[Senate Hearing 108-253]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-253

         PATIENT ACCESS CRISIS: THE ROLE OF MEDICAL LITIGATION

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

                             JOINT HEARING

                               BEFORE THE

                       COMMITTEE ON THE JUDICIARY

                                AND THE

                    COMMITTEE ON HEALTH, EDUCATION,
                          LABOR, AND PENSIONS
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                                   ON

EXAMINING THE STATUS OF PATIENT ACCESS TO QUALITY HEALTH CARE, FOCUSING 
        ON THE ROLE OF MEDICAL LITIGATION AND MALPRACTICE REFORM

                               __________

                           FEBRUARY 11, 2003

                               __________

                           Serial No. J-108-2

Printed for the use of the Committee on the Judiciary and the Committee 
               on Health, Education, Labor, and Pensions



85-062              U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2003
____________________________________________________________________________
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                       COMMITTEE ON THE JUDICIARY

  ORRIN G. HATCH, Utah, Chairman
PATRICK J. LEAHY, Vermont            CHARLES E. GRASSLEY, Iowa
EDWARD M. KENNEDY, Massachusetts     ARLEN SPECTER, Pennsylvania
HERBERT KOHL, Wisconsin              JON KYL, Arizona
DIANNE FEINSTEIN, California         MIKE DeWINE, Ohio
RUSSELL D. FEINGOLD, Wisconsin       JEFF SESSIONS, Alabama
CHARLES E. SCHUMER, New York         LINDSEY O. GRAHAM, South Carolina
RICHARD J. DURBIN, Illnois           LARRY E. CRAIG, Idaho
JOHN EDWARDS, North Carolina         SAXBY CHAMBLISS, Georgia
                                     JOHN CORNYN, Texas
 Manus Cooney, Chief Counsel and 
          Staff Director
  Bruce A. Cohen, Minority Chief 
              Counsel
                                 ------                                

          COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS

    JUDD GREGG, New Hampshire, 
             Chairman
EDWARD M. KENNEDY, Massachusetts     BILL FRIST, Tennessee
CHRISTOPHER J. DODD, Connecticut     MICHAEL B. ENZI, Wyoming
TOM HARKIN, Iowa                     LAMAR ALEXANDER, Tennessee
BARBARA A. MIKULSKI, Maryland        CHRISTOPHER S. BOND, Missouri
JAMES M. JEFFORDS (I), Vermont       MIKE DeWINE, Ohio
JEFF BINGAMAN, New Mexico            PAT ROBERTS, Kansas
PATTY MURRAY, Washington             JEFF SESSIONS, Alabama
JACK REED, Rhode Island              JOHN ENSIGN, Nevada
JOHN EDWARDS, North Carolina         LINDSEY O. GRAHAM, South Carolina
HILLARY RODHAM CLINTON, New York     JOHN W. WARNER, Virginia
   Sharon R. Soderstrom, Staff 
             Director
 J. Michael Myers, Minority Staff 
    Director and Chief Counsel

                                  (ii)

  


                            C O N T E N T S

                              ----------                              

                               STATEMENTS
                       Tuesday, February 11, 2003

                                                                   Page
Peel, Laurie, Releigh, NC; Linda McDougal, Woodville, WI; Leanne 
  Dyess, Vicksburg, MS; Shelby L. Wilbourn, M.D., on behalf of 
  the American College of Obstetrics and Gynecology, Belfast, ME; 
  Jay Angoff of Roger G. Brown and Associates, Jefferson City, 
  MO, and former Insurance Commissioner of Missouri; Jose 
  Montemayor, Commissioner of Insurance, State of Texas, Austin, 
  TX; and Lawrence I. Smarr, President, Physician Insurers 
  Association of America, Rockville, MD..........................    11

                          ADDITIONAL MATERIAL

Statements, articles, publications, letters, etc.:
    Senator Leahy................................................    57
    Senator Hatch................................................    59
    Senator Feingold.............................................    61
    Laurie Peel..................................................    62
    Linda McDougal...............................................    62
    Leanne Dyess.................................................    64
    Shelby L. Wilbourn, M.D......................................    65
    Jay Angoff...................................................    73
    Lawrence E. Smarr............................................    90
    Senator Gregg................................................   119
    Senator Frist................................................   122
    Senator Enzi.................................................   124
    Senator Kennedy..............................................   128
    Senator Grassley.............................................   133
    Senator Craig................................................   136
    Mr. Weldon...................................................   137
    Mr. Greenwood................................................   139
    Mr. DeFazio..................................................   142
    Mr. Strauss..................................................   145
    Alliance of Specialty Medicine...............................   149
    James Hurley.................................................   156
    National Medical Liability Reform Coalition..................   172
    Christian Shalgian...........................................   175
    Mary R. Grealy...............................................   184
    J. Charles Rich..............................................   188
    Answers to questions of Senator Gregg from Mike Pickens......   189
    Sister Mary Roch Rocklage....................................   193
    The American College of Obstetricians and Gynecologists......   197
    American College of Physicians...............................   199
    American Medical Association.................................   203
    Business Round Table.........................................   217
    Victor E. Schwartz...........................................   219
    Coalition for Affordable and Reliable Health Care............   234
    Dartmouth-Hitchcock Medical Center...........................   239
    Rodney C. Lester.............................................   244

                                 (iii)


    American Health Care Association.............................   251
    Answers to questions of Senators Hatch and Gregg from Jose 
      Montmayer..................................................   257
    Answers to questions of Senators Hatch and Gregg from Jay 
      Angoff.....................................................   263
    Answers to questions of Senators Hatch and Gregg from 
      Lawrence E. Smarr..........................................   267
    Answers to questions from Dr. Shelby Wilbourn................   306
    Jose Montemayor..............................................   308
  

 
         PATIENT ACCESS CRISIS: THE ROLE OF MEDICAL LITIGATION

                              ----------                              


                       TUESDAY, FEBRUARY 11, 2003

                               U.S. Senate,
                        Committee on the Judiciary,
        and the Committee on Health, Education, Labor, and 
                                                  Pensions,
                                                    Washington, DC.
    The committees met jointly, pursuant to notice, at 2:34 
p.m., in Room 106, Dirksen Senate Office Building, Senator 
Hatch, chairman of the Judiciary Committee, presiding.
    Present: Senators Hatch, Specter, Sessions, Cornyn, Gregg, 
Frist, Alexander, Enzi, Ensign, Leahy, Kennedy, Dodd, Kohl, 
Feingold, Durbin, Edwards, Murray, Reed, and Clinton.
    Senator Gregg. If I could get everybody's attention? There 
are a lot of things going on today in the Senate, and a lot of 
members are moving back and forth to the floor with the debate 
involving Judge Estrada. And I know Senator Kennedy will be 
arriving soon, as will Senator Hatch, who are both involved in 
that debate, and Senator Leahy, who is also involved in that 
debate. We have a number of other members, including the 
Majority Leader, who are on the way. There are also a number of 
members who have expressed an interest in participating in this 
hearing who I am sure will be coming and going as we proceed 
forward.
    Let me outline what is going to happen procedurally in this 
joint hearing, which we are excited about. We appreciate the 
opportunity to be here with the Judiciary Committee.
    We are going to begin with opening statements from Senator 
Leahy, Senator Kennedy, Senator Hatch, myself, and should the 
Majority Leader have time to come over, he will do an opening 
statement. Then we will hear testimony from the witnesses who 
are very qualified, and how we deal with patients' access to 
health care, lawsuits and the costs of lawsuits as they affect 
the medical industry, medical activities, and patients' 
abilities to see doctors. We will rotate with 5-minute 
questioning periods.
    We all recognize, I think, just from watching the news, 
that this issue of patient access to their physicians and the 
fact that many physicians are finding it difficult to practice 
because of the costs of their insurance premiums is a 
significant public policy concern. We have seen the problems in 
West Virginia where numerous people were unable to see their 
doctor. One instance I'm aware of involved a janitor who was 
unable to get adequate attention and had to travel to Kentucky 
to be seen.
    In New Hampshire ob/gyn practitioners have been especially 
hard hit. It has also been a problem across the country. For 
example, in northern New Hampshire, where we do not have a lot 
of ob/gyn doctors, the doctor in that area has found her 
premium going from $39,000 to $138,000 in 1 year, making it 
extremely difficult for her to practice and could force her 
into retirement.
    Excessive litigation drives up the cost of health care. 
Health insurance premiums are increasing at their highest rate 
in over a decade. Small businesses are particularly hard hit. 
In New Hampshire, small businesses have seen a 34-percent jump 
in their premium costs, which limits their ability to expand 
and create jobs.
    The Congressional Budget Office has found that medical 
litigation reforms would save the Federal Government 
approximately $14 billion, and savings would be even greater, 
of course, for private health insurers.
    With health insurance being so costly and out of reach for 
41 million Americans, it simply makes no sense to allow 
excessive litigation to continue to eat up more resources in 
our health care system. Today at least a dozen States are 
facing urgent patient access crises. Insurance carriers have 
exited these States at an alarming rate. Physicians, hospitals, 
nursing homes, and other providers are also in trouble. All but 
seven of the remaining States have reached ``near crisis'' 
status, and it is only a matter of time before the ``near 
crisis States reach full crisis status.''
    The data is clear about what is driving this crisis: 
dramatic increases in the size of jury awards, the cost of 
defending lawsuits, and the frequency of large claims.
    Mega jury awards are on the increase. In 1999, the most 
current year for which we have litigation data, the median 
award was $800,000, up 34 percent in 3 years.
    The number of million-dollar-plus jury awards is on the 
rise. Now more than half of all awards are over $1 million.
    The cost of defending lawsuits is extremely expensive, and 
too many resources are devoted to defending frivolous lawsuits, 
as nearly 70 percent of all medical liability claims result in 
no payments to the plaintiff.
    The trial lawyers are using the medical profession, 
unfortunately, almost as their ATM machines. Left unchecked, 
this pattern will continue to escalate and deplete the 
resources of our medical system. Fear of excess litigation also 
results in substantial indirect costs when physicians practice 
defensive medicine by ordering additional and unnecessary tests 
and procedures. And while difficult to measure, some experts 
believe that the defensive medicine practiced as a result of 
fear of lawsuits is somewhere between $60 and $108 billion.
    Although billions of dollars are spent in our medical 
liability system in direct and indirect costs, far too few of 
those dollars actually flow to the patients. Almost 50 percent 
of the damages awarded in court go to attorney's fees, not to 
injured patient. And the current system leaves many injured 
patients with legitimate cases out in the cold.
    The solution is to restore balance to the health care 
system, to ensure fair and timely compensation for patients who 
are injured by medical negligence. Unlimited compensation for 
current and future medical expenses and loss of wages should be 
awarded. Quantifiable economic expenses should be awarded. And 
reasonable compensation for pain and suffering should be 
awarded. However, the system must also ensure that patients are 
not denied access--and this is the issue--access on the front 
end. In order to do that, we must address the acute problem of 
the excessive litigation and we must address it now.
    As the cry for help from patients and physicians grows 
louder, so too do the excuses for not acting. We have heard it 
all before. Liability rates aren't increasing significantly. 
There is no problem. Rates are increasing but it is somebody 
else's fault. Insurance companies are to blame. State 
regulators are to blame, or State regulators could do a better 
job if they would simply pass more regulations. It is bad stock 
market investments, the business cycle, anti-competitive 
behavior, so on and so on.
    But the facts tell the truth. Insurance rates increase as 
insurers pay out more in losses and litigation expenses than 
they collect in premiums. According to an A.M. Best study, the 
medical liability insurance industry paid out $1.54 in losses 
for every $1 they collected in premium, and we have a recent 
study that has been submitted to us, which I will put in the 
record, from the National Association of Insurance 
Commissioners which has a similar finding as to the cause of 
the problem.
    [The prepared study was not received by press time.]
    Senator Gregg. We must have the courage to just say no to 
the status quo and yes to the patients. We should act quickly 
to address the problems that we know are leaving patients 
without care. At a minimum we should address the litigation 
lottery that has added to the unpredictability in liability 
insurance. To ensure there is no gaming of the system, we 
should ensure that reforms apply across the board to all 
entities involved in the delivery of patient care. I believe we 
should look to a model of success such as the California 
Medical Injury Compensation Reform Act upon which the House 
bill has been based. We should be open to any additional 
reforms to the underlying medical liability system, such as 
encouraging States to adopt patient safety best practices.
    There is a lot that can be done to improve this system to 
allow patients better access to their doctors and allow doctors 
to actually practice medicine.
    At this point, I will yield to the Senator from 
Massachusetts for his opening statement, if he wishes to make 
one. Before the Senator arrived, I stated that our procedure 
was going to be to have an opening statement by yourself, 
Senator Leahy, Senator Hatch, and the Majority Leader, should 
he arrive, and then go to questions.
    Senator Kennedy. That is fine. Thank you, Mr. Chairman. 
Today we are beginning an investigation into the sudden very 
substantial increases in the cost of medical malpractice 
insurance which some doctors in a number of States have 
experienced. And I hope the committee will conduct a thorough 
and unbiased examination of this problem, one which seeks real 
solutions.
    We must reject the simplistic and ineffective response 
proposed by those who contend that the only way to help doctors 
is to further hurt seriously injured patients. Unfortunately, 
as we saw in the Patients' Bill of Rights debate, the Bush 
administration is again advocating a policy which will benefit 
neither the doctors nor the patients, only the insurance 
companies. Caps on compensatory damages and other extreme tort 
reforms are not only unfair to the victims of malpractice, they 
do not result in a reduction of malpractice insurance premiums.
    Placing arbitrary on compensation for noneconomic loss only 
serves to hurt those patients who have suffered the most severe 
permanent injury. They are the paralyzed, the brain-injured, 
and the blinded. They are the ones who have lost limbs, organs, 
reproductive capacity, and in some cases even years of life. 
The Bush administration talks about deterring frivolous cases, 
but caps by their nature apply only to the most serious cases 
which have been proven in court. A person with a severe injury 
is not made whole merely by receiving reimbursement for their 
medical bills and lost wages. Non-economic damages compensate 
victims for the very real though not easily quantifiable loss 
in quality of life that results from a serious permanent 
injury. It is absurd to suggest that $250,000 is fair 
compensation for a person confined to a wheelchair for life.
    Less accountability for health care providers will never 
lead to better health care. It will not even result in less 
costly care. The total cost of medical malpractice premiums 
constitutes less than two-thirds of 1 percent--two-thirds of 1 
percent--of the Nation's health care expenditures each year. 
Malpractice premiums are not the cause of the high rate of 
medical inflation.
    In the past year, there have been dramatic increases in the 
cost of medical malpractice insurance in States that already 
have damage caps and other restrictive tort reforms on the 
statute books as well as in the States that do not. The reason 
for sky-high premiums cannot be found in the courtroom. 
Comprehensive national studies show that medical malpractice 
premiums are not lower on average in States that have enacted 
damage caps and other restrictions on patients' right than in 
States without these restrictions. Insurance companies are 
merely pocketing the dollars which patients no longer receive 
when tort reform is enacted. Let's look at the facts.
    Twenty-three States had a cap on damages in medical 
malpractice cases in 2001; 27 States did not. The best evidence 
of whether the cap affects the cost of malpractice insurance is 
to compare the rates in the two groups of States. The average 
liability premium in 2002 for doctors practicing in States 
without caps on malpractice damages was virtually the same as 
the average premium for doctors practicing in States with 
caps--31,926 to 30,521.
    An examination of the rates for range especially show 
similar results. There are many reasons why insurance rates 
vary substantially from State to State. This data demonstrates 
that it is not States' tort reforms which make the difference. 
Insurance industry practices are responsible for the sudden 
steep premium increases which have occurred in some States in 
the last year. The National Association of Insurance 
Commissioners studies show that in 2000, the latest year for 
which data is available, total insurance industry profits as a 
percent of premium for medical malpractice insurance were 
nearly twice as high, 13.6 percent, as overall casualty and 
property insurance profits, 7.9 percent. In fact, malpractice 
was a very lucrative line of insurance for the industry 
throughout the 1990s. Recent premium increases have been an 
attempt to maintain high profit margins despite sharply 
declining investment earnings. The industry creates malpractice 
crisis whenever its investments do poorly.
    Doctors, especially those in high-risk specialties whose 
malpractice premiums have increased dramatically over the past 
year, do deserve premium relief. That relief will only come as 
a result of tougher regulation of the insurance industry. When 
insurance companies lose money on their investments, they 
should not be able to recover those losses from the doctors 
they insure. Unfortunately, that is what is happening now. 
Doctors and patients are both victims of the insurance 
industry. Only by recognizing the real problem can we begin to 
structure an effective solution to end unreasonably high 
medical malpractice premiums.
    The Chairman. We will now turn to the distinguished 
Majority Leader of the Senate. Senator, if we can have your 
statement, and then if Senator Leahy gets here, we will go to 
him next, and I will finally conclude.
    Senator Frist. Thank you, Mr. Chairman. And I will be 
brief. I want to thank all of the chairmen for holding this 
timely joint hearing on a matter that is crucial to our 
Nation's health care system.
    Today's hearing in this Congress marks the first step in 
which I pledge as Majority Leader in the U.S. Senate, to work 
with my colleagues to develop legislation that is passed by 
this body and ultimately signed by the President to address a 
crisis that is just that--a crisis. It was a challenge a couple 
of years ago, and a problem about 4 years ago. Today, it is a 
crisis.
    The crisis has come today not just in the increasing 
premiums, but as a result of that we see diminished access for 
patients. And we all either have been patients or will be 
patients at some time in our lives. This crisis is a patient 
access issue. No longer is it doctors that are paying too much 
money, simply, or having to spend more and more to stay in 
practice. Now doctors are leaving the profession entirely. They 
are leaving their specialty. Trauma centers are closing doors. 
We have seen what happens with slow-downs among physicians who 
really have no choice. It is an access-to-quality-care issue, 
and the situation is grave and is worsening daily.
    We have all seen the headlines. We have seen the horror 
stories. They are occurring with increasing frequency: 
hospitals closing obstetric wards, trauma centers shutting 
their doors, expectant mothers unable to find an obstetrician 
because that obstetrician could no longer afford that extra 
$1,300 per baby in a tax, in essence, to pay for frivolous 
lawsuits.
    Daily we hear about these new stories and new victims. They 
used to be anecdotes, and now they are a frequent reality. The 
AMA has listed 12 States now that are in crisis and another 30 
States that are near crisis.
    As all of you know, I am doctor. I have paid malpractice 
premiums my entire adult lifetime, and I still pay malpractice 
premiums even though malpractice has diminished as I am not 
actively practicing today. It does give me the opportunity to 
talk to a number of doctors who are living with this crisis 
each and every day.
    It will be a debate whether it is the insurance companies 
or the frivolous lawsuits, or the personal injury lawyers who 
are out looking for cases, creating cases because of the 
incentives in the system, and that is a debate we will learn 
from and hopefully have today. But at the end of the day, we 
need to recognize that we at the Federal level must respond to 
this crisis.
    One of the things which affects me so directly is the fact 
that highly qualified and committed doctors are leaving their 
specialties--leaving neurosurgery, leaving obstetrics and the 
delivery of babies, and going into gynecology or making that 
the main part of their practice. Doctors are leaving certain 
States and then moving to another State that already has 
addressed to some extent some of the malpractice issues that 
most other States have not yet addressed.
    We see doctors dropping vital services today. We have some 
of the very best doctors, the most highly motivated individuals 
who go into the profession of medicine to help and to heal and 
to sacrifice, being able to practice because of these frivolous 
lawsuits and skyrocketing premiums.
    Defensive medicine, we will talk a little bit about that, I 
am sure. We look at the overall cost of medicine, the cost of 
the frivolous lawsuits, the incentives that the current system 
has to have these multi-million-dollar lawsuits today without 
any sort of control. Skyrocketing premiums ultimately have to 
be passed on to patients, driving up the cost of health care 
and health care premiums; and ultimately, putting the overall 
cost of health care out of reach of people who are right on the 
border of being able to obtain insurance. Defensive medicine, 
as a physician, means that if you are constantly worried about 
a frivolous lawsuit, you end up getting more tests run on 
patients than necessary.
    Action is needed. It is needed now. It is needed in this 
Congress. I am going to do everything within my power to make 
sure that we develop a bipartisan bill, which pulls the very 
best out of all of the ideas that we can pull together, to take 
that bill to the floor of the U.S. Senate, and to have further 
debate. At the end of day we must have a bill that will address 
the issues of access and quality that we know are being 
affected by these skyrocketing premiums.
    The Chairman. Well, thank you, Senator.
    We will go to Senator Leahy, and then I will conclude.
    Senator Leahy. Thank you very much, Mr. Chairman.
    I think all of us agree on the basic issue that our health 
care system is in crisis. Unfortunately, we hear that comment 
so many times that the force of it actually disappears.
    But we do know, as has been stated by everybody here, that 
dramatically rising medical malpractice insurance rates are 
forcing some doctors to abandon their practices or to cross 
Sate lines to find more affordable situations. Patients who 
need care in high-risk specialties--like obstetrics--and 
patients in areas already underserved by health care 
providers--like a lot of rural communities--are often left 
without any care at all.
    Here we are, the United States, the richest, most powerful 
Nation on earth. We ought to be able to at least ensure access 
to quality health care to all our citizens. Other countries do. 
We ought to be able to assure that the medical profession and 
its members will not be driven from their calling by the 
manipulations of the malpractice insurance industry.
    The debate about the causes of this latest insurance crisis 
and the possible cures grow very, very shrill. I hope this 
hearing will be a lot calmer and more constructive.
    My concerns are straightforward: one, that we ensure that 
our Nation's physicians are able to provide the high quality of 
medical care that our citizens deserve and for which the United 
States is world-renowned; and also that in those instances 
where a doctor does harm a patient, that patient ought to be 
able to seek appropriate redress through our court system.
    Now, different States have different experiences with 
medical malpractice insurance. As we know, insurance remains 
largely State-regulated industry, so each State ought to work 
to develop its own solution to rising medical malpractice 
insurance rates because each State has its own unique problems. 
Some States, such as my State of Vermont, while we may have 
problems, we do not begin to face the crisis that so many other 
States do. One of the reasons is that Vermont's legislature is 
at work to find the right answers for our State, and some other 
States are doing the same thing.
    But, in contrast, in States such as West Virginia and 
Pennsylvania and Florida and New Jersey, doctors are walking 
out of work in protest over the exorbitant rates being 
extracted from them by their insurance carriers.
    The distinguished Majority Leader has said that we should 
try to find a bipartisan solution, and I agree. I worry, 
however, that the administration's proposal that is the only 
thing before us ignores that kind of an effort.
    This is a problem in the insurance industry. This can't be 
laid just on the rest of the tort system. The administration 
has proposed a plan that would cap noneconomic damages at 
$250,000 in medical malpractice cases. This is one-size-fits-
all. Well, that does not follow the experience in most States. 
There is nothing to protect true victims of medical malpractice 
to arbitrarily limit compensation. The medical malpractice 
reform debate too often ignores the fact that there are people 
involved--men, women, and children whose lives have been 
dramatically and sometimes permanently, terribly permanently 
altered by medical errors.
    I look at Linda McDougal, one of our witnesses here today. 
I will let her speak through her own testimony. But I would ask 
anybody in this room, after you hear Ms. McDougal, to ask 
yourself if you would be willing to go through what she did 
because somebody gave you $250,000. I know that the answer on 
this panel would be that nobody here would do anything 
comparable for that, and I can guarantee you, Ms. McDougal, 
nobody in this room would go through what you did for that.
    Now, one problem is that the insurance industry's business 
model does require legislative correction, and that is its 
blanket exemption from Federal antitrust laws. They have 
enjoyed a benefit novel in our marketplace. The McCarran-
Ferguson Act permits insurance companies to operate without 
being subject to most of our Federal antitrust laws, and our 
Nation's physicians and their patients have been worse off 
because of it. Using this exemption, insurers can collude to 
set rates that can result in higher premiums than true 
competition would achieve. And because of this exemption, 
enforcement officials can't even investigate that collusion. So 
if we are going to really control rising premiums, then we have 
to look at this broad exemption in the McCarran-Ferguson Act.
    I have introduced the Medical Malpractice Insurance 
Antitrust Act of 2003, and I want to thank Senator Kennedy and 
Senator Durbin and Senator Edwards and Senator Feingold and 
others for cosponsoring it. It modifies the McCarran-Ferguson 
Act with respect to medical malpractice insurance when we think 
of some the antitrust offenses--price-fixing, bid-ridding, 
market allocations. Then you are going to go to the real 
question of premiums. It wouldn't stop State regulators from 
looking into this, but there is no reason to continue a system 
in which the Federal enforcers are stopped from prosecuting the 
most harmful antitrust violations just because they are 
committed by an insurance company. They could prosecute anybody 
else, but not an insurance company.
    So I hope we can get together just as we did once before 
when Senator Hatch and I joined forces in recent years to scale 
back the antitrust exemption for baseball, and in the Curt 
Flood Act we eliminated the exemption as it applied to 
employment relations. If we do the same thing for the insurance 
industry as we did for baseball, we are all going to be a lot 
better off.
    Thank you.
    [The prepared statement of Senator Leahy may be found in 
additional material.]
    The Chairman. Thank you, Senator.
    I have a long statement to make. As a former medical 
liability defense lawyer, I recognized medical liability as a 
tremendous problem years ago. In fact, 20 years ago, I 
suggested that the cost of defensive medicine due to so many 
frivolous medical liability suits would be at about $300 
billion a year. Now, we need defensive medicine, there is no 
question about it. But it goes way beyond that.
    I remember good lawyering encouraged doctors to maintain 
that historical record demonstrating that they tried everything 
possible in treating their patients, not just the standard of 
the community but way beyond the standard of the community. 
Medicine is not an exact science. Something can go wrong with a 
patient, so doctors must prepare to face lawsuits.
    We will have people who will claim that the insurance 
industry is what is at fault. Unfortunately, that argument 
sometimes falls because a lot of doctors have gone to 
nonprofit, physician-owned insurance companies or mutual 
companies to be able to bring the prices down and still can't 
get them down.
    We are concerned about doctors who are leaving the 
profession because they cannot afford to pay the medical 
liability premiums, and I might add that many of them are 
obstetricians who are critical in our society. Elaine and I had 
six children. We have 20 grandchildren and the 21st is on the 
way, and I sure as heck want my daughters, as I wanted Elaine, 
to have the best obstetrician that I could find. But if they 
are not there, what are women going to do? Are we going to go 
back to midwives? Which is good, but I think it is probably 
better to have obstetricians if you can have them.
    We have cases where women just don't have access to 
obstetricians. Some expectant mothers have to travel hundreds 
of miles to be able to get pre-natalcare and treatment. What 
are we going to do? Are we going to let this continue on, or 
are we going to do something constructive about it?
    Some States have gone to very rigid methodologies to solve 
these problems, and they have concluded that it is better over 
the long run to do it in a way that is very cost-saving and 
cost-effective even though there will be an occasional 
injustice.
    I don't agree with that. While it is important to 
reasonably limit a physicians's liability for noneconomic 
damages. There are tough cases, really bad cases of gross 
negligence by a doctor or hospital where $250,000 is 
insufficient compensation for the patient's pain and suffering.
    On the other hand, we all know that the vast majority of 
these suits, and certainly in my experience, were frivolous in 
nature, should never have been brought. Many of them were 
brought just to get the defense costs, which are considerable 
in these kinds of cases. That is what we want to avoid. This is 
a serious set of problems. We can blame one side or the other. 
We can blame the doctors. We can blame the insurers. We can 
blame the patients if you want to. But the fact is we have got 
to solve this problem. We need physicians to be able to 
practice. We need them in this modern day, with more and more 
Federal Government intrusion into the health care industry, to 
have some degree of independence whereby they can enjoy being 
in this profession, or some of the best and the brightest are 
not going to become doctors to begin with. They will go into 
some other less-intruded-upon professions.
    This is a very important hearing because we are going to 
try and come up with a way of resolving these problems that 
will keep incentives alive for the best and the brightest to go 
into the medical profession and, of course, to provide the 
services that all of us need from time to time when we are in 
trouble, when we need health care. I hope we can resolve these 
issues in a bipartisan way. In fact, it must be done in a 
bipartisan way. I hope we can call upon both sides to work 
together to get these problems solved.
    We are very fortunate to have a physician, a heart surgeon, 
to be exact, as the Majority Leader in the Senate. I think he 
understands these matters as well if not better than anybody. I 
intend to help him. I intend to help my colleagues on the other 
side to see if we can arrive at a resolution to these problems 
that will allow great medicine to go forward, allow patients 
with difficulties to have the best access to medicine, and will 
take care of the truly bad cases that do arise from time to 
time where there is no excuse for them arising.
    [The prepared statement of Senator Hatch may be found in 
additional material.]
    The Chairman. Having said all of that, let us introduce our 
witnesses. Senator, would you care to do that or----
    Our first witness will be Laurie Peel. Ms. Peel and her 
husband Chris are residents of Raleigh, North Carolina. 
Together, they are the co-owners of the Carolina Wine Company. 
In addition, they recently opened a restaurant, Vin Laurie, the 
restaurant ``Vin.'' Laurie is a graduate of UNC, Greensboro. 
She and her husband have been married since 1998 and have a 
two-year-old daughter named Grace. We welcome you here, Ms. 
Peel.
    We will then go to Linda McDougal. Linda and her husband 
Jerry are residents of Woodville, Wisconsin, and both are 
veterans of the United States Navy. They have three sons, John, 
Jared and Jacob. Linda is an accountant, and is recovering from 
a double mastectomy. We welcome you here as well, and we look 
forward to your testimony, all of you.
    Leanne Dyess and her husband Tony own a small business in 
Vicksburg, Mississippi. Due to a disability suffered in a car 
accident, Tony Dyess currently lives with his parents who 
assist in providing for his health care needs. They have two 
teenage children, a sophomore in high school and a freshman in 
junior college. We are really pleased to have you here as well. 
We appreciate you taking time.
    Dr. Wilbourn. Dr. Wilbourn attended the University of 
Mississippi as an undergraduate and received his medical school 
training at Tulane University School of Medicine. He performed 
his residency at the University of Tennessee and then returned 
to Tulane University for specialty training in obstetrics and 
gynecology. After completing his training, Dr. Wilbourn settled 
in Las Vegas, Nevada, where he practiced for 12 years, and 
served as an assistant professor at the University of Nevada 
School of Medicine. He recently relocated to Belfast, Maine.
    Jay Angoff joined the law firm of Roger G. Brown and 
Associates as ``of counsel'' in December 2001. He was Missouri 
Insurance director between 1993 and 1998, director of the U.S. 
Health Care Financing Administration's Private Health Insurance 
Group during 1999 and a vice president at quotesmith.com, an 
Internet insurance broker in 2000 to 2001.
    Before moving to Missouri in 1993, he served as deputy 
insurance commissioner and special assistant to New Jersey 
Governor Jim Florio as counsel to the National Insurance 
Consumer Organization as an attorney for Public Citizen and as 
an antitrust lawyer with the Free Trade Commission.
    As Missouri's Insurance director, Mr. Angoff was--am I 
pronouncing that right, Angoff?
    Mr. Angoff. Yes, sir.
    The Chairman. Was chairman of the Commission on State 
Health Insurance and vice chairman of the Missouri Consolidated 
Health Care Plan. He was also chairman of the National 
Association of Insurance Commissioners' Committee on Credit 
Insurance and vice chairman of its Committee on Insurance 
Availability and Affordability. We are grateful to have you 
here.
    Jose Montemayor currently serves as commissioner of 
Insurance for the State of Texas. He was first appointed to 
this position in 1999 by then Governor George W. Bush and is in 
the process of being confirmed for his third term.
    Commissioner Montemayor currently chairs the National 
Association of Insurance Commissioners' Market Conditions 
Working Group, which was established to look at issues 
surrounding medical malpractice insurance and make 
recommendations to State regulators.
    Commissioner Montemayor has been with the Texas Department 
of Insurance since 1993, where he held the positions of 
director of Insurer Services and associate commissioner for the 
Financial Program.
    He served in the United States Air Force for 24 years, 
completing his military career as director for Air Force 
Security Assistance Program in Latin America. He holds numerous 
advance degrees, including an MBA in finance and banking, and 
an MS in logistics and an MA in accounting.
    That is pretty impressive. We are glad to have you here.
    Lawrence ``Larry'' Smarr is the chief executive of the 
Physician Insurers Association of America, a position he has 
held since 1992. He has led the trade association which has 50 
insurance company members, insuring over 700,000 physicians and 
dentists. During his 10-year tenure as CEO, membership has 
increased by more than 40 percent, and the association has 
become the recognized voice of the industry.
    From 1979 to 1992, Mr. Smarr served as senior vice 
president of Government Relations and Research with the 
Pennsylvania Medical Society Liability Insurance Company. So we 
are pleased to welcome all of you here. We appreciate the 
testimony in advance that you are going to give, and we look 
forward to hearing from you, and hopefully we can gain enough 
from your testimony to be able to move on and do something 
constructive about these very serious problems.
    Ms. Peel, we will turn to you first.

