[Senate Hearing 108-726]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-726

                  MEDICAL LIABILITY IN LONG TERM CARE:
        IS ESCALATING LITIGATION A THREAT TO QUALITY AND ACCESS?

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

                                HEARING

                               before the

                       SPECIAL COMMITTEE ON AGING
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                             WASHINGTON, DC

                               __________

                             July 15, 2004

                               __________

                           Serial No. 108-39

         Printed for the use of the Special Committee on Aging


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                       SPECIAL COMMITTEE ON AGING

                      LARRY CRAIG, Idaho, Chairman
RICHARD SHELBY, Alabama              JOHN B. BREAUX, Louisiana, Ranking 
SUSAN COLLINS, Maine                     Member
MIKE ENZI, Wyoming                   HARRY REID, Nevada
GORDON SMITH, Oregon                 HERB KOHL, Wisconsin
JAMES M. TALENT, Missouri            JAMES M. JEFFORDS, Vermont
PETER G. FITZGERALD, Illinois        RUSSELL D. FEINGOLD, Wisconsin
ORRIN G. HATCH, Utah                 RON WYDEN, Oregon
ELIZABETH DOLE, North Carolina       BLANCHE L. LINCOLN, Arkansas
TED STEVENS, Alaska                  EVAN BAYH, Indiana
RICK SANTORUM, Pennsylvania          THOMAS R. CARPER, Delaware
                                     DEBBIE STABENOW, Michigan
                      Lupe Wissel, Staff Director
             Michelle Easton, Ranking Member Staff Director

                                  (ii)

  


                            C O N T E N T S

                              ----------                              
                                                                   Page
Opening Statement of Senator Larry E. Craig......................     1
Statement of Senator Richard Shelby..............................     2
Statement of Senator Herb Kohl...................................     3
Statement of Senator Elizabeth Dole..............................     4

                           Panel of Witnesses

David Stevenson, Ph.D., assistant professor, Harvard University, 
  Cambridge, MA..................................................     6
Theresa Bourdon, FCAS, MAAA, managing director and actuarial, Aon 
  Risk Consultants, Inc., Columbia, MD...........................    19
J. Norman Estes, president and chief executive officer, NHS 
  Management, Tuscaloosa, AL.....................................    29
Mashall B. Kapp, J.D., M.P.H., FCLM, distinguished professor of 
  Law and Medicine, Southern Illinois University, School of Law, 
  Carbondale, IL.................................................    37
Lawrence M. Cutchin, M.D., president, North Carolina Medical 
  Society, Raleigh, NC...........................................    44
James E. Lett, II, M.D., C.M.D., immediate past president, 
  American Medical Directors Association, Carmichael, CA.........    48

                                APPENDIX

Prepared Statement of Senator John Breaux........................    73
Study submitted by Center for Medicare Advocacy..................    74
Statement submitted by the American Medical Association..........   101
Testimony of William L. Minnix, Jr., D. Min., CEO and president, 
  The American Association of Homes and Services for the Aging...   118
Information submitted by the National Citizens' Coalition for 
  Nursing Home Reform............................................   128

                                 (iii)

  

 
MEDICAL LIABILITY IN LONG TERM CARE: IS ESCALATING LITIGATION A THREAT 
                         TO QUALITY AND ACCESS?

                              ----------                              --



                        THURSDAY, JULY 15, 2004

                                       U.S. Senate,
                                Special Committee on Aging,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 2 p.m., in room 
SD-628, Dirksen Senate Office Building, Hon. Larry E. Craig 
(chairman of the committee) presiding.
    Present: Senators Craig, Shelby, Dole, Kohl, Lincoln, and 
Carper.

     OPENING STATEMENT OF SENATOR LARRY E. CRAIG, CHAIRMAN

    The Chairman. Good afternoon, everyone. The U.S. Senate 
Special Committee on Aging will be convened. I welcome all of 
you.
    Over this committee's history, we have explored numerous 
issues related to the future of long term care. It is well-
known that as our Nation ages, the pressure on the long term 
care system will be enormous in the coming years. Clearly, 
nursing homes are a valid and essential component of the long 
term care system. When we receive care at home or in other 
community settings, there are options. But as we grow more 
frail, sometimes our elderly have no option, but to have stays 
in the nursing home setting.
    Recently released studies now show that escalating medical 
liability is beginning to present challenges to access and 
quality of care for nursing home residents. Tort claims against 
long term care providers nationwide are the fastest-growing 
area of health care litigation. The cost of claims over the 
last 3 years is estimated at over $2 billion, and the average 
medical insurance premium cost is over 200-percent higher than 
it was in 2001. These rapidly escalating costs are a massive 
challenge, especially for smaller providers serving the elderly 
in rural communities.
    Our investigation is based on the latest-available data on 
the effects of liability costs on quality care and access for 
our most vulnerable seniors. It is therefore important to 
remain objective, ask difficult questions and explore solutions 
to this emerging problem.
    The effects of unprecedented increases in long term care 
litigation costs are twofold:
    First, excessive litigation is forcing many doctors to quit 
serving patients in nursing homes.
    Second, the situation is draining resources that should be 
used to provide quality patient care to nursing home residents. 
These trends cannot be allowed to continue. We must ensure that 
quality long term care services are available to the vulnerable 
elderly when they are in their greatest need and require their 
greatest care.
    In a recent survey, one out of every five doctors in 
nursing homes said that they had problems obtaining or renewing 
their medical liability insurance in this past year. Ten 
percent said they have already stopped caring for the elderly 
in these facilities. In addition, medical doctors are leaving 
the industry due to rising liability costs. This is having a 
negative impact on people who need the care most.
    Before we proceed with today's hearings, I want to make one 
point clear. Those people who abuse or neglect or intentionally 
cause harm to our seniors must be held accountable and should 
be prosecuted to the fullest extent of the law. This hearing is 
not about that. This hearing is making sure that elderly 
receive quality care and that resources are not drained 
unintentionally by the cost of insurance.
    We have our colleagues joining at this moment. So, before I 
introduce our panel of witnesses, let me turn to Senator 
Shelby, who is here today. One of his constituents is with us. 
He may want to visit about him and make any opening comments 
you would wish to make.
    Richard?

                STATEMENT SENATOR RICHARD SHELBY

    Senator Shelby. Mr. Chairman, thank you very much. First of 
all, thank you for calling this hearing. I appreciate the work 
that you are doing as far as leading this committee. I have 
been tied up all day on Banking. I have got to go right back to 
another hearing.
    So, if you would bear with me just a minute, I do not have 
this opportunity every day here, but, Mr. Chairman, I am 
honored to have the opportunity to just tell you a little bit 
about one of the panelists here, and that is Mr. Norman Estes, 
who will provide testimony today. Norman Estes is president and 
CEO of Northport Health Services, Inc., and a representative of 
the American Health Care Association, and as such will be able 
to speak directly to the issues being discussed today.
    As a fellow native of Tuscaloosa County, AL, I have known 
Norman and his family for many, many years. He is a friend. I 
have the highest regard for his intellect, his integrity and 
his business ability. Norman is a veteran of the long term care 
industry and has been associated with nursing facilities all of 
his life. In fact, the company he owns today is a continuation 
of a tradition of service to the elderly that began more than 
40 years ago by his grandmother who cared for residents in her 
own home.
    Later, Norman's father expanded this commitment to caring 
through a series of nursing facilities throughout Alabama. Upon 
his father's retirement, Norman purchased three of his 
facilities and formed what is now known as Northport Health 
Services, Inc.
    Building upon his successes here, Mr. Chairman, Norman 
Estes has grown Northport Health Services from three nursing 
facilities in Alabama, my State and his, to 39 nursing 
facilities throughout the Southeast. He is also involved with 
other long term care-related ventures, including pharmacies, 
therapy companies and a medical supply company. He has been a 
leader in numerous trade associations throughout the Southeast, 
including the Alabama Nursing Home Association, the Missouri 
Health Care Association, the Florida Health Care Association 
and the Arkansas Health Care Association.
    He has also been an active member of the American Health 
Care Association, in whose capacity, as I said, he appears 
today. He served on its Regional Multi-Facility CEO Committee, 
the Policy Council and the Steering Committee to Save Long term 
Care, where he was chairman of the Tort Reform Subcommittee.
    Mr. Chairman, I want to thank you again for holding this 
timely committee hearing, and I hope you will excuse me because 
I have got to chair another committee.
    Thank you very much.
    The Chairman. Richard, thank you very much for coming by to 
introduce one of your constituents, and certainly a very 
valuable spokesman for the American Health Care Association.
    Now, let me turn to our colleague on the committee, Senator 
Herb Kohl. Herb, do you have any opening comments you would 
like to make?

                 STATEMENT OF SENATOR HERB KOHL

    Senator Kohl. I do, Mr. Chairman. I appreciate your holding 
this hearing today, at which we will consider the important 
issue of medical liability reform and how it affects long term 
care providers and, in particular, nursing homes.
    Those of who serve on the Judiciary Committee have some 
experience with this issue, as we held a hearing on the broader 
topic of medical malpractice reform last year. We heard then, 
and we will surely hear today, that we are experiencing a 
medical malpractice crisis. The number of nursing home beds is 
declining and doctors are quitting. Unfortunately, legislation 
we have considered in this Congress that simply cap damage 
awards, in my judgment, is the wrong approach in addressing 
this issue. Therefore, I have opposed those bills, and I will 
continue to do so until we address liability reform with some 
fresh ideas that I believe would enjoy broad, bipartisan 
support.
    Perhaps we could look to those States that have responded 
successfully to the pressure of high insurance premiums. 
Wisconsin is one of those States, and it has a system in place 
that works well for doctors and patients alike. As a result, we 
do not have a crisis of insurance premiums or doctors closing 
their practices or moving out of my State.
    Although Wisconsin enacted damage cap awards, in 1995, it 
also maintains a Patients Compensation Fund and backs a risk-
sharing plan for those physicians in nursing homes who cannot 
obtain insurance in the private market. Not surprisingly, 
Wisconsin's medical malpractice insurance premiums are below 
the Nation's average.
    Unfortunately, Wisconsin's success is not universal. A so-
called reform based on arbitrarily capping pain and suffering 
awards, in my opinion, is not the answer. Studies show that 
passing a Federal medical malpractice law, with damage caps, 
might have no impact at all on runaway insurance premiums.
    Further, there is no promise that any savings insurance 
companies realize from such a law would be passed on to doctors 
and ultimately to patients. We would expect the same 
uncertainty when it comes to caps for long term care.
    A full and fair debate on the issue of medical malpractice 
must look at all facets of this issue. For example, some argue 
that many of the most serious cases, cases of serious injury or 
death, are brought against a handful of facilities. Perhaps we 
should focus more of our attention on cleaning up these bad 
actors if we want to decrease the litigation faced by the 
nursing home industry.
    As a member of the Appropriations Committee, I have worked 
for several years to increase funding for State survey agencies 
so that they can better inspect nursing homes, respond to 
complaints and help to improve the quality of care. Focusing on 
improving care at the front end, rather than flatly denying 
legal rights to people who have been harmed is a far more 
productive effort.
    Finally, it is worth mentioning that while we spend a few 
hours today focusing on the costs of litigation, we need to 
remember that this committee has spent countless hours focusing 
on abuse and neglect in nursing homes. While a vast majority of 
nursing homes work hard to provide good care to their 
residents, all of us on this committee know that there are 
serious problems in nursing homes today.
    Over the years, we have heard stories of people with bed 
sores that go to the bone, people left in their own waste, and 
people with severe malnutrition and dehydration. We have also 
heard stories of people who have been beaten and sexually 
assaulted. So, as we hear today about so-called frivolous 
lawsuits, let us not forget that there are real people who are 
being abused, starved and neglected, and the safety of those 
vulnerable residents must, and I am sure always will be, Mr. 
Chairman, our top priority.
    Thank you.
    The Chairman. Herb, thank you very much for that opening 
statement.
    Now, let me turn to our colleague from North Carolina, 
Senator Elizabeth Dole. I believe you have a constituent on the 
panel today that you might like to introduce in your opening 
comments.

