[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 
  MEDICAL LIABILITY REFORM: STOPPING THE SKYROCKETING PRICE OF HEALTH 
                                 CARE
=======================================================================

                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                   WASHINGTON, DC, FEBRUARY 17, 2005

                               __________

                            Serial No. 109-2

                               __________

         Printed for the use of the Committee on Small Business


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

                    U.S. GOVERNMENT PRINTING OFFICE
21-229                      WASHINGTON : 2005
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001


                      COMMITTEE ON SMALL BUSINESS

                 DONALD A. MANZULLO, Illinois, Chairman

ROSCOE BARTLETT, Maryland, Vice      NYDIA VELAZQUEZ, New York
Chairman                             JUANITA MILLENDER-McDONALD,
SUE KELLY, New York                    California
STEVE CHABOT, Ohio                   TOM UDALL, New Mexico
SAM GRAVES, Missouri                 DANIEL LIPINSKI, Illinois
TODD AKIN, Missouri                  ENI FALEOMAVAEGA, American Samoa
BILL SHUSTER, Pennsylvania           DONNA CHRISTENSEN, Virgin Islands
MARILYN MUSGRAVE, Colorado           DANNY DAVIS, Illinois
JEB BRADLEY, New Hampshire           ED CASE, Hawaii
STEVE KING, Iowa                     MADELEINE BORDALLO, Guam
THADDEUS McCOTTER, Michigan          RAUL GRIJALVA, Arizona
RIC KELLER, Florida                  MICHAEL MICHAUD, Maine
TED POE, Texas                       LINDA SANCHEZ, California
MICHAEL SODREL, Indiana              JOHN BARROW, Georgia
JEFF FORTENBERRY, Nebraska           MELISSA BEAN, Illinois
MICHAEL FITZPATRICK, Pennsylvania    GWEN MOORE, Wisconsin
LYNN WESTMORELAND, Georgia
LOUIE GOHMERT, Texas

                  J. Matthew Szymanski, Chief of Staff

          Phil Eskeland, Deputy Chief of Staff/Policy Director

                  Michael Day, Minority Staff Director

                                  (ii)
?

                            C O N T E N T S

                              ----------                              

                               Witnesses

                                                                   Page
Palmisano, Dr. Donald, American Medical Association..............     5
Gleason, Dr. Thomas, Alliance of Specialty Medicine..............     7
Rubin, Dr. Chad, American College of Surgeons....................     9
Heady, Ms. Hilda, National Rural Health Association..............    10
Smarr, Mr. Lawrence E., President, Physicians Insurers 
  Association of America.........................................    13
Doroshow, Ms. Joanne, Executive Director, Center for Justice and 
  Democracy......................................................    14

                                Appendix

Opening statements:
    Manzullo, Hon. Donald A......................................    47
    Kelly, Hon. Sue..............................................    50
    Velazquez, Hon. Nydia........................................    53
Prepared statements:
    Palmisano, Dr. Donald, American Medical Association..........    56
    Gleason, Dr. Thomas, Alliance of Specialty Medicine..........    72
    Rubin, Dr. Chad, American College of Surgeons................   110
    Heady, Ms. Hilda, National Rural Health Association..........   116
    Smarr, Mr. Lawrence E., President, Physicians Insurers 
      Association of America.....................................   121
Additional material:
    Evans, Mr. Robert D., American Bar Association...............   142

                                 (iii)


  MEDICAL LIABILITY REFORM: STOPPING THE SKYROCKETING PRICE OF HEALTH 
                                  CARE

                              ----------                              


                      THURSDAY, FEBRUARY 17, 2005

                   House of Representatives
                                Committee on Small Business
                                                     Washington, DC
    The Committee met, pursuant to call, at 10:08 a.m. in Room 
2360, Rayburn House Office Building, Hon. Donald A. Manzullo, 
presiding.
    Present: Representatives Manzullo, Velazquez, Chabot, 
Lipinski, Graves, Akin, Christensen, Davis, Musgrave, Bordallo, 
Grijalva, Sanchez, Poe, Barrow, Sodrel, Fortenberry, 
Fitzpatrick, Westmoreland and Gohmert. 

    Chairman Manzullo. Good morning. It is my pleasure to 
welcome you to today's Small Business Committee hearing on the 
critical issue of skyrocketing medical liability insurance, and 
its impact on health care and access to health care.
    This is a hearing to highlight the problem that exists in 
health care. I am not that much interested in hearing about 
specific legislation, so I will counsel the witnesses to speak 
about your own personal experiences. This is an opportunity, a 
national opportunity to share your horror stories. Even though 
legislation is out there, I would much prefer to hear what has 
happened to you because it is very important that the American 
people understand, first of all, that there is a problem. There 
is no better way to demonstrate a problem than to have people 
who are in the medical profession themselves tell us what their 
firsthand stories are, or anecdotal stories of your colleagues 
that have been through something like that.
    Congress needs to explore ways to slow down the rising 
health care costs, and the reasons that the costs of health 
care continues to see increases, is the spiraling cost of 
doctor's medical liability premiums and hospitals facing the 
same problem.
    Litigation has escalated and awards have skyrocketed. 
Multi-million dollar court decision and jury awards have left 
doctors with medical liability premiums increases of 40 to 50 
percent each year. Doctors in certain high-risk fields of 
medicine can expect to be sued at least once in their career.
    Between 2000 and 2003, the number of medical liability 
claims has jumped 46 percent in Illinois, to more than 3,500 
claims. The average indemnity per claim also has risen 
dramatically. In 1990, the average indemnity was about 
$310,000; in 2003, it was nearly $600,000 according to the 
Illinois State Medical Insurance Exchange.
    As a result, many doctors are retiring or leaving the 
practice of medicine. Emergency rooms in rural facilities have 
been particularly impacted. Many other doctors are moving to 
states that have taken action to cap jury awards which 
stabilizes medical malpractice costs.
    In my home state of Illinois, it is common practice for 
doctors to move a few miles to Wisconsin and set up shop there. 
I know of one OB-GYN in Illinois who left her practice to go 
back to being a pharmacist where she could earn more money and 
not worry about medical malpractice and premiums. She explained 
that after paying malpractice insurance, she and another 
physician made $50,000, a third doctor made $60,000, a forth 
doctor made $70,000. Their office manager made more than all of 
them, $75,000. These were four ladies practicing in suburban 
Chicago, and as of three years ago her medical liability 
insurance was $425,000 for the four of them.
    In my hometown of Rockford, we have lost several of our 
neurosurgeons to the Badger state. In southern Illinois, there 
are very few neurosurgeons, if any, left at all.
    This not only affects the cost of medical care, it affects 
access to medical care. There are numerous stories about women 
having to drive an hour or more to see their doctor to deliver 
their baby. If you are in a car accident, there may not be a 
neurosurgeon available to save your life. If you live in a 
rural area, a clinic or hospital may have been closed.
    Just in case you do not think this affects you and your 
pocketbook, doctors must practice defensive medicine by 
ordering extra tests to protect themselves against potential 
law suits. It is estimated that the federal government, through 
its funding of Medicare and Medicaid, paid an additional $28 
billion to $48 billion per year for health care due to the cost 
of medical liability coverage in defensive medicine.
    Thirty years ago California passed comprehensive medical 
liability reform. Who would ever think California would lead in 
the reform?
    According to the Department of Health & Human Services, 
states that have limited non-economic damages have seen premium 
increases by less than 20 percent. States without limits on 
non-economic damages have seen premium increase on average of 
45 percent.
    There is quantifiable evidence that medical liability 
reform works. According to the AMA, there are 20 states that 
are in crisis. None of those crisis states have passed a 
medical liability reform. Well, actually Illinois did, but 
several years ago the Illinois Supreme Court held it was 
unconstitutional according to the Illinois Constitution.
    The other problem we have had here, is that there has been 
an unnecessary war between physicians and attorneys, and that 
has got to come to an end. I practiced law for several years, 
and even though I did mostly defensive law, if your son gets 
hurt in a car accident, you want to get the best trial lawyer 
available. So the continuous pounding by some of the trial 
lawyers, I do not think that gets anywhere. There has to be a 
way where everybody in this country comes to a consensus; that 
there is a problem, and something has to be done with regard to 
it.
    Maryland just came up with a very interesting result. It 
imposed a two percent tax on HMOs with an indemnity fund that 
will help to stop the dramatic increases in medical liability 
premiums. The State of Wisconsin, met with Governor Doyle, also 
has an indemnity fund with a $500,000 cap.
    I am open to plans that will help the medical profession, 
and at the same time maintain at least a basic form and 
fairness for the truly injured plaintiff that needs redressing 
in the courts. There is a way to do it, and that is one of the 
reasons that we have you here to tell your side of the story on 
it, and try to come up with some possible solutions.
    I look forward to the testimony of the witnesses here this 
morning. We have a five-minute clock on there. When it goes 
red, it is time to sum it up, and I look forward to the opening 
statement of my ranking member, Congresswoman Velazquez.
    [Chairman Manzullo's statement may be found in the 
appendix.]

    Ms. Velazquez. Thank you, Mr. Chairman.
    Mr. Chairman, while I certainly recognize that it is your 
prerogative to delve into the issue you have a personal 
interest in, it is something we have witnessed for two 
Congresses now. My question is why--what are we doing here 
today?
    We are supposed to be discussing the Committee's views on 
estimates for Fiscal Year 2006 budget request for the Small 
Business Administration, not holding a hearing on an issue that 
our Committee has no jurisdiction over.
    We are supposed to be discussing why the administration 
wants to terminate programs like the MICRA, that for every 
dollar we invest, generates $2 in revenue, not of a hearing 
that was held two weeks ago in the Judiciary Committee, and 
then last week in Energy and Commerce.
    We are supposed to look at how the agency's budget, which 
has been cut in half in just four years, is failing this 
nation. Mr. Chairman, these informational-like hearings are 
fine. We could just start calling them info hearings. I suggest 
that next week we have a hearing on how the budget will impact 
small business.
    But this type of hearing should not come at the expense of 
our other duties, and that is what is happening today. It was 
an unacceptable deficiency that took place last Congress in 
this Committee, and was why Democrats raised this issue last 
week. We will continue to do so until the Committee starts to 
live up to its responsibility, all of its responsibility, not 
just a select few.
    I am sorry to the witnesses that have to be here today to 
witness this exchange on how this Committee is not working 
properly. Your issues are very important, and I look forward to 
your testimony. Its just that we should not be holding this 
hearing today of all days.
    We are facing a health crisis in this country. It is 
outstanding that in the United States, the country with the 
world's largest GNP, there are 44 million Americans who cannot 
afford health care. We should be outraged.
    Nowhere is this health care gap more striking than in our 
nation's small businesses. More than 60 percent of the 33 
million adults and 11 million children without health insurance 
are small businesses owners, employees, or family members. That 
fact is the real tragedy we must focus on is this issue, and 
address it.
    Small businesses bear the brunt of the health insurance 
crisis because of lack of good choices for them and the high 
cost. An increasing health care cost is an important matter for 
small businesses. Unfortunately, in the past few years many 
have seen annual health insurance premium increases in double 
digits. One element of increasing costs is high medical 
practice premiums. That is the issue we will examine today.
    In the last Congress, we addressed this medical malpractice 
twice, and last week the same bill was introduced again. The 
stories of staggering malpractice insurance rates are well 
known to us, but it is important we get to the heart of the 
matter and find out what is really driving those increases. 
That is the information we need to provide a real solution to 
the problem, and reduce costs for these doctors, and ultimately 
help small businesses.
    After all, Congress has been asked to step in and change 
150 years of case law that allow states to control the way 
victims of medical malpractice were made whole. Major changes 
to our legal system must at least be based on the best 
independent data. We have solutions based on emotion which will 
not solve anything.
    Unfortunately, that is not an easy task. Each side has 
their compelling stories. While one side sees a courtroom 
crisis driving up premiums, driving out doctors and driving 
away small businesses, the other side sees an insurance 
industry jacking prices to make up for cyclical investment 
losses.
    If malpractice premiums ultimately are not reduced, then 
the insurance industry's benefit from the protective barriers 
on recovery by patients or their families. In both cases, small 
businesses and their employees will get hurt.
    While we hear from health professionals today, there is 
also compelling data that malpractice costs and jury awards are 
a small fraction of overall medical costs. We also have some 
practical experience on which to base our decision since caps 
and restriction are already in place in 25 states.
    In some of those states, the same kinds of caps that we are 
being asked to consider have failed to hold down medical 
malpractice rates. Texas and Florida are two examples. Perhaps 
the correct answer lies somewhere in between.
    In our zeal to help our nation's entrepreneurs we have seen 
several bills move through Congress that were represented as 
small business relief, but in reality provided the lion's share 
of the benefits to large corporations. I hope that today's 
hearing will be able to separate hard facts from perceptions 
and help us make choices that actually address the problem and 
reduce costs for small businesses.
    Thank you, Mr. Chairman
    [Ranking Member Velazquez's statement may be found in the 
appendix.]

    Chairman Manzullo. Thank you, Congresswoman Velazquez.
    Our first witness is Dr. Don Palmisano from Metairie, 
Louisiana. My dad was born in Donaldsonville.

    Dr. Palmisano. Oh.

    Chairman Manzullo. Down there in swamp country.

    Dr. Palmisano. Yes, sir.

    Chairman Manzullo. And Dr. Palmisano, we look forward to 
your testimony.