STATEMENTS OF A PANEL CONSISTING OF LAURIE PEEL, RALEIGH, NORTH 
 CAROLINA; LINDA McDOUGAL, WOODVILLE, WISCONSIN; LEANNE DYESS, 
VICKSBURG, MISSISSIPPI; SHELBY L. WILBOURN, M.D., ON BEHALF OF 
  THE AMERICAN COLLEGE OF OBSTETRICS AND GYNECOLOGY, BELFAST, 
 MAINE; JAY ANGOFF OF ROGER G. BROWN AND ASSOCIATES, JEFFERSON 
CITY, MISSOURI, AND FORMER INSURANCE COMMISSIONER OF MISSOURI; 
  JOSE MONTEMAYOR, COMMISSIONER OF INSURANCE, STATE OF TEXAS, 
   AUSTIN TEXAS; AND LAWRENCE E. SMARR, PRESIDENT, PHYSICIAN 
      INSURERS ASSOCIATION OF AMERICA, ROCKVILLE, MARYLAND

    Ms. Peel. Thank you, Chairman Gregg and Chairman Hatch, for 
inviting me to testify here today. I am honored to be here.
    Since July, when I was asked to participate in a round-
table discussion with the President on malpractice reform, I 
have heard a lot of tragic, really poignant stories on both 
sides of the issue. My own experience may not be tragic, but I 
do think it illustrates the difficulties patients across the 
Nation--and especially women--are experiencing.
    I live in a community, Raleigh, North Carolina, which 
enjoys health care probably as good as, if not better, than any 
in the country. I, and my family, all have excellent doctors. 
Yet, even in Raleigh, when I first had a health care crisis, I 
had a very hard time finding a doctor who would take me. And 
when I was lucky enough to find a great one, Dr. John Schmitt, 
who is here today, he was ultimately driven out of business by 
overwhelming frustrations with the crippling cost of 
malpractice insurance. He is now on faculty at UVA School of 
Medicine.
    As he explained in a letter to all of his patients in July 
of 2002, he could no longer practice medicine the way he wanted 
to and always had. And that is, frankly, what we should all 
want from our doctors and maybe even demand.
    I first came to Dr. Schmitt under difficult circumstances. 
I was married less than a year and had just moved to Raleigh 
and had no Ob/Gyn there. I was 11 weeks pregnant, experiencing 
complications, which turned out to be a miscarriage, and in 
need of immediate medical attention. As a high-risk patient, 
though no Ob/Gyn would take me in. When I got to Raleigh, I 
called every practice I could find and was told again and again 
that the practice was full and would not be taking new 
patients. Fortunately, Dr. Schmitt learned of my plight, called 
me back and took me in.
    I soon discovered he was one of Raleigh's leading Ob/Gyns, 
yet he had all of the time in the world for my husband and me. 
In the 5 years that I saw Dr. Schmitt, he helped me through the 
biggest disappointment in my life, my biggest health scare, and 
finally helped me realize the greatest joy of any life. In 
short, my relationship with Dr. Schmitt was everything one 
could hope for from a doctor. It is also a relationship both 
he, and all of his patients, would very much like to continue, 
but we cannot because of the crippling cost of medical 
liability insurance.
    What he must pay to protect himself from the remote 
possibility of lawsuits--or at least legitimate ones--has 
prevented Dr. Schmitt from continuing the outstanding practice 
he had made his life's work, and stories like his are, I 
believe, truly tragic for us all.
    Now, I have seen both sides of the issue in a very real and 
personal way. My father is a doctor, as are my brother and his 
wife, but my family has also suffered from medical errors. I do 
not want, and I do not know any doctor who does, to deny 
victims of medical errors adequate redress for their injuries. 
And, certainly, my father, brother and every doctor I know 
wants to hold the medical profession to the highest possible 
standards.
    But the way to address malpractice cannot be to destroy the 
possibility of good practice or drive away those doctors, like 
Dr. Schmitt, who do practice to the very best of their 
abilities. None of us can afford that. I do not know the 
solution, but I do urge you to find one. And, Mr. Chairman, I 
very much appreciate that that is what you are trying to do.
    Thank you.
    [The prepared statement of Ms. Peel may be found in 
additional material.]
    The Chairman. Thank you, Ms. Peel.
    We will go to Ms. McDougal.
    Ms. McDougal. First, I want to thank Chairman Gregg, 
Chairman Hatch, and Senators Kennedy and Leahy. I greatly 
appreciate the opportunity you have given me.
    My name is Linda McDougal, and I am a victim of medical 
malpractice. I am 46 years old. I live with my husband and sons 
in Woodville, Wisconsin. It is a small Norwegian community in 
Northwestern Wisconsin. My husband and I are both veterans of 
the United States Navy. This is my story.
    About 8 months ago, in preparation for an annual physical, 
I went to the hospital for a routine mammogram. I was called 
back for additional testing and had a needle biopsy. Within a 
day, I was told I had breast cancer. My world was shattered. My 
husband and I discussed the treatment options and decided on 
one that would give me the best chance of living and maximize 
my time alive with my family. We made the difficult life-
changing decision to undergo what we believed was the safest 
long-term treatment, a double mastectomy, the complete removal 
of both of my breasts.
    Forty-eight hours after the surgery, the surgeon walked in 
my room and said, ``I have bad news for you. You do not have 
cancer.'' I never had cancer. My breasts were needlessly 
removed. The pathologist switched my biopsy slides and 
paperwork with someone else's. Unbelievably, I was given 
another woman's results.
    The medical profession has betrayed the trust that I had in 
them. How could the doctors have made this awful mistake? It 
has been very difficult for me to deal with this. My scars are 
not only physical, but emotional. After my breasts were 
removed, I developed raging infections, and I required 
emergency surgery. Because of my ongoing infections, I am still 
unable to have reconstructive surgery, and I am nearly 8 months 
past surgery. I do not know whether I will ever be able to have 
anything that ever resembles breasts again.
    After I came forward publicly with my story, I was told 
that one of the pathologists involved had a 10-year exemplary 
performance record and that she would not be reprimanded or 
disciplined in any way until a second incident occurred. Should 
someone else have to suffer or perhaps even die before some 
kind of disciplinary action is taken?
    Now there is a proposal to limit the rights of people like 
me who have suffered permanent, life-altering injuries. 
Arbitrarily limiting victims' compensation is wrong. 
Malpractice victims may never be able to work again and may 
need help for the rest of their lives, and they should be 
fairly compensated for their suffering. Without fair 
compensation, a terrible financial burden is imposed on the 
entire family.
    Those who would limit compensation for life-altering 
injuries say that malpractice victims still would be 
compensated for not being able to work, meaning they would be 
compensated for their economic loss. Well, I live in a small 
town. I did not have any significant economic loss. My lost 
wages were approximately $8,000, and my hospital expenses of 
approximately $48,000 were paid for by health insurer. My 
disfigurement from medical negligence is almost entirely 
noneconomic.
    As you discuss and debate this issue, I urge you to 
remember that no two people, no two injuries, no two personal 
situations are identical. It is unfair to suggest that all 
victims should be limited to the same one-size-fits-all 
arbitrary cap that benefits the insurance industry at the 
expense of patients.
    Victims deserve to have their cases decided by a jury that 
listens to the facts of a specific case and makes a 
determination of what is fair compensation based on the facts 
of that case. One size does not fit all.
    I could never have predicted or imagined in my worst 
nightmare that I would end up having both my breasts needlessly 
removed because of a medical error. No one plans on being a 
victim of medical malpractice, but it happened, and now 
proposals are being discussed that would further hurt people 
like me, all for the sake of helping the insurance industry.
    I am not asking for sympathy. What happened to me may 
happen to you or to someone you love. When it does, maybe you 
will understand why I am telling this story. The rights of ever 
injured patient in America are at stake. Limiting victims' 
compensation in malpractice cases puts the interests of the 
insurance industry ahead of patients who have been hurt, who 
have suffered life-altering injuries, like loss of limbs, 
blindness, brain damage, infertility, sexual dysfunction or 
loss of a child, spouse or parent. Instead of taking 
compensation away from people who have been hurt and putting it 
in the pockets of the insurance industry, we should look for 
ways to improve the quality of health care services in our 
country, to reduce preventable medical errors, like the one 
that cost me my breasts, part of my sexuality, part of who I am 
as a woman.
    Medical malpractice kills as many as 98,000 Americans each 
year, and it permanently injures hundreds of thousands of 
others. We must make hospitals, doctors, HMOs, drug companies 
and health insurers more accountable to patients. A good start 
would be to discipline health care providers who repeatedly 
commit malpractice. We should make the track records of 
individual health care providers available to the general 
public, instead of protecting bad doctors at the expense of 
unknowing patients.
    Limiting victims' compensation will not make health care 
safer or more affordable. All it will do is add to the burden 
of people whose lives have already been shattered by medical 
error. Every patient should say no to any legislation that does 
not put patients first. I urge you to do the same.
    Thank you for your time and consideration.
    [The prepared statement of Ms. McDougal may be found in 
additional material.]
    The Chairman. Thank you so much.
    Ms. Dyess, we will turn to you.
    Ms. Dyess. Chairman Hatch, Chairman Gregg, Senator Kennedy, 
distinguished members of the Senate Judiciary and HELP 
Committees, it is an honor for me to sit here before you this 
afternoon to open up my life, and the life of my family, in an 
attempt to demonstrate how medical liability costs are hurting 
people across the country. While others may talk in terms of 
economics and policy, I want to speak to you from the heart.
    I want to share with you the life of my two children, that 
my two children and I are now forced to live because of a 
crisis in health care that I believe can be fixed. And when I 
leave, and the lights are turned off, and the television 
cameras go away, I want you and all America to know one thing, 
and that is that this crisis is not about insurance, it is not 
about doctors or hospitals or even personal injury lawyers; it 
is a crisis about individuals and their access to what I 
believe is otherwise the greatest health care in the world.
    Our story began on July 5th of last year, when my husband 
Tony was returning from work in Gulfport, Mississippi. We had 
started a new business. Tony was working hard, as I was. We 
were doing our best to build a life for our children, and their 
futures were filled with promise. Everything looked bright. 
Then, in an instant, everything changed. Tony was involved in a 
single-car accident. They suspect he may have fallen asleep, 
though we will never know.
    What we do know is that after removing him from the car, 
they rushed Tony to Garden Park Hospital. He had head injuries 
and required immediate attention. Shortly thereafter, I 
received a phone call that I pray no other wife has to ever 
receive. I was informed of the accident and told that the 
injuries were serious, but I cannot describe to you the panic 
that gave way to hopelessness when they told me, ``We do not 
have the specialist necessary to take care of him. We will have 
to airlift him to another hospital.''
    I could not understand this. Gulfport is one of the 
fastest-growing and most prosperous regions in Mississippi. 
Garden Park is a good hospital. Where, I wondered, was the 
specialist who could have taken care of my husband?
    Almost six hours passed before Tony was airlifted to the 
University Medical Center, six hours for the damage to his 
brain to continue before they had a specialist capable of 
putting a shunt into his head to reduce the pressure on his 
brain--six unforgettable hours that changed our life.
    Today, Tony is permanently brain damaged. He is mentally 
incompetent, unable to care for himself, unable to provide for 
his children, unable to live the vibrant, active and loving 
life he was living only moments before the accident.
    I could share with you the panic of a woman suddenly forced 
into the role of both mother and father to her teenage 
children, of a woman whose life is suddenly caught in limbo. I 
could tell you about a woman now who had to worry about the 
constant care of her husband, who had to make concessions she 
never thought she would have to make in order to be able to pay 
for his therapy and care. But to describe this, would be to 
take away from us the most important point in the value of what 
I learned.
    Senator Hatch, I have learned that there was no specialist 
on staff that night in Gulfport because of rising medical 
liability costs had forced physicians in that community to 
abandon their practices. In that area, in that time, there was 
only one doctor who had the expertise to care for Tony, and he 
was forced to cover multiple hospitals, stretching him thin and 
unable to care for everyone.
    Another doctor had recently quit his practice because his 
insurance company terminated all of the medical liability 
policies nationwide. That doctor could not obtain affordable 
coverage. He could not practice, and on that hot night in July, 
my husband, and our family, drew the short straw.
    I have also learned that Mississippi is not unique; that 
this crisis rages in States all across America. It rages in 
Nevada, where young, expectant mothers cannot find Ob/Gyns; it 
rages in Florida, where children cannot find pediatric 
neurosurgeons; and it rages in Pennsylvania, where the elderly, 
who have come to depend on their orthopedic surgeons, are being 
told that those trusted doctors are moving to States where 
practicing medicine is affordable and less risky.
    The real danger of this crisis is that it is not readily 
seen. It is like termites in the structure of a house. They get 
into the woodwork, but you cannot see the damage. The walls of 
the house remain beautiful. You do not know what is going on 
beneath the surface, at least not for a season. Then, 1 day, 
you go to hang a picture or a shelf and the whole wall comes 
down. Everything is destroyed.
    Before July 5th, I was like most Americans, completely 
unaware that just below the surface of our Nation's health care 
delivery system, serious damage was being done by excessive and 
frivolous litigation, litigation that was forcing liability 
costs beyond the ability of doctors to pay.
    I had heard about some of the frivolous cases, and of 
course the awards that climbed into the hundreds of millions of 
dollars, and like most Americans, I shook my head and said, 
``Someone has hit the lottery.'' But never, I never asked, ``At 
what cost?'' I never asked, ``Who has to pay for those 
incredible awards?'' It is a tragedy when a medical mistake 
results in a serious injury. But when that injury, often an 
accident or an oversight by an otherwise skilled physician is 
compounded by the lottery-like award, and that award, along 
with others, make it too expensive to practice medicine, there 
is a cost, and believe me it is a terrible cost to have to pay.
    Like most Americans, I did not know the cost. I did not 
know the damage. You see, Senator Hatch, it is not until it is 
your spouse that needs a specialist or you are the expectant 
mother who needs an Ob/Gyn or it is your child who needs a 
pediatric surgeon, that you realize the damage that is beneath 
the surface.
    From my perspective sitting here today, this problem far 
exceeds other challenges facing America's health care, even the 
challenge of the uninsured. My family had insurance when Tony 
was injured. We had good insurance. What we did not have was a 
doctor, and now no amount of money can relieve our pain and 
suffering, but knowing that others may not have to go through 
what we have gone through could go a long way toward helping us 
heal.
    Senator Hatch, I know of your efforts to see America 
through this crisis. I know it is important to you, and it is 
important to the President. I know the priority Congress and 
many in the Senate are placing upon doing something and doing 
something now. Today, I pledge to you my complete support. It 
is my prayer that no woman or anyone else anywhere will ever 
have to go through what I have gone through and what I continue 
to go through every day with my two children and a husband I 
dearly love.
    Thank you.
    [The prepared statement of Ms. Dyess may be found in 
additional material.]
    The Chairman. Thank you, Ms. Dyess. We appreciate your 
testimony.
    Dr. Wilbourn, we will turn to you.
    Dr. Wilbourn. On behalf of the American College of 
Obstetricians and Gynecologists, an organization representing 
more than 45,000 physicians dedicated to improving the health 
care of women, I would like to thank Chairman Hatch and 
Chairman Gregg for holding this important hearing to examine 
the medical malpractice liability crisis facing this Nation.
    Women across America are asking, ``Who will deliver my 
baby?'' ACOG deeply appreciates your leadership and commitment 
to ending this crisis.
    We urge Congress to pass meaningful medical liability 
reform, patterned on California's MICRA law, and bring an end 
to the excessive litigation restricting women's access to 
health care.
    My name is Dr. Shelby Wilbourn, and I am an Ob/Gyn, who 
recently relocated to Belfast, Maine, after 12 years of 
practice in Las Vegas.
    Liability is not about fault or bad practice any more. It 
is about hitting the jackpot. Even the very best Ob/Gyns have 
been sued, many more than once. Even doctors who have never 
been sued are seeing their liability premiums double and 
triple, not because they are bad docs, but because they 
practice in a litigation-happy field where everyone is fair 
game.
    Let me cite a perfect example which demonstrates the 
imbalance of the current tort reform system. That is my story. 
I finished my residence at Tulane and moved to Las Vegas, one 
of the first people in my family to go into medicine. My father 
is a retired master sergeant in the U.S. Air Force, my mother 
retired from Sears and Roebuck. I was not raised as a 
physician's son or a wealthy family. I worked very hard and 
came out of medical school with $186,000 in debt that I was 
going to have to pay off.
    I worked hard in Las Vegas, teaching at the University of 
Nevada, private practice, seeing 40 patients a day, 20 to 25 
deliveries a month, operating and was very happy. For 12 years, 
I had no lawsuits. I had no claims and no disciplinary actions.
    Last year, in March, I was informed by my medical 
malpractice carrier that my insurance was going to increase 
from $33,000 to $108,000 a year. This was in a year that I had 
already had trouble making ends meet and paying the bills of my 
office at $33,000. On top of that, I was told that the $108,000 
would apply if I limited my number of deliveries to less than 
125 a year because they considered it risky to do more than 
that. I was already doing 205 deliveries.
    How do I choose which half of my patients to tell them, ``I 
am sorry. I can no longer take care of you. I have hit my limit 
for the year''?
    I was forced into one of three options. I could either get 
out of medicine, retire, and find something else to do, 
relocate, I could stop practicing obstetrics, but that is one-
half of my job--that is what I trained to do, and that is what 
I love--or I could start to pick and choose which of my 
patients got to stay with me and which ones got turned out on 
the street. I could also have the option to go borrow over 
$100,000 a year, take the gamble that 1 day the crisis would 
wear away, and I would be over half a million dollars in debt.
    None of those options were acceptable, so I chose to 
relocate. I looked at positions in the United States where it 
was less litigious, malpractice was more affordable, and I felt 
more physician friendly; thus, my relocation to Maine.
    When I got ready to leave Las Vegas, I left over 8,000 
active patients. Women were in the office crying, bringing 
dishes to say goodbye. I am still getting phone calls in Maine 
from these women asking for advice, and I can no longer treat 
them long distance.
    I had a practice of 12 years that was very successful that 
I could not sell. There were no new Ob/Gyns coming to Las 
Vegas. They were living faster than you could get one in. There 
were no residents coming out that wanted to stay in Las Vegas 
and practice. I took a 12-year business and donated it to the 
University of Nevada School of Medicine.
    I left Nevada because the litigation climate has driven the 
medical liability premiums to astronomical heights. In 2002, 
Las Vegas Ob/Gyns paid as much as $141,760 a year, a 49.5-
percent increase from 2001. In Clark County, Las Vegas, there 
are only 160 Ob/Gyns left, that is private, public and resident 
practitioners, left to deliver an estimated 23,000 babies in 
2003. That is an average of 216 babies per Ob/Gyn, which is 
already over their 125 limit.
    Of those Ob/Gyns in Las Vegas who responded to an American 
College of Ob/Gyns survey last number, 86 percent have changed 
their practice, such as retired, stopped doing high-risk 
deliveries, and 30 percent of the Ob/Gyns have stopped doing 
obstetrics altogether.
    Last July, I was privileged to meet with President Bush in 
North Carolina to discuss the medical liability crisis on a 
national level. At that time, I had never been named in a 
lawsuit, a fact that was made known during that round-table 
discussion.
    Within 6 days of my return from meeting the President, I 
was delivered my first lawsuit. All but one of the physicians 
who served on the task force to the governor of Nevada received 
lawsuits within six to 7 days, some multiple. I find that 
coincidental.
    When I left Nevada, my patients, many of whom were with me 
for 12 years, were forced to find another Ob/Gyn, among a 
dwindling population of Ob/Gyns in Las Vegas. This is the real 
issue. Patients around this country are losing access to good 
doctors and quality health care. The end game of the current 
system is a society without enough doctors to take care of its 
citizens. We just cannot let this happen.
    Today, we have heard or will hear anecdotes from both sides 
of this debate, all of which support each side's position. 
However, the fact remains clear there is a medical liability 
crisis in this Nation. Who loses in this environment? Women, 
good doctors, patients, communities, businesses and Americans.
    On February 5th, 2003, the House of Representatives took an 
important first step in ending this crisis when Representatives 
Greenwood, Cox, DeLay and Sensenbrenner introduced H.R. 5, the 
Health Act of 2003, with ACOG's full support. H.R. 5 is fair 
for everyone. H.R. 5 will restore the balance in the health 
care system that has been hijacked by trial lawyers and 
meritless lawsuits.
    Thank you, Senators Hatch and Gregg, for your leadership on 
this important issue and for the committee's attention to this 
crisis. The College looks forward to working with you as we 
push for Federal liability reform.
    [The prepared statement of Dr. Wilbourn may be found in 
additional material.]
    The Chairman. Thank you, Doctor.
    Mr. Angoff, we will take your testimony now.
    Mr. Angoff. Thank you, Mr. Chairman and members of the 
committee. My name is Jay Angoff. I am a lawyer from Jefferson 
City, Missouri. I was the insurance commissioner of Missouri 
between 1993 and 1998.
    When I was commissioner, Mr. Chairman, we had a great 
medical malpractice insurance market. Profits were high, rates 
were low, every year rates either stayed the same or went down. 
The apparent explanation is that we have very good experience 
in Missouri. We collect data each year from the insurance 
companies--I think we have the best data in the country--and 
that data showed, during the 6 years I was commissioner, new 
claims filed every year were generally down, the number of paid 
claims generally went down every year, and the average payment 
per claim, after accounting for inflation, generally went down.
    After I left the Department, the same trends accelerated, 
particularly between 2000 and 2001, there was a dramatic drop 
in reported claims, a drop in paid claims, and a drop in 
payment per claim. This is based on the data the companies 
submit to us. Yet, despite those drops, malpractice premiums 
skyrocketed in Missouri, just as they are throughout the 
country.
    That does not seem to make sense, but it does make sense 
once you understand the underlying characteristics of the 
insurance business that are responsible for those sudden and 
dramatic drops. By the way, this is not to blame the insurance 
industry, this is just the underlying characteristics of the 
industry that cause it.
    No. 1, the investment climate, it is no secret that both 
the stock market and the bond market are performing terribly. 
We can quibble about how much insurers invest in stocks and how 
much they invest in bonds, but the fact is there is no place 
insurance companies can put their money today where they are 
going to earn any money. That is reason number one.
    No. 2, the cost of reinsurance. The cost of reinsurance was 
already going up. Reinsurance was the insurance that insurance 
companies buy themselves for their real high claims. The cost 
of reinsurance was already going up before the terrorist 
attacks. After the terrorist attacks, it went up even more for 
reasons obviously that have to do with international events. 
Nothing to do with the medical malpractice business.
    Reason number three--and this is probably the most 
important, but it is also the most technical, so I will try to 
make it simple--when insurance companies say they have a loss, 
what they mean is they estimate they will pay out a certain 
amount in the future, not that they have actually paid out that 
amount.
    Mr. Chairman, in your opening statement, you talked about 
insurance companies paying out $1.54 for each premium they take 
in, and that is a figure that the insurance industry puts out, 
and that is accurate based on insurance accounting principles, 
under which what they call their incurred losses, which seems 
to the average person to mean the amount they actually pay out, 
but under their accounting principles, what it means is the 
amount that they will project they will ultimately pay out on 
premiums that they take in, in a given year.
    During the last insurance crisis in the mid 1980s, 
insurance companies projected that they would pay out a whole 
lot. They had very high loss ratios, numbers similar to the 
$1.54 that you projected, Mr. Chairman. What they found out 
when these claims, when it came time to pay these claims, they 
actually paid out a heck of a lot less, so they had a lot of 
money left over with which to reduce rates in the nineties. 
That is one reason rates were slow and profits were so high in 
the nineties.
    The same thing is happening now. Insurers are overinflating 
the amount that they project they will pay out. In a few years, 
and I know it is no comfort to doctors now, but in a few years, 
just as happened after the last insurance crises, it will turn 
out that these estimates are inflated, they will be able to 
reduce their rates.
    A fourth factor that is responsible, and I do not want to 
overstate this, but it does have some responsibility, and that 
is the antitrust exemption for the insurance industry. When 
times are good, when insurance companies are making lots of 
money on their investments, the antitrust exemption is 
irrelevant. Insurance companies do not fix prices then, they 
cut prices. They are competing like crazy, so the insurance 
antitrust exemption then is irrelevant.
    On the other hand, in times like this, when times are bad, 
the antitrust exemption allows insurance companies to price 
without fear. They do not have to worry about being able, they 
do not have to worry about being prosecuted for pricing 
collectively. That is not a violation of the law under 
McCarron-Ferguson, and I will be glad to answer any questions 
about that after my testimony concludes.
    Finally, Mr. Chairman, there are things that can be done, 
although not all at the Federal level. At the Federal level, 
the antitrust exemption can be repealed or modified. At the 
State level, it can be made easier for insurance regulators to 
roll back and refund excessive rate increases, and, finally, 
Mr. Chairman, there is the California solution which is a very 
extreme solution, but in California it worked.
    In 1988, the citizens of California enacted a ballot 
initiative called Proposition 103, which rolled back all 
property casualty rates by 20 percent, repealed the State 
antitrust exemption, established prior approval rate 
regulation. That has had a very positive effect on rates in 
California. It is an extreme solution, but if nothing else 
works, it is a solution that can be implemented.
    That concludes my statement. I will be glad to answer any 
questions the committee may have.
    [The prepared statement of Mr. Angoff may be found in 
additional material.]
    The Chairman. Thank you so much.
    Mr. Montemayor?
    Mr. Montemayor. Thank you, Mr. Chairman, and good 
afternoon, members. I am Jose Montemayor. I have the honor of 
being the commissioner of Insurance for the great State of 
Texas.
    As a member of the National Association of Insurance 
Commissioners, I also chair that group's Property and Casualty 
Committee, and separately a subcommittee or working group 
looking into the medical malpractice insurance coverage for 
physicians and other health care providers on a national basis. 
To that end, we will be having a hearing in March to collect 
additional data and continue that study.
    Today, however, I am presenting for the record a report 
first provided to the Texas legislature in late 2001 and again 
updated in 2002 regarding the availability and the 
affordability of medical professional liability insurance in 
Texas.
    There are a number of theories, Mr. Chairman, regarding the 
current situation in medical malpractice coverage. However, the 
sum of our report clearly indicates the loss trends, and what I 
mean by that is increasing amounts paid for claims or the 
primary costs or rising costs of medical malpractice insurance. 
Really, all other costs are a distant second.
    This first chart would clearly, it is a 10-year average on 
a study that we had been conducting just with 15 States. The 
chart is on the left. It basically shows what happens for every 
dollar of premium taken in compared to losses in defense 
expenses associated with claims for that company and their 
policyholders. And in a State like Texas, you can see--it is 
the one in the red bar--that we have been paying out 
approximately $1.60 for every single dollar of premium 
collected.
    What that does, it does affect our profitability, which is 
the chart on the right, which is basically the net worth of the 
company after all profits and investment incomes are declared. 
You can see that on a purely underwriting basis, just dollars 
in per dollars out, California and Michigan managed to stay 
profitable over a 10-year period. Once you add investment 
income back in and compare it to their net worth, almost all 
States came back to positive, except for Texas, who experienced 
a negative 2 percent over a 10-year period.
    Over a four-year period, those claim costs per doctor--this 
is all of the claims paid divided by all of the doctors 
insured--have risen approximately 50 percent, and this is 
driven by two things; the number of claims called the claim 
frequency and the amount per claim called the claim severity.
    In my own State, we found the problem to be fairly complex, 
and in some areas we have a high number of frequency, such as 
in the Lower Rio Grande Valley area--my area of the world--and 
the reversals in other parts of the State, where the amount per 
claim is much higher, although the number of claims is lower.
    Those loss trends indicate the presence of liabilities 
which, due to their unpredictability, it has led a number of 
insurers, first of all, to either discontinue writing the line 
or go insolvent, and it has cost them, if you go back to the 
end of 1998 and see what they have had to do with their 
premiums, basically, to escalate somewhere between 80 and 140 
percent over the last 4 years for the major writers in Texas.
    With the stock market losses in the last few years and 
investment income and hard markets, it seemed like reasonable 
culprits initially. So we undertook an investigation to see 
exactly what was going on with that. And what we found that 
nationally all property and casualty companies that specialize 
in medical malpractice, primarily bonds, into the high 90 
percent. The area in blue represents each of the investment 
years from 1991 to 2001. The area in yellow, it is the area 
they held in equities or common stocks, and then there are some 
holdings in cash and so forth, and this is a natural allocation 
that has always existed there because of their cash needs and 
their predictability and ability to get cash.
    So, from our perspective, what we found again was losses 
drove the environment, much more so than any other fundamental 
reason. It has a much more dramatic effect to have an 
adjustment in reserves for anticipated claims than it would to 
lose badly on their equity holdings, and that is the whole 
purpose of this chart.
    What is not in any of these charts, Mr. Chairman and 
members, can never be conveyed fully through the statistics or 
the accounts from people who suffer from lack of access to 
patient care. There are stories from the Rio Grande Valley to 
the Texas panhandle of how people do not have access to health 
care.
    I have visited with a number of doctor groups who have come 
to me for help, saying what can we do about our premiums. They 
are escalating to the point where I can no longer hang in 
business, where I can no longer do certain procedures, and I am 
going to have to either withdraw or change my practice to only 
do less-risky procedures.
    So I hope that the attached report that I presented, and 
the summary charts presented, to the committee today would 
speak volumes on a simple premise that we do need a balance and 
reasonable limits on losses to stabilize the medical liability 
insurance market, and I believe that that will go a long way to 
alleviate the looming crisis of access to health care.
    I would be very pleased to answer any of your questions.
    [The prepared statement of Mr. Montemayor may be found in 
additional material.]
    The Chairman. Thank you so much.
    Mr. Smarr, we will turn to you.
    Mr. Smarr. Chairman Hatch, Chairman Gregg, and committee 
members, I am Larry Smarr, president of the Physician Insurers 
Association of America. The PIAA is an association comprised of 
professional liability insurance companies owned and/or 
operated by physicians, dentists and other health care 
providers.
    The 43 PIAA insurance company members can be characterized 
as health care professionals caring for the professional 
liability risks of their colleagues, doctors insuring doctors, 
hospitals insuring hospitals.
    Sitting behind me here today is Dr. Warren McPherson, a 
practicing neurosurgeon from Murfreesboro, Tennessee. Dr. 
McPherson is the chairman of the PIAA board of directors and 
also chairman of the State Volunteer Mutual Insurance Company, 
the largest insurer in Tennessee and Arkansas, and a mutual 
company owned and operated by the doctors it insures.
    We believe that the physician-owned and operated insurance 
company members of the PIAA currently insure over 60 percent of 
America's physicians. Let me get right to the issue. Over the 
