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86–045CC 2003

THE MEDICAL LIABILITY INSURANCE CRISIS: A

REVIEW OF THE SITUATION IN PENNSYLVANIA

HEARING

BEFORE THE

SUBCOMMITTEE ON 

OVERSIGHT AND INVESTIGATIONS

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

FEBRUARY 10, 2003

Serial No. 108–4

Printed for the use of the Committee on Energy and Commerce

(

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

2

COMMITTEE ON ENERGY AND COMMERCE 

W.J. ‘‘BILLY’’ TAUZIN, Louisiana, Chairman 

MICHAEL BILIRAKIS, Florida 

JOE BARTON, Texas 

FRED UPTON, Michigan 

CLIFF STEARNS, Florida 

PAUL E. GILLMOR, Ohio 

JAMES C. GREENWOOD, Pennsylvania 

CHRISTOPHER COX, California 

NATHAN DEAL, Georgia 

RICHARD BURR, North Carolina 

Vice Chairman 

ED WHITFIELD, Kentucky 

CHARLIE NORWOOD, Georgia 

BARBARA CUBIN, Wyoming 

JOHN SHIMKUS, Illinois 

HEATHER WILSON, New Mexico 

JOHN B. SHADEGG, Arizona 

CHARLES W. ‘‘CHIP’’ PICKERING, 

Mississippi 

VITO FOSSELLA, New York 

ROY BLUNT, Missouri 

STEVE BUYER, Indiana 

GEORGE RADANOVICH, California 

CHARLES F. BASS, New Hampshire 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO, California 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

ERNIE FLETCHER, Kentucky 

MIKE FERGUSON, New Jersey 

MIKE ROGERS, Michigan 

DARRELL E. ISSA, California 

C.L. ‘‘BUTCH’’ OTTER, Idaho 

JOHN D. DINGELL, Michigan 

Ranking Member 

HENRY A. WAXMAN, California 

EDWARD J. MARKEY, Massachusetts 

RALPH M. HALL, Texas 

RICK BOUCHER, Virginia 

EDOLPHUS TOWNS, New York 

FRANK PALLONE, Jr., New Jersey 

SHERROD BROWN, Ohio 

BART GORDON, Tennessee 

PETER DEUTSCH, Florida 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

BART STUPAK, Michigan 

ELIOT L. ENGEL, New York 

ALBERT R. WYNN, Maryland 

GENE GREEN, Texas 

KAREN MCCARTHY, Missouri 

TED STRICKLAND, Ohio 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

MICHAEL F. DOYLE, Pennsylvania 

CHRISTOPHER JOHN, Louisiana 

TOM ALLEN, Maine 

JIM DAVIS, Florida 

JAN SCHAKOWSKY, Illinois 

HILDA L. SOLIS, California 

DAVID V. MARVENTANO, Staff Director 

JAMES D. BARNETTE, General Counsel 

REID P.F. STUNTZ, Minority Staff Director and Chief Counsel 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

JAMES C. GREENWOOD, Pennsylvania, Chairman 

MICHAEL BILIRAKIS, Florida 

CLIFF STEARNS, Florida 

RICHARD BURR, North Carolina 

CHARLES F. BASS, New Hampshire 

GREG WALDEN, Oregon 

Vice Chairman 

MIKE FERGUSON, New Jersey 

MIKE ROGERS, Michigan 

W.J. ‘‘BILLY’’ TAUZIN, Louisiana 

(Ex Officio) 

PETER DEUTSCH, Florida 

Ranking Member 

DIANA DEGETTE, Colorado 

JIM DAVIS, Florida 

JAN SCHAKOWSKY, Illinois 

HENRY A. WAXMAN, California 

BOBBY L. RUSH, Illinois 

JOHN D. DINGELL, Michigan, 

(Ex Officio) 

(II) 

3

C O N T E N T S 

Page

Testimony of: 

Dench, Edward H., Jr., President, Pennsylvania Medical Society ............... 45

Diener, Scott, President and Chief Operating Officer, PMSLIC .................. 120

Dyess, Leanne ................................................................................................... 57

Eskin, David J., Chief of Staff, Abington Memorial Hospital ....................... 41

Hurley, James, Chairperson, Medical Malpractice Subcommittee, American Academy of Actuaries ........................................................................... 113

Johansson, Julia W. ......................................................................................... 32

Lewinski, Heather ............................................................................................ 60

Menio, Diane A., Executive Director, Center for Advocacy for the Rights 

and Interests of the Elderly ......................................................................... 85

Mundy, James ................................................................................................... 230

Nasca, Thomas J., Dean, Jefferson Medical School ....................................... 123

Palmisano, Donald J., Member, AMA Board of Trustees .............................. 48

Reed, John H. ................................................................................................... 213

Rendell, Hon. Edward G., Governor, Commonwealth of Pennsylvania ....... 6 

Rosenbloom, Alan G., President and Chief Executive Officer, Pennsylvania Health Care Association and Center for Assisted Living Management ............................................................................................................... 79

Rosenfield, Harvey, President, Foundation for Consumer and Taxpayer 

Rights ............................................................................................................. 130

Smarr, Lawrence E., President, Physicians Insurers Association of America ................................................................................................................... 93

Vidmar, Neil, Professor of Law, Duke Law School ........................................ 227

Wozniak, Gregory T., President and Chief Executive Officer, St. Mary 

Medical Center .............................................................................................. 36

Additional material submitted for the record: 

Rosenfield, Harvey, President, Foundation for Consumer and Taxpayer 

Rights, letter dated February 21, 2003, to Hon. James Greenwood ......... 249

(III) 

(1)

THE MEDICAL LIABILITY INSURANCE CRISIS: 

A REVIEW OF THE SITUATION IN PENNSYLVANIA 

MONDAY, FEBRUARY 10, 2003

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON ENERGY AND COMMERCE, 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, 

Langhorne, PA. 

The subcommittee met, pursuant to notice, at 10 a.m., at St. 

Mary Medical Center, Sister Claire Carty Auditorium, LanghorneNewton Roads, Langhorne, Pennsylvania, Hon. James C. Greenwood (chairman) presiding. 

Members present: Representatives Greenwood, Deutsch, and 

Schakowsky. 

Also present: Representative Gerlach. 

Staff present: Anthony M. Cooke, majority counsel; Yong Choe, 

legislative clerk; and David Nelson, minority professional staff. 

Mr. GREENWOOD. Good morning. I am Congressman Jim Greenwood and I want to welcome everyone to St. Mary Medical Center 

for the field hearing of the Oversight and Investigations Subcommittee of the House Energy and Commerce Committee. On behalf of the committee, I would like to welcome Governor Ed Rendell 

and thank him for joining us today. I would also like to thank our 

witnesses and our host, St. Mary Medical Center. And if I may 

make a personal note, just a few years ago my father was very 

close to not making it and came to St. Mary and had triple bypass 

surgery, and after some complications he emerged well enough to 

6 months later challenge me to go skydiving with him. So the 

Greenwood family owes a lot to St. Mary Medical Center. My mother is still a little annoyed that they put him in such good shape 

that he could go skydiving, but there you go. 

Finally, I would also like to welcome our Congressional colleagues. To my left is the ranking member of this subcommittee, 

Peter Deutsch of Florida, who has traveled to be with us; and to 

his left is his counsel; and to his left is Ms. Jan Schakowsky, a 

member of the U.S. House of Representatives from Chicago. And 

there may be other members of the subcommittee and/or members 

of the Pennsylvania Delegation who join us later on. 

We are here this morning at the front lines of a crisis. Today we 

will explore, examine, and confront the medical liability insurance 

crisis here in Pennsylvania. The word ‘‘crisis’’ is often tossed 

around in Washington, DC, but let me describe for you something 

that fits this term under anyone’s definition. From December 21 

2

until January 3 of this year, for 13 days, the nearby trauma center 

at Abington Hospital closed its doors because the doctors staffing 

this critical facility could not obtain the affordable medical liability 

insurance that they need to practice. For those 13 days, lifesaving 

protections to the health and the lives of the families in this area 

ceased to exist. How have we come to this? 

The purpose of this hearing is to help this committee and the 

public learn and understand the events and forces contributing to 

the growing inability of the people of Pennsylvania to find doctors. 

What is more, we need to understand why Pennsylvanians can no 

longer go about their daily lives knowing that if the worst happens, 

emergency physicians are in place and on call. We in the Philadelphia region have a special obligation and a proud legacy to protect. 

Since 1751, when the founders of Pennsylvania Hospital, Benjamin 

Franklin and Dr. Thomas Bond, opened the doors to the Nation’s 

first hospital, we have led in healthcare. Even today, almost one 

is seven doctors in the United States did some part of their medical 

training in Philadelphia, home to a host of excellent medical 

schools and institutions, but today, the signs are ominous. This legacy is threatened. Recently, Methodist Hospital in South Philadelphia, which has served that community for more than 100 years, 

was forced to close its obstetrics practice. How could this happen? 

And what hardships have been visited upon the expected mothers 

who had counted on these service. 

This crisis affects more than just patients and doctors. You will 

hear today from this excellent hospital, St. Mary Medical Center, 

as well as from Abington Hospital, about the problems growing day 

by day to find and retain the physicians needed by these facilities 

to keep open their doors. I am deeply saddened and I am angered 

that this crisis is having permanent and long-term effects, weakening hospitals, debilitating medical schools, reducing the number 

of doctors who practice, and destabilizing healthcare institutions, 

all to the detriment of the people desperately in need of skilled 

medical treatment. Again I ask, how could this happen? That is the 

question we seek to answer here today. 

Let me tell you what I know so far. Access to healthcare has 

been diminished and threatened because the individuals and institutions delivering that care cannot find the affordable insurance required to practice medicine. I am sure the companies are raising 

their rates across the State and turning down doctors looking to 

find new policies. What is happening to insurers? Insurance companies set their premiums based on their projected risk, the amount 

they estimate they will have to pay. Yet, they simply cannot make 

reasonable business decisions of their risk when they don’t know 

with each passing year what juries will award. In the past 3 years, 

according to a recent Wall Street Journal editorial, juries in Philadelphia have awarded more in medical damages than were awarded in the entire State of California. In the year 2000, Pennsylvania 

had 19 awards individually exceeding $5 million each. In light of 

this, can we begin to understand why Pennsylvania insurers facing 

the unpredictability of Pennsylvania court verdicts continue to increase their rates? Can we then see why Pennsylvania’s largest 

physician insurer this year raised its premiums an average of 54 

percent? Does this help us to start to recognize why 72 percent of 

3

Pennsylvania doctors, according to a 2001 survey, deferred the purchase of new equipment or the hiring of new staff because of malpractice costs. And now can we see why since January 2001, more 

than 900 Pennsylvania physicians have closed their practice, 

moved out of State, or refused to do high risk procedures. 

Earlier, I asked how could this happen. The fact is insurers cannot properly, reasonably, and competitively offer insurance to medical providers within an unpredictable court system prone to jackpot awards. No one here will argue that patients injured by the 

negligence of a medical provider do not deserve compensation, but 

we have lost all sense of proportion in the area of non-economic intangible damages. How do we reform the current system in a way 

which balances the interest of fairly compensating injured patients 

and the need to ensure all Pennsylvanians have access to quality 

healthcare? Reasonable caps on the subjective non-economic damages, in my estimation, when teamed with a specific package of 

other reforms, will bring juries, verdicts, and insurance rates back 

to earth and keep Pennsylvania doctors where they belong, treating 

Pennsylvania families. 

I have recently introduced legislation in Congress designed to address this problem, however, please know I am, as are all my colleagues here today, and all of us in the U.S. Congress, House, and 

Senate, wanting to learn. We are here to be persuaded and to be 

informed. Again, I thank all our witnesses and the members of the 

public for joining us here on the front lines of this medical crisis. 

And now I yield to Mr. Deutsch for his opening statement. 

Mr. DEUTSCH. Thank you, Mr. Chairman. I have an opening 

statement that I would like to submit for the record and just make 

some initial comments. First, I want to thank the chairman for 

having this hearing. Actually, in this session of Congress, this is 

our Oversight and Investigations Subcommittee first hearing, and 

I think it appropriate that we take testimony, especially, in this 

type of setting, on an issue in terms that would be as important 

as any other issue that the Congress will face in this session. I also 

am very happy that the Governor is joining us on the first panel. 

I have had the good fortune of knowing your Governor in other capacities in his life, and I also see one of the wisest decisions he has 

made since governing is bring onto his staff Congressman Borski, 

who I had the pleasure of serving with for 10 years in the Congress. 

I would just note as we take testimony, I would agree with the 

chairman completely that we are here, really, to listen; not to debate. We are here to learn and not to teach today. But I would say 

that I don’t think, at least at this point in terms of, you know, 

spending fair amounts of time on the issue in the past, that there 

aren’t any easy solutions, and anyone who says there is an easy solution doesn’t understand the problem. The chairman mentioned, 

you know, caps and non-economic damages. I think we will get testimony today that discuss that that is not a panacea that has been 

presented by many people. The other thing I would note is that, 

really, one size might not fit all. At this point, we have been, you 

know—our tort system and malpractice area has been a State endeavor and it is not just a hearing. There is legislation that has 

been introduced by the chairman of this committee and supported 

4

by the President at this point in time which would nationalize tort 

reform. 

Florida has a crisis as well, but in Florida the legislature has 

been dealing with it in a different way than has been proposed in 

Pennsylvania, and it is unclear if our challenges are the same as 

the challenges in South Dakota, or South Carolina, or Minnesota 

would be similar or the same. So I am not sure we are ready yet 

to nationalize this issue, and that is something which I look forward to hearing testimony today. Thank you, Mr. Chairman. 

Mr. GREENWOOD. Thank you, Mr. Deutsch. The gentlelady from 

Chicago is recognized for an opening statement. 

Ms. SCHAKOWSKY. Thank you, Mr. Chairman. This is my first 

hearing as a new member of the Energy and Commerce Committee 

and of your subcommittee, and I feel very privileged to be here 

today to discuss an issue that is my top priority, which is the quality and accessibility of healthcare, and honored also to be here with 

Governor Rendell and my former colleague, Bob Borski. Thank you 

for being here, Governor. 

I share the belief that physicians and other healthcare professionals should not be burdened with unreasonable insurance rates, 

and I would like to work with you, Mr. Chairman, and all the 

Members of Congress to find solutions to the problem. However, to 

the extent that a tax on the civil justice system are offered as solutions, I would strongly argue that those solutions stem from a misdiagnosis of the problem. The medical malpractice insurance crisis 

is not created by the victims. For my opening statement, I wanted 

to briefly enumerate some of the findings of a public citizen report 

called Medical Misdiagnosis and asked that the entire report be entered into the record, Mr. Chairman. 

One point they made is that there is an epidemic of medical errors and unsafe practices. Between 44,000 and 98,000 Americans 

die in hospitals each year due to preventable medical errors, just 

in hospitals. According to the Institute of Medicine, by comparison, 

the annual death toll is 43,000 from automobile accidents, 42,000 

from breast cancer, and 15,000 from AIDS. Second point, there is 

no growth in the number of new medical malpractice claims. According to the National Association of Insurance Commissioners, 

the number of new medical malpractice claims declined about 4 

percent between 1995 and 2000. Third, the spike in medical liability premiums was caused by the insurance cycle, not by new claims 

or skyrocketing jury verdicts. Premiums charged to not track losses 

paid, but instead, rise and fall in concert with the state of the economy. In any case, malpractice insurance costs have risen at half 

the rate of medical inflation and it is slower paced than health insurance premiums. 

Fourth, 5 percent of doctors are responsible for 54 percent of 

malpractice in the United States. Of these, only 7.6 percent have 

ever been disciplined by State medical boards. In Pennsylvania, 

only one doctor has lost his license because of incompetence in 20 

days. And fifth, few, if any, malpractice lawsuits are frivolous. 

Plaintiffs drop ten times more claims than they pursue. Data reported in the study shows that only one in eight medical errors 

committed in hospitals results in a malpractice claim. 

5

I am concerned, Mr. Chairman, that the sweeping legislation 

that you introduced this past week would unnecessarily punish 

people who have truly suffered. I am especially concerned about the 

effects of the caps on compensatory non-economic damages, and punitive damages on women, children, people of color, and the elderly. 

Under the bill, a drug company or HMO will almost certainly pay 

less if they injure a working woman. If they injure a working 

woman, they will pay less than if they injure a working man since 

women earn 76 cents on the dollar that men earn. They will pay 

less if they injure a working African-American woman who earns 

69 cents on the dollar, or a Latina who earns 56 cents on the dollar. They will pay less if they injure or kill a senior citizen. And 

the caps will tell a stay-at-home mom that the loss of her fetus because an HMO refused the proper care is worth no more than 

$250,000. Or a poor woman who can’t have children any longer, 

that her loss is worth little more than $250,000. I could go on with 

those examples, but I find the notion of a politician imposing a onesized fits all remedy and substituting for juries that can listen to 

each individual case to be very, very disturbing. 

I strongly support doctors and other frontline healthcare providers and want to work with them, but this bill goes way beyond 

them, to nursing homes, to pharmaceutical companies, to medical 

device manufacturers. Our medical practice insurance system 

needs to be reformed. We could have an experience rating for doctors just as we do for drivers so that the few bad apples can be 

weeded out. Doctors who practice medicine in a safe and responsible manner should not have to shoulder the burden for those who 

don’t. 

And finally, just a few words about insurance reform. There is 

no compelling evidence that caps on damages will lower premiums. 

In California, as we will hear today, it was not MICRA, which imposed caps that lowered medical malpractice rates, but Prop 103 

which required rates to be lowered. We need to open up insurance 

company books to find out why rates fluctuate so widely. We 

should wait for the results of the GAO studies and the relationships among medical malpractice rates, lawsuits, and insurance industry practices. We should proceed carefully to make sure that 

victims of medical malpractice are not forced to pay for the mistakes of others. And I applaud, Mr. Chairman, your idea that we 

all work together, that your legislation is not set in stone, and look 

forward to working with you to improve it for the sake of all of us. 

Thank you. 

Mr. GREENWOOD. The Chair thanks the gentlelady and now calls 

forward our first witness, the Honorable Ed Rendell, His Excellency, the Governor of Pennsylvania. Welcome, Governor Rendell. 

Governor RENDELL. Good morning, Mr. Chairman and members 

of the committee, and let me begin——

Mr. GREENWOOD. Before you begin——

Governor RENDELL. Oh, I have to be sworn in. Okay. 

Mr. GREENWOOD. I believe, as you and I had a conversation, you 

understand this is an investigative hearing, and when holding investigative hearings it is the practice of this committee to take testimony under oath. Do you have any objections to giving your testimony under oath? 

6

Governor RENDELL. No, sir. 

Mr. GREENWOOD. Seeing that you don’t, the Chair then advises 

you that pursuant to the rules of this committee and the House, 

you are entitled to be represented by counsel. Do you choose to be 

represented by counsel? 

Governor RENDELL. No, sir. 

Mr. GREENWOOD. Okay. In that case, if you would stand, rise, 

and raise your right hand? 

[Witness sworn.] 

Mr. GREENWOOD. Okay. You are under oath and we now welcome 

your opening statement, Governor. 

TESTIMONY OF HON. EDWARD G. RENDELL, GOVERNOR, 

COMMONWEALTH OF PENNSYLVANIA 

Governor RENDELL. Let me begin by thanking members of the 

committee for coming here, and particularly, for coming to St 

Mary’s, because St. Mary’s is a good example of a hospital that was 

on the cutting edge of this crisis. And Mr. Chairman, you are indeed right, it is a crisis in every definition of the word. St. Mary’s 

does a wonderful, wonderful job, but came very close—you mentioned Abington. The President of St. Mary’s was just telling me 

that they came within hours of closing their trauma center early 

in January, so St. Mary’s is a good example of what doctors and 

hospitals are facing all throughout Pennsylvania. And I do commend the committee for wanting to learn more about this crisis because I don’t think it is a simple crisis and I think there are many 

things that have brought us to where we are today. 

Let me first talk about the efforts that Pennsylvania has made. 

Today’s hearing is entitled, A Review of the Situation in Pennsylvania, and early on in the year 2002, the Pennsylvania legislature 

and then Governor Mark Schwiker tried to take steps to remediate 

what they saw as a growing crisis. They passed something called 

Act 13, and although Act 13 did not go nearly as far as advocates 

of tort reform wanted, it made some positive steps. It did away 

with and imposed the collateral source rule, it shortened the length 

of time for people to bring lawsuits, it had some very positive steps 

in medical safety, and it was passed into law in March. Unfortunately, the crisis had reached such a level in Pennsylvania that Act 

13 did, virtually, nothing to change the rate of premium increases 

that came out in July of that year. But in June of that year, the 

legislature took a step that had a tremendous impact, and I will 

explain this a little bit later, for hospitals; less of an impact for doctors but a tremendous impact for hospitals. Although this legislation was not targeted solely to hospitals and doctors, the legislature 

passed for the first time in Pennsylvania a threshold on joint and 

several liability. Prior to that, a hospital, for example, if it had 5 

percent of the blame, let us say, an attending nurse was in a room 

and the majority of the blame laid with the doctor. But if the doctor’s coverage was capped at a certain level, as all doctors are in 

Pennsylvania, the hospital, responsible for only 5 percent of the 

harm, paid the entire verdict to the extent of their coverage, and 

hospitals carry far more mandated coverage than doctors do. So 

raising the threshold on joint and several liability to 60 percent, 

saying nobody could be held liable beyond their share of the harm 

7

unless they had been responsible for 60 percent of the harm was 

a tremendous positive step for hospitals. That legislation came far 

too late to have an effect on the July 1 premiums, far too late. The 

premiums were already set in motion. 

