroll of the executives? Amount
in the reserves pay out on claims? What kind of information
should we want?
Ms. Rosenbaum. I think what you need to focus on,
particularly are any internal studies that breakdown the
relative magnitude of the various components of payouts. For
example, there are studies that suggest that by far, in many
cases, the highest part of the payout is the economic damage,
that, in fact, non-economic damages are relatively modest. And
that is because of the length of life of certain injured
persons, the complexity of the treatment.
So I would want to know a great deal about exactly what a
claim breaks down into. I would also want to know, I think, the
extent to which there are internal memos and studies that
identify the losses that a company experiences that are
attributable to a shortfall in the premium-paid increases to
the payout, versus the kinds of underlying shortfalls that
simply come because of the way in which revenues are managed.
This is true for any complex corporations; it is true for my
own university, where our dilemma right now is not the tuition
payments are too low, it is that the return on our endowment is
too low.
And that drives tuition payments. And I assume that it is
the same kind of complicated issue for any corporation--public,
private, nonprofit, for profit. So it is that--it is the
underlying cause of the escalation that you would have to get
at.
Mr. Brown. Thank you for that.
Mr. Rosenfield, you seemed, when Mr. Smarr was talking
about Prop 103--not to try to read into your facial expression,
but you seemed not to agree with that. But could you--we don't
have a lot of time, but talk about briefly why you think 103
brought down rates and why MICRA didn't seem to? Briefly.
Mr. Rosenfield. Well, it is not my thinking. That exhibit 1
shows that premiums soared 571 percent until Prop 103 passed,
and then they went down 20 percent. It is that insurance
industry data. And the reason why is because--nothing inherent
in tort reform--it does stop insurance companies from boosting
premiums. There is no requirement that they not. And so when
Proposition 103's regulatory structure took effect, it forced
the insurance companies to reduce premiums for a one-time
rollback and refund.
But then if you look at the other charts in the testimony,
you will see that unlike the other States, where these wild
gyrations--that is caused by the insurance industry cycle; that
is actually documented by the medical insurer itself in my
exhibit here, unlike other States because Prop 103 does not
allow unjustified decreases, ill-advised decreases. So in
California, 103 has eliminated the instability of the insurance
cycle. That is a value too.
Mr. Bilirakis. Mr. Deal for 8 minutes.
Mr. Deal. Thank you, Mr. Chairman.
I think all of you have provided very valuable insight. I
want to question some of your statements and see if I can make
some sense out of it even further. Obviously one of our
purposes here is to do something that is going to be effective,
and one of the things that I think would be effective is to
determine if several things will happen with H.R. 5 passing.
One would be, are we going to see a decrease in malpractice
premiums?
Now, I think from hearing the testimony and reading the
material here, I don't see that happening. Mr. Smarr, I am
looking at your testimony on page 14, and you list the causes
of the crisis, and it appears that only the latter one maybe is
directly related to what we are doing here and that is a
greater proportion of large losses. And you say the primary
driver of the deterioration in the medical liability insurance
industry performance has been paid-claim severity.
You go on to point out in your letter to Senator Gregg that
the preliminary evidence points to a rising loss cost and
defense cost associated with litigation as the principal
drivers of medical malpractice prices.
So, are we going to see a decrease in medical malpractice
cost if H.R. 5 passes?
Mr. Smarr. Yes, sir, I believe we will. And I believe that
the experience in States that have effective tort reforms
speaks to this.
The Congressional Budget Office, in scoring H.R. 4600,
stated that if that bill, which is essentially identical to
H.R. 5, were to become law, medical malpractice rates would
be--I believe it is 25 to 30 percent lower than they would
otherwise be had the legislation not been adopted.
Mr. Deal. That seems to fly in the face of the testimony
that Mr. Rosenfield had submitted as to what happened in the
State of Florida, which immediately after their legislation was
put in place, two of the larger ones immediately asked for rate
increases and indicated that their reforms had no relationship
to the cost of malpractice coverage.
How do you distinguish that?
Mr. Smarr. If you are referring to the cap on noneconomic
damages that is in place in Florida, I can't remember if it is
a $250- cap or a $500,000 cap, that cap only applies in cases
where the issue is settled through arbitration; and that rarely
happens because both sides have to agree to arbitration. So the
cap in effect is not in effect.
Mr. Deal. Okay. We have some very qualified people on this
panel. I am going to ask you about the portions of this bill
that, in my opinion, should relate to overall cost and their
relation to the marketplace. I am going to ask if any of you
have any studies to indicate if any of these have individually
been scored as having an effect on premiums or availability,
the cap on noneconomic damages.
Does anybody have any statistics to show what effect, if
any, that has on rates or availability of coverage? What about
statute of limitations?
Excuse me. Go ahead.
Mr. Smarr. Yes, sir. The Congressional Budget Office did
indeed score that.
Mr. Deal. Did they score that element alone as having a
cost factor associated with it?
Mr. Smarr. I believe that is cited as being the primary
driver, yes, sir, but I would have to go read the scoring
analysis.
Mr. Deal. So by capping the pain and suffering area, that
has an effect on the ratio, on the availability and the cost of
liability insurance?
Mr. Smarr. Yes, sir.
Mr. Deal. Statute of limitations change? Anybody have
anything associated with that? The apportionment of damages,
anybody have any information indicating that makes a
difference?
Mr. Hurley. May I add something? I think there have been
studies done of these things. I have not personally done those
studies, but I think a couple of references have been made to
studies that did look into some of these elements. They would
have been done, for example, by the Office of Technology
Assessment back in the earlier part of the decade, in those
types of timeframes.
There have been other academic studies done by RAND and
others that looked at some of those. Those might be helpful to
access.
Mr. Deal. Would that be true of the apportionment of
damages provision, the collateral source rule, the periodic
payments?
Mr. Hurley. I think most of those elements have been
addressed.
Mr. Deal. If any of you have that material, I think it
would be helpful if you could get that to us at a later time.
Let me tell you about one of the things that concerns me.
And, Mr. Smarr, I have taken your statistics on chart 14, and I
think all of us are concerned that we deal with this issue
fairly.
Based on your mean indemnity payment of $310,215, if I
calculated out using the limit on collateral fees for the
plaintiff's attorney, let's assume you won that case at your
average $310,000. As I calculate it out, he will be paid
$78,198 out of that award.
Now, if I look at what you are paying your attorneys to
defend that case, they lost the case, they are paid $91,423. In
other words, the winning plaintiff's lawyer gets only 85
percent of the amount that the losing defense attorney gets.
And if you have to reduce what the winning plaintiff's attorney
gets from the award being received by the injured plaintiff,
you reduce that award down to the point that your losing
attorney is going to be paid 40 percent of the amount that the
winning plaintiff, the individual injured party, is actually
receiving.
Now, how do we reconcile that?
Mr. Smarr. Congressman Deal I didn't follow the first part
of your calculation when you came up with the $78,000.
Mr. Deal. Well, I have taken the contingent fee schedule on
your average award of 310,000-plus. A winning attorney who gets
that award is going to receive a little over $78,000; your
losing attorney, by your statistics, is going to be paid in
excess of $91,000.
What I am saying is--well, my bottom line, I guess, is,
would you favor a situation in which the loser pay prevails? Or
would you consider it fair that if we are going to disclose
collateral sources, where some of these expenses may have been
paid, the jury be told that the plaintiff's attorney is going
to get a certain percentage of the award or anything along
those lines?
You know, I think there is a basic element of feeling that
the person who is the injured party here and their attorney are
having to take the risk in filing the suit. I know you win most
of the cases, I know you do; but if we are going to reveal
collateral source, shouldn't the jury also know in this average
award that 25 percent of it is going to go to the plaintiff's
attorney and that they are not allowed to award the winning
party that 25 percent? Is that fair?
Mr. Smarr. Award the winning party 25 percent?
Mr. Deal. Yes. Yes. They are not allowed to consider an
award for the plaintiff's attorney who wins the case, are they?
Mr. Smarr. Well, the plaintiff's attorney who wins the case
gets the contingency fee, which is far in excess of 25 percent,
as I understand it.
Mr. Deal. Not according to what the law calls for that we
are looking at. But he has to take that out of his plaintiff's
award.
Mr. Smarr. That is true. That is the way the system works.
Mr. Deal. Well, would you be amenable to the jury knowing
that?
Mr. Smarr. My organization does not have a policy on that,
and----
Mr. Deal. Because your defendant's attorney is going to get
paid anyway, aren't they, whether they win or lose?
Mr. Smarr. That is true.
Mr. Deal. In fact, according to your chart, get paid a
little more to lose than they do to win.
Can you give us an idea what the average per hour rate is
that your companies are having to pay for defense attorneys?
Mr. Smarr. These costs are not, by the way, just attorneys'
fees. About 75 percent of the costs are attorney fees, but they
are also expert witnesses and court costs that are included.
Mr. Deal. Expert witness fees are usually other doctors
that are being paid to come testify.
Mr. Smarr. Usually other doctors; that is right.
Mr. Deal. Can you give us an idea what the average per hour
rate is being paid for the defense of these cases?
Mr. Smarr. I do not know an average because we have not
computed one, but lawyers usually make $150, $200 an hour, $250
an hour.
Mr. Deal. In this area, they get paid substantially more as
a general rule, wouldn't you think?
Mr. Smarr. In malpractice work, my own personal experience
in trying to control these costs is that the companies do a
pretty good job of riding herd on the defense attorneys and
keeping their fees down. The attorneys do a good bit of
business with the malpractice companies, so they have some
leverage over the defense attorneys so the fees are not as high
as if you went downtown and hired a----
Mr. Deal. Less you misunderstand my position, I do support
the legislation. I just think there are some hard questions
that we have to answer, and I think if you can help us answer
those, we need to answer those.
Mr. Bilirakis. The gentleman's time has expired. I
apologize, Mr. Smarr.
Mr. Waxman for 5 minutes.
Mr. Waxman. Thank you very much, Mr. Chairman.
I believe medical malpractice is a serious problem, but I
am amazed when my Republican colleagues want to take issues
like health care for these seniors and the poor in our society
and shift all that over to the State or important national
environmental standards and say, we will let the States deal
with it. Suddenly they don't think the States are capable of
dealing with the medical malpractice issue even though it is
the States that license the doctors and health care
professionals, the States that regulate the insurance ndustry,
and the States that discipline medical professionals if they
don't do their job adequately.
I was involved with--as Mr. Hiestand pointed out in his
testimony, the California proposal prior to when it was adopted
when I was in the State legislature. But California adopted a
proposal that I didn't fully agree with because I don't like
the idea of arbitrary limits on recoveries for pain and
suffering. But California did what it did; other States can do
what they think is appropriate.
I think we ought to let the States operate in this area and
not have the Federal Government take it over. I don't think
Washington knows the best for everybody in the country, and I
think States ought to deal with this matter. But the whole
purpose of medical malpractice lawsuits is twofold: one, to
make the injured person as a result of medical malpractice
whole, to compensate them for their loss; and second, to deter
doctors and other medical professionals from committing medical
malpractice.
If you are going to make someone whole who has been
injured, you ought not to put a limit, an arbitrary limit, on
what they can recover. Heather Lewinski is here and testified
from her own experience. To just say there ought to be an
arbitrary limit of $250,000 for all the pain and suffering you
have gone through--in how many operations was it, 13----
Ms. Lewinski. 14.
Mr. Waxman. [continuing] 14 separate operations from a
doctor that didn't know what he was doing, committed clear
malpractice; and to say that you were going to be compensated
by an arbitrary amount for the rest of your life, how does that
make you feel? Would you feel that you were compensated fully
if you were given that limit?
Ms. Lewinski. Absolutely not.
Mr. Waxman. I think it is so unfair not to look at each
individual case and then decide what is the right compensation
for that individual.
Now, California has a law that appears to be successful; at
least some people think it is very successful. But California
does a lot of things that MICRA doesn't do. As I understand it,
California regulates insurance a lot more than if this bill
were adopted at the Federal level.
Is that right, Mr. Rosenfield?
Mr. Rosenfield. Yes, sir.
Mr. Waxman. So I don't know if the Republicans are going to
say we ought to regulate insurance at the Federal level. I
doubt it. They have been pretty accommodating to the insurance
industry as long as I have been in the Congress of the United
States.
So it is troubling to me to hear this notion that
Washington knows best, one size fits all, that we can take away
from the States the responsibility to figure out what is best
for their own people, and then put some limit that is arbitrary
on what somebody could recover when they are injured.
Now, whatever the figure someone had about the number of
people that are injured from medical malpractice that never get
any recovery, never even get into court--do you know that
figure, Mr. Rosenfield?
Mr. Rosenfield. I think it is only one out of every eight
injured victims actually filing a lawsuit.
Mr. Waxman. Why is that?
Mr. Rosenfield. Maybe the nature and extent of the injury,
maybe that they are not sufficiently represented. In
California, it is certainly because MICRA alters the cost-
benefit ratio to make it impossible for an attorney to take all
but the most egregious cases involving all but the most wealthy
people.
Mr. Waxman. Well, the idea of a limit on pain and suffering
was to--somebody said, to balance it out. But the real purpose
then is not only not to compensate the person adequately, but
to keep them from being able to get a lawyer?
Mr. Rosenfield. The undeniable impact of California of
MICRA--and this has been and acknowledged by the insurance
industry's top defense counsel who spoke before Congress on
this point--is that it has deterred legitimate cases from
getting into the courthouse.
Mr. Waxman. Let me ask another Californian, Mr. Hiestand.
Do you believe that the limit on pain and suffering of
250,000, which has not been adjusted for inflation, keeps some
people from ever getting a lawyer to represent them?
Mr. Hiestand. Well, the statistics don't show that. The
frequency, that is, the number of claims that have been failed
for medical malpractice, given the growth of physicians and the
growth of the population, has not changed in California both
before MICRA and after MICRA. So the number of lawsuits with
those adjustments would indicate that there has not been an
inability for people to get doctors.
And the Federal experience----
Mr. Waxman. Get lawyers.
Mr. Hiestand. The Federal experience----
Mr. Waxman. Do you believe that there are a lot of people
who are not compensated, who are victims of medical malpractice
because the system does not lend itself to hearing their
problems?
Mr. Hiestand. Well, people, as Mr. Rosenfield mentioned----
Mr. Waxman. Yes or no?
Mr. Hiestand. Yes or no.
Yes. People with small injuries can't get lawyers in all
kinds of contexts. And that happens in medical malpractice.
Mr. Waxman. I thank you all. My time has expired.
Mr. Bilirakis. Mr. Norwood for 5 minutes.
Mr. Norwood. Yes, sir. Thank you, Mr. Chairman.
Ms. Rosenbaum, I want to--I know that you have taken time
to try to go through some of the definitions, which is a very
hard thing to do. Not being a lawyer, it is very difficult for
me to understand when words don't mean anything; one person
thinks a word means this and another person thinks a word means
that, so sometimes it is not clear what actually the
definitions are. And I think most of us appreciate your insight
on this very difficult part of trying to understand H.R. 5.
You made a comment that I found interesting when you said
that perhaps we have the focus on the wrong thing. And I don't
want to go here particularly, but you said that maybe we ought
to be really looking at economic damages rather than
noneconomic damages; and I find that very interesting and would
appreciate it if you would respond to the committee on that and
give us your thoughts about that.
I don't want to go there because we don't have but 5
minutes, but I have been suspecting that was maybe part of the
problem too.
Could you just simply answer for me, do you support any
changes to the existing medical liability system?
Ms. Rosenbaum. What I support is some intervention that
would stabilize, control and not allow these rapid price swings
in malpractice----
Mr. Norwood. Would you be good enough to respond to the
committee your thoughts on what changes would be appropriate,
in writing, so that we could have time to look at that?
I have some thoughts about H.R. 5 that I believe I am right
on, and I want to go through some of those, if I may, with you.
Get this chart put up, please. I would like to go through some
of those and see if you disagree with me.
I don't believe H.R. 5 prevents an injured patient from
recovering so-called ``pain and suffering'' or noneconomic
damages. I don't believe this bill prevents that, do you?
Ms. Rosenbaum. Well, there is a limit on noneconomic
damages.
Mr. Norwood. I understand there is a limit, but there is
not a prevention of recovery of whatever that limit is.
Ms. Rosenbaum. My understanding is, it is a cap.
Mr. Norwood. I believe H.R. 5 simply establishes a minimum
Federal standard of $250,000 for noneconomic damages in States
that have not already set a specific monetary amount on the
size of noneconomic damage awards.
Do you agree with that?
Ms. Rosenbaum. I do not. I think the preemption language
only withholds preemption in those States whose limits are
stricter.
Mr. Norwood. There are other attorneys who don't agree,
obviously, the people--the lawyers who wrote up the bill; and
somehow or another we have to figure that out. Perhaps--could
you give us some information on that?
It is my understanding that the $250,000 for noneconomic
damages in States that already have set an amount--if the State
of Georgia sets an amount of 350,000, that is the amount that
is going to be in the State of Georgia, according to the
results of this bill. And I believe that--help me if you don't.
I believe H.R. 5 does not change existing straight caps on
noneconomic damages, even though some of those may be higher
than 350,000--and obviously they are, according to that chart
behind us.
And you don't believe that to be true in this bill?
Ms. Rosenbaum. Looking at section 11(b) of the bill, I do
not.
Mr. Norwood. I am informed by another lawyer that the 11(c)
part of the bill does allow for that. So again it is one of
those areas where we have a very friendly disagreement.
I guess I believe the 11(c) part does. I believe H.R. 5
does not prevent a State from keeping or enacting an entirely
different standard to guide the award of compensatory and/or
punitive damages.
Do you think H.R. 5 doesn't do that?
Ms. Rosenbaum. I am sorry. Would you repeat the question?
Mr. Norwood. H.R. 5 doesn't prevent a State from keeping or
enacting a different standard to guide the award for
compensatory and punitive damages. In other words, other States
can have higher damages if those other States pass that in
their State.
Ms. Rosenbaum. I would have to look at 11(b) and (c) and
respond to you in writing. And it would be of great help to me
if this part of the record could be sent to me so that I will
have your full question.
Mr. Norwood. I am trying to make sure what I believe about
H.R. 5, that I am going to vote for, is in fact so and I
believe it. But I don't mind giving you the opportunity to make
me look another way.
