[Senate Report 104-83]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 110
104th Congress                                                   Report
                                 SENATE

 1st Session                                                     104-83
_______________________________________________________________________


 
     HEALTH CARE LIABILITY REFORM AND QUALITY ASSURANCE ACT OF 1995

                                _______


     May 16 (legislative day, May 15), 1995.--Ordered to be printed

_______________________________________________________________________


   Mrs. Kassebaum, from the Committee on Labor and Human Resources, 
                        submitted the following

                              R E P O R T

                             together with

                     ADDITIONAL AND MINORITY VIEWS

                         [To accompany S. 454]
    The Committee on Labor and Human Resources, to which was 
referred the bill (S. 454) to reform the health care liability 
system and improve health care quality through the 
establishment of quality assurance programs, having considered 
the same, reports favorably thereon with an amendment and 
recommends that the bill (as amended) do pass.
                                CONTENTS

                                                                   Page
  I. Purpose and summary of the legislation...........................1
 II. Background and need for the legislation..........................3
III. Legislative consideration and votes in committee................14
 IV. Explanation of the legislative and committee views..............18
  V. Cost estimate...................................................37
 VI. Regulatory impact statement.....................................39
VII. Section-by-section analysis.....................................39
                         i. purpose and summary

    The Chairman's Amendment in the Nature of a Substitute for 
PS. 454, the Health Care Liability Reform and Quality Assurance 
Act, takes an important step toward reforming the United 
States' costly and inefficient health care liability system. 
The legislation is designed to: (1) improve the availability of 
health care services; (2) improve the fairness and cost-
effectiveness of the current health care liability system; and 
(3) ensure that individuals with meritorious health care injury 
claims receive fair and adequate compensation. The legislation 
is based on the straightforward premise that those who are 
injured should be fairly compensated and those who are at fault 
should pay their fair share.
    The legislation contains two titles. Title I is divided 
into two sections: Subtitle A contains reforms which apply in 
civil health care liability actions; and Subtitle B contains 
reforms regarding the liability of suppliers of raw materials 
and component parts used in medical devices. Title II of the 
legislation provides additional funding for State activities 
relating to the licensing, disciplining, and certification of 
health care professionals. It also establishes national 
guidelines on quality assurance, patient safety, and consumer 
information.

Title I, subtitle A--Liability reform

    This subtitle contains the following medical liability 
reforms:
    Statute of limitations. A health care liability action must 
be filed 2 years after the date a claimant discovers both the 
injury and its cause.
    Full recovery of economic and noneconomic damages. The 
legislation allows injured patients to recover complete 
compensatory damages. It places no limitation on the amount 
claimants may recover for economic damages--such as past and 
future medical expenses, past and future earnings, loss of 
business or employment opportunities, and the cost of 
replacement services in the home--or noneconomic damages such 
as pain and suffering, mental anguish, and loss of 
companionship.
    Limits on punitive damage awards. Pursuant to an amendment 
offered in committee by Senator Dodd, the amount a claimant may 
recover for damages designed solely to punish health care 
professionals and other defendants will be determined by a 
judge in a separate proceeding. Unlike the original bill, 
punitive damages are no longer limited to $250,000 or three 
times economic damages, whichever is greater.
    Limits on attorneys' fees. To ensure that injured patients 
recover a greater share of their medical liability awards, 
attorneys' contingency fees are limited to 33\1/3\ percent of 
the first $150,000 recovered and 25 percent of awards in excess 
of $150,000.
    Periodic payment of large damage awards. At the request of 
either the claimant or the defendant in a health care liability 
action, damage awards in excess of $100,000 may be paid on a 
periodic basis consistent with the guidelines contained in the 
Uniform Periodic Payments of Judgments Act.
    Collateral source reform. To help hold down health care 
costs, the legislation prevents claimants from recovering twice 
for the same injury by requiring that damages be reduced by the 
amount claimants receive from an insurance policy or other 
third party source.
    State alternative dispute resolution. To promote the 
resolution of claims in a more convenient, timely, and 
affordable manner, the legislation encourages States to 
experiment with alternative dispute resolution (ADR) mechanisms 
and requires the U.S. Attorney General to provide technical 
assistance to States.
    Joint and several liability reform. To promote more 
equitable resolution of health care liability actions, 
defendants are responsible for noneconomic and punitive damages 
only in direct proportion to their own fault or responsibility.
    Preemption of weaker State laws. The legislation preempts 
existing State laws which contain reforms that are weaker than 
those contained in the legislation. States subsequently may 
pass weaker malpractice laws only if they cite the authority of 
this legislation. Those weaker laws generally will govern only 
intrastate disputes. The legislation does not preempt current 
or future State laws which provide for greater restrictions on 
damage awards, shorter statutes of limitations, greater 
limitations on attorneys' fees, and more restrictive rules 
regarding periodic payment and several liability.

Title I, subtitle B, biomaterials access assurance

    The reforms in this portion of the legislation are designed 
to avert an imminent shortage of raw materials used in 
lifesaving medical devices. The scarcity of these materials is 
a direct result of costly litigation.
    This subtitle would not affect the ability of claimants to 
sue manufacturers or sellers of medical implants.
    Instead, it would allow raw material suppliers to be 
dismissed from lawsuits against medical device manufacturers, 
without incurring extensive legal costs, where the raw material 
used in a medical device met contract specifications and the 
supplier cannot be classified as either a manufacturer or a 
seller of the medical device.

Title II--Protection of the health and safety of patients

    Title II attempts to provide additional resources for State 
quality assurance programs and to strengthen the role of State 
provider licensing boards by requiring that at least 50 percent 
of all punitive damages awarded in health care liability 
actions be used for activities relating to the licensing, 
disciplining, and certification of health care professionals 
and for the reduction of malpractice-related costs in medically 
underserved areas.
    In addition, the legislation requires the Agency for Health 
Care Policy and Research (AHCPR), in consultation with public 
and private sector entities, to establish guidelines on quality 
assurance, patient safety, and consumer information.

            ii. background and the need for the legislation

            A. Overview
    The issue of medical malpractice, and its impact on the 
health care system as a whole, has been of concern to 
consumers, physicians, nurses, hospitals, insurers, and other 
participants in the health care system. The existing health 
care liability system serves neither patients nor providers 
well. It adds costs and delay, fails to ensure health care 
quality, and jeopardizes access to health care services. S. 454 
recognizes these problems in its findings: ``[T]he civil 
justice system of the United States is a costly and inefficient 
mechanism for resolving claims of health care liability and 
compensating injured patients.'' The findings state further 
that ``the problems with the current system are having an 
adverse impact on the availability of, and access to, health 
care services and the cost of health care in this country.''
    Although statutory and common law governing the resolution 
of health care liability disputes differs from State to State, 
there are common legal doctrines that increase the cost of and 
diminish access to health care. Many of these legal doctrines 
encourage the filing of lawsuits, discourage the settlement of 
meritorious claims and encourage the litigation of 
nonmeritorious claims. The negative impact of these doctrines 
has become clearer after decades of experience in numerous 
States.
    The flawed tort system contributes to higher malpractice 
insurance rates, the cost of which is ultimately passed on to 
health care consumers. In some specialties and in certain areas 
of the country, premiums can exceed $100,000 a year.
    Not only does the health care liability system increase 
costs directly in the form of higher insurance premiums, but 
also indirectly, in the form of practices and procedures 
performed simply to avoid the threat of being sued. Although 
hard to quantify exactly, experts estimate that this 
``defensive medicine'' adds anywhere from $25 to $45 billion a 
year to health care costs. A more reasonable system for 
resolving health care liability disputes, with the confidence 
it would instill over time, would begin to diminish the 
overtreatment encouraged in many States today.
    According to recent studies, there is little correlation 
between the actual incidence of malpractice, the filing of 
legitimate claims and the ultimate award of damages. Many 
persons who have legitimate claims do not file suit, while many 
patients who file suit show no evidence of medical negligence. 
Further, there frequently is not an appropriate correlation 
between the economic loss suffered by an injured patient and 
the compensation received for such loss. This failure of the 
tort system leads to both over and underdeterrence and results 
in a legal system which fails in one of its most important 
functions--the encouragement of a safe and efficient health 
care system. In addition, the system is so inefficient and time 
consuming that deserving litigants often must wait years for 
their just due.
    Quality health care involves not only performing the right 
tests and procedures, but also avoiding unnecessary health 
care. It is clear that the overdeterrence caused by a misfiring 
legal system leads to the ``defensive medicine'' discussed 
above. This overtreatment not only adds to the exploding cost 
of our health care system, but also takes a human toll as 
patients are put through additional tests and procedures that 
carry their own risks and burdens.
    Throughout the 1980's, numerous experts documented the 
impact of a flawed tort system on access to health care. Most 
acutely felt by women denied access to obstetric care, provider 
after provider cited malpractice concerns as a significant 
reason for abandoning part or all of his or her practice. Some 
States responded to this ``access crisis'' by passing 
reasonable health care liability reform. In many States, 
however, needed efforts were stymied. The impact of this 
``access crisis'' is still felt throughout rural areas of this 
country, with general practitioners and obstetricians sometimes 
moving across State lines to escape areas with high insurance 
rates and a large number of lawsuits.
    Those States that have enacted reasonable tort reform, 
while permitting experimentation with alternative dispute 
resolution and enhancing nonlitigation methods of improving 
quality, have ameliorated some of the negative impact of the 
present system of resolving health care liability disputes on 
cost, quality and access.
            B. Background on the health care liability system

       1. The Present Health Care Liability System Is Not Working

    Numerous reports, experts and task forces document the 
failings of the current system. For example, the 1995 Physician 
Payment Review Commission (PPRC) Annual Report to Congress 
states that ``[t]he medical malpractice system does not 
adequately prevent medical injuries or compensate injured 
patients.'' It also notes a widespread concern that the current 
functioning of the malpractice system ``promotes the practice 
of defensive medicine and may impede efforts to improve the 
cost effectiveness of care.''
    Paul Weiler, in his 1991 book, ``Medical Malpractice on 
Trial,'' stated that ``[m]edical malpractice shares with 
product liability the economic dislocation of soaring claim 
rates, damage awards and insurance premiums.'' Weiler also 
pointed out the damage that the current malpractice system 
wreaks on the provider-patient relationship in which two people 
who need to develop a relationship of trust begin to view each 
other as adversaries.
    Former Secretary of Health and Human Services, Otis Bowen, 
M.D., convened a Department task force in 1986 to investigate 
the impact that growing medical liability and malpractice costs 
have on people's access to health care. He summarized the 
impact of our malpractice system in an address to the Institute 
of Medicine as follows: ``Two groups of patients have felt the 
greatest impact from these changes: those living in rural areas 
and those with low incomes living in the inner cities.''
    Just last year, research analyst David Murray of the Hudson 
Institute and then Hudson Senior Fellow Representative David 
McIntosh concluded that ``[l]egal liability has become a key 
factor driving up the costs and decreasing the quality of 
medical care in the United States.''
    The current tort system in many States, coupled with the 
litigious nature of society, encourages a large number of 
nonmeritorious claims and excessive awards in many cases. The 
problem of excessive health care liability lawsuits is not 
abating. Across the country, the frequency of health care 
liability claims is increasing. According to estimates based on 
the American Medical Association's (AMA) Physician Masterfile 
and liability claims data from the AMA's Socioeconomic 
Monitoring System (SMS), the average rate of claims has 
increased every year since 1987. In just the 3 year period from 
1991-93, the number of claims went from 33,424 medical 
professional liability claims in 1991, to 38,430 claims in 1992 
and to 42,828 claims in 1993. Even in States like California, 
where strong health care liability insurance costs, the number 
of malpractice cases has continued to increase. In 1993, there 
were 16.5 percent more cases reported than in 1992. That number 
has increased by 54 percent since 1989.
    In addition, the amount and the unpredictability of awards 
continues to mount. For the approximately 3,000 claims reported 
annually to the Physician Insurers' Association of America 
(PIAA) Data Sharing Project, both the amount of total indemnity 
(verdicts and settlements) and the average indemnity more than 
doubled between 1985 and 1993. The average indemnity grew from 
approximately $87,000 in 1985 to $182,000 in 1993.
    There has been a similar increase in the frequency of large 
jury verdicts. Jury Verdict Research reports that nearly one-
third (32 percent) of medical malpractice verdicts in 1994 
equaled or exceeded $1 million, up from 14 percent in 1980. 
Also significant is the fact that the middle 50 percent of 
verdicts--called the ``probability range'' because it excludes 
the high and low outliers--now range widely from $120,000 to 
$1.3 million. Prior to 1988, the range was much narrower (e.g., 
$150,000 to $300,000 in 1984). What exists, then, is a high 
stakes litigation lottery, which is attracting increasing 
numbers of bounty hunters. Unfortunately, the current system 
rewards lawyers who file big ticket lawsuits with more interest 
in the sensationalism of the injury than the actual merit of 
the claim.
    The present malpractice system disserves those injured by 
medical negligence, not only by creating perverse incentives to 
avoid the majority of bona fide cases, but in many other ways 
as well. The litigation system in many States often has the 
dual negative effect of both delaying and reducing the 
patient's recovery, since lawsuits can take years and a large 
percentage of the award goes to pay court costs and legal fees. 
It takes an average of approximately 5 to 6 years from injury 
to resolution. Meanwhile, the RAND Corp. estimates that only 43 
cents of every dollar spent in medical liability or product 
liability litigation reaches the injured patients. Moreover, 
because a majority of legitimate claims are never brought 
forward, there are missed opportunities to resolve patient 
safety and quality issues that would improve care for all 
patients.
    Thus, the PPRC Report and the Hudson Institute Briefing 
Paper--to which could be added a host of additional reports by 
the General Accounting Office (GAO), the Department of Health 
and Human Services Task Force on Medical Malpractice and 
Insurance, and others--collectively demonstrate that the 
current tort system drives up the cost of health care, is 
unable to resolve medical liability claims in a timely and 
cost-effective fashion, and makes only a haphazard contribution 
to deterring negligent behavior and improving the safety of 
health care.

              2. The Costs of a Flawed Malpractice System

    The health care liability system is costly and wasteful. In 
fact, the United States has the world's most expensive tort 
system. At 2.3 percent of gross domestic product (GDP), U.S. 
tort costs are substantially higher than those of any other 
country and 2\1/2\ times the average of all developed 
countries.
    The Hudson Institute conducted a study examining the effect 
of liability on a large urban hospital in Indiana. Even in a 
State that has taken steps to address the costs associated with 
medical liability, the study found that the direct and indirect 
costs of liability added a total of $450 per patient admitted 
to the hospital, increasing medical costs at the hospital by 
5.3 percent. As stated earlier, the study concludes that 
``legal liability has become a key factor driving up the costs 
and decreasing the quality of medical care in the United 
States.''
    While nationwide trends are somewhat mixed on the physician 
side, it is clear that medical liability insurance premiums 
continue to outpace inflation by substantial margins, 
particularly in States that have not achieved effective 
liability reform. For example, malpractice premiums increased 
by 14 percent in New York in 1993.
    Moreover, the AMA reports that the average physician 
medical malpractice premium was $13,500 in 1992; the highest 
average figure recorded was $33,500 for OB/GYN's. Other studies 
have shown annual premiums approaching or exceeding $100,000 
for certain specialties (OB/GYN's and neurosurgeons) in certain 
geographic areas (e.g., Manhattan and parts of Florida). The 
AMA analysis recorded an average annual increase in premiums of 
3.7 percent over the 1985-92 period for all physicians. 
Malpractice premiums represented 3.5 percent of physician 
practice revenues and 7 percent of physician professional 
expenses in 1992. Between 1960 and 1988, total expenditures on 
medical liability insurance in the United States rose from 
about $60 million to $7 billion.
    Malpractice insurance costs are linked to claims experience 
of insurers, with premiums varying markedly by specialty and 
geographic region. Overall, changes in malpractice premiums 
reflect the cyclical characteristics of the insurance industry 
as a whole. The mid-1970's crisis of availability was 
accompanied by a dramatic increase in premiums, which was 
followed by a leveling-off period. Another dramatic increase in 
premiums occurred in the mid-1980's; this was labeled the 
``crisis of affordability.'' This was followed by another 
leveling-off period characterized by more favorable claims 
experience. While results are mixed, some recent reports show 
an increase in claims frequency. The high cost of health care 
liability that doctors, nurses, hospitals, product 
manufacturers, health insurers and others must pay in order to 
stay in business, is inevitably passed through into the prices 
of the products and services they provide. According to Lewin-
VHI, the total cost of medical liability insurance, including 
self-insurance, is estimated at $9.2 billion.
    In addition to actual cost of liability insurance, there 
are even greater costs associated with ``defensive medicine''--
diagnostic tests and services motivated primarily by the fear 
of litigation and the perceive need to build a medical record 
that documents a health care professional's decision. Defensive 
medicine is more difficult to quantify precisely, but is 
attested to be every health care professional. A 1988 report by 
Medical Economics documented a range of actions taken in 
response to malpractice concerns. These included telling 
patients more about risks (87 percent of physicians surveyed), 
keeping more detailed patient records (85 percent), obtaining 
more consultations (70 percent), ordering more diagnostic tests 
(66 percent), taking more extensive initial histories (59 
percent), scheduling more follow-up visits (54 percent), and 
delegating fewer procedures to paramedics (28 percent). Lewin-
VHI recently estimated that the combined cost of physician and 
hospital defensive medicine is as high as $25 billion annually.
    While the scope of liability exposure in managed care 
continues to evolve, it is already clear that these large 
delivery systems and health care organizations are targeted as 
``deep pockets.'' A final cost factor that is potentially 
enormous, but has not yet been calculated, is the liability of 
health insurers and health networks for their utilization 
review activities that restrict payment for health care 
services. Recent verdicts and settlement reports suggest that 
payers who refuse to provide services may be exposed to multi-
million dollar suits, even if the medical service demanded by 
patients has not been proven effective and clearly is excluded 
by the terms of the managed care plan. This phenomenon can be 
thought of as an institutional equivalent to defensive 
medicine. In 1993, for example, a California jury awarded $89 
million to the family of a woman who was denied an experimental 
treatment for advanced breast cancer. Most of the award 
consisted of punitive and noneconomic damages. While this case 
was ultimately settled for a lower amount on appeal, it still 
serves as a compelling example that managed care organizations 
and health systems are being forced by the risk of excessive 
damage awards to provide treatment that is not necessarily 
needed or effective.

  3. The Present Health Care Liability System Fails to Improve Quality

    The current medical liability system fails to sort out 
meritorious claims from nonmeritorious claims and to fairly 
compensate those who are injured. The Harvard Medical Practice 
Study, based on a review of 31,429 medical records in 51 New 
York hospitals, concluded in 1991 that while only 280 patients 
suffered an adverse event due to negligence, only 1 in 16 
received compensation from the tort liability system. Harvard 
Medical Practice Study, ``Patients, Doctors and Lawyers: 
Medical Injury, Malpractice Litigation, and Patient 
Compensation in New York,'' New England Journal of Medicine, 
July 25, 1991. On the other hand, at least half the claims that 
were filed were without merit--that is, 50 percent of the 
malpractice claims studies were not filed by a plaintiff who 
received negligent medical treatment. Similarly, of the over 
101,000 closed claims and lawsuits reported to the Physician 
Insurers Association of America Data Sharing Project, only one-
third contained any payments at all to the plaintiff.
    These conclusions are reinforced by the GAO's estimate that 
nearly 60 percent of all claims filed against physicians are 
dismissed without a verdict, settlement or payment, and by a 
recent study funded by the U.S. Agency for Health Care Policy 
and Research that found no relationship between prior 
malpractice claims experience and the technical quality of 
practice by Florida obstetricians. With so little correlation 
between the filing of lawsuits and negligent behavior, it is 
clear that the current medical liability system is not 
effective in deterring medical injury or negligence.
    Opponents of S. 454 have contended throughout the debate on 
this legislation that ``80,000 Americans die each year'' as a 
result of medical negligence. This figure is drawn from an 
analysis of the 1991 Harvard Medical Practice Study by the 
Consumers Union, and not directly from the Harvard Study 
itself. The opponents of this legislation then go on to claim 
that ``medical negligence is the third leading cause of 
preventable death in the United States after tobacco and 
alcohol-related deaths'' and that it is responsible for killing 
more persons each year than firearms or automobile accidents.
    This analysis is erroneous and misleading. First, the 1984 
Harvard sample of 31,000 patient records identified 71 cases 
where a ``negligent adverse event'' was listed as a cause of 
death. It is difficult to see how one could justifiably 
extrapolate from 71 deaths in New York in 1984 to 80,000 deaths 
nationwide every year. See Appendix of this report containing: 
(1) June 14, 1994 letter from Ronald T. Kuehn, Partner, Ernst & 
Young Actuarial Services Group, to Martin Hatlie, Esq., Chair, 
Health Care Liability Alliance, concluding in part that: ``* * 
* the Consumers Union claims that negligent doctors kill more 
Americans than guns or auto accidents cannot be sustained on 
their face, nor can they be accurately attributed to the 
Harvard Medical Practice Study''; and (2) June 24, 1994 letter 
from Paul C. Weiler and Troyen A. Brennan, Harvard Law School, 
to Hon. Pete Stark, stating: ``We have always cautioned that 
this bare statistic can be more deceiving than revealing.''
    Second, the death rates of hospital patients are not 
comparable to other groups, such as those killed in automobile 
accidents. The authors of the Harvard study themselves take 
issue with these comparisons:


          We caution, however, against too quick a comparison 
        of such fatality figures. In our study a death was 
        judged to be latrogenic [meaning caused by medical 
        care] if there was a clear causal link with medical 
        management. But a substantial proportion of patients 
        were gravely ill, and many would have died from their 
        underlying illnesses in months, days, perhaps hours, 
        even absent the mishap in treatment. * * * 
        Unfortunately, we cannot say what proportion of deaths 
        from medical adverse events involved a patient with 
        relatively short life expectancies. We do know, 
        however, that motor vehicle or workplace fatalities 
        typically involve healthy individuals.