past 3 years, medical liability insurers have seen their 
financial performance deteriorate substantially due to the 
rapidly rising cost in medical liability claims.
    According to A.M. Best, the leading insurance industry 
rating agency, the medical liability insurance industry 
incurred a $1.53 in losses and expenses, as we have heard here 
today, for every dollar of premium they collected in 2001. Best 
estimates that this number will be $1.41 in 2002 and decline to 
$1.34 in 2003, primarily due to the rising premiums that the 
insurance carriers are collecting, and Best also has told us 
that this statistic would have to go down to $1.14 in order for 
the industry to break even.
    The primary driver of the deterioration in the medical 
malpractice insurance industry performance has been paid claim 
severity or the average cost of a paid claim. Exhibit A shows 
the average dollar amounts paid in indemnity to plaintiffs on 
behalf of individual physicians since 1988. The mean payment 
amount has risen by a compound annual growth of 6.9 percent 
over the past 10 years, as compared to 2.6 percent in the 
consumer price index.
    The data from this exhibit comes from the PIAA data-sharing 
project, a medical cause-of-loss database which was created in 
1985 for the purpose of identifying common trends among 
malpractice claims which are used for patient safety purposes 
by the PIAA member companies. To date, over 180,000 claims and 
suits have been reported to our database.
    One very troubling aspect is the proportion of those claims 
and suits filed which are ultimately determined to be without 
merit, as shown on Exhibit B. Sixty-one percent of all claims 
closed in 2001 were dropped or dismissed by the court. An 
additional 5.7 percent were won by the doctor at trial. Only 
33.2 percent of all claims closed were found to be meritorious, 
with most of these being paid through settlement. Of all claims 
closed, more than two-thirds had no indemnity payment to the 
plaintiff. When the claim was concluded at verdict, the 
defendant prevailed an astonishing 80 percent of the time.
    As shown on Exhibit C, the mean settlement amount on behalf 
of an individual defendant was just over $299,000. Most medical 
malpractice cases have multiple defendants, and thus these 
values are below those which may be reported on a case basis.
    The mean verdict amount last year was almost $497,000 per 
defendant, and these are dollars that are actually paid. These 
are not verdicts that juries render and then get reduced at 
some point in the future. These are the sum of checks written.
    Exhibit D shows the mean expense payment for claims by 
category of disposition. As can be seen, the cost of taking a 
claim for each doctor named in a case all the way through trial 
is fast approaching $100,000.
    Exhibit E shows the distribution of claim payments at 
various payment thresholds. It can be readily seen that the 
number of larger payments are growing as a percentage of the 
total number of payments. You can see that the red band at the 
top is getting larger. Those are claims that are a million 
dollars or more. Whereas, the green band at the bottom claims, 
at a far lesser level, are getting smaller in proportion to 
their number.
    This is especially true for payments at or exceeding $1 
million, which comprised almost 8 percent of all claims paid on 
behalf of individual practitioners in 2001, as shown on Exhibit 
F. This percentage has doubled in the past 4 years.
    Unfortunately, I must spend the rest of my time debunking a 
false premise being propagated by the trial lawyers and a few 
of their supporters who oppose effective Federal health care 
liability reform. Contrary to the unfounded allegations of 
those who oppose effective tort reform, medical malpractice 
insurers are primarily invested in high-grade bonds and have 
not lost large sums in the stock market, as Commissioner 
Montemayor has just explained.
    Brown Brothers Harriman, a leading investment and asset 
management firm, in a recent investment research report states 
that ``Over the last 5 years, the amount medical malpractice 
companies have invested in equities has remained fairly 
constant. In 2001, the equity allocation was 9.03 percent.''
    As Exhibit G shows, medical liability insurance companies, 
shown in green, invested significantly less in equities than 
did all property casualty insurers.
    Brown Brothers states that the equity investments of 
medical liability companies had returns similar to the market 
as a whole. This indicates that they maintained a diversified 
equity investment strategy. Specifically, the report states 
that ``Since medical malpractice companies did not have an 
unusual amount invested in equities, and what they did was 
invest it in a reasonable market-like fashion, we conclude that 
the decline in equity evaluations is not the cause of rising 
medical malpractice premiums.''
    While insurer interest income has declined due to falling 
market interest rates, when interest rates decline, I think as 
we all know, bond values increase. This has had a beneficial 
effect in keeping total investment income level when measured 
as a percentage of total invested assets.
    This is shown on Exhibit H. As you can see, the top line, 
which is the net investment yield on assets, has remained 
rather level throughout the last five or 6 years. Thus, the 
assertion that insurers have been forced to raise their rates 
because of bad investments is simply not true.
    The PIAA firmly believes that the adoption of effective 
Federal health care liability reform, similar to the California 
MICRA reforms enacted in 1975, will have a demonstrable effect 
on professional liability costs. The keystone of the MICRO 
reforms is a $250,000 cap on noneconomic damages, largely pain 
and suffering.
    These reforms are similar to the provisions of H.R. 4600 
passed by the House last year, and scored by the CBO, as 
providing over $14 billion to the Federal Government and 
additional savings of $7 billion to the States because tort 
reform works.
    Using annual data published by the National Association of 
Insurance Commissioners, Exhibit I documents the savings 
California practitioners and health care consumers have enjoyed 
since the enactment of MICRA over 25 years ago. As shown, total 
malpractice premiums reported to the NAIC since 1976 have grown 
in California by 167 percent, while premiums for the rest of 
the Nation have grown by 505 percent.
    These savings are clearly demonstrated in the rates charged 
to California doctors, as shown on Exhibit J. Successful 
experience in California and other States, such as Colorado, 
make it clear that MICRA-style tort reforms do work without 
lowering health care quality or limiting access to care.
    And as you can see, an Ob-Gyn in California pays almost 
$55,000 for coverage in Los Angeles. That is a lot of money, 
but it is not nearly the same amount of money as that same 
doctor in Miami who pays four times as much.
    Legislators are now challenged with finding a solution to 
the medical malpractice affordability and availability dilemma, 
a problem long in coming which has truly reached the crisis 
stage. The increased cost being experienced by insurers who are 
largely owned or operated by health care providers are real and 
documented. It is time for Congress to put an and to the 
wastefulness and inequities of our tort legal system, where 
only 50 percent of the moneys available to pay claims are paid 
to indemnify the only 30 percent of claims filed with merit, 
and the expenses of the remainder.
    The system works fine for the legal profession, which is 
why the trial lawyers and others fight so hard to maintain the 
status quo.
    The PIAA strongly urges members of the Senate to support 
and pass legislation which will assure full payment of a truly 
injured patient's economic losses, as well as up to a quarter 
of a million in noneconomic damages, thereby assuring fair 
compensation for patients and also assuring Americans that they 
will be able to receive necessary health care services.
    Thank you.
    [The prepared statement of Mr. Smarr may be found in 
additional material.]
    The Chairman. Thank you very, very much, Mr. Smarr.
    We are going to go to Senator Gregg first, then Senator 
Kennedy and then back to me.
    Senator Gregg. Mr. Smarr, those statistics which you just 
presented were rather startling, especially the California 
experience. Just to clarify, your organization, which insures 
60 percent of doctors is a not-for-profit organization; is that 
correct?
    Mr. Smarr. Senator, they are not really not-for-profit 
because there is no such thing as a not-for-profit insurance 
company, but there are companies, mostly mutual companies and 
reciprocals, that are owned and/or operated by the doctors they 
insure, and they started over two decades ago with the 
philosophy of----
    Senator Gregg. Well, their purpose is not to gouge doctors.
    Mr. Smarr. Their purpose is not to what, sir?
    Senator Gregg. Is not to gouge doctors, correct?
    Mr. Smarr. Absolutely, it is not.
    Senator Gregg. In fact, the doctors own----
    Mr. Smarr. It is not to gouge doctors.
    Senator Gregg. So I am interested in this--can you go back 
to your chart there, the MICRA chart.
    Now, we heard testimony that said that the reason 
California's rates dropped was because of Proposition 103. As I 
understand proposition 103, it did not directly impact the 
malpractice insurance industry. Instead it was MICRA that has 
driven the drop in the cost of malpractice insurance, and 
therefore the affordability of doctors to practice in 
California.
    Is that your assessment, also?
    Mr. Smarr. It is. Prop 103 was aimed primarily at the auto 
insurance industry. Malpractice carriers were required to 
rollback, to provide premium refunds to their insureds, and 
this was at a 20-percent level. However, in the consent orders 
that were made with the Department of Insurance, these refunds 
of premium were considered as dividends, and at the time the 
insurers were paying in excess of 20-percent dividends, in any 
event, and there was no rollback of insurance rates required in 
these consent agreements.
    Senator Gregg. So it is reasonable to presume that the real 
driver of the affordability of malpractice insurance, and 
therefore the accessibility of, for example, Ob/Gyns in Los 
Angeles versus Las Vegas, is the MICRA law.
    Mr. Smarr. That is my belief.
    Senator Gregg. Commissioner, we received a letter from the 
National Association of Insurance Commissioners, which was 
cited as a source by Senator Kennedy in his opening statement, 
and I believe it is the bench-mark group for the purpose of 
insurance commissioners, and it addressed this issue of price 
fixing. I just wondered if you agreed with their assessment 
from your experience as an insurance commissioner in Texas.
    The first question was whether or not the legislation, this 
would be the legislation introduced by Senator Leahy, presumes 
that medical malpractice insurance carriers are engaging in 
price-fixing, bid-rigging and market allocation. And the 
response of the Association of Insurance Commissioners was 
``No. To date, insurance regulators have not seen evidence that 
suggests that medical malpractice insurers have engaged or are 
engaging in price-fixing, bid-rigging or market allocation,'' 
and I emphasize the next sentence. ``The preliminary evidence 
points to the rising costs and defense costs associated with 
litigation as the principal drivers of medical malpractice 
prices.''
    Then, they go on in another answer to say, ``Again, the 
evidence points to high loss ratios, not price-fixing, as the 
primary drivers of escalating premium costs.''
    Do you agree with those conclusions?
    Mr. Montemayor. I do, Senator. The bulk of our research 
points to losses, the checks written to, as a result of claims, 
as well as defense costs, as being the primary driver of 
premiums universally across the country. I would agree with 
that assessment.
    Senator Gregg. Is it your experience in Texas that 70 
percent of medical malpractice suits are won by doctors?
    Mr. Montemayor. Our experience in Texas is, in fact, even a 
little higher than that. It is in the mid eighties. Most 
lawsuits end up with zero payment to the plaintiff, but they do 
result in additional costs due to the defense costs.
    Senator Gregg. That was going to be my question. A previous 
chart noted that even cases that doctors win still cost $91,000 
to litigate. To what extent, are those costs frivolous?
    Mr. Montemayor. I would not be prepared to speak to which 
percentage of those were frivolous. I mean, I can tell you that 
of those that did go to trial, the doctor won them 85 percent 
of the time or so, and the plaintiffs won some 15 percent of 
the time.
    Senator Gregg. Is it reasonable to presume that some 
percentage of those cases are brought because the plaintiff's 
attorney believes that, even though they are not going to win 
the case, they are going to win the costs?
    Mr. Montemayor. That certainly is one of the conclusions 
that we have reached in looking into this issue.
    Senator Gregg. How do we address that, from the standpoint 
of legislation? Should we make it a ``loser pay'' situation 
like the English have?
    Mr. Montemayor. That is a policy matter, Senator. I do not 
have a good answer for that.
    Senator Gregg. To the extent that there has been gross 
negligence, again, Commissioner, should there be a cap on 
damages if there is gross negligence or willful negligence, 
willful misconduct?
    Mr. Montemayor. I will tell you that in speaking to all of 
our leaders at the State level and all of the other insurance 
commissioners, I do not think anybody is interested in denying 
those people that have been, in fact, the recipients of a 
medical error access to have their grievance redressed. I think 
the real issue is striking that right balance, in terms of 
keeping insurance affordable, and available, to all physicians 
vis-a-vis the cost of the losses associated with it.
    One of the methods that was tried in the State of 
California was, in fact, through caps, and our research shows 
that they consistently, no matter what specialty we are talking 
about, they consistently get far better rates in that State 
than anywhere else. But there or anywhere else, it is all 
driven by the cost of actually the claims themselves.
    Senator Gregg. It seems reasonable to me that if there has 
been conduct which goes outside the bounds of typical error 
that you should have a different recovery system.
    Mr. Montemayor. It would seem reasonable, Senator.
    Senator Gregg. Is it not also intuitively obvious that if 
the number of claims that are over a million dollars is 
increasing faster than any other percentage of the group, that 
it is really the claims that are driving this problem, not 
collusion of the insurance companies or loss of revenue from 
bad investments?
    Mr. Montemayor. Without doubt. All other costs are a 
distant second. The primary driver of premium levels is, in 
fact, claims made in defense costs.
    The Chairman. Senator Kennedy?
    Senator Kennedy. Thank you very much.
    Mr. Montemayor, you State that investment income is not the 
real culprit of medical malpractice rate hikes of 80 percent to 
140 percent for the major companies in Texas because a 
preponderance of the investments in bonds. Are you not 
overlooking the fact that with the interest rates at a nearly 
40-year low, the bonds have not been doing very well in recent 
years?
    In fact, I have the document from the Texas Department of 
Insurance, dated August 15, 2002, which shows that the net 
investment income is way down for medical malpractice 
insurance. It steadily dropped from $1.347 billion in 1997 to 
$1.228 billion in 2000. This is a decline of $120 million. In 
2000, they also sustained $441 million in unrealized capital 
losses. The total yield on their investments has fallen from 
8.1 percent in 1997 and 5 percent in 2000.
    The reduction in earnings these companies have sustained 
sounds pretty substantial. Is that not what your department 
data shows, and how can you discount it as a cause of the 
substantial premium increase which Texas doctors are seeing?
    Mr. Montemayor. Without doubt, Senator, the level of 
investment income has in fact decreased, as you pointed out, 
due to a lower prevailing interest rate on the bond market. 
However, the old rates were set on a prospective basis, and 
what that really, really means is that the level of help you 
will normally get, in other words, your ability to price it at 
117 percent, now means that you have to price it at 110 percent 
of expected losses in order to break even. The Medical 
Liability Trust, which is the primary driver or writer in 
Texas--they write some 10,000 doctors out of the approximately 
30,000 doctors that are in practice in Texas--projects that 
they will need about 10 percent return on income, and it is a 
Medical Liability Trust. In other words, the level of help is 
just not there.
    Senator Kennedy. The point about it is you have had a 
decline of $120 million, $441 million in unrealized capital 
losses. No one is questioning you have the losses. Someone has 
to make it up, and it appears to me it is the doctors that are 
being asked to make it up.
    Mr. Smarr, you State in your testimony that the net income 
for the PIAA companies was only 4 percent in 2000. It fell to 
minus 10 percent in 2001. By comparison, on page 6, on graph 6 
of your testimony, shows that the net income was over 20 
percent per year, 1995, 1996, 1997, and was 17 percent in 1998 
and 12 percent in 1999. Those are all very good rates. Net 
income was so strong in those years, because as the graph on 
page 8 shows, investment income as a percent of premiums, was 
between 43 and 46 percent. Then in 1999 it dropped to 33 
percent. In 2001 it dropped to 31 percent. That is a 
substantial decline. Companies were taking in one quarter less 
in investment profits. Is this substantial decline of 
investment income not the largest factor in the timing and the 
amount of premium increase we have seen in the last 2 years?
    Mr. Smarr. No, Senator Kennedy, I do not believe that it 
is. Our companies did earn more investment income in prior 
years because prevailing market interest rates were higher, and 
that is a fact of life that we have to live with.
    Senator Kennedy. That is just what I am saying. Then you 
have less. So you have the losses, and you are increasing the 
premiums on the doctors.
    Mr. Smarr. It is not losses, Senator. It is the amount of 
interest we make.
    Senator Kennedy. Well, whatever way you want to describe 
it, counting, it is not there. I mean we got the charts just 
reflect that in terms of it--we do not want to spend the time--
whatever way you want to show it, it was not getting the kind 
of income that you were getting in the previous years.
    Mr. Smarr. Yes, sir. I think none of us are getting the 
kind of investment income.
    Senator Kennedy. We just admitted, this is what the charts 
show, you had 23 percent, 20 percent in 1996, 1997, 21 percent, 
17 percent in 1998, and minus 10 percent in 2001. That is what 
your charts show.
    Let me go to the issue about California, the MICRA. I would 
like to ask Mr. Angoff if he would interpret the figures on 
California. I have them here. They are part of your testimony, 
Exhibit 3. We have heard a great deal about MICRA, about 
starting in 1976 and how it basically stabilized. Then we see 
MICRA is upheld by the California U.S. Supreme Court, and we 
get the largest increases. And then we have Proposition 103, 
which is the Insurance Reform in 1988, where from 1988 the 
premiums were in I guess in hundreds of thousands, 663,155, 
hundreds of thousands, to in 2000, 609, so there is virtually 
no actually decline.
    Can you explain, since we have heard a great deal about 
from 1976 to 2000 there are really three sets of figures, one 
where you have stability in premiums earned for the first 
years. Then a very dramatic, 2 or 3 percent bubble up, and then 
the stable figures afterwards. What should we know? What do 
those figures tell us? What were the factors that influenced 
that, and what should we--how should we take those figures in 
trying to understand the medical malpractice question?
    Mr. Angoff. Mr. Smarr is correct that the aggregate 
increase between 1976 and the present in California is much 
less than the aggregate increase country wide, but the facts 
show that that relatively good experience in California is due 
to Prop 103 for the following reason.
    MICRA was tied up in litigation for the first couple of 
years. The California U.S. Supreme Court finally upheld the two 
most significant parts of MICRA, the limit on noneconomic 
damages and the limit on attorneys fees in 1985. A year after 
the California U.S. Supreme Court upheld those two provisions. 
Medical malpractice premiums in California rose by 35 percent. 
Now, does this mean that MICRA caused malpractice premiums to 
rise? No, that would be pure demagoguery to take that position, 
and that is not the position that I am taking.
    On the other hand, MICRA clearly did not cause malpractice 
premiums to fall. Malpractice premiums only started falling 
after Prop 103 was enacted in 1988. In 1988 medical malpractice 
premiums were 663 million. They went down to 633 million the 
next year. They kept going down. And even in 2000, 12 years 
after Prop 103 was enacted, malpractice premiums in California 
are 609 million, about 10 percent less than they were in the 
year before Prop 103 was enacted.
    Now, Prop 103 did roll back rates by 20 percent, and as I 
said in my testimony, that is a very extreme measure. It might 
sound even a little wacky. You cannot just mandate companies to 
roll back their rates by 20 percent. But the California U.S. 
Supreme Court upheld that rollback as long as insurers had an 
opportunity to avoid the rollback if they can show that they 
cannot earn a fair rate of return with the rollback. So that 
was upheld by the California U.S. Supreme Court, and in 
addition, very importantly, Prop 103 did not only roll back 
rates by 20 percent, which was very important, but it also 
repealed the State Antitrust Exemption so that in California 
insurers can share data that will allow them to make prices, 
set prices more accurately. They can share their past cost 
data, which is permitted under the antitrust laws, but they 
cannot get together and agree on future prices which is not 
permitted.
    And then finally, Senator, MICRA also gave doctors and 
consumers automatic standing to intervene in rate cases before 
the insurance department. That is, if an insurance company 
files for a rate increase, under Prop 103 any consumer, any 
policyholder, including a doctor, can intervene and can try to 
show why that increase is excessive. So, yes, I think the 
evidence shows that Prop 103 is what is responsible for the 
relatively good experience in California.
    Senator Kennedy. Thank you.
    The Chairman. Mr. Smarr, as I understand it, California did 
stabilize rates while other States were continually going up. 
Am I wrong about that?
    Mr. Smarr. No, Senator, you are correct.
    The Chairman. So that did happen. Let me ask you this. On 
page 6 of his written testimony, Mr. Angoff suggests that 
doctors who own and operate the companies that you represent 
are taking advantage of their colleagues, increasing prices for 
the wrong reasons to increase profit.
    Now help me out with this. Sixty percent of America's 
doctors are insured by these companies. I have not heard from 
one doctor that he or she feels that we need legislation to 
prevent their own doctor-owned insurer from taking advantage of 
them. Now, who is right here? Are doctors being ripped off?
    Mr. Smarr. Senator Hatch, I have not heard from one doctor 
either that they feel like they are being ripped off by their 
physician owned or run insurance company. The companies are run 
very conservatively. They pay dividends to their policy 
holders, and their core purpose in being, their only purpose in 
being, is to provide a fair and equitable market for their 
insurers.
    The Chairman. Well, we all know that the stock market has 
declined during the last 2 years, but is that what is driving 
the current medical liability crisis?
    Mr. Smarr. No, not at all. The malpractice companies are 
not largely invested in equities, and there is no way that that 
could even be considered a prime driver of this crisis.
    The Chairman. Commissioner Montemayor, there are some who 
suggest that one of the principal reasons for the rise in 
medical liability rates is the McCarran-Ferguson Act, the 
antitrust exemption for the insurance industry. Yet on page 5 
of his written testimony, Mr. Angoff candidly admits, quote, 
``The extent to which insurers today are acting in concert to 
raise prices has not yet been determined,'' unquote. Now, I am 
personally not aware of any evidence to suggest that medical 
liability insurers have reached specific agreements to raise 
prices. Are you aware of any specific evidence demonstrating 
that any of the increase in medical liability insurance rates 
is the result of an agreement or agreements among insurers to 
fix prices, allocate territories among themselves, or engage in 
bid rigging? In other words, is there any evidence to suggest 
that members of the industry are colluding to raise prices?
    Mr. Montemayor. Mr. Chairman, we have come across no such 
evidence in Texas. To my knowledge, none of my fellow 
commissioners have come across any such evidence in their State 
either, and in fact, as my own chart here demonstrated, there 
is enough variability in terms of what the individual insurance 
companies operating were doing to sort of lead the indication 
the other way. In fact, there is ample evidence that they are 
not getting together to set those prices.
    The primary reason--I cannot overemphasize that enough--for 
the dramatic increase in premiums is in fact losses, and that, 
our losses would include not only indemnity payments, but also 
the duty to defend and defense costs, bar none.
    The Chairman. Mr. Angoff, in your written Statement you 
write, quote, ``Whether or not a State enacted such 
limitations,'' unquote, meaning tort reform I take it, quote, 
``malpractice rates rose during the mid 1980s, fell during the 
1990s and are sharply rising today,'' unquote. Yet the evidence 
that we have seen today suggests that this is not the case in 
California. The evidence indicates that the reforms in 
California stabilized medical liability premiums, and that 
those premiums have remained substantially lower than the 
remainder of the country in aggregate since they were enacted.
    Now, I would like you to explain, if you will, the dramatic 
differences between California and the rest of the United 
States, between 1985 and 1988?
    Mr. Angoff. I would be glad to, Mr. Chairman. The 
difference between California and the rest of the country is 
that California enacted Prop 103 in 1988, which had the effect 
of immediately rolling back rates and keeping them at moderate 
levels since 1988. Missouri, it is demonstrable that MICRA, the 
cap did not have any effect on limiting malpractice insurance 
rates, because for example, in my own State of Missouri, Mr. 
Chairman, we enacted a cap in 1986. it was held constitutional 
immediately thereafter. Yet we are still having the same 
problems in Missouri. Doctors are still having 100 percent 
increases in Missouri, even though we enacted a cap. Other 
States----
    The Chairman. Now, wait. Is not that cap currently over 
500,000, about $550,000?
    Mr. Angoff. Yes, that is true.
    The Chairman. In other words, it is going up all the time.
    Mr. Angoff. It is indexed to inflation as most are. But you 
will, Mr. Chairman, that today, regardless of whether or not a 
State has a cap, malpractice rates are going way up. It happens 
to be the case that in my State, based on the data the 
insurance companies submit to us, litigation is decreasing, not 
increasing. The average payment per claim is decreasing, not 
increasing. And despite that, rates have gone up by over 100 
percent in a little over a year according to the State Medical 
Association. So despite the fact that we have good experience, 
despite the fact that we already enacted a cap, malpractice 
rates are still dramatically increasing in Missouri. That is 
why it seems obvious to me, Mr. Chairman, that the cause cannot 
be the litigation system.
    The Chairman. Let me just ask one more question. I have to 
head over to the floor. But let me put it this way. Mr. Smarr, 
we have heard from you that in California the Medical Injury 
Compensation Reform Act, or MICRA, stabilized medical liability 
insurance costs. We have heard from Mr. Angoff that Proposition 
103, not MICRA, is what worked in California. Now, who is 
correct? Is it MICRA or Proposition 103 or both?
    Mr. Smarr. Chairman Hatch, the Prop 103 argument I think is 
just totally false. I have here consent agreements which were 
signed by physician-owned insurance companies in California, 
and paragraph 4 of the consent agreement for the NORCAL Mutual 
Insurance Company, for example, States: A rate rollback 
obligation is a return of premium, and as such is treated as a 
policy holder dividend in accordance with customary industry 
practice.
    Now, this rollback as a return of premium was to be paid in 
1992. And with respect to the NORCAL Mutual Insurance Company, 
which I believe is typical, in 1990, NORCAL paid dividends back 
to its policy holders of 27 percent of premium. In 1991 it paid 
26 percent. In 1992, the year the 20 percent as to go back, it 
paid 31 percent of premium. In 1993 it paid 37 percent of 
premium back to its policy holders. In 1994, 34 percent and so 
on. But I have to tell you that NORCAL currently is paying 
something like 4 percent back to its policy holders because of 
the deterioration in this loss experience. Prop 103 was not an 
issue.
    The Chairman. Just one last thing. The Harris poll stated 
that the fear of being sued has led 79 percent of doctors to 
order more tests than are medically necessary. In other words, 
doctors are practicing unnecessary defensive medicine. The same 
poll stated that 76 percent of the physicians are concerned 
that malpractice litigation has hurt their ability to provide 
quality care to patients. Now, I personally believe that that 
is putting a lot of pressure on insurance rates as well, 
because of the high cost of defensive medicine.
    I remember when we were advising doctors in these matters--
it was a long time ago, when I had any type of practice in this 
area--we just told them: You are just going to have to fill up 
your history. You cannot afford to just tell a patient with a 
common cold, take 2 aspirins every 6 hours, drink all the 
liquids you can, in 6 days, 7 days you will be better, or do 
not do anything, in 7 days you are going to be better. You are 
going to have to order respiratory exams, cardiovascular exams, 
etc., which certainly had the effect of driving up the cost. Is 
that what you are experiencing?
    Mr. Smarr. Well, defensive medicine drives up health care 
costs, and one estimate issued by the National Bureau of 
Economic Research is that up to $50 billion a year is spent in 
the health care system to pay for defensive medicine, and 
doctors who fear being sued, in case they do not do a test. 
Every sprained ankle now apparently gets x-rayed because 
somewhere in a group of 100 sprained ankles there is going to 
be a fracture that will wait 2 weeks to be diagnosed. And so 
this fear of being litigated against is forcing doctors to 
order tests that would otherwise not be necessary.
    The Chairman. Thank you. Mr. Chairman.
    Senator Gregg [presiding]. As is our tradition, we will 
recognize members in order of arrival. Senator Dodd, 
alternating back and forth, Senator Dodd.
    Senator Dodd. Thank you very much, Mr. Chairman. I commend 
both the chairmen for holding this joint hearing. Obviously it 
is a matter that requires the attention, as I understand it, of 
both committees. So I appreciate the opportunity to listen to 
our witnesses.
    I want to begin by thanking Laurie Peel and Linda McDougal 
and Leanne Dyess for being here. It is not easy to come and 
talk about personal stories, and it takes a lot of courage to 
do so, and we are very grateful to all three of you for being 
here to share your stories with us this afternoon, and you have 
our deepest sympathies for the difficulties you have been 
through personally.
    Just a couple of questions if I could. One is I would like 
to ask our two insurance commissioners if I could. People get 
somewhat confused. If you have an automobile accident, your 
premiums on your insurance for your automobiles is going to go 
up. But my neighbors' generally will not. There is not the 
sense that because people live in the same neighborhood, one 
has an accident, the other does not, everybody gets a higher 
premium cost. Why cannot that work here? It seems to what you 
have got are doctors paying this thing, but our physician from 
Nevada went through here, had a good record over 12 years, no 
incidents at all as I understand you, doctor, and yet your 
premiums went up. Now, I presume there were doctors in Nevada 
that were subjected to malpractice loss, legitimate ones. You 
acknowledge that, I presume, there were various cases?
    Dr. Wilbourn. Yes. There were.
    Senator Dodd. Let me just finish the question.
    Dr. Wilbourn. I am sorry.
    Senator Dodd. My point being here, why do we not apply the 
same standard we do on automobile insurance to medical 
malpractice insurance?
    Mr. Angoff. Senator, we could do that. That is something 
that would have to be done at the State level. But it would 
make--it has frequently been suggested that the categories of 
doctors should be broadened so that there are more doctors in a 
category, thus spreading the risk more broadly, but that within 
the category doctors' rates should be based on experience. That 
is, a doctor who had to pay--who was found negligent would be 
surcharged. A doctor who was found negligent twice would be 
surcharged even more, and then real high risk doctors would be 
put into a residual market, which exists in auto insurance for 
the really bad drivers. The same concept is in place in certain 
States and it could be put in place in other States, so that 
there would be what is called a joint underwriting association 
for doctors who have been found negligent several times, and 
they would pay higher premiums, but in addition their premiums 
would be subsidized.
    Senator Dodd. So in effect, Dr. Wilbourn was driven out of 
the State of Nevada, not because of anything he did wrong, but 
because of what some of his colleagues did, and that is why his 
premiums went up.
    Mr. Angoff. That can happen. I mean that is happening.
    Senator Dodd. Want to answer that, Commissioner?
    Mr. Montemayor. Senator, you are on the right trail. I mean 
everything in property and casualty, which this is, it is 
frequency and severity, and so the different classes of doctors 
are somewhat similar to different kinds of vehicles, Ob/Gyn's, 
family practice, neurosurgeons, etc. And so you look at the 
probability of them being involved in a claim, and then on 
average how much the claims have been, and in the most 
rudimentary of ways you look at both frequency and severity for 
this period and this period and this period, and you draw a 
line, and in estimating the future period, just extend it one 
more. And that is essentially what they do. And they do have a 
methodology for surcharging based on individual claims to try 
to manage that, but it is basically a spreading of risk by like 
class and kind to some manageable level.
    Most of the insurance companies will determine how they set 
up their territories for rating purposes and so forth, but it 
is essentially the same type of exercise, Senator.
    Senator Dodd. In the full disclosure, I represent the State 
of Connecticut, and we have a small cottage industry called 
insurance in my State, but I am curious on how these issues 
work. I will also tell you that my State of Connecticut, we 
have roughly 13,500 doctors, about 30,000, I think the number 
is, nurses--in fact we have a shortage of about 11,000 in my 