Last, let me point out this chart behind us that was put
up--Mr. Smarr and others, I think you were pretty wise not to
pay attention to that because you look at the top five who have
high caps, also high premiums, and one would think it would be
implied that all those caps didn't work.
But I think we all ought to note that Nevada and Ohio and
West Virginia--in fact, West Virginia just had a special
session of their legislature and just put those caps in place.
So to say those caps equate to those premiums is very
misleading.
Thank you, Mr. Chairman.
Mr. Bilirakis. I thank the gentleman.
Mr. Dingell for 5 minutes.
Mr. Dingell. Mr. Chairman, thank you. I would like to defer
to Mrs. Capps, if I could.
Mr. Bilirakis. Well, Mr. Stupak would be first.
Mr. Stupak for 8 minutes.
Mr. Stupak. Thank you, Mr. Chairman.
And thank you, Mr. Dingell.
Mr. Rosenfield, you indicated in your testimony that
insurance companies are exempt from antitrust.
Should Congress repeal that and why?
Mr. Rosenfield. Well, the voters repealed it in California
because it is anticompetitive. And one of the problems with the
industry has been that it circulates among insurers' data
concerning losses, expenses, projections of future losses
whether they materialize or not; and the circulation of this
information is, by definition, anticompetitive since it allows
all the other insurers to base their rates upon the same data.
Mr. Stupak. So we heard testimony of a 400 percent
increase, like that in California. If you are not subject to
antitrust laws, you can set it wherever you want; isn't that
correct?
Mr. Rosenfield. That is correct. And it is very easy,
because they circulate this insurance among themselves as
insurers and everybody is aware of it, everybody knows what all
their competitors are doing.
Mr. Stupak. So if we are really concerned about lowering
rates for malpractice, should we not take away that exemption
for insurance companies and make a more competitive market to
help drive down the cost of insurance?
Mr. Rosenfield. That is what we did in California, and the
impact not only on medical malpractice, but on auto insurance
premiums was profound.
Mr. Stupak. Well, we had that amendment, and actually it
failed. So hopefully it will be part of this bill if it moves
forward in this committee and onto the House floor.
Mr. Smarr, in your testimony, I was intrigued with your
exhibit number 22 where you had the 2000 rates for L.A.,
Milwaukee, Chicago, Philadelphia, Miami. I come from Michigan,
and we mirror Illinois quite a bit. Looking at it, Illinois
doesn't have any caps, and Michigan does. In fact, our caps go
back to, I believe, 1982. They were then increased again in--
not increased, but more limitations were put on plaintiffs in
1994.
And in your chart here on exhibit number 22 you have for
IM, which is internal medicine, $26,000 paid in Chicago; GS,
general surgery, $68,000--these are in premiums--and then OB/
GYN, $102,000. And you have got, ``as reported by the Medical
Liability Monitor.''
Well, you know, I have got the Medical Liability Monitor
here in front of me, a copy of it, and it is October of 2002,
the same time; and when you take a look at internal medicine,
it is $19,000, this for State of Illinois--Michigan, it is
$26,000, again we have the caps.
On general surgery, it is only $51,000, not the $68,000 you
report; Michigan it is $71,000--again, Illinois no caps,
Michigan has caps.
And your OB/GYN for Illinois--again, no caps--at $79,000;
Michigan, with the caps it has $88,000.
Every one of your figures is one-third higher than what is
reported. And we are both citing the same Medical Liability
Monitor, which you said was credible, and you even cite it in
your report. How do we get a third higher for these folks in
your figures when I have the other figures from the magazine
that are a third less?
Mr. Smarr. Well, Congressman, I am reading from the source
document of the ISMIE mutual insurance company, which is the
largest writer in the State; it is a company that is formed and
operated by the State medical association.
Mr. Stupak. So you are saying, you took only one medical
malpractice provider and used their statistics, which were
probably the highest in Illinois. You didn't take the average
of all the underwriters in Illinois to get the average that an
Illinois physician would pay?
Mr. Smarr. I took the leading writer in the State that had
the largest market share.
Mr. Stupak. And also the highest?
Mr. Smarr. No, I did not do it with that in mind.
Mr. Stupak. Answer me this question. We will disagree on
the premiums.
Why would Illinois--why would Michigan be higher, $88,000
to $79,000 for OB/GYN, 71 to 51 for general surgery, 26 to 19
for internal medicine--why would Michigan be higher, and we
have all these caps? We have had them in place for over 20
years. Why would it be higher than Illinois that have no caps
if caps are the panacea to our problem here.
Mr. Smarr. First of all, ProAssurance has higher rates in
Illinois than does ISMIE. Michigan, I am told, has what is
called a frequency problem in that the doctors in Michigan
actually buy lower limits of insurance than in other places in
the United States, and they get sued more often.
Mr. Stupak. Wait a minute. They have got lower rates? But
according to your monitor, Medical Liability Monitor, which you
agree on, Michigan's premiums are actually higher than
Illinois. You would think Illinois, then, would have these
problems. We don't have any caps there in Illinois.
Mr. Smarr. Again, it is related to the tort environment and
the area of Michigan.
Mr. Stupak. Well, the tort environment, Illinois would be
much more generous to a plaintiff because they have no caps;
and Michigan has caps, so they would be less generous to a
plaintiff, correct?
Mr. Smarr. Michigan's caps simply aren't working.
Mr. Stupak. How can they not work? If our cap is $280,000
in Michigan for noneconomic damages, how does an jury award
more than $280,000 and the judge not roll it back if that is
the State law?
Mr. Smarr. I believe the caps are higher for serious
injuries.
Mr. Stupak. Oh, really?
Mr. Smarr. There are exceptions to the Michigan cap, yes,
sir, there are.
Mr. Stupak. The highest you can get in Michigan, like the
loss of a child, is $500,000. So how is that so much higher? I
mean, in Illinois it is unlimited.
Mr. Smarr. Again, on a per doctor basis, if you will, there
are more lawsuits. There is a frequency problem in the State of
Michigan which is also driving rates in that State.
Mr. Stupak. Do we have bad defense attorneys there or what?
Mr. Smarr. I don't know.
Mr. Stupak. Let me ask you this one.
You know, you talk about your median. I want to go to your
chart again; I think it is number 13 were you had almost like a
half million dollars. You had, chart 13, median verdict is
$496,726. And in the National Practitioner Data Bank--are you
familiar with that?
Mr. Smarr. I am.
Mr. Stupak. Is that a credible organization?
Mr. Smarr. Yes, sir, it is.
Mr. Stupak. They have got--I have got to read right here
from the National Practitioner Data Bank--the median medical
malpractice payout for 2000 is $125,000 not $496,000.
How do you reconcile that? It is four times, your numbers
are four times higher.
Mr. Smarr. I can reconcile that, Congressman.
First of all, you are comparing a median with a mean.
Second, you are comparing an average payment value for all
payments with an average payment value for a verdict.
Mr. Stupak. You agree with me, these numbers just don't
jibe?
Mr. Smarr. They are apples and oranges.
Mr. Stupak. Apples and oranges. Okay.
How about this one. You run an insurance company. Some
professors at Duke University, for Indiana, State of Indiana,
looked at the medical liability issue there. And we always hear
this thing that insurers constantly must settle frivolous
lawsuits in order to make them go away.
Do you settle frivolous lawsuits to make them go away, your
company?
Mr. Smarr. I don't work for a company. I work for a trade
association.
Mr. Stupak. Your association that provides the insurance--
--
Mr. Smarr. The physician-owned companies are much more
reticent to make what is called an economic settlement. And
that is where it is cheaper to pay a small amount in indemnity
than incur large amounts in defending a claim. It is part of
the fabric of why the company has reformed.
There are some cases where it is--where it is done, such as
there are changes in the records and things like that.
Mr. Stupak. Let me read this statement, professors from
Duke Law School, who did this for Indiana, when they were
looking at their case, they said--here is what the insurers
said, We don't settle frivolous cases. The insurers' policy on
frivolous cases is based on the belief that if they begin to
settle just to make them go away, their credibility will be
destroyed and this will encourage more litigation. Is that
true?
Mr. Smarr. I believe in that, yes, I do.
Mr. Stupak. So you don't settle frivolous claims? The only
cases settled are valid claims?
Mr. Smarr. By and large, that is true. There are
exceptions.
Mr. Stupak. I have got to stop now. I was just having fun.
Mr. Bilirakis. Let's see.
Mr. Shadegg for 8 minutes.
Mr. Shadegg. Thank you, Mr. Chairman. I want to thank each
of our witnesses for being here today. I think it is a very
interesting discussion. As is often the case, I just come at
this from a different perspective, perhaps, than anybody else.
I am deeply troubled by the crisis we face in the tort system
in medical malpractice right now, but I am also deeply troubled
by the notion of hard dollar caps. I just can't get beyond the
notion that that is government price fixing.
When Ms. Lewinski sits here and you think about the
application of a government-set cap to her circumstance, it is
a very, very difficult situation. I have supported this
legislation in the past, and I may support it again, but I
simply believe we are going in the wrong direction.
I want to follow up on some of the questioning that Mr.
Stupak just asked. Is there anybody in this room that doesn't
believe that, in fact, we are--that there are many claims in
which settlement is paid at some cost higher than its merit to
avoid the cost of defense? That is, does anybody in this room
believe that the ability of someone to bring a lawsuit in the
United States and to know that since we do not have loser pay,
there is no penalty, isn't used to extort settlements for some
cases that lack merit?
Does everybody agree that that does, in fact, happen?
Mr. Rosenfield. Are you discussing medical malpractice or
all tort laws?
Mr. Shadegg. Let's stay with medical malpractice. That is
the topic. You believe that does not happen?
Mr. Rosenfield. I can tell you definitively in California
it is simply not feasible for an attorney. It would be economic
insanity for an attorney who is paid on a contingency basis--
unless they are being paid on an hourly basis like defense
lawyers. If you are being paid on a contingency, there is no
economic advantage to bring such a case.
Mr. Shadegg. If you get a settlement in that case, you
don't get the gain of that settlement?
Let me ask a different question. Does anybody on the panel
believe, for example, that meritorious claims should not be
paid? Does anybody believe that if you have got a meritorious
claim, you should not be able to recover?
All right. Does anybody believe that frivolous claims
should be paid?
I think that takes us to a reform that we are not
contemplating in this proceeding today and that we should be,
and that is some form of loser pays.
First of all, I believe the United States is the only
Nation in the world--at least to my knowledge; there may be one
or two others I am not aware of, and maybe one of you can bring
it to any knowledge--the only Nation in the world that abides
by a strict American rule in which losers are not accountable
for the cost of the defense of the prevailing party. We call it
the English rule, but in fact, it is the rule in all the rest
of the world that if you bring a lawsuit and you lose, you are
required to pay the attorneys' fees.
It seems to me that the reason--and I have done some review
of the literature. This is a Law Review article by the Arizona
Journal of International Comparative Law; and in it, it has a
lengthy discussion of loser pays and of the so-called
``American rule'' versus the so-called ``English rule,'' the
English rule, in fact, being the rule of the rest of the world,
which is losers do pay.
And in that discussion one sentence stuck out at me as
something very, very impressive. It said--at the end of the
day, basically it said, we are a society that really does not
want people to be denied justice because they are not rich
enough to pay for it. And I think that is exactly right; I
think there is a sense that when you have a loser-pay rule, it
would mean that those who cannot afford to bring the lawsuit
cannot bring the lawsuit. For that reason, out of fairness, we
don't go to a loser-pay rule.
But I would argue that that is making a mistake. I would
argue that we should look at loser-pay and say, you know what,
there are serious potential problems with loser-pay because it
could discourage people without financial resources from
bringing meritorious lawsuits.
So why is it we do not proffer language that says the loser
shall pay provided, however, that the court shall look at the
merits of the claim at the time it was brought, at the
reasonableness of the conduct of the attorney who brought it,
at the reasonableness of the conduct of the attorney in
pursuing it through the litigation itself and may make an
award, and take all those factors into consideration? Because
it seems to me that in America we do not want to discourage
anyone, whether they are wealthy or not wealthy, from bringing
a meritorious lawsuit.
But it also seems to me that it is undeniable that the
current American rule, which says you can bring this lawsuit
and no matter how meritless the claim is, you can take your
shot at extorting some kind of settlement and there is no
consequence for it--are any of you aware of any State or any
country that has looked at some form of a modified loser-pay,
that looks at the merits of the claim in determining an award
against the losing party?
Mr. Rosenfield. Congressman, in California that actually
was raised as a possibility, that proposal. And they could not
work out language in the legislature that adequately protected
against those situations in which it was a legitimate case;
that, for one reason or another, was not successful. It was
that danger that caused the proposal to fail.
Mr. Shadegg. It seems to me what we are talking about is
fundamental reform of the system. It is a system that is
abused, but it is a system I believed in. I worked in a tort
law firm for a number of years, and I am very painfully aware
that the tort system helps people who need help, who don't have
resources.
Mr. Rosenfield. I just want to say, Congressman, that you
nailed the fundamental problem with the cap, which is the cap,
by definition, affects a nonfrivolous case.
Mr. Shadegg. That is right. Ms. Lewinski's case is a
classic example of why hard dollar caps create very, very
serious problems.
I want to ask another question. It seems to me you could
also submit a jury instruction which educates the jury on where
the proceeds that pay any claim will come from, fundamentally
explain to the jury, look, if you make an award in this case,
you must understand it will likely come from a fund established
by contributions, insurance payments paid by everybody, we all
pay for them, so you bring some rationality to their
deliberation process.
They could then go on and say, you know what, this is a
meritorious case, and I don't care where that fund comes from,
it may come from all people who get medical services, but in
this case this doctor did something outrageous, such as with
Ms. Lewinski, and by gosh, we are going to award a judgment and
we are going to award a big judgment in this case, something
far in excess of $250,000, a pretty small sum of money for some
of the outrageous kinds of injuries that can occur.
It just seems to me that when we pursue only arbitrary caps
as a way to address the kind of problems that exist in this
system we are making a grave mistake.
Dr. Palmisano, do you want to make a comment on that? Would
your organization be willing to look at other remedies besides
regulatory caps?
Mr. Palmisano. Yes, sir, the American Medical Association,
as I stated earlier, has a policy in favor of the MICRA law.
But we also have--last year we formed a committee to look
at all possibilities as we go forward. We believe the MICRA law
needs to be implemented now. We believe there is an emergency
in the United States, certainly in 12 States. We are looking at
a number of things.
On loser-pays, we do have a policy on that. We would glad
to submit that.
Mr. Shadegg. I would like to see it.
In the 6 seconds I have, I want to make it clear, I intend
to offer a loser-pays amendment. I intend to offer an amendment
I offered a year ago on EMTALA, saying if a doctor is forced to
give care under EMTALA and that care is not compensated, that
it should be the Federal Government that responds in any
damages that are awarded against that doctor.
I may offer some form of an amendment dealing with a jury
instruction to instruct the jury about awards. It may be, what
we ought to be doing is looking at not having the contingent
fee come out of the award, but submit the issue of attorneys'
fees to the jury after the fact.
I don't quite know why you wouldn't say after a defense
verdict, let's--turn to the jury and say, you awarded the
defense verdict in this case. Do you, the jury, believe this
was a frivolous lawsuit that shouldn't have been brought, in
which case you are going to award attorneys' fees against the
losing party; or do you, the jury, believe when they brought
this lawsuit, it appeared to be a pretty meritorious lawsuit
and the plaintiff's attorney was reasonable and you are not
going award any attorneys' fees against the losing party and in
favor of the defense party?
It seems to me we can be more creative in this process. I
appreciate the time.
Mr. Greenwood [presiding]. The gentlelady from California,
Mrs. Capps.
Mrs. Capps. I think it is so important for Congress and
this committee to address barriers to the access to health
care. Thank you for holding the hearing. I thank my ranking
member Mr. Dingell for yielding his time to me, so I could go
ahead.
One emerging barrier seems to be the rise in medical
malpractice insurance rates that are taking place in various
parts of this country. I want to associate myself with the
remarks made by Henry Waxman and Anna Eshoo, my colleagues from
California, and also my colleague from Texas, Mr. Green, that
these are cases which are tried in State courts. Doctors are
licensed by States; I think it is appropriate that this matter
be handled by States, as it isn't very many.
And also my colleague, Ms. Eshoo, who noted that if there
is great inertia when setting caps or fixed awards, inertia
about raising them according to the adjusted cost of living,
that the $250,000 cap in California is actually worth about
$68,000 in today's money.
That being said--and, Dr. Palmisano, I am pleased that you
are here representing the AMA and doctors in our country, many
communities are asking serious questions about how they can
keep their doctors in their communities. And the question we
have to ask is why doctors are increasingly leaving the field
and showing their dissatisfaction.
Your counterpart in California, the medical association,
recently surveyed doctors; 75 percent of those who responded
described the practice of medicine as being less satisfying now
than it was 5 years ago, only 9 percent find it more
satisfying. Another finding: 53 percent who are dissatisfied
cite low reimbursement rates and 53 cite managed care hassles
as the causes, both topics in which we have a role to play in
Congress.
I live in California. This is very disturbing news for
those of us who get our medical care in that State. Yet this is
the State where we have had medical injury compensation reform,
MICRA, for almost 30 years. Now, there is still serious debate,
and I am happy we are engaging in it, about why premiums are
rising and what should be done to stem that growth. Insurance
companies argue that we need to limit noneconomic damages to
patients who have been harmed by a doctor's mistake or
negligence.
At this point I want to thank all of our expert witnesses
for your testimony today, but I want particularly to thank
Heather Lewinski. Your bravery did not go unnoticed by me. And
if it is your family that is with you, they can be very proud
of what you have done with a very horrible experience in your
life. You are sitting before us, and testifying is hard, it is
nerve-wracking--it is even for me, being on this side of the
aisle--not for any gain that will benefit you, but because of
what you personally have gone through. And you are, to me, such
a fine example of someone whose true spirit comes from within
and who will take a very horrible time in your life and
experience and negligence and make something positive for
someone else out of it.
And I hope that is the case, and I wish you well. You are
such an example to me of how this legislation could penalize
innocent victims of medical negligence.
