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



 
DYING FOR HELP: ARE PATIENTS NEEDLESSLY SUFFERING DUE TO THE HIGH COST 
                    OF MEDICAL LIABILITY INSURANCE?

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

                                HEARING

                               before the

               SUBCOMMITTEE ON HUMAN RIGHTS AND WELLNESS

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 1, 2003

                               __________

                           Serial No. 108-105

                               __________

       Printed for the use of the Committee on Government Reform


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

                                 _____


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                     COMMITTEE ON GOVERNMENT REFORM

                     TOM DAVIS, Virginia, Chairman
DAN BURTON, Indiana                  HENRY A. WAXMAN, California
CHRISTOPHER SHAYS, Connecticut       TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida                PAUL E. KANJORSKI, Pennsylvania
MARK E. SOUDER, Indiana              CAROLYN B. MALONEY, New York
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
DOUG OSE, California                 DENNIS J. KUCINICH, Ohio
RON LEWIS, Kentucky                  DANNY K. DAVIS, Illinois
JO ANN DAVIS, Virginia               JOHN F. TIERNEY, Massachusetts
TODD RUSSELL PLATTS, Pennsylvania    WM. LACY CLAY, Missouri
CHRIS CANNON, Utah                   DIANE E. WATSON, California
ADAM H. PUTNAM, Florida              STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia          CHRIS VAN HOLLEN, Maryland
JOHN J. DUNCAN, Jr., Tennessee       LINDA T. SANCHEZ, California
JOHN SULLIVAN, Oklahoma              C.A. ``DUTCH'' RUPPERSBERGER, 
NATHAN DEAL, Georgia                     Maryland
CANDICE S. MILLER, Michigan          ELEANOR HOLMES NORTON, District of 
TIM MURPHY, Pennsylvania                 Columbia
MICHAEL R. TURNER, Ohio              JIM COOPER, Tennessee
JOHN R. CARTER, Texas                CHRIS BELL, Texas
WILLIAM J. JANKLOW, South Dakota                 ------
MARSHA BLACKBURN, Tennessee          BERNARD SANDERS, Vermont 
                                         (Independent)

                       Peter Sirh, Staff Director
                 Melissa Wojciak, Deputy Staff Director
                      Rob Borden, Parliamentarian
                       Teresa Austin, Chief Clerk
              Philip M. Schiliro, Minority Staff Director

               Subcommittee on Human Rights and Wellness

                     DAN BURTON, Indiana, Chairman
CHRIS CANNON, Utah                   DIANE E. WATSON, California
CHRISTOPHER SHAYS, Connecticut       BERNARD SANDERS, Vermont 
ILEANA ROS-LEHTINEN, Florida             (Independent)
                                     ELIJAH E. CUMMINGS, Maryland

                               Ex Officio

TOM DAVIS, Virginia                  HENRY A. WAXMAN, California
                      Mark Walker, Staff Director
                Mindi Walker, Professional Staff Member
                        Danielle Perraut, Clerk
          Richard Butcher, Minority Professional Staff Member



                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on October 1, 2003..................................     1
Statement of:
    Hillman, Richard J., Director, Financial Markets and 
      Community Investment, U.S. General Accounting Office; and 
      Kathryn G. Allen, Director, Health Care, Medicaid and 
      Private Health Insurance Issues, U.S. General Accounting 
      Office.....................................................     5
    Thornburgh, Dick, former Attorney General of the United 
      States and Governor of Pennsylvania; John C. Nelson, M.D., 
      MPH, FACOG, FACPM, President-Elect and executive board 
      member, American Medical Association; Jay Angoff, esq., 
      former insurance commissioner, State of Missouri, and 
      deputy insurance commissioner, State of New Jersey; Sherman 
      Joyce, J.D., president, American Tort Reform Association; 
      and Dr. James Tayoun, vascular surgeon and president, 
      Politically Active Physicians Association..................    35
Letters, statements, etc., submitted for the record by:
    Angoff, Jay, esq., former insurance commissioner, State of 
      Missouri, and deputy insurance commissioner, State of New 
      Jersey, prepared statement of..............................   111
    Hillman, Richard J., Director, Financial Markets and 
      Community Investment, U.S. General Accounting Office, 
      prepared statement of......................................     8
    Joyce, Sherman, J.D., president, American Tort Reform 
      Association, prepared statement of.........................   120
    Nelson, John C., M.D., MPH, FACOG, FACPM, President-Elect and 
      executive board member, American Medical Association, 
      prepared statement of......................................    44
    Tayoun, Dr. James, vascular surgeon and president, 
      Politically Active Physicians Association, prepared 
      statement of...............................................   133
    Thornburgh, Dick, former Attorney General of the United 
      States and Governor of Pennsylvania, prepared statement of.    38


DYING FOR HELP: ARE PATIENTS NEEDLESSLY SUFFERING DUE TO THE HIGH COST 
                    OF MEDICAL LIABILITY INSURANCE?