STATEMENT OF DR. DONALD PALMISANO, AMERICAN MEDICAL ASSOCIATION


    Dr. Palmisano. Good morning. Thank you. I want to thank 
Chairman Manzullo and Ranking Member Velazquez for holding this 
hearing to focus on how our broken medical liability system 
affects patient access to quality health care.
    My testimony is on behalf of the American Medical 
Association, which sets policy through a democratic process in 
its house of delegates composed of physicians representing 
every state, over 100 national medical specialty societies, 
federal service agencies as well as medical students.
    The AMA's policy on how to fix the broken medical liability 
system is detailed in our written statement. My testimony today 
is not only from the perspective of a medical professional, but 
that of a small business. In fact, approximately 75 percent of 
practice-based physicians work in or own small practices of 
less than nine physicians.
    Medical liability insurance premiums are part of our 
overhead expenses, and when expenses increase, physicians must 
either raise revenue by increasing fees or cut other expenses 
to sustain their practices. Increasing fees are becoming more 
challenging as Medicare, Medicaid and managed health care plans 
limit payments for services rendered to patients.
    Alternatively, to trim expenses, physicians face the 
difficult choice of cutting staff, foregoing new medical 
equipment, or limiting certain aspects of their practice. The 
litigious climate in our country also is taking its toll, such 
as decreasing the availability of physicians who provide 
obstetrical care.
    When I took part in a physician rally in Fort Lauderdale, 
Florida, with more than 500 physicians and patients demanding 
action on the liability crisis, I met a young obstetrician, Dr. 
Chandra Azman. She stood hand in hand with her pregnant patient 
and told the crowd that helping a woman deliver her baby is the 
most extraordinary experience a doctor can have, and I will not 
be doing that anymore.
    Her liability premiums had tripled. She had no choice but 
to give up her part of the practice she treasured most. It is a 
loss beyond calculation for her and her patients.
    Anytime vital health care services are limited, patients' 
access to care is jeopardized, especially emergency care. In 
2003, 17-year-old John Lucas from Greenwood, Mississippi was in 
an auto accident. John suffered a serious head injury, and was 
taken to Delta Regional Medical Center in Greenville, which has 
a Level II trauma center.
    Tragically, that day Greenville's only remaining 
neurosurgeon was not available. John had to be air-lifted to 
University Medical Center in Jacksonville, but by the time he 
arrived it was too late. He never regained consciousness and 
died six weeks later.
    For 25 years, Greenville had 24-hour neurosurgical 
coverage, but the medical liability crisis in Mississippi ended 
that. One of the two neurosurgeons in Greenville no longer 
practices neurosurgery because of the legal climate and costs 
of liability insurance.
    John's father, himself a trauma surgeon, said his son 
picked the wrong day to have his accident. The bleed inside his 
head had doubled by the time he received care.
    There is also the story of LeeAnn Dyce from Vicksburg, 
Mississippi, who testified before the House Judiciary Committee 
about a very personal, very tragic consequence of the liability 
crisis. Her husband Tony was in an auto accident and suffered a 
head injury that resulted in permanent brain damage because 
there no longer was a neurosurgeon at the hospital, as he had 
left the state because of the liability crisis.
    These are just a few of the hundreds of stories I have 
heard as I have talked to physicians and patients across the 
country. They represent the symptoms that tell us our nation is 
facing a crisis because of a broken medical liability system. 
Escalating jury awards and the high cost of defending against 
lawsuits, even meritless claims, are the primary drivers of 
increasing medical liability insurance premiums.
    This crisis exacts a steep cost in terms of access to care 
for patients, stress on physicians, and strain on the entire 
health care system.
    Mr. Chairman, the AMA looks forward to working with 
Congress to pass common sense medical liability reforms this 
year so that patients can have greater access to medical care. 
The health of the nation depends on it.
    Thank you.
    [Dr. Palmisano's statement may be found in the appendix.]

    Chairman Manzullo. Doctor, your complete statement along 
with those of all the other witnesses will be made part of the 
record without objection.
    I also noticed that you are attorney.

    Dr. Palmisano. Yes, sir.

    Chairman Manzullo. And a doctor.

    Dr. Palmisano. Yes, sir.

    Chairman Manzullo.
    Our next witness is Dr. Tom Gleason with the Alliance of 
Specialty Medicine in Morton Grove, Illinois.
    Dr. Gleason, we look forward to your testimony. You might 
want to pull the microphone up a little bit closer. Thank you.

TESTIMONY OF DR. THOMAS GLEASON, ALLIANCE OF SPECIALTY MEDICINE


    Dr. Gleason. Yes, sir. Thank you.
    Chairman Manzullo, Ranking Member Velazquez, and members of 
the Committee, my name is Thomas F. Gleason, M.D.

    Chairman Manzullo. A little bit closer. We are having 
problems with the microphone.

    Dr. Gleason. Yes, sir. How is that? Is that better?

    Chairman Manzullo. Proceed, please.

    Dr. Gleason. Okay, thank you.
    I am a practicing orthopedic surgeon in Illinois, and 
managing partner at the Illinois Bone and Joint Institute, a 
partnership of approximately 70 orthopedic surgeons. On behalf 
of the Alliance for Specialty Medicine, we appreciate the 
interest this Committee has taken over the past several years 
to assess the status and cost of health care in this country.
    The Alliance believes that health care--the health care 
infrastructure of this country is in critical need of an 
overhaul, that we have lost sight of what is important for 
ensuring that our patients receive the very best care that they 
deserve. The escalating costs of medical liability insurance is 
threatening to change the structure of health care in this 
country, leaving lasting consequences both in terms of how 
health care will be delivered, and who will be available to 
deliver their care.
    My partners and I see examples of this day after day in our 
practice. Americans in need of emergency services are most at 
risk of losing access to the necessary specialty care. As the 
risks and cost to care for these patients rise, so does the 
risk of losing orthopedic surgeons in our practice who 
currently cover two-thirds of the nights on call in one of the 
busiest trauma centers in Chicago. This is particularly 
alarming knowing that this trauma center is already inundated 
with transfers from more and more community hospitals in 
Illinois that no longer have physicians available for 
emergencies.
    Pediatric coverage at emergency rooms continues to worsen. 
Children are being transferred without even being examined and 
even for basic orthopedic cases where some of these transfers 
have taken hours to process.
    Recently, because no orthopedic surgeon was available, a 
25-year-old male was recently transferred 80 miles from 
Rockford to Lutheran General Hospital, a Level I trauma center 
in Parkridge, after sustaining an unstable pelvic fracture. The 
patient was not volume resuscitated adequately in the initial 
hospital, and the transfer delayed emergency care by seven 
hours.
    By the time he arrived he was grossly volume depleted. The 
fluid administration consisted of rapid volume replacement, 
including blood, leading to delusional coagulopathy and ARDS, 
or Adult Respiratory Distress Syndrome--known complications 
from volume replacement in massive quantities after blood loss. 
The patient died. Timely care at the initial institution could 
have prevented this tragic outcome.
    Public aid and HMO patients also lose a medical environment 
of diminishing resources and high operating expenses as a 
result of the increasing litigious environment. Average 
reimbursements are considerably lower for these patients. 
Physicians cannot afford to pay operating expenses serving 
these patients alone. A high number of these patients are 
pediatric orthopedic cases.
    Since July 2002, our medical liability premiums have 
increased 250 percent to $5.6 million, an additional $4 million 
in premium costs. Current base premiums for a orthopedic 
surgeon in Cook County are now $212,000 a year for $2 million 
in coverage, which includes spine coverage.
    We are concerned with the increasing number of physician 
retirements at early ages. The chief of orthopedics at one 
hospital I staff belongs to a small orthopedic practice that 
switched insurance companies in order to lower their premium 
rates. Because the insurance company required him to practice 
at least five more years in order to receive a discount and 
sizeable tail cost, he is retiring now, and I have had to 
assume his administrative duties, taking me further away from 
patient care while we are also now short one additional 
orthopedic surgeon.
    More and more physicians are also restricting how they 
address non-emergency high-risk cases or eliminating these 
cases altogether from their practice. Our total joint positions 
have already set limits on patients they operate on and treat.
    Due to the increased risk of infection and thrombosis, one 
of the most experienced and productive joint surgeons in 
Illinois, and arguably the country, has reservations about 
operating on individuals with a body mass index over 40; in 
other words, for example, a person who is five foot, 204 
pounds, or six foot, 294 pounds.
    We believe that is a result of the medical liability crisis 
patients face a patchwork of care across the states where 
access to specialists is decreasing, and assurances of timely 
emergency care is no longer possible.
    As a nation, we have a duty and an obligation to my 
patients and to your constituents. We believe that Congress 
must act now or the landscape will be forever changed. The need 
for reform has now escalated to a national problem that 
requires a national solution.
    Thank you for considering our comments and recommendations. 
The alliance looks forward to working with the members of this 
Committee and Congress to address this important health care 
policy issue.
    [Dr. Gleason's statement may be found in the appendix.]

    Chairman Manzullo. Thank you, Doctor.
    Our next witness is Dr. Chad Rubin with the American 
College of Surgeons, and Dr. Rubin comes from Columbia, South 
Carolina. We look forward to your testimony.

    Dr. Rubin. Originally from Illinois.

    Chairman Manzullo. Where in Illinois?

    Dr. Rubin. Carbondale.

    Chairman Manzullo. Wrong end of the state.

    Dr. Rubin. Yes.
    [Laughter.]

    Chairman Manzullo. But Congressman Tim Johnson would not 
say that. Go ahead, please.

   TESTIMONY OF DR. CHAD RUBIN, AMERICAN COLLEGE OF SURGEONS


    Dr. Rubin. Mr. Chairman, Representative Velazquez, and 
Members of the Committee. Thank you for allowing me to present 
my story.
    I am a general surgeon in Columbia, South Carolina, and I 
am here representing myself and the 65,000 members in the 
American College of Surgeons.
    In a growing number of states, surgeons are having a very 
difficult time trying to even find medical liability insurance, 
and the ones that they find are so expensive that some of them 
cannot afford it. We are experiencing double and sometimes 
triple digit increases per year in malpractice insurance.
    In South Carolina, we have a Joint Underwriters 
Association. It is state-run, this is not for profit. It is 
state-run. Myself, I have seen an 816 percent increases in my 
malpractice premiums over the course of the last nine years. I 
have never been sued. Last year alone, 117 percent increase. 
The increases, along with my nine other partners, were in a 
single general surgery group. We are the largest private 
practice in town. Every year we are finding that we have to 
borrow the money to pay our malpractice premiums. We are a 
small business. That is exactly what we do. We have to borrow 
just to keep going.
    Essentially, with the actual increases year after year 
after year, we are feeling the squeeze. Basically, Medicare 
sets the rates now. The insurance companies set the rates. 
Other small businesses can pass these expenses on to the 
consumer. We cannot. We just have to suck it up and try to 
figure out how we are going to pay for it every year.
    In addition, because of the increasing premiums, three of 
my partners have stopped practicing vascular surgery, to try to 
reduce their costs. Two of my partners do beriatric surgery, or 
weight reduction surgery. We received day before a yesterday a 
notice from the Joint Underwriters Associations that their 
malpractice premiums are going to increase $26,000 alone this 
year because they do beriatric surgery. I suspect they are 
going to stop doing that.
    This crisis is having a very detrimental effect through 
South Carolina. Last month one of the prominent OB-GYNs in town 
announced that he is going to stop delivering babies. There is 
only spotty neurosurgical coverage in Myrtle Beach. This is an 
issue that affects both people inside of South Carolina, and 
also the people that come and visit our state. If you have an 
accident in Myrtle Beach, you better be lucky and be on one of 
those days when there is a neurosurgeon that is there.
    My own personal story. This crisis has reached epidemic 
proportion in Illinois. My mom lives in Illinois. She has had 
two strokes. She has pulmonary fibrosis. She has round-the-
clock care. She has round-the-clock oxygen. Her primary care 
doctor of several years left a couple of years ago, and she had 
to find another doctor. The only pulmonolist, lung specialist 
in southern Illinois left the state, and ironically, the only 
neurosurgeon that I know of in southern Illinois moved to 
Columbia, South Carolina, and there is no coverage.
    Her physiatrist, who is a rehab specialist, who is trying 
to help rehabilitate her nonfunctioning arm, moved from 
Carbondale to St. Louis, and now she has to travel two and a 
half hours to go see him. This is all a direct effect of what 
the malpractice premiums have done. Physicians are leaving the 
state. There is ample evidence in my mind that the skyrocketing 
costs of liability is having an effect on health care, it is 
having an effect on the health care of my own mother.
    I ask you to please consider some of the reforms that you 
mentioned, Mr. Chairman, particularly the MICRA-type caps. When 
I first got involved and really began having problems as far as 
in the increase in premiums, I had a conversation with my mom, 
and she said, I really do not think I support that because if 
people are injured, they deserve to be compensated. And I said, 
you do not understand. What we are talking about is non-
economic. We are talking about pain and suffering. We are 
talking about punitive damages.
    She was not convinced. Now she is. She is very much in 
support as is the rest of my family except for my sister who is 
an attorney, who works in Madison County.

    Chairman Manzullo. Worked in Madison County. That bills 
comes before the House today.

    Dr. Rubin. Very good. But I ask you to please consider 
this. This is a patient access issue. It is a small business 
issue. I am in a small business and I do not know how I am 
going to afford to keep paying these premiums.
    I thank you very much for giving me this opportunity.
    [Dr. Rubin's statement may be found in the appendix.]

    Chairman Manzullo. Thank you, Doctor.
    Our next witness is Hilda Heady. She is with the National 
Rural Health Association out of Morgantown, West Virginia. She 
brings us a unique perspective in terms of her expertise, and 
we look forward to your testimony.

TESTIMONY OF MS. HILDA HEADY, NATIONAL RURAL HEALTH ASSOCIATION


    Ms. Heady. Thank you, Chairman Manzullo and Ranking Member 
Velazquez, Committee Members.
    I really appreciate the opportunity to address you on 
behalf of the National Rural Health Association. I am currently 
the elected president.
    The NRHA is a 7,000-member national nonprofit organization 
that provides leadership on rural health issues. Our mission is 
to try and improve the health and well being of rural Americans 
across the board and we do this through grass roots advocacy, 
communication, education, and research. I want to make three 
points with you today.
    One, rising medical liability costs impact and hurt rural 
patients and rural health care providers. Two, medical 
liability rising costs also impact small businesses in rural 
communities; and three, we all need to do something about it 
because we all are responsible and we all have a part in the 
solution.
    First, the quality of health care for rural patients is 
being put in jeopardy and I can use a personal story to 
demonstrate this. One of my colleagues, a fellow by the name of 
Dennis McCutcheon, who lives in a hill-top farm in a very, very 
rural area of West Virginia, with his wife Anne, have taken 
care of 15 elderly friends and family members in either their 
own person home or in Dennis and Anne's home.
    Three years ago his mother fell, and they suspected a 
broken hip. By the time that the ambulance got to her the EMTs 
were on the radio, and they were told not to go to the hospital 
that they had planned to go to because all of the orthopedic 
surgeons that were in practice in that hospital had left. They 
had left the state and they were not there that day.
    They were also told that the only remaining orthopedic 
surgeon in practice in this town of over 25,000 was at another 
hospital. So they took her to that particular hospital.
    When they arrived there they discovered that the only 
surgeon that was there to help her was currently in surgery and 
there were 15 hospitalized patients waiting to see him, and 
they were all waiting for surgery. Most of them were elderly.
    His mother finally went into surgery with a very tired 
surgeon after more than a 36-hour wait with a totally separated 
hip joint.
    I am also privileged in my work to work with aspiring 
physicians, nurse practitioners, pharmacists, and so forth that 
we try to recruit in our state to go into rural communities.
    Last year at the height of our malpractice crisis, which is 
the third one in my professional life, at least in West 
Virginia, I was counseling with a young man about going into 
rural practice, and he just looked at me and he said, ``Hilda, 
I want to go into rural medicine, but I am afraid I can't make 
it because I am afraid I cannot afford it.''
    Physicians are seeking work at academic health centers and 
community health centers in our state just for--to just try and 
reduce the overhead that they see in their practices.
    As I said, this is the third crisis that I have been 
through since I have been in health care in our state. I 
recruited the first OB-GYN ever to practice in a very rural 
county in north-central West Virginia. He was an exciting, 
bright, young physician just right out of residency. We 
recruited him out of Pennsylvania, which was a coup, at least 
for us. He was in practice with us, and of course we gave him 
his package and offered him and paid his malpractice.
    When he began working with us, his malpractice premium was 
$6,700. In three years, he had to close his practice and leave, 
and if he had remained there when his premium was next due, it 
was $65,000, and that was in three years.
    Now, that was some years ago. Right now in our state if an 
OB-GYN could find a malpractice premium for $65,000, they would 
jump at the chance.
    The second point I want to make is that rising costs of 
malpractice hurts small businesses. Certainly small businesses 
have to pay for and contribute to the health care of their 
employees. That is one of the places that they are first hurt. 
And while we continue with the debate, and point fingers at 
each other about the rising costs of liability and what causes 
it and what does not cause it, the patients and their providers 
are the ones that are hurt by our debate.
    We also know that many in most of our rural communities 
across the country that the health care industry is either the 
first, second, or third largest employer in that community. 
Most rural providers are still small businesses such as mom and 
pop pharmacies, private doctors' offices, physicians' offices, 
private dentists' offices, and so on.
    Rising medical liability costs severely impacts these small 
businesses so that when a doctor or dentists closes their 
practices the losses are not only to the health care and the 
access and the quality of health care in that community, it is 
also a loss of jobs.
    In our own state in rural communities, for every one 
physician that we have in practice, we also have another 4.3 
full-time jobs.
    The third point is that we all are--

    Chairman Manzullo. You have got a red light.