Paul C. Weiler et al., ``A Measure of Malpractice,'' pp. 56-57 
(Harvard University Press 1993).
    Perhaps the best response to the claim that negligent 
doctors are responsible for 80,000 deaths each year comes from 
two of the Harvard Study's principal author themselves:

          The Harvard Study has played an important role in 
        teaching the medical and legal communities that real 
        attention must be given to the harms as well as to the 
        benefits that medical treatment can achieve for 
        patients. That message will not be productive, though, 
        if physicians (or nurses and other health care workers) 
        are analogized to dangerous guns, drugs, or drivers. 
        The key to less hazardous health care is careful 
        epidemological investigation of the circumstances in 
        which medical mishaps occur, and design and investment 
        in new techniques and technologies that can reduce the 
        incidence of such injuries. * * * Litigation will not 
        have that effect, though, if tort lawyers and their 
        supporters indulge in a morality play about so-called 
        ``bad apple'' physicians (who contribute to only a tiny 
        proportion of the incidence of medical injury).

June 24, 1994 letter from Paul C. Weiler and Troyen A. Brennan, 
Harvard Law School, to Hon. Pete Stark at Appendix.
    Observers of medical malpractice issues generally agree 
that it is important to develop alternative methods to improve 
the quality of services rendered to patients. A number of 
States and localities have taken steps designed to focus on 
quality concerns. These include strengthening State licensing 
and disciplining boards, increasing peer review and 
professional education activities, and improving quality 
assurance and risk management programs. Several other 
activities also are directed at improving the quality of 
services. The National Practitioner Data Bank is intended to 
serve as a flagging system to alert State Boards and hospitals 
to situations where further review of professional credentials 
may be warranted.
    Those who argue that litigation is the best or only method 
of improving quality misapprehend the health care market today. 
There has been a revolution in the delivery of health care 
services over the past decade. Health care payers are demanding 
new approaches to delivering care and controlling costs. A 
decade ago, little or no emphasis was placed on systemic 
quality, outcomes research or coordinating systems of care. 
Today, hospitals and health care providers are clearly 
operating in a different environment where capitated payment 
are the norm, and solo fee-for-service medical practices 
increasingly are being displaced by large networks of 
physicians and other providers. Both public and private sector 
payers are demanding systemic quality measurements that can 
continually demonstrate better outcomes and healthier patients.
    It is in this atmosphere that patient safety and risk 
management programs have been established and are flourishing. 
Risk management is a sound investment because it: (1) improves 
the quality of services provided to patients; (2) decreases 
unnecessary health care costs incurred as a result of 
substandard care or from preventable health risks that go 
unaddressed; and (3) promotes advances in medical treatment and 
technology designed to minimize patient exposure to risk.
    The results of these activities are extremely encouraging. 
For example, anesthesiology has become much more safe in recent 
years because of the voluntary development over ten years ago 
of practice standards by the Harvard Medical School, for use in 
its affiliated hospitals. Since the adoption of these standards 
by the American Society of Anesthesiolgists (ASA), insurance 
companies, managed care organizations, and even a number of 
State medical regulatory authorities (e.g., New York, New 
Jersey) have adopted substantially similar standards. Before 
the anesthesia standards were adopted by the Harvard Medical 
School in July 1985, there was one intraoperative accident for 
every 75,700 anesthetics administered and 1 death for every 
151,400 anesthetics administered between January 1976 and June 
1985. Afterward, between July 1985 and June 1990, there were no 
deaths at all and only one intraoperative accident for all 
392,000 anesthetics administered.
    There are many other examples of risk management/quality 
improvement activities which are driving the trend toward 
reducing the potential for medical injuries that might result 
in a health care liability lawsuit. Private sector risk 
identification and prevention is, by far, preferable to time-
consuming, counterproductive, expensive litigation.

4. Access to Health Care and Innovation Should be Promoted Not Thwarted

    One of the most serious societal costs inflicted by the 
current liability system is reduced access to health care. 
Increasing premiums and the threat of liability have caused 
physicians and other health care providers to abandon practices 
or stop providing certain services in various areas of the 
country.
    Access problems induced or exacerbated by liability have 
been most clearly documented among obstetrician-gynecologist 
(OB/GYN) physicians. More than one-half million residents of 
rural counties are without any physicians to provide obstetric 
services. An Institute of Medicine report found that the high 
cost of liability insurance and the threat of malpractice 
litigation has a particularly adverse effect on the delivery of 
obstetrical services to three categories of women: (1) those 
living in rural areas; (2) those with high risk pregnancies; 
and (3) those who are poor. Similarly, the National Rural 
Health Association reports that many States and local 
communities are experiencing a serious lack of obstetric 
services and that increasingly this can be attributed to the 
medical liability system.
    According to a 1992 survey by the American College of 
Obstetricians and Gynecologists (ACOG), 12.3 percent of OB/
GYN's nationally gave up obstetrics in 1992 as a result of 
liability concerns; almost one-quarter decreased the amount of 
high-risk obstetric care they provided. ACOG noted that 
increasing numbers of physicians are leaving obstetrics at an 
earlier age, and that family physicians are leaving obstetrics 
at an earlier age, and that family physicians and rural 
physicians also are discontinuing obstetric services.

5. Access to Life-Saving and Life-Enhancing Medical Devices is Directly 
           Threatened by the Current Medical Liability System

    Liability concerns increasingly are creating obstacles to 
the availability, affordability and innovation of medical drugs 
and devices, as well. Like malpractice law, products liability 
law is primarily State common (i.e., court-made) law. In all 
States, the manufacturer or seller of a defective product, or 
of a defective component part of a product, may be held 
strictly liable (liable even in the absence of negligence) for 
injuries caused by the defect. This principle of law, however 
desirable it may be generally, threatens to cause a public 
health catastrophe because of its effect on biomaterials 
suppliers--the suppliers of raw materials and component parts 
of medical implants.
    Individuals who allege that an implant has caused injury 
often sue not only the manufacturer of the implant, but those 
who supply raw materials and component parts to the 
manufacturer. The biomaterial suppliers are not responsible for 
designing, producing, or testing the implant, and therefore 
cannot be held liable unless the ingredients they supply are 
defective and cause injury. According to the Health Industry 
Manufacturers Association (HIMA), raw material suppliers have 
been found liable in only a fraction of these cases. One 
supplier has a 258 to 1 track record. But this does not prevent 
injured parties from joining them in lawsuits against implant 
manufacturers, and causing them to incur significant legal 
expenses. These expenses obviously make it less profitable for 
biomaterials suppliers to supply raw materials and component 
parts to implant manufacturers. Because sales to implant 
manufacturers constitute only a small portion of the overall 
market for these raw materials and component parts, some 
biomaterials suppliers have ceased supplying certain raw 
materials and component parts for use in implants.
    On March 28, 1995, Senator Joseph Lieberman--the principal 
author of the biomaterials access assurance section of S. 454--
testified before the committee that ``the current legal system 
makes it too easy to bring lawsuits against raw materials 
suppliers and too expensive for those suppliers to defend 
themselves--even when they were not at fault and end up 
winning. Because of this, many suppliers have decided that the 
costs of defending these lawsuits are just too high to justify 
selling raw materials to the makers of implantable medical 
devices. In short, for those suppliers, it just isn't worth 
it.''
    The facts clearly demonstrate that the shortage of raw 
materials used in medical devices is a direct result of abuses 
of the liability system.
    Recently, three major suppliers announced they would 
substantially limit or terminate their raw material sales to 
medical implant manufacturers because the risk of liability far 
outweighs the market return for these materials. On April 1, 
1992, Dow Chemical pulled all of its medical grade resin and 
film from the implant market. On March 31, 1993, Dow Corning 
Corp. stopped supplying silicone for use in permanent medical 
implants in all reproductive, contraceptive, obstetric, and 
cosmetic applications. On January 31, 1994, DuPont ended a one 
year grace period and discontinued its supply of three 
materials used in permanent medical implants. The few remaining 
suppliers are threatening to do the same.
    A recent market study by Aronoff Associates found that: (1) 
some medical device companies have less than an 18-month 
``transition'' supply of raw materials stockpiled; (2) the 
combined size of the permanent medical implant markets for 
three types of raw materials studied is minuscule ($600,000) 
compared with the other material markets, such as automotive 
and textile, for these three materials ($10.5 billion); (3) the 
risk of liability far outweighs the market return for these 
materials, and is a major factor in the decision to supply or 
not supply the market; and (4) in many cases, no alternative 
material suppliers and no suitable replacement materials exist.
    There is, however, much more at stake than simply 
protecting raw material suppliers from liability or making 
those raw materials available to the manufacturers of medical 
devices. There is an imminent national public health 
catastrophe. As Senator Lieberman told the committee: 
``[w]hat's at stake is the health of millions of Americans who 
depend on medical devices for their every day survival.''
    Luke Lindenthal and his mother, Lynn, also testified before 
this committee on March 28, 1995. They told the members of the 
committee that, without the legislation, Luke's life and the 
lives of nearly 8 million other Americans will be placed in 
significant jeopardy.
    At earlier hearings on May 20, 1994, before the 
Subcommittee on Regulation and Government Information of the 
Senate Committee on Governmental Affairs, Senator Lieberman 
warned that ``makers of many of the life-saving medical devices 
that we take for granted today may no longer be able to buy the 
raw materials and components that are necessary to produce 
their products. This is a public health time bomb, and it is 
ticking, and the lives of real people are going to be lost if 
it explodes.'' He pleaded with this committee during his March 
28 testimony not to let the nearly eight million people who owe 
their health and their lives to medical devices ``become 
casualties of an outmoded legal liability system.''
            C. Current State responses to malpractice concerns
    Tort Reforms. Some States have instituted statutory reforms 
of tort litigation rules. These reforms generally have been 
designed to reduce the number of claims filed and the size of 
damage awards. However, these reforms have been uneven and, in 
many instances, nullified by constitutional challenges. Listed 
below are some of the more common reforms currently in place.
    Limits on Damages. Compensatory damages reimburse the 
patient-plaintiff for the economic costs resulting from medical 
injury, including lost wages and medical bills. Noneconomic 
damages reimburse for associated pain and suffering. In case of 
egregious conduct, a jury may award punitive damages. A number 
of States have placed limits on noneconomic damages (e.g., 
$250,000) and/or punitive damages. A few States have placed an 
overall cap on recoveries.
    Periodic payments of awards. Periodic payments are made in 
lieu of a lump-sum award based on estimates of future costs.
    Limitation on Joint and Several Liability. Traditionally, 
plaintiffs have been able to sue all those who may have had a 
role in causing an injury and to collect the full amount of 
damages from any defendant or combination of defendants. 
Plaintiffs may thus seek out a ``deep pockets'' defendant and 
collect a large amount from that defendant even though that 
defendant may have had only limited responsibility for the 
injury. Some States have limited each defendant's liability to 
his or her proportion of responsibility for the injury.
    Mandatory Offset of Payment from Collateral Sources. 
Traditionally, plaintiffs have been able to recover damages 
from the defendant even if most of the economic losses were 
reimbursed through other sources such as health insurance. Many 
States have adopted rules prohibiting this practice.
    Limitation on Attorneys' Fees. Attorneys' fees are 
frequently believed to be too high, with observers noting that 
plaintiffs often receive less than the economic costs of their 
injuries. A number of States have attempted to limit attorneys' 
fees, typically through the use of a sliding scale.
    Statutes of Limitation. Some States have shortened the 
statutes of limitation in order to reduce claims frequently, 
assist in actuarial predictability, and prevent unfairness of 
defending against very old lawsuits. (In many cases longer 
periods apply for injuries to minors.)
    Pre-Trial Screening Panels. Some States have set up 
mandatory or voluntary panels to identify baseless claims. 
Panel findings may or may not be admissible at trial.
    The experience of California is often cited in discussions 
of tort reforms. The State enacted the Medical Injury 
Compensation Reform Act (MICRA) in 1975; MICRA became fully 
operational in the mid-1980's after withstanding a 
constitutional challenge. Data from the State shows that 
malpractice premiums in California were higher than the 
national average in 1984 (before MICRA went into effect) and 
lower than the national average in 1994. Although it is 
difficult to quantify the direct effect of the MICRA reforms on 
the reduction of overall health spending in the State, these 
malpractice reforms--in combination with other health care 
restructuring--have contributed significantly to making the 
rate of growth of health care costs in California the lowest in 
the country.

             iii. legislative history and committee action

    S. 454, the Health Care Liability Reform and Quality 
Assurance Act of 1995, was introduced on February 16, 1995, by 
Senators McConnell, Lieberman, and Kassebaum. The bill was 
referred to the Committee on Labor and Human Resources. The 
committee held hearings on S. 454 on Tuesday, February 28.
    The committee held an executive session on April 6, 1995. 
However, due to an objection, the committee was unable to 
consider any amendments or vote to report the legislation at 
that time. The committee held a subsequent executive session on 
Tuesday, April 25, 1995. During the April 25 executive session, 
the Committee on Labor and Human Resources held on Tuesday, 
April 25, 1995, an amendment in the nature of a substitute to 
S. 454 was brought up for consideration by Chairman Kassebaum. 
The Chairman's substitute was adopted by a roll call vote of 9 
yeas to 7 nays.
    Those voting to report the legislation favorably were 
Senators: Kassebaum, Jeffords, Coats, Gregg, Frist, DeWine, 
Ashcroft, Abraham, and Gorton. Those voting nay were Senators: 
Kennedy, Pell, Dodd, Simon, Harkin, Mikulski, and Wellstone.
    During consideration of the measure, there were nine roll 
call votes taken on amendments. Three of the amendments passed. 
However, Senator Dodd's amendment modifying the punitive damage 
provisions of the legislation nullified one of the earlier 
successful amendments--an amendment offered by Senator Kennedy 
to exempt cases involving sexual abuse from the punitive damage 
cap. Six of the amendments failed.
    1. Senator Kennedy offered an amendment in the nature of a 
substitute for the Kassebaum substitute. The Kennedy amendment 
would have: (1) capped attorneys' contingency fees at 33\1/3\ 
of the first $150,000 and 25 percent of amount over $150,000; 
(2) mandated that States adopt alternative dispute resolution 
procedures; (3) included periodic payment reform; (4) included 
collateral source reform; and (5) authorized several State 
demonstration projects on liability reform. The amendment was 
defeated by a rollcall vote of 7 yeas to 9 nays.
        YEAS                          NAYS
Kennedy                             Kassebaum
Pell                                Jeffords
Dodd                                Coats
Simon                               Gregg
Harkin                              Frist
Mikulski                            DeWine
Wellstone                           Ashcroft
                                    Abraham
                                    Gorton

    2. Senator Kennedy offered an amendment that provided that 
the reforms contained in the legislation would not preempt 
State law. The amendment failed by a rollcall vote of 7 yeas to 
9 nays.
        YEAS                          NAYS
Kennedy                             Kassebaum
Pell                                Jeffords
Dodd                                Coats
Simon                               Gregg
Harkin                              Frist
Mikulski                            DeWine
Wellstone                           Ashcroft
                                    Abraham
                                    Gorton

    3. Senator Wellstone offered an amendment requiring that 
information contained in the National Practitioner Data Bank be 
made available to the public. The amendment was defeated by a 
rollcall vote of 6 yeas to 10 nays.
        YEAS                          NAYS
Kennedy                             Kassebaum
Pell                                Jeffords
Simon                               Coats
Harkin                              Gregg
Mikulski                            Frist
Wellstone                           DeWine
                                    Ashcroft
                                    Abraham
                                    Gorton
                                    Dodd

    4. Senator Kennedy offered an amendment to exclude from the 
cap on punitive damages actions involving ``sexual abuse of a 
patient or comparably egregious conduct.'' The amendment was 
defeated by a rollcall vote of 7 yeas to 9 nays.
        YEAS                          NAYS
Kennedy                             Kassebaum
Pell                                Jeffords
Dodd                                Coats
Simon                               Gregg
Harkin                              Frist
Mikulski                            DeWine
Wellstone                           Ashcroft
                                    Abraham
                                    Gorton

    5. Senator Coats offered a second degree amendment to 
Senator Kennedy's amendment on sexual abuse, which would have 
excluded from the definition of ``health care liability 
action'' actions which constitute ``sexual abuse'' or the 
intentional withdrawal of medical care because of age, 
disability, mental ability, or physical condition. The 
amendment failed by a rollcall vote of 4 yeas to 12 nays.
        YEAS                          NAYS
Coats                               Kassebaum
DeWine                              Jeffords
Ashcroft                            Gregg
Abraham                             Frist
                                    Gorton
                                    Kennedy
                                    Pell
                                    Dodd
                                    Simon
                                    Harkin
                                    Mikulski
                                    Wellstone

    6. Senator Kennedy offered a modified version of amendment 
No. 4, which provided that the limitation on punitive damage 
awards does not apply in cases of ``sexual abuse'' of a 
patient. The amendment passed by a rollcall vote of 15 yeas to 
1 nay.
        YEAS                          NAYS
Kessebaum                           Gregg
Jeffords
Coats
Fist
DeWine
Ashcroft
Abraham
Gorton
Kennedy
Pell
Dodd
Simon
Harkin
Mikulski
Wellstone

    7. Senator Abraham offered an amendment to allow States to 
opt-out of the reforms contained in the legislation in certain 
circumstances. The amendment passed by a rollcall vote of 9 
yeas to 7 nays.
        YEAS                          NAYS
Jeffords                            Kassebaum
DeWine                              Coats
Abraham                             Gregg
Pell                                Frist
Dodd                                Ashcroft
Simon                               Gorton
Harkin                              Kennedy
Mikulski
Wellstone

    8. Senator Dodd offered an amendment to strike the cap on 
punitive damages contained in the Kassebaum substitute. The 
amendment provided that a judge, not a jury, would the 
determine the amount of punitive damages to be awarded in 
health care liability actions. The amendment also struck the 
provisions contained in amendment No. 6 on sexual abuse. The 
amendment passed by a rollcall vote of 9 yeas to 7 nays.
        YEAS                          NAYS
Jeffords                            Kassebaum
DeWine                              Coats
Kennedy                             Gregg
Pell                                Frist
Dodd                                Ashcroft
Simon                               Abraham
Harkin                              Gorton
Mikulski
Wellstone

    9. Finally, Senator Kennedy offered an amendment to strike 
the provisions in the Kassebaum substitute which required a 
party to pay reasonable court costs and attorneys' fees where 
the result at trial was 25 percent worse than the result at the 
alternative dispute resolution stage. The Kennedy amendment 
would have made these fee-shifting provisions a State option. 
The amendment was defeated by a rollcall vote of 7 yeas to 9 
nays.
        YEAS                          NAYS
Kennedy                             Kassebaum
Pell                                Jeffords
Dodd                                Coasts
Simon                               Gregg
Harkin                              Frist
Mikulski                            DeWine
Wellstone                           Ashcroft
                                    Abraham
                                    Gorton

                          iv. committee views

            A. Legislative influences on S. 454
    The committee believes that it is important to read this 
legislation in the factual and historical context in which it 
was developed. Two legislative efforts greatly influenced the 
development of this legislation: (1) the failure of the 103rd 
Congress to pass comprehensive health care reform legislation; 
and (2) the consideration by this Congress of S. 565, the 
``Product Liability Fairness Act of 1995.''
    As a result of last year's debate over comprehensive health 
care reform, many now believe that health reform legislation 
should be considered on a more incremental basis. Because 
nearly every major health care reform bill that was introduced 
or considered by various committees in both Houses of Congress 
last year contained provisions to reform the health care 
liability system--and because many of these reforms garnered 
bipartisan support--the authors of S. 454 believed that medical 
liability reform was a strong candidate for independent 
consideration in the 104th Congress.
    As Senator Lieberman testified before the committee on 
March 28, 1995, ``many of the ideas in [this legislation] were 
proposed or cosponsored by Democrats and Republicans in the 
last Congress as part of comprehensive health reform bills. A 
number of these ideas were embraced last year by a group of us 
participating in the Senate `Mainstream Coalition.' But we had 
little chance to debate these issues in the last Congress. I am 
optimistic that we will have the opportunity in this Congress 
to pass a bipartisan medical malpractice reform bill.''
    As reported, S. 454 does, in fact, incorporate many of the 
reforms that were embraced by members of both parties during 
last year's health care reform debate.
    In addition, two weeks before the substitute was reported 
by this committee, a product liability reform bill, S. 565, was 
reported favorably by the Committee on Commerce, Science, and 
Transportation and placed on the Senate calendar for immediate 
consideration. The committee believes that applying liability 
reforms only to medical products could lead to an increase--
rather than a decrease--in costs associated with medical 
liability claims and, perhaps, a concomitant diminution of 
access to health care services. It is, for example, quite 
simple to transform a complaint against a drug manufacturer for 
the faulty manufacture of a drug to a complaint against a 
physician for the negligent prescription of the same drug. If 
lawsuits against health care providers, health care 
professionals, and health plans are allowed to proceed under 
rules that are more generous to claimants than those that apply 
to product manufacturers and distributors, the former will be 
at increased risk of exposure to liability actions.
    The committee acknowledges that S. 565 influenced the 
development of this legislation in a more direct way. Some of 
the provisions in S. 454 were modified by this committee in an 
effort to make the legislation more compatible with S. 565. 
This legislation includes only three substantive reforms that 
are not contained in S. 565: (1) mandatory collateral source 
offsets; (2) periodic payment of future damages; and (3) 
limitations on attorneys' contingency fees.
            B. Overview of changes to S. 454 contained in the 
                    legislation adopted by the committee
    The legislation ultimately adopted by the committee made 
several important modifications to S. 454, in addition to the 
amendments that were approved during the executive session. 
Many of these changes were made to address concerns raised by 
members who ultimately did not vote to report the legislation 
favorably. Nonetheless, the committee views these changes as a 
good faith attempt to improve the legislation. These changes 
include:
    A definition of ``economic losses'' has been added to 
section 102 of the legislation.
    The definition of ``Health Care Liability Action'' was 
modified.
    The preemption provisions in section 103 of the legislation 
have been modified to delineate more specifically the scope of 
Federal preemption.
    Section 105 has been modified to clarify that punitive 
damages may be awarded in cases where a claimant proves by 
clear and convincing evidence that the defendant acted with 
``conscious, flagrant'' disregard of a substantial and 
unjustifiable risk of unnecessary injury. The previous language 
required ``conscious'' disregarded. The provision now 
corresponds more closely to S. 565, the products liability 
legislation.
    Section 106 has been modified so that periodic payments are 
made in accordance with the guidelines contained in the Uniform 
Periodic Payment of Judgments Act (1990).
    Section 107(c) of S. 454, which prevented a defendant in a 
health care liability action from being held vicariously liable 
for the direct actions or omission of others, has been deleted.
    Section 110 of S. 454, which required plaintiffs to meet a 
higher standard of proof in certain health care liability 
actions involving services provided during labor or delivery of 
a baby, has been deleted.
    The State-based alternative dispute resolution (ADR) 
mechanisms contained in section 111 of S. 454 have been 
modified in section 110 of the Chairman's substitute so that: 
(1) States are encouraged, rather than required, to establish 
or maintain ADR mechanisms; and (2) the Attorney General is 
directed to provide assistance to States by developing 
guidelines with respect to arbitration, mediation, early 
neutral evaluation, early offer and recovery mechanisms, 
certificates of merit, and no-fault mechanisms, and to monitor 
and evaluate the effectiveness of State ADR mechanisms.
    The requirement that a claimant prove his or her case 
``beyond a reasonable doubt'' in cases litigated beyond the ADR 
stage has been deleted from the ADR provisions of the original 
bill and replaced with the following provision designed to 
encourage settlement. If a claimant seeks redress beyond ADR 
and receives at least 25 percent less damages in court, the 
claimant must pay reasonable legal costs incurred by the 
defendant. If a defendant seeks redress beyond ADR and is found 
liable for at least 25 percent more damages in court, the 
defendant must pay reasonable legal costs incurred by the 
claimant.
    As originally drafted, section 112 of S. 454 required all 
claimants in health care liability actions to obtain a 
Certificate of Merit before filing a court action. This section 
has been deleted.
    Section 201 has been renamed ``Funding for State Health 
Care Quality Assurance and Access Activities,'' and the 
reference to ``health care quality assurance programs'' has 
been deleted.
    Sections 202 of S. 454, requiring States to set up risk 
management programs, has been deleted.
    Section 203 of S. 454, required the public disclosure of 
certain information reported to the National Practitioner Data 
Bank, has been deleted.
    A new section (section 202 of the Chairman's substitute) 
has been added. This section requires the Agency for Health 
Care Policy and Research (AHCPR), in consultation with public 
and private sector entities, to establish guidelines on quality 
assurance, patient safety, and consumer information.
    These changes are explained at greater length below.
    It also should be noted that some members of the committee 
who voted to report the legislation favorably did favor 
stronger reforms than those contained in the legislation.
            C. Detailed explanation of the legislation adopted by the 
                    committee