Discriminating as it is against children, moms who stay at
home, people who have disabilities and people who earn low
wages. It says what we are going to do if we pass this
legislation is that the health and well-being of a corporate
CEO is worth more than the health of a janitor or a janitor's
child. Because economic damages are based on wages, the CEO
would get more money in damages.
Noneconomic damages would make--are the only real guarantee
for to us make sure that everyone can be treated fairly.
There is a very prominent case in the news now that is
going to really provoke a lot of discussion on this topic. If I
could turn to you again Dr. Palmisano, you are a doctor, and I
don't have to remind you of your Hippocratic Oath. I am a
nurse, and I think we see things very clearly in this arena.
You have just heard the story of Heather Lewinski; you know
there are other stories like hers.
I will ask you point-blank so you can answer for the
record: Do you think she was well served by her doctor?
Mr. Palmisano. Well, obviously, from what she has told us,
she was not well served by her doctor. It is tragic whenever
someone is hurt through negligence.
Mrs. Capps. All right.
To go on, her doctor and his insurer paid the damages. Do
you think he should be allowed to continue to practice medicine
after what has happened to Heather and her family? Do you think
there should be have been any disciplinary action taken against
him?
Mr. Palmisano. I think the American Medical Association
supports strong State board medical examiners to review, in
fact, in every case where there is payment in a medical
malpractice case, that goes before the State board of medical
examiners. It is mandatory reporting. We should have State
boards to look and see whether or not a doctor needs to be
removed from practice.
Mrs. Capps. With the number of cases before us in this
country, a small percentage of which are reported and acted
upon, perhaps that is something that should be strengthened.
But in this case, Heather's story, she received no economic
damages in her suit because of her age. Under the proposal and
the legislation before us, she would have received only
$250,000. Instead, the court awarded her noneconomic damages of
more than a million because the jury and the court system that
saw and tried this situation felt that that was appropriate. Do
you think it was too high?
Mr. Palmisano. As far as--do I think what was too high?
Mrs. Capps. The award that she was given.
Mr. Palmisano. I don't know what the award was.
Mrs. Capps. It was a million dollars. Am I right?
Ms. Lewinski. The jury awarded me $3 million.
Mr. Palmisano. Well, you can't put a price on life. You
can't put a price on serious injury. What you have to do is try
to balance what you are going to do if you can't compensate--if
you can't take care of the rest of the American public.
Mrs. Capps. I want to underscore the sentence you just
said. You can't put a price. But that, in effect, is what this
Congress is attempting to do with this.
And it is my understanding, Ms. Lewinski, that you actually
had to settle for quite a bit less.
Ms. Lewinski. Yes, because of the lack of insurance that
the doctor had.
Mrs. Capps. Because of the amount of insurance that the
doctor had. Keeping in mind that you have had 14 subsequent
surgeries, and who knows what will be awaiting you in the
future of your life? This is something that only you know.
Again, we have a jury system that is designed for the story
to come before a jury of your peers or of your parents' peers
to make this case.
If I could now turn to you, Mr. Rosenfield, and ask you
about sincere--my California, one of my California
representatives there to see--and I don't have much time left--
since MICRA--would you say this again, what have the rates of
malpractice insurance done in those first 13 years?
Mr. Rosenfield. The premiums for doctors went up 450
percent after MICRA was passed, through 1988.
Mrs. Capps. Is there anyone on this panel who believes that
MICRA by itself capped--did anything to affect the insurance
premiums in California?
You do. Okay. Well, that is a little bit of a pull right
there.
For some reason, Mr. Rosenfield--and you were instrumental
in this--Proposition 103 passed, which meant that all of the
voters in the State of California had to approve something,
which meant they didn't quite trust this insurance industry as
it was self-regulated.
After Prop 103, was there any sign of malpractice insurance
companies leaving the California market in response to this
effort to control them?
Mr. Rosenfield. No.
Mrs. Capps. Thank you very much. Thank you for my time. And
I will yield back what I don't have left. Thank you.
Mr. Greenwood. Mr. Buyer is recognized for 8 minutes.
Mr. Buyer. Mr. Waxman brought up a point--you know, both
political parties have to be relatively honest here. We do like
to pick and choose when the Federal Government should act and
when they shouldn't. We really do. And so Republicans are no
different than when Democrats were in the majority. They would
pick and choose and use the Commerce Clause when to act and
when to defer to the States.
One thing that has worked well--as I have observed as I
look at Mr. Dingell that I am a relatively young bird here, but
he has seen this in his lifetime--when you look at how we
establish EPA, you set out the guidelines, then you turn to the
States and you let them go ahead and conduct their own
environmental, but they can have stricter standards. It is a
system that sort of works well. So all we do pick and choose.
I am not going to get sucked into this debate today about
cap and a cap, only a cap.
I am somewhat bothered by where the debate has really gone
today. I come from a State where I am very pleased that the
atmosphere is pretty good. When I look back on this one,
medical malpractice in the 1960's was liberalized by
legislatures. There was a destablization that was occurring in
the early 1970's. Indiana responded because we had an exodus of
doctors. So in 1975--we had a Governor at the time who was an
M.D., Dr. Otis Bowen--and I believe that what came out of that
legislature is really a model.
Now, I am not king and, boy--but if I could say what would
be wonderful--obviously, I come from Indiana--boy, if every
State had what Indiana has, Congress wouldn't need to act.
So I guess we have members from different States today that
have been saying unto this panel, Oh, comment on this
particular cap and tell me why the premiums have increased and
why they haven't. It isn't just about caps. I sat here and sort
of made some notes as I was pondering about this, and I think
that there is just a series of interrelated problems that
involve regulation, that involve the social control of medical
practice. There is the quality of care, of insurance markets,
there is consistent assessment liability laws, there is the
existing paradigm of the social attitudes toward the practice
of medicine.
So the question of the equitable and efficient solutions to
the series of problems involves, I think, action on multiple
fronts. So you can't just say, well, legislature, what you
ought to do is just throw out a cap there.
So Indiana didn't just throw out a cap. Some States may
have just thrown out a cap. What we did was, we intensified the
peer review system. So I tell you what, in Indiana we--yes,
there are some limitations on claims, but we went ahead and we
placed a limit and said, it should be no more than $1.25
million. But then we come in and go, you know what, we are
going to create a compensation fund.
So we have this government-sponsored system whereby the doc
is responsible for the first 100,000 and his insurance company,
but we then have a patient's compensation fund.
We also have a medical review panel. So we are focusing on
uplifting the standards of practice also.
So this whole question today about changes in legal
doctrine may not likely reverse the current trend. That is the
reason some of my colleagues threw up a chart earlier and said,
look at all these different States out there that have caps.
There is no impact on premiums whatsoever. What are we doing
with caps? My gosh, if those States out there are unwilling to
take on multiple fronts--well, of course.
But I do have a chart. Would you throw up my chart? Who has
got it? If the panel would turn around and look at this for
just a second, what I have attempted to do here is look at
Indiana and our contiguous States. Now this comes from the
Medical Monitor, the Liability Monitor everybody is citing, and
these are, I apologize, 2000 figures. But what I attempted to
do here was use the lower numbers.
[The chart follows:]
[GRAPHIC] [TIFF OMITTED] T6049.067
Mr. Buyer. For Illinois, for example, you could go to Cook
County, Chicago, and the OB is like 89,000; surgery was 54,000,
and internist was 22. I tried to use the lower numbers.
But here is my point. What is occurring in Indiana where we
have a good system that addresses not only costs but medical
review, peer review, quality assurance; not just throwing out
some form of a cap, but a compensation fund system, look at the
impact it is having. So where before we had doctors leaving our
State, when you look at having a system like this and you have
contiguous States, guess what we have? We have an influx of
doctors to Indiana. That is a problem.
So I am challenged at the moment, because I love States'
rights. And now we are having to review this, saying, well, we
are going to have the Federal Government come in and set
standards, but look at the mess we are creating out there
across the country. And I just think it is horrible.
I want to ask, is anyone on the panel familiar with
Indiana's laws? Are you? And I appreciate your comments on my
comments today.
Go ahead, please.
Mr. Palmisano. Well, we are very familiar with the Indiana
law as was originally proposed, because that is where
Louisiana, Dr. John Cooksey, who was formerly in Congress, he
got the idea of bringing Senator Benjamin down to Louisiana.
And several of us met with Senator Benjamin. He explained how
your law was passed, and we then introduced that law into
Louisiana as Act 1465 and it became Act 817 of 1975. It was a
total cap on all damages as was the law in Indiana.
It also had the medical review panel, so before you could
file a claim, you had to go before a medical review panel. The
plaintiff would pick one doctor in the same specialty, the
defendant would pick one doctor, the two doctors would pick a
third. Then there was an attorney who had no vote to make sure
that everything went by the appropriate statutory requirements.
And then--so you have a patients' compensation fund. You
paid a percentage of your premium for--the first 100,000 went
into the patients' comp fund. That was a total cap. That gave
another $400,000.
Since that time--I don't know if I am saying too much--but
Louisiana, we then modified our law more like New Mexico, where
we pay all medicals as incurred.
Mr. Buyer. There are some saying if you have a medical
review panel, you will have an increase in scrutiny, and all
that is going to do is lead to costs because you will have
defensive medicine, you will have doctors asking for more tests
and procedures.
But, you know what, the reverse has happened in Indiana.
These doctors are now focusing more on their patients and not
having to worry about that. So you may have some States out
there, I am just--my editorial comment, people throwing out,
this State has this particular cap and you have got this cap
and you have got this cap. If you are not addressing this
continuum, obviously you are not going to affect these
insurance rates whatsoever. This is my own feeling.
So I am glad to see what Louisiana has done and Indiana.
And these States have to do more than just throw out some cap
on something.
Do you have a comment, Mr. Smarr?
Mr. Smarr. Yes, sir, I do.
The Indiana cap right now is a $1.25 million cap on all
damages of any kind. And I believe the primary insurance
carrier provides the first $250,000 in coverage and then the
compensation fund provides a million in coverage on top of
that.
Just a word about compensation funds. Your fund in Indiana
is unfunded, basically. It is a pay-as-you-go mechanism. It has
a huge outstanding incurred loss for claims that are going to
be reported to it for coverage that is offered. There is a
similar fund in Pennsylvania that ran into huge problems with
its unfunded liability and the surcharges to fund that fund
became astronomical.
Mr. Buyer. Our legislature addressed that. I know my time
has expired, but we have addressed the underfunded.
Thank you, Mr. Chairman.
Mr. Greenwood. The Chair thanks the gentleman.
The gentleman from Michigan, the ranking member, Mr.
Dingell.
Mr. Dingell. I commend you for holding this hearing.
I want to begin by saying, Ms. Lewinski, we appreciate your
courage and your presence this morning. I believe it is very
important that this hearing reflect some of the human
experiences which are involved in the questions before us.
I want to welcome you, Dr. Palmisano. I have great sympathy
for the concerns that you have expressed as you very well know.
I want to thank you, Ms. Rosenbaum, for being here. And Mr.
Rosenfield, you have been of help to us before.
Ms. Rosenbaum, I will direct my first question to you. Ms.
Rosenbaum, you are a law professor. You have tried lawsuits.
How long have you been in this business?
Ms. Rosenbaum. I have been a lawyer now for almost 30
years.
Mr. Dingell. Your comments were very interesting about how
this bill preempts State and Federal law and literally preempts
any possible lawsuit against almost anybody. And I found your
testimony with regard to who gets out from under these lawsuits
to be very interesting.
In the case of State laws, you referred to questions
relating to fraud and deceit, unfair trade practices, civil
rights laws, labor law, including workers' rights protections,
criminal law, consumer protection, antitrust laws and
environmental laws.
Are you sure you are right on that?
Ms. Rosenbaum. I can only testify to what I read in this
bill.
The charge to me as a witness was to take a close look at
the legislation. And reading the legislation, the kind of
health law I teach has me spending a great deal of time on the
text of legislation. Reading the text of this legislation which
is very broad and with very few definitions----
Mr. Dingell. Let me try to make this a little quicker. It
is almost--there is no exemption----
Ms. Rosenbaum. Exactly.
Mr. Dingell. [continuing] from any of these things with
regard to the States; is that correct?
Ms. Rosenbaum. That is correct. And, for example, the word
``any person'' is not modified to take public officials out of
the phrase, ``any person.''
Mr. Dingell. So then I note that you have here examples
of--Federal law. Apparently covered are fraud and abuse, RICO,
false claims, antitrust, Sherman-Clayton Act, civil rights
laws, criminal statutes, Federal food and drug laws, Federal
environmental health laws, Federal labor laws, Federal contract
enforcement laws that provide for liquidated damages,
restitution to the extent that restitution is not understood to
be a part of economic damages.
Do you make the same statement with regard to Federal laws
too?
Ms. Rosenbaum. I do.
Mr. Dingell. Now, Dr. Palmisano, I can sympathize with the
problem that you and the members today at the AMA may have. I
have had many of my doctor friends, who have talked to me about
their concerns. I believe that they are legitimate and real.
You are not here advocating that we go beyond addressing the
problems of health, are you?
Mr. Palmisano. No, sir.
Mr. Dingell. Are you familiar with the testimony of Ms.
Rosenbaum?
Mr. Palmisano. Just what I heard today. I haven't reviewed
it in advance.
Mr. Dingell. You don't endorse that kind of broad
exemption, do you?
Mr. Palmisano. No, sir. We talk about what is on page 19 of
the bill that relates to the diagnosis, prevention, treatment
of any human disease or impairment of the assessment of the
health of human beings. In other words----
Mr. Dingell. Your concern here is about legitimate
questions of health and legitimate protection of people who are
legitimate deliverers of health care; is that right?
Mr. Palmisano. Yes, sir.
Mr. Dingell. Now, Mr. Smarr, I found your comments to be
very interesting. You are appearing on behalf of the insurance
industry, is that right, and are active in one of the
associations which addresses the problems of insurance, is that
right?
Mr. Smarr. Yes, I am appearing on behalf of the provider-
owned or -operated malpractice insurance company.
Mr. Dingell. Now, are you advocating the kind of broad
exemption here that Ms. Rosenbaum has defined as being a real
possibility?
Mr. Smarr. No, sir, we are not.
Mr. Dingell. That would be wrong, wouldn't it, to give
exemption from civil rights laws, environmental laws, consumer
protection laws, labor laws, antitrust laws, fraud and abuse
under RICO, or the False Claims Act, Federal environmental
laws, Federal labor laws? We shouldn't give exemptions there,
should we?
Mr. Smarr. This is the first time that I have heard of
these issues, and so I am hesitant to comment on it. But on the
face of it, yes, you are correct it would be wrong to exempt
people from those laws.
Mr. Dingell. You have read the bill and they apparently
snuck this in on you too, didn't they?
Mr. Smarr. Well, I don't know that that's what the bill
says. I would have to have a read of it.
Mr. Dingell. You didn't see it there?
Mr. Smarr. I didn't see it there.
Mr. Dingell. But I don't detect that you are ready to argue
with the professor of law, are you?
Mr. Smarr. No, sir, I am not.
Mr. Dingell. Now, Mr. Rosenfield, what do you think about
this? Is it your view that this is something which relates to
the matters that have been discussed by Ms. Rosenbaum?
Mr. Rosenfield. Well, it reminds me of that little deal
that the Senate passed exempting in the Homeland Security bill,
exempting certain manufacturers of vaccines. I think it is
something that is stuck in there and everybody hoped that we
wouldn't see it until was too late. I am glad you are calling
attention to it.
Mr. Dingell. Would you generally agree with what it is that
Ms. Rosenbaum has said here with regard to this piece of
legislation?
Mr. Rosenfield. That is our analysis, yes.
Mr. Dingell. I read it, and with profound regret, I think
that somebody is trying to pull the wool over the eyes of the
committee here. And it looks like there may have been some
sneaky draftsmanship here.
Not referring to you, Mr. Chairman. I have great respect
for you.
But that some slippery soul outside the committees'
tutelage may have engaged in a little bit of doubtful practice
here. And I find that to be a very troubling, very troublesome
situation.
I would note, Ms. Rosenbaum, that at page 21 I see here
other Federal law, ``Except as provided in this section,
nothing in this act shall be deemed to affect any defense
available to a defendant in a health care lawsuit or action
under any other provision of law.'' That would tend to add to
the sweep and the breadth of this exemption in all kinds of
wrongdoing which we have seen in the bill before us; am I
correct?
Ms. Rosenbaum. That and the saving of the vaccine injury
claims led me to my conclusion that everything else was
preempted.
Mr. Dingell. In other words, we would use here the old
legal interpretation of expressio unius est exclusio alterius;
is that right?
Ms. Rosenbaum. Exactly.
Mr. Dingell. I wonder, we ought to have--I think Mr.
Chairman, we do need to have some more hearings on this matter.
And I want to commend you for this hearing. What other
witnesses, Mr. Chairman, do we have coming in? Do we have
government, somebody from the Attorney General, somebody from
HHS who would be able to help us wander through this thicket
and perhaps guide us in some appreciation of just whether some
really slippery rascals are going to get out from under the law
here?
Mr. Bilirakis. I would remind the gentleman--your time is
up, but I would remind----
Mr. Dingell. In order to show my respect for the chairman I
ask for 2 additional minutes so that you can tell us if we are
going to have some more hearings here.
Mr. Bilirakis. I plan to go into a second round, very brief
second round, hopefully limiting it just to the people who are
in the room right now.
Mr. Dingell. Well, that's splendid, Mr. Chairman, I would
observe. But I am profoundly saddened by the fact that our
witnesses here agree with me that this is a bad piece of
legislation because it gives all of these profound exemptions
from law to a bunch of people who are not here to say they need
this help, and we don't have the assistance of people from the
Attorney General or the Department of HHS or the Federal Trade
Commission or the SEC. And I really think we ought to know
whether these matters are, in fact, valid because it looks like
there is some slipperiness going on here, Mr. Chairman.
Mr. Bilirakis. Markup is scheduled next week, as you
already know, No. 1. No. 2, we gave the minority the
opportunity--I wanted to delve into things like insurance in
this particular hearing, and we gave the minority the
opportunity. They didn't bring in a single insurance witness
that might set out their particular point of view, which is--
so----
Mr. Dingell. Well, you see, we didn't know what Ms.
Rosenbaum was going to have to say to us. What she has said
here is very, very----
Mr. Bilirakis. We have also had other witnesses who have
had other things to say to us, who are supportive of the
legislation.
