[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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                            WASHINGTON : 2003
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                    COMMITTEE ON ENERGY AND COMMERCE

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

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

                              ----------                              


                      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.
    [The information referred to follows:]

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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.

[GRAPHIC] [TIFF OMITTED] T6049.008

[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.
    [The chart follows:]

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