Title I--Health care liability reform--Subtitle A. Liability reform

               1. Federal Interest and Federal Preemption

    The findings and purposes section of the legislation 
contained in section 101 asserts the Federal Government's 
important interest in addressing the issue of health care 
liability reform. The committee believes that the Federal 
Government has a significant stake in reforming the health care 
liability system both because of the effect of the system on 
interstate commerce and because of the enormous amount spent by 
the Federal Government on health care.
    While the views of individual members of the committee 
regarding the necessary scope of preemption may have differed 
somewhat, none of the members who voted to report the 
legislation favorably disagreed about the need for Federal 
action in the area of medical liability reform.

    a. The Private Sector Deserves to Benefit From the Same Type of 
 Protections That the Federal Government Has Afforded Itself in Health 
                         Care Liability Actions

    The Federal Government already has taken significant steps 
to limit its own exposure for costs associated with health care 
liability. For example, damages resulting from health claims 
disputes and redress in claims dispute cases are limited for 
Federal employees receiving health coverage under the Federal 
Employees Health Benefit Act (FEHBA), and for Medicare 
beneficiaries. There are no punitive or extra-contractual 
damages allowed under FEHBA or Medicare See Hayes v. Prudential 
Ins. Co., 819 F.2d 921 (9th Cir. 1987); Homewood Professional 
Care Ctr., Ltd. v. Heckler, 764 F.2d 1242 (7th Cir. 1985).\1\
    \1\ The Federal Government has strictly limited liability in other 
contexts, as well. For example, neither punitive nor extra-contractual 
damages are allowed against defendants under the Federal Employee 
Retirement Income Security Act (ERISA). See Pilot Life Ins. Co. v. 
DeDeaux, 481 U.S. 41 (1987).
---------------------------------------------------------------------------
    Moreover, responding to an outcry from Federal Community 
Health Centers about skyrocketing malpractice insurance 
premiums, Congress in 1992 limited the exposure of centers and 
their providers to malpractice claims by placing them under the 
Federal Tort Claims Act and taking steps that go well beyond 
the reforms in this legislation.\2\
    \2\ In addition to having judgments paid from a Federal fund, that 
act: (1) allows liability to be determined by a judge rather than a 
jury (28 U.S.C. 2402); (2) contains a 2-year statute of limitations 
that is more restrictive than the one contained in this legislation (28 
U.S.C. 2401); (3) prohibits the awarding of punitive damages (28 U.S.C. 
2674); (4) places a cap on lawyers' contingency fees of 25 percent of a 
litigated claim and 20 percent of a settlement (28 U.S.C. 2678); 
disallows prejudgment interest (28 U.S.C. 2674); and requires claimants 
to exhaust administrative remedies before proceeding to court (28 
U.S.C. 2675).
---------------------------------------------------------------------------
    The committee believes that the private sector is entitled 
to the same type of protections that the Federal Government has 
extended to its own health providers.

  b. As the Largest Single Payer of Health Care Services, the Federal 
  Government Has a Compelling Interest in Health Care Liability Reform

    While the Federal Government has limited its exposure to 
health care liability claims in certain instances, large gaps 
remain. In particular, liability for health care professionals 
and providers who treat Medicaid and Medicare patients remain 
subject to uneven and sometimes insufficient State medical 
liability reforms. The committee notes that approximately one-
third of total health care spending in this country is paid by 
the Federal Government. According to the Congressional Budget 
Office, Federal spending for Medicare will reach $177 billion 
in FY 95, while Medicaid grants to States will total $96 
billion. Therefore, the committee believes that there is a 
compelling Federal interest in reforming the Nation's outmoded 
medical liability system.

    c. Federal Legislation is Necessary Because of the Increasingly 
              Interstate Character of Health Care Delivery

    The committee recognizes that health care markets are 
becoming increasingly regional, if not national. Telemedicine, 
by its very nature, is designed to overcome barriers to the 
delivery of medicine, including long distances, geographic 
limitations, and political borders. Some of the finest medical 
facilities in the United States--such as the Mayo Clinic in 
Minnesota, Stanford University in California, Barnes Hospital 
in Missouri, the Cleveland Clinic in Ohio, and the Dartmouth 
Medical Center in New Hampshire--treat patients from across the 
Nation, and around the world.
    While the committee does not believe there is a need for 
absolute uniformity in all aspects of the health care system, 
it believes that some minimum level of medical liability 
reforms would greatly assist the continued development of a 
cost-effective private health care system. This is particularly 
true where, as under this legislation, insurers and other third 
party payers may be sued as defendants in health care liability 
actions.
    As health care providers continue to consolidate and form 
integrated networks of care in response to market forces, 
economic pressure, and emerging treatment patterns, the number 
of individuals who receive health care services in one State 
while having them financed by entities in another will continue 
to increase. While the committee acknowledges that health care 
services are delivered locally, this does not necessarily mean 
that health care is delivered within State borders. To the 
contrary: more than 40 percent of Americans live in cities and 
counties that border on State lines; in 26 States, more than 
half of the population lives in cities and counties that border 
on State lines; and over 50 percent of the population in 26 
States lives in border cities and counties. See Bernand's 1993 
City and County Director; 1989 Rand McNalley Atlas. In these 
areas, it is even more likely that a patient will live or work 
in one State, receive health care services in another, and have 
his or her bills paid by a third-party payer in another State.
    A recent analysis of health services purchased across State 
borders found, for example: (1) that Vermont and New Hampshire 
residents visit an out-of-State physician nearly one-quarter of 
the time; (2) that Wyoming residents visit out-of-State doctors 
over one-third of the time; and (3) that nearly 40 percent of 
the patients admitted to Delaware hospitals travel from out of 
the State.

  d. Federal Legislation is Necessary Because of State Constitutional 
                              Impediments

    Some have argued that this legislation is an unnecessary 
intrusion into an area of the law that traditionally has been 
the domain of the States. The committee notes that many of the 
opponents of Federal medical liability reform are, at the same 
time, aggressively challenging State tort reform efforts by 
arguing that the reforms are unconstitutional under State 
constitutions. As a result, many States have been frustrated in 
their efforts to pass meaningful tort reform--making the need 
for this legislation compelling. For example: (1) statutes of 
limitations in health care liability actions have been held to 
violate State constitutions in Arizona; (2) limits on punitive 
damage awards in health care liability actions have been held 
unconstitutional in Alabama; and (3) periodic payment schedules 
for damage awards in health care liability actions have been 
held to violate State constitutions in Arizona, New Hampshire, 
and Ohio.

                     2. Purpose of the Legislation

    The committee believes that the current medical liability 
system fails to fairly and adequately compensate injured 
patients and, at the same time, places enormous costs--both 
human and economic--on the Nation's health care system. As a 
result of these costs, access to health care services is 
curtailed--most often for those individuals who are most in 
need of care. As outlined in section 101(b) of the legislation, 
the legislation is therefore designed to improve the fairness 
and cost-effectiveness of the current health care liability 
system.

                             3. Definitions

    The committee believes that several of the definitions 
contained in section 102 of the legislation deserve further 
explanation.
    To help ensure that injured claimants receive full and fair 
recovery for economic losses, the committee added a definition 
of ``economic losses'' to the legislation. This definition was 
not included in S. 454 as originally drafted. The types of 
losses listed as ``economic'' are not meant to be exclusive. 
Moreover, to make clear that triers of fact should not 
discriminate against women in the awarding of damages for 
economic losses, the legislation makes clear that the term 
``economic losses'' is meant to include the cost of obtaining 
``replacement services in the home (including child care, 
transportation, food preparation, and household care).''
    The legislation defines a ``health care liability action'' 
as a civil action against a health care provider, health care 
professional, health plan, or any other defendant joined in a 
malpractice lawsuit. Except where specifically noted, the 
committee intends for the reforms contained in the legislation 
to apply to every claim arising out of the provision of, 
payment for, or failure to provide or pay for health care 
services or medical products, regardless of the theory of 
liability on which the action is based.
    The committee believes that the failure to apply the 
reforms contained in the legislation to every type of claim 
against any defendant included in a civil health care liability 
action would lead to bizarre, inconsistent, and unfair results. 
If, for example, the reforms contained in this legislation did 
not apply to all possible defendants involved in a health care 
liability action, a jury may be free use less restrictive 
standards in determining whether to award punitive damages 
against the manufacturer of a medical device or find the 
manufacturer responsible for the total damage award in a case 
involving claims against both a health care professional for 
negligent implant of a medical device and against a 
manufacturer for negligent distribution of the medical device.
    In short, failure to include a broad definition of health 
care liability action actually may lead to the unintended 
consequence of increasing litigation, increasing health costs, 
and continuing to allow an inequitable proportion of damage 
awards to be paid by defendants with deep pockets but little 
actual responsibility for the harm.
    The committee intends for the definition of ``Health Plan'' 
to include insurers, Health Maintenance Organizations (HMO's), 
Preferred Provider Organizations (PPO's), and other similar 
entities. The reforms contained in the legislation apply to 
these entities in all health care liability actions, including 
those involving claims related to the payment for, or failure 
to pay for, health care services or medical products.
    The term ``Health Care Professional'' is meant to include 
all physicians, nurses, and others who are licensed, 
registered, or certified in a State to provide health care 
services. It also applies to individuals who are otherwise 
certified to provide health care services, such as medical 
students and interns.
    The committee intends that the term ``Health Care 
Provider'' be given the broadest possible interpretation. The 
committee intends for the term ``Health Care Provider'' to 
apply to hospitals, clinics, and any other organizations that 
may now or hereafter be engaged in the delivery or provision of 
health care items or services.
    Depending on their organization structure and the types of 
health care activities in which they are engaged, HMO's, PPO's, 
and other similar entities may fall under this definition, as 
well as the definition of ``Health Plan.'' The definition of 
``Health Care Provider'' is also broad enough, for example, to 
include manufacturers and distributors of medical products who 
clearly are organizations ``engage[d] in delivery'' of health 
care items.

                    4. Applicability and Preemption

    The preemption provisions contained in section 103 of the 
legislation are more detailed than those contained in S. 454 as 
originally drafted. The committee believes that this degree of 
precision is necessary for two reasons. First, it is necessary 
to give the States clear guidance as to the scope of the 
reforms contained in the legislation and to make explicit, 
where possible, the desire to protect State laws that impose 
greater restrictions on liability or damages. Second, it is 
designed to avoid costly and unnecessary litigation regarding 
the applicability of the legislation in particular lawsuits. 
The Supreme Court has recently chastised Congress for not 
providing sufficient statutory guidance regarding the extent of 
Federal preemption provisions. See New York Blue Cross Plans et 
al. v. Travelers Ins. Co. et al., Supreme Court Slip Opinion 
93-1408, 93-1414 & 93-1415 (April 26, 1995).
    Section 103(a) of the legislation specifies that, in 
general, the reforms contained in subtitle A of the legislation 
will apply to any health care liability action brought in any 
Federal or State court. The subtitle will not apply to any 
action for damages to the extent that the provisions of the 
National Vaccine Injury Compensation Program apply.
    Section 103(b) of the legislation specifies that the 
provisions of subtitle A of title I shall preempt existing or 
subsequently enacted State laws only to the extent those laws 
are inconsistent with the provision of subtitle A and even 
there only to the extent that the State law is less 
restrictive. The committee does not intend to preempt State law 
to the extent such law: (1) places greater restrictions on the 
amount of or standards for awarding noneconomic or punitive 
damages; (2) places greater limitations on the awarding of 
attorneys fees for awards in excess of $150,000; (3) permits a 
lower threshold for the periodic payment of future damages; (4) 
establishes a shorter period of time during which a health care 
liability action may be initiated or a more restrictive rule 
with respect to the time at which the period of limitations 
begins to run; or (5) implements collateral source rule reform 
that either permits the introduction of evidence of collateral 
source benefits or provides for the mandatory offset of such 
benefits from damage awards. Thus, the committee wishes to 
emphasize that this bill does not preempt State laws that 
impose greater restrictions on liability or damages, or the 
procedures or standards for determining liability or damages, 
than those provided in this legislation.
    Section 103(b) of the legislation further specifies that 
the provisions of subtitle A shall not be construed to preempt 
any State law which permits State officials to commence health 
care liability actions as a representative of an individual, 
permits provider-based dispute resolution, places a limit on 
total damages awarded in a health care liability action; places 
a maximum limit on the time in which such an action may be 
initiated; or provides for defenses in addition to those 
contained in the act.
    Section 103(c) allows States to pass laws which otherwise 
would violate the preemption provisions contained in section 
103(a) and 103(b) of the legislation. Generally, State laws 
enacted pursuant to this section of the legislation may apply 
only to health care liability actions involving parties that 
are residents of the same State. Section 103(c) was added to 
the legislation by an amendment offered during the executive 
session on April 25 by Senator Abraham. The amendment passed by 
a roll call vote of 9 yeas to 7 nays.
    The effect of the Abraham amendment, in combination with 
the other preemption provisions in the legislation is as 
follows: The legislation generally preempts existing State laws 
which contain reforms that are weaker than those contained in 
the legislation. It does not preempt stronger reforms, such as 
those described in sections 103(a) and 103(b). In addition, 
States subsequently may pass weaker malpractice laws to govern 
intrastate disputes, but must cite the authority of this 
legislation. While several questions were raised about the 
practical impact of this new provision, it certainly is a more 
narrow modification to the legislation's preemption provisions 
than some of the other proposed modifications debated during 
the executive session on April 25 in that weaker State laws 
would continue to be preempted, unless a State took the 
affirmative action of passing a law to override this 
legislation.
    Section 103(d) of the legislation contains several 
additional construction clauses that the committee believes are 
necessary to clearly delineate the scope of these reforms. This 
legislation would not affect State laws that provide for 
comprehensive caps on damages. Seven States have such caps: 
Indiana, Virginia, Colorado, Louisiana, Nebraska, New Mexico, 
and South Dakota. In some States, this limit is linked to a 
patient compensation fund. The committee does not intend for 
this legislation to prevent from those types of funds.
    The committee wishes to emphasize that the legislation is 
not intended to preempt either State or Federal criminal causes 
of action. It also should be emphasized that the legislation is 
not intended to supersede the remedies, claims procedures, or 
other liability provisions contained in Medicare, the Federal 
Employee Health Benefit Act (FEHBA), the Employee Retirement 
Income Security Act (ERISA), or any other Federal law. Section 
103(d)(6) states expressly that the medical liability reforms 
contained in the legislation do not supersede any provision of 
Federal law.

  5. Arguments in Opposition to the Preemption Provisions Are Without 
                                 Merit

    During consideration of the legislation, it was argued that 
the so-called ``one-sided'' preemption provisions contained in 
this section of the legislation were both novel and, somehow, 
unfair. The committee believes these arguments lack merit.\3\
    \3\ The characterization that all of the preemption provisions in 
the legislation are ``one-sided'' is simply incorrect. Two examples are 
instructive. As explained more fully below, the preemption provisions 
allow State collateral source reform measures to differ widely from the 
provisions contained in section 108 of this legislation. States not 
only have the flexibility to adopt evidentiary collateral source rules 
and mandatory offset rules that permit introduction of collateral 
source benefits after trial, but may, in fact, adopt a whole range of 
collateral source rule reforms that are more favorable to claimants 
than those contained in this substitute. Further, the substitute makes 
clear that State laws limiting attorneys fees for awards of $150,000 or 
less may be both more restrictive than the 33\1/3\ percent set forth in 
section 109(a) of this legislation and less restrictive.
---------------------------------------------------------------------------
    In support of the preemption provisions contained in this 
section of the legislation, the committee notes the long 
history of the Congress in setting minimum Federal standards 
and allowing the States significant flexibility beyond those 
standards. See Clean Air Act Amendments of 1990, P.L. 101-549; 
Safe Drinking Water Act, P.L. 93-523; Civil Rights Act of 1964, 
P.L. 88-352; Americans with Disabilities Act, P.L. 101-336. 
Moreover, nearly every health care reform bill introduced in 
the last Congress contained this type of Federal floor 
preemption clause for medical liability reform (See, e.g., 
President Clinton's ``Health Security Act,'' H.R. 3600; Senator 
Dole and Senator Packwood's health care reform bill, S. 2374; 
Senator Chafee's ``Health Equity Access Reform Today Act'', S. 
1770; Representative Cooper's ``Managed Competition Act,'' H.R. 
3222; the House Republican Leadership Plan, H.R. 3080; the 
bipartisan ``Mainstream Coalition'' health bill; and the House 
bipartisan health reform bill).\4\
    \4\ The committee notes that section 103(c) of the legislation (the 
subject of the Abraham amendment described above) provides the States 
greater flexibility than under any of these bills.
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    The committee believes that this legislation is loyal to 
that tradition and wholly consistent with principles of 
Federalism embodied in the Constitution of the United States.
    The following are some additional examples of one-sided 
preemption.
    Product Liability Legislation. Several members of this 
committee are original cosponsors of S. 565, the ``Product 
Liability Fairness Act of 1995.'' S. 565 recently was reported 
favorably by the Committee on Commerce, Science, and 
Transportation. Among other similarities between this 
legislation and S. 565, the Product Liability Fairness Act 
contains nearly identical limitations on joint and several 
liability and a similar statute of limitations provision.
    While S. 565 requires all product liability actions to be 
filed within 20 years from the time a product is delivered, it 
allows States to impose shorter statutes of repose. See section 
9 of S. 565. In addition, S. 565 requires several liability for 
noneconomic damages, but permits States to pass tougher laws 
requiring several liability for economic damages. See section 
10 of S. 565. Moreover, while S. 565 caps punitive damages at 
$250,000 or three times the amount of economic damages, States 
may set lower limits or may prohibit the awarding of punitive 
damages altogether. See section 8(a) of S. 565.
    General Aviation Revitalization. Another recent and 
relevant example of so-called ``one-sided'' preemption is 
legislation that was passed overwhelming by this body during 
the 103d Congress. S. 1458, the General Aviation Revitalization 
Act of 1994, provided in part that no civil action for damages 
arising out of an accident involving a general aviation 
aircraft could be brought against the manufacturer of the 
aircraft or the manufacturer of any component part of the 
aircarft, if the accident occurred more than 18 years after the 
date of the aircraft's delivery or the component part's 
installation. S. 1458 preempts State law only to the extent 
that such law permitted civil actions to be commenced after 18 
years. See P.L. 103-298.
    S. 1458 passed on March 16, 1994 by a vote of 91-8.
    The Family Health Insurance Protection Act. Another recent 
example of so-called ``one-sided preemption'' is contained in 
S. 7, the ``Family Health Insurance Protection Act,'' which was 
introduced on the first day of the 104th Congress by the 
Senator Daschle and several members of this committee who 
opposed the preemption provisions contained in the legislation. 
Sections 1011 and 1012 of S. 7 provide a clear example of 
''one-sided'' preemption.
    Seciton 1011 provides that State laws will not be preempted 
by the act only if they: (1) contain preexisting condition 
waiting periods that are ``less than those'' established in S. 
7; (2) limit variations in premium rates ``beyond the 
variations permitted'' in S. 7; and (3) expand the size of the 
small group market to include groups ``in excess of'' the size 
set forth in the legislation.
    Section 1012 contains even more expansive one-sided 
preemption provisions. It states that: ``Nothing in this Act 
shall be construed as prohibiting States from enacting [any] 
health care reform measures that exceed the measures 
established under this Act, including reforms that expand 
access to health care services (i.e., higher taxes), control 
health care costs (i.e., institute tighter premium caps or cost 
controls), and enhance quality of care.
    As these examples make clear, those who oppose the 
preemption principles embodied in this legislation have 
repeatedly and enthusiastically embraced those principles in 
other legislative contexts. Therefore, the only logical 
conclusion that can be reached is that opposition to these 
preemption provisions is based largely on antipathy toward the 
substance of this legislation, and not on principles of 
Federalism.