State. We have 31 hospitals in the State of Connecticut. And I 
went back and checked with my insurance companies and my 
physician groups in Connecticut. We average somewhere around 
350 medical malpractice suits each year in the State of 
Connecticut. And one of the reasons I am told we do is because 
they have a number of rules in Connecticut. One is that before 
a claim can be filed, you must have a signature or a document 
signed by a physician saying that the claim, if proven to be 
true, would be a legitimate malpractice allegation, and you 
have got to get that certification before you can go forward. 
And it seems to have had the positive effect of reducing the 
number of lawsuits being filed.
    I wonder if you might share with us, just from your own 
experience, what other countries may be doing, what others are 
doing. I, for one, will tell you, I always wrote the Private 
Securities Litigation Reform Bill for the U.S. Senate a number 
of years ago to limit frivolous lawsuits in the securities 
field. And I wrote along with Bob Bennett the restrictions on 
tort reform, if you will, of some tort reform, and the Y2K 
legislation, along with Mike Enzi and others who were involved 
in that. So I have certainly been supportive in the past of 
tort reform issues. But I for one believe--and I will tell you 
very strongly--the idea of putting caps on what people can 
receive for their pain and suffering is just a nonstarter. I do 
not know what will happen here, but I guarantee a lot of us 
will fight that tooth and nail. [Applause.]
    Senator Dodd. I did not mean to get that--but I think there 
are other things that can be done.
    Senator Gregg. Excuse me, Senator. Actually, demonstrations 
are not appropriate to hearings. We appreciate that this is an 
emotional issue and that people like to express themselves, but 
it is better if we maintain a decorum within the hearing 
process.
    Senator Dodd. I would like to just ask if I could what the 
Connecticut experience, which does not have caps but has 
instituted these other reforms, it seems to be producing the 
desired results that people are looking for here. What is being 
done elsewhere along those lines short of a cap approach that 
you think may be constructive and positive.
    Mr. Angoff. Yes. Senator, Missouri has what sounds similar 
to Connecticut. It has a requirement that there be an affidavit 
of merit, and lawyers on both sides seem to live fairly well 
with that.
    Senator Dodd. What is the effect of that in terms of the 
number of malpractice claims that are being filed?
    Mr. Angoff. Well, it is tough proving cause and effect, but 
as I outlined, the number of claims in Missouri has gone down, 
both paid and reported. Whether it can be attributed to that, 
who knows? But the experience of Missouri is good.
    Senator Dodd. Commissioner from Texas?
    Mr. Montemayor. We have got a similar requirement in Texas, 
Senator, where an affidavit is required. The number of claims 
has gone up roughly at the 5 percent level. The severity of the 
claims has gone roughly at the, I believe 7 or 8 percent level. 
Combined frequency and severity have made costs go up 
approximately 11 percent each and every year looking back. But 
that has been the trend there. But there is a similar 
requirement in Texas to date.
    Senator Dodd. And last, Ms. Dyess, could you just tell me--
--
    Senator Gregg. Senator, I think your time has expired. Can 
you just ask during the second round.
    Senator Dodd. Just ask one last question if I could.
    Just out of curiosity, they are obviously a different set 
of circumstances, but do you support a cap on pain and 
suffering? Would you support that?
    Ms. Dyess. It really does not matter what I think.
    Senator Dodd. Well, it does. You are here as a witness.
    Ms. Dyess. I would support a reasonable cap, a reasonable 
cap.
    Senator Dodd. Thank you.
    Ms. Dyess. But you have to understand that I get nothing. I 
am not suing anybody.
    Senator Dodd. No, I understand that. I am just curious, 
knowing what you have been through, whether or not a cap of 
some $250,000 would be acceptable to you.
    Senator Gregg. Senator Alexander.
    Senator Alexander. Thank you, Mr. Chairman, and thanks to 
the witnesses for being here. I had to step outside the hearing 
room for a few minutes to see someone else, but I have enjoyed 
the discussion.
    Let me focus on one aspect of this crisis and use some 
facts from our State. The issue that concerns me the most about 
this crisis is the effect it has had on prenatal health care 
for expecting mothers. I remember a few years ago when I was 
serving as Governor. Tennessee had the most prenatal health 
care problems in the country. One of the things that we wanted 
to do to change that was to make sure that every expectant 
mother had a medical home for her child. This meant connecting 
expectant mothers with doctors who deliver babies. We worked in 
a voluntary way with doctors, and especially in Memphis and 
other parts of our State, we were successful. So, it concerns 
me greatly when I hear from doctors and from communities that 
many doctors are leaving family practice. It must be very 
difficult for expectant mothers, especially poor expectant 
mothers, to have a medical home for their child before the 
child is born. This problem can have a tremendous effect on our 
future. I was a Governor who very strongly defended States' 
rights in this case, and I am a lawyer who respects our 
profession, but I am now convinced that we have a real problem 
with runaway lawsuits.
    We have talked a good bit about rural areas and how mothers 
may have to drive a distance to have their baby, but just this 
morning I was visiting with a delegation from Memphis--the 
Baptist Memorial Health Care Corporation. They operate 17 
hospitals in Tennessee, Arkansas and Mississippi, with 52 
affiliated physicians. Their liability insurance bill last year 
was $2.6 million, and for similar coverage this year is $8.2 
million. And I was listening to the discussion about California 
and the debate back and forth as to what seems to have caused 
it. At least we have identified the fact that California is 
different from other States. Tennessee is not a crisis State 
among those States that were listed today, so we are not as bad 
as other States, but here are the figures.
    In 2002, the medical liability insurance premium for 
general surgeons in Tennessee was $35,000; 2003, $62,000. For 
an Ob/Gyn in Tennessee, the medical liability insurance premium 
was $62,000 in 2002; in 2003, it increased to $160,000. In 
California medical liability insurance for Ob/Gyns is only 
$57,000.
    I am seeing that at least we have identified something 
right is happening in California. The issue seems to be what 
the cause of it can be. I am very skeptical about the idea that 
the caps on limits and the caps on fees have not been the 
greater cause of the lower costs in California.
    For example, the comment was made that litigation is going 
down. In our State, Volunteer Mutual Insurance Company insures 
about 10,000 doctors. There are 2,000 pending medical 
malpractice lawsuits against these 10,000 doctors.
    Mr. Smarr, is it reasonable to you that for every five 
doctors there should be one medical malpractice lawsuit? Are 
doctors that negligent? Is this a reasonable circumstance? It 
seems to me that this represents a condition of runaway 
lawsuits that require some sort of corrective action.
    Mr. Smarr. Senator Alexander, that is not an unexpected 
statistic, but I the it is unreasonable that there are that 
many lawsuits, especially since 70 percent of those on average 
will be found to have no merit.
    Senator Alexander. I talked with the chief medical officer 
at Vanderbilt Medical Center. Dr. John Sergent says that for 
the first time Ob/Gyn doctors in Tennessee are saying they may 
be forced out of practice, and we are not a crisis State in 
Tennessee, according to this list. At the University of 
Tennessee, Dr. Jim Gibb Johnson says that one third of all 
residents in training since 1990 have been served with a 
malpractice suit. That sounds like runaway lawsuits to me. So I 
welcome the opportunity to have this hearing, and appreciate 
the emotional feelings on all sides. I am glad to have the 
California experience, and I hope that as time goes on we can 
isolate which of the causes made the most difference. It sounds 
to me like, Mr. Smarr, that you have the better side of the 
argument, but I will keep listening.
    Senator Gregg. I believe Senator Clinton is yielding to 
Senator Edwards. Senator Edwards.
    Senator Edwards. Thank you, Mr. Chairman.
    Ms. Peel, welcome. We are glad to have my neighbor from 
Raleigh here testifying today. Appreciate you being here.
    Let me go to the question just raised by Senator Alexander, 
because I think we have to be very careful not to have a 
complete disconnect about what we are talking about. The 
President likes to use the term ``frivolous lawsuits.'' I think 
it is important to distinguish between frivolous lawsuits and 
the remedy that is being proposed here. The remedy, frivolous 
lawsuits are lawsuits that never should have been brought, that 
have no merit, where the contentions of the person bringing the 
case should never have been in the court system. What the 
President is proposing is that we put a limit on the most 
serious cases, because what he is suggesting is the way to curb 
frivolous lawsuits is to limit the rights of the most seriously 
injured, because they are the only people affected by 
noneconomic damage caps, which is what we are talking about.
    And let me just say to begin with, I think that talking 
about the lawsuit lottery is not productive. We have people, 
including some people in this audience, kids that have been 
paralyzed for life, children who are blinded, who I represented 
for 20 years. And those families, I promise you, do not think 
they have won any lottery. They are faced with very, very 
difficult circumstances, not for a year, not for 5 years, but 
for 60, 70, 75 years. So I think that is not a good way for us 
to talk about this issue.
    I do believe that the doctors have a serious complaint. I 
think the question is, what is it that is causing this problem? 
And there is a difference between cases that should never have 
been brought and cases where people are very--in many cases, 
kids, women, senior citizens, have been very seriously injured. 
Because the cap on noneconomic damages for people who earn a 
good living, the senators at this table and others, economic 
damages are not being capped. So if you make a good living, and 
you have had a huge economic loss as a result, you are going to 
have a--your recovery will be just fine. It is people like Ms. 
McDougal, children. These caps on noneconomic damages hit 
children and seniors and women like a laser, particularly for 
example a stay-at-home mom who is not working, and as a result 
has no lost wages or what is commonly talked about as economic 
damages. So I think we have to be very careful about 
distinguishing between frivolous lawsuits on the one hand, 
cases that should never have been brought--and I was interested 
in Senator Dodd's idea about dealing with doctors on an 
individual loss basis--and second, cases of people who are very 
badly hurt, in many cases kids, and putting a limit on their 
rights. Those two things have nothing to do with one another.
    Mr. Smarr, I wanted to ask you a couple of questions if I 
can. You were testifying about MICRA and whether MICRA has had 
an effect or whether it is Prop 103 that had an effect in 
California. I mean I have got from the State insurance 
commissioner the actual numbers in California as opposed to 
your chart.
    In 1976 the insurance premiums paid in California, the year 
that MICRA was passed, $228 million. In 1988, $663 million, or 
an average increase of 24 percent. So over the first 12 years 
that MICRA was in place, there was an average increase of 24 
percent. In 1988 Prop 103 was passed. Between 1988 and 2001, in 
other words, for the 13 years after passing of Prop 103, 
insurance premiums went from 663 million to 647 million. They 
actually went down. So for the first 12 years that MICRA was 
the law of California, insurance premiums went up 24 percent a 
year. I doubt that the doctors think that is okay. And after 
Prop 103 was passed, the insurance premiums actually came down 
over the course of the next 13 years.
    Mr. Angoff, is that your understanding of roughly what 
happened?
    Mr. Angoff. Yes, it is, Senator.
    Senator Edwards. On the issue of cases that should not be 
brought, so-called frivolous lawsuits, in my State as in your 
State, Mr. Angoff, we have a requirement, what is called an 
affidavit of merit. And the idea is that before a case comes to 
court and gets involved in the court system, we make the 
lawyers involved thoroughly investigate the case, have the case 
in fact reviewed by an independent expert in the field to make 
sure that cases that are actually getting into the court system 
are cases that have merit. Now, I know that is not a nationwide 
law. That law only exists in selected places around the 
country. It exists in North Carolina, and apparently exists in 
Missouri. I think actually it is a very good idea because we 
want cases that are going to be in the court system, taking up 
the court's time, taking up cost.
    Commissioner, you talked about some of the costs associated 
with defensive cases, and those costs are legitimate and 
acceptable so long as they are cases that are serious, that 
ought to be in the court system and should have been brought. 
On the other hand, if there are cases that should not be in the 
court system--I mean, we would like to find a mechanism to make 
sure that the cases that get into the court system are actually 
meritorious and are serious cases like the cases that I 
described earlier. And whether this is the specific mechanism, 
I think it is actually a good one, but if there is another 
better way to do that, we should talk about that because--I can 
only speak for myself. I did this kind of work for 20 years, 
almost 20 years, and I did this myself anyway, but it seems to 
me that we want to make sure that people who are bringing cases 
have serious legitimate cases that belong in the court system, 
and some screening mechanism to make sure that that is true I 
think is reasonable. I do not think it is reasonable--and I 
agree with Senator Dodd about this--to say to women and kids 
and senior citizens, who have been paralyzed for life or 
blinded, we are going to take away your rights. First of all, I 
do not think there is any cause and effect. I think this 
testimony today shows absolutely no cause and effect between 
those two. And I do, I might add, have a little trouble--and 
Senator Kennedy asked questions about this--accepting the 
argument which I hear being made, that the fact that the 
malpractice crisis in the 1980s and this malpractice crisis, 
which is very real for the doctors, no question in my mind 
about that, that has no relation to the fact--it is just a pure 
coincidence that those happen to be times that the market was 
doing poorly. You know it is difficult for me--I mean I hear 
all of your use of numbers, but it is just difficult for me to 
accept that those things have nothing to do with one another.
    Senator Gregg. If the senator would not mind concluding his 
remarks, because we do have others.
    Senator Edwards. I will conclude there. Let me just say one 
last thing. I do think that we need to do something about the 
problems that the doctors are facing. I think these insurance 
premium increases are serious. I think the place that I differ 
with some of the witnesses at least is about addressing what 
the cause of those problems are. And if we can keep cases that 
should not be in the system out of the system, I think that is 
a very good thing and we should figure out a way to do that.
    At the same time I still believe that there is a 
relationship between what is happening in the markets and 
investment income, which Senator Kennedy asked about, and these 
premium increases, which clearly are much more than even what 
you are contending are the increases in payouts.
    Thank you, Mr. Chairman.
    Senator Gregg. Thank you, Senator.
    Senator Enzi.
    Senator Enzi. Thank you, Mr. Chairman. I appreciate having 
this hearing. I have learned a great deal today. I would ask 
that a Statement that I have be made a part of the record.
    [The prepared statement of Senator Enzi may be found in 
additional material.]
    Senator Enzi. I want to bring a different dimension to some 
of the discussion here. I am from Wyoming. Wyoming is the least 
populated State in the Nation. We are one of those two square 
States out there in the West--we could not exist if the square 
had not been invented. We are about 300 plus miles on a side, 
and we have a little over 493,000 people in the State. Our 
biggest city is 50,000 people. It goes downhill pretty quick 
from there, so we have a little problem with the number of 
doctors that we have, and we are considered a risk pool all by 
ourselves.
    I do not have a way to check and see how drastically that 
affects the insurance rates, but I know that it does. Not only 
are our obstetricians leaving, a few days ago in the Washington 
Post, page 2, there was almost a full page article about a 
doctor in Wheatland, Wyoming, whose insurance premiums just 
went up above $150,000. He is going to quit his practice.
    Now, in Wheatland he delivered all of the kids. He was 
interviewed at a basketball game in Douglas--that is 60 miles 
away. He delivered a third of the kids there. In Casper, 
Wyoming, we have a doctor who is also leaving his practice 
there. He delivered a third of the kids in that town. That city 
is just under 50,000. In Torrington, they are losing their only 
doctor, which means all medicine, not just obstetrics.
    So we have got this huge problem. I am willing to consider 
any kind of a solution. Actually, what I would like to do at 
the moment I think is join California as part of their risk 
pool. I guess that is not an option.
    We have two insurance companies for doctors. I remember 
when we had our first child. It was a difficult delivery, came 
about 3 months early, and consequently, when we were having our 
second child, there was no doctor in our town. There was only 
one to begin with, but he was not willing to take on a second 
child with those kinds of difficulties.
    I hope when we are looking for the solutions on this, we 
will take into consideration those areas of the country that 
are extremely remote and extremely rural. Dr. Wilbourn comes 
from a State that is considerably more populated than Wyoming, 
but is still down on the bottom of the chart. And you described 
some of the medical liability and patient access problems that 
are in your part of the country. Do you think that the crisis 
you described is less severe in States that have enacted 
medical litigation reforms?
    Dr. Wilbourn. I am sorry. Could you repeat that one more 
time?
    Senator Enzi. Yes. Do you think that the problems you 
described, the crisis you described, the thing that is getting 
you out of the field, is less severe in States that have 
enacted medical litigation reform?
    Dr. Wilbourn. I think it is to a great degree. There is a 
lot of reform that can be done. But when we see these lawsuits 
go forth and there is no limit to what you might get from a 
jury, then there is nothing to deter someone from saying, ``Let 
us sue 100 people this week, and maybe one of them will--or 
maybe they will settle just because they do not want to spend 
$91,000 defending this case, and we will get something, and I 
really do not even have to go to the courtroom. I do not have 
to try this case. I will just get enough in this settlement and 
that settlement because the insurance companies will do that.''
    So there is no deterrent to keep the number of suits down. 
So we get into this situation where more and more suits are 
filed, the premiums keep, in my opinion, keep going up. Yes, 
there is a lot of different answers here today as to who thinks 
it is whose fault. The problem that we have is the doctors are 
sitting here saying, I do not know who you are going to say 
whose fault it is, but I cannot practice medicine under these 
conditions. I cannot pay my malpractice insurance premium. I am 
left to either go out of business or move somewhere else.
    I chose a State that does not seem to be litigious. I 
jokingly said the other day that in Maine if there is a 
problem, instead of suing you they just run the snowplow past 
your driveway so you cannot get out in the morning. [Laughter.]
    Dr. Wilbourn. But it does not seem to be as a litigious 
environment in that State. Perhaps that is why the rates are 
still affordable. I am greatly concerned. There was just an 
article in yesterday's Bangor Daily, editorial that was written 
by the chairman of NEH, New England Health Care Systems that 
has Pen Bay Hospital in Camden, citing this concern, the 
increase in insurance that the hospital was having to pay this 
year for the hospitals that are in Camden, and that he was 
concerned that the problems that were in New Jersey and 
Pennsylvania were going to start to move northward into our 
States, and that perhaps our senators should look at that now 
before we get to a crisis in Maine.
    Senator Enzi. Thank you. And since my time has expired, I 
will be giving you written questions, including a couple others 
of you, particularly Mr. Montemayor on his feelings among 
insurance commissioners for expanding beyond their borders to 
have bigger risk pools for the liability. So I will send that 
to you in writing though since I have run out of time.
    Dr. Wilbourn. Senator, I will look forward to it.
    Senator Gregg. Senator Specter has to leave, so he would 
like to make a comment for the comment in a couple seconds.
    Senator Specter. I compliment, Mr. Chairman, on scheduling 
the hearing, and I have a commitment at 5 o'clock, and I will 
try to get back to ask questions, but if I do not I will submit 
them for the record. Thank you very much.
    Senator Gregg. Senator Clinton.
    Senator Clinton. Thank you, Mr. Chairman.
    And I want to thank all of our witnesses today. I think 
that the testimony we have heard, particularly from Ms. Peel, 
Ms. McDougal and Ms. Dyess, put into very stark terms what it 
is we are here about. And underneath the current of conflicting 
charts and information and ideas about what should be done, I 
think there actually is some common interest, or at least I 
hope so, because as we evaluate the options that are before us, 
it will not do us or anyone any good if we merely fight 
ourselves to a draw and point fingers at each other and then 
nothing changes. And the kind of poignant and painful stories 
that we hear, not just from the witnesses on the panel, but 
from the people in the audience and literally around our 
country will be in vain.
    I think, Mr. Chairman, that we have actually made some 
progress in elucidating these issues today, and for me, we 
ought to be looking at five different factors as we move 
forward. Each of them are equally valid, it strikes me.
    First. Does any plan that we propose or that anyone were to 
propose in a State or in the private sector reduce liability 
insurance premiums for physicians? I think there is unanimity 
on this panel that we have a problem, and even if it is a 
problem that ebbs and flows with the economic conditions in the 
marketplace, it still is a problem, and it is a problem that 
discourages and deters people from practicing in certain places 
and from being available.
    No. 2. Does any plan that we would consider provide for 
adequate access to high-risk specialists or the availability of 
high-risk procedures? I mean it is heartbreaking that Ms. Peel 
would move to a major city in our country and not be able to 
find easily a Ob/Gyn to care for his high-risk pregnancy, or 
that Ms. Dyess's husband would not be taken care of. That we 
should deal with regardless of the context in which we are 
concerned, because that is just absolutely unacceptable.
    Third. Does any plan reduce the current rates of 
preventable injuries and damage? You cannot, as a woman, sit 
and listen to Ms. McDougal's story without just being 
horrified, and I really thank you for your courage in coming 
forward. I know that it cannot be easy for you and your family. 
And we have to ask ourselves what is it we need to do? Because 
there is a lot of evidence from GAO reports in 1999, from the 
Institute of Medicine report, that there are problems, there 
are preventable problems. There is ordinary, if you can call 
negligence ordinary, and then there are the very rare instances 
of intentional harm that can be traced to a history of drug or 
alcohol abuse or other very unfortunate circumstances.
    Fourth. In conjunction with reducing the current rates of 
preventable injury for individual patients, we do not want to 
do anything, it strikes me, that closes the door on raising 
larger problems within the medical and health care community. 
And by that I mean that it was malpractice cases brought on 
behalf of individual patients that brought to attention issues 
like IUDs that caused injuries and infertility, or DES which we 
know was used for trying to prevent problems, but created 
miscarriages but created birth defects and cancers. And there 
are many other instances of that. Unfortunately, in our system, 
given the way our economy and our system works, lots of times 
you do not get the attention you need on these medical 
procedures and devises in the absence of somebody bringing a 
lawsuit, and sometimes more than one lawsuit. So as we go 
forward we have to think to ourselves, Wait a minute. We do not 
want to do something that inadvertently causes harm and where 
perhaps a lot of doctors are not aware in one part of the 
country what is happening in another part of the country until 
the lawsuits reach a critical mass.
    And finally, I am concerned about the kind of catastrophic 
injuries and the level of compensation that is available, and 
it does particularly fall on families whose children were 
injured at birth or had some other kind of difficulty, and 
therefore you have lifelong care requirements, women who have 
no income or at least not a very high amount of it, so the 
economic damages are not significant. And there are those cases 
where as a society we have to figure out how to deal with them.
    So I think, Mr. Chairman, there are many people of good 
faith on all sides of this issue. This is not, in my view 
anyway, a either/or, black or white, good guys/bad guys kind of 
routine, depending upon where you are. But if we can work 
together to try to figure out what are the questions that we 
want to have answers for to deal with the legitimate concerns, 
not the exaggerated ones, not the sky is falling, but really 
just honestly, what are the problems? How do we sort them out? 
How do we move forward? Then I think that we actually might be 
able to make some progress.
    I really appreciate the Chairman and his counterpart 
holding this extraordinary joint meeting to try to air all of 
these issues.
    Senator Gregg. I thank the Senator. Your points are very 
cogent and right on as far as I am concerned.
    Senator Cornyn? You were here first?
    Senator Ensign. Yes.
    Senator Cornyn. I defer to my senior.
    Senator Gregg. I was given an incorrect list. I apologize. 
Senator Ensign.
    Senator Ensign. Thank you, Mr. Chairman.
    First of all, Senator Clinton, I appreciate the spirit in 
which you offer your comments. I want to start by addressing 
one of the things that you said. Being a health care 
professional myself, it is very difficult to legislate better 
outcomes. It is one of the most difficult things that there is. 
Each one of the colleges--the American College of Surgeons, the 
American College of Obstetrics and Gynecology--they all try to 
police themselves somewhat.
    But, Dr. Wilbourn, I think that my profession and your 
profession, all of them need to do a much better job. However, 
one of the problems that we also see is that they are afraid at 
the State board level that they are going to get sued. There is 
a huge problem that if you police one of your own peers, then 
you can be sued because you are potentially taking away their 
livelihood. That is one of the big problems that people are 
afraid to clamp down on.
    Ms. McDougal, you mentioned disciplinary actions of 
physicians. Again, this is what I am talking about at the State 
board level. That is something that needs to be addressed, 
maybe even some tort reform as far as State boards are 
concerned. You do not want them to be all powerful, but it is 
very difficult the State boards to enforce penalties. I am a 
veterinarian by profession. I see this first-hand. Sometimes I 
cannot believe some of these people are still practicing. 
However, after talking to some members on the boards, they are 
afraid that their livelihood is going to be taken away because 
of their disciplinary actions. Obviously, there is a serious 
problem there.
    The second thing I want to make a comment on is the point 
you made about high-risk procedures. This is a very, very 
serious problem.
    In Las Vegas--Dr. Wilbourn, you know this--a lot of the 
physicians have changed their practice--and you have talked 
about this--to not take the high-risk pregnancies any more.
    And, Ms. McDougal, your story broke my heart as well. You 
hate to hear these horrible cases where neglect happened. But, 
I also do not want to hear that because somebody had a child 
that needed a certain type of care--a high-risk pregnancy--and 
now there is not a doctor that will take care of them because 
they cannot afford to risk everything that they had worked 
their whole life to attain.
    Dr. Wilbourn, would you like to address the problem as far 
as the high-risk procedures?
    Dr. Wilbourn. Well, it is just in obstetrics I think 
anything can be high risk. We were taught in residency the 
first thing, never trust a pregnant woman. Just when you think 
everything is going well, something will happen.
    There are some factors that we can identify in patients who 
are pregnant that we know are going to be risk factors. One of 
the biggest risk factors in a woman's obstetrical care is lack 
of prenatal care. When that patient has not had access to 
health care. Therefore, she has not gone to the Ob/Gyn because 
he was unavailable or she did not have health insurance, and 
that physician has chosen no longer to take Medicaid. She goes 
for weeks and weeks and months and months. We do not know if 
she is anemic so we can correct that. We do not know if there 
are abnormal testing for genetic abnormalities. We do not have 
an opportunity to get in early and even avert a possible 
problem. So now some physicians, when we talk about limiting 
high-risk obstetrics, a lot of people think that just means I 
am not going to take care of triplets any more. No. Physicians 
are saying if you have a due date after this point, in other 
words, if you are more than 14 weeks or 16 weeks pregnant, I 
will not see you because I have already missed opportunities 
early in your pregnancy to avert a potential bad outcome, 
hence, I will be sued.
    So that is another way we have. A limit of access to care 
has nothing to do with that patient's high risk. We perceive 
her to be high risk because she has not had care.
    Senator Ensign. Is it not also true that if you happen to 
be in an emergency room, such as a physician on call there, and 
somebody asks you to take a quick look at a patient, once you 
care for that patient, you cannot fire that patient. Is that 
not correct?
    Dr. Wilbourn. Absolutely. There is a very long process you 
have to go through in firing a patient. The patient has to be 
notified verbally, in writing for 30 days. It varies from State 
to State. I am more familiar with Nevada since I just came from 
there. But in Nevada you have to send out a letter, return 
receipt. You have to provide any care that they need for 30 
days until they have adequate time to find another physician. 
If they happen to be pregnant and show up in labor, you still 
have to take care of them. It does not matter if they were 
abusive.
    Senator Ensign. I hate to interrupt you, but I just want to 
make one final point. I wish we had more time. Perhaps there is 
a second round of questioning.
    The issue was brought up about investment, and everybody is 
going back and forth on this issue. What I have not heard 
addressed is if it is investment income that is now causing the 
problem. Was it in fact the good returns that allowed the 
medical liability rates not to increase during the 1990s?
    Well, let us say it is the stock market. I am just saying 
give them their argument--give them their argument that it is 
investment income. It still does not take away the fact that we 
are paying out a lot more based on the things that you 
presented, Mr. Smarr. There are still increased jury award 
amounts, such as, we are seeing in Nevada. The statistics are 
very clear in Nevada on the number of huge payment awards, and 
I imagine around the country they are going up as well. That 
seems to be certainly a large contributing factor, if not the 
most important contributing factor.
    Mr. Smarr. Yes, Senator, Ensign, I agree with you, and to 
put it in perspective, actuaries tell us that a 1-percent drop 
in market interest rates on bonds equates to a 3- to 4-percent 
increase in premiums. At their height in recent years, long-
term bonds are paying 7-8 percent, and they are now down in the 
4- to 5-percent range, and so the math is fairly simple to tell 
that the increase in premiums we are seeing is due not largely 
to the drop in bond rates, but due to the increase in the cost 
of the claim.
    Senator Ensign. Thank you, Mr. Chairman. My time is up.
    Senator Gregg. Senator Cornyn?
    Senator Cornyn. Thank you, Mr. Chairman.
    I want to do as Senator Clinton and Senator Dodd did, and I 
know really all of us feel the same way in expressing our 
appreciation to Ms. Peel, Ms. McDougal and Ms. Dyess for coming 
forward and the courage you have shown talking about your 
story.
    I know Senator Dodd was candid to talk about the fact that 
a number of insurance companies do business or call their home 
office in Connecticut, and Senator Edwards, I noticed, talked 
about the fact that for 20 years he made a living suing doctors 
and hospitals, and perhaps I need to be candid as well and say 
I used to be, back when I was a young lawyer, on the other side 
of that, defending doctors and hospitals. That was a long time 
ago.
    But as much as I have high regard for doctors and 
hospitals, I have even a greater concern for patients because 
that includes, of course, all of us.
    I wanted to just ask Commissioner Montemayor, since I know 
him best, being the Insurance commissioner from Texas, who does 
this crisis of access affect most profoundly? I know, in my 
travels around the State during the last year, in Corpus 
Christi, and McAllen, and the Rio Grande Valley, in terms of 
the socioeconomic stratum that this affects most profoundly, 
who would that be, Commissioner?
    Mr. Montemayor. Senator, you just put your finger on it. 
First of all, medical malpractice carriers provide coverage not 
only for physicians, but also for clinics, also for hospitals 
and also for nursing homes. In fact, this is where the vast 
majority of the disruptions began at, but it is pretty much 
spread throughout the system, and without fail, with the 
research we have done, some of the very best physician cities, 
regardless of the specialty, seem to be in places like 
Sacramento, California. At the worst end of the scale, at four 
or five times those rates, regardless of the specialty, are 
places like Miami and Fort Lauderdale. Not very far behind that 
were places like McAllen, Texas, and Brownsville, Texas.
    Senator Cornyn. Would those be the poorest really regions 
of our State and the most medically underserved?
    Mr. Montemayor. That is correct, Senator. That, in fact, 
just exacerbates the issue of trying to recruit new physicians 
and replace retiring ones or those that simply give up the 
practice.
    Senator Cornyn. I know, I think Senator Clinton said it 
very eloquently, none of us are interested at all in denying 