                              ----------                              


                       WEDNESDAY, OCTOBER 1, 2003

                  House of Representatives,
         Subcommittee on Human Rights and Wellness,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2 p.m., in 
room 2154, Rayburn House Office Building, Hon. Dan Burton 
(chairman of the subcommittee) presiding.
    Present: Representatives Burton and Watson.
    Also present: Representative Waxman.
    Staff present: Mark Walker, chief of staff, Mindi Walker, 
Brian Fauls, and John Rowe, professional staff members; Nick 
Mutton, press secretary, Danielle Perraut, clerk; Michael 
Yeager, minority deputy chief counsel; Sarah Despres and Tony 
Haywood, minority counsels; Richard Butcher, minority 
professional staff member; Earley Green, minority chief clerk; 
and Cecelia Morton, minority office manager.
    Mr. Burton. Good afternoon. A quorum being present, the 
Subcommittee on Human Rights and Wellness will come to order, 
and I ask unanimous consent that all Members' and witnesses' 
written opening statements be included in the record. Without 
objection, so ordered.
    I ask unanimous consent that all articles, exhibits, and 
extraneous or tabular material referred to be included in the 
record. Without objection, so ordered.
    And in the event that other Members attend the hearing, I 
ask unanimous consent that they be permitted to serve as a 
member of the subcommittee for today's hearing. Without 
objection, so ordered.
    The Subcommittee on Human Rights and Wellness is convening 
today to examine the influence of medical liability insurance 
premiums on the access and overall quality of health care that 
doctors in the United States provide.
    Initially the medical liability system was set up to 
protect victims of negligence. Today malpractice litigation is 
one of the most feared situations in the medical profession 
and, I might add, in other areas as well. Over the past several 
years, doctors have experienced a considerable increase in the 
cost of medical liability insurance premium rates as a result 
of medical malpractice litigation. Between 1994 and 2001, the 
typical medical malpractice award increased by an astounding 
176 percent to an average of $1 million per court case.
    The result has been outrageously high malpractice insurance 
premiums for health care providers, which in turn has led to 
higher costs for the overall U.S. health care system as well as 
reduced access to medical services. In 2001, total premiums for 
medical malpractice insurance topped $21 billion, more than 
double the amount from 10 years earlier.
    These outrageously high liability insurance premiums and 
losses have caused many doctors who offer life-saving services 
to relocate their practices, change specialties or retire from 
medicine altogether, thus limiting patients' access to quality 
medical care. Among the many medical practitioners who have 
fallen victim to exorbitant medical liability rates, the two 
most endangered specialties are OB/GYNs and trauma surgeons, 
whose successful execution of their duties often makes the 
difference between life and death.
    According to a June 9 article in Time Magazine, the medical 
malpractice and liability crisis is forcing a growing number of 
doctors and medical students to switch from lawsuit magnet 
specialties like obstetrics, neurology and pulmonology to 
``safer'' ones like dermatology and ophthalmology, in effect 
severely limiting the number of doctors willing to perform 
high-risk procedures like delivering babies and operating on 
spines.
    To further illustrate the gravity of this problem, in south 
Florida today, where there are no tort reform measures in 
place, an obstetrician can pay up to $210,000 a year for 
medical liability insurance. In Los Angeles, CA, the home of my 
colleague Ms. Watson, and where reforms are in place, that same 
physician would only pay $57,000 for that same coverage. That 
kind of disparity in premiums is a driving force behind this 
increasingly difficult nationwide problem.
    And Florida is certainly not the only State in danger of 
losing specialized physicians. According to an annual study 
released by the American Medical Association, 19 States are 
already in a medical liability crisis, and numerous other 
States are showing signs that they could be headed in that 
direction.
    Fortunately, my home State of Indiana is not one of them 
and is currently showing signs that the medical liability 
crisis sweeping across the country has not arisen in Indiana 
because the State legislature has already passed legislation 
that would limit doctors' exposures to liability. At this time 
our State code does not place caps on noneconomic damages, 
which may result in higher medical liability premiums in the 
future, and this is the cause of great concern to me and my 
Hoosier constituents.
    What we have to ask ourselves is this: Is it sound public 
policy to require a patient to travel up to double the normal 
distance to access health care during an emergency situation 
because all of the local doctors in their area have moved out 
of State? To help gain perspective on this question, the 
subcommittee will hear today from an OB/GYN from Salt Lake 
City, UT, and the President-Elect of the American Medical 
Association, Dr. John Nelson, who will discuss how exorbitant 
medical liability premiums are affecting doctors in the United 
States.
    In addition, Dr. James Tayoun a vascular surgeon based in 
Philadelphia, PA, will testify about his experiences with 
medical malpractice premium hikes and how they led him to 
create the ``Politically Active Physicians Association,'' a 
conglomeration of Pennsylvania doctors who are working together 
to address the unfortunate medical liability situation in 
Pennsylvania.
    In an attempt to address this problem, my colleagues and I 
here in the U.S. House of Representatives passed the ``Health 
Act of 2003;'' that is, the Help Efficient, Accessible Low-
Cost, Timely Healthcare Act, H.R. 5 in March of this year. This 
legislation, modeled after California's tort reform laws, would 
place caps on the amounts that claimants can be awarded on 
noneconomic damages, pain and suffering, which, according to a 
U.S. General Accounting Office report, is what has fueled the 
drastic increase in medical malpractice premiums. 
Representatives from the GAO are here to share their insights 
from the findings of this study on this issue.
    Unfortunately our colleagues in the lower body, the 
Senate--I will tell you about that later--have yet to pass 
similar legislation, leaving thousands of doctors vulnerable to 
additional premium hikes.
    The subcommittee has the pleasure of having with us today 
former U.S. Attorney General and the former Governor of the 
State of Pennsylvania, the Honorable Dick Thornburgh with us. 
He is here to provide insight into how the medical liability 
crisis is adversely impacting his home State and other areas of 
the country, as well as to address the need for tort reform. 
Mr. Sherman Joyce, the president of the American Tort Reform 
Association, is also on hand to discuss possible solutions to 
this problem.
    Nationwide tort reform measures could go a long way toward 
helping slow the increase of liability insurance premium costs. 
According to a Department of Health and Human Services report 
released on July 24, 2002, it is estimated that by putting into 
place common-sense liability reforms, such as placing 
reasonable limits on noneconomic damages, annual health care 
costs in the United States could be reduced by 5 to 9 percent. 
That doesn't sound like much when you put it in percentages, 
but that could save the Federal Government $60 to $108 billion 
a year. And with the problems we are facing with the 
prescription drug issue and Medicare, that would go a long way 
toward helping to solve those problems.
    I believe it is one of our highest duties as Members of 
Congress to strive to find the best possible public policy 
solutions for ensuring all Americans access to the highest 
quality health care system in the world. It is my sincere hope 
that the information shared today will inspire our friends in 
the Senate and our counterparts in the State legislatures to 
pass common-sense legislation to help alleviate some of the 
burdens of medical liability on our Nation's physicians while 
at the same time protecting the overall quality of the American 
health care delivery system. And with that, I will be happy to 
yield to my colleague Ms. Watson.
    Ms. Watson. I want to sincerely thank the chairman for 
addressing the issue and holding the hearing. We are here today 
to get to the truth. And the question for me is do increased 
medical malpractice insurance costs restrict patients' access 
to care?
    During my 17 years in California as Chair of the Senate 
Health and Human Services Committee, I listened to doctors from 
all over the State. Now, from those that I heard, the No. 1 
complaint was about the for-profit HMOs making business 
decisions and forcing doctors to conform.
    In order to have meaningful legislation regarding tort law, 
we need to understand the facts. We need to listen to both the 
doctors and the victims and then request full disclosures from 
the middleman, the insurance companies.
    Mr. Chairman, this hearing is very important in an effort 
to uncover the truth. A few days ago some folks representing 
tort reform made an attempt to undo GAO's findings by having a 
group supporting insurance--insurers--the Alliance for Health 
Care Reform released a study based on the same faulty 
statistics the GAO identified in its August report. Congress 
and the American public should not be deceived. We want to look 
at the facts, then work to address the high cost of health care 
and health insurance in a framework of being behind quality 
health care delivery.
    Now, I know those who support tort reform want to cap 
medical malpractice noneconomic damage awards. Placing a cap on 
noneconomic damages will affect an injured patient's ability to 
cover losses by confusing the debate. Any limit on noneconomic 
damages has a disproportionate impact on low-wage earners, who 
are more likely to receive a greater percentage of their 
compensation in the form of noneconomic damages if they are 
injured. Proponents of medical malpractice liability reform 
attempted to place an arbitrary cap on the amount of money an 
injured patient could be compensated via H.R. 5 earlier in this 
Congress.
    Chairman Tauzin requested that GAO study and report on 
whether or not the high cost of medical liability insurance is 
affecting patients' access to care. The GAO's response was a 
resounding no. It is a tragic and unfair fact that minorities 
are frequently forced to bear a disproportionately large share 
of America's health and safety problems. Unfortunately, so-
called tort reform proposals that would provide wrongdoers 
greater immunity for their misconduct also have the impact of 
severely weakening the protections and rights afforded to these 
different minorities in our country.
    So, Mr. Chairman, I look forward to the testimony of all 
the panelists, and I'd like to get down to what is affecting in 
actuality the skyrocketing medical malpractice insurance rates. 
Doctors, victims and every American will benefit from us 
getting to the truth. I yield back and thank you, Mr. Chairman.
    Mr. Burton. Thank you, Ms. Watson.
    [Note.--The GAO reports entitled, ``Medical Malpractice, 
Implications of Rising Premiums on Access to Health Care,'' and 
``Medical Malpractice Insurance, Multiple Factors Have 
Contributed to Increased Premium Rates,'' may be found in 
subcommittee files.]
    Mr. Burton. I appreciate all of our witnesses being here 
today. I know you probably have other things that are important 
to do, but as Ms. Watson said, this is a very important issue 
to discuss.
    Our first panel, and I wish you would come forward, is 
Kathryn G. Allen. She is the Director of Health Care for 
Medicaid and Private Health Insurance Issues, with the General 
Accounting Office; and Richard J. Hillman, Director of 
Financial Markets and Community Investment, with the U.S. 
General Accounting Office. Would you stand, please, and be 
sworn.
    [Witnesses sworn.]
    Mr. Burton. Being a gentleman, which sometimes is 
questioned, I will start with. Ms. Allen.
    Ms. Allen. Mr. Chairman and Ms. Watson, we have agreed 
between the two of us that Mr. Hillman will give our short 
statement, so I defer to him.
    Mr. Burton. I tried.

 STATEMENT OF RICHARD J. HILLMAN, DIRECTOR, FINANCIAL MARKETS 
 AND COMMUNITY INVESTMENT, U.S. GENERAL ACCOUNTING OFFICE; AND 
 KATHRYN G. ALLEN, DIRECTOR, HEALTH CARE, MEDICAID AND PRIVATE 
    HEALTH INSURANCE ISSUES, U.S. GENERAL ACCOUNTING OFFICE