    Ms. Heady. Oh, I am sorry.

    Chairman Manzullo. Can you summarize that in 30 second?

    Ms. Heady. I certainly will.
    I would like to draw your attention to the recommendations 
in our program that we submitted to you from the National Rural 
Health Association, and for Congress to take up this issue. I 
hope that they bring everybody to table, lawyers, doctors, 
insurance industry, and consumers.
    Thank you.
    [Ms. Heady's statement may be found in the appendix.]

    Chairman Manzullo. Thank you very much.
    Our next witness is Lawrence E. Smarr, I guess that is 
correct, S-M-A-R-R, President of the Physician Insurers 
Association of America out of Rockville, Maryland. And Mr. 
Smarr, we look forward--are you a physician?

    Mr. Smarr. No, I am not.

    Chairman Manzullo. Okay, Mr. Smarr, we look forward to your 
testimony. Thank you.

TESTIMONY OF LAWRENCE E. SMARR, PHYSICIAN INSURERS ASSOCIATION 
                           OF AMERICA


    Mr. Smarr. Chairman Manzullo, Ranking Member Velazquez, and 
Members of the Committee.
    I am the president of the Physician Insurers Association of 
America, an association comprised of professional liability 
insurance companies owned and/or operated by physicians, 
dentists and other health care providers. Our 48 domestic 
insurance companies members insure over 300,000 doctors and 
1,300 hospitals in the United States.
    The PI members can be characterized as doctors insuring 
doctors, or hospitals insuring hospitals. We cover over 60 
percent of America's private practicing physicians.
    I will be referring to this set of charts which you should 
have before you.
    Over the past five years, insurers have seen their 
financial performance deteriorate substantially due to rapidly 
rising claim costs. These costs translate into higher health 
care costs that must be borne by small businesses.
    According to AM Best, the medical liability insurance line 
of business incurred $1.55 in losses and expenses for every 
dollar of premium it collected in the year 2001. This statistic 
rose to $1.55 and has gradually declined to an estimated $1.33 
for 2004, and Best estimates this statistic will be $1.31 this 
year, in 2005.
    The impact of insurer rate increases accounts for the 
gradual improvement. However, Best also calculates that the 
industry can only incur $1.14 in losses in order to break even, 
and so we are still in the hole in 2005.
    The primary driver of this crisis, as conformed by both the 
GAO and the National Association of Insurance Commissioners, 
has been paid claim severity, or the average cost of a paid 
claim.
    Your first exhibit shows the average dollar amounts paid to 
claimants on behalf of individual physicians since 1988. The 
mean payment amount has risen by 6.6 percent per year during 
this period as compared to 2.9 percent for the Consumer Price 
Index. The data for this exhibit comes from the PIAA data 
sharing project which is a patient safety database created in 
1985 to identify common trends in malpractice claims, and to 
date over 199,000 claims and suits have been reported.
    One very troubling aspect of the medical malpractice claims 
is the proportion of those filed which are without merit as 
show on the next exhibit. Almost 70 percent of all claims filed 
against individual practitioners reported in 2003 were dropped 
or dismissed by the court. 5.1 percent were won by the doctor 
at trial, and only eight-tenths of one percent were won by the 
plaintiff. The remainder, 24 percent, resulted in a settlement 
payment.
    A review of the average claim payment values for 2003 is 
revealing. As show on the next exhibit, the mean indemnity 
payment amount on behalf of an in defendant was over $328,000, 
average verdicts cost $431,000, and settlements only $233,000.
    Most medical malpractice cases have multiple defendants and 
thus these values are below those which may be reported on a 
case basis.
    The next exhibit shows the distribution of claim payments 
at various payment thresholds. It can be readily seen that the 
number of larger payments are growing as a percentage of a 
total number of payments.
    And the next few charts show this difference between 
California and the rest of the country, and if you look at the 
top line on the right-hand side where it is heading, you can 
see that the gap has grown dramatically through 2003, and this 
proves that the California MICRA law works.
    These savings are clearly demonstrated and the rates 
charged to California doctors, as show on the next exhibit, 
successful experience in California and other states, such as 
Colorado, make it clear that these tort reforms do work without 
lowering health care quality or limiting access to care.
    For example, an OB-GYN in Los Angeles pay $66,000 compared 
to his or her Miami counterpart who pays $277,000.
    Increasing medical malpractice claim costs on the rise for 
over three decades have finally reached the level where the 
rates that insurers must--

    Chairman Manzullo. You have got a red light there.

    Mr. Smarr. I am going to conclude right now, sir.

    Chairman Manzullo. All right, thank you.

    Mr. Smarr. They have reached the point where doctors can no 
longer afford to pay these premiums, and as has been pointed 
out, they cannot pass them along, and so we urge you to pass 
effective health care liability reform in the House as you have 
done nine times in the past.
    Thank you.
    [Mr. Smarr's statement may be found in the appendix.]

    Chairman Manzullo. Thank you very much.
    Our next and final witness is Joanne Doroshow, is that 
correct?

    Ms. Doroshow. That is correct.

    Chairman Manzullo. Okay. Executive Director of the Center 
for Justice and Democracy from New York City, and we look 
forward to your testimony.

 TESTIMONY OF JOANNE DOROSHOW, CENTER FOR JUSTICE AND DEMOCRACY


    Ms. Doroshow. Thank you, Mr. Chairman, Representative 
Velazquez, and the members of the Committee.

    Chairman Manzullo. Go ahead.

    Ms. Doroshow. Okay. Mr. Chairman, you asked us at the 
beginning of your statement to have us share our horror stories 
with the Committee today, and you should have been with us last 
week because we brought down to Washington 50 families, all of 
whom had suffered life-altering consequences of medical 
negligence, some unbelievably horrible stories.
    A family from Louisiana brought their baby who had some 
trouble with their stomach. They took him in for an acid reflux 
test. The physician punctured his esophagus. He went into 
cardiac arrest, was brain damaged severely. Another woman who 
had unnecessarily both her breasts removed because the lab had 
mixed up her results, and they told her she had cancer when she 
did not. I mean, it was story after story like that, and I 
would hope at some point if this Committee is going to further 
explore this issue, that you make sure that you hear from these 
families because these are really the forgotten voices in this 
debate over medical malpractice and how to solve doctors' 
insurance premiums.
    I know you do not want to get into specifics of 
legislation. I will only say that all of the solutions that so 
far have been proposed by Congress, the bills that have passed 
recently, all of them take away patients' rights, whether cases 
are frivolous or not, no matter how severe an injury is, no 
matter how meritorious a claim, and the insurance industry's 
major role in creating this crisis for doctors is completely 
ignored in all of these bills as is the role of the epidemic 
amount of medical malpractice that exists very sadly in this 
country today.
    Now, the hearing is about costs, and just very briefly let 
me tell you about the costs of medical malpractice. The cost of 
premiums, the cost of claims are each below one percent of 
total health care costs in this country. The Congressional 
Budget Office has said the legislation that Congress is 
considering would reduce health care costs by about .4 to .5 
percent. Defensive medicine costs, according to the 
Congressional Budget Office, are very, very small. But the cost 
of malpractice is huge, 17 to 29 billion dollars a year that 
injuries are causing victims of malpractice in this country 
according to the Institute of Medicine. If you are going to 
reduce costs, that is where you have to look.
    Now, in terms of insurance rates for doctors, yes, there 
are many doctors that are being price-gouged by their insurance 
companies. There is no question. In fact, this is the third 
time in 30 years that we have seen this kind of crisis in this 
country. It happened in the mid-seventies, which is when 
California responded by passing their cap. It happened again in 
the mid-eighties, when a number of states succumbed to pressure 
by the insurance industry, and were told this is how you reduce 
rates, pass caps, and a number of them did.
    Well, now we are in the third crisis, and you will find in 
states like Maryland and Missouri that have had a cap on 
damages since the mid-eighties, both of them are having severe 
increases in insurance rates.
    The Missouri Department of Insurance put out two studies 
last year. Claims are down in Missouri. Medical malpractice 
payouts are down. They have a cap. But rates for doctors went 
up 121 percent.
    Then you look at Illinois. Illinois, yes, rates are going 
up pretty dramatically there. Illinois happens to have the 
weakest insurance regulation of any state in the country, and 
today our organization in Illinois is having a new conference 
announcing a new patient safety network. Victims that have come 
forward to oppose the efforts by legislators in Springfield to 
try to cap damages there, and they have asked the insurance 
department to force the companies to open up their books, to 
release the actuarial tables that they are using to justify 
these astronomical rate hikes because so far these companies 
have refused to do so.
    And like Illinois, and in many states, according to the 
National Center for State Courts, filings are down in 
malpractice cases, payouts have been stable for years, but now 
we see record-breaking profits by the insurance industry. Last 
year broke all records, and in Washington state the physicians' 
insurance, the mutual company that insures 70 percent of the 
doctors we are seeing now--they have now asked for a 7.7 
percent decrease.
    I see my time is up.

    Chairman Manzullo. You have got a red light there.

    Ms. Doroshow. Just to sum up, you have got to look at the 
insurance industry's role in this, and you have got to look at 
patient safety measure. There are many, many, other ways of 
dealing with this problem, solving this problem for doctors, 
but do not do it on the backs of patients.
    Thank you.

    Chairman Manzullo. Thank you very much.
    I am going to hold the members to the five-minute clock too 
because of the numbers that are here. Being the Chairman, I 
will take the first five minutes of questions.
    I would like to see a dialogue between--Ms. Doroshow, are 
you an attorney?

    Ms. Doroshow. Yes, I am.

    Chairman Manzullo. Okay, between you and Mr. Smarr, and the 
rest of you. First of all, we recognize that there are horrible 
cases out there, where malpractice does exist, and tremendous 
losses have occurred. And as Ms. Velazquez mentioned in her 
opening statement, there has to be a balance somewhere in 
between.
    Is there a myth that--my number one question--are insurance 
companies out of control? Are they making record profits? And 
if so, why are so many going out of business? Who wants to 
tackle that?

    Ms. Doroshow. Well, they are. I mean, I will--

    Chairman Manzullo. Go ahead.

    Ms. Doroshow. They are making record profits. They--

    Chairman Manzullo. Okay, get specific. Which ones?

    Ms. Doroshow. Well, the property casualty industry has made 
$28 billion last year--

    Chairman Manzullo. Well, no, that is--

    Ms. Doroshow. --the first nine months.
    Now, medical malpractice--

    Chairman Manzullo. Medical malpractice?

    Ms. Doroshow. Well, you look at, for example, the reference 
I just made to the company in Washington State. Record-breaking 
net income last year, which is why they have now asked for a 
7.5--

    Chairman Manzullo. Is that profit or net income?

    Ms. Doroshow. That is what it is.

    Chairman Manzullo. All right.

    Ms. Doroshow. It is basically the same thing.

    Chairman Manzullo. Anybody want to--do you know the name of 
the company? Somebody want to tackle that?

    Ms. Doroshow. Physicians Insurance.

    Dr. Rubin. Well, I guess the two arguments I would have. 
First of all, going back to South Carolina, the Joint 
Underwriters Association is state run. They are not for profit, 
and if this is so profitable for the insurance companies, why 
have they all left our state?
    I only have two private carriers that I can turn to. St. 
Paul got out of the business completely. So if this is 
profitable, why are they getting out?

    Chairman Manzullo. Mr. Smarr, your association represents 
the insurance companies?

    Mr. Smarr. Yes, we do.

    Chairman Manzullo. Go ahead.

    Mr. Smarr. Well, as I testified, the combined ratio for the 
industry is about 1.33 for 2004, meaning we are incurring $1.33 
in losses and expenses for every dollar of premium we collect; 
$1.14 is break even. The difference is investment income. That 
is how we can have a $1.14 and still break even.
    The industry is losing money. My members, which are owned 
and operated by doctors, are losing money. They have lost money 
three years in a row. We are hoping that perhaps we will break 
even when the 2004 numbers are published, but it is just false 
to confuse this with the property and casualty industry.

    Chairman Manzullo. Switch the microphone over to Ms. 
Doroshow. Go ahead.

    Ms. Doroshow. Okay. Now, when he is talking about incurred 
losses, let me tell you what that is. That is as a result of 
severely overstating reserves. That is what they do during the 
hard market when they are trying to raise the rates. That is 
not actual payouts. And what I would ask the Committee to do is 
ask Mr. Smarr for the actual cash flow from--

    Chairman Manzullo. You can ask him.

    Ms. Doroshow. Well, I will ask him to release the actual 
cash flow, what you actually took in and paid out last year, 
because that is not what you use to base your combined ratio 
figures on.
    And by the way, they are also making investment and come 
off their surplus, which is not included in those figures 
either.