The gentleman's time has expired. Let us just go in regular
order.
Mr. Dingell. The other witnesses totally disagree with Ms.
Rosenbaum.
Mr. Bilirakis. With all due respect, we are going to go
into a quick second round limited--you have 8 minutes don't
you? That takes care of our second round I think.
Mr. Dingell. All but me, Mr. Chairman.
Mr. Bilirakis. Mr. Strickland has----
Mr. Strickland. I have 8 minutes, Mr. Chairman.
Mr. Bilirakis. You have 8 minutes.
Mr. Strickland. And if my good friend will promise me he
will limit his remarks to 2 minutes I will yield 2 minutes of
my 8 minutes to Mr. Dingell, so that he can continue his
questioning.
Mr. Bilirakis. You are very free to do that.
Mr. Dingell. I thank my good friend. I don't want to take
the time away from him. I know the chairman is going to very
generously give me my additional time on the second round, so
that I can continue discussing these matters.
Mr. Strickland. Reclaiming my time, Mr. Chairman, I did not
make an opening statement, but I--before I ask my questions, I
would like to say something that just, to me, is the core
conflict which I face as a legislator in this matter of caps.
And if I could settle this inside myself, I think I perhaps
could take a different position than I have taken.
But in this country, we use the jury system to make life-
and-death decisions. In the State of Texas we execute people
frequently, and we are going to execute people in the State of
Ohio, based on the decision made by a jury. And in fact, the
President has said that he is confident that no one has been
executed in Texas that was not guilty; and he has made that
assumption, based on the decision of a jury. And it troubles me
that we would allow the jury system to be so valued and
utilized in a way that they could actually make a decision
regarding taking the life of another person, and yet, when it
comes to monetary matters, when it comes to money matters, we
don't trust the jury system.
We say, somehow it is flawed, it is broken, it can't be
trusted. Now, I don't know how to deal with that. I just don't
know how to deal with that personally. I struggle with this
matter. And I am open to questions or suggestions or to
information that could help me resolve that internal conflict.
Ms. Lewinski, thank you for being here. And I hope you
understand how important your testimony was to all of us. As a
result of your injury, did you receive any economic
compensation?
Ms. Lewinski. Strictly pain and suffering, yes.
Mr. Strickland. But not economic compensation?
Ms. Lewinski. No, sir.
Mr. Strickland. So the only compensation you received was
based upon pain and suffering, which is a noneconomic matter?
Ms. Lewinski. Right.
Mr. Strickland. I am going to ask each of the panelists a
question, and I think it is a fair question. And I am going to
ask you to answer yes or no, or I need more information.
Do you think--and could we just go down the line? Do you
think that Ms. Lewinski was entitled to no more than $250,000
as a result of her injuries?
Mr. Hurley. I am here as an advisor. I would prefer to
advise.
Mr. Strickland. But I think you are here to give testimony,
which will have an impact upon a decision that we make that
could relate to how much compensation someone like Ms. Lewinski
gets; and so I believe it is fair to ask for your personal
opinion about this matter.
Mr. Hurley. I am deeply saddened by the experience that Ms.
Lewinski had, and I favor patient safety initiatives and all
those things to try and make things better from that
standpoint.
But I think the dilemma for legislators like you is to
determine what the balance is between compensating on
noneconomic damages, and any other type of damages for that
matter, against providing health care for everyone, and making
health care more broadly available. So that is the dilemma.
My opinion is, we need to make a compromise somewhere. I
don't know where that compromise is. Unfortunately, that is
your decision, not mine.
Mr. Strickland. But would your personal opinion be that
that level of compensation should be $250,000?
Mr. Hurley. I don't have an opinion on what the right
number is, sir.
Mr. Strickland. Do you not have an opinion, sir, or do you
not want to share it with us?
Mr. Hurley. I have not formed an opinion about the number,
to be honest with you. That is my--that is absolutely my honest
answer. I have not formed an opinion about what the right
answer is from my standpoint.
Mr. Strickland. Mr. Hiestand.
Mr. Hiestand. I would like people to get as much money as
they could get in an ideal world for their injuries, but I
don't believe that that can be done.
And in relation to your earlier concern that you expressed
about tying juries' judgment, juries have to make decisions
according to the rules of law, as you know; and one of the
ironies I have always found in this--as a lawyer, is that if a
lawyer commits malpractice on someone, depriving them of their
liberty or their property, you know what the limit on
noneconomic damages is for that injured party.
Mr. Strickland. You know, sir, I don't. But----
Mr. Hiestand. Zero.
Mr. Strickland. But I feel like you are avoiding my
question. It is a very simple question about a very particular
circumstance, and you are here urging us to support H.R. 5,
which will have an effect on someone like Ms. Lewinski. You
have an obligation, I believe, to answer a simple question. I
am asking you a very simple question.
Mr. Hiestand. I believe that what California did in setting
the amount at 250,000, what Congress did at setting it----
Mr. Strickland. You are not answering my question.
Mr. Hiestand. This is the answer: The 250,000 which
Congress also set as a limit for what is paid for noneconomic
damages to the survivors of the 9/11, and then currently----
Mr. Strickland. We are not talking about 9/11. I am talking
about----
Mr. Hiestand. I am talking about the amount, 250,000.
Mr. Strickland. With all due respect, sir, I am asking a
very simple question.
Ms. Lewinski has provided us with testimony about her
circumstances. It is an individual circumstance. The law we are
considering will impact individuals, and I am asking you about
this individual circumstance.
Do you believe that what has happened to her is a situation
that should require her to be paid no more than $250,000? I
think that is a simple question. And if you need more
information, say, I need more information; I am not going to
answer it yes or no.
Mr. Hiestand. Well, it is a two-step answer, and the first
answer is, as a person, as an individual, as I said at the
beginning, I favor unlimited compensation for people who have
injuries.
If I was a lawmaker, like you are, and I have to make a
decision to try to balance how you are going to prevent
malpractice or restore people to whole and at the same time
keep access to your health care system, I favor setting some
limit on noneconomic damages.
Mr. Strickland. Okay. If I can stop you there.
And before I ask the others to respond, do you think MICRA
was a good law when it was passed?
Mr. Hiestand. Yes. It is a good law today.
Mr. Strickland. Do you think the level of compensation was
an appropriate level of compensation when it was passed into
law?
Mr. Hiestand. Yes.
Mr. Strickland. Do you favor having that $250,000 indexed
so that it would have the purchasing power today that it had at
the time was passed into law?
Mr. Hiestand. No, because that amount today would be in
excess of $800,000 if it was indexed.
Mr. Strickland. If the purchasing power is the same,
explain to me why the purchasing power when it was passed was
appropriate and it would not be appropriate today to have the
same----
Mr. Hiestand. Two answers. First, the experience in
California is that even with the limit of 250,000, people who
sue for medical malpractice today are getting more adjusted for
inflation than they were getting before the $250,000 limit,
more in the overall judgment, because the economic damages--
lawyers have become very good at getting them up to make up for
that.
Mr. Bilirakis. You are past your 8 minutes.
Mr. Strickland. Are my 8 minutes up?
Mr. Bilirakis. Oh, yes. You are into your 9th minute.
Mr. Strickland. Well, I am sorry because I wish----
Mr. Bilirakis. Well, if you hang around, Ted, you will get
another shot.
The gentleman's time is up. I am being reminded that I have
3 minutes.
Does anyone disagree that--let's not go into, for the
moment, in terms of what the solution might be or should be or
whether it should be left completely up to the States or
whatever the case may be. Does everyone agree that there are
problems out there that would require enacting medical
liability reform of some sort?
And we haven't even touched on it here, but when we used to
talk about this subject, we quite often talked about how it
increases the cost of medical care because of all of the
additional tests and whatnot that have to take place, that
physicians feel have to take place in order to protect
themselves. Do we have any disagreements there?
You disagree? Heather, you have been listening to all of
this. I guess it has probably been a little bit of an education
to you. Do you--let's not go to 250,000 or 800,000 or whether
there should be a cap. But do you understand the need for
something to take place because a lot of doctors are leaving
professions, a lot of doctors are leaving geographical areas,
going to another geographical areas, things of that nature--
access, in other words, being a problem. OB/GYNs are not as
available these days; do you agree?
Ms. Lewinski. Yes, sir. But I think you are going after the
wrong people, the victims instead of the real problem.
Mr. Bilirakis. And the real problem is the doctors?
Ms. Lewinski. I am not--I am just not sure why the doctors
don't want to weed out the bad ones. I mean, the majority of
doctors are good. Why don't you want to weed out the bad
doctors?
Mr. Bilirakis. Yes. You said that in your written
statement, which is fair.
Mr. Hurley, a real quick comment because I don't have much
time. You agree that something has to be done? I believe you
do.
Mr. Hurley. I believe that you need to look at some
solutions.
Mr. Bilirakis. Yes. Mr. Hiestand?
Mr. Hiestand. Yes.
Mr. Bilirakis. Mr. Rosenfield, I know you don't believe. I
don't want to know your answer, you just don't believe, because
I don't have time.
Ms. Rosenbaum.
Ms. Rosenbaum. I would recommend a complete alternative to
the current system.
Mr. Bilirakis. But something being done, yes.
Ms. Rosenbaum. Yes.
Mr. Bilirakis. Right.
Mr. Bilirakis. Mr. Smarr?
Mr. Smarr. Yes, I do believe something needs to be done.
Mr. Bilirakis. And Dr. Palmisano?
Mr. Palmisano. Yes.
Mr. Bilirakis. I don't have enough time to ask you to tell
me what you think should be done, but I would like to invite
you and someone over here--I think asked Ms. Rosenbaum, Mr.
Norwood. But I would like to invite you--if you feel that
something ought to be done; if you feel that nothing needs to
be done, then you don't have to submit anything--give you the
opportunity to let us know in writing how you think we ought to
approach this.
I mean, you are experts here, and I--you know, we do have
biases. We are human beings and many people on the other side
have biases and they are accused by many of being for it, in
the pocket of the trial lawyers.
Mr. Waxman has already said that the Republicans are
basically biased for the insurance companies. There may be some
truth in all of that. But I would like to think that we
sincerely want to do something that will help to solve the
problem. So I invite you to do that.
Having done that, I yield 3 minutes to Ms. DeGette.
Ms. DeGette. Thank you, Mr. Chairman.
Mr. Bilirakis. Do you want the 3 minutes now Mr. Dingell?
You have that right.
Mr. Dingell. No, I will wait.
Mr. Bilirakis. Ms. DeGette.
Ms. DeGette. Thank you, Mr. Chairman.
Mr. Smarr, as I understand it, there are different risk
groups for doctors and, in fact, in one of the charts Mr. Buyer
put up, you saw that some doctors pay much higher insurance
rates because they are in different risk groups than other
doctors. For example, OB/GYNs, neurosurgeons, folks like that,
pay substantially higher insurance rates than, say, family
practitioners; is that correct?
Mr. Smarr. That is correct.
Ms. DeGette. And a lot of the crisis that we have seen in
malpractice insurance rates has been with these doctors who are
paying high premiums in high-risk groups, right?
Mr. Smarr. They are experiencing it greater than the
others; that is right.
Ms. DeGette. Now, as I understand it--and unfortunately, I
couldn't be in Pennsylvania; I had another obligation in my
district. But as I understand it, some of the conversation in
Pennsylvania said, if you spread the risk out among all
doctors, that the lowest-rate doctors in Pennsylvania would end
up paying like $5,000 to $7,000 more per year in malpractice
insurance premiums. But then the high-risk groups would be
lowered if you spread them out over different polls; is that
correct, Mr. Smarr?
Mr. Smarr. The direction of change is correct. I am not--I
don't know about the order.
Ms. DeGette. But, I mean, it makes sense.
And, Mr. Rosenfield, you--even though they say you are not
an expert on insurance, I know you are an expert on insurance,
so I would just like to set the record straight for that. But
my understanding is that if you spread the risk out, some
people, some doctors' insurance might go up a little bit, but
the highest-risk doctors' insurance would go down
substantially; would that be correct? Just very short.
Mr. Rosenfield. Yes.
Ms. DeGette. Thank you. Because here is what I am sitting
here thinking. When I hear Mr. Hurley and Mr. Hiestand and all
these folks saying we really think there is a problem--and I
agree there is a problem; no one doesn't think there is a
problem. The question is, who should bear the burden? And here
is the thing I am thinking.
Ms. Lewinski, or the lady who, through medical malpractice,
had both of her breasts amputated needlessly, or so many other
victims that may not have high economic damages, why should we
limit their noneconomic damages to $250,000 arbitrarily when
they may have substantially higher damages, but we are limiting
them?
But we are saying to doctors, we don't want to make people
with low--in low-risk groups just pay a little bit more
insurance premiums to help their colleagues in higher risk
groups? I think that is appalling that we, as Representatives
of the American citizenry in Congress, would make that value
judgment to say to these victims, you are arbitrarily capped.
You might have noneconomic damages of millions of dollars, but
you only get this much.
But doctors, forget it. We don't want you to have to pay
higher insurance rates nor do we want to examine the insurance
industry.
And I am even more opposed to this bill, if possible, than
as I was before. I told my dear friend I would be willing to
try to work with them on this, but I just think this is the
totally wrong road to go down. Thank you for your comity.
Mr. Greenwood [presiding]. Well, and I wanted to make a
comment just to respond to my friend, Mr. Strickland, with
regard to juries and how much leeway they have. Our jury system
is critical and almost sacred in our country, but I would also
note that we give juries the right to determine fault and we
give the juries the right to determine the ability to determine
guilt, but we don't say--we don't give juries, for the most
part, unlimited abilities to--with regard to sentencing, for
instance. We don't say, you can execute someone for shoplifting
and so forth.
Mr. Strickland. Will my friend yield just a moment?
Mr. Greenwood. I will yield to you, but just let me finish
my thought here, if you would.
So I think, in fairness, this is not about whether we
remove the jury system from its deliberations to determine
where there is fault in a case and so forth. But what we are
trying to do is, as Mr. Hiestand said, set some limits to have
justice and affordable health care and available health care.
Mr. Strickland. Can I respond in 10 seconds?
Mr. Greenwood. Ten seconds.
Mr. Strickland. Some juries recommended death or life
sentences. That is a pretty weighty decision. And I think as
long as juries are trusted to make those kind of decisions,
they should be trusted to do that.
Mr. Greenwood. Reclaiming my time, I understand the
gentleman's point. The point I was trying to make is that this
is not an alien notion that there would be some limits imposed
by lawmakers on the discretion available to juries.
The other point I think that needs to be made is there has
been a constant repetition of the $250,000 figure. It needs to
be understood that the $250,000 figure is there, in part,
because it is what has worked in California. It is there, in
part, because the California delegation, many of them, felt
that they didn't want us to trump their existing cap, and so we
have allowed the States to set that cap wherever they wanted.
So, my friend Mr. Waxman talked about States' rights. We
were very clear in this legislation that any State legislature
in the country that wants to set noneconomic damage at a number
higher than 250, whether it is $500,000 or $750,000 or $1
million, wants to decide to move it periodically with time and
so forth, is certainly free to do that.
Now let me try to wedge a question in here for Mr. Smarr,
and referring to Ms. DeGette's comment that has to do with
rating.
Do you have any recommendations with regard to--because
this question comes up a lot. Is it--do we have any structural
problems, with the physician-owned companies at least, that
have to do with classes of coverage being too small to
actuarially rate fairly, with giving different rates to
physicians that have more claims paid because of their
malpractice than others? How does that work?
Mr. Smarr. Each company looks at its insureds usually by
medical specialty and then by a geographical unit, such as a
county--and this is true of a lot of lines of insurance; auto
insurance, for example--and assigns relativities to each type
of insured, based upon the loss experience within their medical
specialty, or group of specialties, and within their county or
group of counties and territories to try to fairly charge each
individual doctor in proportion to his or her losses for the
type of practice they have.
In addition----
Mr. Greenwood. My time has expired. But--so if physician A
has had more losses as a result of settlement or judgments than
physician B, and they are in the same county in the same
specialty, do they tend to pay different rates?
Mr. Smarr. They indeed can. Through other mechanisms, the
insurance companies offer to do merit rating, and that is not
an unusual concept.
Mr. Greenwood. Thank you. My time has expired.
The gentleman, Mr. Dingell, is recognized for 3 minutes.
Mr. Dingell. Mr. Chairman, thank you. I wanted to just go
into this business, the definition of health care provider who
would be sued, or health care organization.
Where is there a limitation on who might fall into that
particular category of persons in the legislation? Is there
one, anywhere?
Ms. Rosenbaum. I saw none.
Mr. Dingell. Maybe--Mr. Smarr, you are our expert on
insurance. Do you find any limitation on who that individual
might be?
Mr. Smarr. I have not looked at this, so I can't comment
sir.
Mr. Dingell. Should there be a limitation on who would get
out from under the liability here, Mr. Smarr?
Mr. Smarr. Well, the legislation, I think----
Mr. Dingell. No. No.
Mr. Smarr. [continuing] addresses who is covered by----
Mr. Dingell. The question is quite clear. And there are 13
sections left?
Mr. Smarr. I don't know.
Mr. Dingell. Who would be able to tell us?
Mr. Rosenfield, maybe you can help us. Do you find any
limitations on who gets out under this liability here?
Mr. Rosenfield. No.
Mr. Dingell. Is there anybody that finds any limitations on
any fellow that gets out from under it?
Mr. Hiestand, maybe you are a better lawyer than all the
rest of us here.
Mr. Hiestand. I understood Dr. Palmisano is also a lawyer,
referring to page 9 of the----
Mr. Dingell. I am not sure Dr. Palmisano wants to get into
this discussion.
Do you want to get into this discussion, Doctor----
Mr. Hiestand. On page 9 of the bill, it ties it in in terms
of medical and health care services and goods.
Mr. Dingell. But who is defined?
Mr. Hiestand. Diagnosis and treatment and I think that is
the limitation. And I mean, the professor may be right that
that is not confining enough. But I think the intent of the
legislation was to limit it.
Mr. Dingell. When I was in law school, I didn't argue with
my professor.
Mr. Hiestand. Pardon?
Mr. Dingell. Are you a lawyer?
Mr. Hiestand. Yes.