    Mr. Hillman. Mr. Chairman and Ms. Watson, the GAO's pleased 
to be here to discuss the results of two recent work efforts.
    I led an effort by our Financial Markets and Community 
Investment Team to determine the reasons behind recent 
increases in some medical malpractice rates. Kathy Allen, to my 
left, led an effort by our Health Care Team to assess the 
implications of rising premiums on access to health care. Both 
efforts resulted in separate reports on these subjects, and we 
are pleased with your permission that these full reports are 
entered into the record of the hearing.
    Our testimony today summarizes these efforts and, as 
requested, focuses on, one, the factors that have contributed 
to the recent increases in insurance premium rates; and, two, 
the differences in rates amongst States that have passed 
varying levels of tort reform laws. In summary, we found that 
multiple factors have contributed to recent increases in 
premium rates in the seven sample States that we reviewed, but 
losses on medical malpractice claims, which make up the largest 
part of insurers' costs, appear to be the primary driver of 
rates in the long run.
    We also found that nationwide premium growth has been lower 
on average in States that have enacted tort reform with 
stricter caps on noneconomic damages than on States with more 
limited reforms. Since 1999, medical malpractice premium rates 
for physicians in some States, but not all, have increased 
dramatically, but before I get into the factors that 
contributed to these increased rates, it is important to 
understand that both the extent of the increases and the 
premium levels themselves vary greatly not only from State to 
State, but across medical specialties and even among areas 
within States.
    For example, the largest writer of medical malpractice 
insurance in Florida increased premium rates for general 
surgeons in Dade County by approximately 75 percent from 1999 
to 2002, while the largest insurer in Minnesota increased 
premium rates for the same specialty by only about 2 percent 
over the same period. The resulting 2002 premium rate quoted by 
the insurer in Florida was $174,000 a year, this being more 
than 17 times the premium rate quoted by the insurer in 
Minnesota. Moreover, even within Florida, the rate quoted by 
the same insurer for the same coverage for general surgeons 
outside Dade County was $89,000 a year, or about half the rate 
quoted inside Dade County.
    Moving on to our first objective on the factors 
contributing to the premium rate increases, we found there were 
multiple factors. First, since 1998, insurers' losses on 
medical malpractice claims have increased rapidly in some 
States. While we found that the increased losses appear to be 
the greatest contributor to the increased premium rates, a lack 
of comprehensive data at the national and State levels on 
insurers' medical malpractice claims and on the associated 
losses prevented us from fully analyzing the composition and 
causes of those losses.
    Second, from 1998 through 2001, medical malpractice 
insurers experienced decreases in investment income as interest 
rates fell on bonds that generally made up around 80 percent of 
these insurers' investment portfolios. While almost no insurer 
experienced net losses on their investment portfolios over this 
period, a decrease in investment income meant that income from 
insurance premiums had to cover a larger share of their costs.
    Third, during the 1990's, insurers competed vigorously for 
medical malpractice business, and several factors, including 
high investment returns, permitted them to offer prices that in 
hindsight did not completely cover the ultimate losses that 
some insurers experienced in that business. As a result some 
companies became insolvent or voluntarily left the market, 
reducing the downward pressure on premium rates that had 
existed throughout the 1990's.
    Fourth, beginning in 2001, reinsurance rates for medical 
malpractice insurers also increased more rapidly than they had 
in the past, raising insurers' overall costs.
    In combination, each of these four factors have contributed 
to the movement of medical malpractice insurance market through 
what are called hard and soft phases similar to the cycles 
experienced through property casualty insurance markets as a 
whole, and premium rates, therefore, had fluctuated upward or 
downward as the phases predicted.
    In an attempt to constrain increases in medical malpractice 
premium rates, States have adopted various tort reform 
measures. Of particular focus recently have been--tort reform 
measures have included placing caps on monetary awards for 
economic damages such as pain and suffering that may be paid to 
plaintiffs in a malpractice suit.
    Available data, while somewhat limited in scope, indicate 
that rates of premium growth have been slower on average in 
States that have enacted tort reforms that include noneconomic 
damage caps than in States with more limited reforms. Premium 
rates reported by three specialties, general surgery, internal 
medicine and OB/GYN, were relatively stable on the average in 
most States from 1996 through 2000 and then began to rise, 
although more slowly for States with certain noneconomic damage 
caps. For example, for 2001 through 2002, average premium rates 
rose approximately 10 percent in the 4 States with noneconomic 
damage caps of $250,000, but rose approximately 29 percent in 
States with more limited tort reforms.
    As we have discussed, premium rate increases are influenced 
by multiple factors, and our analysis did not allow us to 
determine the extent to which these differences in the average 
rates of increases at the State level could be attributable to 
tort reform laws or to other factors.
    In conclusion, Mr. Chairman, as we have discussed, multiple 
factors have contributed in recent increases in premium rates 
across the States and across specialties. Tort reforms, 
particularly those that limit noneconomic damages, have 
frequently been proposed as a means of controlling increases in 
medical malpractice insurance premium rates. These reforms and 
other actions, to the extent that they are effective in 
reducing insurers' losses below what they otherwise would have 
been, should ultimately slow the increase in premium rates if 
all else holds constant. However, any evaluation of effective 
tort reforms, insurance cycles or other factors in premium 
rates require sufficient data. In order for Congress and others 
to better understand conditions in the medical malpractice 
market and the effects of the actions that have already been 
taken or will be taken, better data needs to be collected, 
including more comprehensive data on insurers' losses, jury 
verdicts in malpractice cases, and conditions in the health 
care sector that might affect the incidence and severity of 
medical malpractice suits.
    Mr. Chairman, this concludes our prepared remarks, and 
Kathy and I would be pleased to answer any questions you or 
other Members may have at the appropriate time.
    [The prepared statement of Mr. Hillman follows:]
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    Mr. Burton. Mr. Hillman, I find it a little troubling. I 
was an insurance underwriter for a casualty company at one time 
in my previous life, and I was also an insurance agent, and the 
losses that insurance companies, whether they are medical 
malpractice companies or casualty companies, is pretty much 
open. And you indicated that there needed to be more research 
to get these--this information. If GAO did this study, I can't 
understand how they couldn't have found the information 
regarding these losses and be able to very quickly figure out 
what the problem is.
    I mean, insurance companies use what they call a loss and 
expense constant. The loss plus the expenses of taking care of 
the administrative parts of settling claims and paying the 
overhead for clerical workers and so forth, plus a small margin 
for profit, is how they figure out what their costs are and 
what the premium should be. And when I was an underwriter early 
on, they didn't figure outside income as part of the overall 
equation. Either you made money from the insurance risk, or you 
didn't. And if you didn't make money, you had to raise the 
rates. And if you made money, you lowered the rates. That's why 
we had State insurance commissioners that dealt with these 
things.
    But the question I have for you, why is it, if GAO did a 
thorough study on this, why couldn't they have looked at this 
information that the insurance companies have to find out 
whether or not there was another problem besides the need for 
tort reform?
    Mr. Hillman. Well, we did, chairman, look at the data that 
was made available to us from the National Association of 
Insurance Commissioners, and you are right, we have available 
to us some national data of what is happening across the 
medical malpractice insurance itself with both paid losses, 
those losses that are incurred in the year under review, as 
well as incurred losses being those losses that they expect to 
incur over the next period and some adjustments that might take 
place. And I have a chart that I would like to show you that 
shows what is happening with paid losses and incurred losses 
since 1975 through 2001.
    Mr. Burton. I probably should have those reduced. I don't 
want this young man breaking his back moving those things 
around.
    Mr. Hillman. A copy of this is also shown in figure 1 in 
our prepared statement, if you would like to see a copy in 
front of you. But what we have here shown in the blue lines are 
the paid losses that are being incurred in the medical 
malpractice insurance market nationwide adjusted, using the CPI 
in 2001 dollars for 1975 through 2001. The bars going up 
reflect the incurred losses. Those are the losses the insurers 
anticipate--may anticipate within the next year or so plus 
adjustments from prior periods.
    Mr. Burton. So they set up a reserve for those losses, and 
that reserve is figured into the overall equation?
    Mr. Hillman. That's correct, sir.
    Mr. Burton. Well, the answer, according to your research, I 
presume, and yours as well, Ms. Allen, is that we need to come 
up with some kind of a tort reform formula that's fair to the 
lawyers, the patients who have been damaged and the doctors. 
That sounds like a Gordian knot that needs to be chopped in 
two. Can you give me an equation to solve that problem?
    Mr. Hillman. I wish I had the silver bullet, and I am sure 
most others do as well. When you look at premium rates in the 
insurance industry, the Congresswoman wanted to get to the 
facts. Well, the facts as we understand them are paid losses 
and incurred losses are the primary driver of those rates. If 
Congress wants to do something to reduce medical malpractice 
premium rates, we need to look at those paid losses. There's a 
couple of ways of addressing them.
    Mr. Burton. Paid plus incurred.
    Mr. Hillman. Paid plus incurred.
    Incurred losses for the 15 largest insurance underwriters 
that we visited and talked to, which comprise about 64 percent 
of the marketplace in medical malpractice insurance, incurred 
losses are about 80 percent of their total expenses. So you 
really need to look at incurred losses. And in medical 
malpractice what you need to do is look at frequency of claims, 
look at severity of claims. Addressing frequency of claims, 
tort reform, effective tort reform--looking at severity of 
claims, effective tort reform could address that by reducing 
jury verdicts and not putting caps on noneconomic damages. 
That's one side of the equation. Another side of the equation 
would be the frequency, looking at the patient care, doctors 
quality of care and trying to come up with solutions to address 
the frequency of claims.
    Mr. Burton. I am going to let Ms. Watson ask questions, but 
let me make one more statement. I presume from your studies 
that there's no doubt that you are going to continue to have 
the flight of doctors from States that don't do something to 
deal with the exorbitant premiums they have to pay. And if that 
continues to happen, those States that don't enact some kind of 
reforms that are going to deal with this problem are going to 
see fewer doctors and higher medical costs in all probability, 
and a lowering of the quality of health care, which means a 
lowering in the quality of life for those who need help. So the 
bottom line, we got to do something about it, right?
    Mr. Hillman. I agree. Problems in some States are very 
severe, and while States have done what they can do to 
implement their own reforms, they aren't all the same, and 
therefore you are seeing some States continuing to have large 
problems while other States are moderate.
    Mr. Burton. You are making the case that we need some 
Federal legislation.
    Mr. Hillman. A national system seems to be one of the best 
ways to curb that problem.
    Mr. Burton. Ms. Watson.
    Ms. Watson. Thank you, Mr. Chairman.
    And we don't take what you have presented to us lightly. I 
do appreciate you looking across the spectrum.
    In the State of California where we have started on some 
tort reform, we also, in my tenure, established the department 
of an insurance commissioner, because there are three major 
players in all of this, the health delivery system, the doctors 
and so on, the insurance company and those they insure. And our 
goal, as I said in my statement, is to be able to provide 
quality health care, to have the patients' trust in the kind of 
health care they receive, and be able to petition when they are 
injured. And we want to be fair to all in that. We have no 
intent to want to run our medical providers out of business and 
out of this State. We have no intent to say to an injured 
individual that you cannot be compensated. We certainly don't 
want to say to their attorneys that you have no role to play.
    So when I say what is the truth, I ask this question. I 
think you mentioned that the National Insurance Association--
that might not be the accurate and complete title--provided you 
with information, but are you able to see--do they open up 
their whole profile of their actuarial data? Do you see that? 
And it varies from State to State. And until we can get a hand 
on what's happening in California or what's happening in 
Florida or Texas, it's going to be very difficult for us to 
fashion a Federal standard because we've got to take into 
account the various factors that are present in a particular 
State.
    For example, with our large population of 35 million and 
growing per day, we are finding people come in with very, shall 
I say--well, they suffer from a lack of health care when they 
immigrate into the State of California, Pacific Rim, and those 
who are older come there and they demand certain kind of 
treatments, and they are very fragile. And so we have to take 
in all those factors as we look at malpractice insurance. And 
so I think actuarial data is essential for you who are looking 
at the numbers and trying to come up with some results and 
advise us. So were you able to get into actuarial data?
    Mr. Hillman. The National Association of Insurance 
Commissioners does not collect actuarial data that would allow 
you to assess those on a State-by-State basis.
    Ms. Watson. Thank you, because that goes to the point I was 
making, that it has to almost be a State-by-State look. You 
know, we very seldom have a clear picture of why the premiums 
were raised, and we have had these debates over a period of 
years, I mean decades, and I held many of those hearings. And 
it's not quite clear. But we have an insurance commissioner 
that is looking into these issues. And I just want to say that 
as we look at this problem, tort reform is not the only answer, 
and as we seek the truth in this subcommittee, I appreciate you 
coming with your testimony today. And, Mr. Burton, thank you 
for the opportunity.
    Mr. Burton. Let me just ask one more quick question to 
followup on what Ms. Watson was asking. When you talk to the 
National Association of Insurance Commissioners, did they 
indicate to you that there was any problem in getting the data 
from the insurance companies?
    Mr. Hillman. Well, data that they collect really isn't 
designed to help look at this problem that Congress is faced 
with. What they're really looking for is data on the solvency 
of companies, making sure that they have sufficient income to 
pay claims associated with insurance.
    Mr. Burton. Right. But in the process of making sure that 