    Chairman Manzullo. Mr. Smarr.

    Mr. Smarr. I do not even know what you are talking about 
the surplus issue, but it is improper to compare what an 
insurer pays out this year with what it takes in this year. 
There is a 22-month lag between the time a claim happens and it 
is reported to the insurer. Just think of auto insurance. It is 
reported the same day. And then there is another 33-month lag 
between the time the insurer knows about it and the claim 
closes. So it is four and a half years of trend that must be 
calculated into premiums that insurers are collecting today.
    The claims we are paying today are for premiums that were 
collected four and a half years ago, and it can take as long as 
10 or 12 years to pay out that money.

    Chairman Manzullo. Ms. Doroshow?

    Ms. Doroshow. Well, I think it is pretty well recognized 
that during these hard market periods the insurers will tend to 
overstate their reserves. They pad them. And that is what those 
loss figures are.
    I would ask for that information for the last five years, 
what they paid in and what they paid out.

    Chairman Manzullo. All right, I will do this. You send me a 
letter, and you tell me what you want from the insurance 
companies, all right? And let me bounce that around, okay?
    But let me go back here to Dr. Rubin. You come from the 
state where it is not for profit.

    Dr. Rubin. That is correct.

    Chairman Manzullo. Okay. And quickly, your experience 
again?

    Dr. Rubin. Again, I have seen an 816 percent increase in 
the last nine years, 117 percent last year. They are not making 
a profit there, and again, all the other private carriers are 
pulling out.

    Chairman Manzullo. A good point. Dr. Gleason quickly.

    Dr. Gleason. Yes. In Illinois, there is a Department of 
Insurance that requires yearly figures, also that requires 
audits every three years.
    Furthermore, I have to ask myself if this is so profitable, 
why in Chicago and Illinois has the number of insurers gone 
from 17 in 2001 down to five this year? And of those five, one, 
Medical Protective, only take people with no previous lawsuits. 
AD Capital has been downgraded twice in the last 12 months. 
ISME, the largest insurance of 16,000 individuals, currently is 
taking on no new individuals other than those joining current 
practices. And finally, PIC Wisconsin has retreated to 
Wisconsin and Iowa, and are no longer writing in Cook County.

    Chairman Manzullo. Ms. Velazquez.

    Ms. Velazquez. Well, I guess that if we hold another 
hearing, I will have also--I will ask the Chairman to bring 
another witness that might provide some more balance responses 
between the two sides that are here represented, and that would 
be Attorney General Eliot Spitzer from New York.
    Dr. Palmisano, in your testimony you commend California for 
their law, the MICRA law which contains reforms similar to 
those you are asking Congress to support in federal law. 
California also has a rather extensive insurance reform law. We 
have heard that it was not until insurance reform was enacted 
in 1988 that premium stabilized.
    You have been a malpractice insurance executive and 
advisor, have you not?

    Dr. Palmisano. Well, I was on the board of a company for 
eight years in the eighties, one of the mutual companies form 
by Louisiana State. I am on the board of the doctors company in 
California.

    Ms. Velazquez. Okay.

    Dr. Palmisano. And I have a company called Intrepid 
Resources which is a risk-management company, that is correct. 
But I am here today on behalf of the--

    Ms. Velazquez. No, it is okay. I just wanted for you to be 
on the record.

    Dr. Palmisano. Yes, and this testimony would be given by 
Dr. Nelson or anyone else. This is AMA testimony.

    Ms. Velazquez. That is okay. Given the California 
experience you cite, do you see insurance reform as a necessary 
partner to the health field?

    Dr. Palmisano. Well, the example given about Proposition 
103, we have a document from AMA on the AMA website called 
``Medical Liability Reform Now,'' which goes into that.
    Whenever a law is passed in the state, to get the benefit 
of the reforms one has to make sure that it is constitutional. 
It is presumed to be constitution but if the insurers drop 
their rates immediately what happens is if it is declared 
unconstitutional, like Texas on two occasions, Oregon, then 
they have not collected enough money.

    Ms. Velazquez. Sir, I do not have much time.

    Dr. Palmisano. We do not believe that--

    Ms. Velazquez. My question to--

    Dr. Palmisano. --Proposition 103--

    Ms. Velazquez. So you do not--

    Dr. Palmisano. No, we think the insurance--

    Ms. Velazquez. --insurance malpractice should be part of 
any health reform bill?

    Dr. Palmisano. We think the insurance commissions have the 
authority now.

    Ms. Velazquez. Okay, just say yes or no. Yes?

    Dr. Palmisano. Yes.

    Ms. Velazquez. Ms. Joanne Doroshow.

    Ms. Doroshow. Yes.

    Ms. Velazquez. What is your comment on that?

    Ms. Doroshow. Well, I think there is no question 
Proposition 103 is the reason rates have dropped in California. 
Proposition 103 came in 13 years after MICRA passed. As a 
result of Proposition 103, you also saw probably three of the 
most critical parts of it is there is an automatic hearing for 
any rate hike about 15 percent, and the public can intervene. 
And as a result of Proposition 103, in the last years three 
companies went in for rate hikes higher than that. There was a 
hearing. The consumers did intervene, and the insurance 
commission knocked those rate hikes down, saving doctors in 
California millions and millions of dollars. That is how it 
works.

    Ms. Velazquez. Thank you.
    Dr. Palmisano, I looked at your map of crisis states, and I 
must agree it is frightening to see all those states, including 
New York, as red states. I was interested to--
    [Laughter.]

    Ms. Velazquez. I was interested to see that New York was 
listed as a crisis state for medical malpractice. So I looked 
at your bullet points on the problems in New York.
    Are you rating this on those four newspaper articles you 
cite?

    Dr. Palmisano. I am sorry, ma'am? Am I what?

    Ms. Velazquez. The rating that you gave New York, is it 
based on the four newspaper articles that you cited?

    Dr. Palmisano. It is based on a number of things: loss of 
access of care. It is based on the number of insurers. It is 
based on the escalation in the rates. It is based on the number 
of suits that have high awards. It is based on a combination of 
factors that make it a crisis state.

    Ms. Velazquez. Are you aware that the General Accounting 
Office noted that your survey on physicians cutting back 
services had a response rate of only 10 percent, and did not 
specify cutbacks in specific services?

    Dr. Palmisano. Well, we are aware that the surveys that are 
done have to ask additional questions. It is like the statement 
made in Illinois that there is the same number of doctors as 
last year. You have got find out if the doctor actually 
practices in the state. Sixty percent of the doctors have 
licenses in more than one state. You have to find out if an 
obstetricians still deliver babies.

    Ms. Velazquez. Okay.

    Dr. Palmisano. Or if the neurosurgeon does head trauma.

    Ms. Velazquez. Sure.

    Dr. Palmisano. Those are questions that need to be asked in 
addition.

    Chairman Manzullo. Joanne, what is your comments or 
reaction on the red states?

    Ms. Doroshow. On the--

    Ms. Velazquez. Crisis?

    Ms. Doroshow. On the crisis in red?

    Ms. Velazquez. Yes.

    Ms. Doroshow. Well, I mean, I think that there is a crisis 
in red and blue states, depending on the insurance situation in 
the states. It certainly does not depend on whether there is a 
cap in the state because we know that there are many states 
with caps that have seen rates skyrocket.
    The way to solve that--I mean, what we are seeing is a 
state like California that has more moderate rates is due to 
the insurance regulatory law in the state.

    Ms. Velazquez. Okay, thank you.
    Dr. Gleason, on page 13 of your testimony you report that 
applications to medical schools are down by 22 percent. Is it 
your contention that this is due to the medical liability 
crisis?

    Dr. Gleason. Yes, ma'am, that is part of it. That is down 
22 percent since 1997.

    Ms. Velazquez. Okay.

    Dr. Gleason. And in addition to that you can also look at, 
for example, pediatric orthopedic fellows.

    Ms. Velazquez. Okay.

    Dr. Gleason. Currently there are only six whereas six years 
ago there were 50, and we go on with in terms of positions--

    Ms. Velazquez. Okay.

    Dr. Gleason. --for residencies filled as far as 
neurosurgery, emergency room trauma, and OB-GYN as well.

    Chairman Manzullo. Ms. Musgrave. Go ahead.

    Ms. Velazquez. It seems that the General Accounting Office 
does not agree with you. It says in their report that the U.S. 
physician population increased 26 percent which was twice the 
rate of total population growth between 1991 and 2001, and 
during this period the average number of physicians per 100,000 
people were increased from 214 to 239.
    Thank you, Mr. Chairman.

    Chairman Manzullo. Thank you. Ms. Musgrave.

    Ms. Musgrave. I have a question for Mr. Smarr, please. 
There is almost an innuendo that you are withholding 
information that distorts whether or not you are making a 
profit.
    Could you respond to that, please?

    Mr. Smarr. Well, the insurance industry, including medical 
malpractice insurance, is perhaps the most regulated industry 
of all. Each year and on a quarterly basis as well, insurers 
file very detailed financial statements with their state 
insurance departments, and all this data is then aggregated by 
the National Association of Insurance Commissioners, and the 
books are essentially open, because the basic elements that one 
needs to know are in those documents, and as well, rate filings 
made with state insurance departments are public documents. All 
the actuarial support for those rate increases or decreases are 
available to the public.

    Ms. Musgrave. Thank you very much.
    Could you go over the four-year period that you emphasized 
before? You know, there is a very simplistic way of looking at 
things, how much money was paid in premiums in a year, and what 
your claims were. But could you go over the lag time aspect of 
that again?

    Mr. Smarr. Well, the key element is that when a year closes 
the insurer does not know how many claims it is going to have 
for that year and/or the value of those claims when they are 
ultimately paid. There is a distinction between claims made and 
the current coverage, which I will not get into but there is 
some difference there.
    And so the insurer must estimate its future payments it is 
going to make as far as 10 years down the road, and so monies 
are set aside in what are called incurred but not reported 
losses, and it is indeed an estimate of what the ultimate 
liabilities are going to be.
    In the latter part of the 1990s, it has been proven that 
these reserves were woefully inadequate, and that is why the 
industry has booked a loss for the past five years.

    Ms. Musgrave. Thank you very much.
    Ms. Heady, much of my district is rural, and when you start 
talking about the difficulty that rural physicians face, it 
really strikes a cord with me.
    Could you emphasize, please, the other things that affect 
attracting rural physicians, and then complicated by these 
incredible premium increases? What do you predict for rural 
America in regard to health care?

    Ms. Heady. I appreciate very much, Ms. Musgrave, the 
question. The other issues that impact the recruitment and 
retention of rural physicians, of course, in a business climate 
have to do with their ability to generate revenues to cover 
their salaries, the salaries of their employees, and so on and 
so forth.
    The primary issue is the disparity in reimbursement for 
rural providers and rural physicians versus urban. We all, at 
least if we do not know, we should know that there is a myth 
operating in this country that it is cheaper to do business in 
rural America, certainly in health care, than it is in urban 
areas. And that is absolutely false.
    The Medicare wage index system that they use to 
differentiate payments is also based on myth; that you can pay 
the people less to do the same kind of job in rural America 
than you can in urban America, and absolutely converse is true. 
In order for rural communities to attract specialists and 
highly qualified individuals in the health care industry, they 
many times have to pay more than their urban counterparts.
    If you put the rising malpractice premiums for rural 
providers on top of that, then you have a tremendous falling 
house of cards. We do--we absolutely do know that the average 
incomes for physicians, nurse practitioners, PAs, so on and so 
forth in rural areas are much lower than they are for their 
urban counterparts, and that is primarily because of the 
differences, the disparities in reimbursements around for the 
same kind of service.
    Other issues have to do with the strength of the economic 
community, the payer mix in that community, and in most of our 
rural areas we do have larger pockets of low-income individuals 
or individuals that are on third-party payment kinds of 
systems, where we see a lot of states actually supporting a lot 
of the health care industry in those rural areas, and I hope 
that answers your question.

    Ms. Musgrave. It did very well. Thank you.
    Thank you, Mr. Chairman.

    Chairman Manzullo. Thank you. Congressman Barrow.

    Mr. Barrow. Thank you, Mr. Chairman.
    Well, I do not think there is any question that the 
practice of medicine is not what it used to be, and speaking 
for myself, I can say that the practice of law is not what it 
used to be either, but I would not trade places. There is no 
question there is a crisis in the health care community as a 
result of skyrocketing costs in medical malpractice insurance.
    What I want to do is just focus for a couple of questions 
on the effectiveness of the prime suggested remedy for all of 
this. And that is caps on what folks can recover is sort of the 
cure for what ails us here.
    There have been a least a couple of objections, I think, 
that are important to the notion that limiting the rights of 
recovery of those people who are truly deserving. Victims who 
have seriously been injured in excess of the amount of any 
arbitrary caps, are the only effective way to curb abuses on 
the part of other folks; that limiting the rights of the truly 
needy is the only way to deter bad behavior on the part of the 
truly greedy.
    Now, one of the groups of objections to that has been that 
it is just unfair, that it is just unfair to take away rights 
of recovery from folks who are genuinely deserving of some 
means, some social engineering, we are trying to manipulate or 
manage the behavior of other folks.
    So, Dr. Gleason, I want to ask you a question. What do you 
say to folks who argue that it is just plain unfair to place an 
arbitrary cap that limits the right of recovery of someone who 
is genuinely deserving of compensation in excess of the cap as 
sort of the way in which we--the price you have got to pay in 
order to be able to deter bad behavior on the part of other 
folks?
    Do we just say that is just tough? That is the way the 
cookie crumbles?

    Dr. Gleason. Well, first of all, I think that you have to 
keep in mind that what is being proposed is not the right for 
recovery. These injured individuals do get recovery in terms of 
all economic costs in terms of their rehabilitation, care, 
future earnings, past earnings, things of that nature.
    Also, what we are proposing is that they get it in a more 
speedy fashion. In California, we know that they get it within 
three years, whereas in New York it takes six years.
    Furthermore, we are asking that they get more of what they 
deserve by limiting attorney's fees, for example. So that is 
one part if.

    Mr. Barrow. Your answer, assumes, Doctor, that there are no 
cases that a cap would adversely affect; that there are no 
cases in which folks can agree on different sides of the issue; 
that just and fair compensation is in excess of the cap.
    When you answer back to me and say that ultimately the 
economic losses, you are kind of gliding over a lot of cases, 
but you are basically avoiding the issue that there are some 
folks who are not going to be allowed to recover what all agree 
they should recover in an ideal award in cases, in their case, 
as the things we have to do in order to be able to get at folks 
someplace else.