In the fall of this year, the legislature passed a fairly important 

piece of legislation restricting venue in lawsuits, in medical malpractice lawsuits. That was a very, very important step, because as 

you noted in your remarks, a lot of the problem with the large verdicts occur in Philadelphia, and lawyers were using the remotest 

possible legal theories to get venue to bring a lawsuit, let us say, 

a procedure that happened here at St. Mary’s, rather than have 

that tried before a Bucks County jury, they found the remotest elements to bring it back into Philadelphia. The venue statute made 

it clear that in almost all cases the site of the venue of a malpractice lawsuit has to be where the injury occurred, and that was 

an important step. 

The Supreme Court Rules Committee was not silent during 2002 

either. In August 2002, the Supreme Court Rules Committee enacted the equivalent of the Federal Rule 11, and I am sure you are 

all aware of Federal Rule 11, which allows judges to assess damages against plaintiffs and plaintiff attorneys for bringing frivolous 

lawsuits. That power had never existed with Pennsylvania trial 

judges before, but the Supreme Court gave that power to judges in 

August. Those steps also began to accumulate, and interestingly, a 

new insurance company was certified by the Insurance Commission 

in late December. That new insurance company was able to reduce 

rates because they only handled prospective claims, and on all the 

prospective claims, the steps that the Pennsylvania legislature had 

taken kicked in. Now, it wasn’t so for outstanding premiums because outstanding premiums went back in time. 

And then in January of this year, at my request, Chief Justice 

Ralph Cappy in the Supreme Court in December ordered the Rules 

Committee to move swiftly to come up with a rule on certificate of 

merit. And the rule on certificate of merit was very important. It 

now requires that a previously certified medical expert must submit an affidavit to every medical malpractice lawsuit that is filed. 

The insurance defense lawyers estimate, and the Bar Association 

estimates, that that will reduce almost 25 percent of the number 

of lawsuits that come into the system. Now, as the Congresswoman 

said, most of those lawsuits are eventually decided against the 

plaintiffs, but they run up insurance company costs. The run up 

the cost because in medical malpractice cases there is so much pretrial discovery so at the time the lawsuits are eventually dismissed, 

the insurance company may have run up $40,000, $50,000, 

$80,000, $90,000 of costs just in defending what is a frivolous lawsuit. If, in fact, the Bar Association studies are right, and that will 

delete 25 percent of the number of lawsuits that are filed, that will 

also have a great effect on rates here in Pennsylvania. 

So all of these steps were in the process of being done or had 

been done in Pennsylvania during the year 2002. But when I became Governor elect of the State of Pennsylvania, the crisis was by 

no means abated by these steps because as I said, most of them 

hadn’t even been factored into rate setting. And in fact, in Pennsylvania we went from 17 private insurance companies writing covVerDate jul 14 2003 11:26 Sep 10, 2003 Jkt 086683 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 W:\DISC\86045 86045
8

erage at the beginning of the 1990’s to only 2 until that additional 

company joined us in the year 2002. So it wasn’t a question often 

of how much your coverage was; it was a question of could you obtain coverage by anybody other than JUA. The JUA is the Joint 

Underwriters Association, set up by act of the legislature, and they 

are the insurer of the last resort, and they are specifically mandated not to be competitive in their price setting. The legislature 

didn’t want them to compete with existing private companies, but 

they were the insurer of the last resort, and the premiums that the 

JUA charged were astronomical, because as the premiums for the 

private companies went up, the JUA had to stay higher than them. 

So the crisis was acute even though the legislature had made 

some very good steps when I became Governor elect. And on my 

first day as Governor elect, I appointed a medical malpractice 

taskforce to look at this problem, to look at short-run solutions and 

long-run solutions. The taskforce included defense attorneys, it included trial lawyers, plaintiff attorneys. It included practicing doctors, it included hospital administrators, it included the head of the 

Pennsylvania Medical Society and the Executive Director of the 

Hospital Association of Pennsylvania. It included representatives of 

the Chamber of Commerce and the AFL-CIO, who are the most frequent users of healthcare in the Commonwealth of Pennsylvania. 

It also had the benefit of joining forces with a study that was being 

done by the Pew Charitable Trust, and I would recommend to this 

committee that you make contact with Pew. Pew has allocated $3 

million to study the medical malpractice crisis across the country, 

and they have hired some of the best experts to do this work all 

throughout America, and I am sure that Rebecca Rimel, the Executive Director of Pew, would make their findings, and their research, 

and what they have come up with available to the committee, and 

it has been very helpful to our committee as we have gone down 

the road. 

I asked the committee to come back to me by January 20, the 

day before my inauguration, with recommendations for abating the 

short-term crisis, and by May 31, with recommendations to try to 

deal with the long-term problems. Unfortunately, in the weeks that 

followed, the crisis became more acute. And when Abington Hospital closed its trauma center, State Representative Ellen Bard, 

who I think is with us today——

Mr. GREENWOOD. Who is with us today. 

Governor RENDELL. Representative Bard asked me to come out 

and meet with doctors and administrators of Abington, and I did, 

and they convinced me that the crisis was so acute that we couldn’t 

wait until January 20 to make our short-term recommendations. So 

on December 30, myself and Governor Mark Schwiker, Representative Bard, and Representative Kurt Schroeder from Chester County 

held a press conference and we announced that I would be asking 

the legislature to eliminate the premiums, 100 percent of the premiums charged by our catastrophic loan fund, which is now called 

MCare. In Pennsylvania, for the other representatives, doctors 

were mandated to carry $500,000 of private insurance, and at one 

point $750,000 of CAT Fund insurance; Act 13 dropped that to 500. 

But to put it in context, Pennsylvania doctors are required to carry 

$1 million of mandated coverage. In California, they are required 

9

to carry $100,000 of mandated coverage, and I will get to that as 

we get on a little later. 

I have asked the legislature to enact legislation that for the four 

most challenged specialties, and they are obstetrics and gynecology, 

orthopedic surgeons, neurosurgeons, and general surgeons. For 

those four specialties, that we relieve them of 100 percent of the 

necessity to pay premiums into the MCARE fund for the year 2003 

only. For all other physicians, to reduce their MCARE payments to 

50 percent of what they had been paying for the year 2003. This 

was a 1-year fix to try to give us time to work out the long-term 

solutions. I also proposed a way of paying for it to the legislature, 

surcharging excessive surpluses of health insurance companies that 

are here in Pennsylvania, that operate here in Pennsylvania. The 

legislature hasn’t taken any action yet, but I have only been Governor for 3 weeks. It hasn’t taken any action yet. It has to take action by May 1. The reason they have to take action by May 1, Governor Schwiker, before that press conference, had suspended or 

pushed back the time period that doctors had to make payments 

into the MCARE fund for 4 months. He said, for the first 4 months, 

you don’t have to make any payments. He didn’t reduce the 

amount of payments; he just delayed the payment schedule. So on 

May 1, doctors will have to pay into the MCARE fund. And if the 

legislature hasn’t enacted our short-term solutions, we will see on 

May 1, and I think the physicians here and the hospital administrators here will tell you, we will see on May 1 the exact same crisis that we averted in Pennsylvania at the last second, the same 

crisis that has plagued West Virginia and New Jersey, where doctors literally walked off the job. 

Because of the action we took, Abington trauma center reopened 

a couple of days later, St. Mary’s trauma center never closed, and 

two other trauma centers out of the 26 in Pennsylvania that had 

threatened to close never closed. There was no doctor walkout. And 

no one on the committee, on my taskforce, believes for 1 second 

that the short-term remedy did anything but buy us time. It 

stopped the walkout and bought us time. I asked the committee to 

come back to me by April 1 with their long-term recommendations 

so that the legislature would have time to enact them before they 

recessed for the summer. Our committee is looking at a number of 

things, and I should mention also, as part of our short-term relief, 

we advocated the passage of a bill that Representative Schroeder 

had introduced, giving relief to our trauma centers, where the 

Commonwealth of Pennsylvania will underwrite the cost of the operation of those trauma centers to the tune of $25 million, roughly, 

$1 million a center, although, in the formula it doesn’t break it out 

that evenly. 

We are looking at a number of things. Caps are one of the things 

the committee is looking at, although, as you are aware, Congressmen, of the Pennsylvania Limitation and the Pennsylvania Constitution, our constitution has language that has been held would 

bar caps on non-economic damages. The constitution can be amended. It usually takes 3 to 4 years. There is a process that can speed 

it up to 2 years. We can’t wait for 3 to 4 years, we can’t wait for 

2 years. So we are looking at a number of things. We are looking 

at reducing the level of mandated coverage, as Act 13 did, from 

10

$1.25 million to $1 million. We are looking at a more significant 

reduction in mandated coverage. We are looking at using a longterm bond issue to, basically, get rid of the CAT Fund or the 

MCARE fund. We are looking at a number of different things to try 

to bring back insurance companies to Pennsylvania and quoting a 

reasonable premium for doctors. 

Now, let me say that in this effort, I have had discussions with 

three head of claims departments from three insurance companies 

that left Pennsylvania, and they have asked not to be identified, 

but I asked them a number of things about what would cause them 

to come back to Pennsylvania. The first question I asked is, if we 

enacted California style caps, that is all we did, we enacted California style caps, would they come back and write insurance in 

Pennsylvania? The answer was uniformly no. The main problem 

that these three insurance companies cited, and this might be a 

surprise to the Congresswoman, was the high number of lawsuits 

that are filed, particularly, in southeast and northeast Pennsylvania, that those lawsuits, most of them are dismissed or the jury 

verdict is not guilty, run up the cost of insurance so significantly 

because of the high number of them. And also, because of the existence of the CAT Fund or what we now call the MCARE fund, because in Pennsylvania, to settle a medical malpractice suit, the 

lawyer representing the private insurance carrier has to want to 

settle and the lawyer representing the CAT Fund has to want to 

settle. The CAT Fund has taken, in an effort to delay premiums 

and spread out the impact, they have taken what could best be described as a stalling posture. For example, they won’t settle. They 

won’t engage in settlement conversation until the eve of trail. Well, 

that is not very productive, because for an insurance company, 

most of the costs are incurred prior to the eve of trial, during the 

pretrial discovery period. What those insurance companies told me, 

if you could limit the number of lawsuits and if you could get rid 

of the CAT Fund, they would come back to Pennsylvania and begin 

writing again. And I think that is very instructive. 

I would join with Congressman Deutsch and the Congresswoman 

from Chicago in saying, very respectfully, Mr. Chairman, that caps 

are not the sole solution to the problem. There is no magic bullet 

here. People have been looking for magic bullets everywhere. West 

Virginia has caps and they have a walkout far in excess of Pennsylvania. And even if you do enact California style caps, the litany 

that the Congresswoman cited to you is correct. For the first 10 

years after California instituted its caps, which everyone here 

thinks is nirvana, insurance costs continued to rise, and rise substantially. It wasn’t until the second ballot referendum which mandated reductions plus the reduction in mandated coverage to 

$100,000. That was the key, because the mandated coverage drives 

settlement costs. If you are the plaintiff’s lawyer, and you know the 

mandated coverage is $1,000,000 in Pennsylvania and $100,000 in 

California, you are going to accept a different settlement offer in 

each State, and that is really the key. You cited all of those statistics about how incredibly high the dollar number of verdicts in 

Philadelphia were as opposed to the entire State of California. 

Well, in most of those jury verdicts they are never paid. They are 

set aside by the trial judge, they are set aside by the appellate 

11

court, or they are above the mandated coverage. No doctor in Pennsylvania has ever had his personal assets gone against by a lawyer 

in a medical malpractice suit, which means that even before Act 

13, the total amount of payment that a doctor’s insurance company 

and the CAT Fund would give out, even if the verdict was $30 million against that doctor, the total amount of the payment was $1.25 

million. Hospitals would get hurt badly because they were a minor 

participant, and without joint and several liability, they could cover 

a lot of that verdict up to their cap. But the joint and several liability threshold that the legislature passed, basically, eliminated that. 

So I am not saying that high verdicts are not a problem, because 

high verdicts, again, affect settlement, but it is not the problem. 

Think for a second, Congressman—I think before you were in the 

Congress, in the late 1980’s and then even in the early 1990’s, we 

had no tort reform in Pennsylvania. None of the things I have delineated this morning existed. We had no caps, we had no joint and 

several, we had no venue, we had no Act 13, we had no certificate 

of merit, we had no Rule 11. And what was happening in the 

1980’s and the 1990’s, do you recall, Congressman? The insurance 

companies were low bidding each other, low-balling each other, to 

sign up doctors in Pennsylvania. So if tort reform were the reason, 

that the need for tort reform were the reason that insurance costs 

have risen so high, there was no tort reform and they were lowballing because they made a miscalculation in their pricing and 

they thought the cost of paying claims would be less than what 

they could invest in the market, and to that end, I would like to 

pass up—and I didn’t come with prepared testimony, but I did 

come with one article. 

You quoted, I think, Mr. Chairman, in your remarks, the Wall 

Street Journal, and I want to pass up to you a June 26, 2002 article in the Wall Street Journal, and I will just quote very briefly 

from it. The headline is Insurers Missteps Help Provoke Malpractice Crisis. Lawsuits alone didn’t cause premiums to skyrocket; 

early price war was a factor. And this it the Journal, no foe of insurance companies The Journal, on its front page says, but while 

malpractice litigation has a big effect on premiums, insurers’ pricing and accounting practices have paid an equally important role. 

Following in a cycle that recurs in many parts of the business, a 

price war that began in the early 1990’s led insurers to sell malpractice coverage to obstetricians, gynecologists, at rates that 

proved inadequate to cover claims. 

And then there is a quote from Donald Zuck, the Chief Executor 

of SCPIE Holdings, a leading malpractice insurer in California. Mr. 

Zuck said, ‘‘I don’t like to hear insurance company executives say 

it is the tort injury law system. It is self-inflicted.’’ And then the 

Journal goes on to say some doctors are beginning to acknowledge 

that the conventional focus on jury awards deflects attention from 

the insurance industry’s behavior. The American College of Obstetricians and Gynecologists for the first time is conceding that carriers’ business practices have contributed to the current problem. 

Says Alice Kirkman, a spokesman for that professional group, ‘‘We 

are admitting that it is a much more complex problem than we had 

previously talked about.’’ Pretty shocking coming from the Wall 

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ecologists, but they are right. Not only did the pricing in the 1990’s 

cause this, not only did the bad investments in the late 1990’s 

cause this, but do you know what is shocking—and I forget which 

one of the Congressmen and women in their opening statements 

said this, but what is stunning to me, when I came out and met 

with Abington that night, the Abington Orthopedic Group had 

never had a claim settled or a jury verdict against them, and their 

claims were skyrocketing through the roof. 

We have an insurance pricing system and it is one of the things 

that through the Insurance Commission I intend to try to take hold 

of. We have an insurance pricing system that doesn’t give the good 

doctor the same benefits that the automobile insurance industry 

gives the good driver. Why should those doctors who have never 

lost a claim, who have never had a case settled against them, why 

should their premiums go up? I asked, again, one of the people I 

talked to in the insurance. He said, well, because by the nature of 

their practice, they have a lot of claims filed against them. And it 

is interesting. And you can tell that I am not an advocate for caps, 

but I think the statistics that opponents of caps quote, about 5 percent of the doctors having 52 percent of the claims, that is a little 

misleading, because the orthopods, the obstetricians and gynecologists, the neurosurgeons, they do the complex surgery. They are 

involved in high risk surgery. High risk means we are going to succeed often and do miraculous things, and the doctors in this State 

I think are the best in America, and they do miraculous things. But 

by the nature of the complex surgeries they undertake, that lends 

itself to a lot of claims. 

Why does Philadelphia get the most claims? Well (1) because we 

had lousy venue rules, but (2) the great doctors at CHOP, and at 

University of Pennsylvania Hospital, and Jefferson, and Hahnemann. These are the great teaching hospitals in America. The 

great doctor that is there undertakes complex surgery, and those 

complex surgeries mean there will be claims. And the way our system is structured, the insurance companies pay on those claims 

even if the verdict is no liability or even if the cases are out of 

court. So we have to look at the insurance industry, too, and that 

is a difficult problem. It is a problem for the States at the insurance commissioner level, but I think it is a problem that I would 

welcome the Congress taking a look at. I think insurance pricing 

in this area is way out of whack. I think there should be some curb 

to investing all of the premium money into investments so when 

the market crashes, we have this crisis. As bad as the medical malpractice problem was in Philadelphia, you didn’t hear a peep—you 

heard some problem, but it didn’t escalate the way it did until after 

the market crashed. 

And I just want to say two more things, if I might. A couple of 

the Congress people talked about the need for medical safety, and 

Act 13 in Pennsylvania did take some significant steps in the area 

of medical safety. We have got to do better, but it is a balancing 

test. We do want to discipline physicians who clearly are guilty of 

repeated negligence, but we don’t ever want to structure a system 

where physicians are unwilling to take that risk, that risk that can 

save a life, that risk that can allow a child to walk again, that risk 

that can maybe reverse serious brain damage. Those are the things 

13

we want. We want the best physicians in America and I do believe 

we have them here. We want them to continue to feel free to break 

new ground and do new things, so it is a balance. 

And the last thing I would like to say is the doctors often refer 

to the perfect storm, and they are right when they refer to the perfect storm. The perfect storm can be best summed up as this. All 

of here on the panel and myself, if we were in the widget business, 

we manufactured widgets, and the cost of our insurance went up, 

what would we do? We would, very reluctantly, but we would raise 

our prices and pass the cost of that increased insurance onto our 

customers. Physicians, at least in Pennsylvania, are in the perfect 

storm because they have no ability to do that. Our managed care—

and I don’t know if this is true in Florida or in Illinois—but our 

managed care system, except for the poor, our managed care private providers system has broken down to the fact that in almost 

every region in Pennsylvania, there is one carrier that dominates 

65 to 70 percent of the market. That carrier tells physicians what 

they are going to get paid for a hysterectomy, what they are going 

to get paid for an appendectomy, what they are going to get paid 

for delivering a baby, take it or leave it. That is it. And since there 

is very little competition, there is not much doctors can do. A couple of States have allowed doctors to enter into joint physician negotiation, but that carries some risk because those increased costs 

are passed onto the consumer, and the consumer is having all sorts 

of problems dealing with healthcare costs, as you know. 

Second, Medicaid and Medicare. The Balanced Budget Act of 

1997, in my judgment, and the constant it rendered to the Medicaid and Medicare system, has done more harm than anything else 

to the healthcare delivery system in America. I know it was well 

intentioned, I know it was part of trying to get the Federal deficit 

under control, I know it was part of trying to get better management practices into hospital and medical practices that are fiscal 

management processed, but it has gone beyond the point of any 

usefulness. In November, as you will recall, Congressman, I wrote 

you a letter, as I did to every member of the delegation and to Senator Specter, Senator Santorum, and the leaders in the House and 

Senate. I wrote a letter asking you in this past session to pass legislation stopping any further phase-out in Medicare and Medicaid 

costs for doctors, for hospitals, for nursing homes, and the like. I 

know Congress adjourned without having time to deal with that 

and we were told by legislative leaders that that would be dealt 

with in a comprehensive healthcare package that included prescription drugs. I can’t emphasize how important that is. I cannot emphasize. Not only should you freeze any further cuts, you should—

and I know the Federal Government has terrific budget problems 

and I am not going to get into a discussion of tax cuts. That 

wouldn’t be very productive, although, it is interesting to note all 

my fellow Republican Governors who ran on the platform of never 

raising taxes having to raise taxes, but leave that aside for a moment because that is not directly relevant to us. 

But I would really, seriously, urge the Congress, if you are interested in when President Bush came to Scranton to talk about this 

issue, and he talked about caps, I said, it is okay to talk about 

caps, but talk about raising the level of Medicaid and Medicare reVerDate jul 14 2003 11:26 Sep 10, 2003 Jkt 086683 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 W:\DISC\86045 86045
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imbursement to our doctors, to our hospitals, and to our nursing 

homes. Nursing homes lose 10 percent each day for every Medicaid 

patient they keep, 10 percent. They take that loss. And it is a system that in my judgment is out of whack, and fixing that is as important, and probably more important because it has even broader 

long-term ramifications than fixing the medical malpractice crisis. 

So it is a complex issue. We have to look at insurance costs. We 

have to continue to look at tort reform. We, certainly, can’t turn 

our back in tort reform. And Pennsylvania has, as I said, taken 

some terrific steps, and we have to do more. We have to find a way 

to alleviate this crisis. We should look at medical safety, we should 

look at insurance costs, we should look at tort reform, and we 

should look at Medicaid and Medicare reimbursements. If we do all 

of those things, I believe we can bring this crisis under control. Nobody is assigning blame. There is plenty of blame to go around and 

assigning blame doesn’t do much good in my judgment. But I think 

this committee’s efforts are sincere and I hope you will address all 

of those issues as you go down the road and do your work. Thank 

you very much, Mr. Chairman. 

[The information referred to follows:] 

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Mr. GREENWOOD. Thank you, Governor. We appreciate it. As a 

matter of housekeeping, without objection, the Wall Street Journal 

article of June 24 submitted by the Governor will be entered into 

the record. The Chair recognizes himself for 10 minutes to question 

the Governor. 