the companies are solvent, they have to look at the records on 
loss and expense of that company. Now, they keep records, those 
companies do, on the losses. Now, my question is was there any 
indication that the insurance companies were trying to keep 
that information from you, or the Federal--National Association 
of Insurance Commissioners, to try to hide something?
    Mr. Hillman. No. No. Not at all. We received excellent 
cooperation from the National Association of Insurance 
Commissioners as well as a wide range of industry participants, 
insurance regulators, medical and legal and trial attorney 
associations. All were very candid with us to try to help us 
understand what was happening here.
    From a data limitation standpoint, though, what we were 
looking for and unable to find was data on severity and 
frequency of claims at the insurer level on a State-by-State 
basis. This information simply did not exist. What the NAIC has 
is aggregate data that shows you the total loss portfolio and 
premium income picture, what you expect from an investment 
return standpoint, what your marginal profit might be 
associated with those estimates to give you some sense of 
solvency of the institution, and that is what they rely on. To 
break it down on a line of insurance business which would break 
out information showing frequency of claims at the policyholder 
level, severity of those claims is the type of data that we 
would like to have in order to better evaluate what's going on 
here.
    Mr. Burton. Well, does GAO have the ability to subpoena 
documentation like that and information like that?
    Mr. Hillman. No, Congressman. As a matter of fact, GAO's 
audit authority primarily goes to the Federal agencies that 
implement the Federal programs in the executive branch. In the 
insurance industry there is no Federal agency--individual State 
regulators, and we have no direct access to compel them to 
provide us information.
    Mr. Burton. Each State has an insurance commissioner.
    Mr. Hillman. Correct. And they cooperated with us to the 
extent they can.
    Mr. Burton. I was on the committee that dealt with our 
insurance commissioner when I was on the State legislature in 
Indiana. We had no problem whatsoever of getting information on 
insurance companies and the ratemaking procedures they used. 
And it just seems to me that if the GAO--and we may ask you to 
do this--if they talk to each individual State, there are 50 of 
them----
    Mr. Hillman. Correct, four territories.
    Mr. Burton. Check them out, too, but if you talk to each 
individual State, and that would be a big job, no question 
about it, I think you could get the statistical data you 
require in order to make some kind of an assessment like that, 
because I think it's very, very important that we have all the 
facts before we conclude this thing, because you're going to 
get from insurance companies one picture, and you are going to 
get from the doctors another picture, from the victims another 
picture, and from the trial lawyers another picture. And the 
only way we are to be able to come up with a formula that is 
going to be fair to everybody is to get that statistical data 
compiled, and if you can't get it from the National Association 
of Insurance Commissioners, you're going to have to get it from 
each individual State. And I know it's there. You can get it. 
You just have to ask for it.
    Ms. Watson.
    Ms. Watson. Mr. Hillman, I want to commend you because I 
think you put your finger on your problems, and I appreciate 
the Chair being able to identify where the problems really are.
    We understand your relationship to your Federal Government, 
but when it comes to States, because we have had plenty of 
trouble with our insurance commission and commissioners in the 
State of Florida--I won't tell you about the horror stories in 
terms of earthquake insurance. And I know that you are just 
stumped, because you have no way of getting that information.
    And so this is just the beginning, Mr. Chair, of trying to 
look at what we can do from a Federal level. But if the GAO had 
to tap into every 1 of the 50 States and territories, this 
would be an endeavor that would take over a period of years, 
because there's a cost to it as well, and it's very time-
consuming, and I don't think you are going to get the kind of 
cooperation out of some States as you would out of others and 
out of the Federal department, because you're going into the 
private insurance companies' confidential records.
    If you asked to open your actuarial data file, I don't know 
if you're going to get the kind of cooperation, because it 
might be a bad investment somewhere else that you're going to 
pay for as an end result through premiums. So I'm just 
suggesting that if we want you to do this, we are going to have 
to be sure there are resources there, and that there is 
personnel there, and you have the time to do it.
    Mr. Hillman. Quite frankly, in addition to insurance data, 
which is sorely needed to better understand what is going on 
with premium rate increases, there's also data that's needed in 
the legal system and medical system. Data on settlements and 
trial verdicts, breaking out information between economic and 
noneconomic damages, largely also not available, judgments on 
amounts obtained at trial are reported, sometimes very large 
amounts, and insurers told us, however, that most often they do 
not pay those amounts beyond policy limits. So data on the 
final amounts an insurer pays on individual judgments is not 
being publicized or available, and it ends up what the insurers 
end up having to pay on these highly publicized claims.
    Mr. Burton. What's the answer, then, for the Federal 
Government if we're going to try to pass a bill that would 
augment what the States are trying to do, or where those States 
have not done something, you know, solve the problem? And I 
rather this be done by individual States, but the States aren't 
doing it, and you are having the flight of doctors out there. 
It seems to me something has to be done. You can't let the 
health of one segment of the country just go down the tubes 
because the price of insurance is too high. So what do you 
think the answer is if it's difficult to get this information? 
Seems like you could work with the State insurance 
commissioners to get this, but assume that you can't. What do 
you think the answer is?
    Mr. Hillman. Well, I go back to our major finding as shown 
in this table that I have presented in figure 1 of my written 
statement for the record. The major contributing factor to 
increasing premium rates in the medical malpractice insurance 
market today appears to us to be paid and incurred losses. And 
looking at how to reduce those at the insurance level may give 
us some hope in helping to ferret out how best to reduce those 
rates. In doing so we need to look at the frequency of claims 
and the severity of claims at the insurance line level and a 
State-by-State basis and each insurer to better understand what 
is happening in those States, what types of measures they have 
in place to combat that problem--many States have many 
different things going on out there--and assess which among 
those things are working best.
    You're right, that is a herculean task. What we have done 
as part of this review was identify those factors. Interest, 
investment income, paid losses, reinsurance rates that insurers 
have to pay to level out their risk are the major contributing 
factors to the premium rate increases.
    Mr. Burton. We may wrestle with this further and try to get 
back to you with a request to augment what you have already 
done.
    Mr. Hillman. We would be pleased to do so.
    Ms. Watson. When the Chair asked the question what can we 
do, and I was thinking ahead of that as a herculean task, maybe 
we can at the Federal level ask the States to report on what 
steps they are taking. I represent a district where we were 
red-lined, and we found out that there were gangs out there who 
were faking accidents, you know, running into the backs of 
people and having people making claims and so on. And you know, 
so premiums went up. We were red-lined because the accidents 
happened in the district.
    I think back to when I was in Okinawa they would say, 
``Muchie too accident in the area.'' We had the ``muchie'' 
accident area. People going down to, say, Orange County had 
their accidents, you know, in our area, and then our premiums 
went up. That is on the automobile insurance side.
    So there are all kinds of factors within a State that we 
have to look at. And maybe we can put, you know, the mandate, 
Mr. Chairman, on the States to start looking at all of these 
factors, not just the insurance section, but the legal section 
as well as the victims in all of the kinds of con games that go 
on as well.
    It would be frightening to think that medical malpractice 
insurance was growing because the professionals were practicing 
faulty medicine. I mean, that would be a very frightening 
thing.
    But as you were testifying, I was thinking that we had a 
case where the chair of business and professions was giving 
these doctors coming from other countries reciprocity and 
collecting 25,000 for each one he got out of his committee. I 
was on his committee, and he would come to my name and he would 
say, Watson, aye, and I didn't open my mouth, and out would go 
the bill. And this guy would be practicing without taking the 
boards. He ended up in prison, of course, this member.
    But I'm just saying, each State has its own set of 
problems, and there's no way that, from a Federal level, you 
could impact or affect that. We are not ready for that. But 
what you can do is see that each State is making strides to 
look at the issue.
    Mr. Hillman. Your remarks are very consistent with where we 
came out in our report that we had done. We included matters 
for congressional consideration which says that Congress may 
wish to consider taking steps to ensure that additional and 
better data are collected. Specifically Congress may want to 
consider encouraging the NAIC and State insurance regulators to 
identify the types of data that are necessary to properly 
evaluate the medical malpractice insurance market, specifically 
the frequency, severity and the causes of losses, and begin to 
collect these data in the form that would allow for appropriate 
analysis. That's essentially what we were saying as well.
    Mr. Burton. We have been joined by the ranking member of 
the full committee Mr. Waxman. Do you have any questions?
    Mr. Waxman. Thank you very much.
    Medical malpractice insurance premiums have risen 
dramatically for some health care providers in some parts of 
the country. That much seems to be clear. But there has been a 
great deal of debate and great deal of miscellaneous 
information about the causes of these premium hikes and impact 
they have had on access to health care.
    Some of my colleagues on the other side argue that greedy 
trial lawyers and runaway juries are the sole cause of a 
rampant problem around the country, and they have argued we can 
solve this problem by imposing drastic national limits and the 
ability of courts and juries to decide which malpractice claims 
have merit and which do not.
    I don't think that view is supported by the facts, and I am 
glad GAO is here to set the record straight.
    I have a few questions about what GAO found in its two 
recent reports on this subject. GAO found that there wasn't one 
single cause with multiple factors that cause premium increases 
for some physicians in some States; is that correct?
    Mr. Hillman. That's correct.
    Mr. Waxman. And they included insurance company 
competition, particularly in the soft market of the 1990's to 
cut rates and win a greater share of the physician market; is 
that correct?
    Mr. Hillman. That's correct.
    Mr. Waxman. Another factor is the rising cost of 
reinsurance rates, correct?
    Mr. Hillman. That's correct.
    Mr. Waxman. And the remaining factor you cite is the 
increase in insurer losses; is that correct?
    Mr. Hillman. That's correct. We believe that is one of the 
major contributing factors in increases in premium rates.
    Mr. Waxman. On increasing insurer losses, GAO reported that 
it lacked comprehensive data that would allow you to analyze 
claims severity or show how losses were broken down between 
economic and noneconomic damages; is that correct?
    Mr. Hillman. Yes.
    Mr. Waxman. GAO could not conclude and did not conclude 
that runaway jury verdicts would cause an insurance crisis 
throughout the country; is that a correct statement?
    Mr. Hillman. We weren't asked to evaluate that, but what we 
identified were major factors that contributed to increases in 
premium rates.
    Mr. Waxman. Seems to me if runaway jury verdicts aren't the 
main problem, that we have no business in imposing national 
limits on the ability of injured victims to bring claims to 
court. GAO reports that this problem is as much about the 
business of insurance as it is about the rising cost of claims 
and legal defense, and that is the subject better left for the 
States to address. After all, States have always had the 
responsibility for regulating the business of insurance through 
licensing professionals, for establishing appropriate standards 
of care, and for punishing professional misconduct by health 
care providers. They are in a far better position than Congress 
here in Washington to say, we know what's best for everybody, 
and to impose one-size-fits-all solutions to address the 
problem. That is pretty complicated and has different aspects 
to it.
    Thank you very much, Mr. Chairman.
    Mr. Burton. You sound a little bit like a Republican when 
you talk about States rights.
    Mr. Waxman. Strom Thurmond took that very same position on 
a lot of issues, but on this issue he saw that this was a 
States rights issue.
    Mr. Burton. I think it is a States rights issue, what kind 
of guidance the Federal Government might give to the States 
that aren't responding to this problem and maybe encourage in 
some way to get on with it. In 1974, you worked on this bill 
that dealt with this.
    Mr. Waxman. That is not correct. I chaired the Select 
Committee on Medical Malpractice for the California State 
Assembly, and many of the recommendations that we put forward 
were put into the what is called microlegislation, and 
microlegislation was adopted after I came back to Congress, and 
I didn't have an opportunity to vote one way or the other.
    Mr. Burton. Were your recommendations made in 1974?
    Mr. Waxman. They were made in 1974, which is the year I was 
elected in Congress. The bill was adopted in 1975. So I was 
already back here. But I thought we played a constructive role 
in making our recommendations.
    And I think California law is one of the many States that 
we try to emulate, and sometimes they have adopted it in toto, 
and sometimes they decided other strategies, because I think we 
have had a view that democracy is at the State level, and I 
don't think they need us to give them guidance. But I don't 
think they need Washington to tell them what to do on an issue 
like this, particularly where it is not so clear-cut as the GAO 
reports out, that this is a more complicated problem than the 
glib answer of this is the solution, because this is the only 
reason those insurance rates are going up. That is the point I 
wanted to make.
    Mr. Burton. Thank you. I think that your reports are very 
well done and might ask you to do a little bit more, as I said 
earlier. And with that, we'll excuse you and get back to you 
later. Thank you very much.
    Our next panel is our good friend, the Honorable Dick 
Thornburgh, who was the Attorney General of the United States 
from 1988 to 1991 and the Governor of Pennsylvania from 1979 to 
1987; as well as Dr. John C. Nelson, President-Elect and 
executive board member of the American Medical Association; Mr. 
Jay Angoff, former insurance commissioner for the State of 
Missouri; Mr. Sherman Joyce, president of the American Tort 
Reform Association, and Dr. James Tayoun, who's a vascular 
surgeon and president of the Politically Active Physicians 
Association, I believe of Pennsylvania, if I'm not mistaken; is 
that correct?
    Mr. Tayoun. Correct.
    Mr. Burton. OK. Very good. Have a seat.
    Would you please rise? Our custom is to swear everyone in, 
so would you raise your right hands.
    [Witnesses sworn.]
    Mr. Burton. In deference to our former Attorney General, 
I'd like to start with Mr. Thornburgh.
    How are you?