    Dr. Gleason. The bottom line here is how do we provide the 
best care to our patients.

    Mr. Barrow. No, I am asking about the fairness issue. I am 
asking about the fairness issue right now. I understand the 
point you are making, and I want to focus on that.

    Dr. Gleason. Right.

    Mr. Barrow. But right now, what do you say to folks who 
think this is just an unfair way to go about doing it?

    Dr. Gleason. It is a fair way to go about doing it. It is 
what is best for our country. It is what is best for delivering 
care. We know that in states with caps, for example, before 
there were any caps there was an even distribution of doctors 
throughout the country. Since the caps have been instituted, we 
look at states with caps and states without caps. Those with 
caps have 135 doctors per 100,000 patients. States without caps 
have 120 doctors.
    And you might say 15 doctors, what is the difference? But 
you talk to the patients that are in my practice that are 
waiting two to three weeks to see me, and if we had an extra 
one or two doctors, that would make a big difference.

    Mr. Barrow. Dr. Gleason, it still does not give me 
something I can tell the victim who deserves to be compensated 
in excess of the amount of the cap. Why it is they should 
accept that as the price they have to pay in order to achieve 
the kind of result you are talking about?
    On the subject you raised though, on the subject of whether 
or not they work, I want to compare and contrast the experience 
that California had after Proposition 103 with the experience 
that California had after they adopted caps back in the 
seventies.
    Ms. Doroshow, can you help us understand what role, if any, 
Proposition 103 had in the stabilization--we heard a lot of 
talk about the stabilization it achieved in California. Can you 
help us understand whether or not Proposition 103 had something 
to do with that, or whether or not that is attributable to the 
caps that were adopted a decade before?

    Ms. Doroshow. Well, certainly the Insurance Commissioner of 
California would agree that it had an impact. They just--he 
just recently wrote a letter to the Energy and Commerce 
Committee for a hearing they had last week.
    According to the data we have seen, rates went up about 450 
percent during the 13 years that MICRA was in effect, the cap 
before Proposition 103 came into effect. And since then rates 
have been down about eight percent whereas they have gone up 
nationally about 25 percent.
    I would also note that there is also, as I mentioned 
earlier, a very important provision of Proposition 103, so that 
if there is a rate request higher than 15 percent, there is an 
automatic hearing.
    There had been medical malpractice insurers that have gone 
in for rate hikes in California in the last two years. No 
question about it. But as a result of Proposition 103, they 
have been knocked down, and that is a very practical impact 
without even looking at the years of data where you see that it 
has had an impact.
    I should also say that the RAND Corporation did a study 
about what victims are most severely impacted by MICRA, and 
what they found was that it falls on patients and families who 
were severely injured or killed as a result of medical 
negligence, so we know that that is really the kind of families 
that are most hurt by that cap.

    Mr. Barrow. Mr. Smarr, you pointed out that medical 
malpractice insurers are among the most heavily regulated 
businesses, but you can argue they are not the most effectively 
regulated at the state level.
    Why should health care providers, doctors and hospitals in 
California have protections under Proposition 103 in California 
that folks back in Georgia do not have? Do you not all support 
Proposition 103-type reforms all across the country?

    Mr. Smarr. The elements of Proposition 103, such as an 
elected insurance commissioner, the prior approval of rates 
exist, and hearings, exist in states throughout the country. My 
experience is in Pennsylvania where I was responsible for 
filing rates with the state insurance department and defending 
them, and I can assure you that our rate filings were intensely 
scrutinized, but the insurance commissioner approved the rates 
because the filings were just.
    We do not think Proposition 103 has had any effect in 
California. Proposition 103 required the rollback of rates by 
20 percent. In fact, what happened is medical malpractice 
insurers at the time when it became effective in 1992 paid back 
a 20 percent one-time--I will use the word rebate--to 
policyholders of an annual premium, and were allowed to do that 
as part of their normal dividend practice, and at that time 
they were paying dividends to policyholders in excess of 30 
percent.
    We have looked at figures for all these years. We have 
looked at the figures in California. Since it was enacted there 
have been three hearings. Now, it was enacted in 1988 or 1989. 
There have been three hearings, and it can be argued that those 
are politically motivated as well, and the reductions that the 
carriers were given by the department were minor in nature.

    Chairman Manzullo. Thank you. Congressman Westmoreland.

    Mr. Westmoreland. Thank you, Mr. Chairman, and first of 
all, let me thank you for continuing to have these hearings 
because I know that the House has passed this legislation, 
medical reform, for the last three Congresses, but I am sure 
that the situation has changed every year, and I am sure it is 
getting worse rather than better. So I think it is important 
that we continue to have these hearings.
    Can I call you Joanne, because I have heard the Chairman 
pronounce your last name, and the Ranking Member, and I am 
afraid I would give it a Georgia dialect so if I can call you 
Joanne.

    Ms. Doroshow. Whatever you like is fine.

    Mr. Westmoreland. You mentioned the terrible story about 
the baby that--the reflux and his esophagus was torn, and that 
is a terrible situation, but my children, I have three. My baby 
daughter is 28 now. We used to give our children Paraguart. I 
mean, we did not know if they had reflux or acid indigestion or 
whatever. In fact, it was not until one of my grandchildren was 
born that I even knew that babies had reflux.
    And so is it not true that now medicine has come so far and 
doctors out of fear of not going through the whole diagnostic 
test cause patients to have more tests? Or identify more things 
that are wrong, and just under the law of averages the more 
treatment you get the more room there is for a mistake?
    And in this particular case, were these mistakes or was it 
malpractice? Because there is a difference to me between the 
two.

    Ms. Doroshow. Well, we did only invite families down who 
had either settled or somehow resolved their case, so there was 
medical negligence, or at least if not an admission of it, at 
least a settlement of some sort. I mean, that is the only basis 
that we had to go on. But we were not bringing down just 
anybody that had a medical error in a hospital. These are real, 
real cases of negligence.
    And you know, there have been many agencies that have 
looked at this issue of defensive medicine, and really what has 
been happening, and all I can tell you is what other agencies 
have found. Basically what, for example, the Office of 
Technology Assessment found when they looked at this in 1995 
was that less than eight percent of all diagnostic procedures 
are likely to be caused primarily by liability concerns, and 
that most physicians who order aggressive diagnostic procedures 
do so primarily because they believe such procedures are 
medically indicated, not primarily because of concerns about 
liability.
    The Congressional Budget Office and the National Bureau of 
Economic Research, which just recently put out a report, made 
similar findings. I am not a physician, but I can only report 
on what the agencies that I read have found.

    Mr. Westmoreland. Well, you know, when I found out about 
this hearing, I called some of my doctors back home because, 
you know, I believe in doing to that end user kind of guy that 
these things effect, and the one thing--one of the comments 
that they all made was the fact that they now feel pressed into 
doing more diagnostic tests than what they have been in the 
past out of fear of a malpractice lawsuit.

    Ms. Doroshow. Well, I do hear that anecdotally from 
physicians. That is not what the agencies have found. And you 
know, we meet many victims all the time who are dying as a 
result of the failure of a physician to do the proper 
diagnostic procedure.
    My own father died of colon cancer after his family 
physician refused for a period of five years after he went in 
with the symptoms to do all basic testing necessary to save his 
life.
    We run into families like this all the time. So I think 
that you could probably find many anecdotal stories on the 
other end of this as well.

    Mr. Westmoreland. Yes, ma'am. You know, and we were talking 
about a fairness issue because with medical liability reform it 
always--you know, the lawyers always want to throw insurance 
companies in it, and the doctors want to blame somebody. It 
kind of comes down to doctors versus lawyers really and truly.
    And being in the building business, I have had to deal with 
lawyers before, and of course, I deal with doctors, and you 
know, if I go to the doctor, I have to sign a paper that I 
understand everything that could go wrong. I mean, from getting 
a sore throat to dying. I mean if you are going to take a 
medicine or if you are going to have a procedure, whether you 
are having hang nail removed or whatever it is. I have never 
had an attorney--I have never had them disclose to me what 
could happen to me, I guess. There is just a certain verdict.

    Chairman Manzullo. Well, it is a good thing because at this 
point you are out of time.

    Mr. Westmoreland. Okay. Well, let me close by saying this. 
I just think the reality of it is that doctors are called upon 
many times, many times woke up in the middle of the night to 
go, and as your neurosurgeon, you may get called to make a 
decision, a five-minute decision, somebody's life is in the 
balance. And I think we need doctors that are willing to do 
that, and that we need to help them and really gird them up.

    Chairman Manzullo. Okay, thank you very much.

    Mr. Westmoreland. Thank you.

    Chairman Manzullo. Thank you. Dr. Christian-Christensen.

    Ms. Christensen. Thank you, Mr. Chairman.
    As most of my colleagues know, and I guess the panelists 
also know, I am a physician, and I am still a member of some--
of the professional organizations, so this issue is very 
important to me as is the issue of the skyrocketing costs of 
health care.
    But to me, it is very important that we get it right, and 
that this issue does not become a political pawn; that the 
issue does not become a political pawn. We have to get it 
right.
    So no one would disagree that we have to reduce the rising 
costs of health care, but I think I would be negligent up here, 
especially because there are people on the Committee that do 
not know the full picture of health care, if I did not point 
out that malpractice premiums is only one cause. Health care 
disparities, lack of insurance for the 45 million people in 
this country, the costs of medication, our failure to use an 
ounce of prevention are all contributing factors to the 
skyrocketing price of health care, and we need to address all 
of them.
    That being said, clearly we need a remedy to the problem of 
malpractice costs. They are placing a heavy burden on doctors. 
Regardless of what other conflicting information we have on 
many, many of the issues, it is placing a heavy burden on 
doctors, and I know--physicians that I know that some are 
moving from one jurisdiction to another, or are--if not closing 
their offices at some of the younger ages, some are retiring 
early just because they just cannot bear that burden anymore.
    So I think it is very important, Mr. Chairman, that we 
have--that all of the issues are put on the table, and that we 
work towards developing a solution that is based on what works 
best and not what is political.
    So I am willing to work with you and others to examine 
every approach clearly, and also to look at what other factors 
are involved. Certainly caps are not the only cause, and I 
guess that would lead me to my first question on the caps.
    I, like my colleague Mr. Barrow here, very, very troubled 
about the cap issue because that is where all of the focus is 
being placed, and I personally feel it is a political issue 
more than a real issue. But the caps on the economic damages, 
even the cost of the lost wages, and the future earnings, 
because how do you determine what a person's future earnings 
might be at any given point in their life?
    And to me, we are limiting--putting limits on where 
people's lives are at any given particular time. I am working 
on an issue at home with someone who today is a billionaire, 
but probably 15 years ago they were a teacher, and so how do 
you decide where you cap? and I guess I would like to--I am not 
going to ask that as a question, but I just want to say the 
caps are very, very troubling, and they are very troubling 
particularly to to minority populations because we generally 
are seen as persons that do not have the ability to rise above 
a certain point at any given time in our life, and I do not 
want the people that I represent to be kept where they are at 
any given time because of caps if they are damaged by 
negligence.
    I want to ask, I guess I would start by asking this because 
I know time is going to be limited, Dr. Palmisano, Rubin and 
Gleason, what do you think should be done on the side of the 
insurance and the role that insurance plays on this? Because I 
note that the Weiss ratings say that despite caps on economic 
damages enacted in 19 states, most insurers continue to 
increase premiums. Caps did not reduce awards; that the median 
annual premium actually increased more in states with caps; and 
doctors in states with caps with caps actually suffered a 
significantly larger increase in insurance costs than doctors 
in states without caps.
    So why are we focusing on caps and not taking a more 
comprehensive approach, and what do you recommend we do about 
the insurance side of this issue?

    Dr. Palmisano. Thank you, Doctor. The American Medical 
Association took all of the arguments against the 
recommendations that were being debated in Congress, and we 
tried to do scientific research, and we put that in a document, 
``Medical Liability Performed Now.'' It is available on the AMA 
website. We can make copies available to everyone on the 
Committee certainly.
    When people say caps do not work, we have read those 
reports, and when you look at them scientifically, they are 
comparing apples to oranges. Missouri is constantly brought up 
as a state with caps. It is a cap per doctor per claimant. You 
could have multiple caps in a given case.
    The California cap is a fixed cap, 250,000 on the non-
economic, so you cannot have multiple caps in a case. 
California is not the only state, and they do not have 
Proposition 103 in effect. Louisiana, Indiana, New Mexico, 
Colorado, and Wisconsin, those are states that are stable that 
have caps that affect the non-economic damages among other 
things.
    West Virginia had a cap of a million dollars for many 
years. It was ineffective. It is one of the crisis states. You 
have states with caps that have exceptions. The state with an 
exception, there is always a way to get through to the 
exception. Massachusetts is the state I was trying to think of. 
They had a cap for many years, but they have exceptions to the 
cap.
    So we have to compare apples to apples. Caps do work, and 
in the bottom line the equation has to be that what is best for 
all of the citizens of America. It is--when you say why did 
this patient not get all of their non-economic damages, which 
is subjectively determined by a jury, you cannot quantify it 
objectively, but what about Dr. Lucas's son who dies, who could 
have been saved? What about LeeAnn Dyce's husband who could 
have been spared brain damage? What about the people who do not 
have a doctor, who have to try to make it to the next town, and 
the nurse who is pregnant who passes her own hospital up, 
delivers in a corner on the side of the road in America in 
2002?
    That is your responsibility to balance, and so our 
responsibility is to try to bring you as much information--

    Chairman Manzullo. My responsibility is to say we are out 
of time on this particular--

    Ms. Christensen. Already?

    Chairman Manzullo. Congressman Sodrel.

    Mr. Sodrel. Thank you, Mr. Chairman.
    Just for the record, I am not an attorney nor a doctor. And 
in fact, I have seldom used the health care system, but I have 
paid for hundreds of working class folks, their health care 
premiums which have gone up double digit every year.
    I would just like to ask--is it Doroshow? Is that the way 
you pronounce it?

    Ms. Doroshow. That is correct, yes.

    Mr. Sodrel. Ms. Doroshow. Is it your testimony that there 
is nothing wrong with the current system?

    Ms. Doroshow. No.

    Mr. Sodrel. I mean, that it works the way it should work 
and produces the desired result?