Mr. Dingell. You are. Did you ever argue with your
professor? I was always taught not to.
Mr. Hiestand. I sometimes argued with my professor, but you
know, it is not a winning kind of thing.
Mr. Dingell. Where is the language that you would rely on
to exempt some person, rather to remove them totally.
Mr. Hiestand. Dr. Palmisano has it scored in yellow over
there at the top of the page. If he could sort of read that----
Mr. Dingell. If you tell me it is there, it must be there.
I am just waiting to hear you tell me what language you rely on
here. Dr. Rosenbaum can't find it. Mr. Rosenfield can't find
it. I can't find it. The staff can't find it. The chairman of
the committee can't find it.
I am sure the legal counsel for the committee, when we get
around to holding hearings, won't be able to find it. We don't
have any other witnesses who can tell us.
I am just curious who can help me out of this thicket,
because I really want to know who this would be.
Mr. Hiestand. It is page 19, I am sorry, not page 9; I
misunderstood him.
The operative definition, as I understand it, on page 18
you have both; 11 is a health care provider and beneath that
which--it ties into health care provider--is the health care
goods or services.
When you flip over on page 19 of that definition, it says
that relates to the diagnosis prevention or treatment of any
human disease or impairment or the assessment of the health of
human beings. I think that is the limiting language that is
supposed to control both the goods and services and who they
are provided by.
So I think that was the intent of the drafters here, to
make sure it didn't go as broadly.
Mr. Dingell. To what, though, does that language and that
definition refer? I mean, it just sits there in glorious,
solitary splendor. I don't think it refers to anything.
Mr. Hiestand. Well, it might well be tightened up. But it
says that relates to--you don't--if you are providing services
that relate to diagnosis prevention or treatment of human
disease, that eliminates a whole lot of other services.
Mr. Dingell. I have to assume that you would advocate that
if this defect is--as it appears at this time, that it be
corrected, wouldn't you?
Mr. Hiestand. Well, I think one ought to look at it to see
if it should be tightened, yeah. I mean, you raise and the
professor raises a legitimate point for consideration.
But I am just saying, the bill, I think, does intend to try
to relate it, in the language on the top of page, to narrow it,
and the language on the top of page 19 reflects that.
Mr. Greenwood. The time of the gentleman has expired.
Mr. Dingell. I would love to see to what it refers, but it
doesn't say what it refers to. It just defines. That is
different.
Mr. Greenwood. If the gentleman from----
Mr. Dingell. I notice my time has expired, Mr. Chairman.
Mr. Greenwood. It has. Perhaps you noticed me telling you
that.
Mr. Dingell. I am sorry, Mr. Hiestand. This has been a
fascinating discussion. You haven't helped me, but I know you
have tried hard, and I thank you.
Mr. Greenwood. Mr. Strickland is recognized for 3 minutes.
Mr. Strickland. Thank you, Mr. Chairman. I am going to
continue my line of questioning because, you see, you folks
come here and I don't think any of you are under a subpoena to
do so. You come here willingly to talk with us about this
important issue and, hopefully, to affect our thinking about
it. So I think we have got a right to explore your thinking.
And I think that means you have got a right to answer or an
obligation, a responsibility to answer the question.
So I will go on down.
Mr. Rosenfield, do you feel like Ms. Lewinski should have
been limited to a compensation of $250,000?
Mr. Rosenfield. No.
Mr. Strickland. Thank you. I appreciate that concise,
direct, understandable answer.
Ms. Rosenbaum.
Ms. Rosenbaum. I don't, and I think the distinction between
the two kinds of recoveries are a terrible example of
legalisms.
Mr. Strickland. Could I ask you this then? Do you think
perhaps if we are going to consider capping noneconomic
damages, that it is fair to consider capping economic damages?
Ms. Rosenbaum. I think the issue is that an individual who
is damaged or injured should recover. I think the attempt to
distinguish is shown in all of its futility in a case like Ms.
Lewinski's.
Mr. Strickland. And I think it portrays a utilitarian view
of human beings, that I find incredibly offensive.
Mr.--I am sorry, I can't see your name tag.
Mr. Smarr. My name is Larry Smarr.
Mr. Strickland. Larry. Respond.
Mr. Smarr. Well, my short answer is, I need more
information. And let me tell you why.
Mr. Strickland. Okay. And that is a fair response.
Mr. Smarr. Well, as I understand it--and I don't know if I
heard everything here--the total amount received was $1 million
in noneconomic damages, and I would expect under----
Mr. Strickland. It was not, we are being told.
How much it was, Ms. Lewinski?
Ms. Lewinski. Well, the jury awarded me $3 million, but
because of the lack of insurance of the doctor, I received a
substantial amount less.
Mr. Strickland. Did you receive less than $1 million?
Ms. Lewinski. Yes, sir.
Mr. Strickland. While I am talking with you, who has paid
for your surgeries, your multiple surgeries?
Ms. Lewinski. Insurance.
Mr. Strickland. Your father's insurance, I understand.
Ms. Lewinski. Correct.
Mr. Strickland. Okay. Continue.
Mr. Smarr. Well, I would expect in most cases--and I am not
sure about this one--that there would be considerable economic
damages that would be awarded. And that is why I need more
information to know the actual amount.
But to get to your question about 250 and is that
sufficient for noneconomic damages, I think we are really at a
societal question here, and that is whether there is enough
money in the system to pay the unlimited awards because----
Mr. Strickland. Can I interrupt you? I have got 15 seconds,
and I want to get to the good doctor. And I want to tell you,
my very best friend is a pediatric surgeon, and I go through
these conversations with him all the time.
I don't want this hearing to end without expressing to you
that there is no professional group that I have more respect
for and that I value more than those who provide medical
services to our people. And so I hope anything that I say is
not construed as an attack upon the medical profession that I
truly admire and honor. Thank you very much.
Thank you, Mr. Chairman.
Mr. Greenwood. Mr. Stupak, if he has caught his breath, is
recognized for 3 minutes.
Mr. Stupak. Thank you, Mr. Chairman. I had to run from the
floor, but I appreciate that.
Heather, thank you for testifying; your testimony is
certainly helpful to all of us as we try to wrestle with this
issue.
Mr. Smarr, you had indicated at one time during testimony
today that the $250,000 cap you thought was reasonable and
fair. Is that correct?
Mr. Smarr. Yes, sir.
Mr. Stupak. Okay. In 1975, when California put on their
$250,000 cap, did you think it was fair then?
Mr. Smarr. I wasn't aware of it then, but yes, I believe it
was.
Mr. Stupak. Okay. Well, today that $250,000 cap in 1975, by
today's value--is $40,389 by today's actual dollars when
compared to 1975. Do you think that is fair?
Mr. Smarr. I think that it is very hard to determine a
level for noneconomic damages when it is an issue that is just
unmeasurable.
Mr. Stupak. Okay. So yes or no. I am just----
Mr. Smarr. Yes, I think that $250,000 is the correct level
for it today.
Mr. Stupak. Even today?
Mr. Smarr. Today.
Mr. Stupak. So the $250,000 that California put in in 1975,
if you took it to today's value, it is $1,547,461 in 2002
dollars. Is that fair?
Mr. Smarr. Is that calculation fair or is that a fair
amount?
Mr. Stupak. Do you think that is a fair amount for
noneconomic damages?
Mr. Smarr. West Virginia has a $1 million limit, which is
similar to the number you are citing, and West Virginia is one
of the most troubled States in the Nation with regard to
medical liability incidents.
Mr. Stupak. So you don't think that is fair for noneconomic
damages?
Mr. Smarr. I think it is too high.
Mr. Stupak. We have heard a lot of people throw around the
figure, or not the figure, but the phrase ``noneconomic
damages.'' some have even claimed that they are frivolous, pain
and suffering. But this is much more than pain and suffering,
isn't it?
Mr. Smarr. Yes. There are different categories of things
that are deprived that----
Mr. Stupak. Well, let me tell you, the standard jury
instructions that we use probably everywhere in the State
describes noneconomic damages to compensate for real, permanent
harms that are not easily measured in terms of money, as we
have seen by just the answers there, to compensate for these
injuries; and they include noneconomic damage injuries--
blindness, physical disfigurement, loss of fertility, loss of
sexual function, loss of a limb, loss of mobility, and loss of
a child.
Do you think that $250,0000 is a fair cap for those
noneconomic damages? That is the real definition of noneconomic
damages; it is more than just pain and suffering.
Mr. Smarr. I believe that $250,000 is the appropriate cap
for this legislation.
Mr. Stupak. Okay.
Mr. Hurley, you had indicated in response to Mr. Strickland
that you thought health care should be for everyone. All of us
up here certainly agree with that and access to it.
But do you believe that the high malpractice premiums for
doctors cause patients' health insurance premiums to go up?
Mr. Hurley. I believe that the high price of malpractice
premiums does cost health care--does cause health care costs to
go up, yes.
Mr. Stupak. The Consumer Federation of America, do you know
that organization?
Mr. Hurley. I have heard their name.
Mr. Stupak. So you don't know if they are a credible group
or not?
Mr. Hurley. I do not.
Mr. Greenwood. The time of the gentleman has expired.
Mr. Stupak. Is it time already?
Mr. Greenwood. Time flies when you are having fun, Mr.
Stupak.
Mr. Stupak. I would like to have a little more fun, if you
would let me.
Mr. Greenwood. You can have as much fun as you want, but
not today.
Mr. Stupak. Could I make a motion though on behalf of this
side? Mr. Dingell brought up earlier about the need for having
more hearings on this before we go to markup. And I know we are
sort of on a fast track, but when we--we are talking about
insurance and all that, insurance companies' investments and
payrolls and reserve practices and costs of payouts for
settlement and claims, it would really be helpful if we had
that before we went to a markup, not only to structure
amendments, but also to get the full picture out here of
insurance premiums, insurance policies.
So I would hope that we would at least get another hearing,
at least on the insurance aspect, because as a couple of the
members said, we need to look at all the stakeholders here, and
the insurance companies certainly are a big one.
I, for one, believe we should take away their antitrust
exemption--and to get some competition in here. So could we
slow this process down, or--there is no real rush here to do
this, other than a calendar that someone created.
Can't we have a hearing on just that aspect of it?
Mr. Greenwood. Well, No. 1, I am not empowered. I am not
even the chairman of this subcommittee, let alone the chairman
of the full committee.
Mr. Stupak. But you have the Chair right now. You can say
that.
Mr. Greenwood. I don't think that the gentleman truly means
to make a motion to that effect.
Mr. Stupak. Well, consideration. Do you guys second that
motion?
Mr. Greenwood. It will be taken into consideration. But you
have got two guys here, and I have got just me, so we are not
going to vote on it.
Mr. Stupak. Oh, come on. You mean we can't get democracy in
malpractice?
Mr. Greenwood. With that objection, I would like to enter
the following documents into the record.
One is the National Association of Insurance commissioners'
letter to Senator Gregg, dated February 7 of 2003; the
Federation of State Medical Boards of the United States of
America summary of the 2001 board actions, dated April 9, 2002;
the study entitled, Who Pays for Tort Liability Claims: An
Economic Analysis of U.S. Tort Liability System, written by the
Council of Economic Advisers in April 2002; a study entitled Do
Doctors Practice Defensive Medicine, written by Daniel Kessler
and Mark McClellan; and a study entitled Did Investments Affect
Medical Malpractice Premiums by the Insurance Asset Management
Group; as well as documents--exhibits I believe presented by
the Democrats, one entitled Medical Malpractice: What Did MICRA
Do to California Premiums, and another one entitled California
Medical Malpractice Premiums, 1975 to 2001.
Without objection, those documents will be entered into the
official record.
We thank the witnesses. You have been here for 4\1/2\ long
hours without so much as a courtesy break. Thank you for your
testimony, every one of you. We appreciate it. This hearing is
adjourned.
[Whereupon, at 1:55 p.m., the subcommittee was adjourned.]
[Additional materiial submitted for the record follows:]
Prepared Statement of the American Academy of Family Physicians
This statement is submitted to the Health Subcommittee of the House
Energy and Commerce Committee on behalf of the 93,400 members of the
American Academy of Family Physicians. This hearing, entitled
``Assessing the Need to Enact Medical Liability Reform,'' is timely.
The current lack of professional liability insurance does threaten
patient access to care in some states. The continued trend of
increasing insurance premiums drives up the cost of health care and
forces physicians to drop certain services when they cannot afford
professional liability insurance.
PATIENTS AFFECTED BY THE LACK OF MEDICAL LIABILITY INSURANCE
Medical liability insurers have left the medical insurance market
in the past year in alarming numbers. One major reason for this exodus
is the unpredictable rise in jury awards that exists in states without
adequate tort reforms. According to the Physician Insurers Association
of America (PIAA), the last decade has seen a dramatic increase in
awards in excess of $1 million even while the number of suits filed has
remained the same. As a result of the steady rise in record-breaking
awards, most insurers find it more difficult to predict their risk. The
remaining insurers have raised rates or refused new applications for
insurance. Family physicians are beginning to experience difficulty in
finding insurance companies to provide liability insurance or are
receiving renewal notices with anywhere between 60 percent and 200
percent increases for the second year in a row.
Stories of family physicians closing their practices because of
liability insurance premiums are turning up across the U.S. Recently,
for example, AAFP Direct reported that AAFP Past President Neil Brooks,
M.D., sent a letter recently to the Hartford Courant, saying that he
was giving up his practice of thirty-two years because the liability
premiums had become too expensive.
In rural Morrow County, Ohio, Brian Bachelder, M.D., President of
the Ohio Academy of Family Physicians, decided to stop delivering
babies after his liability premium increased by $21,000 last year. Dr.
Bachelder was the only Morrow County physician providing prenatal and
obstetrical care.
In rural Chipley, Florida, Greg Sloan M.D., found his malpractice
premium has risen from $4,500 to $13,600 in one year. This was in spite
of a 24-year career without a suit being filed against him. Dr. Sloan
said it has reached the point that he cannot pay his staff and the
liability premiums.
Most state laws, hospital accreditation requirements and managed
care contracts mandate that physicians carry medical liability
insurance. If family physicians cannot afford insurance coverage, they
must choose between shutting down their practice altogether or
restricting the range of services they provide. For family physicians
in rural settings, this usually means being forced to stop delivering
babies or providing prenatal care due to mounting liability premiums.
The tools needed to counteract this alarming trend are derived from
state experiences. Last year, the Department of Health and Human
Services released a report entitled, ``Improving Health Care Quality
and Lowering Costs by Fixing Our Medical Liability System.'' According
to this study, liability premiums have been growing rapidly in states
that have failed to place reasonable limits on non-economic damages.
While economic losses, such as lost wages, medical expenses and
rehabilitation costs are fully compensated, non-economic damages
reflect the monies collected for intangible losses. Over the previous
two years, states without caps on these non-economic damages have
experienced a 44-percent increase in liability premiums. In contrast,
states with caps on non-economic damages of $250,000 experienced on
average an increase of only 15 percent in medical liability insurance
premiums.
The reforms contained in California's Medical Injury Compensation
Reform Act of 1975 (MICRA) have already brought stability and fairness
to the California legal system for the past 27 years. Californians
Allied for Patient Protections (CAPP), a major consumer group
supportive of MICRA, found that legal disputes in California are
settled 23 percent faster than the national average. At the same time,
the number of suits filed in California matches the national average.
In the ensuring 27 years, medical liability insurance premiums have
risen 505 percent nationwide compared with California's increases of
167 percent.
AAFP SUPPORT FOR H.R. 5, THE HEALTH ACT
But the states cannot, by themselves, resolve this national crisis.
The House of Representatives addressed this issue by passing, H.R.
4600, The Help Efficient, Accessible, Low Cost, Timely Health Care
(HEALTH) Act in the 107th Congress. The HEALTH Act has been
reintroduced into the 108th as H.R. 5. The Academy supports H.R. 5,
which would bring the same rational reforms contained in MICRA to all
states' professional liability systems. The AAFP supports federal
legislation to stabilize the medical tort reform systems in the states
since spiraling insurance premiums mean increasing numbers of pregnant
women in rural areas of the U.S. will not be able to find a physician
to deliver their babies.
There is an important additional reason that the AAFP supports The
HEALTH Act. H.R. 5 requires that a party pay damages only to the extent
that the party was liable for the harm caused. Family physicians
provide primary care which is comprehensive and coordinated care for
all life stages and both genders. Because they are the overall medical
managers for a vast number of patients in the U.S., with responsibility
for making referrals to subspecialists, family physicians need the
protections of joint and several liability reforms to ensure that they
are not held responsible for the clinical decisions of others.
CONCLUSION
The Academy appreciates the opportunity to address the Health
Subcommittee of the Energy and Commerce Committee regarding the need to
pass medical liability reform. We look forward to working with the
Committee to find a workable solution for patients and physicians.
______
Prepared Statement of the American College of Obstetricians and
Gynecologists
On behalf of the American College of Obstetricians and
Gynecologists (ACOG), an organization representing more than 45,000
physicians dedicated to improving the health care of women, we urge you
to bring an end to the excessive litigation restricting women's access
to health care.
ACOG resoundingly supports HR 5, the bipartisan HEALTH Act of 2003,
and we urge this Committee, and the House of Representatives, to pass
this meaningful medical liability reform legislation, which protects
women's access to health care.
Across the country, the meteoric rise in medical liability premiums
is threatening women's access to health care. Faced with the
unaffordability and unavailability of insurance coverage, ob-gyns are
forced to stop delivering babies, reduce the number of deliveries,
scale back their practices by eliminating high-risk procedures, or
close their doors entirely.
This statement will also highlight how the medical liability crisis
is acutely affecting a growing number of states, explaining how access
to basic and important women's health care in those states is severely
jeopardized because of a liability system gone awry.
I. EFFECTS OF EXCESSIVE LITIGATION ON WOMEN'S HEALTH CARE: AN OVERVIEW
The number of lawsuits against all physicians has been rising over
the past 30 years in an increasingly litigious climate, and obstetrics-
gynecology--considered a ``high risk'' specialty by insurers--remains
at the top of the list of specialties affected by this trend.
An ailing civil justice system is severely jeopardizing patient
care for women and their newborns. Across the country, liability
insurance for obstetrician-gynecologists has become prohibitively
expensive. Premiums have tripled and quadrupled practically overnight.