 STATEMENTS OF DICK THORNBURGH, FORMER ATTORNEY GENERAL OF THE 
  UNITED STATES AND GOVERNOR OF PENNSYLVANIA; JOHN C. NELSON, 
 M.D., MPH, FACOG, FACPM, PRESIDENT-ELECT AND EXECUTIVE BOARD 
MEMBER, AMERICAN MEDICAL ASSOCIATION; JAY ANGOFF, ESQ., FORMER 
INSURANCE COMMISSIONER, STATE OF MISSOURI, AND DEPUTY INSURANCE 
    COMMISSIONER, STATE OF NEW JERSEY; SHERMAN JOYCE, J.D., 
  PRESIDENT, AMERICAN TORT REFORM ASSOCIATION; AND DR. JAMES 
  TAYOUN, VASCULAR SURGEON AND PRESIDENT, POLITICALLY ACTIVE 
                     PHYSICIANS ASSOCIATION

    Mr. Thornburgh. Fine, Mr. Chairman.
    Thank you very much for the invitation to speak with you 
today about a topic that I think is important to not only those 
present, but to all Americans. I want to emphasize that I 
appear here today as a representative of no one save myself. 
It's because of my longstanding interest in civil justice 
reform that dates back to my service as Governor and as 
Attorney General.
    We can all agree, I think, that there's a significant 
problem with increasing rates for medical malpractice 
insurance. My home State of Pennsylvania is one of the hardest 
hit. Just this past summer the GAO report noted that cash 
payments by insurers to medical malpractice plaintiffs in 
Pennsylvania jumped more than 70 percent between 1998 and 2002, 
a 5-year period.
    Doctors in Pennsylvania pay malpractice insurance premiums 
that are sharply higher than the national average. A number of 
major insurance carriers have failed and others have opted out 
of insuring doctors or have refused to issue new policies. The 
Pennsylvania Department of Insurance reported just this past 
summer that 2002 marked the 4th consecutive year in which 
insurers lost money on medical malpractice insurance policies 
issued in Pennsylvania. As a result, one professional 
organization estimates that Pennsylvania, home to the first 
medical school and the original 13 States, and now home to some 
of the finest medical schools and hospitals in the Nation, has 
lost nearly 1,000 doctors who have decided that practice there 
just doesn't pay.
    The problem is not Pennsylvania's alone. Just last year, 
the Trauma Center at the University of Nevada Medical Center in 
Las Vegas had to close for 10 days because surgeons quit in the 
face of huge increases in their malpractice premium. Such 
stories are legion, and I do not propose to rehearse them all 
today. They arise from across the country.
    The flight of doctors from the profession or from high-
exposure specialties or geographic areas threatens Americans' 
continuing access to quality health care--women without doctors 
to deliver babies, accident or crime victims turned away from 
crime centers, increasing practice of defensive medicine, these 
are the realities of a worsening national crisis.
    As I said, few could question the diagnosis. The debate 
grows heated, however, when we try to settle on a cure. Many of 
us, including President Bush, believe that one important step 
must be a comprehensive nationwide reform of medical 
malpractice law. There are simply too many meritless medical 
malpractice suits filed and there are too many overly generous 
jury awards. Faced with that uncertain and potentially 
unlimited exposure, insurance companies feel compelled to 
protect themselves and raise their rates, meaning full reform 
should include caps on awards for noneconomic damages, that 
ethereal category of damages that includes such intangibles as 
pain and suffering. It should include limits on the fees 
lawyers can recover, and it should raise the burden of proof 
and include caps for recovery of punitive damages.
    The thrust of each of these measures would be to strike a 
balance between the legitimate need to provide redress to 
injured patients and the insurance industry's need for greater 
certainty about its potential exposure.
    House bill 5 referred to earlier, sponsored by 
Pennsylvania's James Greenwood and passed by the House more 
than 6 months ago, included each of these provisions and more. 
Unfortunately, that legislation, like other similar measures in 
years past, was unable to make appreciable headway in the 
Senate.
    While we cannot be assured that these reform measures will 
alleviate the crisis, there is sound empirical evidence to give 
us hope. As the chairman reminded Representative Waxman, 
California, for example, enacted a comprehensive reform plan 
nearly 30 years ago. Since then, insurance premiums there have 
risen at less than half the average national rate. Other States 
that have enacted substantive reform report similar success.
    Opponents of these reforms will tell you that there are 
other causes for skyrocketing malpractice premiums, such as 
poor investment decisions by insurance companies. That 
explanation, whether true or not, ignores the significant 
differences in rates between States that have enacted real 
reforms and those that have not. If the problem were simply 
poor investments, we would expect to see similar rate increases 
across the board without regard for geography.
    In addition, that Pennsylvania Department of Insurance 
study I mentioned a moment ago made a very helpful distinction. 
It explained that in the decade between 1992 and 2002, 
Pennsylvania medical malpractice claims payments almost 
tripled, premiums more than doubled, but investment income for 
insurers declined by only a third. The Pennsylvania study noted 
that in 2002 medical malpractice insurers in Pennsylvania 
earned more than $46 million on their investments. However, 
because of malpractice claims, which comprise more than 61 
percent of all insurer costs in Pennsylvania, those insurers 
still ended the year with an $18 million loss.
    Considering that data and similar information from six 
other States, the GAO concluded in June, as you've heard, as 
Mr. Hillman has already testified, that losses on medical 
malpractice claims appear to be the primary driver of increased 
premium rates in the long term. Even if the poor investment 
argument were to some degree correct, it would still miss the 
point.
    Study after study tell us that malpractice litigation is, 
at the least, a substantial contributor to the insurance 
crisis. Reform opponents seem to believe that a problem can 
only have one cause and, correspondingly, one solution. Of 
course, that's not so. If litigation reform could slow the pace 
of insurance rate increases, it would be well worth it. The 
trial lawyers point a finger at the insurance industry, at 
least in part, I suspect, because meaningful tort reform might 
well hit those lawyers in the pocketbook.
    There is then the issue of whether the reform should be at 
the national or local level. Mr. Waxman discussed that at some 
length. As a former Governor, I have great faith in State 
governments and their ability to react to the needs of their 
citizens. Several States, Pennsylvania included among them, 
have enacted reforms. With rare exception, however, those laws 
are too often the cobbled-together results of political battles 
between doctors' groups and trial lawyers. As a result, they 
reach the statute books so diluted as to be nearly useless.
    Mr. Chairman, the medical malpractice problem is national 
in scope and effect. Many doctors have interstate practices; 
many insurers provide coverage in more than one State. The 
Federal Government itself, through direct coverage of members 
of the military, veterans and others, and through Medicare, 
Medicaid and community health initiatives, is a major consumer 
of health care. The crisis affects our national economy through 
jobs lost when hospitals, medical clinics, and offices close 
and when productivity is lost through workers' receiving 
inadequate health care. A national problem, in short, requires 
a national solution.
    I recognize that the same political pressures that have so 
watered down reform efforts in many States may well prove to be 
insurmountable as an impediment to this body's lead in passing 
appropriate Federal reforms, but something must be done, and it 
must be done nationally and it must be done on a comprehensive 
basis and it must be done, Mr. Chairman, soon.
    Thank you very much for permitting me to appear today.
    Mr. Burton. Thank you, Governor. We appreciate, very much, 
your comments.
    [The prepared statement of Mr. Thornburgh follows:]
    [GRAPHIC] [TIFF OMITTED] 
    