Governor Rendell, you have stated repeatedly that caps are not 

the only answer, and we all agree with that. And first, let me be 

clear about what I am talking about and what my legislation does 

with caps. It places, as I think you know, no cap whatsoever on 

economic damages. So any individual harmed in Pennsylvania by 

medical error, or anywhere else in the country, under that legislation would be able to recover 100 percent healthcare costs, doctors, 

hospitals, drugs, rehab. They would be able to recover 100 percent 

of lost wages for a lifetime if it is a newborn, for instance; any services that they cannot provide for themselves, if they need someone 

to mow their lawn, or go shopping for them, or walk their dog, 24-

hour nursing, they are all reimbursable. Punitive damages in those 

relatively rare cases where punitive damages apply are payable 

under the legislation up to twice the economic damages. So the cap 

only refers to and only applies to the non-economic damages, the 

so called pain and suffering. And our legislation sets that at 

$250,000 as a floor. We set it at that number because the Californians do not want us to trump their existing $250,000 cap, but we 

allow State legislatures and Governors to raise that cap on non-economic damages to wherever they choose, so it has been referred to 

as draconian but it is only as draconian as the States choose it to 

be. So I wanted to make that clear. 

Now, you said in your testimony that you believe caps are not 

the panacea. If you only do caps, you don’t solve the problem. 

Agreed. And that is why the legislation that I have introduced does 

many things, including some of the items that you referred to, but 

it does the cap. The question is not whether caps are a sufficient 

response. The question is whether they are necessary. Let me just 

continue here, because I would argue that while they are not sufficient, they are certainly necessary. You referred to some discussions that you had with medical liability carriers, and I happened 

to be at the Pennsylvania Society when you spoke and talked about 

your discussion with the head of Princeton Insurance Company, 

who said—and I think you paraphrased it today—if you just do 

caps, we are not coming back. 

Here is what he said in the letter to us, February 7, 2003. President of Princeton Insurance Company, William McDonough, wrote 

that his company has always supported our efforts to establish 

caps on non-economic damages as part of a package of tort reforms 

and adds, ‘‘Princeton believes these initiatives will serve to bring 

stability to the medical malpractice market, ensuring the malpractice coverage our physicians need is available and affordable, 

especially, in the New Jersey and Pennsylvania regions.’’

Now, does this conflict with your understanding of their position, 

because this is critical. They want caps. 

Governor RENDELL. Well, they want caps, but they wouldn’t come 

back to Pennsylvania if that is all we did. 

Mr. GREENWOOD. That is agreed, and that is why none of us——

Governor RENDELL. But if I were in the insurance——

19

Mr. GREENWOOD. Let me just finish, Governor. None of us propose to do caps and caps alone. All of us propose to take a series 

of steps. And as I listen to the things, the items under consideration by your taskforce, caps was one of them, and you admitted 

that you are not a fan of caps. You admitted, or you noted, that 

the Constitution doesn’t allow the legislature to set that cap, which 

is precisely why I have gone the Federal route to go ahead and do 

that. You have talked about reducing coverage. Well, you can reduce coverage, but I think that there are many who would argue 

in favor of the legitimately harmed patient that you don’t want to 

reduce coverage to the point where patients can’t—legitimately injured patients can’t achieve legitimate coverage or verdicts. 

Governor RENDELL. California has reduced coverage to $100,000, 

and I would argue that that would reach the standard you just 

said. 

Mr. GREENWOOD. Okay. And that does begin to get to the liability issue, because you talked to a bond issue, you have talked about 

going after a one-time tax on the insurance company surpluses. 

What those things do is just put more money into the pot. It becomes taxpayers’ money and premium payers’ money, but I guess 

what I want to get from you is a clear understanding of do you 

think that critical to resolving this crisis is to limit in someway the 

exposure, the liability of the insurance companies, so that when 

they are confronted with these claims, these cases, that they can 

decide whether they can afford to go to court and risk a trial or 

whether they have to settle because their exposure is so unlimited, 

as it is now in Pennsylvania, that they can’t take the risk? 

Governor RENDELL. I think if you had to choose between caps, let 

us say at 250, and reducing the mandated coverage, I think most 

defense lawyers would tell you reducing the mandated coverage is 

far superior. For us to have a $1 million coverage, in California you 

have $100,000, makes no sense. I agree with you, $100,000 is probably too low, but I think mandated coverage, the level of mandated 

coverage, is probably more important than caps in my judgment. 

Again, the caps aren’t paid; the $30 million you read about is never 

paid by a doctor, never paid by the insurance company. It just affects the settlement discussions. But reducing the mandated coverage, I think would have a better effect on reducing the coverage. 

But I am not arguing with you. Would caps have an impact overall 

in reducing premiums? Absolutely. The question is, and it is a 

question for all of you, and it is a question for my taskforce, and 

myself, and the Pennsylvania Legislature, at what cost? 

And I know what you said is correct, and I know you are genuine 

in your desire to see a victim totally taken care of, but let us take 

a young person, a young person who at the age of 5 or 6 goes in 

for a procedure, and let us posit for a moment that that young person because of clear-cut negligence comes out of that procedure as 

a quadriplegic. We are going to take care of that young person’s 

medical needs and the attendant needs for the rest of their life. 

Well, that young person is likely to live another 70 years, and capping the damages for non-economics to that young person, trying 

to in some way compensate that young person for the loss of everything and for the emotional distress of knowing that they have lost 

every basic activity that a normal human being can do at $250,000 

20

for 70 years, that is probably, if you factored in inflation, that is 

probably about $2,000 a year for that young person. 

Mr. GREENWOOD. What is the point of having a cap that is higher 

than the coverage? If you are going to limit the coverage, and you 

just said we should limit the coverage. 

Governor RENDELL. Right. 

Mr. GREENWOOD. Okay. And you said that these big awards 

aren’t actually paid because there is a limit on the coverage. Now, 

if you limit the coverage, as you have suggested, and now you want 

to have juries award verdicts that exceed that coverage, what have 

you accomplished? 

Governor RENDELL. Well, it depends if there is hospital liability, 

et cetera, et cetera. I mean, the bottom line——

Mr. GREENWOOD. You also said that you want to have hospitals 

only bear their fair share of the burden. 

Governor RENDELL. Right. 

Mr. GREENWOOD. And you don’t want a deep pocket system. 

Governor RENDELL. Well, we have done that in Pennsylvania, as 

I said, and most—I think we were one of the last large States to 

have a threshold on joint and several. You know, there comes a 

point where, I agree with you, if you mandate coverage too low—

and I don’t want to mandate coverage anywhere close to $100,000. 

Mr. GREENWOOD. What is a good number? 

Governor RENDELL. I don’t know. I am waiting for the committee 

to recommend that. 

Mr. GREENWOOD. But you would have the power in the State of 

Pennsylvania to match the cap with coverage. So if you think 

$100,000 is too low, and here we are talking about in my bill unlimited economics. I don’t want a coverage limit on economic damages. I want that person who is a quadriplegic who might need 

round-the-care nursing coverage, around the clock, and a lifetime 

of lost wages, I want that person to get $10 million if he or she 

needs it because they need it, and they were legitimately harmed 

and they need that. The question is that when a quadriplegic is 

lying in the bed getting nursing care, and having his services covered for him, and his wages covered, and all of that, then is there 

a point to having that jury award an extra $5 million or $10 million for non-economic damages, much of which ends up in the pocket of the attorney, or do you want to put some limits on this? 

Governor RENDELL. The only way it ends up in the pocket of the 

attorney, if a check is cut. The verdict doesn’t determine what an 

attorney gets. It is only when the check is cut. That is another misconception that people throw around. A $30 million verdict means 

the attorney gets $10 million. Well, that $30 million verdict, assuming now that we have got joint and several for the hospital, 

could be a $1 million payment and the attorney gets $333,000. If 

there is hospital liability, it would be higher. 

Mr. GREENWOOD. But then, of course, the physician—you said 

that physicians don’t necessarily wind up spending their personal 

assets, but if you——

Governor RENDELL. No physician has ever been sued in Pennsylvania. 

Mr. GREENWOOD. Well, my guess is that part of that is because 

they have coverage, that they buy coverage sufficient to protect 

21

their personal assets. But if you are recommending a system in 

which the physician is only required to have a cap on their coverage, and yet, you don’t want to cap their exposure, the insurance 

company’s exposure, which is really what you are talking about, 

the insurance company’s exposure, then the hospital and the doctors are stuck with unlimited exposure out of their other assets because they have got a cap on their coverage, no cap on their liability. 

Governor RENDELL. Right. But again, let me repeat, at least for 

physicians, no physician has ever been sued for collection of a verdict above and beyond mandated coverage. 

Mr. GREENWOOD. Well, my guess is that is because they have 

covered themselves. Has my time expired? My time has expired. 

Then I will yield 10 minutes to the gentleman from Florida. 

Mr. DEUTSCH. Thank you, Mr. Chairman. Can we bring up number 5? That is number 6. All right. You can leave it. I have a question on number 6; that is fine. Okay. That is not very helpful. All 

right. I don’t know if you can make it out, but, you know, in Florida we are proud of being No. 1 in a lot of things. This is not something we are proud of being No. 1 in. This is a survey from the 

Medical Liability Monitor of the cost of malpractice premiums by 

State, with Florida, as it shows, is the highest State. Pennsylvania, 

as bad as things are, again, it is somewhat dated data, 2001, but 

Pennsylvania is less than one-third of Florida in terms of rates. 

And as you can see by the chart as well, it ties into the conversation that we have been having. Non-economic damage caps have 

been instituted by the State in Florida, and you know—I mean, 

Governor, I don’t know if you want to respond to it—it lists a number of States. In fact, the top 2, or 4 of the top 5 States, in terms 

of premiums have some type of non-economic damages. 

Governor RENDELL. You mean, caps? 

Mr. DEUTSCH. Caps on non-economic——

Governor RENDELL. Yes, although, the advocates for the other 

side would say they are not California style caps. But I agree. I 

mean, I don’t believe that caps is as a significant factor as mandating coverage, as joint and several, as eliminating frivolous lawsuits, as curbing the number of lawsuits. I think there are so many 

factors that kick in and are far more influential than caps. 

Mr. DEUTSCH. You mentioned, and again, I am not familiar with 

most of the specifics of Pennsylvania or tort law, but you mentioned several times this $1 million mandatory coverage. Could you 

explain that a little bit, how that works? Is that by State statute? 

Governor RENDELL. It is by State statute. We were mandated, actually, before Act 13 at the beginning of 2002, we were mandated, 

a doctor was mandated to cover $500,000 of coverage from a private insurance company and pay in a premium that amounted to 

a $750,000 coverage in the CAT Fund. Act 13 reduced the $750,000 

to $500,000. 

Mr. DEUTSCH. So every physician that practices in the State of 

Pennsylvania has that level of coverage? 

Governor RENDELL. It depends on the level—well, I am not sure 

of that. To be honest, Congressman, I am not sure of that. 

Mr. DEUTSCH. Okay. I mean, the million dollar number, though, 

that you were talking about—because again, the Florida experience 

22

is much different. In fact, actually, I asked the staff to check. You 

mentioned California, and again, this is, you know, sort of how statistics are tough to grab a hold of everything. I am not aware that 

in Florida there is any requirement of a minimum requirement. 

Governor RENDELL. Many States have no mandated coverage. 

Mr. DEUTSCH. Right. And so, you know, that is not to say, you 

know, that would be evidence if we look at high rates in Florida 

but, in fact, again, it is interesting. My understanding is, particularly in certain subspecialties, and this is, you know, just kind of 

talking through things. It is not a solution that I would recommend, but in a sense, in Florida two things have occurred. One 

is a huge number of physicians, particularly, in very high premium 

areas, have gotten bare and have really dealt with asset protection 

as a response in terms of not having coverage. The other thing that 

has happened in Florida is because of sovereign immunity issues 

in certain subspecialties, physicians have entered into contracts 

with hospitals that have protection of sovereign immunity to, basically, continue their practices under the umbrella of sovereign immunity. Could you just talk a little bit about——

Governor RENDELL. In terms of going bare, I would suggest that 

as a short-term remedy, to me, that we allow physicians to just go 

without coverage for a 6-month or 1-year period while we are trying to sort all this out. The problem is, and I don’t know if—I am 

sure you have got hospital personnel here. The hospital personnel 

object vociferously to allowing—and I think most Pennsylvania hospitals would not allow a physician with no coverage to practice in 

their hospitals, and that would cause at least in Pennsylvania a 

breakdown of the whole medical system. 

Mr. DEUTSCH. What about the issue of—again, I am not familiar 

with Pennsylvania and how it works with sovereign immunity 

issues. St. Mary’s, I assume, is a not for profit hospital. Is it benefited by sovereign immunity? 

Governor RENDELL. No, and we have no State run hospitals. We 

have a couple of mental institutions, but no State run medical facilities in Pennsylvania. 

Mr. DEUTSCH. So there is no community hospice, there is nothing——

Governor RENDELL. Nothing that has sovereign immunity. 

Mr. DEUTSCH. And so not for profit’s do not avail themselves of 

that type of immunity? 

Governor RENDELL. Well, they can’t under Pennsylvania law. 

Mr. DEUTSCH. Is that something that has been looked at in terms 

of——

Governor RENDELL. Well, again, I mean, you are back to what 

Congressman Greenwood says. You don’t want to create a system 

where there can be no recovery at all, because the most important 

thing is that medical costs and lost wages, but particularly, medical 

costs, are covered. If you have sovereign immunity, I assume sovereign immunity imposes some sort of cap in Florida? 

Mr. DEUTSCH. Well, actually, it ends up being an interesting procedure that those cases go directly to the legislature in terms of a, 

basically, arbitration process through the legislative process. 

Governor RENDELL. And we had sovereign immunity in the city 

of Philadelphia when I was mayor. Sovereign immunity limited in 

23

some instances what our total liability was; in some instances we 

had no liability at all. And that can obviously work and have some 

negative consequences as well. 

Mr. DEUTSCH. Can we bring up chart number 6? Okay. This 

chart, as you can see, it tells us that most of Pennsylvania does not 

have the medical malpractice problems as Philadelphia County and 

the counties that surround it. Even as close as Lancaster, medical 

malpractice premiums are only about 60 percent of Bucks and 

Montgomery. And when we look at the breakout of types of practice, obviously, the highest ratios and State charges, in fact, you 

know, in the area, I guess, for family practitioners, some of them 

pay as little as $5,000 per year. OB-GYN’s in Philadelphia pay 

about $90,000 a year. This is something that you talked a little bit 

about in your testimony, but is it, you know, your sense that the 

problem is really local and limited to relatively few physicians? 

Governor RENDELL. No. I don’t know that is affecting—the problem is intense in the southeast, but also extremely intense in 

Lackawanna, and I don’t know Luzerne, but particularly, Lackawanna, Luzerne, Monroe. Those doctors were about to walk off before we did our short-term remedy, and even across the State. Do 

you see little Fulton County down in the southern part of the 

State? I was campaigning, I was the first Democrat. Actually, I was 

the first candidate for Governor to come to Fulton County in 40 

years, and I came this summer. And there aren’t a lot of Democrats 

in Fulton County so the people who came to my press conference, 

I got to know personally. And one of them—I was on a first name 

basis with all of them. One of them was the county’s only physician, only physician who lives in Fulton County. He had a general 

practice and he told me that he had no problem with his premiums 

because he didn’t do the complicated work. When someone in Fulton needed orthopedic surgery, a doctor from a hospital in Chambersburg, which is Franklin County and Green, would come over 

and perform that surgery in the General Hospital in Fulton. 

I saw him—that was in July. I saw him about 7 months later at 

my inaugural ball. I just, you know, was greeting people at the inaugural ball, and he came up to me and said, do you remember me, 

I am the doctor from Fulton. I said, yes. He said, my medical malpractice has increased two-and-a-half times since I talked to you, 

and that is in little Fulton, which you have in the purple, which 

is the least consequential of all. And if you were to ask doctors in—

and maybe some of the physicians and maybe the hospital administrators can talk about this. If you were to ask doctors in Pittsburgh, which is Allegheny County, southwest Pennsylvania, Erie, 

they would tell you that their medical malpractice premiums have 

increased a large percentage. 

But because of the work that is done, and it goes back to that 

original point I made about the 5 percent, most of the high risk 

surgery that goes on in Pennsylvania goes on in those dark blue 

counties in the southeast, a little bit of it in Allegheny County and 

a little bit of it in Lackawanna County, and then that is the problem. If you were to look at the percentage of the physicians in the 

four challenged specialties where I eliminated 100 percent of their 

MCARE payments, a high percentage, a very high percentage, 

would be in those purple counties. So it is a little bit of the type 

24

and practice. That physician from Fulton County was, basically, 

your old fashioned GP, and your old fashioned GP hadn’t gotten hit 

yet, but has started to get hit. Now, his medical malpractice premium that has increased two-and-a-half times, any OB-GYN in 

Philadelphia or the Philadelphia suburbs would give their right 

arm to have his premium, but it is all relative because remember, 

it is the premium compared to the amount of gross revenue that 

comes into the doctor’s practice. And the gross revenue in the practice is far greater in those purple, and yellow, and red counties 

than it is in most other parts of the State. Allegheny County is the 

one anomaly in that chart. 

Mr. GREENWOOD. The time of the gentleman from Florida has expired. The chairman welcomes the gentleman, the new Member of 

Congress from Chester and Lancaster Counties, and Montgomery 

County, and Bucks County, Congressman Gerlach, and you are recognized for 10 minutes for questions. 

Mr. GERLACH. Thank you. Good morning, Governor. 

Governor RENDELL. Good morning. 

Mr. GERLACH. First of all, let me commend you on the handle 

you have on this issue. You seem to have gotten started very quickly in your term with understanding what is going on all across 

Pennsylvania. And anecdotally, one of those blue counties up there 

that was not indicated as being a high or a great area of concern 

is Clarion County. My sister happens to work for an orthopedic 

surgery group in Clarion County, a very rural, small county in 

Pennsylvania that, relatively, their rates have been going up very, 

very rapidly. And again, based upon what the reimbursement rates 

are for Medicare and Medicaid, as well as third party payer, that 

has been a very high cost that they have been absorbing in the 

past few years, and it is at a very difficult level for them as well. 

Governor RENDELL. Absolutely. And can I interject, Mr. Chairman, one of the things that, as you know, Medicare and Medicaid 

reimburse differently, urban and rural. So a physician in Philadelphia will get a higher rate of reimbursement for operation A than 

that physician in Clarion County. 

Mr. GERLACH. Absolutely. 

Mr. GREENWOOD. Right. Because of the high tax rates in Philadelphia, they have higher overhead. 

Mr. GERLACH. When I was in the legislature, and you covered a 

number of things that were done in the past year to deal with this 

issue, and a lot of good things were done, no question about it. One 

of the things I was involved in, specifically, was the frivolous lawsuit issue, and we had a bill, Senate Bill 406, that would have 

amended our Dragonetti section of the Pennsylvania Judicial Code 

to strengthen those provisions, to identify or allow an opportunity 

for a victim of a frivolous lawsuit to collect attorney’s fees and costs 

against the plaintiff that brought a case that did not have any real 

basis in law or in fact. And rather than that legislation ultimately 

getting all the way through the legislature and to the Governor’s 

office was the fact that that also is an issue involving rural support 

in Pennsylvania, and so that is the constitutional end of the purview of the Pennsylvania Supreme Court. And they, in turn, if you 

are aware, did amend Pennsylvania Rules of Civil Procedure 

25

1023.1 to, in essence, give us a Federal 11 here at the Pennsylvania State court level. 

Additionally, just recently, you know, they amended the Rules of 

Civil Procedure again to provide for a certificate of merit that will 

identify, hopefully, and weed out frivolous litigation at the outset 

if there is not clear grounds for that suit to begin. And you would 

think based upon those two rule changes that those are a sufficient 

way to address your point that one of the reasons there is a high 

cost of doing business as an insurance company in Pennsylvania, 

to write medical malpractice insurance, is the number of lawsuits 

that are being filed. Are those two changes to the Rules of Civil 

Procedure sufficient enough in your opinion, or do you need to go 

further either by either a procedural rule change through the court, 

or statutorily, through legislation, to again address the issue of the 

number of lawsuits that are filed in Pennsylvania that in turn then 

impact the cost of insurance? 

Governor RENDELL. Well, first, let me commend you for trying to 

take your legislative action to deal with this problem, because like 

I said, the insurance companies identified this as the No. 1 problem. The answer to your question is I don’t know, and we have 

asked our committee to look at that. There may be a need for some 

form of arbitration system for lower level claims to continue to 

weed out those discovery costs and those trial costs, et cetera. But 

I think those two steps, the American Bar Association and some 

other group estimated 25 percent of the medical malpractice lawsuits in any State would get knocked out by those two provisions. 

And that is a significant number. 

Mr. GERLACH. There was also, you mentioned, arbitration back 

in 1996 the legislature passed, I think it was Act 35, that had a 

number of forms in it, including a mediation process to mediate 

medical malpractice cases before they get to a writ of summons 

being filed, or a complaint being filed, and the civil litigation process starting. That was suspended, that and other provisions were 

suspended by the court back in 1996, and had they been in place 

over the past 6 or 7 years, there might have been a different story 

in the medical malpractice situation in Pennsylvania. Do you, as 

Governor, intend, if you have not already, to go back to the court 

and have them reconsider that suspension, because again, it is only 

a suspension. It was not deemed to be constitutionally invalid at 

this point, as I understand it. It has just been suspended by the 

court through their King’s bench power. Would you look at going 

back to the court and requesting a review by the court of whether 

that mediation process ought to be reauthorized by the court and 

allowed to be brought into place in Pennsylvania to allow a process 

to mediate or arbitrate these cases before you get into the civil justice system? 