              STATEMENT OF SENATOR ELIZABETH DOLE

    Senator Dole. Thank you.
    Dr. Larry Cutchin, from North Carolina. Dr. Cutchin, I am 
very pleased to have you here today. Thank you so much. Mr. 
Chairman, thank you for holding this hearing today.
    Few issues are as important to Americans right now as the 
rising cost of health care. While the ever-increasing costs 
concern millions of Americans, there is a way to address the 
crisis. Passage of real, responsible medical liability reform 
is one effective answer to the dilemma of growing health care 
expenses. The broken medical liability system drives up costs 
for patients and for taxpayers, at least $28 billion each year 
for the Federal Government alone. According to a 2003 Joint 
Economic Committee report, meaningful medical liability reform 
could lower health care costs significantly and enable an 
estimated 3.9 million Americans to afford health insurance.
    A recent survey found that 8 out of 10 doctors say they 
have ordered more tests than they need as a defensive measure 
to avoid litigation. I can remember hearing that from many 
doctors as I have traveled North Carolina. Three out of 4 refer 
patients to specialists more often than they believe is 
medically necessary.
    America is in the midst of a crisis. Those who need health 
care, the most vulnerable and sickest among us, are the real 
victims. We have all heard their stories. Too many of our 
patients cannot get doctors, cannot get specialists, cannot get 
health care.
    In my home State of North Carolina, rural residents have 
been among the hardest hit. In fact, North Carolina is included 
on a list of 20 States that the American Medical Association 
says are suffering from a medical liability crisis. According 
to the AMA, some North Carolina hospitals have seen their 
liability insurance premiums rise 3 to 5 times in the last few 
years. Specialists, like our obstetricians, emergency doctors 
and anesthesiologists, are seeing even higher increases. The 
level 3 trauma center in Cabarrus County, NC, which is right 
down the road from my hometown of Salisbury, serves more than 
68,000 patients per year, and it is facing the possibility of 
closure because a 17-member emergency medical group experienced 
increased premiums of 88 percent with reduced coverage.
    I have heard from many doctors, as I have said, in my 
State, and this crisis is having a detrimental effect on our 
medical providers. Too many of them cannot afford rising 
malpractice insurance rates. They have had to curb their 
medical practices, stop taking some patients, move to another 
State, perhaps the most painful, leave the profession 
altogether.
    Dr. Jack Schmidt, of Raleigh, NC, says his insurance 
premiums went from $18,000 a year to $45,000 a year. I talked 
to him recently here in Washington. He eventually decided to 
leave his practice in Raleigh, and he is teaching at the 
University of Virginia Medical School.
    Dr. Mary-Emma Beres, of Sparta, NC, had to stop delivering 
babies altogether after facing a 300-percent increase in her 
malpractice premiums. Now, there is only one obstetrician in 
the town of Sparta, which is a person capable of handling high-
risk cases, and that is forcing some women who need C-sections 
to endure a 40-minute ambulance ride to another hospital. It is 
wrong to deny access to adequate health care. Let me be clear, 
there are many cases where going to court over a medical 
mistake is certainly legitimate.
    What we are talking about today, however, are frivolous 
lawsuits and an abused system. This hearing is about the need 
to pass responsible medical liability reform to curb the trend 
of multi-million-dollar payouts, 40 percent of which go 
directly to the patient's attorney.
    During a visit to North Carolina in 2002, President Bush 
spoke in High Point, home of a regional health care system 
that, like so many others in our country, is feeling the strain 
of medical liability concerns. While in town, he spoke about 
why Congress must play a role in this battle. He said the 
Federal Government uses taxpayers' money to fund health care 
programs--Medicare, Medicaid, Children's Health Care, veterans' 
health care, military health care and long term care. Any time 
a frivolous lawsuit drives up the cost of health care, it 
affects the taxpayers. It is a Federal issue.
    I believe the President is right, Mr. Chairman. This is not 
an issue where the Senate can afford to sit idly by. The House 
has passed a bill. It is time for the Senate to do the same.
    I appreciate the presence of every witness here today, and 
I look forward to a candid discussion on how best to prevent 
our health care system from spiraling downward. We owe it to 
our doctors, we owe it to the patients, and we owe it to our 
country.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Dole.
    I think, as all of you panelists know, the Special 
Committee on Aging is not an authorizing committee. We are an 
information-gathering, spotlight-pointing committee to build a 
record for the whole of the Congress to analyze these critical 
issues from and ultimately to make decisions. So your input 
today is going to be extremely valuable, as we continue to 
struggle with the issue of liability and class action-type 
lawsuits.
    So let me introduce the balance of our panelists, and we 
will start then with you all.
    David Stevenson, assistant professor, Harvard University; 
Theresa Bourdon, managing director and actuarial, Aon Risk 
Consultants, Columbia, MD. Mr. Estes has already been 
introduced by Richard Shelby--president and CEO of NHS 
Management in Tuscaloosa, AL; and representing the national 
organizations, Marshall Kapp, distinguished professor of law 
and medicine, Southern Illinois University, School of Law in 
Carbondale, IL; Lawrence Cutchin, Dr. Cutchin has already been 
introduced--president, North Carolina Medical Association, 
Raleigh; and James Lett, immediate past president, American 
Medical Directors Association, Carmel, CA.
    David? Panelists, all thank you. David, we will start with 
you.

   STATEMENT OF DAVID STEVENSON, PH.D., ASSISTANT PROFESSOR, 
               HARVARD UNIVERSITY, CAMBRIDGE, MA

    Mr. Stevenson. Thank you very much.
    Chairman Craig, committee members, thank you for the 
opportunity to speak at the hearing today. It is my pleasure to 
be here to discuss this important topic. My remarks today are 
from the perspective of the long term care researcher and 
someone who has done recent work in the area of nursing home 
litigation, in particular.
    Today, I will focus on three key questions:
    First, what is known about the nature and impact of nursing 
home litigation?
    Second, what factors have contributed to recent litigation 
trends?
    Third, what traits of this litigation are important to 
consider in crafting a policy response?
    As will be described by this panel, nursing home claims and 
liability insurance premiums have soared in recent years, 
especially in States such as Florida and Texas, yet few details 
are known about these lawsuits. To address this gap, we 
conducted a national survey of plaintiff and defense attorneys 
who litigate in this area. The empirical evidence I present 
today is from this study.
    We found that nursing home litigation is a new and growing 
industry that is heavily concentrated in a handful of States. 
Our data suggests that attorneys mobilized into this area in 
the mid 1990's and that claims and the size of recoveries have 
grown substantially in recent years. More than half of the 
8,000 claims identified in our survey were in Florida and Texas 
alone.
    Claimants look like your typical nursing home resident, 
often elderly Medicaid recipients, often with dementia or 
Alzheimer's disease. The claims themselves typically involve 
serious allegations. More than half involved deaths and 
allegations of pressure sores, malnutrition and emotional 
distress featured prominently.
    While few nursing home claims went to trial, almost 9 in 10 
recovered some damages for the plaintiff. This is almost 3 
times the payout rate for medical malpractice claims. With 
average payments of almost $400,000 per claim, these data imply 
total compensation to plaintiffs of $2.3 billion nationwide.
    The factors driving recent trends in nursing home 
litigation are unclear. The bottom line is that we do not 
currently know how accurate nursing home claims are. In 
particular, we do not know the extent to which nursing home 
litigation, (A) reliably tracks negligence; (B) deters poor 
quality care; or, (C) compensates residents with meritorious 
claims. One can speculate about each of these points. To the 
best of my knowledge, though, no studies have addressed these 
questions in a convincing way.
    Still, the overall scale of the litigation is cause for 
concern. Total compensation payments in Florida were around 20 
percent of the State's total nursing home spending. In Texas, 
this proportion was 15 percent. In addition, failures in the 
liability insurance market can make it difficult for nursing 
homes to protect themselves against the risk of large 
settlements, leaving them, and ultimately residents, exposed to 
this risk.
    Some have argued that the recent litigation trends bolster 
the case for relying on conventional tort reforms. Several 
States have recently passed legislation treating nursing home 
and medical malpractice claims with the same broad brush. I 
would caution against such an approach. Compared to medical 
malpractice, nursing home claims have distinctive features that 
raise questions about using generic reforms across the care 
continuum. I will focus on three:
    First, nursing home awards are disproportionately made up 
of noneconomic damages. Our results indicate that noneconomic 
damages accounted for 80 percent of nursing home awards, 
roughly double the proportion in medical malpractice. The 
implication of this is that caps on noneconomic damages, one of 
the more prominent tort reform strategies, would have a more 
severe impact in the nursing home sector, raising potential 
questions of equity.
    Second, punitive damages are relatively common in nursing 
home litigation. While punitive damages play a very small role 
in medical malpractice, they figure in almost 20 percent of 
nursing home payments. For policymakers seeking to control 
high-end verdicts, punitive damages are a potentially effective 
target in the nursing home sector. In addition, limiting 
punitive, rather than noneconomic damages, is less restrictive 
of residents' ability to be compensated for their losses.
    Finally, a third distinct feature of nursing home claims is 
their injury profile. In nursing homes, the usual focus of 
malpractice suits, like missed diagnoses and surgical errors, 
give way to allegations of neglected bed sores and emotional 
abuse. More than half of nursing home claims involve deaths 
compared to 1 in 5 medical malpractice claims. For policymakers 
who feel exceptions should be made in egregious cases, the 
nature of alleged nursing home injuries may provide a ready 
supply of such cases, potentially undercutting the 
effectiveness of reforms.
    In conclusion, lawsuits against nursing homes have grown 
substantially in the past several years. At this point, it is 
unclear whether nursing home litigation has reliably tracked 
negligent care, deterred substandard care or compensated 
residents with worthy claims.
    As policymakers seek to address the recent liability 
crisis, distinct features of nursing home litigation should be 
recognized and their implications treated seriously. If they 
are not, reforms face the danger of being unfair and 
ineffective.
    Thanks very much.
    [The prepared statement of Mr. Stevenson follows:]
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    The Chairman. David, thank you very much for that 
testimony.
    Now, we will go to Theresa Bourdon.
    Theresa?