    [GRAPHIC] [TIFF OMITTED] 
    
    [GRAPHIC] [TIFF OMITTED] 
    
    [GRAPHIC] [TIFF OMITTED] 
    
    Mr. Burton. We'll just go right down the line.
    Dr. Nelson.
    Dr. Nelson. Well, thank you very much. Good afternoon. And 
Ranking Member Watson, good afternoon to you, too.
    I'm John Nelson, the President-Elect of the American 
Medical Association. I practice obstetrics and gynecology in 
Salt Lake City, UT. The American Medical Association 
appreciates the opportunity to discuss how our Nation's medical 
liability crisis is seriously threatening patients' access to 
quality health care.
    Now, what's a crisis?
    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 
obstetrician to monitor their pregnancy and deliver their 
babies or when a community health center has to reduce their 
services or close their doors because of liability insurance 
concerns.
    You know that a health care system is facing a crisis when 
efforts to improve patient safety and improve health care 
quality are stifled because of fear of lawsuits.
    Escalating jury awards and the high cost of defending 
against those suits, even those without merit, are causing 
medical liability insurance premiums to soar out of sight. 
Several recent Federal Government and private sector reports 
referenced in our written testimony confirm this. You just 
heard the GAO recently verify that losses on medical liability 
claims, the largest part of liability insurers' costs, appear 
to be the primary cause of increasing medical liability 
insurance--not the only cause, the primary cause.
    In many cases, over the last 2 years, physicians have been 
hit with medical liability premium increases of 25 to 400 
percent. My own doubled. As medical liability insurance becomes 
unaffordable or unavailable, physicians are being forced to 
relocate, close their practice, or drop vital services.
    This is a growing national problem that affects more than 
just physicians and other health care folks. It affects 
patients, real people, not statistics. This affects their 
ability to access health care that they actually need.
    Every day for the last couple of years there's been at 
least one major media story on the plight of American patients 
and physicians as this crisis reaches across the country. The 
AMA has now identified 19 such States that are in crisis, up 
from 12 just a year ago, and many others where the crisis is 
looming.
    The GAO evidence studied five crisis States and found, as 
you heard, examples of reduced access to care affecting 
emergency surgery and newborn deliveries. In fact, the AMA has 
no doubt that the GAO would have had even more access to 
problems found if they had examined the other 14 States.
    By written testimony, we believe the GAO could have 
strengthened its findings; and in good faith, we think if they 
had looked a little more carefully, a little more across those 
States, they could better reflect the severity of the crisis.
    The AMA believes that when an injury is caused by 
negligence patients are entitled to prompt and fair 
compensation, complete compensation--all economic losses, lost 
wages and legitimate medical expenses. Also appropriate, we 
believe that patients should receive reasonable compensation 
for the intangible noneconomic damages, such as pain and 
suffering.
    Unfortunately, our medical liability system is neither fair 
nor predictable. It's becoming increasingly an irrational 
lottery, driven by open-ended damage awards for unquantifiable 
economic damages. The studies have concluded that the only 
significant predictor of payment of claims in a medical 
liability case is injury and not the presence of an adverse 
event due to negligence; in other words, injuries often lead to 
settlements or jury awards even when the standard of medical 
care has been met.
    Mr. Chairman, you and others know that if H.R. 5 is one of 
the answers, it's past due. The question people are asking 
around the country is: Will my doctor be there?
    As a physician I ask: Can I be there?
    That is why we worked so hard with HCRA and others to get 
H.R. 5 passed, and we need the same thing to happen in the 
Senate.
    Of course, you know one of the keys is a limit of $250,000 
on noneconomic damages, with flexibility so States can 
determine their own caps, if need be. And as discussed, it 
worked very well in California; we know how the premiums in 
California have not increased as much as elsewhere.
    HRQ, the Agency of Healthcare Research and Quality, tells 
us that the access to physicians, the increase in physician 
supply--it is increased at a faster rate in States that have 
passed caps than where they haven't. That's got to continue. We 
cannot afford the luxury anymore to wait until this liability 
crisis gets worse because it affects real patients. We have to 
be like the meteorologist. We cannot tell there's a hurricane 
here; we have to tell there's a hurricane coming. It's good 
preventive medicine.
    Mr. Chairman, we've got to get some common sense back into 
courtrooms or there will not be doctors in the emergency rooms 
and delivery rooms.
    Thank you very much.
    Mr. Burton. Thank you, Dr. Nelson.
    [The prepared statement of Dr. Nelson follows:]
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    Mr. Burton. Mr. Angoff.
    Mr. Angoff. Thank you very much, Mr. Chairman, 
Congresswoman Watson.
    I'm Jay Angoff. I'm a lawyer from Jefferson City, MO. I was 
the director of the Missouri Insurance Department between 1993 
to 1998; and, Mr. Chairman, I'd like to start out by answering 
a question you asked to the first panel, which is, exactly what 
kind of data do the States collect at the department level and 
what kind of data does the NAIC collect?
    As the representative of the GAO said, most States and the 
NAIC collect the data from the States, will collect data from 
the companies, as to their aggregate paid losses, their 
aggregate written premiums, their aggregate earned premiums, 
their aggregate incurred losses; but in general, the States do 
not collect case-by-case data, and I think that's what the GAO 
is looking for.
    However, we did begin collecting case-by-case data in 1987. 
A law was passed requiring our insurance department to collect 
data on medical malpractice cases on a case-by-case basis, and 
so we've done that every year. In the 6 years that I was the 
commissioner, we had great experience. Filed claims went down, 
reported claims went down, and, in those 6 years, we had an 
excellent malpractice market. Rates generally stayed the same 
or even went down in certain years.
    After I left the department, we continued to collect this 
data and we continued to have good experience, and in 2001, we 
had particularly good experience. Between 2000 and 2001, closed 
claims went down by 19 percent, filed claims went down by 31 
percent, and the average payment per claim also went down. For 
example, in cases of very serious injury, such as quadriplegia 
and paraplegia, the average payment per claim went down from 
$325,000 to $250,000. So, between 2000 and 2001, filed claims 
went down, closed claims went down, the average payment per 
claim went down.
    What do you think happened to malpractice insurance rates 
in 2002? Well, they went up. They went way up. Obviously, this 
cannot have anything to do with paid claims because those have 
gone down.
    What it does have to do with is the insurer's estimates of 
incurred losses, and I'll get to a more technical explanation 
of that at the end of my statement. It's technical, so I'd 
rather not get into it and take the risk of putting everybody 
to sleep now, but it's just important to recognize that 
insurance rates are based on not the amounts that insurance 
companies actually pay out, but the amount that they project 
that they'll pay out in the future, and I'll return to that. 
So, in any event, that's what our data showed in Missouri.
    Now, Mr. Chairman, you said and I know it to be correct 
from my own experience, that Indiana has very low rates, 
relatively low malpractice rates, and it also has a cap on 
noneconomic damages.
    Other States also have very low malpractice rates, and they 
include Minnesota, Iowa, and North Dakota. Those States do not 
have caps on noneconomic damages.
    I believe, Mr. Chairman--I don't pretend to have done any 
scientific study on this, but I believe it's cultural to a 
certain extent. I believe if a study was done, and maybe this 
is something that the GAO would be very equipped to do, the 
factor that correlates the most with high losses, high paid 
claims, is percent urban. I think in the upper Midwest and 
Midwest--particularly in the upper Midwest--people are pretty 
conservative, juries are pretty conservative; and whether or 
not there's a cap, I think rates there are relatively low. So 
the main factor, I believe, that correlates with relatively 
high payouts is percent urban.
    But that leads to the question, Mr. Chairman, what about 
California?
    California, obviously, is a very heavily urban State, and I 
think that there's no disagreement that insurance premiums, 
malpractice insurance premiums in California since 1975, when 
MICRO was enacted, have increased at a substantially lower 
level, lower rate, than premiums across the country. But if you 
look at the data year by year, Mr. Chairman, what you see is 
that in the mid-1980's, despite MICRA, insurance premiums, 
malpractice premiums, in California shot way up, way up. They 
tripled between 1982 and 1988 despite MICRA's being in effect.
    Then, beginning in 1989--1988 was the peak. Beginning in 
1989, insurance premiums, malpractice premiums, began to fall 
and moderate; and they moderated so much that in 2000, 12 years 
after the peak in 1988, malpractice premiums were less, even 
without accounting for inflation, than they were in 1988.
    So that leads to the question: What happened in 1988?
    In 1988, in California--and obviously they do things 
differently in California--the public voted, enacted a very, 
very extreme regulatory measure, called Proposition 103, which 
heavily regulated insurance companies. It required prior 
approval of all rates. It required a hearing, an automatic 
hearing, anytime an insurance company asked for a rate increase 
of more than 15 percent. It repealed the antitrust exemption 
for the insurance industry, and it required all companies to 
roll back their rates by 20 percent unless they could show that 
they wouldn't be able to earn a fair rate of return under the 
rollback rate.
    This is a very extreme initiative. It wouldn't have gotten 
off the ground in Missouri; I do not think it would have gotten 
off the ground in Indiana. But it passed in California. And 
there's no way to prove a cause-and-effect relationship, but 
you can prove the association, and the association is, after 
Prop 103 was enacted, malpractice rates in California went way 
down.
    Just one or two other points, Mr. Chairman. Let me talk 
briefly about the difference between incurred losses and paid 
losses.
    Paid losses, as the name indicates, they announced that 
insurance companies actually pay out of the incurred losses, 
which is the term, as you know, that is always used in the 
insurance industry, but to the layman it seems sort of 
misleading because these are the--these aren't really losses. 
They're the amounts that insurance companies project that 
they'll pay out in the future, and they may or may not actually 
pay out that much.
    Now, when you saw the GAO's chart over there, it showed 
paid losses increasing at a moderate rate. If they used the 
medical CPI, it would have increased at a much more moderate 
rate, it would have been flatter; and if they take into 