In some areas, ob-gyns can no longer obtain liability insurance at all,
as insurance companies fold or abruptly stop insuring doctors.
When ob-gyns cannot find or afford liability insurance, they are
forced to stop delivering babies, curtail surgical services, or close
their doors. The shortage of care soon affects hospitals, public health
clinics, and medical facilities in rural areas and inner cities.
Now, women's health care is in jeopardy for the third time in three
decades. This crisis will only end soon with legislative intervention.
The recurring liability crisis involves more than the decisions of
individual insurance companies. The manner in which our antiquated tort
system resolves medical liability claims is at the root of the problem.
A liability system--encompassing both the insurance industry and
our courts--should equitably spread the insurance risk of providing
affordable health care for our society. It should fairly compensate
patients harmed by negligent medical care. It should provide humane,
no-fault compensation to patients with devastating medical outcomes
unrelated to negligence--as in the case of newborns born with
conditions such as cerebral palsy. Our current system fails on all
counts. It's punitive, expensive, and inequitable for all, jeopardizing
the availability of care.
Jury awards, which now soar to astronomical levels, are at the
heart of the problem. The average liability award increased 97% between
1996 and 2000, fueled by states with no upper limits on jury awards.
The current liability system is enormously expensive, and patients who
need, but can't get, health care, pay the price.
The current liability system encourages attorneys to focus on
relatively few claims with exorbitant award potential, ignoring other
claims with merit. Even then, much of a jury award goes straight into
the lawyers' pockets; often, less than half of every medical liability
dollar ever reaches the patient.
Patients and physicians need a real solution to this crisis. In the
1980s, the Institute of Medicine warned that the liability crisis
compromised the delivery of obstetric care for women across the nation.
It urged Congress to provide both immediate relief and long-term
solutions. ACOG has asked the Institute to reexamine this issue and
update its report.
The liability crisis continues to compromise the delivery of health
care today. A recent Harris survey showed that three-fourths of
physicians feel their ability to provide quality care has been hurt by
concerns over liability cases. And, patients understand the problem,
too. An April 2002, survey by the Health Care Liability Alliance found
that 78% of Americans are concerned about the impact of rising
liability costs on access to care.
II. HOW EXCESSIVE LITIGATION COMPROMISES THE DELIVERY OF OBSTETRIC CARE
Obstetrics-gynecology is among the top three specialties in the
cost of professional liability insurance premiums. Nationally,
insurance premiums for ob-gyns have increased dramatically: the median
premium increased 167% between 1982 and 1998. The median rate rose 7%
in 2000, 12.5% in 2001, and 15.3% in 2002 with increases as high as
69%, according to a survey by Medical Liability Monitor, a newsletter
covering the liability insurance industry.
A number of insurers are abandoning coverage of doctors altogether.
The St. Paul Companies, Inc., which handled 10% of the physician
liability market, withdrew from that market last year. One insurance
ratings firm reported that five medical liability insurers failed in
2001. One-fourth of the remaining insurers were rated D+ or lower, an
indicator of serious financial problems.
According to Physicians Insurance Association of America, ob-gyns
were first among 28 specialty groups in the number of claims filed
against them in 2000. Ob-gyns were the highest of all specialty groups
in the average cost of defending against a claim in 2000, at a cost of
$34,308. In the 1990s, they were first--along with family physicians-
general practitioners--in the percentage of claims against them closed
with a payout (36%). They were second, after neurologists, in the
average claim payment made during that period ($235,059).
Although the number of claims filed against all physicians climbed
in recent decades, the phenomenon does not reflect an increased rate of
medical negligence. In fact, ob-gyns win most of the claims filed
against them. A 1999 ACOG survey of our membership found that over one-
half (53.9%) of claims against ob-gyns were dropped by plaintiff's
attorneys, dismissed or settled without a payment. Of cases that did
proceed, ob-gyns won more than 65% of the cases resolved by court
verdict, arbitration, or mediation, meaning only 10% of all cases filed
against ob-gyns were found in favor of the plaintiff. Enormous
resources are spent to deal with these claims, only 10% of which are
found to have merit. The costs to defend these claims can be staggering
and often mean that physicians invest less in new technologies that
help patients.
When a jury does grant an award, it can be exorbitant, particularly
in states with no upper limit on awards. Jury awards in all civil cases
averaged $3.49 million in 1999, up 79% from 1993 awards, according to
Jury Verdict Research of Horsham, Pennsylvania. The median medical
liability award jumped 43% in one year, from $700,000 in 1999, to $1
million in 2000: it has doubled since 1995.
Ob-gyns are particularly vulnerable to this trend, because of jury
awards in birth-related cases involving poor medical outcomes. The
average jury award in cases of neurologically impaired infants, which
account for 30% of the claims against obstetricians, is nearly $1
million, but can soar much higher. One recent award in a Philadelphia
case reached $100 million.
We survey our members regularly on the issue of medical
professional liability. According to our most recent survey, the
typical ob-gyn is 47 years old, has been in practice for over 15
years--and can expect to be sued 2.53 times over his or her career.
Over one-fourth (27.8%) of ACOG Fellows have even been sued for care
provided during their residency. In 1999, 76.5% of ACOG Fellows
reported they had been sued at least once so far in their career. The
average claim takes over four years to resolve.
This high rate of suits does not equate to malpractice. Rather, it
demonstrates a lawsuit culture where doctors are held responsible for
less than perfect outcome. And in obstetrics and gynecology, there is
no guarantee of a perfect outcome, no matter how perfect the prenatal
care and delivery.
III. WOMEN'S HEALTH CONSEQUENCES OF EXCESSIVE LITIGATION
The medical liability crisis affects every aspect of our nation's
ability to deliver health care services. As partners in women's health
care, we urge Congress to end the medical liability insurance crisis.
Without legislative intervention at the federal level, women's access
to health care will continue to suffer.
This crisis is obstructing mothers' access to obstetric care. When
confronted with substantially higher costs for liability coverage, ob-
gyns and other women's health care professionals stop delivering
babies, reduce the number they do deliver, and further cut back--or
eliminate--care for high-risk mothers. With fewer women's health care
professionals, access to early prenatal care is reduced, depriving
women of the proven benefits of early intervention.
Excessive litigation also threatens women's access to gynecologic
care. Ob-gyns have, until recently, routinely met women's general
health care needs--including regular screenings for gynecologic
cancers, hypertension, high cholesterol, diabetes, osteoporosis,
sexually transmitted diseases, and other serious health problems.
Staggering premiums continue to burden women's health care
professionals and will further diminish the availability of women's
care.
Federal legislation is needed to avert another rural health crisis.
Women in underserved rural areas have historically been particularly
hard hit by the loss of physicians and other women's health care
professionals. With the economic viability of delivering babies already
marginal due to sparse population and low insurance reimbursement for
pregnancy services, increases in liability insurance costs are forcing
rural providers to stop delivering babies.
This crisis also means that community clinics must cutback
services, jeopardizing the nation's 39 million uninsured patients--the
majority of them women and children--who rely on community clinics for
health care. Unable to shift higher insurance costs to their patients,
these clinics have no alternative but to care for fewer people.
Acting now can save more women from the ranks of the uninsured.
Health care costs continue to increase overall, including the cost of
private health care coverage. As costs escalate, employers will be
discouraged from offering benefits. Many women who would lose their
coverage, including a large number of single working mothers, would not
be eligible for Medicaid or SCHIP because their incomes are above the
eligibility levels. In 2001, 11.7 million women of childbearing age
were uninsured. Without reform, even more women ages 19 to 44 will move
into the ranks of the uninsured. If fewer doctors are available to
deliver babies, the crisis becomes even more acute.
IV. WOMEN'S HEALTH SUFFERS NATIONWIDE
As ob-gyns, our primary concern is ensuring women access to
affordable, quality health care. It is critical that we maintain the
highest standard of care for America's women and mothers. Currently,
ACOG has identified a medical liability crisis in the following nine
``Red Alert States'': Florida, Mississippi, Nevada, New Jersey, New
York, Pennsylvania, Texas, Washington, and West Virginia. In three
other states--Ohio, Oregon, and Virginia--a crisis is brewing, while
four other states--Connecticut, Illinois, Kentucky and Missouri--should
be watched for mounting problems.
In identifying these states, the College considered a number of
factors in the escalating medical liability insurance crisis for ob-
gyns. The relative weight of each factor could vary by state. Factors
included: the lack of available professional liability coverage for ob-
gyns in the state; the number of carriers currently writing policies in
the state, as well as the number leaving the medical liability
insurance market;--the cost, and rate of increase, of annual premiums
based on reports from industry monitors; a combination of geographical,
economic, and other conditions exacerbating an already existing
shortage of ob-gyns and other physicians; the state's tort reform
history, and whether tort reforms have been passed by the state
legislature--or are likely to be in the future--and subsequently upheld
by the state high court.
A. Florida
According to First Professionals Insurance Company, Inc.,
Florida's largest medical liability insurer, one out of every
six doctors is sued in the state as compared to one out of
every 12 doctors nationwide.
In Dade and Broward counties in South Florida, where insurers
say litigation is the heaviest, annual premiums for ob-gyns
soared to $210,576--the highest rates in the country, according
to Medical Liability Monitor.
In a recent ACOG survey, 76.3% of the Florida ob-gyns who
responded to the survey indicated that they had made some
change to their practice such as retire, relocate, decrease
gynecologic surgical procedures, no longer perform major
gynecologic surgery, decrease the number of deliveries and
amount of high-risk obstetric care. 21.69% of Florida
respondents indicated that they have stopped practicing
obstetrics due to the unavailability and unaffordability of
liability insurance.
The liability situation is so severe the state allows doctors
to ``go bare'' (not have liability coverage), as long as they
can post bond or prove ability to pay a judgment of up to
$250,000.
Double and triple-digit premium increases have forced some
doctors to cut back on staff, while others have left the state
or have stopped performing high-risk procedures. Ob-gyns in
this state are more likely to no longer practice obstetrics.
Florida already has some tort-reform laws aimed at protecting
doctors. But more recent Florida Supreme Court rulings have
weakened such laws, causing the number of lawsuits to climb
again. Now, Florida is one of at least a dozen states
contemplating another round of legislation.
B. Mississippi
According to the Mississippi State Medical Association,
medical liability insurance rates for doctors who deliver
babies rose 20% to 400% in 2002, for various carriers. Annual
premiums range from $40,000 to $110,000.
The Delta Democrat Times reported that from 1999 to 2000, the
number of liability lawsuits faced by Mississippi physicians
increased 24%, with an additional 23% increase in the first
five months of 2001.
According to the Delta Democrat Times, 324 Mississippi
physicians have stopped delivering babies in the last decade.
Only 10% of family physicians deliver babies.
In a recent ACOG survey, 66.7% of the Mississippi ob-gyns who
responded to the survey indicated that they had made some
change to their practice such as retire, relocate, decrease
gynecologic surgical procedures, no longer perform major
gynecologic surgery, decrease the number of deliveries and
amount of high-risk obstetric care. 12.82% of Mississippi
respondents have stopped practicing obstetrics.
In Cleveland, Mississippi, three of the six doctors who
deliver babies dropped obstetrics in October 2001 because of
the increase in premiums.
In Greenwood, Mississippi, where approximately 1,000 babies
are born every year, the number of obstetricians has dropped
from four to two. The two remaining obstetricians are each
limited by their insurance carriers to delivering 250 babies
per year, leaving approximately 500 pregnant women searching
for maternity care, reports the Mississippi Business Journal.
Yazoo City, Mississippi, with 14,550 residents, has no
obstetrician.
A Grenada, Mississippi ob-gyn recently stopped taking
obstetric patients, leaving two ob-gyns to deliver
approximately 700 babies a year.
Natchez, Mississippi, which serves a 6-county population of
over 100,000, has only three physicians practicing obstetrics.
Days before HB2 (legislation aimed at reducing liability
insurance costs and improving access to health care) took
effect, there was a rush of medical liability lawsuits filed in
Mississippi. State Insurance Commissioner George Dale said
these claims will be in the system for a long time and the
market for medical liability insurance is not likely to get
better any time soon.
The state's major insurer of hospitals, Reciprocal of America,
is facing financial difficulties and recently asked
participants to pay $30 million to help keep it afloat,
according to the state insurance commissioner's office.
C. Nevada
In December 2001, The St. Paul Companies, Inc., the nation's
second largest medical liability insurer, announced it would no
longer renew policies for 42,000 doctors nationwide--including
the 60% of Las Vegas doctors who were insured by St. Paul.
Replacement policies are costing some Nevada doctors four or
five times as much as before: $200,000 or higher annually, more
than most doctors' take-home pay, the Los Angeles Times
reports.
In Las Vegas, ob-gyns paid premiums as high as $141,760, a
49.5% increase from 2001.
In the ACOG survey, 86.2% of the Nevada ob-gyns who responded
to the survey indicated that they had made some change to their
practice such as retire, relocate, decrease gynecologic
surgical procedures, no longer perform major gynecologic
surgery, decrease the number of deliveries and amount of high-
risk obstetric care. 27.59% of Nevada respondents stopped
practicing obstetrics.
As of October 2002, according to Clark County OB-GYN Society,
only 80 private practice physicians, 14 HMO physicians, and 12
residents are doing deliveries, totaling 106 doctors. With an
estimated 23,000 deliveries expected in Nevada in 2003, each
physician will have to deliver 216 babies.
According to a March article in the Las Vegas Review-Journal,
many Las Vegas Valley doctors say they will be forced to quit
their practices, relocate, retire early or limit their services
if they cannot find more affordable rates of professional
liability insurance by early summer.
According to the Nevada State Medical Association, between 200
and 250 physicians will face bankruptcy, close their offices,
or leave Nevada this year.
In February 2002, the Las Vegas Sun reported that medical
liability cases in Clark County had more than doubled in the
past six years. In that period, plaintiffs' awards in the
county totaled more than $21 million.
USA Today reports that in the past two years, Nevada juries
have awarded more than $1.5 million each in six different
medical liability trials.
Recruiting doctors to Las Vegas is extremely difficult because
of escalating medical liability premiums and litigious-ness.
Nevada currently ranks 47th in the nation for its ratio of 196
doctors per 100,000 population. The state's medical school
produces just 50 physicians a year.
The Nevada tort reform legislation went into effect in January
2003. In December 2002, the frequency of lawsuits filed against
health care providers skyrocketed with 170 suits filed in
December 2002 (as compared to 8 suits field in 2001).
D. New Jersey
In the ACOG survey, 75.6% of the New Jersey ob-gyns who
responded to the survey indicated that they had made some
change to their practice such as retire, relocate, decrease
gynecologic surgical procedures, no longer perform major
gynecologic surgery, decrease the number of deliveries and
amount of high-risk obstetric care. 19% of New Jersey
respondents have stopped practicing obstetrics.
In February 2002, the Newark Star-Ledger reported that three
medical liability insurance companies went bankrupt or
announced they would stop insuring New Jersey physicians in
2002 for financial reasons. The state's two largest remaining
are rejecting doctors they deem high risk.
MBS Insurance Services of Denville, one of New Jersey's
largest medical liability insurance brokers, estimates that
approximately 300 to 400 of the state's doctors cannot get
insurance at any price.
According to the Medical Society of New Jersey, premiums have
risen 50% to 200% over last year.
According to the Star-Ledger, ``An obstetrician with a good
history--maybe just one dismissed lawsuit--can expect to pay
about $45,000 for $1 million in coverage. Rates rise if the
physician faces several lawsuits, regardless of whether the
physician has been found liable in those cases.''
The president of the New Jersey Hospital Association says that
rising medical liability premiums are a ``wake-up call'' that
the state may lose doctors. Hospital premiums have risen 250%
over the last three years, and 65% of facilities report that
they are losing physicians due to liability insurance costs.
E. New York
New York State faces a shortage of obstetric care in many
rural regions. Increasing liability insurance costs will only
exacerbate these access problems.
In the ACOG survey, 67% of the New York ob-gyns who responded
to the survey indicated that they had made some change to their
practice such as retire, relocate, decrease gynecologic
surgical procedures, no longer perform major gynecologic
surgery, decrease the number of deliveries and amount of high-
risk obstetric care. 19.28% of New York respondents have
stopped practicing obstetrics.
In 2002, an ob-gyn practicing in New York could pay as much as
$115,500 for medical liability insurance, according to Medical
Liability Monitor.
In 2000, there was a total of $633 million in medical
liability payouts in New York State, far and away the highest
in the country, and 80% more than the state with the second
highest total.
Increased insurance rates have forced some physicians in New
York to ``quit practicing or to practice medicine defensively,
by ordering extra tests or procedures that limit their risk,''
according to a recent New York Times report.
Physician medical liability insurance costs have historically
been a problem in New York State. The legislature and governor
had to take significant action in the mid-1970s and again in
the mid-1980s to avert a liability insurance crisis that would
have jeopardized access to care for patients.
F. Pennsylvania
In the ACOG survey, 77.4% of the Pennsylvania ob-gyns who
responded to the survey indicated that they had made some
change to their practice such as retire, relocate, decrease
gynecologic surgical procedures, no longer perform major
gynecologic surgery, decrease the number of deliveries and
amount of high-risk obstetric care. 21.61% of Pennsylvania
respondents have stopped practicing obstetrics.
Pennsylvania is the second-highest state in the country for
total payouts for medical liability. During the fiscal year
2000, combined judgments and settlements in Pennsylvania
amounted to $352 million--or nearly 10% of the national total.
From the beginning of 1997 through September 2001, major
liability insurance carriers writing in Pennsylvania increased
their overall rates 80.7% to 147.8%, according to a January
2002 York Daily Record article.
Philadelphia and the counties surrounding it are hardest hit
by the liability crisis. From January 1994 through August 2001,
the median jury award in Philadelphia for a medical liability
case was $972,900. For the rest of the state, including
Pittsburgh, the median was $410,000.
One-quarter of respondents to an informal ACOG poll of
Pennsylvania ob-gyns say they have stopped or are planning to
stop the practice of obstetrics. 80% of medical students who
come to the state for a world-class education choose to
practice elsewhere, according to the Pennsylvania State Medical
Society.
On April 24, 2002, Methodist Hospital in South Philadelphia
announced that it would stop delivering babies due to the
rising costs of medical liability insurance. The labor and
delivery ward closed on June 30, leaving that area of the city
without a maternity ward. Methodist Hospital has been
delivering babies since its founding in 1892.