                       6. Statute of Limitations

    Section 104 of the legislation requires that all health 
care liability actions be filed within 2 years after a claimant 
has discovered, or should have discovered, both the injury and 
its cause. For example, a patient who experiences chest pains 1 
year after having surgery but does not discover until 4 years 
later--in the exercise of reasonable care--that the injury was 
caused by a medical instrument left in his body during surgery, 
would not be required under this legislation to file a lawsuit 
against the operating physician or hospital until 2 years after 
he discovers the existence of the instrument.
    Section 104 also provides that individuals who are 
considered disabled in the eyes of the law, such as minors, 
must file health care liability actions within 2 years after 
the date the disability ceases.
    The committee recognizes that this statute of limitation 
standard is somewhat more liberal than standards that currently 
exist in many States where claimants are required to file civil 
lawsuits within 2 years from the date the claimant discovers 
his or her injury. The committee also notes, that unlike the 
medical liability reforms in existence in many States, the 
legislation contains no statute of repose requiring health care 
liability actions to be commenced within a certain period of 
time after an injury occurs.
    Therefore, as noted previously, the committee believes that 
States should be free to establish a shorter period of time 
during which a health care liability action may be initiated or 
a more restrictive rule with respect to the time at which the 
period of limitations begins to run. States may also place a 
maximum limit on the time in which such an action may be 
initiated.

                     7. Reform of Punitive Damages

    The committee believes that damages designed solely to 
punish defendants in health care liability actions should be 
limited to extraordinary circumstances. Therefore, under 
section 105 of the legislation, punitive damages may be awarded 
only where a claimant proves to the trier of fact by ``clear 
and convincing evidence'' that a defendant has violated the 
minimum Federal standards set forth in the legislation.
    Under the legislation, States may require a higher level of 
culpability or willfulness before allowing punitive damages, 
have additional procedural requirements for seeking, 
considering, or awarding punitive damages, or they may prohibit 
punitive damages altogether as a general rule or in certain 
cases. The committee does not intend to preempt these more 
restrictive State laws.
    Moreover, pursuant to an amendment adopted during the 
executive session on April 25 that was offered by Senator Dodd, 
a judge rather than a jury must determine the amount to be 
awarded for punitive damages in a subsequent proceeding.
    The Dodd amendment, which was adopted by a roll call vote 
of 9 yeas to 7 nays, also struck a provision from the 
Chairman's substitute that limited punitive damage awards 
against health care professionals, health plans, health care 
providers and other defendants in a health care liability 
action to $250,000 or three times economic damages, whichever 
is greater.
    It is important to note here that the legislation does not 
prohibit injured patients from recovering complete compensatory 
damages. The legislation places no limitation on the amount 
claimants may recover for either economic damages (such as past 
and future medical expenses, past and future earnings, loss of 
business or employment opportunities, and the cost of 
replacement services in the home) or noneconomic damages (such 
as pain and suffering, mental anguish, and loss of 
companionship).

                          8. Periodic Payments

    The committee believes that when large damage awards are 
required to be paid in a lump sum in medical liability cases, 
such awards can have a significant impact on the availability 
and affordability of liability insurance. Therefore, section 
106 requires that where the amount of future damages awarded in 
a health care liability action exceeds $100,000, either party 
may request that those damages be paid on a periodic basis.
    The committee intends for the adjudicating body to look to 
the Uniform Periodic Payment of Judgments Act for guidance in 
structuring periodic payment awards. The committee believes it 
is important that judges have some guidance from a uniform, 
existing body of law in determining how to structure these 
awards. Moreover, because the nature of personal injuries and 
losses resulting from medical liability--as well as the ability 
of defendants to compensate injured patients--varies widely, 
the committee believes it is more prudent to reference an 
existing body of law than to try to craft legislative language 
to take into consideration every factor that must be considered 
in the awarding of future damage awards. Among other things, 
the Uniform Periodic Payment of Judgments Act contains 
provisions dealing with evidence and findings regarding changes 
in the purchasing power of the dollar, interest on periodic 
payments, the security of future payments, and requirements for 
qualified funding plans.
    The committee believes that the adjudicating body should be 
given the discretion to waive the requirements of this section 
where such a waiver is in the interest of justice.

                         9. Scope of Liability

    The common law rule of joint and several liability makes 
each and every defendant in a tort lawsuit liable for the 
entire amount of a claimant's damages. To promote more 
equitable resolution of health care liability actions, the 
committee strongly believes that defendants in health care 
liability actions should be held responsible for noneconomic 
and punitive damages only in direct proportion to their own 
fault or responsibility for an injury. This principle is 
embodied in section 107 of the legislation.
    The committee believes that defendants in a lawsuit should 
not be liable for damages in excess of their degree of fault 
simply because they can afford it. The rule of joint and 
several liability too often turns lawsuits into searches for a 
marginally involved party whose pockets are deep enough to pay 
a sizeable award. Because the amount awarded for noneconomic 
and punitive damages, in particular, is so often based on 
subjective factors, the committee believes that this is one of 
the areas with the greatest potential for abuse in health care 
liability actions.
    It is true, as defenders of the principle of joint and 
several liability argue, that the rule increases the 
probability that worthy claimants will be fully compensated. 
However, the committee believes that whatever desirability the 
rule of joint and several liability holds for claimants is far 
outweighed by the injustice that the rule does to defendants 
who are only minimally responsible for causing an injury.
    The legislation takes a middle ground approach to reforming 
the rule of joint and several liability. The legislation only 
allows several, or ``proportional,'' liability for noneconomic 
and punitive damages. The rule of joint and several liability, 
therefore, would still apply to awards of economic damages. 
Under the legislation, claimants still may recover all out of 
pocket expenses, including payments for past and future medical 
bills, rehabilitation expenses, lost wages, and the cost of 
replacement services in the home from any defendant, no matter 
what their degree of fault. The committee believes that this 
approach minimizes the gross unfairness to defendants resulting 
from the rule of joint and several liability while, at the same 
time, allowing a claimant's objectively verifiable monetary 
losses to be paid by a deep pocket defendant.
    The committee notes that about half of the States have 
enacted some type of joint and several liability reform in 
order to apportion fault more fairly, and six States--Alaska, 
Arizona, Kansas, Utah, Vermont, and Wyoming--have totally 
abolished joint and several liability.

     10. Mandatory Offsets For Damages Paid By A Collateral Source

    To help hold down health care costs, the committee believes 
it is important to prevent claimants from recovering twice for 
the same injury. Therefore, sections 108 (a) and (b) of the 
legislation require that the total amount of damages awarded at 
trial be reduced by the amount of any other payment that has 
been, or will be, made to compensate the individual for the 
injury.
    Section 108(c) of the legislation provides that the amount 
of the required deductions will be determined by the court in a 
pretrial proceeding, and that no evidence shall be admitted at 
trial concerning the amount of any charge, payments, or damages 
for which a claimant has received payment from a collateral 
source or for which the obligation has been assured, or is 
likely to be assumed, by a third party.
    Currently, successful claimants receive award for economic 
losses equal to their medical bills (plus lost wages, et 
cetera), even if those bills have been covered by the 
claimant's insures. This results in unnecessary double 
recovery. Noneconomic losses are generally calculated as a 
multiple of economic losses, at a rate of two to four times 
economic losses. A system that bases the award on the 
claimant's medical bills creates a powerful incentive for 
overuse and even abuse of the health care system. Because those 
medical costs are often covered by insurance, claimants run no 
risk of out-of-pocket loss, even if the negligence case is 
unsuccessful. Therefore, in effect, the health insurance system 
is subsidizing frivolous cases, and driving up the cost of 
insurance for everyone.
    A recent study by the Rand Corp. of auto accidents provides 
by analogy a stark demonstration of the existing incentives 
provided by the common law collateral source rule. According to 
the study, 33-43 percent of medical costs incurred after an 
automobile accident appear to be excessive. In 1992, excessive 
medical claims may have cost consumers $13 to $18 billion in 
auto insurance premiums.
    The reasons are clear. As stated previously, the collateral 
source rule allows plaintiffs to claim as damages, expenses 
which have already been reimbursed by a third party. Thus, for 
every dollar spent on health services to treat an ``injury'' 
after an auto accident or an alleged incidence of malpractice, 
a claimant has a good chance of collecting back $3 or $4 in a 
successful lawsuit. If the lawsuit is lost, the claimant has 
spent little or non of his own resources. The powerful 
incentives for overtreatment cost every American through higher 
health insurance premiums, disability premiums and taxes.
    The legislation addresses this incentive for excessive 
claims by insuring that plaintiffs cannot double recover for 
amounts paid by a third party. If a claimant cannot recover the 
costs of services paid for by someone else, then those amounts 
cannot be doubled or trebled to determine the amount of 
noneconomic damages. The Rand study indicates that not only is 
this system fairer, it also will save significant amounts in 
excessive health care costs.
    The committee generally believes that reducing damage 
awards by the amount a claimant may receive from collateral 
source payments before trial is the most effective way to 
reduce health care liability costs and prevent double recovery. 
Under this system, the jury would still get all the necessary 
information about the scope of the injury, and the duration of 
any hospital stay or treatment. However, it would not get 
specific payment information about those amounts covered by 
insurance, an employer's wage continuation program, or other 
collateral payments. Injured claimants will receive full and 
fair compensation for their injuries. However, the incentive 
for overuse and abuse of the medical system will be reduced.
    However, the committee wishes to make clear that States may 
maintain laws they already have in place, or may adopt 
collateral source reform laws in the future that differ from 
those specified in section 108 of the legislation. Section 
103(b)(1)(E) makes clear that States may adopt collateral 
source rule reform that either permits the introduction of 
evidence of collateral source benefits to the trier of fact, or 
allows for the mandatory offset of collateral source benefits 
at some point other than during a pretrial proceeding.
    Some opponents of the legislation argue against collateral 
source rule reform by claiming that employers, insurers and 
third party payers would be forced to subsidize the negligence 
of health care providers. The legislation should not be 
interpreted to require this subsidization. In fact, this 
legislation does not address the issues of ``subrogation'' or 
``contribution'' at all. Those issues are left to the law of 
the individual States. Thus, if a health insurer or other 
``third party'' insurer is now permitted under State law to 
recover from a negligent provider or the provider's insurance 
company for the amount spent on injuries caused by that 
provider, this legislation should not be interpreted to preempt 
that State law. Of course, the opposite is also true. If State 
law disallow subrogation or contribution claims, those State 
laws would be controlling.

            11. Treatment of Attorney's Fees And Other Costs

    To ensure that injured patients recover a greater share of 
their medical liability awards, section 109 of the legislation 
limits attorneys' contingency fees to 33\1/3\ percent of the 
first $150,000 recovered and 25 percent of awards in excess of 
$150,000. The provision applies to amounts recovered through 
either judgment or settlement. The legislation makes clear that 
the maximum amount that may be paid toward attorneys's fees 
must be calculated based on the net amount a claimant recovers 
after taxes.
    During the executive session on April 25, an amendment was 
offered by Senator Wellstone to limit defense attorneys' fees 
to the amount recovered by a claimant's attorney. Many members 
who supported the Chairman's substitute were concerned that the 
amendment, as it was drafted, would create perverse incentives 
for defense attorneys. By linking defense attorneys' fees to 
claimant's contingency fees, the amentment--which eventually 
was withdrawn--would have allowed defense attorney's to collect 
fees commensurate with the amount claimants received in 
damages; the more damages that were awarded to a claimant, the 
more a defense attorney would be allowed to collect from his or 
her client.

       12. State-Based Alternative Dispute Resolution Mechanisms

    To promote the resolution of claims in a more convenient, 
timely, and affordable manner, section 110 of the legislation 
encourages States to experiment with alternative dispute 
resolution (ADR) mechanisms and requires the U.S. Attorney 
General to provide technical assistance to States regarding 
various ADR mechanisms. The section further requires the 
Attorney General (in consultation with the Secretary and the 
Administrative Conference of the United States) to monitor and 
evaluate the effectiveness of State alternative dispute 
resolution mechanisms.
    During the committee's deliberations, some members raised 
concerns about the ADR procedures in S. 454, as originally 
drafted. The original bill: (1) required States to adopt ADR 
procedures; (2) required parties to go through ADR before going 
to court; and (3) required the parties to meet a higher 
standard of proof (``beyond a reasonable doubt'') in court if 
they rejected a reasonable settlement offer made during ADR.
    In response, the substitute modified these provisions so 
that: (1) States may adopt ADR; (2) at the State's discretion, 
ADR may be binding or nonbinding; (3) parties need not meet a 
higher standard of proof if they reject a settlement offer; and 
(4) a modified fee-shifting rule applies equally to both 
plaintiffs and defendants in order to promote reasonable 
settlements.
    An amendment offered by Senator Kennedy during the 
executive session on April 25 to make the fee-shifting 
provisions optional was defeated by a roll call vote of 7 yeas 
and 9 nays.
Subtitle B. Biomaterials access assurance

    The reforms contained in title I, subtitle B of the 
legislation are designed to avert an imminent shortage of raw 
materials used in lifesaving medical devices. The scarcity of 
these materials is a direct result of costly litigation.
    This legislation would not affect the ability of claimants 
to sue manufacturers or sellers of medical implants. Instead, 
it would allow raw material suppliers to be dismissed from 
lawsuits relating to the design or manufacture of medical 
implants, without incurring extensive legal costs. In order to 
be dismissed from a lawsuit, the legislation requires suppliers 
to prove that: (1) they cannot be classified as either a 
manufacturer or a seller of the medical device; and (2) the raw 
materials they supplied met contract specifications.

Title II--Protection of the health and safety of patients

            A. Summary
    As noted previously, title I of the legislation is designed 
to make the medical liability system more fair, equitable, and 
cost-effective. Title II of the legislation recognizes that 
quality assurance, patient safety, and consumer information are 
also powerful tools both for preventing malpractice actions and 
for measuring the performance of providers and health plans.
    While the medical liability system provides some deterrence 
to negligent care, other mechanisms--such as quality 
assurance--can help further limit medical negligence. The 
Chairman's substitute contains major revisions to title II of 
S. 454, as originally introduced. The legislation has been 
strengthened by requiring that an independent advisory panel, 
within the Agency for Health Care Policy and Research, 
establish guidelines in the areas of quality assurance, patient 
safety, and consumer information.
            B. Section 201
    The committee was concerned that section 201 of S. 454, as 
originally drafted, could have been read to create an unfunded 
mandate on the States by requiring them to develop quality 
assurance programs without adequate funding. Therefore, the 
language in section 201 of the legislation reported by the 
committee has been modified. The new language requires States 
to direct at least 50 percent of punitive damage awards in 
health care liability actions to State activities relating to 
the licensing, investigating, disciplining, and certification 
of health care professionals and to the reduction of 
malpractice-related costs for health care providers 
volunteering in medically underserved areas. The committee 
intends for this section of the legislation to help provide 
increased funding for current State activities.
            C. Section 202

                           1. Advisory Panel

    Both section 202 (Risk Management Programs) and 203 
(National Practitioner Data Bank) were deleted from S. 454 by 
the Chairman's substitute, and replaced by a new section 202 
which establishes an advisory panel within the Agency for 
Health Care Policy and Research. The purpose of the advisory 
panel is to bring together the many different public and 
private organizations that have been working to determine 
appropriate methods for measuring the quality, safety, and 
effectiveness of the health care delivery system.
    It became evident during the committee's deliberations that 
many consumers do not have ready access to information 
regarding: (1) the licensing and disciplining of providers; (2) 
judicial proceedings against providers; and (3) health care 
quality, outcomes, and patient satisfaction. To help empower 
consumers to make more informed choices about the safety and 
effectiveness of health care services, the committee believes 
it is important to: (1) determine what information is currently 
available; (2) assess the reliability and validity of such 
information; and (3) evaluate methods for making valid and 
reliable information available to health care consumers.
    The committee intends for the panel to establish consensus 
guidelines in the areas of quality assurance, patient safety, 
and consumer information. The committee hopes that the panel's 
efforts will bring together purchasers, consumers, providers, 
and health plans to begin developing guidelines on mutually 
useful comparative data.
    The committee intends for the advisory panel to consist of 
at least 15 members but no more than 21. The members of the 
panel should be chosen from public and private organizations 
which have exhibited expertise in the areas of risk assessment, 
risk management, quality assurance, patient safety, and 
performance measures for providers and health plans. The public 
entities would include both Federal entities (such as the 
Health Care Financing Administration (HCA), the Centers for 
Disease Control (CDC), PROPAC, and the Physician Payment Review 
Commission) and State associations (such as the Federation of 
State Medical Boards and the National Association of Insurance 
Commissioners). Private sector organizations would include 
professional associations such as the American Dental 
Association, specialty provider organizations that have 
established practice guidelines, the American Medical 
Association, the Health Insurance Association of America 
(HIAA), and managed care health plan associations. Other 
private sector members should include consumer groups, private 
foundations, the National Committee for Quality Assurance, the 
Joint Commission on Accreditation of Health Care Organizations, 
and employer purchaser representatives, including those 
involved in the development of the Health Plan Employer Data 
Information Set (HEDIS).
                   2. National Practitioner Data Bank

    In 1986, Congress enacted the Health Care Quality 
Improvement Act, which authorized the Secretary of Health and 
Human Services (HHS) to establish the National Practitioner 
Data Bank (NPDB or Data Bank). The NPDB is designed to provide 
hospitals and group practices with information to make 
decisions about hiring, credentialing, and disciplining 
practitioners, thus allowing hospitals and medical groups to 
take responsibility for the quality of physicians in their 
facilities.
    The NPDB, which is now operated by a contractor to the 
Health Resources and Services Administration (HRSA) of the 
Public Health Service (PHS), collects information that falls 
into two main categories: (1) disciplinary actions taken 
against a physician's license (submitted by State medical 
boards), clinical privileges (submitted by hospitals) and 
sanctions by society memberships (submitted by peers); and (2) 
malpractice lawsuits (actions taken by patients or consumers). 
The NPDB contains information on malpractice payments resulting 
from both judgements and settlements.
    Hospitals and other health care entities, licensing boards, 
and professional societies must report to the Data Bank all 
adverse actions they take that affect a practitioner's clinical 
privileges for more than 30 days. Malpractice insurers are 
required to report the following information on all lawsuits 
resulting in payment: date, amount paid, judgement or 
settlement, description of the acts and omissions, and injuries 
or illnesses upon which the case was based. Physicians are 
permitted to write a brief appendage (limited to 60 characters) 
to any report of which they are the subject. Hospitals, group 
medical practices, professional societies, State licensing 
boards, and practitioners are the only entities that have 
access to the NPDB. They are required by law to query the Data 
Bank for each practitioner seeking clinical privileges or 
licensure.
    The Health Care Quality Improvement Act expressly provides 
that all information reported to the Data Bank must be kept 
confidential. Moreover, many States strictly protect the 
confidentiality of information submitted to the NPDB. The 
committee therefore was concerned that making information 
submitted to the NPDB public would override State 
confidentiality laws.
    Although the Office of Inspector General (OIG) has 
completed some cursory reports on the NPDB, the NPDB has not 
been thoroughly evaluated to determine if the information it 
collects is valid and reliable. The four reports written by the 
OIG focused on two areas of concern: (1) reporting data as 
required and (2) the utilization of that data. These OIG 
reports reveal that there has been a steady increase in the use 
of the NPDB since it was first opened in September 1990. 
Hospitals reported that the information from the NPDB resulted 
in a decision to deny practice privileges to a physician in 1 
percent of all cases. Approximately 1,000 physicians have been 
reported each year since the NPDB opened, but 75 percent of all 
hospitals have never reported to the Data Bank as required by 
law. In addition, a substantial number of State licensing board 
actions are not reported to the NPDB as indicated by the fact 
that only 3,154 of 8,000 practitioners who had disciplinary 
actions taken by State licensing boards were reported to the 
NPDB between 1990 and 1993. This variance can be partially 
attributed to the difference in reporting requirements between 
the States and the NPDB.
    As originally drafted, S. 454 would have allowed consumers 
access to the NPDB for the limited purposes of reviewing 
disciplinary actions. The committee weighed very carefully the 
benefits of opening the NPDB to the public. However, it 
ultimately decided that it was more desirable at this time to 
have a panel of experts develop reliable guidelines on quality 
assurance, risk assessment, and patient safety, and to further 
evaluate the quality and reliability of information available 
in the Data Bank.
    In arriving at this decision, the committee relied in part 
on the history of the Data Bank and the views of those who were 
involved in its development.
    For example, a letter submitted by the National Council of 
Community Hospitals (NCCH), which was instrumental in 
developing the NPDB legislation in 1986, stated:

          The Data Bank legislation was supported in 1986 by a 
        broad spectrum of interests on the understanding that 
        information submitted to the Data Bank would be used 
        for professional review activity and would not be 
        publicly available. Efforts made to delete the 
        confidentiality provision were rejected by the sponsors 
        of the legislation. It would be unfair now to change 
        the understanding on which the bill was enacted, and 
        tilt the law's carefully constructed balance.

    Another letter submitted by the American Dental Association 
stated:

          Information in the Data Bank was intended for 
        ``knowledgeable'' individuals and not for public 
        release. The House Commerce Committee recognized this 
        when it created the Data Bank stating the law ``* * * 
        does not necessarily require extensive descriptions of 
        the acts or omissions nor of the injuries or illnesses 
        upon which the action or claim was based. It does, 
        however, require sufficient specificity to enable a 
        knowledgeable reviewer to determine clearly the 
        circumstances of the action or claim.''

    In addition, the committee took into consideration the fact 
that much of the disciplinary information in the Data Bank is 
accessible to the public directly through State medical boards, 
and the fact that all 50 State dental boards make their actions 
available to the public through newsletters, professional 
journals, and newspapers.
    Of greater significance to the committee was strong 
evidence that the information in the Data Bank is neither valid 
nor reliable. The committee believes it would be irresponsible 
for Congress to knowingly provide access to consumers that is 
inaccurate and unreliable. This, coupled with the fact that the 
information was intended for ``knowledgeable reviewers'' and 
was expressly agreed to be kept confidential, convinced the 
committee to take a more prudent approach to releasing 
information contained in the Data Bank.
    It has come to the attention of the committee that HRSA has 
contracted with Walcoff and Associates to do a 2-year in-depth 
assessment of the accuracy and effectiveness of information 
collected in the Data Bank. This evaluation is expected to be 
completed within the next few months. The legislation requires 
the advisory panel to review all evaluations completed on the 
Data Bank by the Government Accounting Office, the OIG at HHS, 
and Walcoff and Associates, and report to this committee within 
6 months as to whether the Data Bank is fulfilling its 
Congressional mandate. In addition, the legislation requires 
that, within 1 year, the advisory panel must submit to this 
committee an independent evaluation on the value of permitting 
consumers to have access to the information in the Data Bank.
    An amendment offered by Senator Wellstone, but rejected by 
the committee by a vote of 10-6, would have gone beyond the 
original language in S. 454 and made available to the public 
within 6 months all of the information contained in the Data 
Bank, including information regarding malpractice actions. 
Although the amendment required the Secretary of HHS to 
evaluate the Data Bank within 3 months, it did not request any 
information regarding the amount of time it would take to make 
the information in the Data Bank user-friendly or the costs 
associated with such an endeavor.
    The committee is committed to making valid and reliable 
data on providers and health plans available to the consumer. 
During consideration of S. 454, many members of the committee 
expressed their strong desire to hold hearings on the 
information contained in the advisory panel's reports soon 
after it is available and, if necessary, to hold oversight 
hearings on the panel's activities.