STATEMENT OF THERESA BOURDON, FCAS, MAAA, MANAGING DIRECTOR AND 
       ACTUARY, AON RISK CONSULTANTS, INC., COLUMBIA, MD

    Ms. Bourdon. Good afternoon, Chairman Craig, Senator Dole.
    My name is Theresa Bourdon, and I am a fellow of the 
Casualty Actuarial Society and a member of the American Academy 
of Actuaries. In addition, I am the managing director of Aon 
Corporation's Property and Casualty Actuarial Consulting 
Practice. Aon is the leading actuarial consultant to the long 
term care industry with respect to the evaluation of the cost 
of patient care liability claims.
    I would like to thank the Senate's Special Committee on 
Aging for giving me the opportunity to testify today. I feel 
that it is important for members of this committee to 
understand that I do not work for an insurance company. I 
provide consulting services to entities, including nursing 
homes, to assist them in financing their exposure to liability.
    Most of my clients are self-insured. In this context, my 
testimony is largely focused on the litigation activity of 
nursing homes, as opposed to the insurance availability and 
affordability. Because, regardless of whether a nursing home 
buys insurance or self-insures, it is an increase in litigation 
that is the driving cause of the above-average increases in the 
cost of risk per bed occurring in a multitude of States 
throughout this country.
    Legislative changes that will reduce the cost of risk and 
provide greater predictability in the number and size of claims 
will directly impact the litigation trends. By reducing the 
litigation trends, you will also be responding to the issue of 
insurance availability and affordability. The correlation 
between the two is not 1-to-1 due to a number of other 
variables that influence insurance pricing. However, it is very 
high.
    To help you understand the magnitude of the litigation 
trends, let me share some statistics with you. Aon has recently 
completed its fifth annual study of the rising cost of 
professional and general liability claims asserted against long 
term care operators. In the study, which includes 24 percent of 
the beds in the United States, which is approximately 470,000 
nursing home beds, costs are projected to reach almost 2,300 
per occupied nursing home bed for incidents alleged to have 
occurred in calendar year 2003. Nationally, these costs are now 
7 times higher than they were in the early 1990's.
    On a cost-of-care basis, this means that $6.27 per day 
needs to be set aside per long term care resident just to cover 
the cost of litigation. This is equal to 5 percent of the 
countrywide average per diem reimbursement rate for Medicaid, 
the Government source of funding for approximately two-thirds 
of all nursing home residents.
    The providers represented in our study are expected to 
incur $1 billion in liability claims in 2004 alone. 
Extrapolated to a national basis, this exposure is a multi-
billion-dollar-a-year cost to the nursing home industry, and 
almost half of the total cost is going directly to attorneys.
    The number of claims against nursing home operators is 
increasing by approximately 13 percent annually, with a current 
rate of 15 claims per thousand nursing home beds per year. If 
you consider that the size of a typical nursing home is about 
100 beds, that is roughly 1.5 claims per facility per year. The 
rate of increase in the number of claims in the long term care 
industry is unprecedented, both in terms of this industry's 
history and the rate of increase in the number of liability 
claims incurred by other health care providers.
    In addition to the growth in the number or frequency of 
claims, there has been a significant increase in the size or 
severity of the average award. The average size of long term 
care liability claims, which includes indemnification paid to 
the plaintiff and all related attorney fees has almost tripled 
from 65,000 per claim in the early 1990's to between 150,000 
and 200,000 in more recent years.
    Florida and Texas were leaders in driving forward the 
increase in long term care liability costs. Our 2003 projected 
loss cost is $8,200 in Florida and $5,500 for Texas. Numerous 
other States across the country are now experiencing increasing 
cost trends and appear to be headed toward loss costs per bed 
similar to those in Florida and Texas. Most notable on this 
chart is Arkansas.
    These rising litigation costs are already beginning to 
impact the industry in the following ways:
    First, there is a lack of expansion in the nursing home 
sector of elder care services. In fact, the number of available 
nursing home beds is on the decline. Between December 2001 and 
December 2003, the number of certified nursing home beds in the 
United States dropped 20,000 according to CMS OSCAR Data 
surveys. Large multi-state providers are choosing to leave the 
States like Florida and Texas, where the cost of care has 
exceeded the funding available to pay for it. In addition, 
there is very little expansion into other States.
    Second, smaller providers and those that have not 
diversified into multiple geographic regions are, in many 
cases, choosing to go uninsured or underinsured. Additionally, 
the organizations that are buying the facilities being divested 
by larger multi-state operators are often doing so with 
materially reduced limits of liability from the levels 
traditionally available from divesting operators. All of this 
has the effect of reducing the average compensation for 
patients who truly have suffered a patient care violation.
    Last, lending institutions are restricting capital 
investments by more strictly underwriting this industry. Where 
loans are available, the cost of borrowing has gone up due to 
the litigation risk, further adding to the cost of delivering 
health care to the elderly.
    The long term outlook, if reforms are not implemented, is a 
continued contraction of available nursing home beds, 
particularly for those Americans who depend on Medicaid funding 
to provide these services. One does not have to be an actuary 
to figure out the ramifications of such a contraction as the 
baby boom generation approaches retirement age.
    Thank you for the opportunity to provide this testimony, 
and I would be pleased to answer any questions you may have.
    [The prepared statement of Ms. Bourdon follows:]
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    The Chairman. Theresa, thank you for that testimony. Those 
are startling statistics.
    Before we move to Mr. Estes, we have been joined by our 
colleague, Senator Blanche Lincoln. Blanche, do you have any 
opening comments you would like to make?
    Senator Lincoln. No.
    The Chairman. Well, we appreciate your presence with the 
committee today.
    Now, let me turn to Norm Estes, president and CEO of NHS 
Management. He has already been introduced at length by Senator 
Shelby, and we do appreciate that.
    Norm, welcome before the committee.

  STATEMENT OF J. NORMAN ESTES, PRESIDENT AND CHIEF EXECUTIVE 
            OFFICER, NHS MANAGEMENT, TUSCALOOSA, AL

    Mr. Estes. Good afternoon, Chairman Craig and members of 
the committee. My name is Norman Estes, and I am the president 
and CEO of NHS Management, LLC.
    The Chairman. Is your microphone on?
    Mr. Estes. I do not know. I think so.
    The Chairman. Is there a button to be pushed on that one?
    Mr. Estes. Maybe it needs to be a little closer. I was 
trying to keep from being too loud, which is my tendency. Is 
that better?
    The Chairman. That is better. Thank you.
    Mr. Estes. Good.
    The Chairman. I am also 58 years of age. [Laughter.]
    Mr. Estes. Thank you. As I was saying, I am the CEO of NHS 
Management, LLC, and affiliated companies. Our companies 
operate, manage and provide services to 39 nursing facilities 
throughout the Southeast. The Southeast, by the way, is one of 
the hardest-hit regions of the country from the standpoint of 
today's topic.
    Today, Mr. Chairman, I speak on behalf of the American 
Health Care Association. We are a national organization 
representing more than 10,000 providers of long term care who 
serve, on average, 1.5 million elderly and disabled people per 
year and employing more than 1 million caregivers nationally.
    I have worked in and around nursing homes all my life and 
am proud to continue a family tradition started three 
generations ago. I care deeply about this profession and care 
deeply for the frail, elderly and disabled who trust us to 
provide quality care that they can depend on.
    I would like to use my time today to discuss the following 
three items:
    One, the budgetary challenges that we currently face and 
you face today as legislators here in Washington;
    Two, the demographic challenges that we all face and how 
that affects our need to attract capital to our profession;
    Third, how elderly patients are being victimized by the 
crowding out or the diversion of funds away from our ability to 
improve patient care so that we can allocate those funds to the 
higher cost of lawsuits.
    Every way you look at it, Mr. Chairman, the litigation 
status quo, as we have it today, benefits the few at the 
expense of our elderly, our taxpayers and our Nation's future 
and strikes directly at the credibility of our system of 
justice, fairness, and our basic sense of right and wrong. With 
so many competing demands on the Federal budget, we must ensure 
Federal dollars are used efficiently to serve the specific 
intended purposes. Unfortunately, because of this problem 
today, that is not always the case with our Medicaid program.
    In a stark and statistically undeniable manner, the 
Nation's plaintiff lawyer community has targeted the Medicaid 
program and the dollars meant to pay for seniors' long term 
care services. Research shows that in the last 3 years more 
than $2 billion have been diverted away from Medicaid to pay 
for the cost of lawsuits.
    In many States, like Texas, Florida and Arkansas, nearly 
half of the Medicaid rate increases from 1995 until 2003 have 
not even reached the elderly Medicaid residents they intended 
to benefit because of this diversion issue that I raised today. 
While the Nation's health care system is serving greater 
numbers of seniors under mounting Federal and State budgetary 
pressures, failure to bring more accountability to the way 
these Medicaid expenditures are made, through common-sense 
legal reforms, is a disservice to every senior and taxpayer in 
America.
    The very funds necessary to help improve care are being 
systematically removed from the health care system. The number 
of Americans requiring long term care will double to 7 million 
by the year 2020 and double again to 14 million by the year 
2040. In the face of growing demand for facility care, the 
number of available nursing home beds is on the decline. To the 
detriment of patients, some of the larger multi-state providers 
are choosing to simply leave States because they can no longer 
afford liability insurance.
    Access to capital continues to be a critical problem for 
our sector, and while there are a variety of causes, the 
litigation crisis has exacerbated the situation. Bank loans, 
bonds and other forms of capital that fund day-to-day 
operations for most nursing facilities are an absolute 
necessity to maintaining and improving quality care.
    With much of the current discussion about the Federal 
health care policy centered upon the need to improve quality 
care in our hospitals, nursing homes and other settings, it is 
significant and timely that Government and professionwide 
initiatives to improve the quality of nursing home care are 
beginning to receive a great deal of national attention. Those 
of us in long term care are enormously excited about the 
Federal Government's National Home Quality Initiative or what 
we call, NHQI, and our profession has started its own quality 
initiative that we call Quality First.
    There is no question that an honest and reliable 
performance measurement system, coupled with a system of public 
disclosure, provides consumers with the best-possible 
information for comparing quality and basing their long term 
care choices and decisions.
    But while we move forward on the quality front, we are once 
again confronted by the fact that resources that could be 
utilized to help improve care are being crowded out or diverted 
to pay for non-productive legal expenditures. Every dollar 
spent on defense attorneys and legal settlements is a dollar 
directed away from staffing needs, therapies, and programs that 
make a real difference in quality care for seniors and for the 
very quality of life that they have in our facilities.
    Today, Mr. Chairman, we can say that there has never been a 
broader recognition by Government and the provider community 
about the importance of quality care nor a broader commitment 
to work cooperatively to improve it.
    We look forward to working with this committee, this 
Congress and this administration to help restore balance to the 
legal system and where Federal resources designated to care for 
the frail, vulnerable and disabled Americans is utilized for 
this noble purpose.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Estes follows:]
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    The Chairman. Thank you very much.
    Now, let us turn to Marshall Kapp, a distinguished 
professor of law and medicine, Southern Illinois University.