Governor RENDELL. Absolutely. That is one of the things the 

taskforce is looking at. Of course, Congressman Greenwood understands, but for the other Congressman, we have a particular clerk 

in Pennsylvania where a lot of the Supreme Court controls procedural forms, the legislature controls substantive reforms. And of 

course, the difference between substantive and procedure is what 

the Supreme Court says it is. In 1996, the legislature passed a fairly comprehensive set of reforms. The Supreme Court voided all of 

26

them and said they were all procedural, but then didn’t take any 

action on its own to refer to its own rules committee. I will say 

there is real hope on the horizon because the new Chief Justice, 

Ralph Cappy, is very responsive. In December, I asked him to expedite the process in looking at the certificate of merit, and they 

came out with a rule just about a week ago on certificate of merit, 

as you know. So we are looking at all of the 1996 work of the legislature, which I thought was also good work, and by the way, agreed 

upon by both sides. As was, interestingly, the certificate of merit 

rule had the support of the vast majority of trial lawyers in Pennsylvania, because the substantial trial lawyers would never bring 

a lawsuit without having a certified medical expert’s opinion in 

hand. So the legislature in 1996 crafted out a good area of agreement, and unfortunately, it was voided. We are looking at recommending all of those. Our recommendations will not just be to the 

legislature, but they will be to the Supreme Court Rules Committee 

as well. 

Mr. GERLACH. Okay. Good. Well, thank you very much. 

Mr. GREENWOOD. The Chair thanks the gentleman and recognizes for 10 minutes the gentlelady from Chicago. 

Ms. SCHAKOWSKY. Thank you so much, Governor, for all of your 

testimony. I am wondering if I could go back to chart number 5. 

Well, the point I wanted to make out of chart number 5 is that at 

the bottom half, you see, the darkest line is the average, and then 

below that are those that paid less than average. And what you 

find in there is that below the line there are 14 States that have 

no caps, and above the line there are 12 States that have no caps. 

In other words, there are more States that have caps above the line 

as a percentage than below the line, and I wanted to just point out 

a State that may be somewhat comparable to Pennsylvania, Minnesota, which does have large cities and has no caps at all, and has 

insurance premiums that are much lower, that are third or fourth 

from the bottom, and just comment that there is this disconnect between the notion that if there were caps, that somehow those premiums would be lower, which I think, really, just reinforces what 

you were saying. 

But I wanted to show you chart number 1 to show in terms of 

verdicts, and this may reinforce also with what Congressman Gerlach was saying. In terms of payouts here in Pennsylvania, you 

find that they have, actually, dramatically, been reduced when it 

comes to verdicts over the years, and are at a low level. So if what 

these insurers are telling you, that it is the number of lawsuits, 

then it would seem to me that the critical reason perhaps, or a 

more critical factor anyway, would be the certificate of merit solution to deal with a number of lawsuits. 

Governor RENDELL. Well, we won’t know the effect of the certificate of merit or the Rule 11 that Congressman Gerlach talked 

about, because, again, they were too late to factor into the January 

1 premiums. But we believe they will factor into the July 1 premiums that are coming out. You know, again, I have seen this 

chart and this statistic, and these are the ones that go to trial, and 

there is no question, juries, I think, have been sensitized about all 

of the publicity about the crisis and are less—I think a lot of juries 

in Philadelphia said, well, we will let the insurance company pay. 

27

That was their sort of belief, you know, this poor little girl. In fact, 

there was a quote in the paper, I think on Sunday, saying, well, 

we didn’t think there was any negligence, but the poor little girl 

was so nice that we wanted her to get something. I think because 

of the growing knowledge of the crisis this year, I think juries are 

a little bit more in tune to that. But the key factor here which 

would make this chart, and I have asked the trial lawyers to come 

up with it, is the amount of large settlements as well. If that 

amount had also gone down as dramatically, then you could see 

there was real progress being made. 

Ms. SCHAKOWSKY. Let me just point out that Minnesota does 

have a certificate of merit, so that may be one of the factors that 

will lower the premiums. I wanted to also argue that what you 

refer to as tax cuts, and I know none of us want to go into that, 

but it, in fact, may be more relevant, in fact, than caps, because 

you in your campaign endorsed a 10 to 15 percent enhancement in 

Medicaid for high risk specialties, some of which, a good deal of 

which, would come from the Federal Government. 

Ms. SCHAKOWSKY. I wondered if you want to——

Governor RENDELL. Well, I was going to have Pennsylvania actually chair some of that, enter into a joint agreement. Again, I go 

back to what Congressman Greenwood said, and it was the right 

thing. There is no one answer to this, but clearly, increasing Medicaid and Medicare reimbursements is a crucial step to this. It is 

a crucial step to this, and again, it is something that we have to 

do for a whole boatload of reasons, not just the medical malpractice 

crisis. But we have to alleviate the pressure on the doctors and 

hospitals from both ways, the rising premium cost and the fixed reimbursement cost. If we can do that, I think we can bring this situation under control. There are a lot of different answers to this, but 

that is clearly one of them. 

Ms. SCHAKOWSKY. Well, I know that Governors across the country, including our new Governor, Governor Blagojevich in Illinois, 

are certainly facing huge budget deficits largely driven by 

healthcare costs. I am wondering if you have gotten any response 

from the Bush administration or the Republican Congress. 

Governor RENDELL. No. I have gotten some good indications from 

some of our Senators and Congressmen here that they intend to 

work on that this year, as I told you, as part of the comprehensive 

prescription drug crisis. But you know, if I could put in a plug, in 

general, before the economic stimulus program was released, all 

the news media had it that the President was going to include direct relief for the States to the tune of $40 or $50 billion. That disappeared from the President’s economic stimulus program on the 

day it was announced. We were told it would be covered in the 

budget message. It does not appear to be in the budget message as 

well. And that direct aid to the states would be one way of alleviating this crisis. And I made the comment about my Republican 

colleagues having to raise taxes, you know. The States will have by 

the end of this year $75 billion in accumulated deficits by the end 

of this fiscal year. Last year the States raised almost $9 billion in 

taxes, and in my judgment, we are just tax shifting. We are not 

really reducing taxes; we are tax shifting. But again, that may be 

another issue. 

28

Ms. SCHAKOWSKY. Well, I mean, I think that certainly relates to 

the notion of how much money, absolutely. Let me ask you this. 

You referred pretty knowledgeably to the notion of the responsibility of the insurance industry itself, which was low-balling some 

of its premiums. How can we address the issue of the insurance 

cycle itself, which often is unrelated I think to the issue of the payouts. And what are you doing in Pennsylvania to address this? 

Governor RENDELL. Well, I am asking our taskforce to look at 

that, and that is a complicated issue, because you wouldn’t want 

ever to have a system where the premiums were set at a level that 

covered the claims and allowed the insurance company to make a 

profit, because that would jack premiums way up. The insurance 

companies are allowed to and can keep premiums down because 

they do have the ability to invest that money, but there should be 

some oversight and some restrictions on the level of investments 

and some restrictions on the speculative nature of that investment, 

and I think that is crucial. If you made the investment more diversified and a percentage of that investment in relatively safe investments, you would have less of a spike. I think you can control that 

by having some monitor on the type of investments, you know. The 

insurance companies, like so many other people, invested too heavily in dotcoms, and the rest, as they say, is history. And maybe 

there is a way to have a monitoring on the type of investments 

they can make and the type of safe reserves they have to have, 

things that are in bonds, or in T-bills, or things like that. And 

again, it is a fine line, because that is going to drive up premiums 

a little bit, but it would keep from having these terrible spikes. 

Ms. SCHAKOWSKY. Let me ask you, also, what Pennsylvania is 

doing to weed out bad doctors. I mean, we know that in addition 

to a malpractice insurance crisis, there is also a malpractice crisis, 

that we have a large number of people who die from preventable 

causes—well, worse than that, from negligence of——

Governor RENDELL. We aren’t doing enough and that is something we are studying as well. Act 13 was the first act that tried 

to do something about patient safety. It didn’t go nearly far enough 

and I think that is acknowledged by a lot of people, and we are trying to make sure that there is reporting, we are trying to make 

sure that the public is aware, and we are trying to make sure that 

there is some disciplinary procedure in place. Not that the discipline and review process for lawyers is necessarily a good one, 

but every year in Pennsylvania, my guess is somewhere between 

10 and 20 lawyers lose their license to practice law, and that has 

a deterrent effect. 

Ms. SCHAKOWSKY. Thank you very much. 

Mr. GREENWOOD. The Chair thanks the gentlelady. Governor, a 

couple of questions. My father, a year ago, when we had snow like 

this, and shoveling snow at age 80, threw out three vertebrae in 

his back, and his doctors told him he was doing to have to sit in 

a chair for the rest of his life and do pain management. I found 

him a great surgeon, Dr. Simeon from your great city of Philadelphia, operated on my father, and in days, he was recuperated and 

he could go skydiving again today. Now, Dr. Simeon tells me in a 

letter that his medical malpractice insurance rates are over 

$600,000 a year, I think $660,000 a year, and he has to do 400 surVerDate jul 14 2003 11:26 Sep 10, 2003 Jkt 086683 PO 00000 Frm 00032 Fmt 6602 Sfmt 6602 W:\DISC\86045 86045
29

geries a year just to pay his malpractice rates. His partners left 

and went to Indiana and pays practically nothing for the same coverage. Now, that is not because in Indiana doctors don’t make mistakes, or that they have worse doctors. They don’t have worse doctors in Pennsylvania than they do in Indiana. Do they? 

Governor RENDELL. No. I think we have the best doctors in the 

country. 

Mr. GREENWOOD. So our doctors aren’t accident prone or particularly negligent, so that is not what is causing the difference. Okay. 

The insurance companies in Indiana invest in the same stock market as insurance companies in Pennsylvania. I don’t think you are 

here to tell us that investors in Pennsylvania are dumber than investors in Indiana. 

Governor RENDELL. No. 

Mr. GREENWOOD. Okay. But the cost of the premium is extraordinarily by a factor of 300 fold smaller in Indiana. Now, there are 

certain things you can do. You can put more money into the system 

here, and you have proposed taxing the insurance premiums, the 

surpluses. The problem you have with that is when we saw the 

map there, all those counties, all those legislators from the light 

blue counties, are not fond, and you have heard this, of passing legislation to transfer money from the premiums paid by their constituents, because they see the problem as being—I will let you answer, Governor. Let me finish here. So that may not happen. I am 

for raising the Medicare payments to physicians, but at some point, 

putting more money into this crisis is putting gasoline on the fire. 

Now, the other thing you can do is limit what goes out. Put all 

the money in the pot and you have to limit what goes out, and that 

is where you get the caps, or coverage limits, or something to limit 

what goes out. Or the third thing you can argue is that what is 

really the problem is the insurance companies. You can say that, 

actually, there is enough premium money coming in to pay for reasonable exposure. It is just that the insurance companies are the 

culprits. They are either price gauging or they are doing something 

wrong. But I look at PMSLIC, which is the Pennsylvania Medical 

Society Liability Insurance Company, the biggest physician owned 

insurance company in Pennsylvania. They are not there for profit, 

they don’t invest wildly, they invest in treasury bills and AAA corporate equities. They raised their premiums on their doctors that 

they are serving 54 percent last year. Now, they will tell you, and 

they are going to testify a little while later. They will tell you it 

has nothing—the investment piece of this was about 4 to 5 percent 

of that 54 percent, and the rest is the liability exposure environment. 

So my question to you, sir, is if a physician owned insurance 

company can’t figure out how to provide affordable premiums to its 

own members, then how does insurance reform, without putting 

some limitation to the exposure, solve the problem? 

Governor RENDELL. Well, first of all, no one is saying that you 

can do one and not the other, and no one should be saying that. 

Look at what the Pennsylvania legislature, Congressman Gerlach 

said it, that he is proud of what they did last year, and he should 

be. And I said in my remarks at the press conference on December 

30, that the Governor and the legislature deserve credit. Act 13 

30

was a substantial step, joint and several was a substantial step, 

the venue legislation was a substantial step, certificate of merit, 

Rule 11, the Dragonetti proposal which got transferred and Rule 

11, those were substantial steps. So no one is saying we shouldn’t 

do tort reform, but I think there should be further tort reform, and 

again, I am willing to consider caps if the committee recommends 

them. 

Mr. GREENWOOD. I am glad to hear that. 

Governor RENDELL. But you cited that PMSLIC went up 54 percent last year. Do you know what the California rates went up last 

year? Thirty-four percent. So it is not like the States—I mean, 

again, it is everything. Of course, we should do tort reform, but you 

can’t let the insurance companies off the hook anymore than you 

can let——

Mr. GREENWOOD. Well, no one is suggesting that we let them off 

the hook, but if you look at the California situation, Governor, 

since 1975, the increase in premiums there has been 167 percent 

while the rest of the Nation faced 505 percent. And the reason, the 

big difference between Pennsylvania, where Dr. Simeon’s partner 

left, and Indiana, where he wound up, is that they have a cap on 

non-economic damages. And if you look at the nationwide map, the 

most direct correlating factor between premiums, relating to premiums, is whether or not they have some limitation whatsoever, be 

it $250,000, be it $350,000, be it $550,000 on non-economic damages. 

Governor RENDELL. Except California, again, let me repeat, the 

first 10 years after California imposed its caps, they went up 100-

and-some percent——

Mr. GREENWOOD. Well, as you testified, yourself, Governor, that 

has a lot to do with the tail. You said that when you do prospective 

reform, you get immediate results, but you can’t get immediate results when you are bringing in the whole tail. 

Governor RENDELL. I understand. But it was only after they 

passed another proposition mandating the rates for them, plus the 

coverage dropped in California that you got the real thing. And 

look at this chart, and I know this chart is dated, and for us it certainly is dated. We are much higher up in this chart and I want 

to concede that, but look at this chart. Florida, Michigan, Texas, 

West Virginia, 4 out of the 5 States that have the biggest premiums of all have caps. How do you explain that? And the answer 

is—do caps help? Of course, caps would help. Every legislative body 

has to weigh whether caps help enough to justify the potential 

harm that they do. Every legislative body has to look at everything. 

All my plea is here today is consider the legislation, consider caps, 

but please don’t totally ignore the insurance industry, don’t totally 

ignore the medical safety issue, don’t totally ignore the caps that 

the Federal Government has placed on Medicaid and Medicare. If 

we are going to solve this, let us not look for villains, let us not 

look for bogeymen. Let us try to look for the right result for all of 

our citizens. Nobody out there—and you said it in your remarks, 

and I know you well enough to believe this—you don’t want to take 

away the individual’s right to sue. You don’t want to take away the 

individual’s right for fair compensation. Nobody wants to create a 

system where doctors don’t have to worry about how they practice 

31

and whether they do shoddy things or not shoddy things. Nobody 

wants to do that. Conversely, nobody wants to put so much pressure on doctors that they become risk diverse. Risk is what allowed 

your father to walk again. Risk is what allows our medical community to do wonderful things. We have to find an answer that includes looking at all these different solutions, and we are looking 

at all these different solutions, but we shouldn’t hold out caps as—

and I am not saying that you do, but there are too many people 

out there, including some of the doctors—and I love our doctors. I 

think they do great work. They are looking for a silver bullet, they 

are looking for the magic cure. If I were them, I would probably 

be looking for the silver bullet and the magic cure as well. Those 

of us who have the responsibility of looking at the broad picture 

should not try to feed into the fact that there is a magic cure. 

There isn’t a magic cure. We have to work hard to make progress 

on all these fronts, and if we hold out anything as a magic cure, 

we are missing the point and we are disillusioning people. And 

again, you are absolutely right about the statistics you quote, but 

in Pennsylvania, so much of that increase has been from the early 

1990’s until today, in the last 10 years. And so much of it came 

from a time—I mean, you close your eyes and go back 10 years ago 

in Pennsylvania, and there were 17 companies out there competing 

to sign up doctors, and they were low-balling each other, and we 

had no tort reform; not only no caps, but we had none of the tort 

reform that then Senator Gerlach and his colleagues enacted. So it 

is not that easy and that is all I am saying. And I don’t envy you 

your task, and I don’t envy me my task. All we know is—and you 

may not like the suggestion of what I am going to say—is 

Highmark, which has the biggest excess surplus by any rendering, 

well over $1 billion in excess surplus. Most of that surplus that 

Highmark has is because they purchased Pennsylvania Blue 

Shield. Most of the customers of Pennsylvania Blue Shield who 

contributed to that surplus come from those purple counties in the 

southeast. So Highmark should not try to make this a regional battle because the reason they have that surplus is they got it on the 

backs of southeastern customers. So again, enough said about that. 

I know you are trying, but all I am saying is look at everything. 

Let us look at everything, let us try to find some long-term relief 

here, and that is all I am saying, and I thank you for your efforts. 

Mr. GREENWOOD. We thank you, Governor, and when—I will 

leave you with this. As the chairman, I get to have the last word. 

Governor RENDELL. Sure. 

Mr. GREENWOOD. When I come to Harrisburg, you get the last 

word. When you said that we need to consider everything, and you 

say that legislatures, as you said, need to consider caps, you and 

I are in 100 percent agreement. We need to consider this is a complicated problem and we need to confront it from all of its facets. 

I think the difference is I don’t think caps are sufficient; I think 

they are necessary. You might have not got yourself to believe they 

are necessary yet, but I am going to make your job easier by putting the caps on at the Federal level, and you can do the rest here 

in Pennsylvania. Thank you, sir. 

All right. We are now going to call forward the witnesses on our 

second panel and ask them to come forward and be seated. The 

32

first of them is Julia W. Johansson, Dr. Johansson from 

Doylestown; Mr. Gregory Wozniak, President and Chief Executive 

Officer of St. Mary Medical Center; Dr. David J. Eskin, Chief of 

Staff, Abington Memorial Hospital; Dr. Edward H. Dench, Jr., 

President of Pennsylvania Medical Society; Dr. Donald J. 

Palmisano, Member of the AMA Board of Trustees, the American 

Medical Association; Ms. Leanne Dyess from Vicksburg, Mississippi; and Ms. Heather Lewinski. I am not going to ask if there 

is a doctor in the house because there obviously is, but is Dr. 

Palmisano in the house? He is probably chasing Governor Rendell 

down the hall on the way to his car. 

Okay. We welcome all of the witnesses on this panel. We thank 

you so very much for being here and for helping us to get to the 

bottom of this problem. I think all of you have been made aware 

that this is an investigative hearing, and when this committee 

holds investigative hearings, it is our custom to take testimony 

under oath. Do any of you object to giving your testimony under 

oath this morning? Okay. Seeing no such objection, I would then 

advise you that pursuant to the rules of this committee and the 

House of Representatives, that you are entitled to be represented 

by counsel. Do any of you choose to be represented by counsel this 

morning? All right. Seeing no such interest, then I would ask you 

all to rise and raise your right hand, and I will swear you in. 

[Witnesses sworn.] 

Mr. GREENWOOD. Okay. Answering in the affirmative, you are all 

under oath, and we will now recognize each of you for 5 minutes 

for your opening statement. We are going to ask you to—most of 

you have not testified before Congress. You will see these little 

boxes on the table. The green light means take your time, the yellow light means speed it up, and the red means shut up. And then 

we will give you plenty of time to respond to questions. And I guess 

we will start with Dr. Julia Johansson. 

TESTIMONY OF JULIA W. JOHANSSON; GREGORY T. WOZNIAK, 

PRESIDENT AND CHIEF EXECUTIVE OFFICER, ST. MARY 

MEDICAL CENTER; DAVID J. ESKIN, CHIEF OF STAFF, ABINGTON MEMORIAL HOSPITAL; EDWARD H. DENCH, JR., PRESIDENT, PENNSYLVANIA MEDICAL SOCIETY; DONALD J. 

PALMISANO, MEMBER, AMA BOARD OF TRUSTEES; LEANNE 

DYESS; AND HEATHER LEWINSKI 

Ms. JOHANSSON. Ladies and gentlemen, thank you for the opportunity to speak to you today. My name is Julia Johansson. I am 

a physician specializing in obstetrics and gynecology at Abington 

Memorial Hospital. I am also a life long resident of Pennsylvania. 

I am here today to discuss my reasons for leaving my home, how 

my leaving will affect my family, my patients, and the group in 

which I practice. 

I feel it is important to tell you something about me so that you 

may understand what a difficult decision leaving has been for me. 

I was born at Holy Redeemer Hospital. The only time I was ever 

outside the State was to attend college in Boston to pursue my undergraduate degree. After graduation I returned home to the house 

I grew up in, married the boy who lived a mile away, and attended 

and graduated Temple University School of Medicine. While at 

33

Temple, I rotated through Abington Memorial Hospital and so enjoyed the experience that it was one of the only two residency programs to which I applied. Thankfully, I was chosen for the residency program there. 

While at Abington, I came to know the members of my group 

very well. As a matter of fact, members of my group delivered each 

of my children. When my partners offered me a position with the 

group, I was ecstatic. It was truly my dream job. My family was 

thrilled that I landed a position so close to home since my family 

still lives in the house I grew up in, as well as my in-laws live in 

Bucks County. I was looking forward to spending the next 30 years 

of my life practicing at Abington. All that changed last year. While 

I knew that southeastern Pennsylvania was a fairly litigious are 

when I first started, only a scant 6 years later the situation has 

gone from bad to worse and then intolerable. As a matter of fact, 

I cannot think of an OB-GYN that I know that has not had a lawsuit filed against them. Most times these physicians talk in term 

of the number of lawsuits they have outstanding rather than if 

they have pending litigation. 

Some within the legal community will have you believe it is only 

the bad doctors who get sued. I am here to tell you that some of 

the best, most respected doctors I know have lawsuits filed against 

them. I am not saying there are not legitimate lawsuits; there are. 

But it seems to me when so many OB-GYN’s are being sued, they 

cannot all be malpractice. There is a difference between a bad outcome and malpractice, and in the ridiculous situation we find ourselves in, a lawsuit does not even require a bad outcome in order 

to be filed. 