                            v. cost estimate

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, April 28, 1995.
Hon. Nancy L. Kassebaum,
Chairman, Committee on Labor and Human Resources,
U.S. Senate, Washington, DC.
    Dear Madam Chairman: The Congressional Budget Office (CBO) 
has reviewed S. 454, the ``Health Care Liability Reform and 
Quality Assurance Act of 1995'', as ordered reported by the 
Committee on Labor and Human Resources on April 25. CBO 
estimates that the bill would not significantly affect direct 
spending.
    S. 454 would implement a number of measures intended to 
expand the availability of health care services that may have 
been curtailed by fear of suits for malpractice, improve the 
cost-effectiveness of the current system of malpractice 
litigation, and reduce uncertainty in the amount of 
compensation provided to injured individuals. The bill would 
limit the number of situations in which punitive damages may be 
awarded, make defendants' liable for punitive and noneconomic 
damages only in proportion to their share of fault or 
responsibility, reduce damage awards to individuals by the 
amount of any payments received from third-party sources, and 
limit contingency fees paid to attorneys. The bill would also 
place limits on the liability of biomaterials suppliers whose 
products are used for implants.
    For several reasons, CBO assumes that any reduction in 
health expenditures as a result of the proposed reforms would 
be negligible. First, although official measures are not 
available, malpractice premiums appear to account for a very 
small share of total health spending. In 1990, estimates of 
total malpractice premiums paid by health care providers ranged 
from about $5 billion to about $10 billion, compared with 
national health expenditures of about $700 billion that year. 
Malpractice liability insurance is a similarly small component 
of the composite price indices used by Medicare to update 
reimbursements to health care providers.
    Second, efforts to streamline and standardize malpractice 
awards could result in more compensation being paid for certain 
types or cases of malpractice and less compensation being paid 
for others. In changing the awards to claimants, these efforts 
could also affect the number of malpractice actions brought. As 
a result, premiums for malpractice insurance could increase or 
decrease, and there is no evidence available to judge which 
outcome is more likely.
    Third, the bill allows states to choose which, if any, 
provisions would apply to lawsuits involving their residents. 
S. 454 could affect malpractice damage awards only in states 
that do not already have similar provisions in state law, and 
states with less restrictive liability laws might choose to 
maintain current practices.
    Finally, any reduction in malpractice awards that might 
occur would not necessarily reduce malpractice insurance 
premiums, nor would it necessarily be reflected in the amounts 
paid by either private or public health care payors. Although 
any reduction in awards would reduce malpractice insurers' 
costs, it would take time before competitive pressures 
generated lower malpractice insurance premiums. Similarly, even 
if a reduction in malpractice insurance premiums occurred, 
health spending would be affected only if competitive pressures 
forced providers to reduce their prices.
    S. 454 would also require the Attorney General and the 
Secretary of Health and Human Services to develop guidelines 
for alternative dispute resolution mechanisms and to monitor 
and evaluate the effectiveness of State alternative dispute 
resolution mechanisms. The bill also would require the Agency 
for Health Care Policy and Research to establish an advisory 
panel, conduct a survey collecting extensive data with respect 
to quality assurance, risk assessment, patient safety, and 
patient satisfaction, establish health care guidelines based on 
the information gathered in the survey, and prepare several 
reports. CBO estimates that the cost of these provisions would 
be no more than $5 million in each year, assuming that the 
necessary funds were appropriated.
    CBO estimates that enactment of S. 454 would have no 
significant effect on the budgets of state and local 
governments.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Lisa Layman.
            Sincerely,
                                         June E. O'Neill, Director.
                    VI. REGULATORY IMPACT STATEMENT

    The committee has determined that there will be only a 
negligible increase in the regulatory burden of paperwork as 
the result of this legislation.

                    VII. SECTION-BY-SECTION ANALYSIS

            Section 1. Short Title
    The act may be cited as the ``Health Care Liability Reform 
and Quality Assurance Act of 1995.''

                 TITLE I--HEALTH CARE LIABILITY REFORM

Subtitle A. Liability reform

            Section 101. Findings and purpose
    Section 101(a) of the legislation states that Congress 
finds that the civil justice system of the United States is a 
costly and inefficient mechanism for resolving health care 
liability claims and compensating injured patients. Further, 
problems associated with the current system are having an 
adverse impact on availability of, access to, and cost of care. 
The Congress finds that the health care and insurance 
industries affect interstate commerce and that the current 
health care liability litigation systems affect interstate 
commerce by contributing to the high cost of health care and 
health care liability insurance premiums. The Congress also 
finds that current health care liability litigation systems 
have a significant impact on Federal spending because of the 
large numbers of persons receiving health benefits under 
Federal programs, the large number who benefit from the 
exclusion from Federal taxes of amounts spent to provide 
benefits, and the large numbers of providers who receive 
Federal payments for services.
    Section 101(b) of the legislation specifies that it is the 
purpose of the act to implement reasonable, comprehensive, and 
effective health care liability reform designed to: (1) Ensure 
persons with meritorious claims receive fair and adequate 
compensation; (2) improve the availability of health care 
services in cases where liability actions have been shown to be 
a factor in decreased service availability; and (3) improve the 
fairness and cost-effectiveness of the system by reducing 
uncertainty and unpredictability in the amount of compensation 
provided to injured persons.
            Section 102. Definitions
    Section 102 of the legislation includes definitions. 
``Claimant'' is defined as a person who commences a health care 
liability action and any person on whose behalf such an action 
is brought (including a decedent).
    ``Clear and convincing evidence'' is defined as that 
measure or degree of proof that will produce in the mind of the 
trier of fact a firm belief or conviction as to the truth of 
the allegations sought to be established; the measure or degree 
of proof is more than that required under preponderance of the 
evidence but less than that required for proof beyond a 
reasonable doubt.
    ``Collateral source rule'' is defined as a rule, 
established by statute or common law, that prevents the 
introduction of evidence regarding collateral source benefits 
or that prohibits the deduction of collateral source benefits 
from an award of damages in a health care liability action.
    ``Economic Losses'' are defined as objectively verifiable 
monetary losses incurred as a result of the provision of (or 
failure to provide or pay for) health care services or the use 
of a medical product. Included are past and future medical 
expenses, loss of past and future earnings, cost of obtaining 
replacement services in the home (including child care, 
transportation, food preparation and household care), cost of 
making reasonable accommodations to a personal residence, loss 
of employment, and loss of business or employment 
opportunities. Economic losses are neither noneconomic losses 
nor punitive damages.
    ``Health care liability action'' is defined as a civil 
action against a health care provider, health care 
professional, health care plan, or other defendant in which the 
claimant alleges injury related to the provision of, payment 
for, or the failure to provide or pay for health care services 
or medical products, regardless of the theory of liability on 
which the action is based. Included is a right to legal or 
equitable contribution, indemnity, subrogation, third-party 
claims, cross claims, or counter claims.
    ``Health plan'' is defined as any person or entity which is 
obligated to provide or pay for health benefits under any 
insurance arrangement. Included is any person or entity acting 
under contract or arrangement to provide, arrange for, or 
administer any health benefit.
    ``Health care professional'' is defined as any individual 
who provides health care services in a State and who is 
required by Federal or State laws or regulations to be 
licensed, registered, or certified to provide such services. 
Also included is an individual who is certified to provide 
health care services pursuant to a program of education, 
training and examination by an accredited institution, 
professional board, or professional organization.
    ``Health care provider'' is defined as an organization or 
institution that is engaged in the delivery of health care 
items or services in a State and that is required by Federal or 
State laws or regulations to be licensed, registered or 
certified to deliver such items or services.
    ``Health care services'' are defined as any services 
provided by any health care professional, health care provider, 
or health plan that relate to the diagnosis, prevention, or 
treatment of any disease or impairment, or the assessment of 
the health of human beings. Included are services provided by 
an individual under the supervision of a health care 
professional.
    ``Injury'' is defined as any illness, disease, or other 
harm that is the subject of a health care liability action.
    ``Medical product'' is defined as a drug (as defined in 
section 201(g)(1) of the Federal Food, Drug, and Cosmetic Act 
or a medical device (as defined in section 201(h) of such act. 
Included is any component or raw material used therein. 
Excluded are health care services as defined above.
    ``Noneconomic losses'' are defined as losses for physical 
and emotional pain, suffering, inconvenience, physical 
impairment, mental anguish, disfigurement, loss of enjoyment of 
life, loss of consortium, loss of society or companionship 
(other than the loss of domestic services), and other 
nonpecuniary losses incurred by an individual with respect to 
which a health care liability action is brought. Noneconomic 
losses are neither economic losses nor punitive damages.
    ``Punitive damages'' are defined as damages awarded for the 
purpose of punishment or deterrence, and not for compensatory 
purposes, against a health care professional, health care 
provider, or other defendant in a health care liability action. 
Punitive damages are neither economic nor noneconomic damages.
    ``Secretary'' is defined as the Secretary of the Department 
of Health and Human Services.
    ``State'' is defined as the 50 States, the District of 
Columbia, and the Commonwealth of Puerto Rico.
            Section 103. Applicability
    Section 103(a) of the legislation specifies that (except as 
provided in section 103(c), below) this subtitle A will apply 
to any health care liability action brought in any Federal or 
State court. The subtitle will not apply to any action for 
damages to the extent that the provisions of the National 
Vaccine Injury Compensation Program apply.
    Section 103(b) of the legislation specifies that the 
provisions of subtitle A of title I shall preempt State law 
only to the extent State law is inconsistent with the 
provisions of subtitle A. Such subtitle will not preempt State 
law to the extent such law: (1) places greater restrictions on 
the amount of or standards for awarding noneconomic or punitive 
damages; (2) places greater limitations on the awarding of 
attorneys fees for awards in excess of $150,000; (3) permits a 
lower threshold for the periodic payment of future damages; (4) 
establishes a shorter period of time during which a health care 
liability action may be initiated or a more restrictive rule 
with respect to the time at which the period of limitations 
begins to run; or (5) implements collateral source rule reform 
that either permits the introduction of evidence of collateral 
source benefits or provides for the mandatory offset of such 
benefits from damage awards.
    Section 103(b) of the legislation further specifies that 
the provisions of subtitle A shall not be construed to preempt 
any State law which permits State officials to commence health 
care liability actions as a representative of an individual, 
permits provider-based dispute resolution, places a limit on 
total damages awarded in a health care liability action; places 
a maximum limit on the time in which such an action may be 
initiated; or provides for defenses in addition to those 
contained in the act.
    Section 103(c) of the legislation provides that the 
provisions of this subtitle shall not apply to a health care 
liability action involving parties that are residents of the 
same State if the action is brought in State court and the 
State has enacted a law: (1) specifically citing the authority 
of this subsection; and (2) proclaiming that the State has 
determined that such provision shall not apply to such actions. 
With respect to a health care liability action involving 
parties that are residents of more than one State, State 
choice-of-law rules will govern if each State has enacted a law 
pursuant to this subsection. For purposes of this section, a 
corporation is deemed a resident of the State in which it is 
incorporated and in which its principal place of business is 
located.
    Section 103(d) of the legislation specifies that nothing in 
subtitle A is to be construed to: (1) waive or affect any 
defense of sovereign immunity asserted by any State under 
provision of law; (2) waive or affect any such defense asserted 
by the U.S.; (3) affect the applicability of any provision of 
the Foreign Sovereign Immunities Act of 1976; (4) preempt State 
choice-of-law rules with respect to any actions brought by a 
foreign nation or one of its citizens; (5) affect the right of 
any court to transfer venue or to apply the law of a foreign 
nation or to dismiss an action of a foreign nation or of one of 
its citizens on the ground of inconvenient forum; or (6) 
supersede any provision of Federal law.
    Section 103(d) of the legislation specifies that nothing in 
subtitle A of title I shall be construed to establish any 
jurisdiction in the U.S. district courts over health care 
liability action on the basis of Federal question grounds 
specified in section 1331 or 1337 of title 28 of the U.S. Code.
            Section 104. Statute of limitations
    Section 104 of the legislation specifies that a health care 
liability action may not be initiated unless a complaint is 
filed within the 2-year period beginning on the date the 
claimant discovered, or should have discovered, the injury and 
its cause. An action relating to a claimant under legal 
disability may be filed within 2 years after the date on which 
the disability ceases. If the commencement of an action is 
stayed or enjoined, the running of the statue of limitations is 
to be suspended for the period of such stay or injunction.
            Section 105. Reform of punitive damages
    Section 105(a) of the legislation specifies that an award 
of punitive damages may only be made, if otherwise permitted by 
law, if it is proven by clear and convincing evidence that the 
defendant: (1) intended to injure the claimant for a reason 
unrelated to the provision of health care services; (2) 
understood the claimant was substantially certain to suffer 
unnecessary injury and deliberately failed to avoid such 
injury; or (3) acted with a conscious flagrant disregard of a 
substantial and unjustifiable risk of unnecessary injury which 
the defendant failed to avoid in a manner which constitutes a 
gross deviation from the normal standard of conduct.
    Section 105(b) of the legislation provides that no punitive 
damages may be awarded against a defendant if no judgment for 
compensatory damages (including nominal damages under $500) is 
rendered.
    Section 105(c) of the legislation provides that the trier 
of fact shall determine whether punitive damages shall be 
allowed and, if a trier of fact determines that such damages 
are allowed, there will be a separate proceeding conducted by 
the court to determine the amount of punitive damages to be 
awarded.
    Section 105(c) of the legislation further requires that in 
determining the amount of punitive damages, the court shall 
consider: (1) severity of harm caused by the defendant; (2) 
duration of the conduct or any concealment of the conduct; (3) 
the profitability of the conduct; (4) the number of products 
sold or medical procedures rendered for compensation of the 
kind causing harm to the defendant; and (5) the total deterrent 
effect of other damages and punishment imposed upon the 
defendant as a result of the misconduct. The court must clearly 
state its reasons for setting the amount of punitive damage 
awards under these standards.
    Section 105(d) of the legislation specifies that nothing in 
this act is to be construed as implying a right to seek 
punitive damages where such right does not exist under Federal 
or State law.
            Section 106. Periodic payments
    Sections 106 of the legislation provides that the 
adjudicating body, at the request of either party, will order 
that future payments in excess of $100,000 be paid on a 
periodic basis. The adjudicating body is to establish the 
payment basis in accordance with the Uniform Periodic Payments 
of Judgments Act, as promulgated by the National Conference of 
Commissioners on Uniform State Laws in July 1990. The 
adjudicating body may waive the requirements for periodic 
payments if it determines the waiver is in the interests of 
justice.
            Section 107. Scope of liability
    Section 107(a) of the legislation specifies that the 
liability of each defendant in a health care liability action 
for both punitive and nonecomonic damages is several only; it 
may not be joint. A defendant is liable only for the amount of 
punitive or noneconomic damages allocated to the defendant in 
direct proportion to his or her percentage of fault or 
responsibility for the injury suffered by the claimant.
    Section 107(b) of the legislation requires the trier of 
fact to determine, with respect to punitive or noneconomic 
damages, the extent of each party's fault or responsibility for 
the injury and assign a percentage of responsibility to each 
party.
            Section 108. Mandatory offsets for damages paid by a 
                    collateral source
    Section 108(a) of the legislation specifies that the total 
amount of damages received by an individual in a health care 
liability action shall be reduced by any other payment that has 
been, or will be, made to compensate the individual for the 
injury.
    Section 108(b) of the legislation provides that the amount 
of the reduction equals the total amount of payments that have 
been or will be made to pay the costs of or compensate the 
individual for the injury minus any amount paid by the 
individual (or by the individual's spouse, parent, or legal 
guardian) to secure the payments.
    Section 108(c) of the legislation provides that the amount 
of the required deductions will be determined by the court in a 
pretrial proceeding. No evidence is to be admitted at trial 
concerning the amount of any charge, payments, or damages for 
which a claimant has received payment from a collateral source 
or for which the obligation has been assured by a third party. 
Further no evidence may be admitted at trial as to the amount 
of any charge, payments, or damage that the claimant is, or 
with reasonable certainty, will be eligible to receive payments 
from a collateral source whose obligation will with reasonable 
certainty be assumed by a third party.
    Section 108(c) of the legislation further provides that the 
jury, if any, will be advised that the claimant's medical 
expenses and lost income have been or will be paid by a 
collateral source or third party except for those damages which 
the court permits to be introduced into evidence. Further, the 
jury is to be advised that the claimant will receive no award 
for damages that have been or will be paid by a collateral 
source or third party.
            Section 109. Treatment of attorneys' fees and other costs
    Section 109(a) of the legislation places a limit on 
attorneys' contingency fees. An attorney representing a 
claimant on such basis may not charge, demand, receive, or 
collect in excess of specified amounts. The limits are 33\1/3\ 
percent of the first $150,000 (or portion thereof) recovered by 
judgment or settlement (based on after tax recovery) and 25 
percent of any recovery over $150,000 (based on after tax 
recovery). If a judgment or settlement includes periodic or 
future payments of damages, the computation of the limitation 
on attorneys' fees is to be based on the cost of the annuity or 
trust established to make the payments. If an annuity or trust 
is not established, the payment is to be based on the present 
value of the payments.
    Section 109(b) of the legislation defines ``contingency 
fee'' as any fee for professional legal services which is, in 
whole or in part, contingent upon the recovery of any amount of 
damages, whether through judgment or settlement.
            Section 110. State-based alternative dispute resolution 
                    mechanisms
    Section 110(a) of the legislation states that each State is 
encouraged to establish or maintain alternative dispute 
resolution mechanisms that promote the resolution of health 
care liability claims in a manner that is affordable for the 
parties involved, provides for timely resolution of claims, and 
provides the parties involved with convenient access to the 
dispute resolution process.
    Section 110(b) of the legislation requires the Attorney 
General (in consultation with the Secretary and the 
Administrative Conference of the U.S.) to develop guidelines 
for alternative dispute resolution mechanisms that may be used 
by the States to resolve health care liability claims. The 
guidelines are to include procedures with respect to 
arbitration, mediation, early neutral evaluation, early offer 
and recovery mechanism, certificate of merit, and no fault. 
Section 110(b) of the legislation further defines each of these 
terms.
    ``Arbitration'' is defined as a nonjury adversarial dispute 
resolution process which may (subject to early neutral 
evaluation) result in a final decision as to facts, law, 
liability, or damages. The parties may elect binding 
arbitration.
    ``Mediation'' is defined as a settlement process 
coordinated by a neutral third party without the ultimate 
rendering of a formal opinion as to factual or legal findings.
    ``Early neutral evaluation'' is a process in which the 
parties make a presentation to a neutral attorney or to other 
neutral evaluator for an assessment of the merits, to encourage 
settlement. The evaluator's opinion is to be kept confidential 
if the parties do not settle and proceed to trial.
    ``Early offer and recovery mechanism'' is used when a 
health care provider, health care organization, or any other 
alleged responsible defendant may offer to compensate a 
claimant for his or her reasonable economic damages, including 
future economic damages, less amount available from collateral 
sources.
    ``Certificate of merit'' is a requirement that a claimant 
in a health care liability action submit to the court prior to 
trail a written report by a qualified specialist. The report is 
to include the specialist's determination that, after a review 
of the available medical record and other relevant material, 
there is a reasonable and meritorious cause for filing of the 
action against the defendant.
    ``No fault'' refers to a statute under which certain health 
liability actions are barred and claimants are compensated for 
injuries through their health plans or other appropriate 
mechanisms.
    Section 110(c) of the legislation specifies that the extent 
to which any party may seek further redress in a Federal or 
State court (subsequent to the decision of the alternative 
dispute resolution mechanism) is dependent upon the methods of 
alternative dispute resolution adopted by the State. Under 
certain circumstances, the party initiating the court action 
pays the reasonable costs (including legal fees) incurred in 
the court action by the other party or parties to such action. 
This occurs if the claimant initiates the court action and such 
claimant receives a level of damages under the decision of the 
court that is at least 25 percent less than under the State 
alternative dispute resolution method. This also occurs if the 
party initiating the court action is the health care 
professional, provider, health plan or other defendant and such 
defendant is found liable for damages at least 25 percent more 
under the decision of the court than under the State 
alternative dispute resolution method.
    Section 110(d) of the legislation provides that the 
Attorney General may provide technical assistance to the States 
in establishing or maintaining alternative dispute resolution 
mechanisms in this section. The section further requires the 
Attorney General (in consultation with the Secretary and the 
Administrative Conference of the United States) to monitor and 
evaluate the effectiveness of such State alternative dispute 
resolution mechanisms.
Subtitle B. Biomaterials access assurance