      STATEMENT OF MARSHALL B. KAPP, J.D., M.P.H., FCLM, 
DISTINGUISHED PROFESSOR OF LAW AND MEDICINE, SOUTHERN ILLINOIS 
            UNIVERSITY SCHOOL OF LAW, CARBONDALE, IL

    Mr. Kapp. Thank you. Good afternoon and thank you for the 
opportunity to address the committee today. I come at today's 
subject from the perspective of a health law academic.
    You have heard from others the results of several 
quantitative studies. I have done extensive qualitative 
research, including conducting numerous extensive discussions 
with physicians and other health care providers, particularly 
in geriatrics and long term care, regarding providers' 
perceptions of the legal climate in which they live and the 
ways in which those perceptions affect providers' behavior, 
with consequences for the quality of care and quality of life 
of older consumers of long term care.
    Based on my research, I would like to share several 
conclusions regarding the impact of the current litigation and 
liability climate on long term care providers and their 
behavior and the consequences of that behavior for older 
consumers.
    First, long term care providers' anxieties about 
functioning in what is perceived to be a perpetual, pervasive, 
highly adversarial legal environment are, whether factually 
based or sometimes exaggerated, real, sincere and powerful. As 
one provider explained to me, the fear is everywhere. It is in 
the ether.
    Providers' legal apprehensions emanate from the cumulative 
effect of a variety of sources, including not just civil 
litigation brought against providers by or on behalf of long 
term care consumers, but also enormous increases in 
professional liability insurance premiums, when such insurance 
even is available in one's geographic locale; the energetic and 
relentless media attack on long term care providers; a 
combination of Federal and State governmental quality assurance 
and fiscal integrity mechanisms that several providers have 
described to me as, in their perception, virtually a 
``regulatory jihad,'' including most notably Medicare and 
Medicaid certification requirements and surveys, State 
licensure inspections and potential criminal prosecutions or 
civil penalties for elder abuse and neglect or other clinical 
crimes and for program fraud and abuse; the growing role of 
private accreditation agencies and third-party payers in 
overseeing long term care activities; and the proliferation and 
enlarged presence of private organizations purporting to 
advocate for older long term care consumers against long term 
care providers.
    In many respects, apprehension about potential litigation 
and liability has exerted the expected, desired, positive 
effect on providers' behavior and the resulting quality of 
care. We have to acknowledge that sometimes tort law actually 
does work as intended. Areas in which long term care quality 
has improved in the past decade, at least in part because of 
the deterrent impact of the tort system, include a drastic 
reduction in the use of physical and chemical restraints, more 
vigorous attempts and efforts to protect against medication 
errors and enhanced respect for residents' rights.
    However, to a significant extent, the constant, virtually 
universally perceived frightening legal environment acts on the 
provider community to incentivize behavior carrying the risk of 
negative, counterproductive effects on consumers' quality of 
care and quality of life. Just a few specific examples of the 
negative impact of excessively defensive long term care 
practice would include:
    A reluctance to openly identify, disclose, discuss, and 
remedy treatment errors because of fear that such error-
addressing activity will harm providers in subsequent 
litigation;
    The devastating impact on staff morale at all levels that 
makes it much more difficult to attract and retain adequate 
people, let alone the best and the brightest who are 
desperately needed to work in long term care, thereby 
jeopardizing quality and continuity of care for consumers;
    Overtreatment, for example, excessive infliction of life-
prolonging medical technology, premature or unnecessary 
transfer to acute care hospitals, reluctance to honor consumer 
and/or family wishes to limit treatment, and undertreatment--
mainly inadequate administration of pain medications--in many 
end-of-life situations that unfold in long term care 
facilities; Efforts by long term care providers to avoid 
entering into professional relationships with individuals who 
are anticipated or whose families are anticipated to be 
potential ``litigation magnets,'' to use the term that I have 
heard frequently, thereby impairing access to needed services 
for some older persons.
    Certainly, forms of external oversight and possible 
intervention, including legal oversight and intervention, have, 
and should continue to have, an important salutary role to play 
on behalf of the interests of long term care consumers. At the 
same time, it is not in anyone's best interests for long term 
care providers to continuously live and work in fear that legal 
sanctions will be imposed against them for providing care that 
they honestly and conscientiously believe is clinically sound 
and ethically correct. The challenge is to review and revise 
the long term care system in ways that optimize the positive 
role of external oversight and possible intervention, while 
encouraging more open, honest and nonadversarial relationships 
among all of the involved parties.
    Thank you.
    [The prepared statement of Mr. Kapp follows:]
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    The Chairman. Professor, thank you very much.
    Now, let us turn to Dr. Lawrence Cutchin, president of the 
North Carolina Medical Association in Raleigh.
    Doctor, welcome before the committee.

   STATEMENT OF LAWRENCE M. CUTCHIN, M.D., PRESIDENT, NORTH 
             CAROLINA MEDICAL SOCIETY, RALEIGH, NC

    Dr. Cutchin. Good afternoon, Chairman Craig, Senator Dole, 
Senator Lincoln. I am Lawrence Cutchin, M.D., president of the 
North Carolina Medical Society and an internist from Tarboro.
    On behalf of the physicians of the North Carolina Medical 
Society, I would like to extend to you my appreciation, and to 
the members of the committee, for allowing me to be here this 
afternoon before you to comment on the ways that our Nation's 
medical liability crisis is seriously threatening access to 
health care for all of us, and in particular the medical care 
for patients in long term care facilities.
    Long term care is an indispensable part of our health care 
system. The continued productivity of our work force and 
quality of life for their families depends, in many ways, on 
the availability of long term care. In the past, we have 
perhaps taken for granted that liability insurance would be 
available and affordable so that patients could be compensated 
in legitimate cases of negligent care. Today, however, the 
status of medical liability in North Carolina's long term care 
facilities has reached crisis proportions.
    Insurance costs, as you have already heard, have 
skyrocketed. This has been well-documented by private actuaries 
whose work has been made available to the members of this 
committee. North Carolina has not escaped these problems. 
Premiums for some North Carolina nursing homes have skyrocketed 
by as much as 1,800 percent since 1995.
    North Carolina Medical Mutual Insurance Company, which is 
the largest insurer of physicians in North Carolina, has 
determined that many long term care facilities have taken 
drastic steps to compensate for this escalating cost. Among the 
steps is a negotiation of contracts with their part-time 
medical directors to shift liability to them for purely 
administrative functions of the nursing home; that is, 
liability that is totally unrelated to the actual medical care 
the doctors are providing.
    Most professional liability policies, and in particular 
policies by North Carolina Medical Mutual, do not cover this 
contractually assumed liability. Additionally, some large 
nursing home chains now share one single annual limit of 
liability insurance of a million dollars or so and other much 
smaller companies just do not have insurance at all. They 
cannot afford it.
    The physicians serving as medical director for one of these 
nursing homes faces extraordinary additional risk exposure in 
the event of a lawsuit, where the underinsured or uninsured 
nursing home is a codefendant. To address this problem, some 
insurance companies have canceled, not renewed or refused to 
cover physicians who spend a significant portion, for example, 
15 percent or more, of their professional time serving as 
medical director for nursing homes.
    In North Carolina, we have four malpractice insurance 
companies still active. Two of those are not actively pursuing 
new insureds, as a matter of fact. One had significant loss on 
payouts last year, with resulting decrease in its surplus. It 
is still solvent.
    Medical Mutual Insurance Company, which I said again is the 
largest in the State, will no longer insure any physician, 
either a new policy or renew an old policy on a physician who 
has at least 15 percent of his practice involved with nursing 
home care.
    The resulting lack of doctors to fill these roles has left 
some nursing homes without a medical director, placing them in 
violation of Federal certification standards. This is an 
untenable situation, to say the least, that can lead to 
problems with access and quality of medical care for long term 
patients.
    Other nursing home responses to the liability crisis 
include reduction in staff hours, freezing wages and reducing 
residents' activities. These adaptations, together with the 
loss of available medical directors, escalates the professional 
risk associated with the medical care of nursing home 
residents, making already reluctant physicians think twice 
about taking on the care of nursing home patients as part of 
their practice.
    In North Carolina, nursing homes, physicians and hospitals 
formed a coalition in late 2002 to address the medical 
liability crisis. Among the reforms that we sought together, 
through this coalition at the State level, were the 
establishment peer-review privilege to protect proceedings, 
records, and materials produced by or considered by a Quality 
Assurance or Medical Review Committee from discovery or use in 
a civil action against a nursing home; and, two, liability 
limitations for nursing home medical directors who might 
otherwise be named as a defendant in an action against a 
nursing home.
    We believe there are solutions to this crisis, and we 
believe the long term care system is worth saving. It has to 
be. We believe the U.S. Senate should act to reduce the 
excessive burden of our broken liability system on our Nation's 
long term care providers.
    Thank you for the opportunity to be with you, and I will be 
glad to answer any questions.
    [The prepared statement of Dr. Cutchin follows:]
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    The Chairman. Doctor, thank you for that testimony.
    Now, let us turn to James Lett, immediate past president, 
American Medical Directors Association. I said ``Carmel.'' That 
is Carmichael.
    Dr. Lett. Carmichael, yes, sir.
    The Chairman. California.
    Dr. Lett. Correct.
    The Chairman. Excuse me.
    Thank you.