people who are injured as a result of the fault of some 
physician or some person employed by a hospital access to or 
without a remedy.
    I wonder, Ms. McDougal, would you mind, for example, have 
you filed a lawsuit as a result of your terrible incident that 
occurred to you?
    Ms. McDougal. At this time, no. I am still experiencing 
infection, and they cannot continue with my reconstruction 
until the infections are taken care of. It could be several 
years.
    Senator Cornyn. And without asking you to tell me who the 
lawyer is and that sort of thing, have you talked to lawyers 
about the possibility of representing you in a lawsuit?
    Ms. McDougal. Yes, I have.
    Senator Cornyn. Can you give us, the committee, an idea of 
the range of attorney's fee that that lawyer would require in 
order to represent you, I presume, on a contingent-fee basis.
    Ms. McDougal. That is correct.
    Senator Cornyn. What would that percentage be that you have 
been told would be pretty much what the market does in that 
area?
    Ms. McDougal. It is 30 percent.
    Senator Cornyn. Thirty percent in your part of the country. 
Well, actually, that is relatively low, compared to some parts 
of the country. I know, in San Antonio, Texas, my hometown, 
many lawyers who file these kinds of lawsuits demand 50 percent 
of the recovery. And, in fact, after the attorney is paid and 
after the expenses are paid to expert witnesses, court costs 
and the like, the patient actually gets just pennies on the 
dollar and is not literally made whole, which is sort of the 
legal theory that I know sometimes is applied here. The idea is 
you get full compensation for your injury, but the fact is, 
under the current system, that does not happen. Is that your 
understanding?
    Ms. McDougal. Yes. I am a layperson, though.
    Senator Cornyn. Sure, I am not asking you to----
    Ms. McDougal. I have no remedy without an attorney.
    Senator Cornyn. I am not asking you to explain it. Is that 
your understanding, though, that basically you would receive 
what is left over after your lawyer gets paid and after the 
court costs?
    Ms. McDougal. Yes, it is.
    Senator Cornyn. I guess, Mr. Angoff, you testified, I know, 
in your capacity as a former insurance commissioner, but 
actually you are a personal injury lawyer, are you not, sir?
    Mr. Angoff. No, I am not a personal injury lawyer. I am a 
lawyer specializing in insurance issues. I represent more 
plaintiffs than defendants, but I do represent defendants and 
also State insurance departments.
    Senator Cornyn. And your firm website lists medical 
negligence cases as one of the things that you and your firm do 
for a living?
    Mr. Angoff. I do not. Some other people in my firm do.
    Senator Cornyn. And you typically represent, people in your 
firm who do those kinds of cases, represent people on a 
contingent-fee basis; would that be correct?
    Mr. Angoff. Yes, sir.
    Senator Cornyn. Mr. Chairman, I just wonder, just sort of 
in closing, whether a system that I think as we all want, which 
leaves no injured person without a remedy, but at the same time 
as having devastating impact on people who want to give their 
life to help heal others, physicians and health care providers, 
and leaves them in such dire straits, but at the same time 
seems to provide a very healthy rate of return for lawyers, 
whether the transaction costs associated with getting the money 
to people who really need it and deserve it are far too high, 
and perhaps as part of this committee's and this Congress's 
consideration over what would be the best way to address this, 
would figure some way that perhaps let doctors and health care 
providers practice their chosen profession, gave patients 
access to good-quality health care, provided a full remedy to 
people who actually were hurt as the result of the fault of 
others, but at the same time did not result in such huge 
transaction costs, for which lawyers profit.
    Thank you.
    Senator Gregg. Thank you, Senator.
    Senator Durbin?
    Senator Durbin. Thank you very much, Mr. Chairman, and 
thank you to the panel. I apologize for having stepped out to 
go to an Intelligence Committee hearing, but I did read your 
testimony before I left, and I am sorry I could not be here as 
you presented it, but I am familiar with what you said to the 
committee.
    Unlike some of my colleagues here who have said that in the 
past they have defended doctors and others have sued doctors, I 
have done both. Before I was elected to Congress, I spent 5 
years defending doctors in medical malpractice cases and 2 
years on the other side, on the plaintiffs' side. So I have 
seen, at least in my time a few years back, both sides of the 
equation.
    Let me disabuse you from the notion immediately about 
frivolous lawsuits. If someone walked in my office and said 
they had a medical malpractice claim, I quickly calculated that 
I would be spending out of pocket thousands of dollars in 
preparation of that claim. I was not about to take a flier and 
run the possibility of contempt for filing a case that made no 
sense at all and lose money in the process.
    In my State, and many others, you are going to file an 
affidavit with your complaint from another doctor saying you 
could have a claim, you could have a cause of action. There is 
a lot of work that goes into these cases, and people who file 
frivolous lawsuits should be dismissed, and I doubt that that 
is the source of the problem here today.
    Let me also tell you that I listened to this debate here 
about contingency fees, and without fail, the people that came 
into my office when I was an attorney could not have had an 
attorney any other way. They could not afford to put up $10-, 
$20-, $30 thousand of their own money after they had gone 
through a devastating medical injury. They only could operate 
under a contingency fee, and different lawyers charge different 
percentages, but many of them run the risk of ending up with 
nothing when it is all over.
    People have argued that this issue is all about doctors, 
and trial lawyers, and Americans who cannot find medical care 
because medical malpractice premiums are driving doctors out of 
business. I think it is about all three of those, but I think 
it is about three other groups, too. It is about doctors guilty 
of negligence and reckless misconduct; it is about Americans 
who are innocent victims of medical malpractice and face a 
lifetime of pain suffering and death; and it is about insurance 
companies who have somehow escaped the scrutiny of the White 
House and many Members of Congress when it comes to this 
medical malpractice crisis.
    These same groups that now argue we should not look at 
insurance companies as part of the problem also said we should 
absolve HMOs from liability when they make the wrong decisions 
as to whether or not you can even qualify for medical care. I 
do not think that that is consistent with this theory of 
accountability, which we hear so often in Washington, DC. All 
of us are held accountable. We should be held accountable in a 
reasonable way.
    I would like to ask Dr. Wilbourn, if I could, you had a 
personal life experience that was clearly, I mean, demonstrates 
the problem, where you had to pick up and move from a practice 
in Nevada to Maine under these circumstances.
    Now, you know that since you left, probably, maybe--I do 
not know how long you left--but since you left Nevada, but they 
passed a medical malpractice law. Are you aware of the fact 
that the malpractice insurance companies have said they are not 
going to reduce premiums even with the caps?
    Dr. Wilbourn. Yes, sir, I am aware of that. That special 
session was called while I was actually meeting with President 
Bush in High Point. The special session went into effect and 
the law was passed after I had closed my practice July 31st, 
but prior to me physically leaving town, as I was trying to put 
my house on the market.
    I was aware that those rates would not go down. We had been 
told by our liability writers that, number one, do not expect a 
decrease in rates until a case test has gone through and U.S. 
Supreme Court has upheld it and, number two, enough exceptions 
were put into the bill that was passed in Nevada that left 
enough legal loopholes that they really did not find that it 
was going to help them at all, as far as costs.
    Senator Durbin. If you look at the States that have imposed 
caps--I know you have probably gone over this ground, and I 
will not repeat it--the States that have imposed caps on 
recovery and lawsuits for people who are injured and die, those 
caps really have not resulted in significant differences in 
malpractice premiums in these States. So what we are doing is 
limiting the day in court for the person who is a victim and 
not achieving the goal that we are seeking, affordable medical 
malpractice insurance so doctors can practice medicine.
    I just cannot understand why this administration will not 
consider looking at insurance companies. Why is it that they 
cannot be part of the solution here?
    Let me ask this of the people on the panel here, you have 
probably heard of cases, and there have probably been some 
described here today, do you feel that $250,000 is fair 
compensation for some of these cases you have heard of? A case 
that I had of a little baby brought in for baby shots, which 
every parent does without a second thought, who within days was 
a quadriplegic, unresponsive because the doctor failed to note 
that this baby was suffering from a fever and a problem that 
made a reaction to pertussis, the whooping cough vaccine at the 
time? Think about that child living 5 years/10 years in that 
State. Two hundred and fifty thousand dollars, is that enough 
compensation for the pain and suffering of that child and the 
family associated with them?
    Do you all feel that $250,000 is adequate or generous under 
those circumstances or the circumstances described by Ms. 
McDougal? I ask my friends in the insurance industry.
    Mr. Smarr. Senator, I do not know if there is any amount 
that could make a severely injured patient whole, and whether 
the amount is $250,000 or some other reasonable number, we have 
reached the point in time where the excessive awards of 
noneconomic damages have driven malpractice insurance rates to 
the point where doctors simply cannot practice medicine any 
more, and if we are going to draw the line at some point, we 
know that $250,000, which is in effect in California today, and 
Colorado today, and Kansas today, and a few other States, 
works, and has kept their premiums down and their doctors 
practicing in those States.
    Senator Durbin. I know Senator Dodd suggested this, that 
you start looking at individuals, rating them. People with a 
bad driving record pay more for auto insurance. We know that 54 
percent of the claims are filed against 5 percent of the 
doctors, and it seems to me that those are the target doctors 
who should be paying higher medical malpractice premiums, 
unlike Dr. Wilbourn, who I guess had no experience with medical 
malpractice liability before his premiums went through the 
roof.
    I also have heard suggestions in other States of kind of a 
cross-subsidy, where they would say that there would be a 
certain small amount taken from all specialties to provide some 
subsidy to those that are higher-risk specialties, but a 
necessary part of medical practice.
    It seems to me that, unless we are willing to honestly talk 
about the insurance industry and your practices, this is really 
an exercise in bashing away at trial lawyers, rather than 
getting to the heart of the problem.
    Mr. Smarr. I am glad you brought up the topic of experience 
rating for doctors, and such does exist. In my own experience 
in working in the market in Pennsylvania, the market leader 
carrier in Pennsylvania has an experience rating program, and 
yesterday in House testimony in Bucks County, Pennsylvania, the 
president of that company explained what they were doing.
    Essentially, they have a 15-percent discounted premium for 
physicians that are claim free for a certain period of time. 
They also have a 5-percent risk management discount for doctors 
that participate in their risk management programs, and they 
have the Consent to Rate Program, which is a special mechanism 
for insureds that have very adverse loss experience, where they 
asked to consent to a rate that is very much higher-than-normal 
filed annual rate, and that is filed with the State insurance 
department.
    I think that programs like this are in effect with 
insurance carriers, the doctor-owned carriers I represent, at 
least, in States across the Nation.
    Senator Durbin. I think it is a reasonable alternative.
    Thank you, Mr. Chairman.
    Senator Gregg. Senator Sessions?
    Senator Sessions. Thank you, Mr. Chairman. I do believe 
there is a problem. We did some checking in Alabama and the 
circumstances there. I notice that the chart up there rated 
Alabama as okay, but it does not appear that all things are 
going well.
    On the question of access, I have two notes. Atmore 
Community Hospital in Atmore, Alabama, was forced to close its 
obstetrics program because it could not afford a 282-percent 
increase in malpractice insurance from $23,000 to $88,000. That 
is a small hospital, with a $50,000/$60,000-hit. I visited that 
hospital, and I know the things they are doing to try to deal 
with a wage index that are hurting smaller hospitals. But I now 
expect that mothers in that area have to go long distances to 
hospitals.
    One that touched me particularly was an article in the 
paper, on the 7th of February, in Huntsville, Alabama, about 
Dr. Sumter Blackman. He thought he had seen everything in his 
31 years as a family physician in rural Wilcox County. Nothing 
prepared him, though, for the epidemic sweeping Alabama's 
malpractice insurance business. Two of the State's five 
malpractice insurers, Reciprocal of America and a sister 
company, Doctors Insurance for Reciprocal Risk Retention Group, 
are in disarray because of money woes. Another, St. Paul Fire 
and Marine, has stopped writing premiums in Alabama.
    I will not go into the details, but it says Blackman, the 
Wilcox County doctor, may have to put down his stethoscope this 
summer. Dr. Blackman is my mother's doctor. He organizes and 
leads one of the smaller hospitals in the State. He is, if you 
took a poll of who is the most respected man in that county, it 
would be Dr. Sumter Blackman. And to think that he is at the 
point of losing his career over this is not an insignificant 
matter to me. I do not know what the county would do without 
him.
    The hospital was named J. Paul Jones Hospital, for Dr. Paul 
Jones, who is one of the finest family practitioners ever, I 
guess, and they named the hospital for him. This was not a 
problem he had to deal with in his career, I am sure.
    One of the oldest nursing homes, the oldest nursing home in 
Alabama, has reported to me that their premiums for liability 
insurance has gone up 865 percent over the last 4 years. 
Premium costs per bed, according to Bill Roberts, the fine 
leader of that nursing home, have gone up from $370 in 1979, 
Mr. Chairman, to $3,204. In other words, he is paying $3,000 
per nursing home bed just for liability insurance.
    And Jackson Hospital in Montgomery has seen an increase in 
liability insurance from $591,000 in 1999 to $1 million in 
2003. There was a 28-percent increase between 2002 and 2003, 
and the chart up there says we are doing okay.
    So I do not know what the answer is. I sometimes I thought 
it might be the insurance companies, but, Mr. Smarr, you make a 
pretty strong case that investments and those matters are 
really small compared to the hits you are taking on the 
difference between your premium and what you are paying out.
    Are you confident your numbers can withstand scrutiny? As I 
understood your testimony, there is no doubt in your mind that 
all of these other problems that have been raised about 
insurance payments, there is no doubt in your mind that any 
analysis of your companies will show that they are paying out 
more than they are taking in, and that is what is causing the 
crisis?
    Mr. Smarr. Senator Sessions, there is no doubt in my mind 
that at the present time malpractice insurers are incurring 
losses that are far in excess of the premiums and the 
investment income they are collecting, and every independent 
organization that has looked at this, such as the Congressional 
Budget Office, such as the Department of Health and Human 
Services, such as the National Association of Insurance 
Commissioners in its February 7th letter to Chairman Gregg, 
confirmed this.
    The industry is in crisis. A.M. Best, the leading rating 
agency in this area, confirms this as well. There is no doubt 
it is being driven by losses.
    Senator Sessions. Mr. Chairman, that is something we ought 
to be able to determine pretty conclusively as the time goes 
by.
    I will tell you one thing, it offends me a little bit 
people say, ``Well, you are doing up there to protect the 
insurance company, you sorry politicians. You talk about reform 
of the litigation, and it is to protect insurance companies.'' 
I do not know about the other Senators, but they do not call me 
about these issues. They do not really care, I think. The more 
they pay out, the more people have to have insurance.
    But who are calling me are employers who pay insurance for 
their employees, hospitals and doctors. That is who are calling 
me, and I am not getting any pressure from any insurance 
company about this matter, so far as I know. It certainly is 
not anything like the concern I am hearing from people out 
there.
    I would just say this. There are some concerns about how we 
do this, what the role of the Federal Government should have in 
this matter. One thing that is pretty significant to me, Mr. 
Chairman, is that probably 60 percent or more of health care in 
this country is paid for by the Federal Government. Would any 
of you doctors or panelists, Dr. Wilbourn, do you have an 
opinion of how much of health care is actually funded by the 
Federal Government, directly or indirectly?
    Dr. Wilbourn. No, I would not know that. I think I have 
heard it mentioned a couple of times today about whether States 
should handle this problem themselves or whether the Federal 
Government should be involved, and I would like it if States 
could handle this problem. It would be nice if all of the 
States had already handled the problem. We would not even be 
meeting today. But, obviously, some States can handle the 
problems and some cannot.
    What we have to ask ourselves, as Americans, as patients, 
just because I am lucky enough to live in California, I cannot 
take my children to Las Vegas or my wife to Vegas for the 
weekend for fear that something will happen to her and there is 
not available care. I can no longer vacation in Florida because 
there is not a neurosurgeon or Gulfport, Mississippi.
    You are restricting my movement around America if I have 
got certain areas of this country that I do not want to go. 
There are not enough doctors there, and if we are in a car 
wreck, the Trauma Center is closed.
    So it is a Federal issue when you get down to that.
    Senator Sessions. Well, you do have, I am told, and I 
visited 20 or more hospitals/30 or more hospitals in Alabama, 
they tell me well over 50 percent is Medicare, then you have 
Medicaid, and then you have veterans and other things that are 
paid for by the Federal Government. So that is causing me to 
think that there is, indeed, a Federal interest here that is 
significant, but certainly an individual tort inside a State, 
we have traditionally seen as a State matter.
    Thank you, Mr. Chairman.
    Senator Gregg. Thank you, Senator.
    I am going to have to depart, but before I do, I would like 
to ask unanimous consent that the statement of Senator Grassley 
be inserted in the record and note that the record will be kept 
open for 2 weeks for submission.
    [The prepared statement of Senator Grassley may be found in 
additional material.]
    Senator Gregg. I especially want to thank the panel.
    I am going to turn it over to Dr. Ensign because he had a 
couple of other questions.
    I especially want to thank the panel. It has been an 
extraordinarily strong panel, in my opinion, and I especially 
want to thank the folks who have had individual experiences 
which are extremely moving--Ms. Peel, Ms. McDougal, and Ms. 
Dyess, and Dr. Wilbourn, who chose Maine, instead of New 
Hampshire, which I take is a personal----
    Dr. Wilbourn. You had no availability in New Hampshire. I 
checked there. [Laughter.]
    Senator Gregg. As a number of Senators said, to come 
forward and share your story with us is courageous, and it is 
important, and we thank you for that, and we thank you for the 
expert testimony we have received from the other members of the 
panel.
    Unfortunately, I have to move on, but I am going to turn 
the hearing over to Senator Ensign.
    Senator Ensign [presiding]. Thank you, Mr. Chairman.
    Mr. Angoff, I want to start with you on talking about Prop 
103 in California, where you credited that that was controlling 
medical malpractice premium increases. The 20-percent refund 
that you talked about, the rollback, was that a one-time 
rollback or was that year-to-year?
    Mr. Angoff. No, the 20 percent is a one-time rollback.
    Senator Ensign. So is a one-time rollback going to be 
responsible for all of the years of stabilizing the rates?
    Mr. Angoff. It is not. What is responsible for all of the 
years of stabilizing rates are the other provisions of Prop 
103, particularly two. No. 1, the most significant, Prop 103 
repealed the State antitrust exemption for the insurance 
industry. So that in California, unlike other States, insurance 
companies can get together, and they can share their past cost 
data in order to be able to project more accurate rates for the 
future, but what they cannot do is to agree on rates. In most 
States, they can. So that I think is the most significant thing 
in Prop 103 that has kept rates moderate.
    The second provision of Prop 103, in addition to the 
rollback and the antitrust exemption, that has kept rates at 
moderate levels over the long run is it gave doctors and 
consumers automatic standing to challenge any proposed rate 
increase by any property casualty insurer, and because of that 
automatic standing consumers do intervene and do prevent 
insurers from raising rates to excessive levels, which would 
not be the case in other States.
    Senator Ensign. When you talk about your experience in 
Missouri, with all of the data that you provided from Missouri, 
you said there was no increase in the number of claims. In 
fact, you said it was going down. However, we are hearing from 
other people that all across the country claims is going up. Do 
you have different numbers?
    Mr. Angoff. Yes, I do not doubt that there are differences 
among States in litigiousness. In Missouri, we are just not a 
very litigious State.
    Senator Ensign. Correct, but the rest of the country is 
experiencing dramatic increases in especially the severity of 
claims. You saw the chart--do you have that chart that shows 
the $1 million? It was the top red line, I think, was it not?
    That one is good enough. Those are the percentages of 
million-dollar-plus claims. You can see it, year-to-year, is 
obviously going to up, and it is almost going up 
logarithmically.
    Mr. Angoff. Well, Senator, if you look at Mr. Montemayor's 
chart of about 15 States, which shows the rate of return of the 
malpractice industry in each State, it shows a dramatic 
difference by State. Traditionally--I was a member of the 
National Association of Insurance Commissioners--traditionally, 
the NAIC has been very, very strong in insisting that each 
State has its own market. There are different issues in each 
State, and that right-hand chart there, Senator, shows that.
    It is true that for some reason--I do not know the Texas 
market well enough to say what it is--for some reason, yes, 
there is a problem in Texas, but look at all of the other 
States. Many of those States are not just making adequate rates 
of return, they are making excessive rates of return. So it 
just does not make sense for Congress to pass a law which would 
prohibit injured people from recovering in States where the 
insurance companies are already making excessive rates of 
return.
    Senator Ensign. Could you put up the chart comparing 
California and Colorado and their rates.
    These are the rates. And, Mr. Smarr, maybe you can address 
this since your company does business all across the country.
    Los Angeles, $54,000, as far as for an OB, but if you go up 
and down the chart, it seems to me that Colorado does not do 
too badly there, compared to these other rates. As a matter of 
fact, if you put Nevada in there, and especially Southern 
Nevada, where some of the bigger claims have been, although 
Northern Nevada just got their rate increases and from what I 
have been hearing their rates just took a huge increase, that 
$54,000 would be a small rate.
    Dr. Wilbourn, your experience of the $108,000, I think that 
that was on the low end of a lot of them. I think a lot of 
people I have heard from have been up to the $130- $140 
thousand range in Nevada.
    Dr. Wilbourn. That was quoted to me because I would have 
discounts; the 5-percent discount for attending educational----
    Senator Ensign. Right.
    Dr. Wilbourn. --and discounts for having no lawsuits, but 
also the $108- was quoted if I reduced the number of 
deliveries.
    Senator Ensign. Right. And, by the way, these numbers are 
not cheap. I do not think anybody is looking at that. Those 
numbers are not cheap in the first place. I mean, the Los 
Angeles and the Denver numbers, those are fairly significant 
numbers in the first place, let alone when we start getting to 
the right side of these charts.
    But the thing that is most evident to me is that Colorado 
did not have a Prop 103, and they have had very, very good 
success.
    Dr. Wilbourn, I want to ask you about the part of 
Colorado's legislation that requires somebody to be an expert 
in their field to testify. Now, I do not have any statistics on 
this, but I have heard time and time again from physicians that 
a common practice has become in fact it is becoming almost an 
industry, for some physicians out there that only go around and 
testify. They are not an expert in that field, but trial 
lawyers know that they can pick them off, bring them in, and 
they are very convincing. They are becoming professional 
witnesses, and they are able to convince those juries that they 
are an expert in areas they are not, so this seems to be a big 
problem with our legal system today.
    Can you comment on that?
    Dr. Wilbourn. I sure can. I do not know if you are aware, 
Senator Ensign, that when I was in Nevada, I sat on the 
medical-dental screening panel for the State before it was 
abolished with our last legislative act. For those not aware, 
many of the Senators today talked about having an affidavit or 
someone to verify this is an adequate lawsuit, in Nevada, the 
way it used to work when I was there, if someone sued you, it 
went to the medical-dental screening panel. At that panel, was 
three physicians and three attorneys who reviewed the chart for 
probability of malpractice.
    If the panel felt that there was a probability of 
malpractice, that was the ruling that went out and could be 
presented in court. If they felt there was no reasonable 
probability of malpractice, that was the ruling that went out 
and could be presented in court. And from what I understand, if 
the panel could not agree, which oftentimes happen when you 
have three attorneys and three physicians in a room together, 
it went out as no report. This did not keep a case from going 
to trial. They could still take it.
    In that capacity, in reviewing those cases, first of all, 
it was very rare to have one of the physicians on that panel be 
someone who was a specialist in that field. We often had to 
exempt ourself because we knew that person from medical 
meetings.
    But then even when we got into reviewing, their expert 
witness, the plaintiff's expert witnesses, most, and I will 
point out that most of the attorneys who served on that panel 
were plaintiff trial lawyers, they would even make comment 
about, you know, it must be really bad if this is the only 
expert witness they could find. They, themselves, recognized 
that there were very bad expert witnesses that were more or 
less hired guns--if we give this person enough money, they will 
raise their hand and swear an oath.
    So I agree with you that I think a lot of times there is no 
legitimacy to who is an expert witness. Many times the expert 
witness does not even practice in the same field of medicine.
    Senator Ensign. Thank you. I need to excuse myself. We are 
going to turn the gavel over to Senator Sessions.
    Mr. Montemayor, if you have to excuse yourself for a 
flight, go ahead and feel free to do that.
    Thank you very much for the rest of the panel. I will turn 
it over to Senator Sessions.
    Senator Sessions [presiding]. Thank you, Mr. Chairman.
    Mr. Angoff. May I excuse myself for a flight, too, Mr. 
Chairman?
    Senator Sessions. Certainly.
    Mr. Angoff. Thank you very much.
    Senator Sessions. At this moment I am the chairman, I 
guess.
    Thank you very much, both of you, for your insightful 
testimony. It is something that we are going to have to wrestle 
with. We are going to have to get the facts, and then make some 
decision about what action, if any, we should take.
    Mr. Smarr, you have heard the argument over the Proposition 
103. Do you have anything further to add or to raise about 
that? That was the question that Dr. Ensign asked me to ask 
you.
    Mr. Smarr. Senator Sessions, only to reiterate that Prop 
103 was a one-time 20-percent rollback in rates that was to be 
refunded to California physicians, and it was the only thing 
that was required of the medical malpractice insurers in 
California. They did not lower their premiums.
    I read from one of the consent agreements, paragraph 2, 
``The amount specified in paragraph 1 above . . .'' which is 
the 20 percent ``. . . including the interest specified therein 
shall constitute respondent's entire rollback refund obligation 
pursuant to Insurance Code Section 186101.''
    Now, the California carriers did not decrease their rates, 
and they returned the 20 percent as part of their normal 
dividend process. But one other thing, I mentioned the NORCAL 
Mutual Insurance Company, during the legal contest of Prop 103, 
NORCAL actually had two independent rate decreases filed and 
which were held up by the legal mechanisms of considering 
whether or not Prop 103 was constitutional.
    And so the doctors in California actually did not benefit 
from the two filings, a reduction of 12 percent and the other 
was, I believe, a reduction of 2 percent, and so they paid 
higher premiums because of Prop 103 for a period of a couple 
years, until this mess could be sorted out.
    Senator Sessions. I know someone well in a law firm, and 
they defend hospital and nursing home lawsuits, and Mississippi 
has passed some reform, and I understand hundreds of lawsuits 
have been filed in advance of that law becoming effective. So 
that would indicate to me that there is some impact on 
litigation.
    But, you know, I tend to believe that it is difficult under 
current circumstances to do away with a contingent fee, in 
general. Sometimes that is just a necessary part of the system 
under the way we operate today. But when you have circumstances 
like asbestos, where we had testimony that only 40 percent of 
the money paid out by the asbestos companies actually got to 
the victims, and what we also know is that many, many people 
are being paid substantial sums of money who were exposed but 
have never gotten sick. We know there are 200,000-some-odd 
cases pending. We know that the cost of litigation, and there 
are great delays in it.
    It seems to me that since the asbestos companies have 
ceased to contend they did not know that asbestos was dangerous 
and are willing to compensate ill patients, somehow we ought to 
have a system so if you mesothelioma, cancer or that sort of 
thing as a result of asbestos, then somebody ought to write you 
a check, and you should hardly even need a lawyer at all.
    Certainly, these large fees could be reduced, and then the 
asbestos company would have less money to expend on defense, 
the plaintiffs would have less litigation expense, there would 
be less delay, and the ill person could be paid.
    Does that make sense to you, Mr. Smarr?
    Mr. Smarr. Oh, it does, Senator Sessions. And I agree that 
it is hard to understand how a contingency fee applies to a 
case where there really is no contingency, where it is a 
question not of causation, but of damages and how much.
    The legislation that the PIAA supports in the House is H.R. 
5, which was passed as H.R. 4600 last year in the House. I 
think Senator Ensign introduced a similar bill in the Senate 
last year. That has a sliding scale for plaintiff attorney 
contingency fees, and for example under that provision, and 
that is similar to the California MICRA provisions, that the 
contingency fee is 40 percent of the first $50,000, and it 
slides up until it is 15 percent of amounts over $600,000.
    In the case of a million-dollar payment, the plaintiff 
attorney has to be satisfied with only $220,000 in a 
contingency fee, but that is better than 40 percent or 50 
percent of a million dollars. That provision, we feel, actually 
tempers the effects of the contingency-fee arrangement and puts 
more money into the pocket of the patient.
    Senator Sessions. Well, we need to wrestle with that issue 
of compensation, and certainly we need to deal with the 
question of when the defendant knows they did wrong, they know 
there was an error occurred, they are willing to compensate. 
There should be a better way of getting prompt compensation 
under those circumstances.
    The question of, as Ms. McDougal raised, pain and 
suffering, disfigurement, those are matters that are very 
important, and how we control or limit that I am not sure at 
this time. I am not sure precisely what role that this Congress 
should carry out at this time. I would just say this: I have no 
doubt we do have a crisis because we are trying to wrestle with 
how to give more health care to more Americans and not have the 
costs go through the roof. Every year we are dealing with 
Medicare and Medicaid costs that seem to be going up. More and 
more people are aging, and they need more health care. We need 
the absolute most efficient system that this country can 
provide to get good, quality health care.
    And when you see these huge premiums being paid out by 
hospitals and doctors, those are not expenditures reasonably 
likely to produce much direct health benefit.
    So I think if we could come up with a way to compensate 
those who truly need it, keep the overall costs down, speed up 
perhaps that system and at the same time reduce this heavy 
insurance burden would be good.
    I would also ask Dr. Wilbourn if a series of--you know, the 
theory is that the punitive damages punish, but if you have 10 
OBs in a community, and two of them get sued and get hit with 
big verdicts, what happens to the premiums for all 10 doctors 
in the community?
    Dr. Wilbourn. They all go up.
    Senator Sessions. They all go up.
    Dr. Wilbourn. They all go up.
    Senator Sessions. So, in effect, if one doctor fails, the 
way our system works, the punitive damages is not just 
punishing that doctor, it is punishing innocent doctors, also.
    Dr. Wilbourn. Correct.
    Senator Sessions. So we need to wrestle with our legal 
system. It has been great for us. The rule of law has preserved 
our freedoms and provided our strong economy, and I believe we 
can make some progress on this, and I look forward to working 
on it.
    I thank all of you for your attendance. Is there anything 
else you would like to add for the record? We will give you 
some time to do that in writing if you would like.
    Dr. Wilbourn. Thank you for having us.
    Senator Sessions. Thank you very much. It has been a very 
interesting panel. We are adjourned.
    [Additional material follows.]