Some tort reform measures passed the state legislature (House
Bill 1802) in 2002. However, the law did not include: caps on
jury awards; sanctions on frivolous suits; changes in joint and
several liability; limits on lawyers' fees; or a guarantee that
a larger share of jury awards will go to injured plaintiffs.
The rules for venue of court cases in Pennsylvania are very
liberal. Recently approved measures only appoint a committee to
study venue shopping, but do not limit the practice.
Since HB 1802 passed, experts predict a 15% to 20% overall
reduction in doctors' liability premiums. But with the 50% to
100% premium increases of the last two years, medical officials
believe the bill is not enough to stop physicians from leaving
practice or to attract new physicians. Nor do they believe new
insurers will begin writing policies in Pennsylvania.
G. Texas
In the ACOG survey, 67.5% of the Texas ob-gyns who responded
to the survey indicated that they had made some change to their
practice such as retire, relocate, decrease gynecologic
surgical procedures, no longer perform major gynecologic
surgery, decrease the number of deliveries and amount of high-
risk obstetric care. 13.79% of Texas respondents have stopped
practicing obstetrics.
Preliminary results of a recent Texas Medical Association
physician survey indicate that:
More than half of all Texas physicians responding,
including those in the prime of their careers, are
considering early retirement because of the state's medical
liability insurance crisis.
Nearly a third of the responding physicians said they are
considering reducing the types of services they provide.
Medical liability insurance premiums for 2002 were expected to
increase from 30% to 200%, according to the Texas Medical
Association. In 2001, ob-gyns in Dallas, Houston, and Galveston
paid medical liability insurance premiums in the range of
$70,00 to $160,000.
The Abilene Reporter News reported on October 13, 2002, that
the obstetrics unit at Spring Branch Medical Center is set to
close December 20, 2002. The hospital's $600,000 premium for
labor and delivery liability was set to increase by 67% next
year. In 2001, 1,003 babies were born at Spring Branch Medical
Center.
According to Governor Rick Perry's office, between 1996 and
2000 one in four Texas physicians had a medical liability claim
filed against them. In the Lower Rio Grande Valley, the
situation is even worse. In 2002, Valley ob-gyns paid liability
insurance premiums up to $97,830, a 34.5% increase from 2001.
According to a February 2001 Texas Medical Association survey,
one in three Valley doctors say their insurance providers have
stopped writing liability insurance.
In 2000, 51.7% of all Texas physicians had claims filed
against them, according to the Texas Medical Examiners Board.
Patients filed 4,501 claims, up 51% from 1990.
As many as 86% of medical liability claims filed in Texas are
dismissed or dropped without payment to the patient. Yet
providers and insurance companies must still spend millions of
dollars in defense, even against baseless claims.
According to a Texas Medical Association study, the amount
paid per claim in 2000 was $189,849 (average for all
physicians), a 6% increase in one year.
Texas has no limits on non-economic damages in medical
liability cases, although the legislature enacted such limits
in the 1970s as part of a comprehensive set of reforms. The
Texas Supreme Court later rejected them in the 1980s.
Texas has procedures in place to screen lawsuits for merit and
to sanction lawyers who file frivolous suits, but these are not
enforced uniformly across the state, according to an April 2002
news release issued by Governor Rick Perry.
Only about 30% of the medical liability insurance market is
served by insurance companies that are regulated by the Texas
State Department of Insurance and subject to rate review laws,
according to Governor Perry's office.
H. Washington
According to Medical Liability Monitor, in late 2001, the
second largest carrier in Washington State announced that it
was withdrawing from providing medical liability insurance for
Washington physicians. This decision by Washington Casualty
Company impacted approximately 1,500 physicians.
In 2001, state ob-gyns paid medical liability insurance
premiums in the range of $34,000 to $59,000. For many
physicians, this meant an increase of 55% or higher from the
year 2000.
In the ACOG survey, 57.2% of the Washington ob-gyns who
responded to the survey indicated that they had made some
change to their practice such as retire, relocate, decrease
gynecologic surgical procedures, no longer perform major
gynecologic surgery, decrease the number of deliveries and
amount of high-risk obstetric care. 15.06% of Washington
respondents have stopped practicing obstetrics.
According to the Pierce County Medical Society, some Tacoma
specialists reported 300% increases.
Unlike California, Washington has no cap on non-economic
damages in medical liability cases. The State Supreme Court
found a previous cap unconstitutional in 1989.
In April, The Olympian reported that the Washington State
Insurance Commissioner's office heard from physicians
throughout the state that they might be forced out of
Washington because of high medical liability rates or the lack
of available insurance.
I. West Virginia
There are only three carriers in the state--including the
state-run West Virginia Board of Risk and Insurance
Management--currently writing medical liability policies for
doctors. Annual premiums range from $90,700 to $99,800.
In the ACOG survey, 82.2% of the West Virginia ob-gyns who
responded to the survey indicated that they had made some
change to their practice such as retire, relocate, decrease
gynecologic surgical procedures, no longer perform major
gynecologic surgery, decrease the number of deliveries and
amount of high-risk obstetric care. 23.66% of West Virginia
respondents stopped practicing obstetrics.
In 2000, many physicians had problems affording or finding
insurance. This urgency prompted Governor Bob Wise to issue a
request for proposals to commercial insurance carriers asking
them to provide terms under which they would be willing to come
to the state. The governor's office received no response at
all. To date, some carriers previously active in West Virginia
are under an indefinite, self-imposed moratorium for new
business in the state, according to the West Virginia State
Medical Society.
Legislation eked out during a grueling special session in the
fall of 2001 reestablished a state-run insurer of last resort.
However, with rates 10% higher than the highest commercial
rate, and an additional 50% higher for physicians considered
high risk, the state-run insurer does not solve the
affordability problem, according to ob-gyns in the state.
According to an informal survey of ACOG's West Virginia
section, more than half of all ob-gyn residents plan to leave
the state once they have completed training because of the
state's medical liability insurance climate. A majority of
private practitioners who provide obstetric care plan to leave
the state if there is no improvement in the insurance crisis.
West Virginia cannot afford to lose more doctors. The West
Virginia State Medical Society reports that a majority of the
state is officially designated by the federal government as a
health professional shortage area and medically underserved.
V. Conclusion
Thank you, Mr. Chairman, for your leadership on this important
issue and for the Committee's attention to this crisis. ACOG
appreciates the opportunity to present our concerns for the panel's
consideration and again urges the passage of HR 5, the HEALTH Act of
2003. The College looks forward to working with you as we push for a
solution.
______
Prepared Statement of American College of Physicians--American Society
of Internal Medicine
The American College of Physicians-American Society of Internal
Medicine (ACP-ASIM)--representing 115,000 physicians and medical
students--is the largest medical specialty society and the second
largest medical organization in the United States. We congratulate the
House Committee on Energy and Commerce Subcommittee on Health for
holding this important hearing on a subject matter that has more
relevance today than ever before. Of the College's top priorities for
2003, addressing the health care liability crisis and its impact on
access to care is one of the most critical to our members. ACP-ASIM
wishes to thank Committee Chairman W.J. Tauzin and Subcommittee
Chairman Michael Bilirakis, Committee Ranking Member John Dingell and
Subcommittee Ranking Member Sherrod Brown, and other members, for
holding this important hearing to discuss the immediate need to enact
meaningful medical liability reform.
BACKGROUND
Doctors across the country are experiencing sticker shock when they
open their medical malpractice insurance renewal notices--if they even
get a renewal notice. After more than a decade of generally stable
rates for professional liability insurance, physicians have seen costs
dramatically increase in 2000-2003. And in some areas of the country,
premiums have soared to unaffordable levels. According to the Medical
Liability Monitor, in mid-2001, insurance companies writing in 36
states and the District of Columbia claim to have raised rates well
over 25 percent. Unfortunately, rates continue to rise dramatically
with no sign of the market beginning to stabilize.
While obstetricians, surgeons and other high-risk specialists have
been hit hard, internists have been one of the hardest hit
specialties--having seen a record nearly 50 percent average increase
over the last two years. In some cases, physicians, even those without
a track record of lawsuits, cannot find an insurance company willing to
provide coverage. These physicians are being forced to decide whether
to dig deeper and pay the steeper bill, change carriers, move out of
state, or retire from the practice of medicine.
Of these options, changing carriers may not even be an alternative.
Finding replacement coverage won't be as easy as it was in a buyer's
market. Companies writing professional liability coverage are fleeing
or being chased from the market. As an example, St. Paul Companies,
which insures doctors in 45 states and is the second largest medical
underwriter in the country, announced late in 2001 that it no longer
would write medical liability policies. It plans to phase out coverage
as physicians contracts expire over the next 18 to 24 months. Frontier
and Reliance are also gone. Other commercials, such as PHICO, CNA and
Zurich, are significantly cutting back. Even some provider-owned
insurers, committed to this market by their founders, are pulling back
from some states in which they extended sales.
THE PERFECT STORM
At a time when the market is squeezing physician and hospital
margins, the rise in professional liability insurance may be the
deciding factor that contributes to whether physician offices and
emergency rooms keep their doors open. Recently, the costs of
delivering health care have been driven by increased costs of new
technologies; increased costs of drugs that define the standard of care
acceptable for modern medicine; the rising costs of compliance under
increasing state and federal regulation; the low reimbursement rate
under Medicare and Medicaid; and the declining fees from managed care
have all been contributing factors that have affected patient access to
health care.
Unquestionably, there is real potential that rising insurance rates
ultimately will reduce access to care for patients across the country.
Indeed, press accounts on a daily basis are demonstrating exactly that
from coast to coast. Physician offices and emergency rooms have been
closing their doors all across the country due to the exorbitant costs.
The states most severely hampered by the spiraling out-of-control rates
are: Florida, Georgia, Illinois, Michigan, Mississippi, Nevada, New
Jersey, New York, Ohio, Oregon, Pennsylvania, Texas, Washington, and
West Virginia. Several other states are just beginning to feel the
impact.
Some states have tried to address the dramatic increase in
professional medical liability insurance rates with very little
success. At best, attempts by the states to solve this problem have
resulted in only band-aid approaches to the more underlying problem:
the escalation of lawsuit awards and the expense of litigation has led
to the increase in medical liability premiums. This fact has resulted
in many patients not receiving or delaying much needed medical care--a
fact Congress can no longer ignore. ACP-ASIM strongly believes that
Congress must act to stabilize the market to avoid further damage to
the health care system.
RELIEF FOR PHYSICIANS FROM SOARING MALPRACTICE PREMIUMS
Federal legislation has been introduced in the 108th Congress to
help curb the spiraling upward trend in malpractice premiums. H.R. 5,
the ``Help Efficient, Accessible, Low Cost, Timely Health Care''
(HEALTH) Act of 2003, will attempt to safeguard patient access to care,
while continuing to ensure that patients who have been injured through
negligence are fairly compensated. ACP-ASIM strongly endorses this
legislation as a means to stabilize the medical liability insurance
market and bring balance to our medical liability litigation system.
The HEALTH Act achieves this balance through the following common sense
reforms:
Limit on pain and suffering (non-economic) awards. This
requirement limits unquantifiable non-economic damages, such as
pain and suffering, to no more than $250,000.
Unlimited recovery for future medical expenses and loss of
future earnings (economic) damages. This provision does not
limit the amount a patient can receive for physical injuries
resulting from a provider's care, unless otherwise restricted
by state law.
Limitations on punitive damages. This requirement
appropriately raises the burden of proof for the award of
quasi-criminal penalties to ``clear and convincing'' evidence
to show either malicious intent to injure or deliberate failure
to avoid injury. This provision does not cap punitive damages,
rather, it allows punitive damages to be the greater of two
times the amount of economic damages awarded or $250,000.
Periodic payment of future damages. This provision does not
reduce the amount a patient will receive. Rather, past and
current expenses will continue to be paid at the time of
judgment or settlement while future damages can be funded over
time. This ensures that the plaintiff will receive all damages
in a timely fashion without risking the bankruptcy of the
defendant.
Elimination of double payment of awards. This requirement
provides for the jury to be duly informed of any payments (or
collateral source) already made to the plaintiff for her
injuries.
A reasonable statute of limitation on claims. This requirement
guarantees that health care lawsuits will be filed no later
than 3 years after the date of injury, providing health care
providers with ample access to the evidence they need to defend
themselves. In some circumstances, however, it is important to
guarantee patients additional time to file a claim. For
example, the legislation extends the statue of limitations for
minors injured before age 6.
A sliding scale for contingency fees. This provision will help
discourage baseless and frivolous lawsuits by limiting attorney
incentives to pursue meritless claims. Without this provision,
attorneys could continue to pocket large percentages of an
injured patient's award, leaving patients without the money
they need for their medical care. The sliding scale would look
something like this:
Forty percent (40%) of the first fifty thousand dollars
recovered
Thirty-three and one-third percent (33 1/3%) of the next
fifty thousand dollars recovered
Twenty-five percent (25%) of the next five hundred
thousand dollars recovered
Fifteen percent (15%) of any amount recovered in excess of
six hundred thousand dollars
Proportionate liability among all parties. Instead of making a
party responsible for another's negligent behavior, this
requirement ensures that a party will only be liable for his or
her own share. Under the current system, defendants who are
only 1 percent at fault may be held liable for 100 percent of
the damages. This provision eliminates the incentive for
plaintiff's attorneys to search for ``deep pockets'' and pursue
lawsuits against those minimally liable or not liable at all.
These common sense recommendations have been proven to work. The
HEALTH Act is largely based on provisions contained in the California
Medical Injury Compensation Reform Act (MICRA). Since its enactment in
the mid-1970's, the MICRA reforms have helped reduce the overall costs
of medical malpractice and have contributed to an increase in patient
access to care. During this recent malpractice insurance crisis,
California's rates have changed only slightly, while other states have
spiraled to out of control levels. ACP-ASIM strongly supports the
elements contained in MICRA. Further, we believe that any legislation
proposed must include these basic, proven elements in order to assure
the stabilization of malpractice premiums.
CONCLUSION
ACP-ASIM is pleased that the House Committee on Energy and Commerce
Subcommittee on Health agreed to conduct this important hearing to
address the serious problem of soaring medical malpractice premiums
that physicians are facing across the country. We strongly urge the
House Energy and Commerce Committee to pass common sense reform
contained in the HEALTH Act that would allow for greater access to
care, while adequately compensating injured patients. We thank the
Committee and appreciate the opportunity to present our views.
______
Prepared Statement of the College of American Pathologists
The College of American Pathologists (CAP) is pleased to submit
this statement for the record of the Energy and Commerce Health
Subcommittee hearing on the need to enact medical liability reform. The
College is a medical specialty society representing more than 16,000
board-certified physicians who practice clinical or anatomic pathology,
or both, in community hospitals, independent clinical laboratories,
academic medical centers and federal and state health facilities.
Pathologists, like all physicians, face severe hardships resulting
from the worsening medical liability insurance crisis. For many, just
finding coverage has been an arduous task at best and, for some, nearly
impossible. Those who have found willing insurers are paying
substantially higher premiums--in some cases, several times the
previous year's rates--for coverage plans, regardless of their claims
history.
The realities of this crisis are clear: Pathologists and other
physicians can no longer offer certain procedures or are leaving their
practices altogether because of the exorbitant costs of malpractice
premiums. These are desperate decisions brought on by a tort system
with no mechanism to restrain runaway ``pain and suffering'' and
punitive awards. Damages rise beyond reason and, in the end, all
patients and providers suffer as the nation's health care costs soar
and access to quality care declines.
Real-world examples in the laboratory community highlight the
problem:
The chief executive of a small, rural Pennsylvania hospital
recently told a Senate Appropriations subcommittee that he
nearly was forced to close the facility when an insurer
declined to renew a malpractice policy for his pathologist, a
17-year practice veteran with no claims history. Only through a
last-minute joint underwriting agreement was the pathologist
able to retain insurance coverage, which allowed the hospital
to continue offering laboratory, blood banking and surgical
pathology services and remain open, the executive said.
A pathology group that provides services to all Hawaii's outer
island hospitals and five facilities on Oahu--about 20
pathologists, in all--is, like many physician practices,
shopping for a new insurance carrier. The group's current
insurer recently sent a renewal notice quoting a four-fold
increase in premiums compared with 2002 rates.
In general, malpractice insurance premiums for pathologists
have doubled in the past year, reports JLT Services Corp., the
College's member insurance broker. In some locations,
particularly urban areas, the increases have been significantly
higher. Pathologists have been particularly hard hit by The St.
Paul Companies' December 2001 decision to leave the medical
liability insurance marketplace. The St. Paul, which provided
about 9 percent of all malpractice insurance nationwide at the
time, had been the underwriter of the CAP-endorsed Professional
Liability plan.
Pathologists and other physicians are increasingly hard-pressed to
continue providing services, given the heavy burden rising insurance
premiums have placed on their practices. Insurance rates of $200,000 or
more for some high-risk specialties have forced many physicians to
limit services, retire early or move to states where reforms have
brought greater stability to premiums. The skyrocketing cost of
liability insurance comes at a particularly critical time for
physicians, who also face a widening gap between Medicare
reimbursements and practice costs.
Severe patient access problems brought on by the liability
insurance crisis have been documented in at least a dozen states and it
is expected that 30 more soon will join that list. In the crisis
states, obstetrician-gynecologists have been forced to stop delivering
babies, trauma centers have closed and many physicians are grappling
with how they can continue to provide other high-risk procedures.
Congress must act now to bring commonsense reforms to America's
medical liability system. The CAP strongly supports the approach
contained in subcommittee member Rep. Jim Greenwood's bill, the ``Help
Efficient, Accessible, Low-Cost, Timely Healthcare Act (HEALTH Act) of
2003'' (H.R. 5). This critically important bill would:
place a reasonable limit ($250,000) on non-economic damages
and no limit on economic damages;
create mechanisms to ensure that only justifiable punitive
damages are paid, with a guideline to limit punitive damages to
two times economic damages or $250,000, whichever is greater;
structure settlements to be paid in increments, rather than
lump-sum payments, so that expenses are reimbursed as they
occur and earnings, as they would have accrued;
establish a three-year statute of limitations, with special
provisions for minors.
establish criteria to ensure that defendants would pay damages
in proportion to their fault;
ensure that states with damage caps in place would be
permitted to retain them; and
set a sliding scale for attorney contingency fees to
discourage frivolous lawsuits.