 STATEMENT OF JAMES E. LETT, II, M.D., C.M.D., IMMEDIATE PAST 
PRESIDENT, AMERICAN MEDICAL DIRECTORS ASSOCIATION, CARMICHAEL, 
                               CA

    Dr. Lett. Good afternoon, Mr. Chairman, esteemed panel 
members. Thank you for this opportunity.
    I am Dr. James Lett. I am the immediate past president of 
the American Medical Directors Asian or AMDA. It is a greater 
than 7,000-member organization dedicated to the care of frail 
elders and others who inhabit America's long term care 
facilities. More importantly, I am a full-time geriatric 
physician in Sacramento, CA, spending my days in nursing 
facilities in the care of those frail elders. I have learned 
one thing; that the best way to provide excellent care to this 
vulnerable population is having available, committed, 
knowledgeable physicians who compete to provide that care. The 
winners are our patients.
    Thank goodness, due to efforts by dedicated groups like 
AMDA, the body of knowledge about this unique population has 
greatly expanded. Even better news is that the pool of 
physicians who can apply this information and meet those needs 
has greatly expanded, that is, until recently.
    At a stunningly increasing pace, physicians are leaving 
long term care not of their choice, but because they cannot 
afford or, in many cases, cannot attain professional liability 
insurance at any price. I am seeing the effects. Locally, I am 
assuming care of residents for a physician who cannot obtain 
professional liability insurance and one who is retiring for a 
similar reason.
    Statewide in California, I have one colleague who is a 
professor of geriatrics at UCLA. After 13 years, his coverage 
was canceled. What was his sin? He marked ``yes'' in the box, 
``Do you see nursing home patients?''
    For another colleague, an acknowledged statewide leader in 
long term care whose group sees 8,000 visits a month in nursing 
homes in Southern California, the only professional liability 
insurance she can obtain for her group is a month-to-month 
policy. So, on July 31 of this month, Chris will sit by her fax 
machine hoping to receive the letter of renewal from her 
insurance company so she can see patients August 1, as she does 
each month. Helpfully, her insurance broker suggested that she 
fire the four most experienced physicians in her group to 
``reduce their liability exposure.'' So not only would she lose 
physicians who want to practice, but those residents lose 
experienced physicians who want to see them.
    Nationally, AMDA was stunned by calls around the country 
from members about the magnitude and widespread nature of the 
crisis. In order to learn more, we conducted some surveys, 
which are to my left on the easel.
    In 2002, we found about 1 out of 5 of those respondents had 
difficulty obtaining or renewing their liability coverage. More 
importantly and worrisome, 27 percent of the respondents said 
they modified their practices because of liability concerns.
    Just over 5 percent of them resigned their roles at one or 
more, I should point out, nursing facilities in this country, 
which is, as has been described by Dr. Cutchin, a federally 
prescribed role to oversee quality of care in long term care 
facilities.
    Nearly 9 percent reduced patient care hours. They began 
turning complex cases over to others.
    We asked the question whether this was a bad year, a bad 
survey or an impending crisis. We got our answer the next year. 
About the same number of respondents reported they could not 
get medical liability coverage or had difficulty renewing it, 
but the number that jumped out at us is now over a third of 
them directly were told they could not renew or get insurance 
because they work in nursing facilities. The number that 
reported that insurance companies pulled out of the market 
doubled over the course of that survey.
    Even more importantly, again, nearly 1 in 5 physicians said 
they significantly modified their practices due to liability 
concerns. What concerned us even more was that it was double 
the number this year--10 percent who stopped being medical 
directors, and the 10 percent stopped providing care in nursing 
homes, 3 times as many reduced patient care hours in nursing 
homes, and 3 times as many began referring complex cases.
    Another terrible number not up there: 10 percent of the 
respondents in this group simply locked their doors and turned 
out the lights in their offices, on their medical practices. 
While this trend continues to decimate the pool of available 
physicians, the same barriers that forced the current exodus 
limit potential physician entrants into long term care, even 
though they wish to enter.
    Ultimately, access to care will simply be overwhelmed, as 
the shrinking pool of long term care physicians collides with 
the need for access, as some 76-million baby boomers explode 
upon our Nation.
    The dedicated long term care physicians of America, 
specialists in the care of frail elders, implore you to ensure 
a pipeline of committed, knowledgeable and, above all, 
available physicians to the frail elders of long term care. 
Please enable, not disable, access, for only access will assure 
quality to the vulnerable elders in America's nursing homes.
    Thank you, Mr. Chairman.
    [The prepared statement of Dr. Lett follows:]
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    The Chairman. Well, Doctor, thank you very much. I guess my 
first reaction to most all of the information you have provided 
this afternoon is the reaction of being alarmed that the care 
that our seniors need may, in many ways, be diminished 
dramatically by the information that you have provided to us.
    Let me, in prefacing that, say that this really is about 
providers and doctors and not about attorneys. It is about the 
vulnerable, frail elderly who are in need of nursing home care. 
And it is in that context that I will begin my questioning 
starting with you, David.
    As an academician--academic, I should say--looking at the 
statistics and the facts and gathering that information that 
you have supplied to us in part, in your view, what information 
or more information is needed to better understand the 
relationship between quality care and litigation?
    Mr. Stevenson. Thanks for the question. This is an 
important question and one whose answer affects the appropriate 
policy response.
    Professor Kapp talked about the positive and the negative 
influences of the tort system on quality of care. As I said in 
my remarks, we do not yet know what the relationship between 
quality and litigation is. We do not know if the net effect has 
been bad or good, despite the alarming trends we have heard 
about and despite the alarming stories.
    Ultimately, what is needed in this area is more research 
that is done at the level of the nursing facility and also at 
the level of the individual nursing home litigation claim.
    Now, if I could just clarify for one moment why this is 
such an important question. If the relationship between 
litigation and quality were essentially random, if it were not 
there, that would imply one sort of situation that might 
emphasize tort reforms aimed at reducing the nonmeritorious 
claims. However, if it were shown that litigation was tapping 
into a reservoir of substandard care, you might take another 
approach to the problem, and in fact you might look outside of 
the litigation and the legal system more generally.
    So I should say that it is an important question, but a 
very important question.
    The Chairman. Is there any study that has been done that 
links quality indicators with survey deficiencies to the 
likelihood of a facility being sued?
    Mr. Stevenson. I know of four studies that have looked at 
this question, all of which have focused on State-specific 
data. Three of these have been done in the State of Florida, 
and one of them has been done in the State of California. The 
three in Florida were done by academics. The one in California 
was done by an advocacy group. These studies have reached mixed 
results.
    I should also point out that they face limitations in their 
interpretation not only because they are State-specific 
studies, but also because there is a challenge in obtaining 
data on all litigation claims. It is simply hard to get access 
to those data, so it is hard to do national studies, on this 
question.
    The Chairman. The GAO found that one-fourth of the nursing 
homes studied had deficiencies causing harm to residents, 
replacing them at risk of injury. Forty percent of these 
facilities were repeat offenders. Could liability cost issues 
be effectively addressed by simply cracking down on the 40 
percent to improve safety?
    Mr. Stevenson. If the litigation claims were concentrated 
among the worst facilities, which I would say is an open 
question, but if they were, one could imagine that having some 
major impact.
    Perhaps Professor Kapp can speak to the relationship 
between tort law and regulation, between which there are 
different but complementary purposes. But if one were to 
magically remove the repeat offenders from the universe of 
nursing homes, perhaps this would help mitigate the problem, 
but there still could be serious problems that could come up in 
the other nursing homes, I would argue.
    The Chairman. Now, as I ask these questions, and as we move 
down the line, if you wish to respond in part to a question 
already asked or believe you can offer additional information 
to it, please feel free to do so as we visit with you this 
afternoon.
    Theresa, you mention in your testimony factors that affect 
insurance availability and cost of premiums other than 
litigation. What are those factors?
    Ms. Bourdon. There has been a very thorough discussion of 
these factors provided by the American Academy of Actuaries, 
last March 2003 to the Senate Committee on Appropriations when 
they conducted a hearing on the medical malpractice liability 
crisis.
    In summary, the key factors:
    One is the lag effect in recognizing changes in trends.
    Another is investment yields, as premium dollars can be 
invested between the time they are collected and the time they 
are needed to pay for claims.
    A third is reinsurance capacity--the insurance insurers buy 
to help them spread the risk of the risks they are insuring.
    Fourth would be competitive pricing, particularly during 
periods of expansion into new markets. The mismatch between 
premium increases and current loss cost trends that may be 
occurring now in the nursing home industry is really the result 
of a period back in the late 1980's, early 1990's of unexpected 
low trend, very favorable investment yields, extensive 
reinsurance capacity and aggressive expansion into new markets 
because at that time health care was considered a profitable 
line of business to be in.
    This period was then followed by a period of worsening 
trends, lower investment returns and increased insurance costs, 
creating the ``Perfect Storm'' that is resulting in the huge 
premium increases now.
    There was a great quote from the American Academy's 
statement that said, ``While one can debate whether companies 
were prudent in their actions, today's rate increases reflect a 
reconciliation of rates and current loss levels given available 
interest yields. There is no added cost for past mispricing. 
Thus, although there was some delay in reconciling rates and 
loss levels, the current problem reflects current data.''
    The Chairman. How does the rate of increase and the size of 
the claims in nursing home care compare with the liability 
claims incurred by other health care providers?
    Ms. Bourdon. Based on research that we have done at Aon, 
both on the nursing home industry and hospital and physician 
liability claims, we see a material difference in the overall 
trend in total losses. Hospitals have been trending, based on 
research we have been doing for the last 4 years or so, at 
about 10 percent per year.
    We look back 10 years every time we do our study, and the 
trends have been fairly consistent for the last decade in our 
research. Nursing homes in total, as reported in the study that 
we have made available to this committee, are incurring an 
average annual trend of about 17 percent over the last 9 years. 
It was greater in the earlier years of that period of study, 
and it has tapered off a little due to Florida and Texas and 
effects there that we expand on in our study.
    If you exclude Florida and Texas, the rest of the country 
is incurring about a 27-percent year-over-year trend, compared 
to hospital and physician data that we have analyzed. If you 
break it down between the number of claims and the size of 
awards, our research on hospitals and physicians indicates that 
frequency really is not an issue. There is maybe a 3-percent 
year-over-year increase in the number of claims against 
physicians and hospitals. The growth is in the size of the 
awards, which are growing at about 6.5 percent year-over-year.
    Contrary to that, on the nursing home side, if we ignore 
the effect of Florida and Texas and the corresponding 
withdrawal of much of the industry from those States, and look 
at the rest of the country, claims are increasing at about 15 
percent year-over year, and the size of the awards are 
increasing 10 percent. So you have the double effect of claims 
increasing in number and the size of the awards growing.
    The Chairman. As I turn to my colleague for her time for 
questioning, you used the phrase once or twice, if you ignore 
Florida and Texas. How do you ignore them? Are they not lead 
indicators in the public pool?
    Ms. Bourdon. They are lead indicators, but there have been 
a lot of factors that have occurred in the industry in the last 
few years that are causing some distortion in the actual 
trendlines. One of the largest factors is that many of the 
nursing home providers, particularly the multistate providers, 
are leaving Texas. They have left. Let us put it in the past 
tense. They have left Florida, they have left Texas. They 
cannot do business there. When you leave a State with an 
average cost per bed of $8,000 or $5,000, you lower the 
average. So when you looked at the first graph we put up, the 
trendline appears to be tapering off, but there are other 
factors that are causing that besides just getting this issue 
litigation under control.
    In addition, in those States Florida and Texas it is very 
hard to buy insurance. So a lot of providers do not even have 
insurance, and therefore, the claims are not coming in any 
more, or they are coming in with very low limit claims because 
providers are purchasing a minimal amount of coverage, $25,000 
per claim, for example, whereas the larger providers used to 
provide unlimited amounts of recovery for plaintiffs.
    The Chairman. When you were talking about 8,000 or 10,000 
per bed annually, you were talking about that against the 
average figure that you gave us of 2,000; is that correct?
    Ms. Bourdon. Exactly. So when you take out the 8's and the 
10's and the 5's it drops the average.
    The Chairman. That would drop averages, you bet it would.
    Let me turn to my colleague, Senator Lincoln.
    Senator Lincoln. Thank you, Mr. Chairman, for certainly 
bringing up this hearing on a very important topic of liability 
concern in the long term care setting. It is certainly clear to 
many of us this country is at a crossroads in regards to the 
process by which a patient seeks the compensation for harm 
occurring in the medical setting, and at this crossroads we 
have to make some decisions, because clearly, I think, to many 
of us, it has become quite an issue of patient access. 
Skyrocketing insurance costs are driving our physicians from 
the practice of medicine. They are closing the doors of our 
long term care facilities, and affecting the overall access to 
affordable and available health care.
    It is especially true in some of our more rural areas of 
the country, such as my State in Arkansas which you have 
mentioned a couple of times, and something has to be done. 
States like Arkansas, we are a snapshot of where the rest of 
the country is going to be in the next 15 years. We rank No. 6 
in this country as a percentage of our population that is over 
65. So we rank up there with California, Florida, Pennsylvania, 
Arizona and other States, and unfortunately, our population of 
elderly tend to be more disproportionately low-income and 
disproportionately in those rural areas, so they are more 
difficult to serve.
    But being that snapshot, we also recognize that the rest of 
the country is soon to follow where we are in the 
circumstances, and we really have got to work at solving this 
problem and cannot become locked into one solution. Oftentimes 
that is our problem here in Washington, becoming locked into 
one solution to the detriment of others, and I am afraid that 
some of what has happened in the Senate, while our constituents 
are driving long distances just to find a physician that will 
treat them or visit their parents in a long term care facility, 
the Senate has been debating the same solution in different 
forms with the same results, and that is why we are glad you 
are here today to help us look from many perspectives of what 
the solution must be in order to eliminate that detriment to 
the access of care.
    We have seen in most of these proposals a $250,000 cap on 
the non-economic damages, which really has not politically been 
a viable solution in Congress, and I am not sure that it will 
be in the near future. Our hope is, is that we can look at 
multiple areas of places where we can bring together a 
consensus. Certainly our constituents do not need to suffer 
because of what we do up here, treading water, instead of 
getting something done. My hope is, is that we will look at 
some alternative forms and approaches to tort reform.