            Section 121. Short title
    Section 121 provides that subtitle B may be cited as the 
``Biomaterials Access Assurance Act of 1995.''
            Section 122. Findings
    Section 122 sets forth fifteen congressional findings to 
explain the need for this legislation. They say essentially 
that suppliers of raw materials and component parts that are 
used both for medical devices and in a variety of nonmedical 
products have ceased to supply certain raw materials and 
component parts for use in medical devices because the costs 
associated with litigation far exceed the total potential sales 
revenue from sales to the medical device industry. Therefore, 
in order to safeguard the availability of a wide variety of 
medical devices, immediate action is needed to clarify the 
permissible bases of liability for suppliers of raw materials 
and component parts for medical devices, and to provide 
expeditious procedures to dispose of unwarranted suits against 
suppliers so as to minimize litigation costs.
            Section 123. Definitions
    Section 123 contains eleven definitions of terms used in 
subtitle B. A ``Biomaterials supplier'' is defined as ``an 
entity that directly or indirectly supplies a component part or 
raw material for use in the manufacture of an implant.'' A 
biomaterials supplier ``includes any person who--(i) has 
submitted master files to the Secretary of Health and Human 
Services for purposes of premarket approval of a medical 
device; or (ii) licenses a biomaterials supplier to produce 
component parts of raw materials.
    ``Claimant'' is defined as any person who brings a civil 
action, or on whose behalf a civil action is brought, arising 
from harm allegedly caused directly or indirectly by an 
implant; the term is not limited to the individual who received 
the implant, but includes any person who claims to have 
suffered as a result of the implant. The term does not include, 
however, a provider of professional services where the sale or 
use of an implant is incidental of the transaction and where 
the essence of the transaction is the furnishing of judgment, 
skill, or services; and it does not include a manufacturer, 
seller, or biomaterials supplier.
    ``Component part'' is defined as a manufactured piece of an 
implant, even if it has significant nonimplant applications 
and, alone, has no implant value or purpose, but, when combined 
with other component parts and materials, constitutes an 
implant.
    ``Harm'' is defined as any injury or damages suffered by an 
individual, including any illness, disease, or death resulting 
from that injury or damages, and any loss to that individual or 
any other individual resulting from that injury or damage. The 
term does not include, however, any commercial loss or loss of 
or damage to an implant.
    ``Implant'' (which is an essential term in the above 
definition of ``biomaterials supplier'') is defined as a 
medical device intended by its manufacturer ``(i) to be placed 
into a surgically or naturally formed or existing cavity of the 
body for a period of at least 30 days; or (ii) to remain in 
contact with bodily fluids or internal human tissue through a 
surgically produced opening for a period of less than 30 
days.'' The term ``implant'' also includes ``suture materials 
used in implant procedures.''
    ``Manufacturer'' is defined as any person who is engaged in 
the manufacture, preparation, propagation, compounding, or 
processing (as defined in section 510(a)(1) of the Federal 
Food, Drug, and Cosmetic Act, 21 U.S.C. 360(a)(1)) of the 
implant; and who is required to register with the Secretary of 
Health and Human Services pursuant to section 510 and to 
include the implant on a list of devices filed with the 
Secretary pursuant to section 510(j).
    ``Medical device'' is defined as a ``device,'' as that term 
is defined in section 201(h) of the Federal Food, Drug, and 
Cosmetic Act, 21 U.S.C. 321(h).
    ``Qualified specialist'' is defined as a person ``qualified 
by knowledge, skill, experience, training, or education in the 
specialty area that is the subject of the action.''
    ``Raw material'' is defined as a substance or product that 
has a generic use and may be used in an application other than 
an implant.
    ``Secretary'' refers to the Secretary of Health and Human 
Services.
    ``Seller'' is defined as a person who, in the course of a 
business conducted for that purpose, sells, distributes, 
leases, packages, labels, or otherwise places an implant in the 
stream of commerce. It does not include, however, a seller or 
lessor of real property; a provider of professional services 
where the sale or use of an implant is incidental of the 
transaction and where the essence of the transaction is the 
furnishing of judgment, skill, or services; or a person who 
acts in only a financial capacity with respect to the sale of 
the implant.
            Section 124. General requirements; applicability; 
                    preemption
    Section 124(a) provides that in any civil action covered by 
subtitle B, a biomaterials supplier may raise any defense set 
forth in section 125, and the Federal or State court in which 
the action is pending shall, in connection with a motion for 
dismissal or a judgment based on such a defense, use the 
procedures set forth in section 126.
    Section 124(b) provides that subtitle B shall apply to any 
civil action in Federal or State court against a manufacturer, 
seller, or biomaterials supplier for harm allegedly caused by 
the implant, except that a suit brought by a purchaser of a 
medical device for use in providing professional services for 
loss or damage to an implant or for commercial loss shall be 
governed by applicable commercial or contract law.
    Section 124(c) provides that subtitle B supersedes State 
law only to the extent that subtitle B establishes a rule of 
law applicable to the recovery of damages for harm caused by an 
implant. Any other issue shall be governed by applicable 
Federal or State law.
    Section 124(d) provides that subtitle B shall not be 
construed to affect any defense available to a defendant under 
any other Federal or State law, and shall not be construed to 
create a new Federal cause of action or new Federal court 
jurisdiction.
            Section 125. Liability of biomaterials suppliers
    Section 125(a) provides that a biomaterials supplier shall 
not be liable for harm caused by an implant except as provided 
in subsections (b), (c), and (d) of section 125, which cover, 
respectively, biomaterial suppliers who manufacture implants, 
who sell them but do not manufacture them, and who merely 
deliver raw materials or component parts.
    Section 125(b) provides that a biomaterials supplier that 
is a manufacturer of the implant may be held liable in 
accordance with applicable law only if it has registered with 
the Secretary of Health and Human Services pursuant to section 
510 of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 
360), and included the implant on a list of devices filed with 
the Secretary pursuant to section 510(j). It could also be held 
liable if the Secretary issues a declaration that the supplier 
was required to do either of these two things and failed to. 
The Secretary may issue such a declaration after providing 
notice to the affected persons and an opportunity for an 
informal hearing. The Secretary must issue a final decision 
within 180 days after receiving a petition seeking a 
declaration, and any applicable statute of limitations shall 
not run while a petition is pending.
    Section 125(c) provides that a biomaterials supplier that 
is the seller but not the manufacturer of the implant may be 
held liable if it held title to the implant after the 
manufacture of the implant and the entrance of the implant in 
the stream of commerce, and if it subsequently resold the 
implant.
    Section 125(d)(1) provides that a biomaterials supplier 
that is not a manufacturer or seller of the implant may be held 
liable for harm caused by the implant only if the claimant 
proves by a preponderance of the evidence that the raw 
materials or component parts delivered by the supplier either 
did not constitute the product described in the contract 
between the supplier and the person who contracted for delivery 
of the product, or ``failed to meet any specifications'' 
specified by the legislation. These include specifications that 
the biomaterials supplier received and did not expressly 
repudiate, published, provided to the manufacturer, submitted 
to the Secretary for purposes of premarket approval of medical 
devices, or included in the submissions for premarket approval 
or review by the Secretary under section 510, 513, 515, or 520 
of the Food, Drug, and Cosmetic Act (20 U.S.C. 360, 360c, 360e, 
or 360j), and such specifications received clearance from the 
Secretary.
    Section 125(d)(2) provides that a biomaterials supplier 
that is not a manufacturer or seller of the implant may be held 
liable for harm caused by the implant only if the claimant 
proves by a preponderance of the evidence that ``such conduct 
was an actual and proximate cause of the harm to the 
claimant.''
            Section 126. Procedures for dismissal of civil actions 
                    against biomaterials suppliers
    Section 126(a) provides that a defendant biomaterials 
supplier may move to dismiss an action subject to this subtitle 
on the grounds that it is not a manufacturer, not a seller, 
that the claimant failed to establish that it furnished raw 
materials or component parts in violation of contractual 
requirements or specifications set forth in section 125(d)(1), 
or that the claimant failed to comply with the procedural 
requirements of section 126(b).
    Section 126(b) provides that, in any suit against a 
biomaterials supplier that is subject to this subtitle, the 
claimant must name the manufacturer of the implant as a party 
to the action unless the manufacturer is subject to service of 
process solely in a jurisdiction where the biomaterials 
supplier is not subject to service of process, or an action 
against the manufacturer is barred by applicable law. 
Subsection (b) also would require a claimant to submit an 
affidavit that he had consulted with a qualified specialist. 
The affidavit must include a written determination by the 
qualified specialist that the raw materials or component parts 
used in the manufacture of the implant violated contractual 
requirements or specifications set forth in section 125(d)(1), 
and that the raw material or component part was a cause of the 
harm alleged by the claimant. The affidavit must also state 
that, on the basis of the consultation with the qualified 
specialist, the claimant or his attorney ``has concluded that 
there is a reasonable and meritorious cause for the filing of 
the action against the biomaterials supplier.''
    Section 126(c)(1) provides that, if the defendant moves to 
dismiss the action, it may submit an affidavit demonstrating 
that it has not included the implant on any list file with the 
Secretary pursuant to section 510(j). In response, the claimant 
may submit an affidavit demonstrating that the Secretary has 
issued a declaration under section 125(b) or that the defendant 
is a seller who is liable under section 125(c).
    Section 126(c)(2)(A) provides that, if the defendant moves 
to dismiss under paragraph (1) or (3) of section 126(a) (there 
is no paragraph (3); paragraph (2)(A) may be intended), then no 
discovery shall be permitted except discovery necessary to 
determine a motion to dismiss for lack of jurisdiction, until 
such time as the court rules on the motion to dismiss in 
accordance with the affidavits submitted in accordance with 
this section.
    Section 126(c)(2)(B) provides that, if the defendant moves 
to dismiss under subsection (a)(2) on the grounds that the 
biomaterials supplier did not furnish raw materials or 
component parts in violation of contractual requirements or 
specifications, the court may permit discovery limited to 
issues that are directly relevant to the pending motion to 
dismiss or the jurisdiction of the court.
    Section 126(c)(3)(A) provides that, unless the claimant 
submits a valid affidavit that demonstrates that the defendant 
is a manufacturer or seller, the court shall not consider it to 
be one. Section (c)(3)(B) provides, in such case, the court 
shall grant the defendant's motion to dismiss on the ground 
that it is not a manufacturer or seller.
    Section 126(c)(4)(A) provides that the court shall rule on 
a motion to dismiss filed under subsection (a) solely on the 
basis of the pleadings of the parties made pursuant to this 
section and any affidavits submitted pursuant to this section. 
Section 126(c)(4)(B) provides that, if the court determines 
that the pleadings and affidavits ``raise genuine issues as 
concerning material facts with respect to a motion concerning 
contractual requirements and specifications, the court may deem 
the motion to dismiss to be a motion for summary judgment made 
pursuant to subsection (d).''
    Section 126(d)(1) provides that a biomaterials supplier 
shall be entitled to summary judgment if the court finds there 
is no genuine issue as concerning any material fact for each 
applicable element set forth in section 125(d). A court shall 
consider a genuine issue of material fact to exist only if the 
evidence the claimant submits would be sufficient to allow a 
reasonable jury to reach a verdict for the claimant if the jury 
found the evidence to be credible.
    Section 126(d)(2) provides that if the court permits 
discovery prior to ruling on a motion for summary judgment, 
such discovery shall be limited solely to establishing whether 
a genuine issue of material fact exists. Section 126(d)(3) 
provides that a biomaterials supplier shall be subject to 
discovery in connection with a motion seeking dismissal or 
summary judgment on the basis of the inapplicability of section 
125(d) or the failure to establish the applicable elements of 
section 125(d) solely to the extent permitted by applicable 
Federal or State rules for discovery against nonparties.
    Section 126(e) provides that, if a claimant has filed a 
petition for a declaration pursuant to section 125(b) with 
respect to a defendant, the court shall stay all proceedings 
until the Secretary issues a final decision on the petition.
    Section 126(g) provides that the manufacturer of an implant 
shall be permitted to file and conduct a proceeding on any 
motion for summary judgment or dismissal filed by a 
biomaterials supplier if the manufacturer and any other 
defendant enter into a contract under which the manufacturer 
agrees to bear the cost of the proceeding or to conduct the 
proceeding.
    Section 126(h) provides that the court shall require the 
claimant to compensate the biomaterials supplier (or a 
manufacturer appearing in lieu of the biomaterials supplier 
pursuant to subsection (f) for attorney fees and costs if the 
claimant named or joined the biomaterials supplier and the 
court found the claim against the biomaterials supplier to be 
without merit and frivolous.

Subtitle C. Applicability

            Section 131. Applicability
    Section 131 of the legislation specifies that title I 
applies to all civil actions covered under the title that are 
commenced on or after the date of enactment. This includes any 
such action with respect to which harm asserted in the action 
or the conduct that caused the injury occurred before the date 
of enactment.

       TITLE II--PROTECTION OF THE HEALTH AND SAFETY OF PATIENTS

            Section 201. Additional resources for State health care 
                    quality assurance and access activities
    Section 201 of the legislation specifies that each State 
must require that not less than 50 percent of all punitive 
damage awards resulting from all health care liability actions 
in the State be used for certain specified activities. Such 
activities are those relating to: (1) licensing, disciplining, 
and certification of health care professionals in the State; 
and (2) the reduction of malpractice-related costs for health 
care providers volunteering to provide health care services in 
medically underserved areas. This requirement applies in States 
where punitive damages are otherwise permitted by applicable 
State law.
            Section 202. Quality assurance, patient safety and consumer 
                    information
    Section 202(a) of the legislation requires the 
Administrator of the Agency for Health Care Policy and Research 
to establish an advisory panel within 90 days of enactment. The 
panel is to coordinate and evaluate methods and procedures to 
enhance the quality, safety, and effectiveness of health care 
services provided to patients. The Administrator is to ensure 
that members of the panel include representatives of public and 
private sector entities having expertise in quality assurance, 
risk assessment, risk management, patient safety, and patient 
satisfaction. The Administrator, acting through the advisory 
panel, is required to conduct a survey of public and private 
entities involved in quality assurance, risk assessment, 
patient safety, and patient satisfaction. The survey is to 
include the gathering of data with respect to: (1) performance 
measures of quality for health care providers and health plans; 
(2) developments in survey methodology, sampling, and audit 
methods; (3) methods of medical practice and patterns, and 
patient outcomes; and (4) methods of disseminating information 
concerning successful health care quality improvement programs, 
risk management and patient safety programs, practice 
guidelines, and patient satisfaction.
    Section 202(b) of the legislation requires the 
Administrator (in accordance with chapter V of title V of the 
U.S. Code, relating to administrative procedure) to establish 
health care quality assurance patient safety and consumer 
information guidelines within 2 years. The guidelines are to be 
modified periodically when determined appropriate by the 
Administrator. The guidelines are advisory and not binding.
    Section 202(c) of the legislation requires the 
Administrator, within 6 months of enactment, to submit an 
initial report to the Senate Committee on Labor and Human 
Resources and the House Committee on Commerce. The report is to 
contain: (1) data concerning the availability of information 
relating to risk management, quality assessment, patient 
safety, and patient satisfaction; (2) an estimation of the 
degree of consensus concerning the accuracy and content of such 
data; (3) a summary of the best practices used in the public 
and private sectors for disseminating information to consumers; 
and (4) an evaluation of the reliability and validity of 
information in the National Practitioner Data Bank.
    Section 202(c) of the legislation further requires the 
Administrator, within 1 year of enactment, to prepare and 
submit to the same congressional committees an interim report 
based on the results of the advisory panel survey. The report 
is to include: (1) consensus of indicators of patient safety 
and risk; (2) assessment of consumer perspective on health care 
quality that includes an examination of: information most often 
requested; types of technical quality information that 
consumers find compelling; amount of information they consider 
sufficient and amount they consider overwhelming; the manner in 
which such information should be presented; and recommendations 
for increasing consumer awareness; (3) proposed methods, 
building on exiting data gathering and dissemination systems, 
for ensuring such data is available and accessible to 
consumers, employers, hospitals, and patients; (4) existence of 
legal, regulatory, and practical obstacles to making such data 
available and accessible to consumers; (5) privacy or 
proprietary issues involved; (6) assessment of the 
appropriateness of collecting such data at the Federal or State 
level; (7) evaluation of the value of permitting consumers to 
have access to the National Practitioner Data Bank; and (7) the 
reliability and validity of data collected by State Medical 
boards.
    Section 202(c) of the legislation further requires 
submission by the Administrator of annual reports (beginning 
within one year of submission of the interim report) to the 
same congressional committees. The annual report is to give an 
account of the advisory panel's progress in creating a 
consensus with respect to its findings and in developing and 
modifying the required guidelines. The advisory panel is to 
terminate on the date that is 3 years after the date of 
enactment.

                        TITLE III--SEVERABILITY

            Section 301. Severability
    Section 301 of the legislation specifies that if any 
provision of this act, any amendment of the act, or the 
application of such provision or amendment to any person or 
circumstance is held to be unconstitutional, it shall not 
affect the remainder of this act, the amendments made by the 
act, or the application of such provisions to any person or 
circumstance.
MINORITY VIEWS OF SENATORS KENNEDY, PELL, SIMON, HARKIN, MIKULSKI, AND 
                               WELLSTONE

    We respectfully dissent from the decision of the committee 
to report favorably to the full Senate S. 454, the Health Care 
Liability Reform and Quality Assurance Act of 1995.
    At the outset, we wish to emphasize that we are not opposed 
to medical malpractice reform per se. Last year we each 
supported a comprehensive health care reform bill that 
contained significant efforts to improve the malpractice 
liability system. This year, during the committee's markup of 
S. 454, we each voted for a substitute amendment that would 
have implemented such reforms.
    But we cannot support S. 454 in its current form. It will 
not reduce health care costs or increase access to health care. 
It is ill-considered legislation that will do little to prevent 
malpractice and that will reduce the ability of the tort system 
to deter negligent medical care. In addition, it would deny 
adequate compensation to severely injured patients and violate 
basic principles of federalism and fairness.

      i. improvements to the medical malpractice system should be 
    accomplished as part of a comprehensive health care reform bill

    We regret that the committee has chosen to address the 
subject of medical malpractice in isolation rather than as part 
of a broader health care reform measure. The committee's action 
reflects misplaced priorities and limits the scope of the 
reforms that can appropriately be considered.
    The health care crisis in this country is profound. Last 
year, the number of Americans without health insurance 
increased by more than a million people, 800,000 of whom were 
children. Employee Benefits Research Institute, ``Sources of 
Health Insurance and Characteristics of the Uninsured: Analysis 
of the March 1994 Current Population Survey,'' February 1995. 
Costs are spiraling out of control. Our health care system 
needs urgent repair, and malpractice reform is, at most, one 
small piece of the puzzle.
    Proponents of malpractice reform speak of a crisis. But the 
real health care crisis is that so many of our fellow citizens 
lack access to affordable care. By the year 2000, only about 
half of working Americans and their families will be protected 
by health insurance through an employer. As recently as 1987, 
two-thirds had this protection. In just 5 years, 50 million 
Americans will have no coverage. And if current efforts to cut 
Medicaid and Medicare are successful, the number could be much 
higher. William S. Custer, Custer Economic Research, testimony 
before the Senate Committee on Labor and Human Resources, March 
14, 1995.
    Eighty-five percent of those who have no insurance are 
members of working families. Employee Benefits Research 
Institute, supra, February 1995. They face a health care crisis 
every day. But even those who currently have coverage cannot be 
complacent, because if they lose their job, or change jobs, or 
get seriously ill, their health insurance is in jeopardy.
    Senior citizens still have no drug coverage and inadequate 
home care coverage. Last year the average senior had to spend 
one-quarter of his or her income to purchase health care, and 
that doesn't even count people who were in nursing homes and 
hospitals.
    Health care costs are out of control. Americans spent $1 
trillion on health care last year--and that number will double 
in 10 years. Congressional Budget Office, testimony before 
Senate Budget Committee, February 1, 1995. Health care costs 
are devastating to both the Federal budget and to the family 
budget.
    This is the health care crisis we should be talking about, 
and these are the people who need protection. Last year this 
committee favorably reported S. 2296, a health care reform bill 
that would have begun to address this crisis.
    Clearly the committee's priorities this year are misplaced. 
But the choice to proceed in this fashion is more than ironic--
it has substantive consequences. Malpractice reforms that might 
appropriately be considered in the context of national health 
care reform cannot be accomplished in a free-standing bill.
    For example, S. 454 as introduced contained an important 
proposal requiring States to establish a health care quality 
assurance program. Sections 201 and 202 of the original bill 
introduced by Senators McConnell, Lieberman, and Kassebaum 
would have required each State to strengthen licensing boards 
and undertake related steps to improve the quality of health 
care provided in each State. At its February 28 hearing on this 
bill, the committee heard testimony from Laura Wittkin of the 
Center for Patients' Rights that stricter disciplining and 
licensing of physicians is necessary to prevent malpractice 
before it occurs.
    But, the Chairman's substitute did not include this 
provision, apparently due to concerns that the proposal might 
constitute an unfunded Federal mandate on the States. Such a 
requirement could fairly be imposed in a more comprehensive 
health care reform bill that creates a Federal-State 
partnership to improve the health care system. In a broader 
health bill, States might be asked to assume this 
responsibility for improving health care quality in exchange 
for being relieved of other financial obligations. But in a 
free-standing bill, the imposition of this responsibility on 
the States in more troublesome.
    Similarly, a comprehensive reform bill that guarantees 
consumers access to affordable health care might reasonably 
limit to some extent the legal remedies available to consumers 
in the event of malpractice. The Congress might conclude that 
such trade-offs are warranted. But the current bill merely 
deprives consumers of legal rights without offering them 
improved access in return.
    In sum, there are malpractice reforms that are unacceptable 
to us in isolation, but which we might entertain as part of a 
bill that addressed the broader health care crisis. We urge the 
committee to abandon its narrow focus on the malpractice 
liability system in favor of a more comprehensive approach to 
the health care crisis facing the American public.

ii. the current trends in medical malpractice liability do not justify 
                     the reforms proposed in s. 454