Malpractice lawyers will have you believe that they file these 

suits to weed out bad doctors. At the rate things are progressing 

in Pennsylvania, all doctors will be weeded out. It seems to me we 

are creating a dust bowl within the medical community with physicians fleeing the State, decimated by the scourges of legal abuse, 

the ever decreasing reimbursements, and the soaring medical malpractice insurance premiums. 

About a year ago, my husband noticed I had become crankier, 

and I am generally an upbeat person. We had long discussions on 

the looming malpractice crisis and how things only seem to change 

for the worse. I am working longer hours, seeing more patients, in 

part, to cover the increase in malpractice, and have had my earnings decreased over the past year. And still, the workload increases 

as more doctors leave the area and entire groups disband or discontinue the practice of obstetrics. I started to notice that I could 

not take the time to get to know my patients on a more personal 

level as I had been doing in the past. This personal approach had 

helped me to tailor their treatments to their lifestyles, beliefs, and 

culture. 

In my practice we have gotten so busy that people sometimes 

have to wait as long as 3 months for their regular exams. Those 

patients with problems can get inserted into an already overbooked 

schedule. Today, for example, I have reduced the number of patients I will see in order to speak to you. Of the 50 patients I was 

scheduled to see today, about 30 of them rescheduled. They will be 

34

reinserted into my already full schedule over the course of the next 

week and I will see the remaining ones later today. 

So there I was 5 years into my practice and my dream job 

seemed to be slipping away. I was working more, making less, 

practicing defensive medicine, and not having the opportunity to 

spend as much time as I would like to have with my patients, my 

family, or friends. My husband suggested that maybe we need to 

relocate for our own piece of mind. I can only begin to understand 

how devastating it is to be a victim of true malpractice, but I don’t 

think people understand how truly devastating it is to be named 

in a lawsuit. I cannot tell you how many times I have heard people 

say, I am not really suing the doctor; I am suing the insurance 

company. I believe that people should be fairly compensated for legitimate malpractice, but the damages have gotten out of hand, especially, in Philadelphia. If a lawsuit gets to trial, it is like the 

plaintiff has won the lottery. Even if the doctor is not at fault, juries have awarded large sums of money because they do feel sorry 

for the plaintiff. 

As a result, an increasing number of physicians and insurance 

companies have elected to settle these cases, even if there is no 

fault on the part of the physician. It is these attitudes that have 

cemented my decision to leave. Although my leaving the are will 

not have far reaching effects or cause some catastrophe, it has affected all those around me. The members of my practice have told 

me it will be a great loss to them when I leave. We are actively 

trying to recruit a replacement but thus far have been unsuccessful. It is nearly impossible to find somebody who wants to start 

practicing in Pennsylvania given the hostile environment that 

awaits them. I don’t think they will find a suitable replacement before I leave. I feel sorry for my patients. They have come to know 

and trust me, and given the intimate nature of OB-GYN, this is not 

insignificant. They will now be forced to find another doctor with 

which to build a trusting relationship. They will face longer wait 

times as well. 

If something is not done to change our current situation, in the 

not too distant future it will not only become impossible to recruit 

new physicians to practice in Pennsylvania, it will begin to affect 

training programs as future doctors will not choose to train in a 

State where they will not practice. And in the distant future it 

looks even darker as the dust bowl spreads and our best and 

brightest choose not to pursue careers in medicine at all. 

In short, I am leaving Pennsylvania to practice medicine in what 

I hope will be a less hostile environment. I hope to be able to make 

a comfortable living while practicing effective, rather than defensive, medicine in a place where I can get to know my patients well 

and not live with the constant threat of a lawsuit. I understand 

there is no utopia but I want to enjoy the practice of medicine 

again as much as I had before. If you do not act to establish medical review boards to decide if cases have merit and meaningful tort 

reform to place caps on damages, the dust will spread and cover 

the entire country. Thank you for your consideration. 

[The prepared statement of Julia W. Johansson follows:]

35

PREPARED STATEMENT OF JULIA W. JOHANSSON

Ladies and gentlemen, thank you for the opportunity to speak to you today. 

My name is Julia Johansson and I am a physician specializing in OB-GYN at Abington Memorial Hospital. I am also a life long resident of Pennsylvania. I am here 

today to discuss my reasons for leaving my home, how my leaving will affect my 

family, my patients and the group in which I practice. 

I feel it is important to tell you something about me, so that you may understand 

what a difficult decision leaving has been for me. I was born at Holy Redeemer Hospital in Meadowbrook, Pennsylvania. The only time I have lived outside the state 

was to attend College in Boston to pursue my undergraduate degree. After graduation I returned home to the house I grew up in. I married a boy who lived 1 mile 

away and I attended and graduated from Temple University School of Medicine. 

While at Temple I rotated through Abington Memorial Hospital and so enjoyed the 

experience that it was one of only two residency programs to which I applied. 

Thankfully I was chosen for the residency program in OB-GYN. While at Abington 

I came to know the members of the group to which I now belong very well. As a 

matter of fact, members of my group delivered each of my children. When my partners offered me a position with the group I was ecstatic. It was truly my dream job. 

My family was thrilled that I had landed a position so close to home since my family 

still lives in the house I grew up in and my in-laws still live in Bucks County as 

well. I looked forward to spending the next 30 years of my life practicing at Abington. 

That all changed last year. While I knew that Southeastern Pennsylvania was a 

fairly litigious area when I first started practicing, only a scant 6 years later the 

situation has gone from bad to worse and then to intolerable. As a matter of fact, 

I cannot think of an OB-GYN that I know who has not had a lawsuit filed against 

them. Most times, these physicians talk in terms of the number of lawsuits they 

have outstanding rather then if they have pending litigation. 

Some within the legal community will have you believe it is only the ‘‘bad’’’ doctors who get sued. I am here to tell you that some of the best, most respected Doctors I know have lawsuits filed against them. I am not saying that there are not 

legitimate lawsuits, there are, but it seems to me that when so many OB-GYNs are 

being sued they cannot all be malpractice. There is a difference between a bad outcome and malpractice and in the ridiculous situation we find ourselves in a lawsuit 

does not even require a bad outcome in order to be filed. Malpractice attorneys will 

have you believe that they file these suits to weed out the bad doctors. At the rate 

things are progressing in Pennsylvania all doctors will be weeded out. It seems to 

me that trial attorneys are creating a dust bowl within the medical community with 

physicians fleeing the states decimated by the scourges of legal abuse, the ever decreasing reimbursements and soaring medical malpractice insurance premiums. 

About a year ago my husband noticed I had become crankier and, believe it or 

not, I tend to be a pretty upbeat person. We have had long discussions on the looming malpractice crisis here and how it only seems to change for the worse. I am 

working longer hours, seeing more patients in part to cover the increase in malpractice insurance and have had my earnings decreased over the past year. And still 

the workload increases as more doctors leave the area and entire groups disband 

or discontinue the practice of Obstetrics. My 2 year old always asks, ‘‘Where are you 

Mommy?’’ and invariably my answer is, ‘‘Work’’. Even my 12 year old, who has a 

very active life of her own, has become annoyed at the amount of time I am spending at work. I started to notice that I could not take the time to get to know my 

patients on a more personal level, as I had been able to do in the past. This personal 

approach helps me to tailor their treatments to their lifestyles, beliefs and culture. 

In my practice we have gotten so busy that people sometimes have to wait as long 

as 3 months for their regular exams. Those patients with problems can get inserted 

into an already overbooked schedule. Today, for example, I have reduced the number of patients I will see in order to speak to you. Of the 50 patients I was scheduled 

to see, about 30 have been rescheduled. They will be inserted in my already full 

schedule over the course of the next week. 

So there I was, 5 years into my practice and my dream job seemed to be slipping 

away. I was working more, making less, practicing defensive medicine and not having the opportunity to spend as much time as I would have liked with my patients, 

my family or my friends. My husband suggested that maybe we needed to relocate 

for our own peace of mind. 

I do not think people understand how truly devastating it is to be named in a 

lawsuit. I cannot tell you how many times I have heard people say, ‘‘I’m not really 

suing the doctor, I’m suing the insurance company.’’ I agree that people should be 

fairly compensated for legitimate malpractice but the non-economic damages have 

36

gotten out of hand, especially in Philadelphia. If a lawsuit gets to trial it is like the 

plaintiff has won the lottery. Even if the doctor is not at fault, juries award large 

sums of money because they feel sorry for the plaintiff and they hope that if their 

turn comes the jury will be equally generous. It bears repeating, that bad outcomes 

are not necessarily the result of medical malpractice. As a result, an increasing 

number of physicians and insurance companies have elected to settle cases even 

though there may be no fault on the part of the physician. It is these attitudes that 

have cemented my decision to leave the area. 

Although my leaving the area will not have a far-reaching affect or cause some 

catastrophe, it has affected all those around me. My parents, to whom I have always 

been close, tell me that they feel as if their ‘‘children’’, meaning my husband and 

our children and I are being ripped away from them. While my mother cannot bring 

herself to speak with me about our move, she has written to you directly to express 

her feelings and, I am sure, the feelings of thousands of members of other families 

across the Commonwealth as their sons and daughters, fathers and mothers, and 

grand daughters and grand sons say good bye. 

The members of my practice have told me that it will be a great loss to them 

when I leave. We are actively trying to recruit a replacement but we have been unsuccessful thus far. It is nearly impossible to find someone who wants to start practicing in Pennsylvania given the hostile environment that awaits him or her. I do 

not think they will find a suitable replacement before I leave, which will place an 

even larger burden on the remaining members of my group. I also feel sorry for my 

patients. They have come to know and trust me. Given the intimate nature of OBGYN this is not insignificant. Now they will be forced to find another doctor with 

which to build a trusting relationship. They will likely face longer wait times to be 

seen as well. 

If something is not done to change our current situation, in the not too distant 

future it will not only become impossible to recruit new physicians to practice in 

Pennsylvania, it will begin to affect training programs as future doctors will not 

choose to train in a state where they will not practice. And the distant future looks 

even darker as the dust bowl spreads and our best and brightest choose not to pursue careers in medicine at all. 

In short I am leaving Pennsylvania to practice medicine in a less hostile environment. I hope to be able to make a comfortable living while practicing effective rather 

than defensive medicine in a place where I can get to know my patients well and 

not live with the constant threat of a lawsuit. I understand that there is no utopia 

but I want to enjoy the practice of medicine again as much as I had before. If you 

do not act to establish medical review boards to decide if cases have merit, and 

meaningful tort reform to place caps on non-economic damages the dust will spread 

and cover the entire country. 

Thank you for your consideration.

Mr. GREENWOOD. Thank you, Dr. Johansson. I feel badly you 

rush through your practice, and then you come here and I make 

you rush through your testimony, but we are trying to stay within 

the limits. 

Mr. Wozniak, thank you, again, for hosting this. 

TESTIMONY OF GREGORY T. WOZNIAK 

Mr. WOZNIAK. You are welcome. Good morning. I am Greg 

Wozniak, I am the President of St. Mary Medical Center. The medical liability crisis has threatened people’s access to healthcare. 

This is not a new issue, but rather, an old one, which like so many, 

does not seem to get addressed until a crisis point is reached. I can 

assure you that crisis point has been reached. In Bucks County and 

all across this Nation States are struggling, physicians are struggling to provide care. 

The debate about medical liability is complex and there are no 

easy answers. Today I am going to focus on the negative impact the 

medical liability crisis is having on people and their access to care. 

First and foremost, access to care is directly depending upon doctors. Without doctors, people cannot receive care. And without doctors, hospitals cannot provide the services to their community. Like 

37

so many communities across the country, Bucks County residents 

are growing older. In fact, Pennsylvania is the second oldest State 

by the age of its population following only Florida. What does the 

aging of our society have to do with the medical liability crisis? Everything. Research shows that people over the age of 45 are two to 

three times more likely to use healthcare services than people 

under age 45. And this need again doubles when they reach age 65. 

Over the last 3 years, the number of people our doctors have 

cared for at St. Mary has increased by narrowly 60 percent. We expect that number of people needing care to continue to grow, so 

much so, we are expanding our 287 inpatient beds to nearly 400 

over the next 3 years. Our No. 1 concern is not the nursing shortage, but is the shortage of physicians, are we going to have them 

to care for the people in our community. 

In the last 18 months, 20 physicians on our medical staff have 

left and more than 50 in Bucks County due directly to the cost and 

availability of medical liability insurance. We cannot recruit new 

physicians to replace those who have left, let alone recruit physicians to meet the growing need. Our community has only seen an 

increase in the number for families as well, and access to care has 

been a longstanding issue for this population, and I am afraid that 

once again they are being forgotten as the medical liability crisis 

is negatively impacting their access to care. On a month-to-month 

basis, we have evaluated whether St. Mary has enough physicians 

to continue many of our services. This is particularly true for our 

trauma center and our Mother Bachmann Maternity Center. 

The St. Mary Trauma Center is one of only 26 designated trauma centers in Pennsylvania and is the only one in Bucks County, 

a county of 600,000 people, providing 24-hour, 7 days per week continuous trauma care requires multiple physician specialties. Unfortunately, each of these physicians have experienced significant 

challenges in affording medical liability insurance. For example, in 

our county, we only have two practicing neurosurgeons, only two. 

Both surgeons have been faced with skyrocketing liability insurance costs which have doubled over the last 2 years. One is now 

paying in excess of $280,000 per year when he was just paying 2 

years ago $100,000. 

Over the last 2 years, the trauma centers repeatedly have been 

faced with possible closure due to doctors’ inability to obtain liability insurance. If we close the trauma center, the services would not 

be available for the over 1,400 people a year we care for in the 

trauma center. Just as we were speaking today, at ten until eight, 

a 17 year old involved in an automobile accident is in our OR as 

we talk today. If we did not have that trauma surgeon, a neurosurgeon, he would not be receiving the care he so justly deservers. 

Our trauma is not the only service affected by the medical liability 

crisis. 

In 1991, St. Mary conducted a community health needs assessment and identified the need for prenatal care and maternity care 

for poor families. Since 1991, our Mother Bachmann Maternity 

Center has provided care to more than 1,600 mothers. In fact, last 

year we delivered 197 babies. During the past 2 years, we have lost 

3 of the 4 obstetricians who provide care. The sole remaining obsteVerDate jul 14 2003 11:26 Sep 10, 2003 Jkt 086683 PO 00000 Frm 00041 Fmt 6602 Sfmt 6602 W:\DISC\86045 86045
38

trician has had difficulty obtaining medical liability insurance and 

we have been unable to recruit additional OB-GYN physicians. 

Who will be impacted most by this potential closure? Poor and 

underserved people, but yet, they are the ones who need improved 

access to care most. To put a face on these people, let me share 

with you a real life person who was cared for at the Mother 

Bachmann Center. A woman in her 30’s who has experienced the 

first pregnancy came to the Mother Bachmann Maternity Center. 

She had fled an abusive relationship and was living in her car. She 

was 4 months pregnant and uninsured. She asked for help for herself and unborn child. We provided that care for her. Who will be 

available if we don’t have that one physician remaining? 

Finally, hospitals and physicians across the country are committed to continually improving the quality of care and patient 

safety. That is unquestioned. Unfortunately, the rising cost of medical liability insurance is draining our resources which can be used 

for these very improvements. Over the last 2 years, our medical liability insurance at St. Mary had more than doubled. This increase 

in cost could have been better utilized to employ 40 more nurses, 

to purchase a state-of-the-art radiation cancer treatment unit to 

care for our cancer patients, which is the third leading cause of illness in Bucks County. Or to build 20 new inpatient rooms to accommodate the growth of care in our community. 

Members of the committee, thank you for your time and consideration. This is a very complex issue, one which we need to solve 

this year before it becomes worse. If you have any questions, I will 

be more than happy to answer them for you. 

[The prepared statement of Gregory T. Wozniak follows:]

PREPARED STATEMENT OF GREGORY T. WOZNIAK, PRESIDENT AND CEO, ST. MARY

MEDICAL CENTER

Members of the Committee, I am Greg Wozniak, President and CEO of St. Mary 

Medical Center. On behalf of the entire St. Mary Medical Center family—470 physicians, 2000 employees, 400 volunteers, patients, and community, I would like to welcome you today. 

The debate about medical liability is complex and there are no easy answers. The 

answers entail the delicate balance between:

• ensuring access to healthcare—our ability to provide health care services is directly dependent upon the availability of physicians; 

• the health care industry’s absolute commitment to continually improving the quality of care and patient safety; 

• controlling the rising cost of health care service; at a time when physicians are 

being forced to practice ‘‘defensive medicine;’’ 

• and a patient having appropriate remedies if they are injured because of negligence. 

I recognize that there are many opinions about the best way to solve the medical 

liability crisis and I am not here today to advocate one solution over another. Rather, I want to highlight the impact that the medical liability crisis is having on the 

ability of patients to access health care services. 

St. Mary was founded in 1973 by the Sisters of St. Francis of Philadelphia. Our 

mission is to improve the health and wellness of our community with a particular 

emphasis on providing access to care for the poor and under-served. St. Mary has 

grown from a small, community hospital to a 287-bed full service medical center offering a wide array of patient care programs to a population of more than 400,000 

in Lower Bucks County, Pennsylvania. These services include a comprehensive 

heart center, a primary stroke center, the county’s only accredited trauma center, 

and Mother Bachmann Maternity Center, which provides obstetrical services to poor 

and under-served patients. Together, our medical staff, employees, and volunteers 

care for nearly 18,000 inpatients, more than 120,000 outpatients, and nearly 38,000 

emergency room patients each year. 

39

Like so many other communities across the country, the community we serve is 

growing older. Bucks County has the third oldest population in the Commonwealth 

of Pennsylvania, and Pennsylvania has the second oldest population—following only 

Florida. Within St. Mary’s community, aging baby boomers, that is, those 45 to 64, 

and those over age 65 are the largest and fastest growing segments of our population. What does this mean for health care providers? Research shows that people 

over age 45 are two to three times more likely to use health care services than people under age 45, and that this need again doubles when they reach age 65. Unfortunately, our community has also seen an increase in the number of poor and uninsured families. 

The result of these demographic shifts is an increase in the need for health care 

services. Over the last three years St. Mary has seen the number of people we care 

for increase by nearly 60%. Yet at a time when the need for health care services 

in our community is at its greatest and growing, our ability to attract new physicians or retain physicians already in the community is declining. 

Over the last several years, many highly qualified physicians have left our community. And the cost and availability of medical liability insurance is one of the primary reasons physicians leave a practice. Our analysis shows that more than 50 

Bucks County physicians left their practices last year. Some have relocated, some 

sought early retirement, and others changed their clinical practice in order to afford 

medical liability insurance. Orthopedists, OB/GYNs, and surgeons have been impacted the most. 

Moreover, St. Mary, as well as other area hospitals and existing physician practices have experienced tremendous difficulty recruiting new physicians to fill the 

gaps caused by departing physicians and increased patient need. Although this is 

a significant and growing concern for St. Mary across all of our specialties and services, it is particularly true for our trauma program and the Mother Bachmann Maternity Center. 

The St. Mary Trauma Center is one of only 26 designated trauma centers in the 

Commonwealth of Pennsylvania and the only one in Bucks County. Without the St. 

Mary Trauma Center, we would need to transfer patients to trauma centers in 

neighboring Philadelphia or Montgomery County by either ambulance or helicopter. 

In caring for the trauma patient, timeliness of treatment is a critical element. The 

outcomes for the trauma patient improve significantly if the patient is treated within the ‘‘golden hour’’—the first 60 minute—immediately following an injury. Transferring trauma patients decreases the timeliness of care and reduces the chances for 

a complete recovery. 

Providing a high level of quality trauma care requires multiple physician specialties—specifically dedicated trauma surgeons, anesthesiologists, neurosurgeons and 

orthopedic surgeons and nurses—available 24-hours-a-day, seven-days-a-week. St. 

Mary has only two neurosurgeons on staff, the only two neurosurgeons practicing 

in Lower Bucks County. Both physicians have had significant challenges obtaining 

affordable medical liability insurance. If one of these physicians decides that he or 

she can no longer obtain or afford medical liability insurance, we will be forced to 

close the Trauma Center. 

Over the last two years, as every medical liability renewal period approached, we 

faced the very real threat that we will have to close our trauma program because 

we won’t have the necessary physicians to provide around-the-clock trauma care. 

During the last medical liability insurance renewal period, St. Mary was not sure 

it could keep its trauma unit open on January 1, 2003 because our orthopedic surgeons and neurosurgeons could not afford medical liability insurance. We made the 

decision to keep it open at 2 p.m. on December 31, 2002. The only reason we were 

able to keep it open was through the commitment and dedication of our physicians 

to their patients and the promise made by Governor Rendell of a short-term initiative to contain the cost of medical liability insurance. But this was only a stop gap 

measure—still being considered by our Pennsylvania General Assembly. 

Both of our neurosurgeons have seen their insurance premiums more than double 

over the last two years. One is paying in excess of $280,000/year to maintain the 

ability to care for people. The only reason he is still practicing today is Governor 

Rendell’s proposed short term solution which would provide a one year premium reduction of approximately $50,000. If a permanent solution is not enacted this year, 

it is not a matter of if, but when the trauma center will be forced to close. 

Each year we provide care to approximately 1,400 trauma patients. Several days 

after our decision to keep the trauma unit open, an ambulance delivered a young 

woman to our emergency room. She had been involved in a very serious automobile 

accident. The trauma team immediately evaluated her condition. She was stabilized 

and taken for a CT scan of her head, spine, chest, and abdomen. The Trauma team 

quickly learned that she had a lacerated spleen, three lacerations on her colon, and 

40

a major abdominal wall tear. Within 30 minutes—well within the ‘‘golden hour’’—

she was in surgery to repair the injuries caused by the accident. Thankfully, the 

surgery was successful and she was discharged a week later. The injuries that this 

young woman suffered were life threatening. As with all trauma patients, time was 

critical. The additional 30 to 40 minutes that it would have taken to transport this 

patient to a neighboring trauma center could have resulted in very serious consequences. If the St. Mary Trauma Center had closed at the end of 2002, the dedicated trauma team that cared for this patient would not have been available. 