    One of the ones in one of my working groups--and, Dr. 
Cutchin, my husband did his residency in North Carolina, so I 
come from it from all perspectives--but really looking at some 
of the alternative forms. One of those has been medical review 
boards, which can lower some of the liability costs for 
providers and help maintain I think some of the current levels 
of access to care, or increase that level of access if we can 
bring down some of those liability costs, and would like to 
certainly hear any of your thoughts on the panel about that 
solution to tort reform or at least as being a part of that 
overall solution that we need, in bringing together hopefully a 
comprehensive package of tort reform that is going to help make 
more availability of liability insurance, but more importantly, 
bring down those costs that are detrimental to our physicians 
and to our medical facilities, our hospitals and everything 
else.
    Without a doubt, we cannot delay much longer on this 
matter, certainly not indefinitely and I hope that we will not. 
So I thank the Chairman for bringing this up.
    Dr. Stevenson, you mentioned in your testimony that the 
caps on non-economic damages could have a disproportionate and 
unfair effect on the plaintiffs in long term care malpractice 
actions. To some degree that seems to be one of our biggest 
sticking points in the Senate. Do you have any other solutions, 
or maybe others on the panel may out there, that we could 
address in terms of the rising liability costs other than those 
caps or maybe looking at how we redistribute those caps on non-
economic damages or at least take a different perspective?
    Mr. Stevenson. I should start off by saying I am not a 
health lawyer, and so I am treading on thin ice with some of 
these points. I should also point out by way of clarification 
that in detailing the differences and talking about the large 
role of non-economic damages for claims that nursing home 
residents tend to be involved in, I am not arguing one way or 
another about tort reform more generally. What I am arguing is 
if tort reforms move forward they should pay attention to the 
distinct characteristics of nursing home claims, rather than 
assuming these differences away by imposing generic reforms. 
But I would cede the floor to other people who know a great 
deal more about health law and tort reform.
    Senator Lincoln. I think we too want to cover all the 
bases. We do not want to just focus on one area of tort reform 
that is going to only help one section of the medical 
community. Anybody else? Dr. Kapp?
    Mr. Kapp. Tort reform encompasses several things. It could 
encompass things like damage caps which essentially take the 
existing system and try to make it work better. Essentially 
damage caps, when one advocates damage caps, one is saying we 
have a good basic tort system. We need to tinker with it. We 
need to make some changes in it to make it work better.
    The other approach, of course, is to say that resolving 
claims of substandard medical care that injure a patient ought 
to be dealt with in a different kind of system, that the tort 
system, as it currently exists in its adversarial environment, 
is not the best way to accomplish the two goals of compensating 
injured victims and improving the quality of care, and that 
perhaps administrative systems, and you mentioned one, that 
would substitute for the existing mechanism of resolving 
disputes about quality of care would be a more viable and 
positive way to address the issue. My own view is that 
discussions about damage caps and other tinkering mechanisms 
with the existing system are mistaken in taking as viable the 
existing system that can be made better by tinkering at the 
edges.
    Senator Lincoln. So explain that. You are saying that you 
do not think tinkering is the way to go, that we need a 
complete overhaul, or are you saying that the current system 
through some modifications is still a viable system?
    Mr. Kapp. I would argue for the former, for the replacement 
of the existing system or some administrative mechanisms. I 
understand the problems of political viability, but I would 
argue in favor of the more radical approach, the more systemic 
approach.
    Senator Lincoln. You do not mean in terms of the due 
process that individuals have, your feeling that that can be 
done with every confidence that people's right to due process 
can be preserved?
    Mr. Kapp. I think it can be. Obviously, the devil is in the 
details----
    Senator Lincoln. It usually is around here.
    Mr. Kapp. I do believe that that is the approach that ought 
to be pursued.
    The Chairman. Could I follow up on that? Are you suggesting 
that in certain instances a review board or a board that can 
make a determination of findings and therefore a potential of a 
reward for damages, versus, if you will, the threat of a 
lawsuit that would take one to a trial setting, and therefore 
settling out of court, and all of those kinds of things that 
hold down expenses, if you will, and do not argue the issue may 
be in detail, to lessen the potential impact of a deep pocket 
jury finding? Is that part of what you are suggesting? I am 
putting words in your mouth to a degree to explain what I am 
trying to say, but is that the kind of significant reform you 
are talking about?
    Mr. Kapp. Correctly so, and certainly there are problems 
with that. The total cost of an administrative system may be 
more because the current tort system, for all its problems, 
filters out many potential claims where an individual cannot 
prove negligence or cannot prove causation, and in an 
administrative system, particularly a no-fault kind of 
administrative system, you would have many more claims being 
filed and paid at lower rates than the current system often 
compensates victims, but the total cost might be more, but I 
would suggest that the results certainly might be more 
efficient and might be fairer, likely would be fairer, and 
certainly in terms of perceptions of providers of fairness. I 
think there would be some valuable benefits that would then 
improve their behavior with ramifications for quality of care.
    The Chairman. Senator Lincoln, I interrupted you. Please 
proceed.
    Senator Lincoln. Thank you, sir. I appreciate it.
    Just a couple of more questions to follow up. I do not know 
if any of you all have had any experience with medical review 
boards, but it is something certainly that I have encouraged 
some of my colleagues for us to look into the States that do 
have medical review boards in conjunction with their medical 
malpractice and their tort system there in the States. There 
are a lot of different unanswered questions there in terms of 
the admission of a verdict from a panel that is not bound by 
the rules of evidence. I am not a lawyer, but I learn to talk 
it occasionally up here. But certainly looking at all of those.
    I would certainly be interested to hear any of your 
comments about that if any of you all have come in contact with 
that. Mr. Estes?
    Mr. Estes. I have spent some time studying the States' 
medical review panels. I do not have data with me, did not come 
prepared to discuss the data. But the trends in the States that 
have utilized medical review panels have been positive, and 
they have found to be effective, in my view. I want to say, as 
you did, I am not an attorney. I operate nursing homes. That is 
the limit of my involvement here. But I would answer your 
question by saying that some combination of medical review 
panels or some other administrative process. We have got the 
Federal Tort Claims Act that is an effort to take an existing 
process and deal with similar problems that involve the 
Government as an option.
    In some States we have tried to deal with these things 
through the actual rules of evidence. Punitive damages, 
according to David, are a big problem in nursing homes. There 
is a lot of evidence that comes in against nursing homes 
because we are nursing home. The regulatory record that we have 
is three miles long. A good nursing home has a lengthy, 
lengthy, regulatory record, that when you bring it into court 
and use it to put the nursing home on trial, sometimes it 
results in the jury getting aggressive in their desire to 
punish this nursing home, and we end up I think, with some of 
the punitive damage awards because of the amount of regulatory 
history and the amount of things that come in against us.
    So there are a variety of things out there that are 
options, and it may very well be that some combination of some 
of those fixes with different caps than those who have been 
unsuccessful thus far that are being debated here could be a 
viable fix, and I wanted to give you my thoughts.
    Senator Lincoln. I am glad you brought that up, because it 
is important I think for us to look at all of the options of 
how we can comprehensively craft something that will provide 
the kind of relief that you need, and obviously be consistent 
with the important things that we enjoy in this country. So I 
appreciate. We would love to have any more of your comments on 
those that you find.
    I would just like to ask Ms. Bourdon, in your loss cost per 
bed, I am assuming that that has only to do with litigation 
costs. Does that have anything to do with regulatory liability? 
I mean I hear these horror stories from my nursing homes, and I 
am sure Mr. Estes can concur, but I mean getting written up for 
a $10,000 fine for a dent in the can, or some of these crazy 
rules that are out there that----
    Ms. Bourdon. No, this is just the cost for the professional 
liability and the general liability claims against nursing 
homes. It is the amount paid in compensation to the plaintiff, 
their attorney's fees, and the defense costs that the provider 
incurs.
    Senator Lincoln. It is not any kind of regulatory liability 
or regulatory fee liability?
    Ms. Bourdon. Does not include those costs.
    Senator Lincoln. I am glad the Chairman has had the 
foresight to draw you together, and I hope that we can continue 
to call on you for good suggestions, and certainly your input 
as we tangle with this issue.
    I visited with a nursing home owner, a multi-state nursing 
home owner not too long ago, who indicated that they had sold, 
not sold, but closed down eight of their nursing homes, and 
every one of those nursing homes was operating at 85 to 90 
percent capacity. They are not closing their doors because they 
are not needed. They are closing their doors because they 
cannot keep them open. That is a real problem when we realize 
that in the next 15 to 20 years we are going to double the 
number of seniors in this country, and we are just not making 
sure that as a Nation we are prepared. The geriatricians is an 
issue that I am enormously involved in. We are training less 
and less, unfortunately, geriatricians to deal with that 
problem. I am hoping that through the Aging Committee and the 
great leadership of our chairman, we will face many of these 
issues on behalf of our constituents.
    Thank you, Mr. Chairman.
    The Chairman. Senator Lincoln, thank you for your presence 
here today and your knowledge and contribution. That is greatly 
appreciated.
    Professor Kapp, what can be done to improve long term care 
providers' perception about the legal environment in a way that 
would change their behavior to improve quality of care and 
quality of life for our long term consumers?
    Mr. Kapp. I think it is important for the Congress and for 
the State legislatures to do something that sends a signal, 
that sends a symbol to long term care providers that their work 
is valued and important and supported. Data is important, but 
symbols are important as well, and I think providers are 
looking for symbols that those in positions of authority and 
influence value their contributions.
    The biggest complaint that I have heard from providers is a 
perception, which I think is in many cases well grounded, of 
inconsistency, unpredictability and arbitrariness in the 
enforcement of standards to which they are going to be held by 
regulators, juries and prosecutors, mixed signals.
    There was discussion before about the regulation litigation 
synergy, and providers tell me that a great deal of their 
frustration is that the signals they get from regulators and 
from the legal system are often mixed and inconsistent and 
unpredictable. To the extent that providers can be better 
convinced that they will be held in a fair and consistent way 
to specific, knowable standards of care, that would go far in 
improving their perceptions of the legal environment and the 
behavior that is driven by those perceptions.
    The Chairman. Thank you.
    Dr. Cutchin, what would be the consequence if steps are not 
taken to correct the liability problem that is impacting 
nursing homes and long term care facilities in North Carolina?
    Dr. Cutchin. I think just some clarity on what we had said 
a moment ago. First of all, if nursing homes cannot secure 
medical directors, they have to close by Federal law. If 
nursing homes cannot----
    The Chairman. Repeat that.
    Dr. Cutchin. If they cannot secure medical directors, they 
have to close.
    The Chairman. In other words, the Federal law says you 
have----
    Dr. Cutchin. By regulations they have to have a medical 
director available. By the same token, if they cannot pay for a 
PLI or professional liability insurance, they probably have to 
close, not necessarily, but they are at great risk.
    The Chairman. Because they cannot get the medical director.
    Dr. Cutchin. They cannot get the medical director, correct.
    The Chairman. So you are suggesting one creates the other 
problem or vice versa.
    Dr. Cutchin. Makes it more difficult to get the medical 
director, of course. If primary care physicians cannot get 
professional liability insurance because of their relationship 
with nursing homes, they will cease to care for those patients 
in nursing homes, they will cease to serve as medical 
directors, and again, you cannot operate nursing homes without 
them. So we think all of those things together will happen if 
the process continues in the direction that it is moving.
    The Chairman. The ultimate Catch-22, in essence.
    Dr. Lett, what does long term care seem to be--why does 
long term care seem to be a focal point for this litigation? We 
have heard a variety of reactions. Is there a problem with care 
in these settings, or are we simply catching up after it being 
ignored for a time?
    Dr. Lett. Senator, certainly long-term care is administered 
by humans, and humans most certainly are capable of errors. 
That we freely have to understand and admit, but there 
certainly are special circumstances around long term care. It 
is a very highly emotional transition in life, and I can speak 
to it very directly, having put my mother in a nursing home 
some 5 months ago.
    Memories of the patients clouded by illness and medicines, 
anger over the loss of independence, anger over being placed by 
your family and the family feeling very guilty about that as 
well, leads to a great number of unmet expectations which often 
leads to anger which appears to be, in my understanding, one of 
the chief causes of lawsuits.
    Second, we are dealing with a very elderly, vulnerable, 
fragile population with a high probability for decline, and in 
fact, the reason they are in a nursing facility is they have 
recently had a decline and no longer could care for themselves, 
so it becomes very difficult to differentiate between an 
expected decline and an inappropriate decline, even among the 
best of experts.
    Certainly, I think there are some assumptions in our 
culture at this point in time that nursing homes are not good. 
One of the things I hear most from our patients is my family 
promised me they would never put me in a nursing home. There is 
kind of a perception that it is a negative environment to begin 
with, which is added to in the media. I have to tell you that 
upon checking into my hotel room yesterday, I turned on the TV 
and the first commercial I saw was from a plaintiff attorney 
advertising, has your loved one been abused or neglected in the 
nursing home? Free consultation.
    I think there is a negative media barrage, and an 
assumption that, yes, there may be a problem and we should look 
into it.
    Last but not least, there are States, and California is one 
of them, that has laws in place that not only make it easy to 
sue physicians and other nursing facilities, other entities 
around the care of elders, it actually is a very good business 
decision to do so.
    The Chairman. Like Senator Lincoln, I represent a rural 
State with a good many small nursing homes in smaller 
communities. What effect does these kinds of costs have on a 
one or two-home operator, or a single home operator, versus a 
multi-home, multi-state operator?
    Dr. Lett. I think it is going to be horrendous for smaller 
markets. The availability of----
    The Chairman. The costs are the same, are they not, in many 
instances, the liability costs?
    Dr. Lett. Theresa can probably speak to this more directly 
than I can, but, yes, the costs are high relatively speaking 
especially in a small market. That is, even if costs are lower 
in Idaho for the premiums than they are in California, the cost 
of living is different, the income is different, et cetera. So 
the economic pressures for not entering into the long term care 
market by a physician are the same in rural markets, since you 
start out with fewer physicians, you probably will have just 
statistically fewer physicians who have been trained in long 
term care and elder care by a responsible organization such as 
AMDA, so you have a very small pool to begin with that gets 
drained very quickly when you add in the high cost of trying to 
be involved either as a medical director, at an administrative 