    We disagree with the description of current malpractice 
liability trends presented by the committee earlier in this 
report. As we understand the relevant research, it does not 
lend support for the radical surgery on the tort system 
proposed in this bill.
    As many as 80,000 Americans die each year in hospitals, and 
an additional 1.3 million are injured, as a result of medical 
negligence. Harvard Medical Practice Study, ``Patients, Doctors 
and Lawyers: Medical Injury, Malpractice Litigation, and 
Patient Compensation in New York,'' New England Journal of 
Medicine, July 25, 1991; Washington Post, February 18, 1992. By 
this measure, medical malpractice is the third leading cause of 
preventable death in the United States after tobacco and 
alcohol-related deaths. As many as a quarter of all patient 
deaths could have been prevented but for negligent medical 
care. Annals of Internal Medicine, October 1, 1988.
    S. 454 further shields negligent doctors and their 
insurance companies from liability in a malpractice 
compensation system that already offers considerable protection 
to doctors and insurance companies.
    Fewer than 2 percent of malpractice victims ever file suit, 
and the rate of medical malpractice claims has declined 
steadily since 1985. Harvard Medical Practice Study, supra; 57 
Consumer Reports 443, July 1992. Patients won fewer than one-
third of malpractice verdicts in a 1994 study, and the size of 
their awards has dropped significantly in the last year alone. 
New York Times, ``Study Finds Sharp Drop Last Year in Awards 
for Medical Malpractice'', January 27, 1995.
    According to a landmark 1993 study by the Office of 
Technology Assessment, ``[s]ince 1988, premiums and claim 
frequency have declined.'' OTA also found that direct insurance 
losses declined by 2.7 percent annually from 1985 to 1991. 
Office of Technology Assessment, ``Impact of Legal Reforms on 
Medical Malpractice Costs'' October 1, 1993 (hereinafter ``1993 
OTA Report'').
    Contrary to the perceptions of some physicians, 
``unjustified payments [in malpractice litigation] are uncommon 
* * * physicians usually win cases in which physician care was 
deemed to meet community standards.'' Taragin, et. al., ``The 
Influence of Standard Care and Severity of Injury on the 
Resolution of Medical Malpractice Claims'', 117 Annals of 
Internal Medicine 780, 1992.
    Earlier in this report, the committee cites the much-
trumpeted ``crisis'' facing obstetricians seeking malpractice 
insurance. But whatever insurance difficulties these physicians 
faced a decade ago, those problems have abated. According to 
statistics published by the American Medical Association, 
annual professional liability claims per 100 physicians dropped 
for obstetricians by 22.7 percent between 1985 and 1990. A.M.A. 
Center for Health Policy Research, ``Socioeconomic 
Characteristics of Medical Practice 1992.''
    ``Professional liability premiums for some obstetrician-
gynecologists have fallen dramatically in recent years because 
of greater physician participation in risk management, quality 
assurance and documentation of care * * * Over the last 4 
years, premiums charged by physician-owned insurance companies 
have fallen more for [Ob-Gyn's] than for any other specialists 
* * *'' American Medical News, ``Quality Assurance Prenatal 
Systems Reduce Risk for OB's'', February 22, 1993.
    The legal system pays only one malpractice claim for every 
fifteen torts inflicted in hospitals. ``[R]ather than a 
surplus, there is a litigation deficit because so many injured 
people wind up undercompensated.'' Business Week, ``A 
Malpractice Conundrum: Actually, Too Few Claims Are Filed'', 
March 27, 1995.
    Part of the reason claims are not filed is that the legal 
system is inaccessible to so many citizens, a problem that 
would be exacerbated by the proposals in this bill. But it is 
also attributable to the malpractice reforms already adopted in 
many States under pressure from the powerful medical and 
insurance lobbies.
    Despite the claims of their backers, such reforms have not 
lowered health care costs. California, for example, enacted 
sweeping malpractice reforms in 1975, including a $250,000 cap 
on noneconomic damages. But a study released recently by a 
nonprofit insurance watchdog organization in California found 
that health care costs in that State rose 343 percent between 
1975 and 1993, nearly twice as fast as the rate of inflation. 
Proposition 103 Enforcement Project, ``MICRA: The Impact on 
Health Care Costs of California's Experiment With Restrictions 
on Medical Malpractice Lawsuit,'' April 25, 1995.
    According to this new study, the cost of medical care grew 
faster in California than the national average since 1975, and 
the rate of growth in California is accelerating compared to 
that of the rest of the country.
    Similarly, in Indiana, malpractice reforms have not caused 
health care costs to decrease relative to neighboring States. 
Consumers derive no benefit from malpractice reform, but if 
they fall victim to medical negligence they are likely to end 
up undercompensated for their injuries. Coalition for Consumer 
Rights, ``The Myth of Medical Malpractice Savings: The Nothing 
for Nothing Trade Off in Indiana's Health Care System,'' 
February 1992; Indianapolis Star, ``Malpractice Laws Stacked 
Against Victims,'' June 26, 1990.
    The General Accounting Office surveyed six States that had 
limited recoveries in malpractice cases and found that 
insurance companies in those States were enjoying profits that 
averaged 122 percent above the national average. GAO, ``Medical 
Malpractice: Six State Case Studies Show Claims and Insurance 
Costs Still Rise Despite Reforms,'' December 1986. According to 
a respected trade publication, the ``price of medical 
malpractice and professional liability coverage for health care 
organizations remains stable and capacity is plentiful.'' 
Business Insurance, ``Malpractice Coverage in Stable 
Condition,'' March 28, 1994.
    Malpractice reform will not address the fundamental 
problems facing our health care system. It hasn't in California 
or Indiana, and it won't elsewhere. Even if the bill resulted 
in a decrease in medical malpractice premiums, that would 
barely cause a dent in overall health care costs since 
malpractice premiums amount to less than one percent of the 
Nation's health care budget. 1993 OTA Report, supra at 1; 
Congressional Budget Office, ``Economic Implications of Rising 
Health Care Costs'' 4, October 1992.
    Nor will legal reforms make a dent in the prevalence of 
malpractice itself--instead, we need more effective means to 
discipline the few bad apples in the medical profession who 
cause upwards of 45 percent of all unnecessary injuries. In 
California, an auto mechanic is more likely to get in trouble 
for a faulty tune-up than is a doctor for a botched operation. 
Testimony of Blaine Nye, ``Academic Task Force for the Review 
of the Insurance and Tort Systems'' 169, June 11, 1987; Court 
and Rosenfeld, ``Patients Need Protection'', USA Today, April 
14, 1995.
    Finally, malpractice reforms will have little effect on 
``defensive medicine,'' an elusive phenomenon invoked 
repeatedly by proponents of S. 454. ``Overall, a small 
percentage of diagnostic procedures--certainly less than 8 
percent--is likely to be caused primarily by conscious concern 
about malpractice liability * * * To the extent that reforms do 
reduce defensive medicine, they do so without differentiating 
between defensive practices that are medically appropriate and 
those that are wasteful or very costly in relation to their 
benefits.'' Office of Technology Assessment, ``Defensive 
Medicine and Medical Malpractice'' 1-2, July 1994.

             III. THE REFORMS IN S. 454 ARE ILL-CONSIDERED

A. The one-way preemption of State Law violates basic principles of 
        federalism

    S. 454 preempts a wide array of State malpractice laws. 
Members of the new majority in Congress continually remind us 
that Washington doesn't have all the answers and that State 
legislatures are wise because they govern closer to the people. 
The Congress is currently considering proposals to transform 
multibillion dollar entitlement programs into block grants 
because the States are reputed to be better situated to 
administer those efforts. But when it comes to malpractice, 
apparently, the States can't even be trusted to write the laws 
that will govern litigants in State court.
    The preemption language in S. 454 is also objectionable 
because it is imbalanced. It strikes down laws that benefit 
consumers, while preserving State laws that benefit insurance 
companies. If preemption of State tort laws were appropriate, 
and many of us think it is not, it should at least be 
accomplished in a fair and even-handed manner. The one-way 
preemption in this amendment ensures the absence of the 
national standard that the proponents say they want.
    One-way preemption may affect particular States in an 
unforseen and undesirable way. For example, the Michigan 
Medical Society has urged the committee not to preempt that 
State's law on joint and several liability. Letter to Senator 
Kennedy from Dr. Jack L. Barry, April 20, 1995. Doctors might 
have been expected generally to favor repeal of joint 
liability, but at least in Michigan, physicians fear such a 
move would increase insurance premiums.
    During the committee's consideration of this bill, Senator 
Kennedy unsuccessfully offered an amendment to strike the 
preemption provisions in the Chairman's substitute. That 
amendment reflected the conclusion that the Labor Committee 
arrived at last year after 2 days of debate on malpractice 
reforms during the health care mark-up that Federal malpractice 
reforms should only apply in those situations where no State 
law is applicable. If the Federal Government is to involve 
itself in this area of the law, we believe it should do so 
cautiously and with respect for State prerogatives.
    The Abraham amendment approved by the committee permitting 
States to ``opt-out'' of the reforms in this bill would have 
begun to address the federalism concerns in the bill. But see 
VI, infra.

B. It is unwise to limit the doctrine of joint and several liability in 
        the manner proposed by proponents of this bill

    S. 454 severely limits the longstanding legal doctrine of 
joint and several liability, leaving patients vulnerable to 
inadequate compensation. For at least a hundred years, it has 
been recognized as unacceptable to force an innocent patient to 
bear the cost of other people's negligence if one of more of 
the wrongdoers are available to ensure compensation. We should 
approach such an enduring rule with great caution.
    The provision in S. 454 limiting joint liability is 
particularly pernicious because it applies to noneconomic 
damages only. Individuals who suffer economic damages--often 
young professionals--would be allowed to invoke the doctrine of 
joint and several liability to ensure full compensation, even 
if one or more of the wrongdoers is bankrupt or otherwise 
unavailable to provide compensation. But elderly or disabled 
plaintiffs who typically do not suffer substantial economic 
harm but who may have substantial noneconomic damages will be 
denied the benefit of joint liability.
    In this way, S. 454 disadvantages those without substantial 
earning power and threatens their ability to obtain 
compensation for the injuries they suffer as a result of 
medical negligence.

C. The fee-shifting provision in S. 454 is unjustified

    Under section 110 of S. 454 as reported, States are 
``encouraged'' to adopt Alternative Dispute Resolution systems, 
and technical assistance from the Federal Government is 
authorized. But ultimately, States can chose to adopt any form 
of ADR that they want, even an ADR system that is completely 
unfair to patients.
    That of course is true now. But section 110(c) of the 
pending bill provides a new twist. Under that section, a party 
who rejects the result of the ADR process and proceeds to trial 
risks being required to pay the other sides' costs and attorney 
fees if the verdict at trial is 25 percent less than the result 
of the ADR process. This is a modified version of the so-called 
``loser pays'' English Rule.
    We have serious concerns about the way in which the English 
Rule chills access to the courts. Rather than a gentle 
incentive, the English Rule can serve as an insurmountable form 
of intimidation if a party lacks substantial resources and 
fears having to pay the fees of a law firm whose partners may 
be billing at $400 an hour. Even the English are considering 
abandoning the English Rule because of its discriminatory 
impact on less well-off litigants.
    But whatever the merits of such fee-shifting proposals, it 
is clearly unfair to impose a Federal fee-shifting requirement 
based on the result of a standard-less ADR process. It is 
impossible to predict what process might be adopted in any 
given state or whether it will be a fair process. Without 
Federal standards, the ADR process should not be granted unique 
weight in Federal law.
    Imagine a State that adopted an ADR process run solely by 
doctors, or insurance companies. A patient might receive an 
inadequate result from such a process, but proceeding beyond 
that process by filing a lawsuit would leave the patient 
vulnerable to staggering level fees.
    This would be true even if the patient actually proved 
malpractice and prevailed at trial, but did somewhat worse than 
expected. That is an unacceptable burden to place upon any 
litigant, and imposition of a Federal rule of civil procedure 
of this nature is plainly wrong.
    Unfortunately, the committee rejected an amendment offered 
by Senator Kennedy which would give States discretion to adopt 
such a system, rather than imposing a Federal fee-shifting 
requirement on litigants in all fifty States.

D. Medical consumers should be afforded access to information about the 
        fitness of their doctors

    As introduced, S. 454 contained a worthwhile provision that 
would have genuinely prevented malpractice. The bill directed 
the Secretary of Health and Human Services to promulgate 
regulations for public dissemination of information in the 
National Practitioners' Data Bank. Patients need and deserve 
access to current information about the fitness of their 
doctors.
    But the Chairman's substitute, and the bill reported 
favorably by the committee, delete this provision. As a result, 
S. 454 now contains a serious omission: it denies patients 
necessary information about their doctors, even when those 
doctors may have repeatedly committed malpractice or may have 
been repeatedly disciplined.
    During the committee's mark-up of S. 454, Senator Wellstone 
offered an amendment that addressed this flaw by improving the 
reliability of information in the HHS Practitioner Data Bank 
and authorizing responsible dissemination of the vital 
information it contains. Unfortunately, the amendment was 
defeated.

  iv. the committee correctly rejected a cap on punitive damages and 
                  should not reconsider that decision

    During the mark-up of S. 454, the Labor Committee adopted a 
Dodd amendment effectively striking the cap on punitive damages 
included in the bill as introduced. That modification 
substantially improved the bill.
    S. 454 sets an exceedingly high standard for the award of 
punitive damages. Basically a doctor would have to act with the 
intention of causing harm or with conscious, flagrant disregard 
for such a harm. This is as high a standard as virtually any 
punitive damage standard in law today. Under this or any other 
standard, punitive damages would only rarely be awarded in 
malpractice cases because most malpractice results from mere 
negligence.
    But the few cases that would surmount this hurdle involve 
outrageous conduct by a defendant. For example, punitive 
damages are currently awarded now in cases of sexual abuse on 
the operating table. Other cases in which punitive damages 
might be awarded include those where a doctor operates on a 
patient under the influence of alcohol or drugs, where a doctor 
practices medicine after multiple suspensions of his license, 
or where a hospital intentionally destroys evidence of 
malpractice after the fact in order to avoid liability. It is 
incomprehensible that we would let defendants off the hook by 
capping damages in cases that would shock the conscience of any 
reasonable observer.
    Caps on punitive damages would disproportionately affect 
women, who are awarded 68 percent of the punitive damage awards 
in malpractice cases. Keonig and Rustad, ``His and Her Tort 
Reform: Gender Injustice in Disguise,'' delivered at the Annual 
Meeting of the law and Society Association at 87, June 18, 
1994.
    In recent months, several doctors have been prosecuted 
criminally in outrageous cases of malpractice. That is a 
controversial option, but if punitive damages are not available 
in an amount that will sufficiently punish the wrongdoer, 
criminal prosecution may be the only sanction available in the 
worst cases.
    Passage of the Dodd amendment during the mark-up was 
therefore a welcome development. Some of us were concerned that 
the amendment took away from the jury the authority to set the 
amount of the punitive damages, but supported the amendment 
because of the overriding need to eliminate the cap itself. 
Others of us believe authority to determine the amount of 
punitive damages properly rests with the judge.
    But in any event, there is still considerable sentiment in 
the Senate to cap damages, even in malpractice cases (see VI, 
infra). We urge that the Senate follow the approach of the 
Labor Committee in rejecting such caps.

 v. the committee should have restated its support for the malpractice 
        reforms contained in last year's health care reform bill

    Our rejection of S. 454 does not mean we should not take 
some action to reform the medical malpractice system. There are 
a series of modest steps Congress can take to assist the States 
and improve the efficiency of the malpractice system in a way 
that will benefit both doctors and patients.
    Last year, the Labor and Human Resources Committee 
favorably reported a health care reform bill which contained 
such sensible reforms. We required alternative dispute 
resolution to provide for streamlined consideration of 
malpractice claims. We capped attorney fees to make sure that 
patients get fair compensation for their injuries. And most 
importantly, we provided seed money to let the States 
experiment with innovative models such as enterprise liability, 
no-fault funds and practice guidelines.
    Some of last year's reforms are included in S. 454. But in 
other ways that we have described, the bill goes far beyond the 
boundaries of last year's bipartisan approach. During the 
committee's consideration of S. 454, we supported a substitute 
amendment that contained the reasonable reforms proposed by the 
Labor Committee last year. Regrettably, a majority of the 
committee no longer supported that approach this year.

vi. consideration of malpractice legislation by the full senate should 
           reflect the work of the committee of jurisdiction

    Shortly after the committee voted to report S. 454 to the 
full Senate, but before this report was filed, Senator 
McConnell offered an omnibus malpractice reform proposal as an 
amendment to a product liability bill then under consideration 
on the floor of the Senate.
    The McConnell amendment resembled the bill reported by the 
Labor Committee, but it deleted two amendments that had been 
adopted by the committee with bipartisan support during its 
mark-up of the bill. The Senator from Kentucky had every right 
under the Senate rules to proceed in this manner, but his 
action represented a circumvention of the committee process. 
That process is designed to ensure that major proposals before 
the Senate reflect the collective judgment of the committee 
with expertise about the subject matter at hand.
    First, the McConnell amendment deleted a provision authored 
by Senator Dodd striking the cap on punitive damages but 
reserving for the judge the right to determine the amount of 
the award. (See IV, supra) Second, the McConnell amendment 
deleted a provision authored by Senator Abraham allowing states 
to ``opt out'' of the provisions in S. 454 by passing a law 
declining Federal preemption in whole or in part.
    These two amendments improved the bill and we urge that 
they be included in any future malpractice proposal considered 
by the full Senate.

                            vii. conclusion

    In pursuing ill-considered malpractice reform, this 
committee violates the ancient dictate: First, do no harm. Some 
of the proposals in S. 454 will cause harm to thousands of our 
fellow citizens by reducing the ability of the tort system to 
deter negligent medical care and denying adequate compensation 
to severely injured patients.

                                   Edward M. Kennedy.
                                   Clairborne Pell.
                                   Paul Simon.
                                   Tom Harkin.
                                   Barbara A. Mikulski.
                                   Paul Wellstone.
            ADDITIONAL VIEWS OF SENATOR CHRISTOPHER J. DODD

    In recent years, this committee has struggled with the 
critically important issue of medical malpractice reform. 
Chairman Kassebaum, Senator McConnell, and my colleague from 
Connecticut, Senator Lieberman, deserve commendation for their 
efforts in crafting S. 454, the Health Care Liability Reform 
and Quality Assurance Act of 1995. Although I have significant 
concerns about that bill and the substitute measure Chairman 
Kassebaum offered for the committee's consideration, these 
proposals help further the debate. Hopefully, the members of 
this committee will continue to work together on reform 
proposals and find a comprehensive solution that can be enacted 
into law.
    Although there is some disagreement within the committee 
concerning how best to reform the medical malpractice system, 
there is clear agreement that the present system is not working 
as well as it should.
    This committee has heard testimony that the current system 
is not adequately compensating injured patients or preventing 
medical injuries. On the other hand, there is ample evidence 
that many unwarranted lawsuits are being filed. For example, a 
1987 General Accounting Office study found that about 60 
percent of all claims filed against physicians are dismissed 
without a verdict, settlement or payment to the plaintiff.
    Given these and similar problems, which are chronicled more 
extensively in the committee report, we ought to improve the 
medical malpractice system so that it better serves patients, 
doctors, and health care institutions. We need to have a system 
that quickly and fairly compensates people who are injured 
while receiving medical care. We also need to prevent 
incentives for doctors and hospitals to practice defensive 
medicine--to conduct tests and procedures that simply run up 
costs.
    However, we need to be very cautious in our approach to 
reform. A person's relationship with his or her doctor is very 
complex. There is an element of trust that is not present in 
most commercial transactions. We must not adopt reforms that 
would destroy that trust.
    This committee made substantial progress toward medical 
malpractice reform during the last Congress. Working with the 
Clinton administration's health care proposal, Senator Kennedy 
offered a comprehensive approach to medical malpractice reform. 
I concur with the statements in the minority views concerning 
the advantages of dealing with medical malpractice in the 
context of broader health care reform.
    Although Senator Kennedy's health care bill, including the 
medical malpractice provisions, were eventually killed by 
Republican opposition, a bipartisan agreement on medical 
malpractice reform is still possible. There is some common 
ground, for example, between Senator Kennedy's proposal and the 
legislation offered by Senator Kassebaum. Both bills would 
limit the contingency fees attorneys could receive to 33.33 
percent of the first $150,000 and 25 percent of amounts above 
$150,000. Similarly, both measures would allow for the offset 
of collateral source payments and for the periodic payment of 
future damages. This suggests that further efforts may yield 
other areas where agreement could be reached.
    The Kassebaum bill also contains an important section on 
biomaterials authored by Senator Lieberman. That provision is 
designed to ensure that manufacturers of life-saving and life-
enhancing medical devices will have access to raw materials. It 
has now passed the Senate as part of the Product Liability 
Fairness Act of 1995, and I commend Senator Lieberman for his 
efforts on this issue.
    Prior to the markup, I had concerns about several aspects 
of Senator Kassebaum's bill--primarily the cap on punitive 
damages, the preemption provisions, and the requirement that a 
party pay the other side's costs in certain circumstances. 
Although Senator Kassebaum and her staff were cooperative in 
discussions concerning these provisions, we were unable to 
reach an agreement prior to the markup.
    In order to address concerns about the cap on punitive 
damages, I offered an amendment that was passed by the 
committee.
    Originally, the Kassebaum bill contained a provision 
capping punitive damages at three times economic damages or 
$250,000, whichever is greater. While that provision addressed 
concerns about juries awarding excessive amounts in punitive 
damages, it would severely restrict a jury's ability to punish 
particularly egregious conduct.
    In order to better balance those competing concerns, my 
amendment does not cap punitive damages. Instead, it would 
institute a procedure in which the jury determines whether 
punitive damages should be awarded, but the judge sets the 
amount of the punitive damages. To guide his or her 
determination of the appropriate amount, the judge would have 
to consider a list of factors relating to the nature of the 
misconduct. This list of factors is derived from factors in the 
Kassebaum bill and a Kansas statute that follows a similar 
procedure.
    In addition to the Kansas statute, this procedure is also 
used in existing Federal law. For example, the Petroleum 
Marketing Practices Act, 15 U.S.C. Section 2805(d)(2) (1988), 
requires that the judge determine the amount of punitive 
damages. Furthermore, this approach has received widespread 
support over the years. During the Carter administration, the 
Commerce Department recommended that judges set the amount of 
punitive damages and incorporated that procedure into a uniform 
product liability code. Similarly, Vice President Quayle's 
Council on Competitiveness endorsed this approach. Finally, a 
number of commentators, including former Attorney General 
Griffin Bell, have urged that judges determine the amount of 
punitive damages. (See, e.g., Griffin B. Bell & Perry E. 
Pearce, ``Punitive Damages and the Tort System,'' 22 PU. Rich. 
L. Rev. 1, 17 (1987); James G. Ghiardi, ``Punitive Damages 
Awards--An Expanded Judicial Role,'' 72 Marq. L. Rev. 33 
(1988); James G. Ellis, ``Punitive Damages, Due Process and the 
Jury,'' 40 Ala. L. Rev. 975, 1003-07 (1989).)
    In my view, a procedure in which the judge determines the 
amount of punitive damages offers several advantages. First, by 
placing the responsibility for the amount of damages in the 
hands of the judge, it will provide for less arbitrary, more 
reasoned awards. Now, there is no question that the jury plays 
a critical role in our legal system. But it has been widely 
recognized that there are problems with juries assessing 
punitive damages. For example, Justice Rehnquist has written 
that ``punitive damages are frequently based upon the caprice 
and prejudice of the jurors.'' Smith v. Wade, 461 U.S. 30, 59 
(1983). Even former Justice Marshall, arguably one of the more 
liberal justices to have served on the court, once observed: 
``Because juries are accorded broad discretion both as to the 
imposition and amount of punitive damages, * * * the impact of 
these windfall recoveries is unpredictable and potentially 
substantial.'' International Brotherhood of Electrical Workers 
v. Foust, 442 U.S. 42, 50 (1979).
    My amendment addresses the problem by giving the judge, who 
will have more experience considering cases, the responsibility 
for determining the amount. Having an experienced and well-
trained judge determine the appropriate amount should also cut 
down on the biases and prejudices that can affect some juries. 
Of course, judges are not always perfect. But the fact that 
they will have more experience considering cases should result 
in more uniform, less arbitrary, awards.
    In considering this issue, it is important to keep in mind 
the function of punitive damages. They are a quasi-criminal 
sanction intended to punish. They are damages above and beyond 
the damages awarded to compensate victims for their injuries. 
With that underlying purpose, it is appropriate that the judge 
determine the amount. Throughout our criminal system, at both 
the Federal and State level, the determination of the 
appropriate sentence in a criminal case is frequently left up 
to the judge.
    Because the amendment does not cap punitive damages, this 
approach will not limit the deterrent effect of punitive 
damages. Judges will have the flexibility to assess high awards 
when a defendant acts in a particularly egregious way.
    Finally, the flexibility in this approach will also help 
solve the problems that can arise when punitive damages are 
assessed as some sort of multiple of other damages--whether it 
is three times economic damages, two times compensatory 
damages, or some other formula. Regardless of the formula, that 
approach leads to wealthier individuals receiving higher 
punitive damage awards. That result makes no sense. Punitive 
damages are designed to punish misconduct, and there is no 
reason why the amount of the punishment should depend on the 
economic status of the victim.
    Although my amendment improves the punitive damages 
provision in the bill, I continue to have concerns about the 
preemption and ``loser pays'' provisions.
    Generally, the bill preempts State law, but there are 
exceptions for State laws that are more favorable to 
defendants, including greater restrictions on non-economic or 
punitive damages and, shorter periods for injured people to 
bring lawsuits. in my view, the preemption provisions should be 
fairer to plaintiffs.
    Consider the way in which the preemption provisions would 
affect State statutes of limitations. The Kassebaum bill would 
set a Federal standard--an injured person would have 2 years 
from the date on which they discovered the injury and its cause 
to file a lawsuit. This 2-year period is a reasonable middle 
ground; some States have a longer statute of limitations, other 
States have shorter periods. But the bill goes further and says 
that shorter State statutes of limitations are not preempted.
    This approach suggests that States that are limiting the 
amount of time in which injured people can sue are headed in 
the right direction. I have not seen any data to support that 
approach. In my view, we need to more carefully consider the 
effect that this preemption provision would have on injured 
people.
    I have no problem with the Federal Government preempting 
State law--there are many areas, including product liability 
law, where we need to set Federal standards. But if we're going 
to preempt State law, we should adopt an approach that does not 
carve out particular provisions that might be favorable to 
either plaintiffs or defendants.
    During the markup, I voted for an amendment offered by 
Senator Abraham that would allow States to opt-out of the 
reforms in the bill. While this amendment may mitigate the 
effect of the preemption provisions, we should explore other 
preemption options prior to further consideration of this bill.
    I am also opposed to the modified ``loser pays'' provision 
in the measure, which affects parties proceeding through 
alternative dispute resolution (ADR). Under the bill, parties 
are not required to go through ADR. However, if the parties go 
through ADR, and then a party wants to go to court, that party 
must do 25 percent better in court or else pay the other 
party's attorneys fees.
    This provision would discourage people from going through 
ADR. Instead of risking a situation where they might have to 
pay fees, they would go directly to court. In my view, we need 
to encourage people to use ADR--which can be cheaper and 
quicker than a full-blown court case.
    In the securities litigation reform bill I have drafted 
with Senator Domenici, S. 240, we try to encourage use of ADR. 
In that bill, the prevailing party could be awarded attorneys 
fees, if the other party unreasonably refused to proceed to ADR 
or refused to accept an ADR result, and asserted a claim or 
defense that was not substantially justified. In contrast to 
the Kassebaum bill, the incentive is to proceed to ADR. If a 
party proceeds to ADR, there's no risk of having to pay the 
other side's fees.
    I voted in favor of Senator Kennedy's amendment to strike 
the modified loser pays provision in the bill. That amendment 
was defeated, but I will continue to work with my colleagues to 
improve this provision.
    Given my remaining concerns, I voted against favorably 
reporting the Kassebaum bill. However, I commend Senators 
Kassebaum, McConnell, and Lieberman for their hard work on the 
underlying legislation, and I look forward to working with them 
and my colleagues on this committee as we try to find a 
balanced approach to medical malpractice reform.
                                                        Chris Dodd.
                            A P P E N D I X