consideration the growth in the number of doctors, it would 
have been still flatter. But those are quibbles. Pay rates 
increase at sort of a moderate rate, but what you saw with the 
incurred losses is--they went like this: They went way up in 
the mid-1980's, and then today, in 2002, they went way up 
again. We won't know.
    As you know, Mr. Chairman, we won't know whether the 
incurred loss estimates that insurance companies are making 
today are accurate for another 8 or 10 years, but what we do 
know is--we do know how accurate the incurred loss estimates 
insurance companies made in the mid-1980's were and we know--
and that chart gives you a clue--we know that those estimates 
turned out to be way, way overstated, not necessarily because 
of any bad faith, but they turned out to be way overstated. And 
you can--and there's the reason we know; that is, the paid 
losses have now come in, so we can tell that the incurred loss 
estimates insurance companies made in 1986 and 1987. Based on 
those losses being paid over the next 10 years, we now know 
that those incurred loss estimates were about 30 percent 
excessive.
    We won't know, as I said, whether today's loss estimates 
were excessive until 2012 or so, but based on past experience, 
I believe that they will prove to be excessive.
    And I'd just like to conclude Mr. Chairman; I appreciate 
your patience. I guess I'd just like to conclude by saying, 
there are a lot of things the States can do to try to solve 
this problem, fewer that Congress can do. The reason is that 
insurance is the one industry which is regulated solely at the 
State level. That is a prerogative. The State insurance 
commissioners are very jealous of that, so there's not that 
much that Congress can do; but I guess whether it's Congress or 
the States that'll take this action, I think that the single 
most important reform that could be enacted is one which would 
set standards that insurance companies have to follow in making 
their incurred loss estimates, so that we wouldn't have these 
wild swings.
    You know, there was--rates are going way up today, rates 
went way up in the mid-1980's, rates went up in the 1970's. We 
wouldn't have these wild swings. Doctors would be able to 
handle it much more easily.
    Thank you, Mr. Chairman.
    Mr. Burton. We'll get to that, those questions, in a little 
bit, because I know how they set those reserves; and some of 
the companies do do that in an excessive way. But if you've got 
a State insurance commissioner and he's watching that, they can 
usually cope with that. But we'll talk about that in a minute.
    [The prepared statement of Mr. Angoff follows:]
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    Mr. Burton. Mr. Joyce.
    Mr. Joyce. Mr. Chairman, thank you very much. And Ranking 
Member Watson, thank you. I appreciate the opportunity to be 
here.
    I know time is short, and, as a former congressional 
staffperson, I know the golden rule to be brief, and I will 
attempt to do that.
    At the outset, I'd like to associate myself with General 
Thornburgh and Dr. Nelson, in particular, in highlighting the 
problems that our health care liability system poses for 
patients, for physicians, and health care providers in general.
    Let me just say, though, I would go even one step further 
and remind the subcommittee--and I would certainly say this to 
members of the State legislature, as well--that there are 
institutions in our health care system that are critical as 
well, that are facing similar problems. Hospitals rely on 
physicians to staff their emergency rooms, and trauma surgeons, 
as the chairman mentioned, are in short supply; and they are 
all feeling the pinch.
    It extends even to nursing homes long-term care providers. 
They need medical providers. They need the top of the 
profession to assist them. Without those officials, they cannot 
provide the health care that we all expect and need. The whole 
continuum of care really is at stake here, and I encourage the 
subcommittee to take that into account.
    We at ATRA are strong supporters of MICRA. We would hail 
that and do hail that as the benchmark and the model for State 
legislatures and for the Congress to consider as the civil 
justice reform for the health care arena. As other witnesses 
have said, there are other issues in health care, and certainly 
with respect to insurance, but I think the evidence is 
overwhelming that the excessive costs, as reflected in 
liability insurance for health care providers makes this a 
critical component of any effort to deal with health care in 
the Congress and at the State level.
    Let me add, in terms of the picture Mr. Angoff talked 
about, California's experience. I think he made some 
interesting points, but I think it's instructive for the 
subcommittee to look at the history of MICRA and to look at the 
rise in insurance rates for health care providers in the 
aggregate, for physicians in California versus the rest of the 
country. From 1976 to 1999, California practitioners saw an 
increase of 167 percent. By craft, physicians in the rest of 
the country saw an increase of slightly over 500 percent, so 
roughly a three-to-one ratio. I think that, in and of itself, 
is quite compelling.
    Mr. Chairman, you mentioned the disparity in costs that 
practitioners in Miami versus Los Angeles, in the OB/GYN field, 
experienced. A similar experience would be the case for a 
general surgeon. In Los Angeles, according to the Medical 
Liability Monitor in 2002, a surgeon would pay insurance 
premiums of $36,740; by contrast, in Miami, it would be just 
over $174,000. Again, this is money that has to come from 
somewhere, and while there may be other issues to deal with, 
clearly the experience of MICRA demonstrates that this is a 
powerful factor.
    Let me mention also, because we've heard about the States, 
and we certainly are advocates of State civil justice reform, 
that Texas took a very aggressive step this year in following 
the lead of California with the MICRA law and passed 
comprehensive legislation. But Texas did something else which 
is very important to keep in mind. Just as, I believe it was 
last week, Texas voters passed a proposition, Proposition 12, 
which cleared the way to ensure that a judicial challenge to 
the Texas medical liability law will not result in its being 
overturned.
    We've heard about States' rights, and I would suggest 
respectfully to the subcommittee that there is a concerted 
effort by proponents of civil justice reform at the State level 
to undo what State legislators have done. It hasn't worked in 
every instance, but noneconomic damage limits in Illinois and 
Ohio have been overturned by State Supreme Court in those 
States, and that's something that again, as you contemplate 
your role in fashioning liability law, you should certainly 
keep in mind.
    Let me mention also that with respect to tort reform, not 
every reform proposal will have an impact on insurance rates, 
certainly not immediately. We do not hesitate to say that when, 
in fact, that's the case and that has been the case. A proposal 
to limit punitive damages or simply to say that the standards 
should be raised to clear and convincing evidence will not have 
an immediate impact, in all likelihood, on insurance rates. 
However, limiting the outer--establishing an outer limit on 
noneconomic damages, I think common sense tells us, will in 
fact have that benefit.
    Let me conclude by saying, Mr. Chairman, that you and 
Members of the House have taken the right step in enacting H.R. 
5. That's a sweeping proposal and it addresses the issue, we 
think, in a balanced way. And we also want to commend you not 
only for covering doctors who clearly are the backbone of our 
health care system, but all segments of the health care 
community.
    Many thanks.
    Mr. Burton. Thank you Mr. Joyce.
    [The prepared statement of Mr. Joyce follows:]
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    Mr. Burton. Mr. Tayoun.
    Dr. Tayoun. Chairman Burton, Ms. Watson, thank you for 
giving me the opportunity to speak. I am a board certified 
vascular and general surgeon in Philadelphia. I am president of 
the Politically Active Physicians Association, which formed 
approximately 1 year ago. I'm here to tell you--to kind of add 
a face to what is going on.
    I first started my practice in 1997. I purchased medical 
liability insurance for $28,789. In 1 year, the same policy 
with no claims history increased to $44,000. To sum it up, 
between the years 1997 to 2001, my insurance increased over 500 
percent. By the year 2002, with only two claims against me--
both dropped, however--my insurance went to $133,000, and 
adding insult to injury, the insurance company that was 
providing me with this said, oh, by the way, we're going to 
leave the State. So I was left without insurance and looking 
for somehow, from anyone above--we formed the Politically 
Active Physicians Association to help legislators in our State, 
which is Pennsylvania, to take a hard look at what is 
happening, because when I leave, I leave thousands of patients 
behind who cannot follow me.
    Now, I took some research and looked into where am I going 
to practice, because I cannot afford $133,000 and there is no 
insurance company at all for me. I looked into New Jersey, 
which is 10 minutes from where I practice now, and I found the 
same insurance company would give me a $34,000 policy. I found 
that if I went 20 minutes into a different State, Delaware, my 
insurance policy was quoted at $7,500--same surgeon doing the 
same surgical procedures with such a dramatic fluctuation.
    There's a problem, and it's a problem that's across America 
and needs to be addressed on a Federal level, I feel.
    I can go into multiple examples in our State of physicians 
who left, and our organization had put a poll out to 150 
hospitals, asking for data on the youngest surgeon in the high-
risk specialties because, as you might not know, and I'll 
explain to you, when a general surgeon enters the field right 
out of residency training it takes approximately 10 to 15 years 
for that surgeon to become honed, to be able to handle any 
emergency that comes into that hospital; and we do that by 
having senior surgeons directing us and guiding us and being 
able to bounce questions off of.
    The problem is, most of the physicians in Pennsylvania now 
are 50 years or older. The orthopedic surgeons, less than 35 
years of age, in Pennsylvania, are less than three.
    The base of--the foundation of the whole infrastructure to 
the medical system in Pennsylvania has been gutted and ripped 
out and will fall; and when we do actually realize it and when 
it hits like--the hurricane actually hits, it's going to be too 
late to fix that; and it's going to take at least 30 years to 
get better physicians back.
    We have world renowned institutions in Philadelphia. We 
train most of the doctors in America, but we cannot retain 
them. The Pennsylvania Medical Society has shown that 
Pennsylvania ranked 12th in youngest physicians in the country, 
and it's dropped to 41st in a matter--from 1996 to the year 
2000. And we actually think we have zero in 2003, but they're 
still working on the study.
    In short, who loses is not the doctor; it's the patient. 
Doctors can get up and leave. My patients cannot follow me. I 
take care of the needy. I take care of the elderly. They cannot 
follow me; and they've told me this time and time again. And 
with this, we've put together our organization to try to help 
educate our patients, to help our elected officials to do the 
right thing--in fact, nationwide tort reform which is needed to 