Our trauma center is not the only service affected by the current medical liability 

crisis. In 1991, St. Mary conducted a health needs assessment focused on the needs 

of the poor in our community. The assessment identified the need for pre-natal and 

maternity care for low-income families in Lower Bucks County. In response to this 

need, St. Mary Medical Center established the Mother Bachmann Maternity Center 

in Bensalem, Pennsylvania. Since 1991, more than 1,600 mothers received pre-natal 

care and maternity services from the staff of the Mother Bachmann Maternity Center. 

Mother Bachmann is the only program of its kind in Lower Bucks County that 

accepts pregnant women regardless of their ability to pay. Certified nurse midwives 

with appropriate OB/GYN back-up provide high quality care services. However, the 

current medical liability crisis has had a significant impact on this program and the 

program’s long-term survival is threatened. As members of this panel know, OB/

GYN physicians have been particularly hard hit by the medical liability crisis. During the past two years, we have lost 3 of the 4 OB/GYN physicians who provided 

physician coverage to the Mother Bachmann Maternity Center. Should the sole remaining obstetrical physician providing coverage continue to experience significant 

problems in obtaining affordable medical liability insurance, it will jeopardize the 

ability of the Mother Bachman Maternity Center to continue to provide care to 

under-served women and children in Lower Bucks County. Without physicians, the 

Mother Bachmann Maternity Center will be forced to close. 

Last year, the Center delivered 197 babies, and in 2003 we expect to deliver 240 

babies. However, numbers tell only a small part of the Mother Bachmann Maternity 

Center story. 

Recently, a 35-year-old woman experiencing her first pregnancy came to the 

Mother Bachmann Maternity Center. She had fled an abusive relationship and was 

living in her car. She was four months pregnant and uninsured. She asked for help 

for herself and her unborn child. We provided her with pre-natal care, testing, vitamins, and social work services. She underwent postpartum depression screening for 

increased risk factors that too often accompany homelessness and domestic violence. 

We were able to offer her counseling at the Maternity Center. 

This is only one of hundreds of success stories. We expect that there will be many 

more success stories—but only if we have the physicians, and in today’s environment, many physicians are not able to provide care, because they don’t have access 

to affordable medical liability coverage. 

Although much of the national debate has focused on the cost and availability of 

medical liability insurance for physicians, the crisis has also had a significant impact on hospitals. Over the past two years, St. Mary’s liability insurance costs have 

more than doubled. In the year 2000 we paid $2,133,000. In 2002 our insurance 

costs increased to $4,630,411. This increase is the equivalent to approximately 40 

nurses who could be providing care to our aging population; or a state of the art 

radiation oncology unit to treat cancer patients. These increased premiums directly 

impact our ability to develop new programs and expand to meet the growing health 

care needs of our community. 

Although our insurance costs continue to rise, we are very proud of our longstanding, proactive approach to ensuring patient safety and continuing improvement 

of the care and service that we provide. 

St. Mary has established a full-time Patient Safety Officer and a Patient Safety 

Committee that involves hospital staff, physicians, and members of the community 

in patient safety initiatives. These resources are dedicated to continuously examining our systems and processes of care in order to improve patient safety and the 

quality of care that we provide. We established a dedicated patient safety hotline 

allowing staff members and physicians to report safety concerns and issues to the 

Patient Safety Officer. 

St. Mary has also embarked on a number of initiatives to address medication safety. Our new system links numerous databases, helping us find known drug allergies 

and drug-to-drug interactions before they happen. We established pharmacy rounds 

for all intensive care patients to ensure appropriate medication protocols are being 

followed. We established a bar code system that ensures that the patient gets the 

correct drug, dose, timing and mode of administration. St. Mary has also incorVerDate jul 14 2003 11:26 Sep 10, 2003 Jkt 086683 PO 00000 Frm 00044 Fmt 6602 Sfmt 6621 W:\DISC\86045 86045
41

porated patient safety information into our Patient Handbook, explaining to patients their role, responsibilities, and rights. 

This is just a small sample of the numerous safety and quality initiatives underway at St. Mary. I am very proud of the time, energy, and effort that St. Mary physicians and clinical staff expend every day to improve the quality of care that we 

provide to our patients. 

Members of the committee, on behalf of the St. Mary family, and in particular 

our current and future patients, I want to thank you for your time and consideration. This is a complex problem, but a problem we need to solve this year—before 

it is too late! Without physicians St. Mary Medical Center cannot deliver services 

to our community. 

Thank you. I will be happy to answer any questions or provide additional information that you may need.

Mr. GREENWOOD. Thank you, Mr. Wozniak. Dr. Eskin. 

TESTIMONY OF DAVID J. ESKIN 

Mr. ESKIN. Mr. Chairman and committee members, good morning, and thank you for the opportunity of presenting this crucial 

material to you. I am Dr. David Eskin. I have practiced cardiology 

at Abington Memorial Hospital in Montgomery County, Pennsylvania for the past 29 years, and for the past 17 years have served 

as Chief of Staff, or the chief medical officer for that institution. 

Today I would like to review with you some of the painful circumstances leading to the closure of our trauma center for 13 days 

in late December 2002, extending into January of this year. 

Abington Memorial Hospital is an independent, not for profit, 

tertiary care, teaching hospital that has served our community for 

89 years. We are the only accredited trauma center in Montgomery 

County which serves a population of greater than 750,000 people, 

and we are the third largest admitting hospital in the Philadelphia 

area. Only Thomas Jefferson University Hospital and the Hospital 

of the University of Pennsylvania admit more patients. Our emergency trauma center treated more than 65,000 patients last year. 

We are the largest obstetrical hospital in eastern Pennsylvania, 

having delivered more than 4,500 babies last year, and we are the 

largest employer in Abington Township with more than 4,600 employees. This makes us the third largest employer in Montgomery 

County behind only Merck and the U.S. Government. 

For the past 4 years, it has become progressively more difficult 

for our hospital and for our physicians to obtain affordable malpractice insurance. In fact, Abington Memorial Hospital has seen 

its medical liability insurance premiums increase over the past 4 

years from $6 million in the year 2000, to $8 million in the 2001, 

to $19 million in 2002, and now to an astounding $23 million per 

year. During this same period, our physicians in the high risk specialties of orthopedic surgery, neurosurgery, general and trauma 

surgery, and obstetrics have seen marked increases in their annual 

premiums as well. 

In Pennsylvania, one cannot legally practice medicine without 

malpractice insurance; it is the law. The physicians who provide 

vital trauma services at Abington have all been in private practice. 

They have each paid their own malpractice premiums. In the last 

several years several large malpractice insurers in Pennsylvania 

have gone bankrupt and a number of other companies have ceased 

writing insurance in our State. In a number of cases, outstanding 

physicians of the caliber that you and I would choose to care for 

42

our own families, and in many cases with no—repeat, no adverse 

legal awards against them—were unable to obtain commercial insurance. If they were quoted premiums, they were so high as to be 

unaffordable. If a physician is unable to obtain a commercial quote 

in Pennsylvania, one turns to the Joint Underwriting Association, 

but historically, their quoted premiums are often one-and-a-half to 

three times the comparable commercial rate. And in some instances, the JUA has quoted rates that were in excess of $250,000; 

that is, per physician per year. 

Despite an offer by our hospital to offset a portion of the premium, our orthopedists felt they could not afford the quoted rates. 

Also, by late December, our neurosurgeons had not received a commercial quote. It became clear that without these necessary trauma 

specialists, we could not meet the staffing requirements required 

by the Pennsylvania Trauma Systems Foundation. We ceased operations as a designated trauma center on December 21. The decision 

was painful. We have tried for years to improve the services we 

provide to our community and the closure of our trauma center was 

a calamitous step backwards. The following 13 days were truly the 

most trying of my professional career. We feared, and truly feared, 

that we would not be able to provide critically needed services for 

a victim of trauma. 

Had it not been for the intervention of then Governor-elect 

Rendell, as he explained to you this morning, I suspect our trauma 

center would have remained closed for much longer than 13 days. 

The creation of the taskforce in conjunction with his pledge to create short and long-term solutions to this intractable problem were 

enough to bring our doctors back to work. But to date, we have, 

if you will, an IOU that will require legislative support at the State 

level and possibly a State constitutional amendment which could 

take as long as 3 to 4 years to obtain. We endure a crisis that a 

growing number of States across this Nation have, and that is the 

inability to obtain affordable malpractice insurance. Changes are 

clearly necessary and one that demands immediate consideration is 

the placement of a ceiling on non-economic damages. 

What are the consequences of the circumstances that I have described? Our community members suffer by the loss of potential—

of vital healthcare service, care for the victims of trauma. During 

this period that we closed, ambulances were diverted to other hospitals from Abington, and patients who arrived on their own were 

in some cases transferred elsewhere. We now spend $17 million 

more a year on malpractice than we did just 4 years ago. How 

many new nurses could be hired with $17 million or a portion of 

that money? Our employees openly express fear for the security of 

their jobs as do the staffs of our many private practice physicians. 

More than 15 members of our medical staff have chosen to retire 

earlier than planned, have altered their scope of practice, or have 

chosen to practice elsewhere for reasons directly related to the cost 

of their insurance. This includes the loss of our previous chief of 

neurosurgery, who is now practicing in North Carolina. Another 

one of our limited number of neurosurgeons has moved to Ohio. 

Three obstetricians have moved to New England, and a fourth who 

has testified before you today will be moving to Utah. Although we 

often emphasize those practicing high risk surgical specialties, 

43

please be aware that this crisis clearly affects primary care physicians as well. Data obtained from the Pennsylvania Medical Society 

indicate that more than 500 physicians have chosen to leave Pennsylvania for reasons directly related to this crisis, and that is a conservative estimate. In addition, approximately 100 have chosen to 

retire early. 

This does not include those who have altered the scope of their 

practices. For example, to practice gynecology and no longer deliver 

babies, or to limit their practices to non-operative orthopedics in 

their office. These circumstances create a significant access to care 

problem for our patients. And possibly of even great consequence 

than the loss of a number of physicians is the growing difficulty in 

recruiting young, well-trained physicians to practice in this Commonwealth. We have five medical schools in the Philadelphia area 

with many wonderful residency training program. Yet, in the high 

risk surgical areas, most trainees choose to leave our State. All of 

us suffer the consequences when we cannot recruit an adequate 

number of well trained physicians and surgeons. 

Last, it is emotionally devastating to practice in constant fear of 

being used. All of us, as Dr. Johansson said earlier, practice defensive medicine; in fact, more so than ever before, and this clearly 

drives up the cost of healthcare. Also, the time required to document every risk and potential hazard at the time of every office 

visit—and clearly, I am not referring to informed consent prior to 

major procedural intervention—clearly, it detracts from time spent 

with our patients, and that is wrong. We hear so often that suits 

without merit are usually dismissed. Please realize that the time 

and dollars spent defending even a frivolous lawsuit are significant, 

and the emotional burden of being named in a suit is very real. 

Patient safety must be foremost. Mistakes are made and patients 

should be compensated for injuries caused by proven negligence. 

However, bad outcomes often do not reflect bad care. There must 

be some meaningful balance to all of this so that our patients can 

continue to receive the excellent medical care that they have, in 

fact, come to expect. 

Members of this committee, in conclusion, throughout our country there are warning signs of a system which is collapsing. Physicians in Nevada, West Virginia, and Florida have for periods of 

time within the past year stopped practice. Just last week, physicians in New Jersey demonstrated in their State capitol. To preserve access to care, I respectfully urge you to take appropriate action. Meaningful national tort reform is necessary, critical, and appropriate form the perspective of patients as well as physicians and 

hospitals. It is not appropriate—and I repeat, it is not appropriate—for individual States to compete for medical talent based on 

the cost of medical liability insurance. There has to be a level playing field and I urge you to correct this problem now. Thank you 

very much. 

[The prepared statement of David J. Eskin follows:]

PREPARED STATEMENT OF DAVID J. ESKIN, CHIEF OF STAFF, ABINGTON MEMORIAL

HOSPITAL

Good morning and thank you for the opportunity of presenting this crucial material to you. I am Dr. David Eskin. I have practiced cardiology at Abington Memorial 

Hospital in Montgomery County, Pennsylvania for the past 29 years and for the 

44

past 17 years have served as chief-of-staff (chief medical officer) for that institution. 

Today I would like to review with you some of the painful circumstances leading 

to the closure of our trauma center for 13 days in late December and early January. 

Abington Memorial Hospital is an independent, not for profit, community teaching, tertiary care hospital that has served our community for 89 years. We are the 

only accredited trauma center in Montgomery County and the third largest admitting hospital in the Philadelphia area behind only Thomas Jefferson University Hospital and the Hospital of the University of Pennsylvania. Our emergency trauma 

center treated more than 65,000 patients last year. We are also the largest obstetrical hospital in eastern PA having delivered more than 4500 babies last year. We 

are the largest employer in Abington Township with more than 4600 employees. 

This makes us the third largest employer in Montgomery County. 

For the past 4 years it has become progressively more difficult for our hospital 

and our physicians to obtain affordable malpractice insurance. In fact, Abington Memorial Hospital has seen its medical liability insurance premiums increase over the 

past four years from $6 million in the year 2000 to $8 million in 2001, to $19 million 

in 2002 and now to an astounding $23 million dollars this year. During the same 

period our physicians in the ‘‘high risk’’ specialties of orthopedic surgery, neurosurgery, general and trauma surgery and obstetrics have seen corresponding increases in their annual premiums. 

In Pennsylvania, one cannot legally practice medicine without malpractice insurance. The physicians who provide vital trauma services at Abington are all in private practice! They each pay their own malpractice premiums. In the last 

several years several large malpractice insurers in PA have gone bankrupt and a 

number of other companies have ceased writing insurance in our State. In a number 

of cases, outstanding physicians—of the caliber that you and I would choose to care 

for our own families—and in many cases with NO adverse legal awards against 

them—were unable to obtain commercial insurance. If they were quoted premiums, 

they were so high as to be unaffordable. If a physician is unable to obtain a commercial quote in PA, one turns to the Joint Underwriting Association but historically 

their quoted premiums are often 1.5-3 times a comparable commercial rate. In some 

instances the JUA quoted rates that were in excess of $250,000—per physician per 

year! 

Despite an offer by our Hospital to offset a portion of the premium, our 

orthopedists felt they could not afford the quoted rates. Also, by late December, our 

neurosurgeons had not received a commercial quote. It became clear that without 

these necessary trauma specialists we could not meet the staffing requirements of 

the Pennsylvania Trauma Systems Foundation and therefore notified the State and 

the Foundation of our plans to suspend our trauma designation. We ceased operations as a designated trauma center on December 21st. This decision was painful. 

We have tried for years to improve the service we provide to our community and 

the closure of our trauma center was a calamitous step backwards. The following 

thirteen days were the most trying of my professional career. We feared that we 

would not be able to provide critically needed services for a trauma victim. 

Had it not been for the intervention of then Governor-elect Rendell, I suspect our 

trauma center would have remained closed for much longer than thirteen days. The 

creation of Gov. Rendell’s Task Force, in conjunction with his pledge to create short 

and long term solutions to this intractable problem were enough to bring our doctors 

back to work. But to date, we have ‘‘if you will—an I.O.U. that will require legislative support and possibly a State constitutional amendment. The latter could take 

as long as 3-4 years to obtain. We endure a crisis that is shared by physicians and 

hospitals in a growing number of states across this nation: the inability to obtain 

affordable malpractice insurance. Changes are clearly necessary and one that demands immediate attention is the placement of a ceiling on non-economic damages. 

What are the consequences of the circumstances described above?

• Our community members suffer by the loss and potential future loss of a vital 

health care service: care for the victims of trauma. During this period ambulances were diverted to other hospitals from Abington and patients who arrived 

on their own were, in some cases, transferred elsewhere. • Abington Memorial Hospital now spends $17 million more on malpractice insurance premiums than it did four years ago. How many new nurses could be hired 

with $17 million dollars? 

• Our employees openly express fear for the security of their jobs as do the staffs 

of our many private practice physicians. It is an emotionally trying time for 

those providing health care in Pennsylvania and many other states. 

• Fifteen members of our medical staff have chosen to retire earlier than planned 

or have chosen to practice elsewhere for reasons directly related to the cost of 

their insurance. This includes the loss of our previous chief of neurosurgery who 

45

is now practicing in NC. Another neurosurgeon has moved to Ohio. Two obstetricians have moved to New England and a third, who will be testifying before 

you later today, will be moving to Utah. Although we often emphasize those 

practicing high-risk surgical specialties, the crisis clearly affects primary care 

physicians as well. Data obtained from the Pennsylvania Medical Society indicates that more than 500 physicians have chosen to leave Pennsylvania for reasons directly related to this crisis. In addition approximately 100 have chosen 

to retire early. This does not include those who have altered their scope of practice and chosen to practice gynecology only and no longer deliver babies or those 

choosing to practice, for example, non-operative orthopedics. These circumstances create a significant access to care problem for our patients. 

• Possibly of even greater consequence than the loss of a number of physicians, is 

the growing difficulty in recruiting young, well-trained physicians to practice in 

PA. We have FIVE medical schools in the Philadelphia area with many residency training programs. Yet in the high-risk surgical areas most trainees 

choose to leave our state. All of us suffer the consequences when we cannot recruit an adequate number of well-trained physicians and surgeons. 

Lastly, it is emotionally devastating to practice in constant fear of being sued. All 

of us, I believe, practice defensive medicine—in fact, more so than ever before. This 

clearly drives up the cost of health care. Also the time required to document every 

risk and potential hazard at the time of every office visit (I am not referring to ‘‘informed consent’’ prior to major procedural intervention) clearly detracts from time 

spent with patients. This is wrong. Also, we hear so often, that suits without merit 

are usually dismissed. Please realize that the time and dollars spent defending even 

a frivolous lawsuit are quite significant. Also, the emotional burden of being named 

in a suit is very real! 

Patient safety must be foremost. Mistakes are made and patients should be compensated for injuries caused by proven negligence. However, bad outcomes often do 

not reflect bad care. There must be some meaningful balance to all of this so that 

our patients can continue to receive the excellent medical care that they have come 

to expect. 

Members of the Committee, throughout our country there are warning signs of a 

collapsing system. Physicians in Nevada, and West Virginia have, for periods of 

time within the past year, stopped practice. Just last week physicians in New Jersey 

demonstrated in their State Capitol. To preserve access to care, I respectfully urge 

you to take appropriate action. Meaningful NATIONAL tort reform is necessary, critical and appropriate from the perspective of patients, physicians and hospitals. It 

is not appropriate for individual states to compete for medical talent based on the 

cost of medical liability insurance. There really MUST be a level playing field. I 

urge you to correct this problem now. 

THANK YOU VERY MUCH! I will be glad to try to answer any questions that 

you may have.

Mr. GREENWOOD. Thank you, Dr. Eskin. Dr. Dench. 

TESTIMONY OF EDWARD H. DENCH, JR. 

Mr. DENCH. Chairman Greenwood, thank you for conducting this 

important hearing and allowing the Pennsylvania Medical Society 

to describe how lawsuit abuse is negatively affecting patient care 

in Pennsylvania. 

I am Ed Dench, the President of the Pennsylvania Medical Society, and a practicing anesthesiologist from State College. The 

Pennsylvania medical Society represents 20,000 physicians and 

medical students, along with the millions of patients our physicians 

care for. In addition, we listen closely to the thoughts and concerns 

of our 1,400 member patient advisory board. There are countless 

anecdotal stories about doctors retiring early, giving up high risk 

procedures, or moving out of Pennsylvania as a result of the liability insurance crisis. Scranton lost a neurosurgeon who moved to 

Hagerstown, Maryland because liability insurance rates are lower 

there. Some of his patients make the 3-hour drive to continue care 

with him. Erie lost a prominent pain management physician. His 

patients are now likely to drive to Pittsburgh or Cleveland for speVerDate jul 14 2003 11:26 Sep 10, 2003 Jkt 086683 PO 00000 Frm 00049 Fmt 6602 Sfmt 6602 W:\DISC\86045 86045
46

cific treatment that may no longer be offered in his community. In 

Philadelphia a young cardiologist is packing up and moving to 

Delaware. One of his elderly patients said she will follow him into 

treatment. Her daughter told us, ‘‘Naturally, my mom wants to follow his practice. It is real difficult to make dramatic change when 

a person has made so much of a difference in her life.’’ I could go 

on with real life stories, but for the sake of time, I will stop with 

these three examples. 

For those who prefer statistics instead of anecdotal stories, the 

Pennsylvania Medical Society used State provided data from March 

2002 to conduct a survey of high risk specialists during the summer of 2002. The survey found that 17 percent of obstetrician-gynecologists, and 18 percent of neurosurgeons had changed to non-operative status, to part-time surgery, decided to move the majority 

of their practice out of the State, left Pennsylvania, or retired early. 

A survey of the Pennsylvania Orthopedic Society found similar results for orthopedic surgeons. 