                          ADDITIONAL MATERIAL

                   Opening Statement of Senator Leahy

    Today I am pleased to introduce the ``Medical Malpractice 
Insurance Antitrust Act of 2003'' along with Senators Kennedy, 
Durbin, Edwards, Rockefeller, Reid, Boxer, Feingold, and 
Corzine. In the deafening debate about medical malpractice, I 
believe this legislation is a clear and calm statement about 
fixing one significant part of the system that is broken--
skyrocketing insurance premiums for medical malpractice. Our 
health care system is in crisis. We have heard that statement 
so often that it has begun to lose the force of its truth, but 
that truth is one we must confront and the crisis is one we 
must abate.
    Unfortunately, dramatically rising medical malpractice 
insurance rates are forcing some doctors to abandon their 
practices or to cross state lines to find more affordable 
situations. Patients who need care in high-risk specialties--
like obstetrics--and patients in areas already under-served by 
health care providers--like many rural communities--are too 
often left without adequate care.
    We are the richest and most powerful nation on earth. We 
should be able to ensure access to quality health care to all 
our citizens and to assure the medical profession that its 
members will not be driven from their calling by the 
manipulations of the malpractice insurance industry.
    The debate about the causes of this latest insurance crisis 
and the possible cures grows shrill. I hope today's hearing 
will be a calmer and more constructive discussion. My principal 
concerns are straightforward: That we ensure that our nation's 
physicians are able to provide the high quality of medical care 
that our citizens deserve and for which the United States is 
world-renowned, and that in those instances where a doctor does 
harm a patient, that patient should be able to seek appropriate 
redress through our court system.
    To be sure, different states have different experiences 
with medical malpractice insurance, and insurance remains a 
largely state-regulated industry. Each state should endeavor to 
develop its own solution to rising medical malpractice 
insurance rates because each state has its own unique problems. 
Some states--such as my own, Vermont--while experiencing 
problems, do not face as great a crisis as others. Vermont's 
legislature is at work to find the right answers for our state, 
and the same process is underway now in other states. To 
contrast, in states such as West Virginia, Pennsylvania, 
Florida, and New Jersey, doctors are walking out of work in 
protest over the exorbitant rates being extracted from them by 
their insurance carriers.
    Thoughtful solutions to the situation will require creative 
thinking, a genuine effort to rectify the problem, and 
bipartisan consensus to achieve real reform. Unfortunately, 
these are not the characteristics of the Administration's 
proposal. Ignoring the central truth of this crisis--that it is 
a problem in the insurance industry, not the tort system--the 
Administration has proposed a plan that would cap non-economic 
damages at $250,000 in medical malpractice cases. The notion 
that such a one-size-fits-all scheme is the answer runs counter 
to the factual experience of the states.
    Most importantly, the President's proposal does nothing to 
protect true victims of medical malpractice. A cap of $250,000 
would arbitrarily limit compensation that the most seriously 
injured patients are able to receive. The medical malpractice 
reform debate too often ignores the men, women and children 
whose lives have been dramatically--and often permanently--
altered by medical errors.
    The President's proposal would prevent such individuals--
even if they have successfully made their case in a court of 
law--from receiving adequate compensation. We are fortunate in 
this nation to have many highly qualified medical 
professionals, and this is especially true in my own home state 
of Vermont. Unfortunately, good doctors sometimes make errors. 
It is also unfortunate that some not-so-good doctors manage to 
make their way into the health care system as well. While we 
must do all that we can to support the men and women who commit 
their professional lives to caring for others, we must also 
ensure that patients have access to adequate remedies should 
they receive inadequate care.
    High malpractice insurance premiums are not the result of 
malpractice lawsuit verdicts. They are the result of investment 
decisions by the insurance companies and of business models 
geared toward ever-increasing profits. But an insurer that has 
made a bad investment, or that has experienced the same 
disappointments from Wall Street that so many Americans have, 
should not be able to recoup its losses from the doctors it 
insures. The insurance company should have to bear the burdens 
of its own business model, just as the other businesses in the 
economy do.
    But another fact of the insurance industry's business model 
requires a legislative correction--its blanket exemption from 
federal antitrust laws. Insurers have for years--too many 
years--enjoyed a benefit that is novel in our marketplace. The 
McCarran-Ferguson Act permits insurance companies to operate 
without being subject to most of the federal antitrust laws, 
and our nation's physicians and their patients have been the 
worse off for it. Using their exemption, insurers can collude 
to set rates, resulting in higher premiums than true 
competition would achieve--and because of this exemption, 
enforcement officials cannot investigate any such collusion. If 
Congress is serious about controlling rising premiums, we must 
objectively limit this broad exemption in the McCarran-Ferguson 
Act.
    That is why today I introduce the ``Medical Malpractice 
Insurance Antitrust Act of 2003.'' I want to thank Senators 
Kennedy, Durbin, Edwards, Rockefeller, Reid, Boxer, Feingold, 
and Corzine for cosponsoring this essential legislation. Our 
bill modifies the McCarran-Ferguson Act with respect to medical 
malpractice insurance, and only for the most pernicious 
antitrust offenses: price fixing, bid rigging, and market 
allocations. Only those anticompetitive practices that most 
certainly will affect premiums are addressed. I am hard pressed 
to imagine that anyone could object to a prohibition on 
insurance carriers' fixing prices or dividing territories. 
After all, the rest of our nation's industries manage either to 
abide by these laws or pay the consequences.
    Many state insurance commissioners police the industry well 
within the power they are accorded in their own laws, and some 
states have antitrust laws of their own that could cover some 
anticompetitive activities in the insurance industry. Our 
legislation is a scalpel, not a saw. It would not affect 
regulation of insurance by state insurance commissioners and 
other state regulators. But there is no reason to continue a 
system in which the federal enforcers are precluded from 
prosecuting the most harmful antitrust violations just because 
they are committed by insurance companies.
    Our legislation is a carefully tailored solution to one 
critical aspect of the problem of excessive medical malpractice 
insurance rates. I hope that quick action by the Judiciary 
Committee and then by the full Senate, will ensure that this 
important step on the road to genuine reform is taken before 
too much more damage is done to the physicians of this country 
and to the patients they care for. Only professional baseball 
has enjoyed an antitrust exemption comparable to that created 
for the insurance industry by the McCarran-Ferguson Act. 
Senator Hatch and I have joined forces several times in recent 
years to scale back that exemption for baseball, and in the 
Curt Flood Act of 1998 we successfully eliminated the exemption 
as it applied to employment relations. I hope we can work 
together again to create more competition in the insurance 
industry, just as we did with baseball.
    If Congress is serious about controlling rising medical 
malpractice insurance premiums, then we must limit the broad 
exemption to federal antitrust law and promote real competition 
in the insurance industry.

                   Opening Statement of Senator Hatch

    First I would like to thank everyone for being here today 
and especially Chairman Gregg of the HELP committee for 
agreeing to hold this joint hearing. I know we both believe 
that this is a very important issue, worthy of our attention 
and of every effort necessary to find a resolution to this 
crisis.
    Chairman Gregg and I share a deep concern about how this 
has affected patient care in our home states and across the 
country. Patient access to healthcare has diminished 
significantly because out-of-control litigation and frivolous 
lawsuits have caused medical liability insurance premiums to 
skyrocket--forcing needed doctors out of practice. During the 
last two years alone, premiums have increased by as much as 81% 
according to some insurers. Doctor unavailability is a crisis 
in 12 states and threatens to become one in at least 30 others. 
One of our witnesses here today, Leanne Dyess, will tell us how 
the unavailability of a neurosurgeon tragically impacted her 
family. We should all be concerned--each one of us runs the 
risk that necessary care may be unavailable because the doctor 
we need is no longer able to practice.
    Do we really want our healthcare system to be nothing more 
than a game of Russian roulette--leaving it to chance whether a 
doctor will be available when we need one? Sadly, that is what 
is happening. Doctors are leaving specialties in record numbers 
because they can no longer afford to practice. It is truly the 
most vulnerable patients, those who need emergency care, 
specialty surgery or obstetric care who are most severely 
impacted
    I am very concerned about the increasing shortage of 
doctors in my home state of Utah. A study by the Utah Medical 
Association underscores the alarming problem in my state: 
``50.5 percent of Family Practitioners in Utah have already 
given up obstetrical services or never practiced obstetrics.'' 
One third of the remainder say they plan to stop providing OB 
services within the next decade. Most plan to stop within the 
next five years. According to this study: ``Professional 
liability concerns [were] given as the chief contributing 
factor in the decision to discontinue obstetrical services. 
Such concerns include the cost of liability insurance premiums, 
the hassles and costs involved in defending against obstetrical 
lawsuits and a general fear of being sued in today's litigious 
environment.''
    One resident of Salt Lake City, Lois Collins, had to wait 
six months for a routine OB appointment. Kori Wilhelm related 
in a recent Washington Post story how she is forced to make a 
three hour roundtrip to Cheyenne, Wyoming to get specialized 
treatment that is no longer available in her area, because her 
own doctor was forced to give up delivering babies. Laurie Peel 
will testify today about her difficulty in obtaining obstetric 
care in North Carolina. These are just a few of the many 
examples of the personal costs of the current situation.
    As many of you know, before coming to Congress, I 
personally litigated medical liability cases--in some cases I 
represented the plaintiff in others I represented the 
defendant. I saw first-hand, heart-wrenching cases in which 
mistakes were made, and I know that we will hear more today 
about those cases which deserve access to appropriate remedies. 
But, more often, I witnessed heart-wrenching cases in which 
mistakes were not made and doctors were forced to expend 
valuable time and resources defending themselves against 
frivolous lawsuits.
    Let me make one thing perfectly clear. No one believes more 
than I that victims of real malpractice should be compensated 
swiftly and appropriately for their losses. But that is not 
what is going on today. Instead, patients are forced to meander 
through a complicated and exhausting legal system and often are 
awarded damages only after years of legal bickering. Moreover, 
our current medical litigation system resembles a lottery more 
than it does a system of justice. In some cases, juries award 
plaintiffs astounding and unreasonable sums in damages. A 
sizable portion of those awards does not even go to the 
plaintiff. It goes to the attorneys. The result: to pay for 
these awards, insurance premiums go up for all doctors, and in 
some cases insurance becomes completely unavailable. 
Consequently, doctors cannot practice and patients cannot 
obtain the care they desperately need.
    Every American is impacted by frivolous litigation and the 
defensive medicine that results. It is not just the frivolous 
suits that drive up healthcare costs. The unnecessary tests 
doctors feel compelled to perform increase health care costs 
also. A recent study by the Department of Health and Human 
Services indicates that ``Excessive liability . . . adds $30 
billion to $60 billion annually to Federal Government payments 
for Medicare, Medicaid . . . and other government programs.''
    Some will try to point the finger at the insurance 
industry, claiming that the crisis is false or due to 
intentional misconduct on the part of insurers. That, in my 
opinion, is a red herring. There is nothing to suggest that 
states have been remiss in regulating the insurance industry, 
and there are no data to suggest that collusion is the cause of 
rising malpractice insurance rates.
    The National Association of Insurance Commissioners 
concurs, stating in a February 7, 2003 letter that ``[T]he 
evidence points to high loss ratios, not price-fixing, as the 
primary driver of escalating premiums.'' They further state 
that:
    ``Non-profit physician owned mutual insurers have developed 
in response to market availability concerns . . . Careful 
inspection will show that a mutual insurer is concerned with 
its policy holders' interests. Since each policy holder is also 
an owner of the company and the company is a non-profit entity, 
the goal of the mutual insurer is to deliver medical 
malpractice insurance to its policyholder/owners as 
inexpensively as possible. To do otherwise would contradict the 
goals of the mutual and jeopardize its non-profit status.''
    I look forward to today's hearing, and our panel of 
witnesses, in the hope that they will shed some light on these 
issues. It is time to address this crisis head on, and today's 
hearing is a first step in that direction.

                 Prepared Statement of Senator Feingold

    Thank you Mr. Chairman. I want to welcome all of the 
witnesses this afternoon. In particular, I want to welcome 
Linda McDougal from my home state of Wisconsin, who has become 
in a short time one of the best known and most articulate 
advocates for preserving the rights of victims of medical 
malpractice to receive adequate compensation through our legal 
system.
    Ms. McDougal, none of us can ever truly imagine the 
horrible suffering you have endured. All we can do is say that 
we are terribly, terribly sorry that this happened to you and 
that we will do everything we can to prevent similar suffering 
for others who go to their health care providers seeking aid 
and comfort, not pain or disfigurement.
    Mr. Chairman, I hope everyone on these two Senate 
committees, whether they are here or not, will read or listen 
to Linda McDougal's testimony and learn about her experience. 
It is a powerful cautionary note for those of us who are 
charged with developing and voting on legislation concerning 
medical malpractice liability and insurance.
    Can anyone in this room or on these committees look Linda 
McDougal or any of the thousands of victims of catastrophic 
medical malpractice in the eye and say, ``$250,000 is all your 
pain and suffering are worth''? Would any of us be able to tell 
our wives or our daughters that their damages should be limited 
to $250,000 if they were the victims of such unspeakable pain 
and lifelong sadness?
    That is the challenge we face Mr. Chairman. There is no 
question that we have a problem in this country over the cost 
of malpractice insurance. But the solution cannot be to 
penalize innocent victims like Linda McDougal, to prolong and 
extend their suffering by denying them adequate compensation.
    We have virtually no evidence that caps on economic damages 
will actually lower insurance rates. More importantly, I have 
yet to hear an explanation of how this is fair to Linda 
McDougal and others like her.
    I regret that we are pursuing this kind of legislation, but 
I want to sincerely thank you, Ms. McDougal, for the sacrifices 
you have made to share your story with the committee and the 
public. I can only hope that we learn the lessons you are 
trying to teach us.
    Thank you Mr. Chairman.

                   Prepared Statement of Laurie Peel

    Since July, when I was asked to participate in a roundtable 
discussion with the President on malpractice reform, I've heard a lot 
of tragic, really poignant stories on both sides of the issue. My own 
experience may not be tragic, but I think it illustrates the 
difficulties patients across the nation--and especially women--are 
experiencing.
    I live in a community, Raleigh, North Carolina, which enjoys 
healthcare probably as good as, if not better than, any in the Country. 
I, and my family, all have excellent doctors. Yet even in Raleigh, when 
I first had a healthcare crisis, I had a very hard time finding a 
doctor who would take me. And when I was lucky enough to find a great 
one, Dr. John Schmitt, he ultimately was driven out of business by his 
overwhelming frustrations with the crippling cost of malpractice 
insurance. (He now is on faculty at UVA School of Medicine). As he 
explained in a letter to all of his patients in July of 2002, he could 
no longer practice medicine the way he wanted to, and always had. And 
that is frankly, what we should all want from our doctors . . . and 
maybe even demand.
    I first came to Dr. Schmitt under difficult circumstances. I was 
married less than a year and had just moved to Raleigh, and had no Ob/
Gyn there. I was 11 weeks pregnant, experiencing complications--which 
turned out to be a miscarriage--and in need of immediate medical 
attention. As a ``high-risk patient'', though, no Ob/Gyn would take me 
in. When I got to Raleigh I called every practice I could find, and was 
told again and again that the practice was full and wouldn't be taking 
new patients. Fortunately, Dr. Schmitt learned of my plight, called me 
back and took me in.
    I soon discovered he was one of Raleigh's leading Ob/Gyns, yet he 
had all the time in the world for my husband and me. In the five years 
I saw Dr. Schmitt, he helped me through the biggest disappointment in 
my life, my biggest health scare, and finally helped me realize the 
greatest joy of any life. In short, my relationship with Dr. Schmitt 
was everything one could hope for from a doctor. It's also a 
relationship both he and all of his patients would very much like to 
continue. But we can't because of the crippling cost of medical 
liability insurance. What he must pay to protect himself from the 
remote possibility of lawsuits (or at least legitimate ones) has 
prevented Dr. Schmitt from continuing the outstanding practice he had 
made his life's work. And stories like his are, I believe, truly tragic 
for us all.
    Now, I've seen both sides of this issue in a very real and personal 
way. My father is a doctor, as are my brother and his wife. But my 
family has also suffered from medical errors. I don't want--and I don't 
know any doctor who does--to deny victims of medical errors adequate 
redress for their injuries. And certainly my father, brother and every 
doctor I know wants to hold the medical profession to the highest 
possible standards.
    But the way to address malpractice can't be to destroy the 
possibility of good practice--or drive away those doctors, like Dr. 
Schmitt, who do practice to the very best of their abilities. None of 
us can afford that. I don't know the solution, but I do urge you to 
find one. And Mr. Chairman, I very much appreciate that that's what 
you're trying to do.