    Ms. Doroshow. I think there is a very serious problem with 
regard to the insurance industry, their responsibility and 
their role in creating this crisis for doctors. I think the 
causes lie with them. I think the solutions lie with them. I 
also believe that there is a serious problem with the amount of 
malpractice in this country, and that--you know, the day the 
President went to Madison County in early January, the very day 
he went there to give a speech advocating capping damages, the 
White House released a report which it had commissioned done by 
the University of Iowa, and the Urban Institute, which found 
that there was a small number of doctors responsible for most 
malpractice, and if state disciplinary boards did a better job 
of simply weeding those doctors out of the system, both 
incidents of malpractice and lawsuits would be reduced.
    Now, you do not hear the President talking very often about 
that study, and you do not hear either the insurance industry 
or the medical societies talking about it either, but it is 
something that the consumer goods have been pushing, 
particularly Public Citizen and their health research group 
have been pushing for it for years. This would save this 
country billions in terms of, you know, lost wages and health 
care costs and so forth due to medical injuries.
    There are many other ways of addressing this issue of 
medical errors that either Congress or the states could look 
at. In terms of what Congress could do with regard to the 
insurance industry, there is not that much because the federal 
government is not allowed to regulate it, but they could repair 
the antitrust exemption under the McCarron-Ferguson Act, which 
basically allows insurance to price fix during these hard 
market periods when there is a lack of competition in the 
market.
    I would hope that the Congress would take a look at that 
again because those proposals have been around for awhile.

    Mr. Sodrel. So your testimony is there is something wrong 
but it is not--it does not lie with the medical--or lie with 
the legal system, it lies with the medical system, and the 
insurers of the medical system?

    Ms. Doroshow. Right.

    Mr. Sodrel. Mr. Rubin, would you like to follow up on that?

    Dr. Rubin. I would very much, because in support of the 
medical system.

    Mr. Sodrel. Dr. Rubin, excuse me.

    Dr. Rubin. That is okay. I am on the medical executive 
Committee at the teaching hospital. We actually have dealt over 
the last couple of years with two issues trying to remove 
physicians who the physicians themselves feel may not be up to 
standard. Both have filed lawsuits and have prevented us from 
taking them off the staff. So I do not think that argument 
files.

    Mr. Sodrel. So I guess the bottom question here is how we 
prevent all the best and brightest from aspiring to be 
attorneys in the United States.

    Dr. Rubin. That is right. Well, just keep doing what we are 
doing and none of them will become doctors.

    Mr. Sodrel. Thank you, Mr. Chairman.

    Chairman Manzullo. Thank you. Congress Lipinski from the 
great state of Illinois.

    Mr. Lipinski. Thank you, Mr. Chairman. I have to--following 
on Mr. Sodrel, I have to start off by saying I am not an 
attorney. I nearly escaped that about 17 years ago. I am a 
doctor, but not the kind that you want to go to with medical 
problems, not a medical doctor.
    A couple of questions. I made these--many of the question I 
had have been asked already. I have a couple of things. One 
quick question: Ms. Doroshow, do you believe that states--you 
seem to be suggesting perhaps that states are not regulating 
the insurance companies as they could be or as they should be?
    We see with Eliot Spitzer in New York, the latest thing on 
the--with the health insurance brokers. You know, I have had 
people who are in the health insurance industry saying, well, 
yes, we have known this has been going on, and I sort of 
wonder, well, why did it take so long?
    Do you think that states should be doing more and they are 
not? Do you think--or do you think that more states need to 
have, you know, different laws?

    Ms. Doroshow. Well, states do not do a very good job of 
regulating rates, that is for sure. Sometimes the laws do not 
even allow them to, like in Illinois, where the insurance 
department is prohibited from even denying an excessive rate if 
they see it. But most states do not have prior approval. 
Basically the insurers file the rate, and they use it. It is 
called file and use.
    In addition, I think state insurance departments tend to be 
pretty understaffed and underfunded, and they are hit with lots 
of actuarial data, and lots of information from rate filings 
from their insurers, and they cannot always do a proper 
examination of what the insurers are filing.
    So we have also advocated at the state level more funding 
for state insurance departments so that they can do a better 
job. But even--

    Mr. Lipinski. It can have a significant impact on this 
crisis or do you think that is just a small part?

    Ms. Doroshow. No. I mean, if the regulation--laws were 
stronger, it could have a significant impact. What we have 
advocated is, what you need to do, is there are sharp ups and 
downs in this insurance cycle. We are in the third one in 30 
years of a very, you know sharp up. What you need to do is kind 
of modulate that cycle, get better control so there aren't 
those sharp ups and downs, and that is what a stronger 
insurance department could do with better regulatory laws.

    Mr. Lipinski. We have heard from--and I also have to say I 
am new here. I have not been dealing with this issue as many of 
my colleagues have. I have been dealing with it for a few 
years. Are these insurance companies, are they really hurt?
    I mean, I have heard you say--suggest that they are not, 
but it seems from what other witnesses have said that they are, 
the insurance companies themselves are hurting now.

    Ms. Doroshow. Well, if you read the trade journals where 
they actually report on the successes and the profits of the 
insurance industry, you will find them quoting, you know, their 
results as outstanding, and record breaking, and the best they 
have ever seen. So I think you have got to look beyond--

    Mr. Lipinski. Okay, I will have to look at that myself and 
see some more on that.
    On more question, I will pick out Dr. Palmisano, but anyone 
else who wants to address this, I have heard that the 
estimates, the medical malpractice, about how much they add on 
to the cost of health care is under one percent. It is pretty 
small. Do you believe that? Do you agree that that is the case, 
that it is not a problem that is affecting the cost of health 
insurance? It is just affecting the doctors, where the doctors 
are?

    Dr. Palmisano. Well, we believe that is not a correct way 
to frame the question. What they say is it is one percent to 
two percent of the total health care costs, so why should we 
worry about it?
    Well, you should worry about it because it is 100 percent 
for the neurosurgeon who no longer practices in a community. It 
is 100 percent for the patient who needs a neurosurgeon.

    Mr. Lipinski. You think it really is a doctor--the problem 
is for a doctor, what you have all been addressing here. I was 
just wondering about if anyone thinks that it is also a bigger 
problem in terms of health care, of the cost itself. I 
understand what you are saying about the doctors. Does anyone--
Ms. Heady?

    Ms. Heady. Well, it is 100 percent of the cost if the 
doctor closes their practice, and I think that the more 
vulnerable parts of our population, the low income, minorities 
and rural areas see this significantly impacting the quality of 
their health care services.

    Mr. Lipinski. Thank you.

    Chairman Manzullo. Okay. Congressman Fitzpatrick.

    Mr. Fitzpatrick. Thank you, Mr. Chairman.

    Chairman Manzullo. No, I am sorry. Congressman Gohmert. He 
was here before you. Go ahead.

    Mr. Gohmert. Thank you, Mr. Chairman, and I appreciate 
everyone's time here today. I am an attorney, and I have a lot 
of doctor friends, and was a judge for a decade, been on chief 
justice to finish a term as appellate judge as well, and I have 
wrestled with these issues. I appreciated, Mr. Barrow, your 
insightful comments and questions, and acknowledge there is a 
problem, and also Dr. Christensen acknowledging that there is a 
problem. We have got to deal with it.
    I noticed, Mr. Smarr, in your Exhibit 9 you pointed out a 
glaring problem that I am not sure the caps address, and that 
is this problem of 75 percent of doctors coming out without any 
kind of finding of fault. And as a judge, I saw it over and 
over again. The plaintiffs' attorneys, you know, sue everybody 
that touches a file, and as one doctor said after a year, she 
got dismissed right before trial, ``That is it?'' She stood in 
my court saying, ``That is it? What about my year of pain and 
suffering? What about my lost wages? What about my costs? What 
about my insurance going up? I knew I had no fault but this has 
just ripped me up.''
    And she had good questions all. I am sure you would 
acknowledge that, right, Ms. Doroshow. I mean, that is a 
problem, right?

    Ms. Doroshow. Well, I think it is true that most plaintiffs 
are not successful in their medical malpractice cases. I would 
not say that is because they are without merit. I would say 
that these cases are extremely difficult to prove, and 
expensive to fund, and they do not always--they are not always 
able to do that. These are usually not smoking gun cases. It 
takes a lot of investigative work, and a lot of expense to do 
that.
    On the other hand, if the cases are being dismissed, and 
verdicts are not happening, then where is the crisis?

    Mr. Gohmert. Well, we see the crisis by the health care 
insurance cost, and when you see 75 percent of all doctors have 
no finding of fault, then there is a problem, and that would 
appear to be one area that needs to be addressed.
    Mr. Smarr indicates that that clearly shows personal injury 
attorneys trying these woefully deficient and recognized 
meritorious actions. What I repeatedly heard is they are 
practicing defensive law by suing everybody so that they do not 
get beyond the statute of limitations and find everybody turn 
and point to one person that they did not include.
    So I see that as a problem, whether you will acknowledge it 
or not, and I hear that from plaintiffs. But what I am 
wondering about is how we deal with that issue, and I like a 
carrot as well as a stick, and I am wondering if you have 
incentive--a disincentive to sue people without--who may not 
have any fault, so that the physicians could be awarded 
attorney's fees if they are dismissed without some finding of 
fault or agreement between the parties.
    Or on the other hand, if they are into the lawsuit and a 
party after limitations identifies somebody outside the lawsuit 
as having responsibility, then extend limitations for 30 days 
to allow him to bring that party in so that we do not keep 
bringing in 70 percent of doctors who are ultimately dropped or 
dismissed without a finding of fault. That is one thought I 
have, and if I have got time, I will ask for comments.
    But another thought I also had is beyond the cap issue, 
allowing the loser pay system to level the playing field, and 
one other issue would be, in Texas, as I understand, 
neurosurgeons have started trying to police doctors for hire 
and examining the testimony of everybody in depositions or at 
trials who has their board certification, to see if it meets 
the standards of that certification so that, you know, doctors 
are more careful about hiring themselves out.
    People talk about frivolous lawsuits, but most lawsuits do 
have some doctor somewhere who has been paid to say this doctor 
screwed up, and here is an affidavit supporting that. Then they 
get into the suit, find out more information, and then 70 
percent of them get dropped. So that seems like that may be a 
potential area to help police things as well.
    So anyway, I am interested in your comments in my remaining 
time.

    Chairman Manzullo. Well, we have got seven seconds here.

    Mr. Gohmert. Did not know how much yellow meant.

    Chairman Manzullo. Yes, let me go onto Congressman 
Bordallo. We may have time for a second round here.

    Ms. Bordallo. Thank you very much, Mr. Chairman, and ladies 
and gentlemen. I want to thank the health care professionals 
nationwide for the hard work and commitment to the communities 
in which we live, and we definitely, as evidenced here by all 
of the witnesses and my colleagues, we definitely have a 
crisis.
    I come from the territory of Guam, and we have a reasonably 
effective system of preventing frivolous lawsuits. Petitioner 
cases must be heard by an arbiter, and may only be appealed in 
court. But despite these controls, malpractice insurance 
continues to go out of control. I just wanted to make that 
comment.
    Another comment is in June 2003, Families USA report the 
average compensation of CEOs in the health insurance industry's 
11 leading companies was $15.1 million without even including 
stock options. So this does not sound like an industry that is 
struggling to make ends meet. I just want to make that comment.
    Now, my question, and I think this is to you, Mr. Smarr. I 
believe that market solutions are the most efficient way to 
solve many problems, but I also understand that they require 
effective regulations, and I have also heard today that medical 
malpractice is driving insurers out of the market.
    Could it be that the lack of competition among insurers is 
in fact the causes of higher premiums?

    Mr. Smarr. We actually saw intense competition in the 
marketplace in the early 1990s, when this line of business was 
profitable, and in fact rates were going down. I know I was 
making rate filings that were going down at that time. But when 
the market hardened, when the cost of claims rose so high, and 
when investment income, which we use to offset claims, 
declined, we knew the bond rates were at an all-time low, 
companies not only got the marketplace, they went broke. There 
are a number of them across the nation who no longer exist. Or 
like St. Paul, a very large insurance company, who made a 
strategic decision to drop out of this line of business 
worldwide because it was not the most efficient way to use its 
capital.
    It is a question now of rates not yet being adequate, not 
that the companies are making money, because they are not. And 
so I cannot see how the fewer number of carriers in the 
marketplace can contribute to higher prices because of lack of 
competition.

    Ms. Bordallo. Would anyone else like to comment? Yes.

    Ms. Doroshow. Yes. I mean, it is very true there is a lot 
of competition when there is a soft market, and it falls away 
when we are in a hard market period. I do want to address this 
St. Paul issue and some of these companies that pulled out.
    In June 2002, the Wall Street Journal had a front-page 
article about St. Paul and what had happened to that company, 
why it was pulling out, and it was due to basically mismanaged 
reserves by this company. Other companies had followed along 
and they should not have been in medical malpractice in the 
first place, and they pulled out when the market turned hard.
    St. Paul is a company that has long mismanaged its finances 
and reserves. In fact, in the late nineties, the Attorney 
General, then Insurance Commissioner of Minnesota, went on 
Night Line. There was an entire show devoted to this, St. Paul 
and Mike Hatch. Mike Hatch had done a whole study about St. 
Paul, and was a closed-claim study, and basically found that 
St. Paul had grossly misled the public as to the situation with 
its own claims and so forth.
    Night Line had its own actuaries and investigators double 
check his work. They went on, they supported it with a whole 
show devoted to that. I think it was 1988-1989, something like 
that, but this is a company that has had a lot of problems, and 
it is not because of lawsuits going up.

    Ms. Bordallo. Thank you for that information. Thank you, 
Mr. Chairman.

    Chairman Manzullo. Mr. Fortenberry, you had just remarked, 
and Mr. Fitzpatrick, you can be right after him.

    Mr. Fortenberry. Thank you, Mr. Chairman. I apologize for 
leaving the room, so if this ground was already covered, please 
accept my apologies.

    Chairman Manzullo. In fact, we are going to stick around 
here for a second round because--if it is okay with the 
witnesses. Does anybody have to catch an airplane?

    Dr. Palmisano. At four.

    Chairman Manzullo. Four. We will not be that long.
    Mr. Fortenberry.

    Mr. Fortenberry. I will try to hold the remarks to allow 
you to catch your plane.

    Dr. Palmisano. Thank you.

    Mr. Fortenberry. Dr. Palmisano, I noticed in your testimony 
a statistic that I am familiar with, which is that the 
government spends--the government's own health care obligations 
are impacted by this very question, and I think it is a very 
important to point this out, particularly in these very 
difficult fiscal times that we are living with.
    According to the Health and Human Services, I believe, and 
unfortunately I have already sent your testimony off with my 
staff to be filed because I thought it was important, the cost 
of medical liability is between 70 billion and 125 billion or 
so--

    Dr. Palmisano. One hundred and twenty-six billion, yes.