You should also know that the liability insurance crisis has been 

linked to defensive medicine, which drives up the cost of 

healthcare. Studies from the Pennsylvania Medical Society in 2001 

showed that 89 percent of physicians are practicing defensive medicine to avoid frivolous lawsuits. The American Association of 

Health Plans has linked defensive medicine to increases in health 

insurance costs. In addition, a 2001 study by the Pennsylvania 

Medical Society found that 72 percent of doctors have had to defer 

the purchase of updated equipment or hiring of much needed staff 

because of the skyrocketing liability insurance costs. Therefore, 

without a doubt, there is direct evidence that the liability insurance crisis is negatively impacting patients. 

The Pennsylvania Medical Society believes that it would be helpful to look at California as a model to correct the problems. California MICRA law has kept rates in California lower than States 

without similar laws. For the sake of comparison, the independent 

Medical Liability Monitor based in Chicago reported in an October 

2002 rate trend study that an obstetrician-gynecologist in Los Angeles, their highest market, could be expected to pay $65,389 for 

$1 million worth of coverage through NORCAL. The same doctor 

in Philadelphia would first pay $64,314 for the first $500,000 of 

coverage through PMSLIC, which is also owned by NORCAL, and 

then another $35,731 for the next $500,000 worth of coverage 

through the MCARE fund. Thus, to pay for the required $1 million 

worth of liability insurance coverage in Pennsylvania, a doctor 

would pay about $35,000 more in Philadelphia than in Los Angeles. 

Ultimately, the rest of the country needs to learn what the Californians learned in the 1970’s, that they can get these runaway costs 

under control by limiting attorneys’ contingency fees so that the injured get more of the award, and by placing reasonable limits on 

non-economic awards after a person has been fully compensated for 

all financial losses. We must do this now to preserve our world renowned healthcare system. 

Representative Greenwood, each and every day that passes without Congress acting on this serious crisis puts patients at risk. 

They risk losing their doctors, they risk losing trauma centers, they 

risk losing ambulance units. Healthcare is hanging by a thread as 

47

the patient-doctor relationship is threatened by lawsuit abuse. The 

time is to clean up lawsuit abuse and protect all patients, and that 

time is now. 

[The prepared statement of Edward H. Dench, Jr. follows:]

PREPARED STATEMENT OF EDWARD H. DENCH, JR., PRESIDENT, PENNSYLVANIA

MEDICAL SOCIETY

Chairman Greenwood and members of the United States House Energy and Commerce Committee. Thank you for conducting this important hearing and allowing 

the Pennsylvania Medical Society to describe how lawsuit abuse is negatively impacting patient care in Pennsylvania. 

I am Edward H. Dench, Jr., President of the Pennsylvania Medical Society and 

a practicing anesthesiologist from State College. The Pennsylvania Medical Society 

represents more than 20,000 physician members and the millions of patients our 

members care for. In addition, we pay close attention to the concerns and thoughts 

of our 1,400-member patient advisory board. This board consists of a demographic 

cross-section of patients from throughout the commonwealth. 

Let me start by reinforcing what you already know: There is a serious liability 

insurance crisis that is driving a wedge between patients and their doctors. This crisis in our commonwealth, which the Pennsylvania Medical Society has termed a 

‘‘Code Blue Emergency,’’ can be traced to 1996 when medical liability insurance 

rates started climbing. In 1996, there was a 100 percent emergency surcharge by 

the state’s Medical CAT Fund. Then, from 1997 until September 11, 2001, rates for 

major private insurance carriers in Pennsylvania rose between 80.7 and 147.8 percent. Well before problems with the stock market and the terrorist attacks, there 

were signs of a brewing crisis. Then in 2002,the increase in filed rates ranged from 

40 to 50.3 percent. For 2003, similar rate increases were filed. 

Any businessperson knows that when expenses increase and revenue remains 

stagnant, drastic changes must be made to survive. 

A 2001 study by the Pennsylvania Medical Society indicated that 72 percent of 

doctors had deferred the purchase of new equipment or the hiring of new staff due 

to skyrocketing medical liability insurance costs. 

Of course, there are countless anecdotal stories about doctors retiring early, giving 

up high-risk procedures, or moving out of the state as a result of the liability insurance crisis. For those interested in statistics, the Pennsylvania Medical Society used 

state-provided data from March 2002 to conduct a survey of high-risk specialists 

during the summer of 2002. The survey found that 17 percent of obstetricians/gynecologists and 18 percent of neurosurgeons had changed to non-operative status, 

changed to part-time surgery, decided to move the majority of their practice out of 

state, left Pennsylvania, or retired early. A survey by the Pennsylvania Orthopaedic 

Society found similar results for orthopedic surgeons. 

I should also mention that the liability insurance crisis has been linked to defensive medicine, which drives up the cost of health care. Studies from the Pennsylvania Medical Society in 2001 showed that 89 percent of physicians are practicing 

defensive medicine to avoid frivolous lawsuits. The American Association of Health 

Plans has linked defensive medicine to increases in health insurance. 

So, without a doubt, there is direct evidence that the liability insurance crisis is 

negatively impacting patients. 

We all agree that this crisis is very complex. You’ve heard the arguments during 

the past several years as to what caused the crisis. One area that must be addressed is lawsuit abuse reform. 

Just recently, Governor Ed Rendell claimed that the new certificate of merit 

would weed out 25 percent of bad lawsuits. That seems like proof of a high level 

of lawsuit abuse in Pennsylvania. But, when you consider that seven out of 10 malpractice claims are dropped, dismissed, withdrawn, or found in favor of the defendant, there’s proof that more work needs to be done. When 70 percent of all claims 

result in no payment to the plaintiff, it’s clear that the system urgently needs to 

be fixed. 

The Pennsylvania Medical Society is currently compiling a list of meritless claims, 

and early in our efforts, we have collected hundreds of examples, such as the one 

in which a female patient sued her doctor claiming she couldn’t get pregnant due 

to a treatment he recommended for her. The suit was later dropped when she got 

pregnant. Another good example is the one in which a female patient branded herself with a hot iron after having a cast removed from her arm. She then tried to 

blame her doctor for the burn mark. Luckily, the patient’s husband turned her in. 

Interestingly, a lawyer filed each of these frivolous cases. These ridiculous cases 

48

must be stopped in their tracks before thousands of dollars are wasted along with 

many hours of lost time that could be better spent in patient care. 

In addition to the 70 percent of meritless claims, more than 28 percent of medical 

liability claims are settled, and we suspect there are a significant percentage of 

claims settled due to ‘‘legal blackmail.’’ One recent example happened at Holy Spirit 

Hospital in Camp Hill. An inmate at the Camp Hill Prison committed suicide after 

taking himself off psychotropic medicines, which were prescribed through the hospital. Holy Spirit Hospital was sued and ended up settling for about $20,000 to get 

rid of the case, simply because it would be less expensive to do so. If they had fought 

the case to a jury verdict, they would have not only wasted their time, but also 

wasted more money. According to the Physician Insurers Association of America, in 

2000 the median cost for a defendant to win a case in front of a jury was $66,767. 

Likely, it’s higher today. 

Only one explanation can be given for these types of lawsuits—personal gain. Personal injury lawyers often take up to 40 percent of awards as part of their fees. 

Sadly, they have no incentive to clean up lawsuit abuse. 

Ultimately, the Pennsylvania Medical Society believes that it would be helpful to 

look at California as a model to correct the problems in our state. California’s 

MICRA law, that has gained so much national attention, has kept rates in California lower than states without similar laws. 

For the sake of comparison, the independent Medical Liability Monitor based in 

Chicago reported in their October 2002 rate trends study that an obstetrician/gynecologist in Los Angeles could have expected to pay $65,389 for $1 million worth of 

coverage through NORCAL. It appears from the report that Los Angeles is the most 

expensive market in California for liability insurance. That same doctor in Philadelphia would first pay $64,314 for the first $500,000 of coverage through PMSLIC, which is owned by NORCAL, then another $35,731 

for the next $500,000 worth of coverage through the Mcare Fund. In other words, 

for $1 million worth of liability insurance coverage, a doctor would pay about 

$35,000 less in Los Angeles than in Philadelphia. 

Furthermore, if you look at the percentage of change, as reported in the 2002 

Medical Liability Monitor study, obstetricians/gynecologists in California saw their 

rates change between a minus three (-3) to plus fourteen (+14) percent. In Pennsylvania for the same period, rates for an obstetrician/gynecologist increased about 40 

percent. 

Since there is no restriction on economic loss and lost wages, and cost of living 

in Los Angeles is greater than Philadelphia, this lower premium is even more significant. 

Clearly, MICRA is doing its job. 

The two parts of the California MICRA law that are not in place in Pennsylvania 

include limiting attorney contingency fees on a sliding scale and placing a reasonable limit on non-economic awards after a person has been fully compensated for 

financial losses. 

That’s what Pennsylvania is missing, and that’s what we still desperately need. 

Ultimately, Pennsylvania and the rest of the country needs to learn what Californians learned in the 1970s—limiting attorney contingency fees on a sliding scale 

and placing reasonable limits on non-economic awards after a person has been fully 

compensated for financial losses are necessary to keep trauma centers open, hospital 

units functioning, ambulance crews operating, and simply to preserve our world-renowned health care system. 

MICRA does not limit economic recovery. It does not deprive injured individuals 

of full economic compensation. Instead, it provides fair compensation in a timely 

manner with lower legal expenses. In a nutshell, MICRA proved that providing fair 

and equitable compensation for those negligently injured can stabilize the insurance 

marketplace and maintain access to quality health care. 

We believe that the most significant changes that can be enacted from the federal 

level are limiting attorney contingency fees on a sliding scale and placing reasonable 

limits on non-economic awards after a person has been fully compensated for financial losses. 

Thank you.

Mr. GREENWOOD. Thank you, Dr. Dench. Dr. Palmisano. 

TESTIMONY OF DONALD J. PALMISANO 

Mr. PALMISANO. Good morning. Thank you, Mr. Chairman, for 

inviting the American Medical Association to participate in today’s 

field hearing. I am President-elect of the American Medical AssoVerDate jul 14 2003 11:26 Sep 10, 2003 Jkt 086683 PO 00000 Frm 00052 Fmt 6602 Sfmt 6602 W:\DISC\86045 86045
49

ciation and a surgeon in New Orleans. The remarks presented 

today and the written statement submitted is on behalf of the 

AMA, a professional organization whose policy is determined by 

vote of the House of Delegates comprised of all 50 State medical 

associations and over 100 specialty societies. 

There is something terribly wrong when thousands of physicians 

across the country are forced to take time away from their patients 

to petition a government that has failed them and their patients. 

There is something terribly wrong when patients have to bypass 

the nearest hospital because the specialist who used to care for 

them have stopped practicing, eliminated certain procedures, or 

moved out of State because of the liability mess. There is something terribly wrong when dedicated professionals who have 

trained for years want to give up the work of a lifetime and retire. 

There is something terribly wrong when medical students make decisions about residency training based upon a State’s legal climate. 

Pennsylvania is a State in crisis. Last month, President Bush 

came to Pennsylvania to speak about the medical liability crisis 

and to proclaim the need for elected officials to pass effective liability reforms. Pennsylvania is not alone. At least 11 other States face 

the same crisis as Pennsylvania. In many others a crisis is looming. 

Reports confirm that the cause of the liability crisis is the unrestrained escalation of jury awards. A nonpartisan taskforce in Florida found that, ‘‘The centerpiece and the recommendation that will 

have the greatest long-term impact on healthcare provider liability 

insurance rates, and thus, eliminate the crisis of availability and 

affordability of healthcare in Florida, is a $250,000 cap on non-economic damages.’’ This limit on non-economic damages has worked 

in California and it can work nationwide. The National Association 

of Insurance Commissioners, NAIC, studied 24 years of premiums 

in California. They found that premiums across the Nation increased three times faster than premiums in California. Opponents 

claim that soaring medical liability insurance premiums are the result of declining investments in the insurance industry and that liability reforms do not stabilize the insurance market. These claims 

are misleading, based on Florida analysis, and contrary to the 

facts. 

In its 2002 edition, A.M. Best reports that medical liability insurers have approximately 80 percent of their investments in the bond 

market and investment yields have been stable and positive since 

1997. Other credible stories, including Brown Brothers Harriman’s 

recent study, conclude that, ‘‘Investments did not precipitate the 

current crisis.’’ Opponents’ flawed arguments are a disservice to patients who are losing access to healthcare and an affront to physicians and other healthcare professionals. These professionals dedicate their lives to healing and caring for the sick and working to 

find ways to improve the quality of care. America’s medical liability 

crisis is too serious and the consequences of inaction too great for 

the public and Congress to use anything but the facts to make decisions about reform. 

In conclusion, enacting meaningful medical liability reforms is 

essential to resolve the current crisis and preserve access to medical services. We must bring common sense back to our courtrooms 

50

so patients have access to their physicians whether in emergency 

rooms, delivery rooms, or operating rooms. Thank you very much. 

[The prepared statement of Donald J. Palmisano follows:]

PREPARED STATEMENT OF DONALD J. PALMISANO, MEMBER, AMERICAN MEDICAL

ASSOCIATION

On behalf of the physician members of the American Medical Association (AMA), 

I appreciate the opportunity to testify before you today regarding an issue that is 

seriously threatening the availability of and access to quality health care for patients. I would especially like to express our thanks to Representative Jim Greenwood (R-PA) for his continued leadership on this issue. Introduction of H.R. 4600 

in the 107th Congress and H.R. 5 in the current session have provided a much needed focus for action at the national level. 

Mr. Chair, you know there is something terribly wrong when thousands of physicians in the state to our east (New Jersey) feel compelled to leave their patients, 

to leave the work they love doing, and stand in the rain in Trenton just to get noticed. There is something terribly wrong when patients have to by-pass the nearest 

hospital because the specialists who used to care for them have stopped practicing, 

eliminated certain procedures, or moved out of state because of the liability mess. 

There is something terribly wrong when dedicated professionals, who have trained 

for years, want to give up the work of a lifetime and retire. There is something terribly wrong when medical students make decisions about residency training based 

upon the legal climate in various states. 

As you have recognized, the time for action is past due. Physicians across the 

country are making decisions now and more and more patients are wondering, will 

their doctor be there. We must act now to fix our broken medical liability system. 

OVERVIEW

In his State of the Union Address two weeks ago, President Bush stressed that 

we all are threatened by a legal system that is out of control. The President stated 

that ‘‘Because of excessive litigation, everybody pays more for health care and many 

parts of America are losing fine doctors.’’ The President’s remarks are substantiated 

in several recent government and private sector reports—reports making clear that 

the medical liability litigation system in the United States has evolved into a ‘‘lawsuit lottery,’’ where a few patients and their lawyers receive astronomical awards 

and the rest of society pays the price as access to health care professionals and services are reduced. 

The crisis facing our nation’s medical liability system has not waned—in fact, it 

is getting worse. Escalating jury awards and the high cost of defending against lawsuits, even frivolous ones, have caused medical liability insurance premiums to 

reach unprecedented levels. As a result, a growing number of physicians can no 

longer find or afford liability insurance. 

Virtually every day for the past year there has been at least one major media 

story on the plight of American patients and physicians as the liability crisis 

reaches across the country. Access to health care is now seriously threatened in 

states such as Florida, Georgia, Mississippi, Nevada, New Jersey, New York, Ohio, 

Oregon, Pennsylvania, Texas, Washington, and West Virginia. And, a crisis is looming in more than 30 other states. Emergency departments are losing staff and scaling back certain services such as trauma units. Many obstetrician/gynecologists and 

family physicians have stopped delivering babies, and some advanced and high-risk 

procedures (such as neurosurgery) are being postponed because physicians can no 

longer afford or even find the liability insurance they need to practice. 

We must bring common sense back to our court rooms so that patients 

have access to their emergency rooms, delivery rooms, operating rooms, 

and physicians’ offices. 

THE LITIGATION SYSTEM IS CAUSING THE CRISIS

The primary cause of the growing liability crisis is the unrestrained escalation in 

jury awards that are a part of a legal system that in many states is simply out of 

control. While there have been several articles published since the mid-1990s indicating that increases in jury awards lead to higher liability premiums, in the last 

year a growing number of government and private sector reports show that increasing medical liability premiums are being driven primarily by increases in lawsuit 

awards and litigation expenses. 

According to 2001 Jury Verdict Research data, in just a one year period (between 

1999 and 2000), the median jury award increased 43 percent. Further, median jury 

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awards for medical liability claims grew at 7 times the rate of inflation, while settlement payouts grew at nearly 3 times the rate of inflation. Even more telling, however, is that the proportion of jury awards topping $1 million increased from 34 percent in 1996 to 52 percent in 2000. More than half of all jury awards today top $1 

million, and the average jury award has increased to about $3.5 million. 

In a July 2002 report prepared by the U.S. Department of Health and Human 

Services (HHS), the federal government concluded that the excesses of the litigation 

system are threatening patients’ access to health care. HHS reports that insurance 

premiums are largely determined by the litigation system. The report states that 

the litigation system is inherently costly, unpredictable, and slow to resolve claims. 

The cost just to defend a claim averages over $24,000. The fact that about 70 percent of claims end with no payment to the patient indicates the degree to which substantial economic resources are being diverted from patient care to fruitless legal 

wrangling. 

Even when there is a large award in favor of an injured patient, a large percentage of the award never reaches the patient. Attorney contingent fees, added with 

court costs, expert witness costs, and other ‘‘overhead’’ costs, can consume 40-50 percent of the compensation meant to help the patient. 

On September 25, 2002, HHS issued an update on the medical liability crisis. This 

update reported on the results of a survey conducted by Medical Liability Monitor 

(MLM), an independent reporting service that tracks medical professional liability 

trends and issues. According to MLM, the survey determined that the crisis identified in HHS’s July report had become worse. HHS reported that: 

The cost of the excesses of the litigation system are reflected in the rapid increases in the cost of malpractice insurance coverage. Premiums are spiking 

across all specialties in 2002. When viewed alongside previous double-digit increases in 2000 and 2001, the new information further demonstrates that the 

litigation system is threatening health care quality for all Americans as well as 

raising the costs of health care for all Americans. 

The update further highlighted that liability insurance rates are escalating faster 

in states that have not established reasonable limits on unquantifiable and arbitrary non-economic damages. HHS reported that: 

. . . 2001 premium increases in states without litigation reform ranged from 30%-

75%. In 2002, the situation has deteriorated. States without reasonable limits 

on non-economic damages have experienced the largest increases by far, with 

increases of between 36%-113% in 2002. States with reasonable limits on noneconomic damages have not experienced the same rate spiking. 

HHS also compared the range of physician liability insurance premiums for certain specialties in California, which has established reasonable limits on awards for 

non-economic damages, to the premiums in states that have not enacted similar limits. The results reveal how excessive awards for non-economic damages affect premiums. For example, in 2002 OB/GYNs in California paid up to $72,000. In Florida, 

which does not limit non-economic damage awards, OB/GYNs paid up to $211,000. 

In Florida, as indicated in the example just given, medical liability premiums are 

among the highest in the nation. The situation in Florida has become so dire that 

Governor Bush created a special Task Force to examine the availability and affordability of liability insurance. This Task Force held ten hearings over a five month 

period and received extensive testimony and information from numerous, diverse 

sources. 

Among the many findings in its report released on January 29, 2003, the Governor’s Task Force found that the level of liability claims paid was the main cause 

of the increases in medical liability insurance rates. The Task Force ultimately concluded that ‘‘the centerpiece and the recommendation that will have the greatest 

long-term impact on healthcare provider liability insurance rates, and thus eliminate the crisis of availability and affordability of healthcare in Florida, is a $250,000 

cap on non-economic damages.’’

Further, a 2002 Congressional Budget Office study on H.R. 4600 (107th Congress), which included a limitation on non-economic damages, asserts that: 

CBO’s analysis indicated that certain tort limitations, primarily caps on awards 

and rules governing offsets from collateral-source benefits, effectively reduce average premiums for medical malpractice insurance. Consequently, CBO estimates that, in states that currently do not have controls on malpractice torts, 

H.R. 4600 would significantly lower premiums for medical malpractice insurance from what they would otherwise be under current law. 

These are just a few examples of growing evidence that reveal that out-of-control 

jury awards are inexorably linked to the severe increases in medical liability insurance premiums. It is clear that corrective action through federal legislation is urgently needed. 

52

Public Citizen and other trial lawyer supported groups claim that soaring medical 

liability insurance premiums are the result of declining investments in the insurance industry, and that liability reforms do not stabilize the insurance market. Beyond the reports discussed above, several authoritative and credible studies reveal 

Public Citizen’s claims to be misleading, based on flawed analysis, and contrary to 

the facts. 

The report on which Public Citizen bases most of its speculations, produced under 

the direction of J. Robert Hunter for the advocacy group Americans for Insurance 

Reform (AIR), is flawed in a number of ways. The AIR/Hunter study purports to 

prove that there is no current explosion in medical liability insurance payouts, and 

that the explosion in medical liability insurance premiums is due to the insurance 

underwriting cycle. While medical liability insurance premiums, medical liability 

award payouts, and tort law factors differ across states, the premium and payout 

data presented in AIR’s report are at the national level. One cannot use national 

data to draw valid conclusions about how state-specific changes in premiums may 

be related to state-specific changes in payouts. Conclusions about what has or has 

not caused recent premium escalation without accounting for the state-level factors 

listed above are unsupportable. 

Last month, Brown Brothers Harriman & Co. (BBH) released a report (‘‘Did Investments Affect Medical Malpractice Premiums?’’) that analyzed the impact of insurers’ asset allocation and investment income on the premiums they charge. BBH 

concluded that there is no correlation between the premiums charged by the medical 

liability insurance industry, on the one hand, and the industry’s investment yield, 

the performance of the U.S. economy, or interest rates, on the other hand. In addition, on February 4, 2003, BBH released an addendum to this study that analyzed 

National Association of Insurance Commissioners (NAIC) data to determine whether 

investment gains by medical liability insurance companies declined in the recent 

bear market. BBH asked the question: ‘‘Did medical malpractice companies raise 

premiums because they had come to expect a certain percentage gain that was not 

achieved due to market conditions?’’ BBH determined that the decline in equities 

(which are a small percentage of insurance company investments) was more than 

offset by the capital gains by bonds (which make up a substantial part of insurance 

company investments) due to a decline in interest rates. BBH concluded that ‘‘investments did not precipitate the current crisis.’’