level, or as a practicing physician in long term care.
    The Chairman. Ms. Bourdon, you wish to make additional 
comment on that?
    Ms. Bourdon. Yes. I would just add to that that in our 
study we separately analyzed 13 States and we selected those 
States based upon two criteria. One was that there was enough 
data, there was a credible sample of claims data in order to 
get a sense of the trends. Second, we did consider these to be 
some of the States with the higher trends, and wanted to take a 
look at them.
    But we took the remainder of the States, which would 
include the rural States, that independently by themselves, if 
there is less than 5,000 beds in the data, could not give us a 
statistically significant indicator, and we aggregated them all 
together and put them in what we call ``the all other States'' 
category. That category, I would say, represents a lot of the 
rural States. That category, while it has a lower relative cost 
per bed--and it was on one of the charts we threw up--still 
indicates and annual double digit increase, double digit at 20 
percent a year, year over year in the costs in those other 
States.
    In addition, in our study there is a section in which we 
specifically address the insurance premium and coverage changes 
that some of the smaller providers are reporting, because 
again, independently, if they are only operating one or two 
facilities, their own data is not statistically significant, 
and we tracked the premium increases that they were incurring, 
and then they are highlighted in the report, and it is what 
indicates 200 percent, 300 percent increases over the last 3 to 
4 years.
    The Chairman. Thank you.
    We have just been joined by another one of our colleagues, 
Senator Carper. Tom, would you wish to make any comment and/or 
question of these panelists?
    Senator Carper. Thanks, Mr. Chairman. I sort of joined you 
in mid-flight.
    The Chairman. Well, we appreciate the touchdown.
    Senator Carper. It is my pleasure. We just had a sort of 
losing battle last week in the Senate on the issue of class 
action litigation reform, and the concern there, as you may 
recall, has been the emergence of something called magnet 
courts, where oftentimes county courts with locally elected 
judges who end up hearing a national class action litigation 
that really in many cases belongs in a Federal court. You have 
a defendant from one State, plaintiffs from many other places.
    I literally have not read your testimony, and I really do 
sort of join you in mid flight. If you could use as a basis of 
reference we have been working on that, we are working on 
asbestos litigation reform, to try to ensure that people who 
are sick and dying from mesothelioma or asbestosis actually get 
money soon that they need for their pain and suffering, for 
their families, and to make sure that people who maybe have an 
exposure but do not have the symptoms, that they do not get 
anything, at least for now, until they ultimately become 
impaired, and to reduce the amount of money that goes in 
transactions costs on the legal side from 40, 50 percent, where 
it is now, to something far less than that. Those are two that 
we actually are debating on.
    Just discussed with one of our leaders the next steps on 
asbestos, so those are issues I think that are alive and well, 
despite what happened last week on class action.
    The issue that is before us now, my mom lives in a nursing 
home, lives in a wonderful nursing home in Ashland, KY just 
across the line from Huntington, WV, lives not far from her 
sister, not far from my sister, and so we are very mindful of 
the kind of care that she gets, and want to make sure she gets 
the very best care.
    By virtue of having said all of that and my personal 
involvement with my mom and our family, my involvement on class 
action litigation and legislation and asbestos legislation, if 
you would each take a little bit of time and tell me what I 
should know about the issue that you bring to the table? These 
are issues that I care about, have a personal interest in, and 
have a professional interest in. Dr. Lett?
    Dr. Lett. I am smiling because I was raised in Ashland, KY, 
and my grandparents were both in a nursing facility in my 
hometown there for many years, so I certainly can relate.
    Senator Carper. No kidding. I do not remember where I was, 
but I stopped someplace. Maybe it was, happened to be at--there 
is a YMCA there, and I try to work out every day, and I went 
there to work out. I remember seeing like inscribed on one of 
the lockers there, ``For a good time call James Lett.'' I 
remember wondering, who is---- [Laughter.]
    Dr. Lett. I was certainly glad you erased all those, sir.
    Senator Carper. Who is this guy? [Laughter.]
    Dr. Lett. I am sorry. I could not help the personal note, 
hearing about my hometown.
    Senator Carper. I still visit it every month. I am going to 
be there this coming weekend to see my mom.
    Dr. Lett. My thumbnail is that at this point in time 
liability insurance problems are no longer a threat. They are a 
fact in terms of limiting access to frail elders of the 
physicians who are most experienced and best positioned to care 
for them, and it is getting worse, and we must do something 
immediately.
    Senator Carper. Mr. Cutchin?
    Dr. Cutchin. Dr. Cutchin, yes, Larry Cutchin. At the risk 
of being repetitive, what we----
    Senator Carper. You grew up in Ashland, KY too? [Laughter.]
    Dr. Cutchin. No, I live in North Carolina.
    Senator Carper. Where?
    Dr. Cutchin. Tarboro.
    Senator Carper. My wife is from Boone up in the mountains.
    Dr. Cutchin. That is the other end of the State, but we 
like both of them, sir. Nice place to be.
    The issue of course that we are concerned with is the fact 
that nursing homes are under stress because of the liability 
insurance costs, and the issue I brought to the table and Dr. 
Lett brought to the table as well is the fact that they are 
having problems securing and maintaining medical directors, and 
other physicians to see patients in the nursing homes because 
of the fact that those physicians cannot get liability 
insurance if they have a certain percentage, a large portion of 
their practice is in nursing home care. That is a big issue.
    I can give you a personal example. A friend of mine in 
Greensboro, NC, a retired physician, who is the board chairman 
for a nursing home organization in that county, that is a 
nonprofit organization that takes care of about 500 elderly 
people in the nursing home. He was notified out of the blue the 
first of March that the 10-physician group, they had provided 
medical director services as well as patient care services in 
that home would no longer be able to do it because they could 
not get malpractice insurance or medical liability insurance.
    They negotiated over a month and finally did get a policy, 
but it was with a 120 percent increase in the premium from 
before. They do not know what it is going to be next year. That 
is the example of what we are dealing with.
    Senator Carper. Thank you.
    Mr. Kapp?
    Mr. Kapp. In a sentence my message was that health care 
providers, long term care providers today have a strong 
pervasive anxiety, or apprehension about the scary adversarial 
legal climate in which they function, and that perception, 
those apprehensions or anxieties, often translate into behavior 
that has negative consequences for the care of consumers.
    Senator Carper. Thank you, sir.
    Mr. Estes?
    Mr. Estes. In direct response to your questions of the 
relationship between the situation we are talking about here 
today and the other issues that you raised, I would respond 
that it is different but yet similar to both, and that from a 
State perspective, we are seeing certain States have a much 
more significant problem with liability costs than we are other 
States. We do not know exactly why. We know from a data 
standpoint that it is a fact and we believe it to be related to 
the State laws and the way the courts work in the individual 
States, and that is one of the reasons, quite frankly, we think 
that there needs to be some Federal method to address this 
problem.
    The second thing I would say to you relates to the asbestos 
situation that you raised. We are already starting to see, 
because nursing homes can no longer buy insurance in certain 
markets, we are starting to see what I consider to be the 
ultimate bad circumstance for our residents, and that is when 
one of our employees makes a mistake or when one of our 
employees does something bad, there are legitimate claims that 
are not going to be compensated because there is simply no 
insurance available to compensate these victims.
    So I would tell you that those are the two things that come 
to my mind that would kind of get you up to speed on how what 
we are talking about relates to the things that you discussed.
    Senator Carper. Thank you.
    Ms. Bourdon?
    Ms. Bourdon. As an actuary to the nursing home industry, I 
have been tracking these lawsuits for the last 6 to 7 years, 
and we do an annual survey every year of the industry, which 
represents about a quarter of the industry. From the response 
to our survey, we have watched this issue grow from a $50 
million a year cost to a $1 billion a year cost in a 10-year 
timeframe.
    Senator Carper. The cost of what? I am sorry.
    Ms. Bourdon. Cost of lawsuits against nursing homes 
alleging patient care violations.
    As this has occurred, I have watched our clients go into 
bankruptcy, get out of nursing home facilities in certain 
States, and completely contract their operations. I have not 
seen any growth, per se, other than those acquiring the homes 
being sold off, but not new licenses being established in 
States.
    This is probably the main reason why the number of beds in 
this country is down from 3 years ago, which is a serious issue 
when you consider the baby-boom generation aging and 
approaching retirement age.
    Senator Carper. Thank you.
    Mr. Stevenson?
    Mr. Stevenson. I come to this issue as an academic health 
policy researcher, and the reason I am here in particular is 
that I and a colleague did a national survey of defense and 
plaintiff attorneys who see these types of claims.
    In brief, what I said today was that first there is a large 
number of claims, and there has been a substantial increase in 
the number and the size of the compensation over the past 
several years.
    Second, I said that there is an unclear relationship 
between litigation and quality, it is simply unclear how 
accurate the tort system is in compensating and deterring poor 
quality care at this point.
    Then the last thing that I said was that there are a number 
of distinct features about nursing home litigation claims that 
might give one pause if they were to think about using 
conventional tort reforms such as limiting non-economic damages 
to control the cost of these claims.
    In direct relation to the point you made at the outset 
about class action suits and the magnet courts, I should just 
add from our study that the vast majority, 92 percent, of 
nursing home litigation claims are settled out of court. Only 
about 7 or 8 percent actually go to trial. Then, 9 out of 10 
result in some dollars going to the plaintiff, and we found 
that is a large amount of total dollars. In large part the high 
settlement rate has been out of concern, we would posit, of 
going to court.
    Senator Carper. Thank you. Could I ask one more?
    The Chairman. Sure. Please do. Tom.
    Senator Carper. Thanks, Mr. Chairman.
    When Senator Craig and I, and some of our other colleagues, 
who support class action reform and also asbestos litigation 
reform, when we approach those issues I always say I do not 
know that the States have the ability to fix those problems, 
and my view is it takes some intervention by the Federal 
Government, by the Congress and by the executive branch. I used 
to be a Governor for 8 years, and I am mindful of the 
prerogatives of the States and respectful of the prerogatives 
of the States. There is a question I would ask you. The States 
cannot fix action. States cannot fix asbestos, at least not in 
my view. I am not so sure, I just do not know, do States have 
the ability, whether it is Delaware or Idaho or any other 
State, if they have the problem, malpractice costs or whatever 
revolving around long term care, do States have the ability to 
fix those problems? Are there some examples of States who are?
    Mr. Estes. Yes, sir. I am stepping forward because nobody 
else did. There are some examples of State reforms that have 
been passed. It is my view that some of those reforms will be 
successful, although it is still very early to say that they 
are successful.
    Senator Carper. Do you recall any States that have done so?
    Mr. Estes. The State of Texas has passed medical 
malpractice tort reform in the last year. The State of 
Mississippi has passed tort reform. There are two or three 
others that have done things to a lesser degree, and I believe 
they will be effective.
    The reason that I am not sure we can leave it to the States 
to figure out is two thing. No. 1, it is the Federal 
Government's money that is being spent in this process, and the 
diversion of Federal money, whether it be from Medicare or 
Medicaid, into this process is wasteful to the taxpayers and 
needs to be addressed from a Federal standpoint.
    The other problem I would tell you is that as we have been 
able to successfully pass measures that we think will curb the 
lawsuit abuse problem in these States, the problem just crops 
up in another State, literally. So those two reasons are the 
reason we think that there needs to be a Federal fix, rather 
than it be left up to the States.
    Senator Carper. Dr. Lett?
    Dr. Lett. Thank you, sir. After having been raised in 
Kentucky, I took Horace Greeley's advice and went West, and I 
am now practicing in California. California has a very 
successful tort reform act called MICRA, Medical Injury 
Compensation Reform Act, passed in the mid 1970's. It has 
without a question held down insurance premiums for physicians. 
They have risen only about 170 percent, while in other States--
--
    Senator Carper. Since the 1970's?
    Dr. Lett. I believe it is since the 1970's, while in other 
States like Florida they have gone up 2,300 percent in that 
same period of time. However, as well as MICRA works, one 
reason why I would think--if you will forgive me for putting 
this in--that a Federal solution is better, is that in 
California, what has happened is there is a specific law, the 
Elder Abuse Statutes, under which MICRA can be circumvented. 
This is why even a State with a marvelous, marvelous tort 
reform system in place still is on the endangered list for long 
term care and the care of elders, is because it can be 
circumvented through this legal loophole. Certainly a Federal 
fix of that would be greatly appreciated by the long term care 
geriatric physicians of California and the frail elders we 
serve.
    Senator Carper. Thank you.
    Dr. Cutchin. I would agree with that, that there is 
evidence that States can fix that, fix it, but a Federal effort 
would certainly be a big improvement, and we would not then 
have a patchwork across the country on this.
    Senator Carper. Thanks.
    Mr. Chairman, thanks for being so generous with your time.
    To our witnesses today, thanks for your testimony and for 
letting a guy come in mid flight and asking a couple of 
questions. Thank you.
    The Chairman. Tom, thank you.
    Let me thank you all very much for the time you have spent 
with the committee today, and the record you have helped us 
shape, and I think that will be valuable to our colleagues as 
we again continue to work at this issue. Tom has spelled it out 
well, and has certainly been a leader in the area of tort 
reform here and class action. We worked mightily on the floor 
last week to try to make that happen, and it did not quite make 
the hurdle. We are going to get there. We have to get there.
    I do believe, Mr. Estes, that in the end--you said 
something that sometimes is misunderstood or not remembered, 
that a fair amount of Federal tax dollars goes into the care of 
a good many of these elderly patients. I believe nearly 80 
percent of them in the nursing homes across America receive 
some direct Federal tax and State tax dollar benefit through 
Medicaid. If in fact, and it appears there is growing evidence 
that there is a diversion of funds, if you will, to keep these 
homes open by paying these very high premiums.
    The average cost, Tom, is now nearly $2,000 per bed per 
year, that is $6.27 a day. That is a significant cost, and 
there appears to also be growing evidence that it impacts care. 
If that is certainly the case, then that is all the more reason 
for us to look at some approach toward beginning to shape and 
control this issue. Clearly, this industry cannot sustain, nor 
can the health care profession sustain the hundreds of percent 
per year increases in these kinds of premium costs. Of course, 
the great tragedy is that, and as you said it or you said 
others have said it, we are not seeing any new nursing homes. 
Bed numbers are dropping at a time when we are coming upon an 
age of citizens in our country where by all evidence bed 
numbers ought to be going up or preparing to go up, and that, 
based on what I hear from you and other materials I read, will 
not be a fact unless we resolve some of these problems or 
stabilize some of the environments in which these numbers are 
now declining.
    We thank you very much for your time and your presence here 
today, and rest assured your time here was valuable to us, and 
that you have helped us establish an important record. Thank 
you.
    The committee will stand adjourned.
    [Whereupon, at 3:44 p.m., the committee was adjourned.]