The HEALTH Act can work because it is modeled on a California law
that has worked well for nearly three decades. It was enacted in
circumstances much like those the nation faces today. California
suffered a meltdown of its health care system in the early 1970s and
physicians saw their premiums soar more than 300 percent. Liability
carriers left the state and some physicians closed their office doors.
The Medical Injury Compensation Reform Act, or MICRA, which came into
effect in 1976, provided a $250,000 limit on non-economic damages,
unlimited economic damages, a statute of limitations on claims,
sliding-scale limits on contingency fees, advance notice requirements
before claims were filed, binding arbitration of disputes and periodic
payment of future damages.
The effect of this legislation was dramatic. The average liability
premiums decreased 40 percent in the 25-year period ending in 2001
(expressed in constant dollars). In 2001, the Medical Liability Monitor
published data that demonstrated that the average premium paid by
California physicians practicing internal medicine, general surgery and
obstetrics/gynecology ranged from 43 percent to 51 percent of the
average premiums of their counterparts in Florida, Illinois, New York,
Texas and Michigan. This was supported by a 53 percent lowering in the
dollar amounts of settlements in California, compared with the nation
as a whole.
Our current liability crisis is not one of increasing litigation,
but one of unreasonably high judgment amounts. Patients are not eager
to sue their doctors. In fact, in 1991, the New England Journal of
Medicine reported that only 1.53 percent of those injured by possible
medical actions even file a claim. Severity of awards is the problem,
and that is what the HEALTH Act of 2003 is designed to address.
The College supports such reforms to promote the basic goal of
ensuring access to a wide range of health care services and promoting
patient safety and quality medical care. In particular, the College
strongly supports the bill's establishment of limits on non-economic
and punitive damages. These provisions, combined with a sliding scale
limit on contingency fees, make for a strong, positive step toward
reforms that benefit the whole health care system and protect patient
access to affordable, quality care.
The College thanks Rep. Greenwood and other Energy and Commerce
members for their leadership on the medical liability reform issue. The
CAP appreciates the opportunity to present its views to the Health
Subcommittee and offers its support and continued assistance as
Congress works to meet the challenge posed by the nation's liability
insurance crisis.
______
Prepared Statement of Mary R. Grealy, President, Healthcare Leadership
Council
Our liability system is broken. If it is not fixed soon, it will
break our health care system as well.
One of the founding principles of the Healthcare Leadership Council
(HLC) B which represents the CEO's of the nation's leading health care
companies and organizations B is that patients should have access to
high quality health care. Skyrocketing liability costs threaten patient
access to quality care. This is no longer simply about lawyers and
doctors. This is about patients.
The cost of excessive jury awards is causing staggering increases
in medical liability premiums. Between 1996 and 1999, average jury
awards in medical liability cases have increased by 76 percent. These
spiraling increases add directly to the cost of health care,
contributing significantly to premium costs and the growing number of
uninsured Americans.
Just as harmful to patients and consumers, however, are the
indirect costs of the crisis. Patients are increasingly ``paying'' for
excessive litigation by losing access to medical specialists such as
obstetricians and surgeons. An estimated 1 in 11 obstetricians/
gynecologists say they have strictly limited their services solely to
gynecology due to the malpractice crisis. In some areas, the situation
is far worse. In Miami, average annual malpractice premiums for Ob-Gyns
are $210,578, while the average salary for an Ob-Gyn in Florida is
$118,435. In Wyoming, premiums average $116,000, while average salaries
for Ob-Gyns are $108,700.
As medical malpractice insurance rates skyrocket B or become
unavailable B medical specialists such as neurosurgeons, orthopaedic
surgeons and obstetricians/gynecologists are leaving states such as
Pennsylvania, Mississippi, West Virginia, New Jersey, Florida and
others. While these states have been in the news lately, the crisis
goes far beyond the 13 ``crisis'' states. It is estimated that as many
as 30 other states are in ``near crisis'' and will soon join the ranks
of states where patient access is endangered.
Patients also are losing access to nearby hospitals, trauma
centers, and other facilities as a result of the crisis. Patients are
subjected to, and pay for, unnecessary tests and procedures as
physicians must practice ``defensive medicine.''' In addition, patients
ultimately are the ones who suffer when new drug therapies and medical
technologies are not developed due to litigation or the fear of it.
The cause of the liability crisis is clear. Medical malpractice
insurance rates are set prospectively. These rates are set primarily on
the basis of projections of jury awards. This trend line is in one
direction: straight up. Solving the cost problem requires dealing with
the size and unpredictability of these awards. The bottom line is that
medical malpractice premiums cannot keep up with claims. A typical
state is Oregon, where a Governor's task force reported that medical
liability insurers paid out $71 million in losses and defense costs,
while receiving $50 million in premiums over the same period. In Ohio,
medical malpractice insurers are losing $1.62 for every $1 in premiums.
Clearly these trends are unsustainable and will drive more physicians
out of practice.
The only proven way to bring these costs under control B while
actually enhancing patients' ability to recover economic damages for
injuries B are reforms which include capping non-economic and punitive
damages, establishing reasonable levels for attorneys' fees, and
setting fair share rules for joint and several liability.
HLC strongly supports these and other reforms embodied in the Help
Efficient, Accessible, Low Cost, Timely Health Care (HEALTH) Act of
2003 (H.R. 5).
We stand ready to work with you to address this growing crisis.
______
Prepared Statement of Rodney C. Lester, President, American Association
of Nurse Anesthetists
Chairman Bilirakis and Congressman Sherrod Brown, I am Rodney C.
Lester, CRNA, PhD, President of the American Association of Nurse
Anesthetists (AANA). I appreciate the opportunity to submit for the
record a statement on issues surrounding medical liability reform,
which are the most challenging facing healthcare today.
For those of you who may be unfamiliar with the AANA, we represent
approximately 30,000 Certified Registered Nurse Anesthetists (CRNAs)
across the United States. In the administration of anesthesia, CRNAs
perform virtually the same functions as anesthesiologists and work in
every setting in which anesthesia is delivered including hospital
surgical suites and obstetrical delivery rooms, ambulatory surgical
centers, health maintenance organizations' facilities, and the offices
of dentists, podiatrists, ophthalmologists, and plastic surgeons.
Today, CRNAs administer approximately 65% of the anesthetics given to
patients each year in the United States. CRNAs are the sole anesthesia
provider in at least 65% of rural hospitals, which translates into
anesthesia services for millions of rural Americans.
CRNAs have been a part of every type of surgical team since the
advent of anesthesia in the 1800s. Until the 1920s, nurses almost
exclusively administered anesthesia. In addition, nurse anesthetists
have been the principal anesthesia provider in combat areas in every
war the United States has been engaged in since World War I. CRNAs
provide anesthesia services in the medical facilities of the Department
of Defense, the Public Health Service, the Indian Health Service, the
Department of Veterans Affairs, and countless other public and private
entities. Given the current state of affairs with Iraq and Afghanistan,
it is not surprising that our deployed forces depend greatly upon the
services and skills of CRNAs.
You may be aware of the widely publicized nursing shortage. While
we do not have enough rank and file nurses there is an increasingly
acute shortage of CRNAs. Quite simply, there are not enough CRNAs to
fulfill the demand. Our News Bulletin tends to be chock full of
advertisements for vacant positions. Quite simply if the rest of the
economy was similar to the employment situation for CRNAs, our nation
would be at full employment.
Hardly a day goes by for most anesthesia practices when a CRNA is
not called by an employment recruiter attempting to entice them into
seeking additional pay at another group or hospital. Practices are
offering bonuses, attractive benefits, and higher pay in order to
recruit CRNAs.
We graduate approximately 1,000 students per year and it is not
enough to fill the demand. Our Foundation has recently funded a
manpower shortage study and its results are expected shortly.
HOW ARE CRNAS DIFFERENT FROM ANESTHESIOLOGISTS?
The most substantial difference between CRNAs and anesthesiologists
is that prior to anesthesia education, anesthesiologists receive
medical education while CRNAs receive a nursing education. However, the
anesthesia part of the education is very similar for both providers,
and both professionals are educated to perform the same clinical
anesthesia services. CRNAs and anesthesiologists are both educated to
use the same anesthesia processes and techniques in the provision of
anesthesia and related services. The practice of anesthesia is a
recognized specialty within both the nursing and medical professions.
Both CRNAs and anesthesiologists administer anesthesia for all types of
surgical procedures, from the simplest to the most complex, either as
single providers or in a ``care team setting''.
WHAT IS OUR EXPERIENCE ON MALPRACTICE INSURANCE?
For the past several years, CRNAs have relied largely on two main
major malpractice carriers--St. Paul and TIG. On December 12, 2001,
AANA Insurance Services--a wholly owned subsidiary of the AANA--was
notified by the St. Paul Companies that it would exit this market and
would seek to sell their malpractice book and eventually transition out
of the medical malpractice market. We were advised that this difficult
decision was based upon ``its anticipated worst annual loss in its 148-
year old history.'' The St. Paul further stated that the decision is
part of an overall plan ``that will put St. Paul on sound financial
footing so that they can continue serving their thousands of customers
in their other businesses.'' Their news release goes into more detail
concerning losses relative to its losses in malpractice, other
insurance lines and those associated with the September 11 terrorist
attack.
AANA Insurance Services worked to prepare and assist its
policyholders in this transition period and kept them informed of
developments relative to their continuing insurance coverage.
The AANA and AANA Insurance Services Staff prepared strategies to
respond to this situation proactively to assure a smooth transition for
our members insured through St. Paul. We contacted our other carrier at
the time, TIG Insurance, to seek support from them assessed other
potential medical malpractice carriers to assure that our members have
more than one choice for professional liability insurance as we have in
the past.
While we were aware that St Paul Companies were experiencing
difficulties along with the rest of the insurance industry, we--along
with many other providers and perhaps the general public--were
surprised by the sudden decision to withdraw completely from the
medical malpractice market. St Paul stated that they would do
everything possible to make the transition smooth. We had an excellent
relationship with the St. Paul and this transition continues.
Following this announcement, we worked even closer with TIG
Insurance Company to ensure a smooth transition for the policyholders
of AANA Insurance Services. A few months ago, TIG Insurance Company
announced it would no longer be providing medical malpractice
insurance. Coverage for CRNAs through TIG will not be available after
June 30, 2003. TIG's announcement comes almost exactly a year after St.
Paul's announcement that it was withdrawing from the medical
malpractice marketplace.
On Monday, December 16, 2002, Fairfax Financial Holdings Limited
announced that it would be restructuring TIG. Fairfax, the parent
company of TIG, is a financial services holding company which, through
its subsidiaries, is engaged in property, casualty and life insurance,
reinsurance, investment management and insurance claims management.
As part of the restructuring, TIG indicated that it will be
discontinuing its program business. Program business, a specialty of
TIG's that represents a majority of its business, is defined as
insuring large groups of insured with very similar characteristics.
According to Fairfax, TIG's program business was not meeting Fairfax's
financial expectations. Unfortunately, all of TIG's medical malpractice
business, including the coverage it provides to CRNAs, falls into this
program business category.
It should be noted that medical malpractice only accounted for 25%
of TIG's program business and TIG's CRNA program was only a small part
of the medical malpractice business. Fairfax representatives have
informed AANA that the decision to restructure TIG was based neither on
the performance of its medical malpractice business in general or its
CRNA business in particular.
It is no secret that the number of insurance companies willing to
offer medical malpractice coverage has shrunk dramatically over the
past few years. Although it's of little consolation, there are many
classes of healthcare providers who are facing even greater insurance
challenges than CRNAs. While TIG's decision is disappointing, it is not
surprising considering the current medical malpractice environment.
Unlike when St. Paul exited from the medical malpractice
marketplace, TIG's withdrawal won't be as immediate. TIG will continue
to offer both new and renewal policies to AANA members through June 30,
2003. After June 30, 2003, TIG will not provide coverage to new
applicants.
Currently AANA Insurance Services provides coverage for members
through CNA Insurance Company. It is our understanding that CNA has
been approved to do business in 43 states and the District of Columbia.
CNA is awaiting approval in the states of Alaska, Nebraska, Nevada, New
Hampshire, New York, Vermont and Washington. AANA Insurance Services
expects CNA to have approval in all these states by June 30, 2003.
Obviously this has become extremely troubling to our members. While
we have an excellent relationship with CNA Insurance Company, CRNAs are
increasing concerned that with only one major medical malpractice
carrier remaining, issues of coverage could become problematic. It
should be noted that unless a CRNA had a particular issue with claims
or licensure, coverage could easily be found, whether it was with St.
Paul or TIG. That remains relatively true today with the CNA Insurance
Company. But with more carriers leaving the marketplace, what does that
do to providers? More importantly, what does it mean to patients and
consumers? How do we attract more carriers to this market? Without
major reforms, will carriers have any reason to go into the market?
PATIENT SAFETY
Given the strong safety record of CRNAs, we had no reason to
believe then, nor do we now, that there was any nexus between the
decision of either St. Paul or TIG to exit the medical malpractice
market due to bad claims from CRNAs.
America's CRNAs are committed to advancing patient safety so that
actual instances of malpractice are reduced. These commitments
including active membership in the cross-disciplinary National Quality
Forum (NQF) and the National Patient Safety Foundation (NPSF), closed-
claims research that transforms tough cases into educational and
practice improvements, and the most stringent continuing education and
recertification requirements in the field of anesthesia care. With
CRNAs providing two-thirds of all U.S. anesthetics, the Institute of
Medicine reported in 1999 that anesthesia is 50 times safer today than
20 years ago.
OUR DILEMMA
Educational programs that prepare nurse anesthetists rely solely on
hospitals, surgery centers and even office based surgical practices to
provide students with the required clinical experiences to enable them
to become competent anesthesia providers. These healthcare facilities
rely on surgeons and other high-risk specialties for their patient
admissions. As these high-risk specialties leave, operating rooms close
and patients have less access to needed care, and students have less
access to patients for clinical training.
Looking at Pennsylvania as an example, the hospitals and surgeons
who are part of a healthcare system located in Southeast Pennsylvania
have seen their primary premiums increase more than 60 %, their CAT
fund increase more than 30%, and their excess premiums increase more
than 600%, all within the last year.
The Medical Professional Liability Catastrophe Loss Fund
(commonlyreferred to as the CAT Fund) was established to ensure that
victims of medical malpractice are compensated and that medical
malpractice insurance is available to health care providers. Health
care providers (physicians, surgeons, podiatrists, hospitals and
nursing homes) are required to carry a set minimum amount of primary
coverage. The health care providers then must pay a surcharge to the
CAT Fund in order to fund a layer of insurance above the primary
insurance coverage. Failure to comply with this requirement may result
in revocation of one's license.
This is reflective of what other healthcare systems in Pennsylvania
are experiencing. In addition that system has seen its high-risk
specialty physicians relocate out of Pennsylvania or give up the
surgical part of their practice. Each time a physician closes his/her
office or reduces practice, employees of their practice lose their job.
Fewer high-risk specialists mean fewer cases requiring anesthesia are
performed. These are exactly the specialties that nurse anesthesia
educational programs rely on to provide their students with the
required clinical cases.
As surgeons leave the state or reduce surgery because they can not
afford the malpractice insurance there are fewer surgical cases,
operating rooms are closed, daily operating room schedules are
prolonged, overtime costs increase, hospitals' earn less money, layoffs
occur and hospitals close. This directly affects patients' access to
needed and timely care, and the ability of our educational programs to
provide the necessary clinical experiences to educate nurse
anesthetists. If this trend continues unabated, nurse anesthesia
educational programs (and other healthcare educational programs) will
face accreditation issues, declines in student enrollment and delays in
graduation as they struggle to find enough clinical experiences for
their students. All of this occurring during a time when there is a
critical shortage of anesthesia providers nationwide to provide care to
an older and sicker population.
The medical malpractice crisis affects all levels of society.
Unlimited individual awards for pain and suffering will severely limit
the availability and access to care for the majority. The value we
place on timely and complete access to care for all our citizens is
reflected in our allowance of an individual's unlimited right to take
precedence over the needs of all our people. To insure a healthy
society, we must insure access to health care even if it means we place
limits on a single category of damages to the individual.
If carriers continue to leave the market and if there should be in
difficulty obtaining coverage, it could ultimately mean a slow down for
hospitals in providing surgeries. In addition, when CRNAs are employed
by hospitals or group practices, these entities have to pick up the
tab. If increasing rates continue to become an issue, hospitals will
increasingly have to make difficult choices. In those rural hospitals
where CRNAs are the sole anesthesia provider, hospitals have no choice
if they wish to keep their doors open.
That is why the AANA supports medical liability reform. Many can
point an accusatory finger as to why carriers exit the market. However,
it makes no sense for an insurer to remain in a market if it cannot do
so profitably. High costs and runaway juries and large malpractice
awards have become unrealistic and disproportionately high. This is not
to say that providers, be they nurses or physicians, should not be held
responsible for their actions. All providers must take responsibility.
And those providers who may be disproportionately responsible for rate
hikes because they have had more than one claim must increasingly take
responsibility for their actions as do the nursing and medical boards
regulating providers. But by the same token, awards have become too
high and many insurers have decided that with the unpredictability of
determining how to insure a risk that is seems to be increasingly
incalculable, they simply exit the market.
In the last Congress, the AANA was pleased to support Rep. Jim
Greenwood's (R-PA) legislation, H.R. 4600. The HEALTH Act would permit
individuals to recover unlimited economic damages and allow for non-
economic damages or ``pain and suffering'' up to $250,000. The states
would have the flexibility to establish or maintain their own laws on
damage awards. Other provisions in the HEALTH Act address the
percentage of damage awards and settlements that go to injured patients
as well as allocate damage awards fairly and in proportion to a party's
degree of fault and works to decrease the time it takes for a case to
settle or go to trial. Similar legislation will be considered in the
108th Congress.
Ultimately, it will be incumbent upon insurers, providers, and yes
the trial lawyers to work together to find a common solution that works
for consumers and patients.
Again, thank you for the opportunity in allowing us to share our
views on medical liability reform with the members of this
subcommittee.
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