                  Prepared Statement of Linda McDougal

    First, I want to thank Chairman Gregg, Chairman Hatch, and Senators 
Kennedy and Leahy. I greatly appreciate the opportunity you have given 
me. My name is Linda McDougal and I am a victim of medical malpractice.
    I am 46 years old. I live with my husband and sons in Woodville, a 
small community in northwestern Wisconsin. My husband and I are both 
veterans of the United States Navy. This is my story.
    About 8 months ago, in preparation for my annual physical, I went 
to the hospital for a routine mammogram. I was called back for 
additional testing and had a needle biopsy. Within a day I was told 
that I had breast cancer.
    My world was shattered. My husband and I discussed the treatment 
options and decided on the one that would give me the best chance of 
survival, and maximize my time alive with my family. We made the 
difficult, life-changing decision to undergo what we believed was the 
safest, long-term treatment--a double mastectomy.
    Forty-eight hours after my surgery, the surgeon walked in my room 
and said, ``I have bad news for you. You don't have cancer.''
    I never had cancer. My breasts were needlessly removed. The 
pathologist switched my biopsy slides and paperwork with someone 
else's. Unbelievably, I was given another woman's results.
    I was in shock. My husband was with me in the room and we were 
reduced to tears. Today, I am still in shock. To some extent, it was 
easier to hear from the doctor that I supposedly had cancer, than to 
hear--after both my breasts were taken from me--the fact that I never 
had cancer. How could the doctors have made this awful mistake?
    The medical profession betrayed the trust I had in them.
    It's been very difficult for me to deal with this. My scars are not 
only physical, but emotional. After my breasts were removed, I 
developed raging infections requiring emergency surgery. Because of my 
ongoing infections, I am still unable to have reconstructive surgery. I 
don't know whether I will ever be able to have anything that will ever 
resemble breasts.
    After I came forward publicly with my story, I was told that one of 
the pathologists involved had a ten-year exemplary performance record, 
and that she would not be reprimanded or punished in any way until a 
second ``incident'' occurred. Should someone else have to suffer or 
even die before any kind of disciplinary action is taken?
    While there are no easy answers, apparently now the insurance 
industry is telling Congress it knows exactly how to fix what it 
believes to be the ``problem'' caused by malpractice--by limiting the 
rights of people, like me, who have suffered permanent, life-altering 
injuries.
    Arbitrarily limiting victims' compensation is wrong. Malpractice 
victims that may never be able to work again and may need help for the 
rest of their lives should be fairly compensated for their suffering. 
Without fair compensation, a terrible financial burden is imposed on 
their families.
    Those who would limit compensation for life-altering injuries say 
that malpractice victims still would be compensated for not being able 
to work, meaning, they would be compensated for their economic loss. 
Well, I didn't have any significant economic loss. My lost wages were 
approximately $8,000, and my hospital expenses of approximately $48,000 
were paid for by my health insurer. My disfigurement from medical 
negligence is almost entirely non-economic.
    As you discuss and debate this issue, I urge you to remember that 
no two people, no two injuries, and no two personal situations are 
identical. It is unfair to suggest that all victims should be limited 
to the same one-size-fits-all, arbitrary cap that benefits the 
insurance industry at the expense of patients. Victims deserve to have 
their cases decided by a jury that listens to the facts of a specific 
case and makes a determination of what is fair compensation based on 
the facts of that case.
    Recently, I heard a politician on the news argue in favor of 
limiting patients' compensation. He said insurance companies need the 
predictability of knowing, in advance, the maximum amount they might 
have to pay to injured patients. He said lack of predictability makes 
it hard for insurance companies to run their businesses profitably. 
We'd all like to be able to count on the predictability that this 
politician wants for insurers. But life doesn't work that way. My case 
is a perfect example.
    I could never have predicted or imagined in my worst nightmare that 
I would end up having both my breasts removed needlessly because of a 
medical error. No one plans on being a victim of medical malpractice. 
But it happened, and now, proposals are being discussed that would 
further hurt people like me . . . all for the sake of helping the 
insurance industry.
    I'm not asking for sympathy. What happened to me may happen to you 
or someone you love. When it does, maybe you will understand why I am 
sharing my story. The rights of every injured patient in America are at 
stake. Limiting victims' compensation in malpractice cases puts the 
interests of the insurance industry ahead of patients who have been 
hurt, who have suffered life-altering injuries like loss of limbs, 
blindness, brain damage, infertility or sexual dysfunction, or the loss 
of a child, spouse or parent.
    Instead of taking compensation away from people who have been hurt 
and putting it in the pockets of the insurance industry, we should look 
for ways to improve the quality of health care services in our country 
to reduce preventable medical errors like the one that cost me my 
breasts; part of my sexuality; and part of who I am as a woman.
    Medical malpractice kills as many as 98,000 Americans each year and 
it permanently injures hundreds of thousands of others. We must make 
hospitals, doctors, HMOs, drug companies and health insurers more 
accountable to patients. A good start would be to discipline health 
care providers who repeatedly commit malpractice. We should make the 
track records of individual health care providers available to the 
general public, instead of protecting bad doctors at the expense of 
unknowing patients.
    Limiting victims' compensation will not make health care safer or 
more affordable. All it will do is add to the burden of people whose 
lives have already been shattered by medical errors. Every patient 
should say no to any legislation that does not put patients first. I 
urge you to do the same.
    Thank you for your time and consideration.

                   Prepared Statement of Leanne Dyess

    Chairman Hatch, Chairman Gregg, Senators Leahy and Kennedy, 
distinguished members of the Senate Judiciary and HELP committees, it's 
an honor for me to sit before you this afternoon--to open up my life, 
and the life of my family, in an attempt to demonstrate how medical 
liability costs are hurting people all across America. While others may 
talk in terms of economics and policy, I want to speak from the heart.
    I want to share with you the life my two children and I are now 
forced to live because of a crisis in health care that I believe can be 
fixed. And when I leave and the lights turn off and the television 
cameras go away, I want you--and all America--to know one thing, and 
that is that this crisis is not about insurance. It's not about 
doctors, or hospitals, or even personal injury lawyers. It's a crisis 
about individuals and their access to what I believe is, otherwise, the 
greatest health care in the world.
    Our story began on July 5th of last year, when my husband Tony was 
returning from work in Gulfport, Mississippi. We had started a new 
business. Tony was working hard, as was I. We were doing our best to 
build a life for our children, and their futures were filled with 
promise. Everything looked bright. Then, in an instant, it changed. 
Tony was involved in a single car accident. They suspect he may have 
fallen asleep, though we'll never know.
    What we do know is that after removing him from the car, they 
rushed Tony to Garden Park hospital in Gulfport. He had head injuries 
and required immediate attention. Shortly thereafter, I received the 
telephone call that I pray no other wife will ever have to receive. I 
was informed of the accident and told that the injuries were serious. 
But I cannot describe to you the panic that gave way to hopelessness 
when they somberly said, ``We don't have the specialist necessary to 
take care of him. We need to airlift him to another hospital.''
    I couldn't understand this. Gulfport is one of the fastest growing 
and most prosperous regions of Mississippi. Garden Park is a good 
hospital. Where, I wondered, was the specialist--the specialist who 
could have taken care of my husband?
    Almost six hours passed before Tony was airlifted to the University 
Medical Center--six hours for the damage to his brain to continue 
before they had a specialist capable of putting a shunt into his brain 
to drain the swelling--six unforgettable hours that changed our life.
    Today Tony is permanently brain damaged. He is mentally 
incompetent, unable to care for himself--unable to provide for his 
children--unable to live the vibrant, active and loving life he was 
living only moments before his accident.
    I could share with you the panic of a woman suddenly forced into 
the role of both mother and father to her teenage children--of a woman 
whose life is suddenly caught in limbo, unable to move forward or 
backward. I could tell you about a woman who now had to worry about the 
constant care of her husband, who had to make concessions she thought 
she'd never have to make to be able to pay for his therapy and care. 
But to describe this would be to take us away from the most important 
point and the value of what I learned.
    Senator Hatch, I learned that there was no specialist on staff that 
night in Gulfport because rising medical liability costs had forced 
physicians in that community to abandon their practices. In that area, 
at that time, there was only one doctor who had the expertise to care 
for Tony and he was forced to cover multiple hospitals--stretched thin 
and unable to care for everyone. Another doctor had recently quit his 
practice because his insurance company terminated all of the medical 
liability policies nationwide. That doctor could not obtain affordable 
coverage. He could not practice. And on that hot night in July, my 
husband and our family drew the short straw.
    I have also learned that Mississippi is not unique, that this 
crisis rages in States all across America. It rages in Nevada, where 
young expectant mothers cannot find ob/gyns. It rages in Florida, where 
children cannot find pediatric neurosurgeons. And it rages in 
Pennsylvania, where the elderly who have come to depend on their 
orthopedic surgeons are being told that those trusted doctors are 
moving to States where practicing medicine is affordable and less 
risky.
    The real danger of this crisis is that it is not readily seen. It's 
insidious, like termites in the structure of a home. They get into the 
woodwork, but you cannot see the damage. The walls of the house remain 
beautiful. You don't know what's going on just beneath the surface. At 
least not for a season. Then, one day you go to hang a shelf and the 
whole wall comes down; everything is destroyed. Before July 5th, I was 
like most Americans, completely unaware that just below the surface of 
our nation's health care delivery system, serious damage was being done 
by excessive and frivolous litigation--litigation that was forcing 
liability costs beyond the ability of doctors to pay. I had heard about 
some of the frivolous cases and, of course, the awards that climbed 
into the hundreds of millions of dollars. And like most Americans I 
shook my head and said, ``Someone hit the lottery.''
    But I never asked, ``At what cost?'' I never asked, ``Who has to 
pay for those incredible awards?'' It is a tragedy when a medical 
mistake results in serious injury. But when that injury--often an 
accident or oversight by an otherwise skilled physician--is compounded 
by a lottery-like award, and that award along with others make it too 
expensive to practice medicine, there is a cost. And believe me, it's a 
terrible cost to pay.
    Like most Americans, I did not know the cost. I did not know the 
damage. You see, Senator Hatch, it's not until your spouse needs a 
specialist, or you're the expectant mother who needs an ob/gyn, or it's 
your child who needs a pediatric neurosurgeon, that you realize the 
damage beneath the surface.
    From my perspective, sitting here today, this problem far exceeds 
any other challenge facing America's health care--even the challenge of 
the uninsured. My family had insurance when Tony was injured. We had 
good insurance. What we didn't have was a doctor. And now, no amount of 
money can relieve our pain and suffering. But knowing that others may 
not have to go through what we've gone through, could go a long way 
toward helping us heal.
    Senator Hatch, I know of your efforts to see America through this 
crisis. I know this is important to you, and that it's important to the 
President. I know of the priority Congress and many in the Senate are 
placing upon doing something . . . and doing it now. Today, I pledge to 
you my complete support. It is my prayer that no woman--or anyone 
else--anywhere will ever have to go through what I've gone through, and 
what I continue to go through every day with my two beautiful children 
and a husband I dearly love.

               Prepared Statement Shelby L. Wilbourn, MD.

                   WHO WILL DELIVER AMERICA'S BABIES?

The Impact of Excessive Litigation

    On behalf of the American College of Obstetricians and 
Gynecologists (ACOG), an organization representing more than 45,000 
physicians dedicated to improving the health care of women, I thank 
Chairman Hatch and Chairman Gregg for holding this important hearing to 
examine the medical liability crisis facing this nation. Women across 
America are asking, ``Who will deliver my baby?'' ACOG deeply 
appreciates your leadership and commitment to ending this crisis.
    We urge Congress to pass meaningful medical liability reform, 
patterned on California's MICRA law, and bring an end to the excessive 
litigation restricting women's access to health care.

I. Doctors Help Every Day

    My name is Dr. Shelby L. Wilbourn and I am an Ob/Gyn who recently 
relocated to Belfast, Maine after 12 years of practice in Las Vegas, 
Nevada.
    Every day in America, doctors help millions of mothers, children, 
grandfathers, and sisters live another day, see another birthday, play 
another game. Every day, beautiful newborns go home with their mother. 
Every day, there is another breast cancer survivor or a life saved by a 
highly trained physician.
    Doctors help make miracles happen every day in America. This is 
what makes our American health care system the envy of the entire 
world. And this is what's at stake in this debate about medical 
liability reform.

II. Personal Effects of The Medical Liability Crisis on My Practice

    Liability isn't about fault or bad practice anymore. It's about 
hitting a jackpot. Even the very best Ob/Gyns have been sued, many more 
than once. Even doctors who have never been sued are seeing their 
liability premiums double and triple--not because they're bad doctor, 
but because they practice in a litigation-happy field where everyone is 
fair game.
    Let me cite a perfect example, which demonstrates the imbalance of 
the current tort system. I just recently relocated to Maine after 12 
years of practice in Nevada because of the skyrocketing liability 
insurance premiums in that State. I had a vibrant Ob/Gyn practice, 
taught at the University of Nevada, and served as a member of the board 
of the directors of the Clark County Ob/Gyn Society. The Society worked 
in conjunction with Governor's Task Force on the medical liability 
crisis.
    I left Nevada because the litigation climate had driven the medical 
liability premiums to astronomical heights. In 2002, Las Vegas Ob/Gyns 
paid as much as $141,760, a 49.5 percent increase from 2001. In Clark 
County, there are only 106 Ob/Gyns, private, public, and resident 
practitioners, left to deliver an estimated 23,000 babies in 2003--an 
average of 216 babies per Ob/Gyn. Of these, 80 percent no longer accept 
Medicaid patients because of the threat of litigation coupled with low 
reimbursement.
    Last July, I was privileged to meet with President Bush in North 
Carolina to discuss the medical liability crisis on a national level. 
At that time, I had never been named in a lawsuit, a fact that was made 
known during the roundtable discussion. Within days of my meeting with 
President Bush, a lawsuit was filed against me. In addition, all but 
one of the doctors Governor Guinn named to the Task Force in Nevada had 
lawsuits filed against them within a short period, as well.
    When I left Nevada, my patients, many of whom were with me for 12 
years, were forced to find another Ob/Gyn amongst a dwindling 
populaiton of Ob/Gyns in Las Vegas. This is the real issue. Patients 
around the country are losing access to good doctors and quality health 
care. The end game of the current system is a society without enough 
doctors to care for its citizens. We just cannot let this happen.
    Today, we have heard, or will hear, anecdotes from both sides of 
this debate, all of which support each side's position. However, the 
fact remains clear--there is a medical liability crisis in this nation. 
Who loses in this environment? Women, good doctors, patients, 
communities, businesses, and America.

III. Effects of Excessive Litigation on Women's Health Care: An 
                    Overview

    The number of lawsuits against all physicians has been rising over 
the past 30 years in an increasingly litigious climate, and obstetrics/
gynecology--considered a ``high risk'' specialty by insurers--remains 
at the top of the list of specialties affected by this trend.
    An ailing civil justice system is severely jeopardizing patient 
care for women and their newborns. Across the country, liability 
insurance for obstetrician/gynecologists has become prohibitively 
expensive. Premiums have tripled and quadrupled practically overnight. 
In some areas, Ob/Gyns can no longer obtain liability insurance at all, 
as insurance companies fold or abruptly stop insuring doctors.
    When Ob/Gyns cannot find or afford liability insurance, they are 
forced to stop delivering babies, curtail surgical services, or close 
their doors. The shortage of care affects hospitals, public health 
clinics, and medical facilities in rural areas, inner cities, and 
communities across the country.
    Now, women's health care is in jeopardy for the third time in three 
decades. This crisis will only end if Congress acts. The recurring 
liability crisis involves more than the decisions of individual 
insurance companies. The manner in which our antiquated tort system 
resolves medical liability claims is at the root of the problem.
    A liability system--encompassing both the insurance industry and 
our courts--should equitably spread the insurance risk of providing 
affordable health care for our society. It should fairly compensate 
patients harmed by negligent medical care. It should provide humane, 
no-fault compensation to patients with devastating medical outcomes 
unrelated to negligence--as in the case of newborns born with 
conditions such as cerebral palsy. Our current system fails on all 
counts. It's punitive, expensive, and inequitable for all, jeopardizing 
the availability of care.
    Jury awards, which now soar to astronomical levels, are at the 
heart of the problem. The average liability award increased 97 percent 
between 1996 and 2000, fueled by States with no upper limits on jury 
awards. This ``liability lottery'' is enormously expensive, and 
patients who need, but can't get, health care, pay the price.
    The current liability system encourages attorneys to focus on a few 
claims with exorbitant award potential, ignoring other claims with 
merit. Even then, much of a jury award goes straight into the lawyers' 
pockets; typically, less than half of a medical liability award reaches 
the patient.
    Liability isn't about fault or bad practice anymore. It's about 
hitting a jackpot. Even the very best Ob/Gyns have been sued, many more 
than once. Even doctors who have never been sued are seeing their 
liability premiums double and triple--not because they're bad docs, but 
because they practice in a litigation-happy field where everyone is 
fair game.
    The liability crisis compromises the delivery of health care today. 
A recent Harris survey showed that three-fourths of physicians feel 
their ability to provide quality care has been hurt by concerns over 
liability cases. And, patients understand the problem, too. An April 
2002 survey by the Health Care Liability Alliance found that 78 percent 
of Americans are concerned about the impact of rising liability costs 
on access to care.

IV. Women's Health Consequences of Excessive Litigation

    The medical liability crisis affects every aspect of our nation's 
ability to deliver health care services. As partners in women's health 
care, we urge Congress to end the medical liability insurance crisis. 
Without legislative intervention at the Federal level, women's access 
to health care will continue to suffer.
    Expectant mothers can't find obstetricians to deliver their babies. 
When confronted with substantially higher costs for liability coverage, 
Ob/Gyns and other women's health care professionals stop delivering 
babies, reduce the number they do deliver, and further cut back--or 
eliminate--care for high-risk mothers. With fewer women's health care 
professionals, access to early prenatal care is reduced, depriving 
women of the proven benefits of early intervention.
    Excessive litigation threatens women's access to gynecologic care. 
Ob/Gyns have, until recently, routinely met women's general health care 
needs--including regular screenings for gynecologic cancers, 
hypertension, high cholesterol, diabetes, osteoporosis, and other 
serious health problems. Staggering premiums continue to burden women's 
health care professionals and will further diminish the availability of 
women's care.
    Medical liability is causing a rural health crisis. Women in 
underserved rural areas have historically been particularly hard hit by 
the loss of physicians and other women's health care professionals. 
With the economic viability of delivering babies already marginal due 
to sparse population and low insurance reimbursement for pregnancy 
services, increases in liability insurance costs are forcing rural 
providers to stop delivering babies.
    Community clinics must cutback services, jeopardizing the millions 
of this nation's uninsured patients--the majority of them women and 
children--who rely on community clinics for health care. Unable to 
shift higher insurance costs to their patients, these clinics have no 
alternative but to care for fewer people.
    More women are becoming uninsured. Health care costs continue to 
increase overall, including the cost of private health care coverage. 
As costs escalate, employers will be discouraged from offering 
benefits. Many women who would lose their coverage, including a large 
number of single working mothers, would not be eligible for Medicaid or 
SCHIP because their incomes are above the eligibility levels. In 2001, 
11.7 million women of childbearing age were uninsured. Without reform, 
even more women ages 19 to 44 will move into the ranks of the 
uninsured. If fewer doctors are available to deliver babies, the crisis 
becomes even more acute.

V. How Excessive Litigation Compromises the Delivery of Obstetric Care

    Obstetrics-gynecology is among the top three specialties in the 
cost of professional liability insurance premiums. Nationally, 
insurance premiums for Ob/Gyns have increased dramatically: the median 
premium increased 167 percent between 1982 and 1998. The median rate 
rose 7 percent in 2000, 12.5 percent in 2001, and 15.3 percent in 2002 
with increases as high as 69 percent, according to a survey by Medical 
Liability Monitor, a newsletter covering the liability insurance 
industry.
    A number of insurers are abandoning coverage of doctors altogether. 
The St. Paul Companies, Inc., which handled 10 percent of the physician 
liability market, withdrew from that market last year. One insurance 
ratings firm reported that five medical liability insurers failed in 
2001. One-fourth of the remaining insurers were rated D+ or lower, an 
indicator of serious financial problems.
    According to Physicians Insurance Association of America, Ob/Gyns 
were first among 28 specialty groups in the number of claims filed 
against them in 2000. Ob/gyns were the highest of all specialty groups 
in the average cost of defending against a claim in 2000, at a cost of 
$34,308. In the 1990s, they were first--along with family physicians-
general practitioners--in the percentage of claims against them closed 
with a payout (36 percent). They were second, after neurologists, in 
the average claim payment made during that period ($235,059).
    Although the number of claims filed against all physicians climbed 
in recent decades, the phenomenon does not reflect an increased rate of 
medical negligence. In fact, Ob/Gyns win most of the claims filed 
against them. A 1999 ACOG survey of our membership found that over one-
half (53.9 percent) of claims against Ob/Gyns were dropped by 
plaintiff's attorneys, dismissed or settled without a payment. Of cases 
that did proceed, Ob/Gyns won more than 65 percent of the cases 
resolved by court verdict, arbitration, or mediation, meaning only 10 
percent of all cases filed against Ob/Gyns were found in favor of the 
plaintiff. Enormous resources are spent to deal with these claims, only 
10 percent of which are found to have merit. The costs to defend these 
claims can be staggering and often mean that physicians invest less in 
new technologies that help patients.
    When a jury does grant an award, it can be exorbitant, particularly 
in States with no upper limit on awards. Jury awards in all civil cases 
averaged $3.49 million in 1999, up 79 percent from 1993 awards, 
according to Jury Verdict Research of Horsham, Pennsylvania. The median 
medical liability award jumped 43 percent in one year, from $700,000 in 
1999, to $1 million in 2000: it has doubled since 1995.
    Ob/gyns are particularly vulnerable to this trend, because of jury 
awards in birth-related cases involving poor medical outcomes. The 
average jury award in cases of neurologically impaired infants, which 
account for 30 percent of the claims against obstetricians, is nearly 
$1 million, but can soar much higher. One recent award in a 
Philadelphia case reached $100 million. This in spite of the fact that 
fewer than 10 percent of these cases are found to result from 
intrapartum hypoxia.
    We survey our members regularly on the issue of medical 
professional liability. According to our most recent survey, the 
typical Ob/Gyn is 47 years old, has been in practice for over 15 
years--and can expect to be sued 2.53 times over his or her career. 
Over one-fourth (27.8 percent) of ACOG Fellows have even been sued for 
care provided during their residency. In 1999, 76.5 percent of ACOG 
Fellows reported they had been sued at least once so far in their 
career. The average claim takes over four years to resolve.
    This high rate of suits does not equate malpractice. Rather, it 
demonstrates a lawsuit culture where doctors are held responsible for 
less than perfect outcome. And in obstetrics/gynecology, there is no 
guarantee of a perfect outcome, no matter how perfect the prenatal care 
and delivery.

VI. There Is a Solution

    On February 5, 2003, the House of Representatives took an important 
first step in ending this crisis when Representative Greenwood, 
Majority Whip Delay, and Judiciary Committee Chairman Sensenbrenner 
introduced H.R. 5, the HEALTH Act of 2003. ACOG resoundingly supports 
H.R. 5, important legislation protecting women's access to health care. 
This legislation is supported by a broad coalition of physicians, 
health insurers, and businesses.
    H.R. 5 caps non-economic damages at $250,000, while still allowing 
patients full and complete access to the courts. The HEALTH Act 
safeguards patients' access to health care with common sense measures:
     Allows Complete Recovery of All Economic Damages, 
Including Current and Future Lost Wages
     Promotes Speedy Resolution of Claims
     Fairly Allocates Responsibility
     Compensates Patient Injury
     Maximizes Patient Recovery
     Ensures Payment of Medical Expenses
     Allows State Flexibility on Non-Economic Damages Caps
    H.R. 5 allows for the complete recovery of a person's economic 
damages, including compensation for medical and rehabilitation costs, 
current and future ``lost'' wages, and other economic loss. H.R. 5 is 
fair for everyone. H.R. 5 will restore the balance in the health care 
system that has been hijacked by trial lawyers and merit-less lawsuits.