                            A P P E N D I X

                              ----------                              


             The Prepared Statement of Senator John Breaux

    Thank you Mr. Chairman. Today's hearing allows us to 
examine how the long-term care industry--specifically the 
nursing home industry--is affected by rising costs of liability 
insurance and litigation.
    Clearly, there will always be a demand for nursing home 
care because there are elders who require around the clock 
care. With the pending age wave of 77 million baby boomers that 
demand will only increase. Today's hearing is an opportunity to 
examine how rising medical liability insurance costs and 
increased litigation is affecting this industry. Will seniors 
have access to quality care? Are nursing homes really going out 
of business due to rising medical liability costs?
    While we examine these important questions today we must 
also do so within the context of two points. First, as the 
author of the Elder Justice Bill, I must point out that elder 
abuse and neglect are serious problems in our society that have 
not been adequately addressed. While most nursing homes work 
hard to provide quality care for residents, there are some 
``bad apples'' out there. Some of the litigation in this area 
is a result of family members who bring lawsuits against 
nursing homes who have abused or neglected their family 
members. Nursing home residents and family members should have 
legal recourse when they have been harmed.
    Second, there is a growing demand in this country for more 
home and community based long-term care options. When asked, 
seniors and baby boomers want to remain independent and live at 
home for as long as possible. I believe that nursing home 
executives who hope to prosper and flourish in the coming 
decades as baby boomers age should act quickly to diversify 
into home and community based services.
    The bottom line is that as we look at tort reform and long-
term care we want to ensure that people have choices. I look 
forward to hearing from today's witnesses. Thank you Mr. 
Chairman.
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