allow physicians to continue practicing in the needy areas and 
to help our elderly.
    That's it.
    Mr. Burton. Thank you, Doctor.
    [The prepared statement of Dr. Tayoun follows:]
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    Mr. Burton. I want to thank all of you.
    Let me start with you, Doctor. What kind of political 
pressures have you had to deal with in getting tort reform 
passed through the Pennsylvania legislature?
    Dr. Tayoun. We have had to hold rallies, we have had to 
stop working to protect up at Harrisburg. We've pushed and 
fought. We've had our patients on buses with us at different 
locations. We've organized the cities from Philadelphia to 
Harrisburg to Pittsburgh, and we finally got legislation passed 
through the house of representatives, which is now in the 
senate and stalled.
    The problem with Pennsylvania is, we have a constitution 
which has to be changed first before anything can be enacted, 
so we're running out of time rapidly.
    Mr. Burton. You have to have a constitutional amendment?
    Dr. Tayoun. Sure, to allow caps in Pennsylvania.
    Mr. Burton. Is that right?
    Dr. Tayoun. Yeah.
    Mr. Burton. And that takes, what, two sessions of the 
general assembly?
    Dr. Tayoun. Yes.
    Mr. Burton. And then it has to go to the electorate?
    Dr. Tayoun. Yes.
    Mr. Burton. So that's a 6- or 7-year problem, and in 6 or 7 
years what would happen?
    Dr. Tayoun. Too late.
    Mr. Burton. Too late. So what you're making, by saying 
that--and I don't know if that's the case in other States or 
not, but if that's the case in other States, if you wait 6 or 7 
years, the people in that State are going to be without the 
kind of medical personnel that they need to take care of their 
health care needs?
    Dr. Tayoun. Correct. Out of the 32 hospitals that responded 
to our poll, 4 of them had trauma surgeons left.
    Mr. Burton. And if that happens, then it would take how 
long for you to recover if, finally, the State did deal with 
it?
    Dr. Tayoun. If the State did deal with it, it would take at 
least 20 years because it's going to--for the average surgeon 
coming out of residency, it takes him at least 10 to 15 years 
under senior, experienced surgeons to help them become 
polished, so I don't know if you could ever get back to that 
point, especially in the rural areas of Pennsylvania.
    Mr. Burton. So you make a very strong case that we need 
some kind of Federal legislation that would circumvent the----
    Dr. Tayoun. State.
    Mr. Burton [continuing]. State legislative problems.
    How about the rest of you? Can you tell me what kind of 
problems that you face?
    I'll get to you on reserves in a minute.
    Can you tell me of any other States that are having similar 
problems, as far as getting----
    Mr. Thornburgh. Yeah, this is purely anecdotal, and this is 
10 years or so, but I've been kind of a missionary around this 
State for civil justice reform in general.
    Understandably, trial lawyers and plaintiffs' lawyer groups 
have amassed sizable war chests to resist reform. I would refer 
you to a publication of the Manhattan Institute, issued last 
week, called Trial Lawyers, Inc., which lays out in great 
detail what those efforts have encompassed. And I have worked 
with reform groups at the State level in a number of areas to 
try to enact reform.
    Often, when successful, as Mr. Joyce noted in Ohio and 
Illinois, the supreme courts of those States struck down the 
reforms as unconstitutional. And I cannot help but note how 
much effort from the Trial Lawyers Association goes into the 
election of judges and supreme court justices.
    Mr. Burton. So because of these impediments that were 
talked about by Dr. Tayoun and you, you feel that--you know, I 
believe States' rights ought to be paramount, but at some 
point, if you cannot get something done and the public health 
is jeopardized, you have to do something at the national level.
    Mr. Thornburgh. I think that's a very practical reason why 
Federal action is necessary, in addition to the nationwide 
characteristics of the problem.
    Mr. Burton. We have some votes coming in.
    Ms. Watson, let me just recognize you.
    Ms. Watson. Yes.
    I'm going to just raise these questions and then go on to 
the floor. Maybe the response can't be in answers.
    It seems like you have a problem in Pennsylvania. You know, 
from what I'm hearing, the doctor there and Mr. Thornburgh, you 
have described that Pennsylvania's in trouble.
    Dr. Tayoun. So's Florida.
    Ms. Watson. Florida and Pennsylvania.
    Mr. Thornburgh. We happen to be here by random, but I think 
if you had representatives from most of the other 49 States, 
you would hear----
    Ms. Watson. Well, I have a chart here, and we talk about 
States in crisis, States that are showing problem signs, and 
States currently OK. My State, California, seems to be 
currently OK because we had been working for years to deal with 
the problem.
    But the way it has been presented here, that there's some 
real serious problems in Pennsylvania, I'm wondering what are 
the component factors that make up the serious crisis that 
you've got in Pennsylvania, that's No. 1; and No. 2, is tort 
reform the solution to lowering the premiums? Because I just 
heard, by the gentleman in the center there, that even with the 
incidents going down, the premiums still went up.
    So if there is an answer to that question, would you please 
give--it may be in writing--to us. And you can reach me through 
my office because I'm going to--Rich, I'm going to fly because 
I understand we have three votes, and that's all the votes for 
the day.
    Thank you very much, Mr. Chairman.
    Mr. Burton. Well, let me pose a couple more questions here 
and make a comment. The problems that you cited, Governor, in I 
believe it was Ohio and Illinois--was that it?
    Mr. Thornburgh. Yes.
    Mr. Burton [continuing]. Where the supreme court struck 
down legislative action, leaves them in a hopeless situation as 
far as dealing with the problem. Pennsylvania has another 
situation. Those are just three States right there.
    And, Dr. Nelson, you were talking about Florida?
    Dr. Nelson. Yes, sir.
    Florida's a problem. Mississippi's a problem.
    There's a sign on the highway near Tupelo, MS, the home of 
the largest rural hospital in the country, that says, ``Buckle 
your seat belt; the next neurosurgeon that will help you is in 
Tennessee.''
    You know about the story of the circumstances in Las Vegas. 
West Virginia, little 9-year-old kid gets knocked out in the 
football game. Not a doc from the State will see him. Has to be 
airlifted to Columbus, OH.
    It goes on and on, and that's why we need a Federal 
solution. Florida is dying. $300,000 is how much one doctor had 
to pay, a cardiothoracic surgeon.
    $200,000 a year for premiums for my specialty? That's more 
than I make, Mr. Chairman. I couldn't afford to do that.
    Mr. Burton. And, if you didn't have insurance and you had a 
claim, you could lose everything you own.
    Dr. Nelson. Yes, sir.
    Now, things are different in Utah, you have to put a 
multiplier there. I only pay $72,000, but I make a third less 
than the doctors in Florida. My premiums doubled in a 2-year 
span with no suits or threat of suits against me----
    Mr. Burton. And doctors are not going to stay in a State 
where the insurance is so high they cannot afford it. They're 
going to leave rather than jeopardize their assets.
    Dr. Nelson. Yes, sir, which is why a Federal solution is 
necessary. Patients go from State to State, doctors go from 
State to State, and the wisdom of your solution, H.R. 5, would 
give flexible cap.
    Mr. Burton. Regarding the reserves you're talking about, 
sometimes companies do set excessively high reserves, there is 
no question about that. Those reserves should be policed by the 
State insurance commissioner, and that's something that has to 
be done on an individual basis.
    But with all these problems that they're talking about, Mr. 
Angoff, and I understand that California dealt with it, it 
wasn't because of the proposition you talked about; it was 
because of tort reform they passed a long time ago. But I won't 
get into a big debate with you, because I think probably you 
and I have a difference of opinion, but go ahead and make a 
quick comment.
    You'd better make it brief because we're going to have to 
go on the floor and vote.
    Mr. Angoff. The reason I say it's Prop 103 and not MICRA is 
that until Prop 103 was passed and only MICRA was the law, 
rates still went way up. They tripled in 7 years.
    Mr. Burton. But I don't want to have a big debate about 
that.
    Mr. Angoff. And, Mr. Chairman, I agree with you. The 
insurance commission should police reserves. They try to. 
They're not always successful. And at certain times insurance 
companies--I mean, insurance companies can have an incentive to 
inflate their reserves both in times like this, when investment 
income is low, when interest rates are at 1 percent. We've also 
got tax reasons to inflate their reserves.
    On the other hand, they've also got a reason to understate 
their reserves. For example, when companies are in trouble----
    Mr. Burton. I understand.
    Mr. Angoff [continuing]. Then they've got an incentive----
    Mr. Burton. You're preaching to the choir. That was my 
business, so I understand everything you're saying, but I've 
just got a little disagreement with you.
    Let me say this to you: We've passed this in the House and 
we'd like to be able to educate our colleagues in the Senate, 
who may not be influenced by large amounts of pressure.
    What I'd like to have from each one of you is maybe a very 
concise statement about the situation that you face in 
Pennsylvania, the situation you talked about in Illinois and 
Ohio, the situation you talked about in Mississippi and 
Florida. If you could give that to me, what I'll do is I'll 
talk to some of my colleagues in the House who feel sympathetic 
to your situation and try to send a Dear Colleague and a joint 
letter to my colleagues in the Senate to encourage them to take 
another look at this bill and try to get this thing passed.
    I had some reservations, quite frankly, about the bill when 
it was in the House. The reservation I had was, what if 
somebody was severely damaged by a doctor and it was a lifetime 
problem for them. But my fears were allayed because the damages 
were going to be paid. It was pain and suffering that had the 
limits on it.
    So I am very sympathetic to you. I would like to help you. 
I do not think there's much more we can do in the House at the 
present time unless the Senate acts, but what I'll do--Mr. 
Angoff may not agree with me, but I will forward to my Senate 
colleagues your recommendations and make sure that they get it, 
which might help us get some of it done.
    Because then, of course, we've got the problem--you know, 
Governor--with the conference committee, because they're 
probably going to make some changes. And then we'll have to 
fight that battle in the conference committee.
    And, Mr. Angoff, at the conference committee, perhaps some 
of your arguments can be heard and thrown into the mix.
    Anyhow, thank you very much, I really appreciate it. I'd 
like to have--I sincerely would like to have your comments in a 
very brief letter that I can put into a Dear Colleague to my 
colleagues in the Senate.
    Thank you very much for being here. I really appreciate it. 
It's been very informative. Thank you.
    [Whereupon, at 3:45 p.m., the subcommittee was adjourned.]
    [Additional information submitted for the hearing record 
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