    Mr. Fortenberry. --every year? The cost savings in the 
framework in which we are discussing of excessive medical 
liability, in some way trimming excessive medical liability, 
and that is the key adjective here, excessive, would be about 
$50 billion to the government's program.
    You might want to elaborate a little bit on that if you 
can. I know you are lifting those statistics from Health and 
Human Services, but I think it is an important component of 
this discussion, and let me leave you with a final comment as 
well.
    I think there are outstanding points being made throughout 
this discussion. I think what the key is here is balance, and 
some of these reforms, I think, are getting at allowing the 
health care industry to continue to deliver basic health care 
services in a reasonable fashion, allowing those who are 
injured from negligence to have redress in the court system, 
but in a way that does not undermine the very ability of the 
health care industry to deliver its services in the first 
place.
    And so I think fundamentally that is what we are wrestling 
here with, if you want to comment on the savings potentially to 
the government, that would be helpful.

    Dr. Palmisano. Yes, sir. That is on the written testimony 
handed in on page 11. Seventy billion to 126 billion determined 
by the U.S. Department of Health & Human Services attributed to 
the cost of defensive medicine. And if you had reasonable 
limits on non-economic damages, it would reduce the amount of 
taxpayers' money the federal government spends by up to 50.6 
billion per year.
    And as you talk to physicians around the country, there is 
no question that they do test because someone says, you know, 
if you do not have this, you better document it, because if you 
do not have this, someone was knocked unconscious, that is one 
indication to get perhaps a CT scan.
    On the other hand, if someone was hit on the head and they 
were not unconscious and they have no neurological loss, and 
someone says but if they bleed later on, and someone will say 
that you should have gotten this test, and they said, well, we 
better get the test to so we can document it if litigation 
comes.
    If I might just add one thing about--I am a surgeon. I have 
been practicing for about 40 years. One of the things I do is 
make the diagnosis of appendicitis. I get informed consent, and 
I recommend an operation. If I had, and I get instant peer 
review, the pathologist looks at the specimen and he says, she 
says appendicitis, no appendicitis, normal appendix, if I had a 
70 percent normal return rate, they would not let me operate at 
my hospital, and that is one of the problems with this system.
    There are so many that you brought up, Judge, there are so 
many cases being filed. The Institute of Medicine report, they 
said these are not bad doctors. These are bad systems that we 
need to fix. And you all passed a good bill last year, and the 
Senate passed a good bill, and it did not get out of conference 
Committee, the Patients Safety and Quality Improvement Act of 
last year.
    And it is the aviation safety reporting system applied to 
medicine. You can voluntarily report, experts review it, give 
you feedback on changing the system, and you disseminate in a 
unidentified fashion. That works for commercial aviation, it 
will work for medicine.
    So we think patient safety is very critical in this too, 
but something has to be done. You mentioned early about the 
responsibility. This country is built on a free enterprise 
system. Small businesses make up a big part of the free 
enterprise system. And there is accountability in business. If 
you don't meet your expenses, you go out of business.
    And so we need to have some accountability for attorneys 
who file suits that do not have any merit, and if you want to 
have a loser pays, AMA has a policy on that. We will be glad to 
give it to you. It is on the AMA website in policy finder. If 
you lose in a case, and it is shown that there was--you have to 
pay the other side's defense costs on an hourly basis, approved 
by the judge, both plaintiff and defense. So that is one thing 
we have looked at over the years. We have that in our policy.
    So a lot of things can be done, but just to say, you know, 
we have got to stop malpractice. The Troy Brennan that you all 
have heard in the past in Congress had Harvard show that there 
is no correlation between the monies paid by these insurance 
companies and negligence. The only correlation is with 
disability. So we have a very expensive system that does not 
accurately measure negligence, and you have people who get 33.3 
to 50 percent, including the money that the patient, the 
injured patient needs for the rest of their life for medical 
treatment, and that is the big incentive for these cases.

    Chairman Manzullo. Congressman Fitzpatrick.

    Mr. Fitzpatrick. Thank you, Mr. Chairman. Just following up 
on that, I would like to hear Ms. Doroshow's response to--I 
guess it is an AMA officially adopted policy of a loser pay 
system?

    Dr. Palmisano. Yes, sir, and the only thing I did not 
mention is that if the patient or the client is not able to 
pay, then the attorney is responsible.

    Ms. Doroshow. Well, look, loser pays for someone who is 
injured, in need of medical care, unable to work is a horrible 
system. It will have a devastating chilling effect on the 
pursuit of any legitimate claim because of the prospect that 
that person is going to have to pay the insurance companies' 
defense fees if they were to lose the case, and given 
statistics, you know, it is very difficult to win these cases, 
it would have a horrible chilling effect on the pursuit of 
legitimate malpractice cases.
    And you know, there are only one in eight people who are 
victims of medical malpractice that sue in this country. That 
is it. There is an awful lot of malpractice going on that no 
one is being accountable for already, so that is about the last 
direction you want to go.

    Mr. Fitzpatrick. How about with respect to frivolous cases 
that are filed? I think we--you know, just as there are 
legitimate cases that are filed, there are frivolous cases that 
are filed. With respect to the frivolous cases.

    Ms. Doroshow. No question that attorneys who file frivolous 
cases should be sanctioned, and there is Rule 11, there are 
other rules already on the books that do that. I have no 
problem with that.

    Mr. Fitzpatrick. There are many states that do not have 
Rule 11 type sanctions, and it reason it becomes a crisis in 
some states--

    Chairman Manzullo. Could you talk into the microphones, 
Congressman? Thank you.

    Mr. Fitzpatrick. I am sorry, Mr. Chairman.

    Chairman Manzullo. That is okay. Go ahead.

    Mr. Fitzpatrick. And the reason it becomes a crisis in some 
states, some states have not been able to deal with it. I come 
from the Commonwealth of Pennsylvania. I came after your 
testimony, I apologize, due to a conflict, but I have your 
testimony here, and I am going to read it on the way back to my 
district today not only because of your expertise. I have seen 
your resumes and I appreciate your time here today, but this is 
a serious issue for my district, my state, and I believe for 
the nation.
    But when I came into the room I was listening to the 
Ranking Member, I think, make an inference that this is a 
crisis only in red states. As I said, I come from the 
Commonwealth of Pennsylvania.

    Ms. Velazquez. I did not say that. I am here.

    Mr. Fitzpatrick. Okay.

    Ms. Velazquez. I was referring to his map.

    Mr. Fitzpatrick. Sorry. I apologize and stand correct. I 
come from the Commonwealth of Pennsylvania, southeastern 
Pennsylvania, Box County specifically. There are seven 
community hospitals in Box County, and I sit on the board of 
directors of one of those hospitals, and the directors of all 
the hospitals have watched in Pennsylvania as doctor after 
doctor have left the practice, and we ask them why all the 
time, and it is always the same reason. They cannot afford to 
practice in the Commonwealth of Pennsylvania anymore.
    The highest risk specialty, I am sure is not just 
Pennsylvania, it is delivering babies, OB-GYN. I have a wife, 
three daughters, five sisters and a mother. Specifically, and 
anybody that might want to care to address this, I mean I see 
this as--if it is a crisis, it is a crisis first on the 
delivery of women's health care, and if you addressed that, 
again I apologize, but if anybody just cares to address how 
this issue is affecting specifically the delivery of health 
care to women.

    Dr. Palmisano. If I might briefly. It is a very serious 
problem for women, and obstetrics. They pay, and you know, it 
is over $260,000 in south Florida, and patients are having 
trouble finding obstetricians, and people who have 
complications, they are having problems finding someone to deal 
with those complications, so it is a serious problem.
    In your state of Pennsylvania, of those states that are 
painted red on our map that we declare the crisis states, 
Pennsylvania is probably in the worst shape of all the states. 
In Pennsylvania, no one will sell you insurance. The law 
requires you to carry a million dollars of insurance. Nobody 
will sell you the insurance above $500,000, so the state, in 
your state, has to do what is called the M-Care Fund, and the 
state passes it, and then in 2003-2004, the state with their 
own actuaries, they raised the rates 30 percent.

    Ms. Doroshow. But the solutions to this problem, again, 
they lie with the insurance industry. We do not dispute at all 
that doctors and some specialists are being price gouged, 
absolutely true. Capping damages is not going to do anything to 
help those doctors.
    There are specific reforms that our organization and other 
consumer groups have laid out over the years, not just 
regulation of rates, but collapsing categories, experience 
rating, other kinds of reforms that could really help those 
physicians. Having been born and raised in Philly, I am very 
sympathetic with the situation in Pennsylvania myself.
    But again, you cannot solve this problem on the backs of 
patients. It is not the legal system that is responsible here. 
It is the insurance industry's own business and accounting 
practices.

    Chairman Manzullo. I think Hilda had a response, 
Congressman.

    Ms. Heady. Yes. Mr. Fitzpatrick, I appreciate your 
question. I do have very personal experience in the area of 
women's health, and the impact that this has had particularly 
in rural areas. Primarily because--you know, this particular 
malpractice crisis right now hit subspecialties. Before that, 
it was in primary care. And this is the third series of crises 
that we have had without fixing the problem.
    We do see those practitioners who are primary care 
practioners who have experience and training that goes on for 
fellowship in OB-GYN. That is the first provider that stops 
that kind of service in rural areas. And when we are lucky 
enough to have OB-GYNs in rural areas, then they just simply 
cannot afford to do that.
    Now, I might make a lot of enemies or a lot of friends with 
this next comment, but I am tired of the finger pointing, and 
it is not just an issue of doctors and lawyers or lawyers and 
doctors and the insurance companies and so forth. There are 
four segments of our society that have both responsibility and 
I believe that there is a solution in there. It is the legal 
profession. It is the medical profession. It is the insurance 
industry, but it is also consumers.
    And one of the things that we have done in our society over 
the last 50 years is we have abdicated a lot of our own 
personal responsibility into a field of medical science looking 
for solutions to problems that we ourselves need to take care 
of. And as long as we may lose our doctor in our rural area, 
but if we smoke when we are pregnant, you know, and we know 
that we should not, then that is shame on us.
    And I do agree with Dr. Christensen's observation that the 
cost of health care--I mean, this is just one little piece of 
it, but until we get at this table, all four of those groups of 
society, we are not going to find a solution, and we are going 
to continue to point fingers at each other, and while we do 
that we have got people, real consumers out there that are the 
ones that are hurting. Thank you.

    Chairman Manzullo. Mr. Smarr, go ahead.

    Mr. Smarr. Thank you.

    Chairman Manzullo. We are still on your time. I extended 
it, Congressman Fitzpatrick, because we are at the end of the 
questioning. Then we will have a second round.
    But go ahead and answer the question.

    Mr. Smarr. I would like to respond regarding the insurance 
industry in Pennsylvania. The major carriers, the Pennsylvania 
Medical Society Liability Insurance Company I helped found that 
company in 1977, and at the time I worked for the medical 
society, and we thought, well, the commercial carriers are 
gouging us. They are ripping us off. A company called Argonott 
came in with a 200 percent rate increase, and we had a hearing. 
And the result was the doctors of Pennsylvania raised $9 
million in capital to found that company, which is the leading 
writer in the state today, and we now know the truth.
    We know that the claims are real, that the costs are high, 
and the medical society has the data. It has the experience to 
know that the issue is the rising cost of tort claims, and this 
happened all across the country where doctors raised their own 
capital because they did not believe the commercial insurance 
industry, and the truth is there, the data is available to the 
public, and we know that contrary to what Joanne said, if you 
look at page 5 of my written testimony, you will see a chart 
that talks about the profitability of the lines of insurance in 
the United States, and you will see medical malpractice being 
the least profitable line of insurance. It has been this way 
many years running. And while the P&C industry maybe profitable 
as a whole, that now is not.
    Thank you, Mr. Chairman, Mr. Fitzpatrick.

    Chairman Manzullo. Okay, let us take a second round. I am 
going to do something unusual, Donna, I am going to trade time 
with you. You are a physician, and I want you to go ahead. You 
are recognized for five minutes, and then I will take your time 
when your time will normally be up.

    Ms. Christensen. I appreciate that, Mr. Chairman.
    I was reading some testimony from another hearing back in 
last year where a survey from Medical Economics was quoted, and 
I was quite surprised at where they found the malpractice 
premiums accounting for between 1.3 percent and 5.5 percent of 
doctors' gross receipts.
    I wanted to ask, well, maybe I will ask Dr. Gleason since 
Dr. Palmisano had a chance to answer my last question. That 
seemed very low to me.

    Dr. Gleason. That is low. Currently, in Cook County the 
premiums for 2 million - 4 million coverage are $212,000 per 
year. That constitutes approximately 15 percent at least of our 
receipts and over 10 percent of my overhead.

    Ms. Christensen. But what do you--I think Ms. Doroshow 
talked about some of the ways that the cost of insurance could 
be addressed, for instance, compressing rating categories. What 
would the physician groups think about that?
    Apparently the malpractice insurance charges specialties 
paying the highest premiums, between 800 percent and 1300 
percent of what they charge specialties, paying the lowest 
premiums, and that they charge doctors with incidents no more 
than 200 or 300 percent of what they charge doctors with clean 
records.
    Would the physician groups that you represent support that?

    Dr. Gleason. I am sorry. Could you say that again? I got a 
little bit lost.

    Ms. Christensen. Compressing rating categories so that it 
would reduce the differential in rates between the categories, 
possibly combine certain categories so that the costs would be 
spread out instead of concentrating a lot of the costs on one 
group of physicians versus the other.

    Dr. Gleason. Well, I think that costs are spread out 
because we are in different categories in terms of severity. 
But the fact remains that in Illinois, if I go to Iowa, if I go 
to Wisconsin, if I go over to Indiana, that my rates will--and 
incidently, these are three states with caps--that my rates 
will be anywhere from one-quarter to one-sixth of what they are 
in those states.
    The fact remains that 160 physicians from down in Madison, 
St. Clair County have left in the last year; that the 
transfers, for example, out of state to St. Louis University 
have increased--doubled over the last two years almost to three 
a day, and to Berns Hospital having increased 400 percent.

    Ms. Christensen. I just thought it was rather low and I 
just wanted to get some feedback on whether you know that was a 
figure that most people agreed to.
    I agree that, you know, people are leaving, people are 
moving, and that it has impacted health in some areas.
    Dr. Palmisano, I know and I guess to some extent I 
practiced some defensive medicine in my time, but I am 
interested in the portion of your testimony where you talk 
about efforts to improve patient safety and quality being 
stifled because of lawsuit fears.
    Can you explain that or give us an example?