VII. Women's Health Suffers Nationwide

    As Ob/Gyns, our primary concern is ensuring women access to 
affordable, quality health care. It is critical that we maintain the 
highest standard of care for America's women and mothers. In 2002, ACOG 
has identified a medical liability crisis in the following nine ``Red 
Alert States": Florida, Mississippi, Nevada, New Jersey, New York, 
Pennsylvania, Texas, Washington, and West Virginia. In three other 
States--Ohio, Oregon, and Virginia--a crisis is brewing, while four 
other States--Connecticut, Illinois, Kentucky and Missouri--should be 
watched for mounting problems.
    In identifying these States, the College considered a number of 
factors in the escalating medical liability insurance crisis for Ob/
Gyns. The relative weight of each factor could vary by State. Factors 
included: the lack of available professional liability coverage for Ob/
Gyns in the State; the number of carriers currently writing policies in 
the State, as well as the number leaving the medical liability 
insurance market; the cost, and rate of increase, of annual premiums 
based on reports from industry monitors; a combination of geographical, 
economic, and other conditions exacerbating an already existing 
shortage of Ob/Gyns and other physicians; the State's tort reform 
history, and whether tort reforms have been passed by the State 
legislature--or are likely to be in the future--and subsequently upheld 
by the State high court.
A. Florida
     According to First Professionals Insurance Company, Inc., 
Florida's largest medical liability insurer, one out of every six 
doctors is sued in the State as compared to one out of every 12 doctors 
nationwide.
     In Dade and Broward counties in South Florida, where 
insurers say litigation is the heaviest, annual premiums for Ob/Gyns 
soared to $210,576--the highest rates in the country, according to 
Medical Liability Monitor.
     In a recent ACOG survey, 76.3 percent of the Florida Ob/
Gyns who responded to the survey indicated that they had made some 
change to their practice such as retire, relocate, decrease gynecologic 
surgical procedures, no longer perform major gynecologic surgery, 
decrease the number of deliveries and amount of high-risk obstetric 
care. 21.69 percent of Florida respondents indicated that they have 
stopped practicing obstetrics due to the unavailability and 
unaffordability of liability insurance.
     The liability situation is so severe the State allows 
doctors to ``go bare'' (not have liability coverage), as long as they 
can post bond or prove ability to pay a judgment of up to $250,000.
     Double- and triple-digit premium increases have forced 
some doctors to cut back on staff, while others have left the State or 
have stopped performing high-risk procedures. Ob/gyns in this State are 
more likely to no longer practice obstetrics.
     Florida already has some tort-reform laws aimed at 
protecting doctors. But more recent Florida Supreme Court rulings have 
weakened such laws, causing the number of lawsuits to climb again. Now 
Florida is one of at least a dozen States contemplating another round 
of legislation.
B. Mississippi
     According to the Mississippi State Medical Association, 
medical liability insurance rates for doctors who deliver babies rose 
20 percent to 400 percent in 2002, for various carriers. Annual 
premiums range from $40,000 to $110,000.
     The Delta Democrat Times reported that from 1999 to 2000, 
the number of liability lawsuits faced by Mississippi physicians 
increased 24 percent, with an additional 23 percent increase in the 
first five months of 2001.
     According to the Delta Democrat Times, 324 Mississippi 
physicians have stopped delivering babies in the last decade. Only 10 
percent of family physicians deliver babies.
     In a recent ACOG survey, 66.7 percent of the Mississippi 
Ob/Gyns who responded to the survey indicated that they had made some 
change to their practice such as retire, relocate, decrease gynecologic 
surgical procedures, no longer perform major gynecologic surgery, 
decrease the number of deliveries and amount of high-risk obstetric 
care. 12.82 percent of Mississippi respondents have stopped practicing 
obstetrics.
     In Cleveland, Mississippi, three of the six doctors who 
deliver babies dropped obstetrics in October 2001 because of the 
increase in premiums.
     In Greenwood, Mississippi, where approximately 1,000 
babies are born every year, the number of obstetricians has dropped 
from four to two. The two remaining obstetricians are each limited by 
their insurance carriers to delivering 250 babies per year, leaving 
approximately 500 pregnant women searching for maternity care, reports 
the Mississippi Business Journal.
     Yazoo City, Mississippi, with 14,550 residents, has no 
obstetrician.
     A Grenada, Mississippi Ob/Gyn will not take any obstetric 
patients with a due date after June 15, 2003, leaving two Ob/Gyns to 
deliver approximately 700 babies a year.
     Natchez, Mississippi, which serves a 6-county population 
of over 100,000, has only three physicians practicing obstetrics.
     Days before HB2 (legislation aimed at reducing liability 
insurance costs and improving access to health care) took effect, there 
was a rush of medical liability lawsuits filed in Mississippi. State 
Insurance Commissioner George Dale said these claims will be in the 
system for a long time and the market for medical liability insurance 
is not likely to get better any time soon.
     The State's major insurer of hospitals, Reciprocal of 
America, is facing financial difficulties and recently asked 
participants to pay $30 million to help keep it afloat, according to 
the State insurance commissioner's office.
C. Nevada
     In December 2001, The St. Paul Companies, Inc., the 
nation's second largest medical liability insurer, announced it would 
no longer renew policies for 42,000 doctors nationwide--including the 
60 percent of Las Vegas doctors who were insured by St. Paul. 
Replacement policies are costing some Nevada doctors four or five times 
as much as before: $200,000 or higher annually, more than most doctors' 
take-home pay, the Los Angeles Times reports.
     In Las Vegas, Ob/Gyns paid premiums as high as $141,760, a 
49.5 percent increase from 2001.
     In the ACOG survey, 86.2 percent of the Nevada Ob/Gyns who 
responded to the survey indicated that they had made some change to 
their practice such as retire, relocate, decrease gynecologic surgical 
procedures, no longer perform major gynecologic surgery, decrease the 
number of deliveries and amount of high-risk obstetric care. 27.59 
percent of Nevada respondents stopped practicing obstetrics.
     As of October 2002, according to Clark County OB/GYN 
Society, only 80 private practice physicians, 14 HMO physicians, and 12 
residents are doing deliveries, totaling 106 doctors. With an estimated 
23,000 deliveries expected in Nevada in 2003, each physician will have 
to deliver 216 babies.
     According to a March article in the Las Vegas Review-
Journal, many Las Vegas Valley doctors say they will be forced to quit 
their practices, relocate, retire early or limit their services if they 
cannot find more affordable rates of professional liability insurance 
by early summer.
     According to the Nevada State Medical Association, between 
200 and 250 physicians will face bankruptcy, close their offices, or 
leave Nevada this year.
     In February 2002, the Las Vegas Sun reported that medical 
liability cases in Clark County had more than doubled in the past six 
years. In that period, plaintiffs' awards in the county totaled more 
than $21 million.
     USA Today reports that in the past two years, Nevada 
juries have awarded more than $1.5 million each in six different 
medical liability trials.
     Recruiting doctors to Las Vegas is extremely difficult 
because of escalating medical liability premiums and litigiousness. 
Nevada currently ranks 47th in the nation for its ratio of 196 doctors 
per 100,000 population. The State's medical school produces just 50 
physicians a year.
     In August 2002, the Nevada Legislature met in Special 
Session and passed tort reform--AB 1. AB 1 included a partial cap on 
awards for non-economic damages and a total cap on trauma liability. 
There has been no significant improvement in the availability of 
affordable medical liability coverage, according to a September 2002 
statement by the Nevada State Medical Association. Most carriers have 
continued to request and receive approval to raise rates.
     The Nevada tort reform legislation went into effect in 
January 2003. In December 2002, the frequency of lawsuits filed against 
health care providers skyrocketed with 170 suits filed in December 2002 
(as compared to 8 suits field in 2001).
D. New Jersey
     In the ACOG survey, 75.6 percent of the New Jersey Ob/Gyns 
who responded to the survey indicated that they had made some change to 
their practice such as retire, relocate, decrease gynecologic surgical 
procedures, no longer perform major gynecologic surgery, decrease the 
number of deliveries and amount of high-risk obstetric care. 19 percent 
of New Jersey respondents have stopped practicing obstetrics.
     In February 2002, the Newark Star-Ledger reported that 
three medical liability insurance companies went bankrupt or announced 
they would stop insuring New Jersey physicians in 2002 for financial 
reasons. The State's two largest remaining are rejecting doctors they 
deem high risk.
     MBS Insurance Services of Denville, one of New Jersey's 
largest medical liability insurance brokers, estimates that 
approximately 300 to 400 of the State's doctors cannot get insurance at 
any price.
     According to the Medical Society of New Jersey, premiums 
have risen 50 percent to 200 percent over last year.
     According to the Star-Ledger, ``An obstetrician with a 
good history--maybe just one dismissed lawsuit--can expect to pay about 
$45,000 for $1 million in coverage. Rates rise if the physician faces 
several lawsuits, regardless of whether the physician has been found 
liable in those cases.''
     The president of the New Jersey Hospital Association says 
that rising medical liability premiums are a ``wake-up call'' that the 
State may lose doctors. Hospital premiums have risen 250 percent over 
the last three years, and 65 percent of facilities report that they are 
losing physicians due to liability insurance costs.
E. New York
     New York State faces a shortage of obstetric care in many 
rural regions. Increasing liability insurance costs will only 
exacerbate these access problems.
     In the ACOG survey, 67 percent of the New York Ob/Gyns who 
responded to the survey indicated that they had made some change to 
their practice such as retire, relocate, decrease gynecologic surgical 
procedures, no longer perform major gynecologic surgery, decrease the 
number of deliveries and amount of high-risk obstetric care. 19.28 
percent of New York respondents have stopped practicing obstetrics.
     In 2002, an Ob/Gyn practicing in New York could pay as 
much as $115,500 for medical liability insurance, according to Medical 
Liability Monitor.
     In 2000, there was a total of $633 million in medical 
liability payouts in New York State, far and away the highest in the 
country, and 80 percent more than the State with the second highest 
total.
     Increased insurance rates have forced some physicians in 
New York to ``quit practicing or to practice medicine defensively, by 
ordering extra tests or procedures that limit their risk,'' according 
to a recent New York Times report.
     Physician medical liability insurance costs have 
historically been a problem in New York State. The legislature and 
governor had to take significant action in the mid-1970s and again in 
the mid-1980s to avert a liability insurance crisis that would have 
jeopardized access to care for patients.
F. Pennsylvania
     In the ACOG survey, 77.4 percent of the Pennsylvania Ob/
Gyns who responded to the survey indicated that they had made some 
change to their practice such as retire, relocate, decrease gynecologic 
surgical procedures, no longer perform major gynecologic surgery, 
decrease the number of deliveries and amount of high-risk obstetric 
care. 21.61 percent of Pennsylvania respondents have stopped practicing 
obstetrics.
     Pennsylvania is the second-highest State in the country 
for total payouts for medical liability. During the fiscal year 2000, 
combined judgments and settlements in Pennsylvania amounted to $352 
million--or nearly 10 percent of the national total.
     From the beginning of 1997 through September 2001, major 
liability insurance carriers writing in Pennsylvania increased their 
overall rates 80.7 percent to 147.8 percent, according to a January 
2002 York Daily Record article.
     Philadelphia and the counties surrounding it are hardest 
hit by the liability crisis. From January 1994 through August 2001, the 
median jury award in Philadelphia for a medical liability case was 
$972,900. For the rest of the State, including Pittsburgh, the median 
was $410,000.
     One-quarter of respondents to an informal ACOG poll of 
Pennsylvania Ob/Gyns say they have stopped or are planning to stop the 
practice of obstetrics. 80 percent of medical students who come to the 
State for a world-class education choose to practice elsewhere, 
according to the Pennsylvania State Medical Society.
     On April 24, 2002, Methodist Hospital in South 
Philadelphia announced that it would stop delivering babies due to the 
rising costs of medical liability insurance. The labor and delivery 
ward closed on June 30, leaving that area of the city without a 
maternity ward. Methodist Hospital has been delivering babies since its 
founding in 1892.
     Some tort reform measures passed the State legislature 
(House Bill 1802) in 2002. However, the law did not include: caps on 
jury awards; sanctions on frivolous suits; changes in joint and several 
liability; limits on lawyers' fees; or a guarantee that a larger share 
of jury awards will go to injured plaintiffs.
     The rules for venue of court cases in Pennsylvania are 
very liberal. Recently approved measures only appoint a committee to 
study venue shopping, but do not limit the practice.
     Since HB 1802 passed, experts predict a 15 percent to 20 
percent overall reduction in doctors' liability premiums. But with the 
50 percent to 100 percent premium increases of the last two years, 
medical officials believe the bill is not enough to stop physicians 
from leaving practice or to attract new physicians. Nor do they believe 
new insurers will begin writing policies in Pennsylvania.
G. Texas
     In the ACOG survey, 67.5 percent of the Texas Ob/Gyns who 
responded to the survey indicated that they had made some change to 
their practice such as retire, relocate, decrease gynecologic surgical 
procedures, no longer perform major gynecologic surgery, decrease the 
number of deliveries and amount of high-risk obstetric care. 13.79 
percent of Texas respondents have stopped practicing obstetrics.
     Preliminary results of a recent Texas Medical Association 
physician survey indicate that:
     More than half of all Texas physicians responding, 
including those in the prime of their careers, are considering early 
retirement because of the State's medical liability insurance crisis.
     Nearly a third of the responding physicians said they are 
considering reducing the types of services they provide.
     Medical liability insurance premiums for 2002 were 
expected to increase from 30 percent to 200 percent, according to the 
Texas Medical Association. In 2001, Ob/Gyns in Dallas, Houston, and 
Galveston paid medical liability insurance premiums in the range of 
$70,00 to $160,000.
     The Abilene Reporter News reported on October 13, 2002, 
that the obstetrics unit at Spring Branch Medical Center is set to 
close December 20, 2002. The hospital's $600,000 premium for labor and 
delivery liability was set to increase by 67 percent next year. In 
2001, 1,003 babies were born at Spring Branch Medical Center.
     According to Governor Rick Perry's office, between 1996 
and 2000 one in four Texas physicians had a medical liability claim 
filed against them. In the Lower Rio Grande Valley, the situation is 
even worse. In 2002, Valley Ob/Gyns paid liability insurance premiums 
up to $97,830, a 34.5 percent increase from 2001.
     According to a February 2001 Texas Medical Association 
survey, one in three Valley doctors say their insurance providers have 
stopped writing liability insurance.
     In 2000, 51.7 percent of all Texas physicians had claims 
filed against them, according to the Texas Medical Examiners Board. 
Patients filed 4,501 claims, up 51 percent from 1990.
     As many as 86 percent of medical liability claims filed in 
Texas are dismissed or dropped without payment to the patient. Yet 
providers and insurance companies must still spend millions of dollars 
in defense, even against baseless claims.
     According to a Texas Medical Association study, the amount 
paid per claim in 2000 was $189,849 (average for all physicians), a 6 
percent increase in one year.
     Texas has no limits on non-economic damages in medical 
liability cases, although the legislature enacted such limits in the 
1970s as part of a comprehensive set of reforms. The Texas Supreme 
Court later rejected them in the 1980s.
     Texas has procedures in place to screen lawsuits for merit 
and to sanction lawyers who file frivolous suits, but these are not 
enforced uniformly across the State, according to an April 2002 news 
release issued by Governor Rick Perry.
     Only about 30 percent of the medical liability insurance 
market is served by insurance companies that are regulated by the Texas 
State Department of Insurance and subject to rate review laws, 
according to Governor Perry's office.
H. Washington
     According to Medical Liability Monitor, in late 2001 the 
second largest carrier in Washington State announced that it was 
withdrawing from providing medical liability insurance for Washington 
physicians. This decision by Washington Casualty Company impacted 
approximately 1,500 physicians.
     In 2001, State Ob/Gyns paid medical liability insurance 
premiums in the range of $34,000 to $59,000. For many physicians, this 
meant an increase of 55 percent or higher from the year 2000.
     In the ACOG survey, 57.2 percent of the Washington Ob/Gyns 
who responded to the survey indicated that they had made some change to 
their practice such as retire, relocate, decrease gynecologic surgical 
procedures, no longer perform major gynecologic surgery, decrease the 
number of deliveries and amount of high-risk obstetric care. 15.06 
percent of Washington respondents have stopped practicing obstetrics.
     According to the Pierce County Medical Society, some 
Tacoma specialists reported 300 percent increases.
     Unlike California, Washington has no cap on non-economic 
damages in medical liability cases. The State Supreme Court found a 
previous cap unconstitutional in 1989.
     In April, The Olympian reported that Washington State 
Insurance Commissioner's office heard from physicians throughout the 
State that they may be forced out of Washington because of high medical 
liability rates or the lack of available insurance.
I. West Virginia
     There are only three carriers in the State--including the 
State-run West Virginia Board of Risk and Insurance Management--
currently writing medical liability policies for doctors. Annual 
premiums range from $90,700 to $99,800.
     In the ACOG survey, 82.2 percent of the West Virginia Ob/
Gyns who responded to the survey indicated that they had made some 
change to their practice such as retire, relocate, decrease gynecologic 
surgical procedures, no longer perform major gynecologic surgery, 
decrease the number of deliveries and amount of high-risk obstetric 
care. 23.66 percent of West Virginia respondents stopped practicing 
obstetrics.
     In 2000, many physicians had problems affording or finding 
insurance. This urgency prompted Governor Bob Wise to issue a request 
for proposals to commercial insurance carriers asking them to provide 
terms under which they would be willing to come to the State. The 
governor's office received no response at all. To date, some carriers 
previously active in West Virginia are under an indefinite, self-
imposed moratorium for new business in the State, according to the West 
Virginia State Medical Society.
     Legislation eked out during a grueling special session in 
the fall of 2001 reestablished a State-run insurer of last resort. 
However, with rates 10 percent higher than the highest commercial rate, 
and an additional 50 percent higher for physicians considered high 
risk, the State-run insurer does not solve the affordability problem, 
according to Ob/Gyns in the State.
     According to an informal survey of ACOG's West Virginia 
section, more than half of all Ob/Gyn residents plan to leave the State 
once they have completed training because of the State's medical 
liability insurance climate. A majority of private practitioners who 
provide obstetric care plan to leave the State if there is not 
improvement in the insurance crisis.
     West Virginia cannot afford to lose more doctors. The West 
Virginia State Medical Society reports that a majority of the State is 
officially designated by the Federal government as a health 
professional shortage area and medically underserved.

VIII. Conclusion

    Thank you Senator Hatch, Senator Gregg for your leadership on this 
important issue and for the Committees' attention to this crisis. ACOG 
appreciates the opportunity to present our concerns for the Committees' 
consideration. The College looks forward to working with you as we push 
for Federal liability reform.

                    Prepared Statement of Jay Angoff

    Mr. Chairman and Members of the Committee: My name is Jay Angoff 
and I am a lawyer from Jefferson City, Missouri, and a former insurance 
commissioner of Missouri and deputy insurance commissioner of New 
Jersey. I appreciate the opportunity to testify here today.

                               BACKGROUND

    Today's medical malpractice insurance crisis is the third such 
crisis in the last thirty years. The first was in the mid 1970's, and 
the second was in the mid 1980's. Some States enacted limits on 
liability--so-called ``tort reform''--in response to one or both of 
those previous crises. But whether or not a State enacted such 
limitations, malpractice rates rose during the mid-80's, fell during 
the 90's, and are rising sharply today. The tort system therefore can 
not be the cause of these periodic insurance crises, and thus enacting 
tort reform can not reasonably be expected to avert future insurance 
crises.
    For example, during my 1993-98 tenure as insurance commissioner of 
Missouri, both the number of medical malpractice claims filed and the 
number of medical malpractice claims paid out decreased: according to 
the data the medical malpractice insurance companies filed with our 
department, the number of new medical malpractice claims reported 
decreased from 2,037 in 1993 to 1,679 in 1998, and the number of 
medical malpractice claims paid out decreased from 559 in 1993 to 496 
in 1998. (See Exhibits 1 and 2.) As might reasonably be expected, 
medical malpractice insurance rates in Missouri decreased during that 
time.
    After I left the insurance department, the number of malpractice 
claims paid continued to decrease: from 496 in 1998 to 439 in 2001. And 
the number of malpractice claims filed decreased even more 
dramatically: from 1,679 in 1998 to 1,226 in 2001. Moreover, the 
average payment per claim rose by less than 5 percent--from $161,038 to 
$168,859--far less than either general or medical inflation.
    Unexpectedly, however, malpractice insurance rates rose sharply 
last year in Missouri--by an average of almost 100 percent in little 
over a year, according to a Missouri State Medical Society survey--just 
as they did in the rest of the country, and just as they did in 1986 
and 1975. Insurance rates going up while insurance claims are going 
down--and Missouri is just one of many States where this phenomenon is 
occurring--doesn't seem to make sense. But it does make sense, for four 
reasons.

                       CAUSES OF INSURANCE CRISES

    First, malpractice insurers make money not by taking in more in 
premiums than they pay out in claims, but by investing the premiums 
they take in until they pay the claims covered by those premiums. 
Investment income is particularly important for malpractice insurers 
because they invest their premiums for about six years, since they 
don't pay malpractice claims until about six years after they have 
occurred; insurers pay other types of insurance claims much more 
quickly. When either interest rates are high or the stock market is 
rising, a malpractice insurer's investment income more than makes up 
for any difference between its premiums and its payouts. Today, on the 
other hand, stocks have crashed and interest rates are near 40-year 
lows. The drop in insurers' investment income today can therefore dwarf 
the decrease in their claims payments, and thus create pressure to 
raise rates even though claims are going down.
    Second, just as people buy insurance to insure themselves against 
risks that they can't afford to pay for or choose not to pay for 
themselves, insurance companies buy insurance--called re-insurance--for 
the same reason. For example, an insurer might buy reinsurance to pay 
an individual claim to the extent it exceeds a certain amount, or to 
pay all the insurer's claims after its total claims exceed a certain 
amount. The re-insurance market is an international market, affected by 
international events, and the cost of re-insurance for commercial lines 
was already increasing prior to the terrorist attacks. After those 
attacks, not surprisingly, it increased far more, due to fears related 
to terrorism (and completely unrelated to medical malpractice).
    Third, insurance companies use a unique accounting system--called 
statutory accounting principals, or SAP--rather than the generally 
accepted accounting principles (GAAP) used by most other companies. 
Under this system, insurers increase their rates based on what their 
``incurred losses'' are. ``Incurred losses'' for a given year, however, 
are not the amount insurance companies have paid out in that year--
although that would be its non-insurance, common-sense meaning--but 
rather are the amount the insurer projects it will pay out in the 
future on policies in effect in that year. These projections are, by 
definition, a guess, under the best of circumstances, i.e., under the 
assumption that an insurer has no business reason to either overstate 
or understate them.
    Insurers do, however, have reasons for inflating or understating 
their estimates of ``incurred losses.'' Insurance companies who are 
thinly capitalized--who have very little cushion, called ``surplus'' in 
the insurance industry, beyond the amount they estimate they must pay 
out in claims--will often understate their ``incurred losses'' on the 
reports they file with insurance departments so that they can show a 
higher surplus on those reports. (It's the job of insurance department 
auditors to ferret out insurers who are doing this.)
    At other times, however--like today--insurers overstate their 
incurred losses to justify a rate increase. In addition, because 
increasing their ``incurred losses'' lowers their income, they also 
have tax reasons for inflating those estimates. Today, insurers' 
incurred loss estimates have increased dramatically because they are 
seeking to recoup the money they have lost on investments--not because 
the amount they have actually paid out in the past has risen 
substantially (to the contrary, in Missouri it has actually decreased). 
When it becomes apparent that the insurers' current loss estimates are 
too high, insurers will be able to use the amount they estimated they 
would pay out but did not in fact pay out to reduce premiums or 
increase profits, or both. This is one reason premiums fell during the 
1990's: the ``incurred loss'' estimates insurers made in the mid-1980's 
to justify their rate increases during the 1985-86 insurance crisis 
turned out to be wildly inflated, enabling insurers to use the 
difference between what they estimated they would pay out and what they 
actually ended up paying out to both reduce premiums and increase their 
profits in the 1990's. These same phenomena will inevitably occur after 
this insurance crisis.
    The final factor contributing to periodic spikes in insurance rates 
is the insurance industry's exemption from the antitrust laws under the 
McCarran-Ferguson Act. Unlike virtually all other major industries, 
insurance companies may agree among themselves to raise prices or 
restrict coverage, as well as to engage in other anti-competitive 
activities, with the exception of boycotts, that would otherwise 
violate the antitrust laws. When times are good--i.e., when investment 
income is high--the industry's antitrust exemption would seem to be 
irrelevant. Far from raising prices in concert, insurance companies 
compete for market share by cutting price. When times are bad, 
however--and they could hardly be worse than they are today, when both 
the stock market and the bond market are producing low or negative 
returns--the antitrust exemption for the insurance industry allows 
insurers to collectively raise their prices without fear of 
prosecution. In other industries, fear of such prosecution prevents 
such collective increases.
    The extent to which insurers today are acting in concert to raise 
price has not yet been determined. Evidence from the mid-1980's 
insurance crisis, however, supports the conclusion that insurance 
companies both have collectively raised prices and have used such 
collective increases to pressure legislators to enact tort reform. For 
example:
     In December 1984 the Insurance Information launched an 
advertising campaign which it characterized as an ``effort to market 
the idea that there is something wrong with the civil justice system in 
the United States.'' Maher, I.I.I. Launches New Ad Campaign, National 
Underwriter, Dec. 21, 1984, at 2.
     In June 1985 former GEICO Chairman John Byrne told the 
Casualty Actuaries of New York that they should quit covering doctors, 
chemical manufacturers, and corporate officers and directors since ``it 
is right for the industry to withdraw and let the pressure for reform 
build in the courts and in the State legislatures.'' Journal of 
Commerce, June 18, 1985, at 10A.
     In November 1985, the Insurance Information Institute sent 
a kit on the ``civil justice crisis'' to insurance executives and 
agents urging them to tell their policyholders and the media that 
``insurers have no recourse but to cut back on liability insurance 
until improvements in the civil justice system will create a fairer 
distribution of liability, reduce the number of lawsuits, and create a 
climate in which insurance can operate more predictably.''
     The famous Time Magazine cover story announcing the 
arrival of the insurance crisis appeared in January 1986.
    Because of McCarran-Ferguson courts have also consistently been 
forced to dismiss cases involving either price-fixing among insurers or 
any other type of collusion falling short of a complete refusal to deal 
on any terms. See, e.g., Ohio AFL-CIO v. Insurance Rating Board, 451 
F.2d 1178 (6th Cir. 1971); Fleming v. Travelers Indem. Co., 324 F.Supp. 
(D. Mass. 1971). And while the attorneys general of 19 States 
challenged certain insurer activity under the boycott exception to 
McCarran in the aftermath of the last insurance crisis, they did not 
challenge the recommending of rates by the Insurance Services Office 
(ISO), an insurance industry consortium. The attorneys general 
explained that ``the rate-recommendation function of ISO, although 
anticompetitive and illegal in any other industry, is not a part of the 
Attorneys Generals' cases because the insurance industry has a special 
exemption from the antitrust laws that covers this conduct.'' Office of 
the Attorney General of West Virginia, Fact Sheet on the Multi-State 
Prosecution of Antitrust Violations in the Insurance Industry, March 
22, 1988, at 7. Whether any anti-competitive activity that insurers may 
currently be engaging in is immune from prosecution under McCarran or 
actionable under the boycott exception to McCarran will likely be 
determined in the aftermath of the current crisis.

                 HOW TO PREVENT FUTURE INSURANCE CRISES

    What, then, can be done to reduce medical malpractice insurance 
rates in the short run, and to prevent periodic medical malpractice 
insurance crises from occurring in the future just as they have 
occurred in the past? First, Congress should repeal the McCarran 
antitrust exemption, so that insurers could no longer act in concert to 
raise prices without fear. A second solution is to give doctors 
automatic standing to challenge rate increase proposals filed by 
medical malpractice insurers with State insurance departments. Some 
malpractice insurers are today owned by doctors, and many doctors have 
the quaint idea that those doctor-owned insurers are somehow different 
than other insurers. When doctors own insurance companies, however, 
they act like insurance executives, not doctors; and they are just as 
affected by poor investment performance and high reinsurance costs as 
are other insurers, and just as likely to inflate their incurred loss 
estimates and take advantage of their antitrust exemption as are other 
insurers. By hiring an independent actuary at a cost of a few thousand 
dollars to point out the unreasonableness or irrationality of an 
insurer's ``incurred loss'' estimate on which its rate increase request 
is based, a State medical association could save its members hundreds 
of thousands or even millions of dollars in the aggregate.
    Third, the States could change their laws to make it easier for 
insurance commissioners to prevent excessive rate increases. In many 
States, for example, medical malpractice insurers can raise their rates 
at will, without getting approval of the insurance commissioner. In 
other States the insurance commissioner may disapprove a rate only if 
he first finds that the market is not competitive; by the time the 
commissioner makes such a finding, however, the damage has already been 
done.
    Fourth, States can authorize and provide start-up loans for new 
malpractice insurers which would compete with the established insurers. 
In Missouri, the legislature created such a company to write workers 
compensation insurance in 1993, when workers comp rates were increasing 
dramatically even though workers comp claims were not, and that company 
has been a success: it charged rates that were based on experience 
rather than inflated ``incurred loss'' estimates, which forced the 
other insurers to do the same; it paid back its loan from the State 
well ahead of schedule; and it now is a significant player in the 
workers comp market. The key to its success is the fact that it 
competed with the established insurers for all risks, including the 
most profitable; the established carriers had sought to limit its 
mission to insuring only the worst risks. If a State establishes a new 
medical malpractice carrier and authorizes it to compete with the 
established carriers for all doctors' business then that insurer should 
help drive medical malpractice rates down just as the Missouri State-
authorized workers comp insurer has helped drive workers comp rates 
down.
    Finally, there is the California 20 percent solution. In 1988, 
California voters narrowly approved a ballot initiative, Proposition 
103, which not only repealed California's antitrust exemption for 
insurance companies and gave both doctors and consumers automatic 
standing to challenge insurers' proposed rate increases, but also 
mandated that insurance companies roll back their rates. The California 
Supreme Court upheld substantially all of Proposition 103, including 
the rollback, modifying it only to the extent necessary to permit 
insurers to avoid the rollback if they could demonstrate that they 
would be unable to earn a fair rate of return if their rates were 
rolled back. Few insurers could prove this, and as a result medical 
malpractice premiums in California fell sharply in the years 
immediately after Prop 103 was enacted, and even today are lower than 
they were in the year before Prop 103 was enacted. While a mandatory 
rollback sounds--and is--extreme, what California tells us is both that 
it is constitutional and that it works. Some doctors argue that what 
has caused rates to fall in California is a law limiting the non-
economic damages that injured people can recover that the California 
Supreme Court held constitutional in 1984. But in the first full year 
after the law was upheld, premiums rose by 35 percent. Premiums did not 
begin to fall until Prop 103 was enacted in 1988 and declared 
constitutional a year later. (See Exhibits 3 and 4.)

          WHAT INSURERS THEMSELVES SAY ABOUT INSURANCE CRISES

    To be sure, the current sharp and apparently irrational increases 
in insurance rates have created pressure to enact limitations on 
liability, based on the understandable rationale that if the amount 
injured people can recover from insurance companies is limited, 
insurance companies will pay out less money to such people, and they 
will pass at least some of those savings on to policyholders. I have 
explained that such limitations do not make sense because the other 
factors which cause insurance rates to fluctuate, such as investment 
income and the cost of reinsurance, have a much greater impact on the 
premium dollar than could any plausible limitation on the amount 
injured people could recover.
    In addition, Missouri and many other States did enact such 
limitations after the insurance crisis of the mid-1980's, or the 
insurance crisis of the mid-1970's, yet rates are rising today in those 
States just as they are rising in States that did not enact such 
limitations--even if, as in Missouri, litigation is decreasing, not 
increasing.
    But perhaps the best evidence that litigation does not cause 
insurance rates to rise--and conversely, that limiting litigation will 
not cause insurance rates to drop--is what two of the biggest medical 
malpractice insurance companies said themselves after the last 
insurance crisis. Florida reacted to that crisis by limiting non-
economic damages for all injuries to $450,000, and limiting liability 
in four other respects. After the law was passed, the insurance 
commissioner required all medical malpractice insurers to refile their 
rates to reflect the effect of the five major limitations on liability 
the State had just enacted. In response, Aetna Casualty and Surety 
conducted a study, attached as Exhibit 5, that concluded that none of 
those limitations would reduce insurance rates. In particular, Aetna 
concluded that the $450,000 cap on non-economic damages would have no 
impact on Aetna's claims costs ``due to the impact of degree of 
liability on future losses, the impact of policy limits, and the actual 
settlement reached with the plaintiff.''
    The St. Paul Fire and Marine Insurance Company--which at the time 
was the largest malpractice insurer in the nation--conducted a similar 
study, attached as Exhibit 6. That study analyzed 313 claims it had 
recently closed and found that 4 of those 313 claims would have been 
affected by the limitations enacted in Florida, ``for a total effect of 
about 1 percent savings.'' The St. Paul further explained that the 1 
percent savings estimate probably overstates the savings resulting from 
the new restrictions. And it specifically emphasized that ``the 
conclusion of the study is that the non-economic cap of $450,000, joint 
and several liability on the non-economic damages, and mandatory 
structured settlements on losses above $250,000 will produce little or 
no savings to the tort system as it pertains to medical malpractice.''
    What the Aetna and St. Paul studies may really be telling us--since 
they prepared those studies to justify their refusal to reduce their 
rates after limitations on liability were enacted--is that even if such 
limitations might reduce the amount insurers pay out, insurers don't 
pass on any savings to policyholders. More important, however, even if 
they did pass on any such savings, they would be insignificant compared 
to the other factors affecting malpractice rates. Perhaps that is why 
after the last insurance crisis the chairman of the Great American West 
Insurance Company told an audience of insurance executives that tort 
reform ``will not eliminate the market dynamics that lead to insurance 
cycles,'' and warned them that ``we must not over-promise--or even 
imply--that insurance cycles will end when civil justice reform 
begins.'' See ``Don't Link Rates to Tort Reform, Insurance Executive 
Warns Peers,'' Liability Week, Jan. 19, 1988, at 1.

                               CONCLUSION

    In conclusion, over the long run the medical malpractice insurance 
industry is substantially more profitable than the insurance industry 
as a whole: during the 10-year period 1991-2000, according to the 
National Association of Insurance Commissioners, its return on net 
worth has been more than 40 percent greater than the industry average, 
and its loss ratio has been 6 percentage points lower than the industry 
average, i.e., it has paid out in losses six cents less on the premium 
dollar than have all property/casualty insurers. (See Exhibit 7.) 
Despite this long-run above-average profitability, however, medical 
malpractice insurance rates, for the reasons I have described, 
fluctuate substantially--both up and down. The reforms I have outlined 
can both reduce those fluctuations and, particularly if the insurance 
industry's antitrust exemption is repealed, reduce the level of 
malpractice rates over the long run. In contrast, limitations on 
liability have been demonstrated to do neither.
    I would be happy to answer any questions the committee may have.

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
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    [Whereupon, at 5:48 p.m., the committee was adjourned.]