                              ----------                              

                                     Ernst & Young,
                                  Actuarial Services Group,
                                   Philadelphia, PA, June 14, 1994.
Re review of Consumers Union press release.

Martin Hatlie, Esq.
Chair, Health Care Liability Alliance,
Washington, DC.
    Dear Marty: We have reviewed the statement by Kristen Rand, 
Counsel for Consumers Union (CU), which claims that negligent 
doctors kill more Americans each year than are killed by 
firearms or in automobile accidents (CU Press Statement May 16, 
1994). Based on a review of this statement and the sources it 
cites, we conclude that this claim is not justified. It is 
based upon extrapolation from an extremely small sample of data 
which is of itself subject to much variation, and it uses the 
sample selectively for a purpose clearly unintended by the 
original researchers.

                   The Harvard Medical Practice Study

    CU's press statement relies heavily on facts attributed to 
the Harvard Medical Practice Study, a 1991 study which reviewed 
a sample of 31,429 patient records drawn from 51 New York 
hospitals, all in calendar year 1984. The study methodology 
relied on physician review panels, which attempted to determine 
based on examination of selected patient histories, whether an 
``adverse event'' (AE), i.e., definable injuries caused at 
least in part by medical management, had occurred in each of 
the cases reviewed.
    Based on a series of screening criteria used to indicate a 
possible AE, 22,378 records were eliminated. Then two 
physicians independently examined the remaining 7,743 records 
and through a judgmental process identified 1,278 AE's. This 
physician review process also made determinations as to which 
AE's were caused by negligent care. Disagreements were resolved 
by a third physician reviewer. Of the 1,278 AE's identified, 
1,133 could be used to calculate the overall rate of adverse 
events, and of these, 280 were selected where negligent 
behavior appeared to be a factor in causing the AE. Using the 
study estimate that 25.4% of the negligent events resulted in 
death, that would mean that in approximately 71 of the 
hospitalizations where negligent AE was determined, the patient 
died. It is this sample of approximately 71 deaths in New York 
in 1984 that forms the sole basis of CU's claim that 
``negligent doctors kill 80,000 patients each year''.

           Harvard Studied Systems Problems, Not Individuals

    A first, obvious, error in CU's statement is the assertion 
that the negligent adverse events charted in the Harvard study 
were all attributable to negligent doctors. The Harvard 
researchers attempted to track adverse events in 51 New York 
hospitals, in which patients were treated by a variety of 
health care personnel and incurred a variety of adverse events, 
including falls from hospital beds. The Harvard Study plainly 
does not support the finding that physician malpractice caused 
every death of a patient who suffered a negligent AE. Although 
this is a somewhat technical distinction, CU's rhetorical 
``spin'' on the Harvard study is notable. The Harvard 
researchers focused on patient safety hazards and potential 
solutions in health care delivery systems, not individual 
``bad'' actors.

          unjustified extrapolations across time and geography

    A second, and more significant, error lies in CU's 
extrapolation from the 71 negligent AE's identified by Harvard 
as a factor in patient death to the claim that 80,000 die each 
year. The Harvard study addressed a single year--1984--and has 
produced no data relevant to hospital care in the last ten 
years. Extrapolating from this sample to all 1984 New York 
hospitalizations, the Harvard researchers estimated that a 
negligent AE was a factor in 6,895 deaths.
    While this statewide estimate may be supportable from the 
Harvard sample, it is completely unsound to assume that every 
other state in the nation would have similar death rates, and 
that further, these rates would have continued to have been 
exhibited year after year from 1984 to the present. This 
expansion is especially questionable in light of the advances 
which have occurred in medical technology, managed care and 
peer review, among other factors, since 1984. Even within New 
York, the authors of the Harvard Study found substantial 
variation among the 51 hospitals studied in both the rate of 
AE's and the percentage of AE's due to negligence. Brennan, 
Troyen A. et al., Hospital Characteristics Associated With 
Adverse Events and Substandard Care, JAMA, v. 265, no. 24, 3265 
(1991). Given this variation, CU's claim of 80,000 deaths due 
to doctor negligence each year is statistically insupportable. 
Similar claims to the effect that the Harvard Study shows that 
``Every 7 minutes a Person Dies Because of Medical 
Malpractice'' are equally without foundation. (See New York 
Times Ad [California Edition] June 1, 1994, p. A-18.)

      comparison with gunshot and motor vehicle victims over reach

    CU alleges that every year: ``Negligent doctors kill more 
than twice the number of people killed by firearms. Negligent 
doctors kill twice the number of people killed by auto 
accidents. Negligent doctors kill nearly 4 times the number of 
people who die from household product-related accidents.''
    Even if one assumes that CU's unsubstantiated extrapolation 
nationwide from 1984 New York data were valid, the comparison 
between deaths of hospitalized patients and deaths due to 
automobile accidents or gunshot wounds is unjustified, due to 
what must be assumed to be significant differences in the 
health status and social characteristics of the different 
populations. The fact that those who enter a hospital are, 
almost by definition, unhealthy, automatically introduces bias 
in comparison with automobile passengers or those killed by 
firearms, who are presumably healthy until the accident occurs.
    In fact, the Harvard study did not even attempt to measure 
the health status of those patients for whom an AE was a factor 
in death, and the authors acknowledge that this is a 
significant limitation in their ability to conclude that 
malpractice caused the deaths they studied. Here is what they 
say about the kinds of comparisons that CU attempts to draw:

          We caution, however, against too quick a comparison 
        of such fatality figures. In our study a death was 
        judged to be iatrogenic if there was a clear causal 
        link with medical management. But a substantial 
        proportion of patients were gravely ill, and many would 
        have died from their underlying illnesses in months, 
        days, perhaps hours, even absent the mishap in 
        treatment * * *. Unfortunately, we cannot say what 
        proportion of deaths from medical adverse events 
        involved patients with relatively short life 
        expectancies. We do know, however, that motor vehicle 
        or workplace fatalities typically involve health 
        individuals. Weiler, Paul C. et al., A Measure of 
        Malpractice, pp. 56-57 (Harvard University Press 1993)

    A related bias factor also acknowledged by the Harvard 
Study authors arises from the complexity of health care 
delivery systems. The authors correctly observe that in highly 
technical systems, even minor errors may have diastrous 
consequences. Leape, Lucian L. et al., The Nature of Adverse 
Events in Hospitalized Patients, New England Journal of 
Medicine, v. 324, no. 6, 380-381 (1991). It is impossible to 
reduce this number to zero. Some patients will suffer adverse 
events and some will die, regardless of the training or 
competency of the practitioner or the quality of the care 
rendered in the health care delivery system. Thus a comparison 
of hospital deaths to deaths from other causes will be biased 
unless the former is adjusted to recognize the factor of 
complexity.

         Peer Review Process Problems Make Results Questionable

    A fourth weakness with CU's assertions arises from the 
potential for bias introduced in asserting causation when the 
outcome is death, and this outcome is known to the researchers. 
In the Harvard Study process, a number of criteria were applied 
in determining which hospital records were to be reviewed by 
physician panels. One of these was the death of a patient in 
the course of receiving medical care. By informing the 
physician reviewers in advance that a death had occurred, a 
growing body of post-Harvard Study research indicates that a 
predisposition that something ``wrong'' must have happened is 
created. Caplan, Robert A., et al.; Effect of Outcome on 
Physician Judgments of Appropriateness of Care, JAMA, v. 265, 
no. 15, 1957-1960 (1991). The Caplan study reported an inverse 
relationship between the severity of outcome and judgments of 
appropriateness of care in sets of identical cases where only 
the outcomes were changed.
    An additional difficulty with the use of peer review panels 
is that in many cases the reviewers disagree as to the quality 
of care provided, and therefore on the issue of negligence, 
based solely on review of the hospital records. Goldman, Ronald 
L., The Reliability of Peer Assessments of Quality of Care, 
JAMA, v. 267, no. 7, 958-960 (1992); see also Rubin, Haya R., 
et al., Watching the Doctor-Watchers: How Well Do Peer Review 
Organization Methods Detect Hospital Care Quality Problems?, 
JAMA, v. 267, no. 17, 2349-2354 (1992), Hayward, Rodney A., et 
al., Evaluating the Care of General Medicine Inpatients: How 
Good Is Implicit Review?, Annals of Internal Medicine, v. 118, 
no. 7, 550-556 (1993), Wilson, David S., et al., Identification 
of Preventable Trauma Deaths: Confounded Inquiries?, The 
Journal of Trauma, v. 32, no. 1, pp. 45-51 (1992). In the Rubin 
study, it was found that two out of three cases that passed 
initial screening for appropriate care by one panel were later 
found to exhibit below standard care by another panel. In 
addition, the screening appeared to be only slightly better at 
correctly identifying below standard care. This result also was 
obtained in the Goldman study. The other studies--all published 
in reputable peer reviewed journals--have observed similar 
problems in the use of physician panels to identify preventable 
deaths.
    This body of research is forcing the medical community to 
question and rethink peer review methodologies, like the one 
used in the Harvard Study. These concerns are particularly 
applicable to the findings in the Harvard Study, because 
``Physician confidence in their judgments of causation of AE's 
spanned a broad Prange * * *'' (Harvard Medical Practice Study, 
Executive Summary, p. 3 (1991). In order to confirm an instance 
of an AE, two physicians were required to agree on each case, 
with a third reviewer making the final decision if the primary 
reviewers disagreed. This occurred in 1,808 cases. This number 
is larger than the total number of adverse events finally 
agreed upon. In addition, of a sample of 318 cases selected 
from two hospitals for duplicate review, in 21 cases the two 
groups disagreed on the existence of negligence, while 
agreement from both groups occurred in only 4 cases. This 
process of physician review allows for the possibility of bias 
such as has been found in later studies, particularly when the 
outcome is death.

                               conclusion

    For all of these reasons, the Consumers Union claims that 
negligent doctors kill more Americans than guns or auto 
accidents cannot be sustained on their face, nor can they be 
accurately attributed to the Harvard Medical Practice Study. 
Although it goes beyond the scope of this paper, it is notable 
that:
    Nothing in the Harvard Study supports a conclusion that the 
malpractice system is adequately protecting consumers, 
deterring medical malpractice or identifying incompetent 
practitioners. The Harvard researchers found a crude deterrent 
effect at best, that in their judgment does little to improve 
the quality or safety of health care. The authors state:

          Our data reflect a tenuous relation between 
        proscribed activity and penalty and thus are consistent 
        with the view that malpractice claims provide only a 
        crude means of identifying and remedying specific 
        problems in the provision of health care. Localio, A. 
        Russell, et al., Relation Between Malpractice Claims 
        and Adverse Events Due to Negligence, New England 
        Journal of Medicine, v. 325, no. 4, 249 (1991).

    Nothing in the Harvard Study suggests that the current 
malpractice system is cost-effectively resolving claims or 
fairly compensating patients who are injured by medical 
malpractice. The following quotations are representative of the 
authors' findings:

          First, one must acknowledge that the tort system does 
        not view the compensation of accident victims as its 
        primary objective. Patients, Doctors, and Lawyers: 
        Medical Injury, Malpractice Litigation, and Patient 
        Compensation in New York: A Report by the Harvard 
        Medical Practice Study To the State of New York, pg 8-
        3, (President and Fellows of Harvard College, 1990) 
        (hereinafter Patients, Doctors, and Lawyers).
          Why so few injured patients file claims has not been 
        widely researched. Many may receive adequate health or 
        disability benefits and may not wish to spoil 
        longstanding physician-patient relationships. Others 
        may regard their injuries as minor, consider the small 
        chance of success not worth the cost, or find attorneys 
        repugnant. Trial lawyers usually accept only the 
        relatively few cases that have a high probability of 
        resulting in a judgment of negligence with an award 
        large enough to defray the high costs of litigation. 
        Localio, A. Russell, et al., Relation Between 
        Malpractice Claims and Adverse Events Due to 
        Negligence, New England Journal of Medicine, v. 325, 
        no. 4, 249 (1991).
          Simply estimating the population frequency of 
        injuries caused by negligence and the frequency of 
        malpractice litigation by the entire population cannot 
        help resolve a fundamental question concerning 
        malpractice litigation: whether it compensates those 
        patients who are actually harmed by negligent care. 
        Patients, Doctors, and Lawyers, pg 7-4.

    Nothing in the Harvard Study suggests that placing 
reasonable limitation on non-economic damages in malpractice 
claims is contrary to public policy. Several of the Harvard 
researchers have advocated ``no-fault'' proposals that 
incorporate significant limits on non-economic damages, or 
would eliminate this aspect of compensation altogether in the 
interest of cost containment. For example, see Brennan, Troyen 
A., Improving the Quality of Medical Care: A Critical 
Evaluation of the Major Proposals, Yale Law & Policy Review, v. 
10, pg 432 (1992).
    Consumers Union's assertion that malpractice claims costs 
have been dropping steadily over the past five years is wrong. 
We have analyzed this issue in a separate report.
    Please let us know if you require any additional analysis 
on this subject.
            Sincerely,
              Ronald T. Kuehn, FCAS, MAAA, CPCU, ARM, FCA, Partner.
                                ------                                

                                        Harvard Law School,
                                      Cambridge, MA, June 24, 1994.
Re Harvard medical practices study.

Hon. Pete Stark,
House of Representatives,
Washington DC.
    Dear Mr. Chairman: The two of us were among the principals 
involved in the Harvard Medical Practice Study in New York. Our 
attention has been drawn to a number of comments made in the 
current debate about health care reform that appear to 
misconstrue the findings and implications of our Study. We are 
writing to you because of our high regard for your long-
standing commitment to improving the nation's health care 
system.
    A common theme in opposition to malpractice reform is the 
assertion that 90,000 deaths a year can be attributed to 
medical injuries involving negligence on the part of some 
health care provider (not just physicians). This number is an 
extrapolation from the findings of our study in New York. 
However, in our numerous scholarly writings on this topic, we 
have always cautioned that this bare statistic can be more 
deceiving than revealing. A substantial proportion of such 
fatalities were suffered by patients already gravely ill, and 
who likely would have died not long afterwards even if no 
mishap had taken place in their treatment. While much smaller 
in magnitude, the Harvard Study did find that a considerable 
number of patients suffered serious permanent disabilities, 
nearly half of which involved provider negligence. Again, we 
have always underlined that the vast bulk of such negligence 
consisted of monetary inadvertent mistakes--the kind of human 
error we are all prone to, but that here takes place in an 
inherently risky treatment setting. As we explain to our 
students at Harvard, when a teacher makes a mistake in the 
classroom, he can come in the next day and correct it; that 
luxury is not available to a physician engaged in a delicate 
operation on a patient's brain or spine.
    The Harvard Study has played an important role in teaching 
the medical and legal communities that real attention must be 
given to the harms as well as to the benefits that medical 
treatment can achieve for patients. That message will not be 
productive, though, if physicians (or nurses and other health 
care workers) are analogized to dangerous guns, drugs, or 
drivers. The key to less hazardous health care is careful 
epidemological investigation of the circumstances in which 
medical mishaps occur, and design and investment in new 
techniques and technologies that can reduce the incidence of 
such injuries. Malpractice litigation can stimulate such 
productive efforts within the health care community, epitomized 
by the Harvard Anesthesia Injury Study of the mid-1980s. 
Litigation will not have that effect, though, if tort lawyers 
and their supporters indulge in a morality play about so-called 
``bad apple'' physicians (who contribute to only a tiny 
proportion of the incidence of medical injury).
    The Harvard Study documented not just the failings of 
medical treatment, but also those of malpractice litigation. 
Most valid medical malpractice claims are not filed 
(particularly by the poor and the uninsured); most malpractice 
claims that are filed are the wrong ones; though the litigation 
process does do a good job of shifting out valid from invalid 
claims, it does so only by expending more money on lawyers than 
it does on patients; and the money that does end up with 
victims is distributed more erratically than equitably (in 
terms of patient losses). Again, though, we have been careful 
to attribute these failings of litigation to the difficult 
obstacles faced by tort law in trying to come to grips with the 
complexities of medical treatment, rather than to the political 
stereotype of ``greedy'' personal injury lawyers.
    Just as with health care, a major improvements can and 
should be made in the tort system, not for the benefit of 
physicians (or lawyers) but for patients who need a better deal 
from both of these professional groups. The most important 
legal area needing reform is the law of tort damages. Last 
there be any misunderstanding of our views on that score, we 
are strongly opposed to the favored Republican proposal of a 
California-style $250,000 cap on pain and suffering damages. 
(We have still not heard anyone explain why, if a fixed 1975 
dollar cap on physicians' earnings is obviously inequitable, it 
would be fair to impose precisely this kind of cap on awards to 
severely-injured patients.) Together with a dozen of the 
nation's tort scholars who made up the American Law Institute's 
Tort Reform Study of the late-1980s, we developed a set or 
proposals for reforming the law of tort damages that we are all 
convinced would be far more effective and equitable for injury 
victims than the status quo. If you are interested, we would be 
delighted to share with you some of our ideas--in particular, 
pain and suffering guidelines, instead of a cap.
    Irrespective, though, of one's policy views and 
recommendations, we are committed to a truly informed debate 
about the malpractice system. That is why we have taken the 
time to write you this letter, which we would greatly 
appreciate your sharing with your colleagues.
            Sincerely yours,
                                   Paul C. Weiler,
                                           Henry J. Friendly, Professor 
                                               of Law, Harvard Law 
                                               School.
                                   Troyen A. Brennan,
                                           Professor of Law and Public 
                                               Health, Harvard School 
                                               of Public Health, 
                                               Associate Professor of 
                                               Medicine, Harvard 
                                               Medical School.