    Dr. Palmisano. Yes, Doctor. The American Medical 
Association believes that efforts in patient safety are 
stifled; that people are afraid to come forward when they 
almost make a mistake because they are afraid that someone will 
think, well, we need to use punitive measures here.
    The Aviation Safety Reporting System is the model that we 
recommend, and you all passed it with only six dissenting 
votes, and the Senate passed it last year with unanimous 
consent. We think it is a good model. It has worked well for 
commercial aviation.
    It would encourage people if they make a mistake to call 
up, report that, and learn how to fix the system. Most of these 
are system problems. The nurse trying to resuscitate a patient 
told by the doctor to give a medication to get rid of excess 
fluid. She draws up the medication, gives it to the patient, 
the patient gets worse, the patient dies. She calls a code. 
They try to resuscitate the patient to no avail, and they find 
when they have looked at the broken medication vials, they say 
why is that concentrated potassium chloride there? The reason 
story, real person in a movie called ``Beyond Blame, Nine 
Minutes,'' a very powerful movie. And she says, oh, my 
goodness, I must have killed the patient by giving the wrong 
medication.
    A good nurse, outstanding record, and she get punished for 
that because of this bad system, and it is a tragedy for the 
patient, and the system fix is not to have concentrated 
potassium chloride at the nursing station. You keep those types 
of medications for the pharmacist to mix in the pharmacy.

    Ms. Christensen. Are not hospitals still responsible for 
dealing with some of those through their case--through a 
process of rounds and case studies?

    Dr. Palmisano. Well, they are, but more and more it is 
becoming difficult to discuss this for fear of someone being 
dragged into a lawsuit, and it is just like defensive medicine, 
a study that was done that showed 79 percent of physicians 
practice defense medicine. Fear of being sued causes 79 percent 
of physicians to order more tests because of concerns about 
potential medical liability lawsuits. That was the study done 
by Common Good.
    So yes, there are safety systems set up in hospitals, and 
we encourage that. The AMA encourages that, the JCHO, the AMA 
with the National Patient Safety Foundation in 1996. We have 
given over $7.3 million to it. We have encouraged the trial 
board to match our donations. To date, they have not. But we 
think organizations like that, they have only one mission, to 
measurably improve patient safety, get human factors experts, 
nurses, physicians, attorneys, everybody together to try to 
figure out how to make the system safer, and one of the 
problems is this fear of reporting an error that one made.
    We believe everyone has an ethical obligation. If you make 
an error and hurt the patient, you have to tell the patient 
about that, and do the best, and that is what patients want. 
They want to be told when an error was made, but they also want 
to know what happened, what are you going to do prevent this 
from happening to someone else, and ideally they would like to 
have someone say they are sorry.

    Ms. Christensen. Is that clock set at five minutes? But 
that is okay.

    Chairman Manzullo. I have got to go to another meeting. I 
am going to ask Congressman Sodrel to conclude the hearing. I 
want to thank all of you for some really excellent testimony, 
and I have got an idea about the next hearing. I think we 
should bring in the insurance companies. I want to see them go 
head to head, Joanne, you are coming.
    This has got to be resolved because, Hilda, you are right. 
Everybody is pointing their fingers, and you have got two 
groups of people being heard here. You have got innocent 
plaintiffs that are entitled to reasonable access to the court 
and to a fair verdict. Then you have got physicians who 
unquestionably are leaving the practice because they cannot 
afford to pay the high cost of medical malpractice insurance. 
Those are two extremely serious questions. I believe that they 
are not mutually compatible; that you can resolve both of those 
things. That is, I think, the direction we are going to go.
    I want to know if someone is making $15 million a year and 
he says his insurance company is in crisis, let him testify as 
to why it is in crisis, and why he is making that kind of 
money. I think these are fair questions because the entire 
insurance industry is on the line here.
    But I have to leave and thank you very much. Congressman, 
if you could come, and then recognize Congresswoman Velazquez.

    Ms. Velazquez. I do not have any more.

    Chairman Manzullo. You have no more questions then?

    Ms. Velazquez. Well, then come have a seat. Then you are up 
next on the round of questions. Thank you.
    [Pause.]

    Ms. Velazquez. Yes, I changed my mind, Mr. Doroshow. I just 
would like to give you, Ms. Doroshow, an opportunity to react 
to any of the comments that have been made if you feel that you 
needed to respond and you did not have the time.

    Ms. Doroshow. I just would love to talk about a recent 
survey which was just reported a couple of weeks ago that we 
saw in Reuters, and let me just quote it.
    ``Eighty percent of U.S. doctors and half of nurses 
surveyed said they had seen colleagues make mistakes but only 
10 percent ever spoke up. Fifty percent of nurses said that 
they have colleagues who appear incompetent, and 84 percent of 
physicians and 62 percent of nurses and other clinical care 
workers have seen co-workers taking shortcuts that could be 
dangerous to patients. Doctors and nurses do not talk about 
these problems because ``People fear confrontation, lag time, 
or feel it is not their job.''
    Nowhere in here do you see any mention of fear of lawsuits. 
I think there are problems in terms of errors being reported. I 
think we would agree that there is a tremendous amount that 
could be done in this area, but imagining that it is fear of 
liability that is the principal or even the only reason for 
this is just simply wrong.

    Ms. Velazquez. Thank you.

    Mr. Sodrel. [Presiding] I was next up before I took the 
chair, and I guess I would first like to say, Dr. Rubin, I am 
in the transportation business, and I have replaced employees 
that I thought were guilty of malpractice or about to commit 
malpractice, and found myself sued for replacing them. So it is 
like you are sued if you do, and you are sued if you do not.
    But when I look at the chart back here on the principal 
lines of business on insurance companies, and I think it was 
brought up earlier by Mr. Smarr that the medical malpractice 
line of insurance has been subsidized basically by commercial 
auto, personal auto, fire or inland marine, and other insurance 
lines. I do not think that is the best thing for us to be doing 
in the insurance business, you know, as--they have a saying in 
the country, turn on its own bottom.
    But I would like to ask Dr. Gleason. You say you have a 
practice of several physicians. Do you self-insure? Do you 
self-insure any part of that?

    Dr. Gleason. No, we do not. We did take some time a couple 
of years ago to explore the captive option, and we sent our 
figures off to the actuarials, and at the time and even today 
we still find it more economical, if you call it economical, to 
stay with Illinois State Medical Insurance Society.

    Mr. Sodrel. So business did not look quite as lucrative 
whenever you went in. I mean, we keep hearing that the 
insurance companies are making profits, but then we have one 
person here that is involved in the malpractice insurance 
business where it is not making money, and you have 
investigated taking on some of your own liability, and that did 
not look to be very lucrative.

    Dr. Gleason. Yes, sir, that is correct, and that at both a 
70 percent competency level as well as a 90 percent competency 
level.
    I would just like to raise another point, and that regards 
Proposition 103. It is my impression, and correct me if I am 
wrong, but when MICRA was enacted in 1975, it took another 11 
years to ratify that, and beginning at that time the costs of 
premiums and the costs of health care reimbursements to injured 
people began to come down, and by the time that Proposition 103 
was enacted and ratified two years later, the awards and costs 
had already diminished 71 percent by that time, and then 
subsequently continued to fall. That is just something that I 
felt in terms of my preparation was notable to me.
    Furthermore, we also have states like Oregon, a model that 
we can look to in terms of what has happened over that 11 years 
that caps were in effect there, and then were judged to be 
unconstitutional, and see the rise in premiums and cases, and 
then also we have Texas, of course, which shows some promising 
signs.

    Mr. Sodrel. Thank you, Doctor. Did you have any further 
questions? No.
    Well, seeing none, in the absence of objections, we stand--
I would like to thank all the witnesses for being here, and 
appreciate you spending the extra time to answer the extra 
questions, and we stand adjourned.
    [Whereupon, at 12:16 p.m., the Committee was adjourned.]

    [GRAPHIC] [TIFF OMITTED] T1229.001
    
    [GRAPHIC] [TIFF OMITTED] T1229.002
    
    [GRAPHIC] [TIFF OMITTED] T1229.003
    
    [GRAPHIC] [TIFF OMITTED] T1229.007
    
    [GRAPHIC] [TIFF OMITTED] T1229.008
    
    [GRAPHIC] [TIFF OMITTED] T1229.009
    
    [GRAPHIC] [TIFF OMITTED] T1229.004
    
    [GRAPHIC] [TIFF OMITTED] T1229.005
    
    [GRAPHIC] [TIFF OMITTED] T1229.006
    
    [GRAPHIC] [TIFF OMITTED] T1229.010
    
    [GRAPHIC] [TIFF OMITTED] T1229.011
    
    [GRAPHIC] [TIFF OMITTED] T1229.012
    
    [GRAPHIC] [TIFF OMITTED] T1229.013
    
    [GRAPHIC] [TIFF OMITTED] T1229.014
    
    [GRAPHIC] [TIFF OMITTED] T1229.015
    
    [GRAPHIC] [TIFF OMITTED] T1229.016
    
    [GRAPHIC] [TIFF OMITTED] T1229.017
    
    [GRAPHIC] [TIFF OMITTED] T1229.018
    
    [GRAPHIC] [TIFF OMITTED] T1229.019
    
    [GRAPHIC] [TIFF OMITTED] T1229.020
    
    [GRAPHIC] [TIFF OMITTED] T1229.021
    
    [GRAPHIC] [TIFF OMITTED] T1229.022
    
    [GRAPHIC] [TIFF OMITTED] T1229.023
    
    [GRAPHIC] [TIFF OMITTED] T1229.024
    
    [GRAPHIC] [TIFF OMITTED] T1229.025
    
    [GRAPHIC] [TIFF OMITTED] T1229.026
    
    [GRAPHIC] [TIFF OMITTED] T1229.027
    
    [GRAPHIC] [TIFF OMITTED] T1229.028
    
    [GRAPHIC] [TIFF OMITTED] T1229.029
    
    [GRAPHIC] [TIFF OMITTED] T1229.030
    
    [GRAPHIC] [TIFF OMITTED] T1229.031
    
    [GRAPHIC] [TIFF OMITTED] T1229.032
    
    [GRAPHIC] [TIFF OMITTED] T1229.033
    
    [GRAPHIC] [TIFF OMITTED] T1229.034
    
    [GRAPHIC] [TIFF OMITTED] T1229.035
    
    [GRAPHIC] [TIFF OMITTED] T1229.036
    
    [GRAPHIC] [TIFF OMITTED] T1229.037
    
    [GRAPHIC] [TIFF OMITTED] T1229.038
    
    [GRAPHIC] [TIFF OMITTED] T1229.039
    
    [GRAPHIC] [TIFF OMITTED] T1229.040
    
    [GRAPHIC] [TIFF OMITTED] T1229.041
    
    [GRAPHIC] [TIFF OMITTED] T1229.042
    
    [GRAPHIC] [TIFF OMITTED] T1229.043
    
    [GRAPHIC] [TIFF OMITTED] T1229.044
    
    [GRAPHIC] [TIFF OMITTED] T1229.045
    
    [GRAPHIC] [TIFF OMITTED] T1229.046
    
    [GRAPHIC] [TIFF OMITTED] T1229.047
    
    [GRAPHIC] [TIFF OMITTED] T1229.048
    
    [GRAPHIC] [TIFF OMITTED] T1229.049
    
    [GRAPHIC] [TIFF OMITTED] T1229.050
    
    [GRAPHIC] [TIFF OMITTED] T1229.051
    
    [GRAPHIC] [TIFF OMITTED] T1229.052
    
    [GRAPHIC] [TIFF OMITTED] T1229.053
    
    [GRAPHIC] [TIFF OMITTED] T1229.054
    
    [GRAPHIC] [TIFF OMITTED] T1229.055
    
    [GRAPHIC] [TIFF OMITTED] T1229.056
    
    [GRAPHIC] [TIFF OMITTED] T1229.057
    
    [GRAPHIC] [TIFF OMITTED] T1229.058
    
    [GRAPHIC] [TIFF OMITTED] T1229.059
    
    [GRAPHIC] [TIFF OMITTED] T1229.060
    
    [GRAPHIC] [TIFF OMITTED] T1229.061
    
    [GRAPHIC] [TIFF OMITTED] T1229.062
    
    [GRAPHIC] [TIFF OMITTED] T1229.063
    
    [GRAPHIC] [TIFF OMITTED] T1229.064
    
    [GRAPHIC] [TIFF OMITTED] T1229.065
    
    [GRAPHIC] [TIFF OMITTED] T1229.066
    
    [GRAPHIC] [TIFF OMITTED] T1229.067
    
    [GRAPHIC] [TIFF OMITTED] T1229.068
    
    [GRAPHIC] [TIFF OMITTED] T1229.069
    
    [GRAPHIC] [TIFF OMITTED] T1229.070
    
    [GRAPHIC] [TIFF OMITTED] T1229.071
    
    [GRAPHIC] [TIFF OMITTED] T1229.072
    
    [GRAPHIC] [TIFF OMITTED] T1229.073
    
    [GRAPHIC] [TIFF OMITTED] T1229.074
    
    [GRAPHIC] [TIFF OMITTED] T1229.075
    
    [GRAPHIC] [TIFF OMITTED] T1229.076
    
    [GRAPHIC] [TIFF OMITTED] T1229.077
    
    [GRAPHIC] [TIFF OMITTED] T1229.078
    
    [GRAPHIC] [TIFF OMITTED] T1229.079
    
    [GRAPHIC] [TIFF OMITTED] T1229.080
    
    [GRAPHIC] [TIFF OMITTED] T1229.081
    
    [GRAPHIC] [TIFF OMITTED] T1229.082
    
    [GRAPHIC] [TIFF OMITTED] T1229.083
    
    [GRAPHIC] [TIFF OMITTED] T1229.084
    
    [GRAPHIC] [TIFF OMITTED] T1229.085
    
    [GRAPHIC] [TIFF OMITTED] T1229.086
    
    [GRAPHIC] [TIFF OMITTED] T1229.087
    
    [GRAPHIC] [TIFF OMITTED] T1229.088
    
    [GRAPHIC] [TIFF OMITTED] T1229.089
    
    [GRAPHIC] [TIFF OMITTED] T1229.090
    
    [GRAPHIC] [TIFF OMITTED] T1229.091
    
    [GRAPHIC] [TIFF OMITTED] T1229.092
    
    [GRAPHIC] [TIFF OMITTED] T1229.093
    
    [GRAPHIC] [TIFF OMITTED] T1229.094
    
    [GRAPHIC] [TIFF OMITTED] T1229.095
    
    [GRAPHIC] [TIFF OMITTED] T1229.096
    
    [GRAPHIC] [TIFF OMITTED] T1229.097
    
    [GRAPHIC] [TIFF OMITTED] T1229.098