BBH’s findings are corroborated by other recent reports. On September 25, 2002, 

HHS released an update on the medical liability crisis addressing claims by trial 

lawyers that the crisis is caused by the management practices of the insurance industry. HHS concluded that such claims are not supported by facts, stating ‘‘Comparisons of states with and without meaningful medical liability reforms provide 

clear evidence that the broken medical litigation system is responsible.’’ A summary 

of medical liability insurer annual statement data in AM Best’s Aggregates & Averages, Property-Casualty, 2002 edition shows that the investment yields of medical 

malpractice insurers have been stable and positive since 1997. AM Best reports that 

medical liability insurers have approximately 80% of their investments in the bond 

market. Recent NAIC data show that physicians’ medical liability insurance premiums between 1976-2000 have risen 167% in California (which established effective liability reforms in 1975) compared to 505% in the rest of the United States. 

Public Citizen’s misdirected claims are a disservice to patients who are losing access to health care services, and an affront to the physicians and other health care 

professionals who dedicate their lives to healing and caring for the sick and working 

to find ways to improve the quality of care. America’s medical liability crisis is too 

serious and the consequences of inaction too grave for the public and Congress to 

use anything but the facts to make decisions about reform. In short, Public Citizen’s 

claims are counterproductive to the debate on resolving the medical liability crisis. 

ACCESS TO CARE IS AT RISK

The most troubling aspect of the current medical liability litigation system is its 

impact on patients. Unbridled lawsuits have turned some regions in our country—

and in several cases entire states—into risky areas to be sick, because it is so risky 

to practice medicine. Due to large jury awards and the burgeoning costs of defending against lawsuits (including frivolous claims), medical liability insurance premiums are skyrocketing. As insurance becomes unaffordable or unavailable, physicians are being forced to leave their practices, stop performing high-risk procedures, 

or drop vital services—all of which seriously impede patient access to care. 

Four states—Pennsylvania, Florida, West Virginia, and New Jersey—illustrate 

the crisis many states are experiencing and the problems many other states will 

face if effective tort reforms are not enacted. 

53

PENNSYLVANIA 

Dr. Anthony Clay never thought he would have to leave Philadelphia. He has 

spent his whole life there—growing up and attending college, medical school, and 

residency to become a cardiologist. He treats families he has known since boyhood. 

He likes knowing where his patients live, work, and shop. All nine of his siblings 

still live there. But, Dr. Clay is leaving his practice in Philadelphia this spring because of surging malpractice insurance rates. He is starting over in Delaware, where 

his insurance costs will drop from roughly $70,000 a year to $8,000. ‘‘It’s been terrible,’’ said Dr. Clay, 40. ‘‘In this field, you’ve been with the patient, and also the 

family, in some of their most life-defining moments—in the throes of a heart attack 

with no blood pressure. Wrongly or rightly, the patient credits you with being there 

when they weren’t doing so well. You realize you’ve created a bond. I take that very 

seriously.’’ (Baltimore Sun, February 5, 2003). 

Brian Holmes, MD, is only one of an estimated 18 percent of Pennsylvania neurosurgeons to have left the state, retired, or limited their practices because of the 

medical liability crisis. ‘‘It saddened me to move, but I had no choice. It was either 

move or go out of business.’’ (Philadelphia Business Journal, Sept. 25, 2002). 

After 25 years of practice, OB/GYN Michael Horn, MD, stopped delivering babies 

in 2002 because of the fear of getting sued. ‘‘It’s just the potential, the not knowing 

if someone will seek an outlandish reward. I don’t want to expose myself or my family.’’ (Burlington County Times, Oct. 2, 2002). 

Medical students are less likely to seek residencies in Philadelphia, and residents 

are less likely to stay and practice in the area because of ‘‘prohibitively high’’ medical liability insurance rates, according to Jefferson Medical College professor Stephen L. Schwartz, MD. (Associated Press, Oct. 4, 2002). 

OB/GYN Lawrence Glad, MD, used to deliver about 500 babies a year—40 percent 

of all the babies born in Fayette County annually. After his premiums skyrocketed 

from $57,000 to $135,000, however, he closed his practice in the fall of 2002. (Pittsburgh Business Times, Nov. 18, 2002). 

Mercy Hospital chief of surgery Charles Bannon, MD, has watched numerous physicians leave Scranton and Lackawanna County—creating a shortage of surgeons, 

fewer medical school applications and residencies. ‘‘It will take generations to get 

back the quality of medicine in Philadelphia.’’ (Scranton Times, Nov. 20, 2002). 

FLORIDA 

Women are facing waiting lists of four months before being able to get an appointment for a mammogram because at least six mammography centers in South Florida alone have stopped offering the procedure as a result of increasing medical liability insurance premiums. ‘‘This trend is troubling. There are a growing number 

of older people and less and less people to provide mammograms,’’ said Jolean 

McPherson, a Florida spokeswoman for the American Cancer Society. (South Florida Sun Sentinel, Nov. 4, 2002). 

Aventura Hospital in South Florida closed its maternity ward and cited $1,000 

in insurance premiums for each delivery as the prime factor. Aventura is one of six 

maternity wards to close in recent months. Now, patients will be forced to drive to 

other counties and other facilities. ‘‘There may be waits getting into a labor-room 

floor,’’ said OB/GYN Aaron Elkin, MD. (Miami Herald, Oct. 19, 2002). 

‘‘Without a doubt, access to health coverage is being affected. Some of our emergency rooms are losing their effectiveness,’’ said Dr. Greg Zorman, neurosurgery 

chief at Memorial Regional Hospital in Hollywood. His unit gets several patients a 

week from smaller ERs that have lost neurosurgery coverage. (South Florida Sun 

Sentinel, February 5, 2003). 

Port Charlotte cardiologist Leonardo Victores, MD, left for Kansas in the face of 

medical liability premiums that were going to increase 100 percent. ‘‘He’s moving 

to Kansas because that state has caps on malpractice awards,’’ said colleague Mark 

Asperilla, MD. (Sun Herald, Jan. 1, 2003). 

Despite having no malpractice claims or disciplinary actions on his record, Lakeland OB/GYN John Kaelber, MD, was forced to close his practice and leave the state 

in the wake of insurance premiums that doubled. (Lakeland Ledger, Nov. 21, 2002). 

More than 50 Bradenton patients had to postpone elective surgeries and more 

than 100 office visits were canceled because two physicians were unable to obtain 

liability insurance. The insurer may leave the state altogether. (Bradenton Herald, 

Jan. 24, 2003). 

After recently receiving notice of a premium spike coming in July 2002, Vladimir 

Grnja, MD, decided that he would ‘‘go bare’’ and drop all medical liability insurance 

coverage. Rates for the Hollywood, FL radiologist were to rise to $112,000 from 

$35,000 a year (a 220% increase), mainly because of litigation over mammograms. 

‘‘No doctor wants to go bare,’’ said Dennis Agliano, MD, chairman of the Florida 

54

Medical Association’s special task force on the Florida medical liability crisis. But 

with significant premium hikes in Florida for specialties like OB/GYN, neurosurgery, thoracic surgery, radiology and even primary care, ‘‘some doctors have no 

choice,’’ he says. Some neurosurgeons in South Florida, are paying a $200,000 premium for coverage of $250,000 per occurrence, making insurance practically meaningless. The Florida Medical Association reports that more than 1,000 doctors in 

Florida have no medical liability insurance. Doctors in West Virginia and Ohio are 

also reportedly going bare. (Modern Physician, April 1, 2002). 

WEST VIRGINIA 

General surgeon Gregory Saracco, MD, only 49 years old, was forced to borrow 

money twice in 2002 to pay $73,000 for his liability insurance. His premiums for 

2003 are expected to rise to $100,000. He is considering leaving West Virginia and 

while he has taken time away from his practice this year to decide what his options 

are, he said ‘‘my job is to help people—I couldn’t drive past an accident on the road 

and not stop. I don’t know any doctor that could.’’ (Associated Press, Jan. 2, 2003). 

Although orthopedic surgeon George Zakaib, MD, was raised and went to school 

in Charleston, WV, he and his family left because of the state’s medical liability crisis. Dr. Zakaib’s premiums had increased to $80,000 plus $94,000 in ‘‘tail’’ coverage. 

(Charleston Daily Mail, July 27, 2002). 

Fourth-year medical school student Jennifer Knight isn’t sure she’ll stay in West 

Virginia. The Charleston Area Medical Center says fewer medical students are applying to its residency programs, and fewer students are applying to Marshall University’s medical school. ‘‘I think the problem is, we have too many frivolous lawsuits,’’ said Ms. Knight. (Sunday Gazette-Mail, Nov. 24, 2002). 

NEW JERSEY 

A multi-physician practice in Teaneck, NJ was forced to layoff employees and reduce the number of deliveries it performed because of professional liability insurance premium increases of more than 120 percent. ‘‘All of my colleagues are experiencing the same pressures,’’ said George Ajjan, MD (Bergen Record, May 22, 2002). 

One out of every four hospitals—nearly 27 percent—has been forced to increase 

payments to find physicians to cover Emergency Departments. Physicians are increasingly reluctant to take on such assignments because of the greater liability exposure. Hospitals report that more and more physician specialties are being hit by 

the crisis. While a previous New Jersey Hospital Association survey in March 2002 

found that OB/GYNs and surgeons were primarily affected, the new survey finds a 

deepening impact for neurologists/neurosurgeons, radiologists, orthopedists, general 

practitioners and emergency physicians. (New Jersey Hospital Association, Jan. 28, 

2003 news release). 

‘‘We have as much to lose as they have,’’ said Joan Hamilton, a patient who attended a recent rally in New Jersey in support of her physician. (Bergen Record, 

Oct. 6, 2002). 

OTHER STATES 

Liability costs for Texas physicians skyrocketed as much as 300 percent in some 

regions and for some specialties. As a result, there is only one neurosurgeon serving 

600,000 people in the McAllen area. In the past two years, four South Texas patients with head injuries died before they could be flown out of the area for medical 

attention. As reported in a July 10, 2002, article in The Courier, a community family 

practice clinic in Conroe (just north of Houston) was recently forced to turn away 

half of its normal patient load because its liability insurance provider would not provide coverage while ‘‘highly lawsuit-risky obstetrics training was conducted.’’

In Nevada more than 30 private-practice OB/GYNs have left the state in 2002 

and another 20 are poised to leave in 2003. About half of the OB/GYNs in the state 

are actively interviewing for positions out of state. ‘‘Right now it’s almost impossible 

to recruit an obstetrician in Las Vegas,’’ said University Medical Center obstetrician, Warren Volker, MD. (Las Vegas Sun, Sept. 27, 2002). Long-time obstetrician, 

Frieda Fleischer, MD, gave up obstetrics because her premiums rose from $30,000 

annually to $80,000. ‘‘So far, I’ve had about 40 pregnant patients to refer elsewhere 

and it’s been tough.’’ Fleischer’s office manager, Dawna Gunning adds, ‘‘What do you 

do when you have patients coming to your door crying and saying they cannot find 

a doctor and you’ve called every colleague?’’ (Las Vegas Review Journal, Jan. 10, 

2003). The story of a woman who had to wait six months to have suspicious lumps 

removed from her uterus and ovaries because she couldn’t get an appointment for 

the surgery illustrates that pregnant women are not the only patients affected by 

the exodus of Las Vegas obstetricians in recent months. (See, Las Vegas Review 

Journal, Nov. 5, 2002). 

55

Obstetricians in Mississippi worry about what is going to happen to their patients who face longer trips to the hospital while already in labor. Women who used 

to walk or make a short drive for both prenatal visits and delivery now face a 45-

minute drive. Of the seven doctors in Kosciusko that were practicing obstetrician/

gynecologists last year, three will still be delivering babies by January. Right now, 

pregnant women who are considered high-risk, such as someone with diabetes, can’t 

be treated at the Kosciusko Medical Clinic because it is too risky for physicians. 

(The Clarion-Ledger, Aug. 26, 2002.). Neurologist Terry Smith, MD said he has applied with 14 companies, and Medical Assurance is his last hope to find coverage 

before his current policy expires on Aug. 4. His premium will go from $55,000 a year 

to potentially $150,000 with a $132,000 tail to his old insurer. ‘‘I’m looking at writing a check for $300,000,’’ said Smith, who does brain surgery at three hospitals in 

Jackson and Harrison counties. (Associated Press, July 11, 2002). 

Rural families in John Day, Hermiston, and Roseburg counties, Oregon have either lost obstetric care or have seen services drastically reduced. (The Business 

Journal of Portland, Jan. 10, 2003). Only by dropping obstetrics were two 

Hermiston physicians able to afford their liability insurance premiums. ‘‘It’s something you don’t like to tell patients,’’ said Doug Flaiz, MD. (The Oregonian, Oct. 29, 

2002). ‘‘No one with $100,000 in debt from medical school wants to start a practice 

in a place where they could find themselves completely broke and having to pick 

up and go somewhere else to start all over again,’’ said Rosemari Davis, CEO of Willamette Valley Medical Center, who has seen three of her center’s family practitioners stop delivering babies. (The News Register, Jan. 28, 2003). 

A 10-physician OB/GYN group in Columbia, South Carolina had to take out a 

$400,000 loan this year to continue to provide OB services and pay malpractice premiums. In rural Oconee County, just four doctors deliver babies now, down from 11 

physicians one year ago. A family practice group in Seneca was forced to drop OB 

coverage for four of their six physicians because of skyrocketing premiums. There 

are currently a total of four physicians in Seneca treating pregnant women. A solo 

practitioner practicing geriatrics in Charleston has had to quit treating patients in 

nursing homes because of high premiums. 

THE PRACTICAL SOLUTION

The AMA recognizes that injuries due to negligence do occur in a small percentage of health care interactions, and that they can be as devastating or worse to patients and their families than injury due to natural illness or unpreventable accident. When injuries occur and are caused by a breach in the standard of care, the 

AMA believes that patients are entitled to prompt and fair compensation. 

This compensation should include, first and foremost, full payment of all out of 

pocket ‘‘economic’’ losses. The AMA also believes that patients should receive reasonable compensation for intangible ‘‘non-economic’’ losses such as pain and suffering and, where appropriate, the right to pursue punitive damages. 

Unfortunately, our medical liability litigation system is neither fair nor cost effective in making a patient whole. Transformed by high-stakes financial incentives, it 

has become an increasingly irrational ‘‘lottery’’ driven by open-ended non-economic 

damage awards. A 2002 study by Tillinghast-Towers Perrin shows that our tort system, in general, is an extremely inefficient mechanism for compensating claimants—

returning less than 45 cents on the dollar to claimants and only 20 cents of tort 

cost dollars to compensate for actual economic losses. This study also reveals that 

the cost of our tort system is significantly higher than other countries and almost 

twice the average. 

To ensure that all patients who have been injured through negligence are fairly 

compensated, the AMA believes that Congress must pass fair and reasonable reforms to our medical liability litigation system that have proven effective. Toward 

this end, we strongly urge Congress to pass H.R. 5, the ‘‘Help Efficient, Accessible, Low-Cost, Timely Healthcare (HEALTH) Act of 2003,’’ a bipartisan 

bill that would bring balance to our medical liability litigation system. We applaud 

Representative Greenwood (R-PA) and the other 65 Republican and Democrat original cosponsors of the HEALTH Act for championing this bill in the 108th Congress. 

The major provisions of the HEALTH Act would benefit patients by:

• Awarding injured patients unlimited economic damages (e.g., past and future 

medical expenses, loss of past and future earnings, cost of domestic services, 

etc.); 

• Awarding injured patients non-economic damages up to $250,000 (e.g., pain and 

suffering, mental anguish, physical impairment, etc.), with states being given 

the flexibility to establish or maintain their own laws on damage awards, 

whether higher or lower than those provided for in this bill; 

56

• Awarding injured patients punitive damages up to two times economic damages 

or $250,000, whichever is greater; 

• Establishing a ‘‘fair share’’ rule that allocates damage awards fairly and in proportion to a party’s degree of fault; and 

• Establishing a sliding-scale for attorneys’ contingent fees, therefore maximizing 

the recovery for patients. 

These reforms are not part of some untested theory’they work. The major provisions of the HEALTH Act are based on the successful California law known as 

MICRA (Medical Injury Compensation Reform Act of 1975). MICRA reforms have 

been proven to stabilize the medical liability insurance market in California—increasing patient access to care and saving more than $1 billion per year in liability 

premiums—and have reduced the time it takes to settle a claim by 33 percent. 

MICRA is also saving California from the current medical liability insurance crisis 

brewing in many states that do not have similar reforms. In fact, according to MLM, 

as discussed above, the gap between medical liability insurance rates in California 

and those in the largest states that do not limit non-economic awards is substantial 

and growing. 

MICRA-type reforms are effective, especially at controlling non-economic damages. 

Several economic studies substantiate this point. One study looked at several types 

of reforms and concluded that capping non-economic damages reduced premiums for 

general surgeons by 13% in the year following enactment of MICRA, and by 34% 

over the long term. Similar results were shown for premiums paid by general practitioners and OB/GYNs. It was also shown that caps on non-economic damages decrease claims severity (Zuckerman et al. 1990). 

Another study published in the Journal of Health Politics, Policy and Law concluded that caps on non-economic damages reduced insurer payouts by 31%. Caps 

on total damages reduced payouts by 38% (Sloan, et al. 1989). Another study concluded that states adopting direct reforms experienced reductions in hospital expenditures of 5% to 9% within three to five years. If these figures are extrapolated 

to all medical spending, a $50 billion reduction in national health spending could 

be achieved through such reforms (Kessler and McClellan, Quarterly Journal of Economics, 1997). 

Further, as discussed above, a 2002 Congressional Budget Office study on H.R. 

4600 (107th Congress) asserts caps on non-economic damages have been extremely 

effective in reducing the severity of claims and medical liability premiums. Conversely, a 1996 American Academy of Actuaries study shows that medical liability 

costs rose sharply in Ohio after the Ohio Supreme Court overturned a liability reform law in the 1990s that set limits on non-economic damages. (Ohio recently enacted a new liability reform law.) 

Furthermore, three-quarters of Americans understand the detrimental effect that 

excess litigation has on our health care system. A 2002 survey conducted by 

Wirthlin Worldwide shows that the vast majority of Americans agree we need common sense medical liability reform. Among the findings:Q02

• 71 percent of Americans agree that a main reason health care costs are rising is 

because of medical liability lawsuits. 

• 78 percent say they are concerned about access to care being affected because doctors are leaving their practices due to rising liability costs. 

• 73 percent support reasonable limits on awards for ‘‘pain and suffering’’ in medical liability lawsuits. 

• More than 76 percent favor a law limiting the percentage of contingent fees paid 

by the patient. 

These findings are consistent with the results of a Gallup poll released on February 5, 2003, show that 72% of those polled favor a limit on the amount patients 

can be awarded for pain and suffering. 

CONCLUSION

Physicians and patients across the country realize more and more every day that 

the current medical liability situation is unacceptable. Unless the hemorrhaging 

costs of the current medical liability system are addressed at a national level, patients will continue to face an erosion in access to care because their physicians can 

no longer find or afford liability insurance. The reasonable reforms of the HEALTH 

Act have brought stability in those states that have enacted similar reforms. 

By enacting meaningful medical liability reforms, Congress has the opportunity 

to increase access to medical services, eliminate much of the need for medical treatment motivated primarily as a precaution against lawsuits, improve the patientphysician relationship, help prevent avoidable patient injury, and curb the single 

most wasteful use of precious health care dollars—the costs, both financial and emoVerDate jul 14 2003 11:26 Sep 10, 2003 Jkt 086683 PO 00000 Frm 00060 Fmt 6602 Sfmt 6621 W:\DISC\86045 86045
57

tional, of health care liability litigation. The modest proposals in the HEALTH Act 

answer these issues head on and would strengthen our health care system. 

The AMA appreciates the opportunity to testify on the adverse effect that our current medical liability litigation system imposes on patient access to health care and 

urges Congress to pass the HEALTH Act.

Mr. GREENWOOD. Thank you, Dr. Palmisano. Our next witness is 

Leanne Dyess. Am I pronouncing that right? 

Ms. DYESS. Leanne. 

Mr. GREENWOOD. Say it again? 

Ms. DYESS. Leanne. 

Mr. GREENWOOD. Leanne Dyess from Vicksburg, Mississippi. We 

welcome you and you are recognized for your testimony. 

TESTIMONY OF LEANNE DYESS 

Ms. DYESS. Thank you. Congressman Greenwood, distinguished 

ladies and gentlemen, it is an honor for me to be here this morning 

to share with you the devastating consequences of the crisis surrounding medical liability costs. Others today have talked in terms 

of economics and policy. I want to speak to you from the heart. I 

want to share with you the life my two children and I are now 

forced to live because of rising liability costs that many doctors in 

many parts of the country cannot afford. 

I am a teacher. For 20 years I have taught the brightest young 

minds in Mississippi. I know the value of a good story to make an 

important lesson memorable, but never did I think that my life and 

the life of my children would become that story for this important 

issue. The story began on July 5 of last year when my husband, 

Tony, was returning from work in Gulf Port, Mississippi. We had 

just started a new business and Tony was working hard. We were 

doing our best to build a life for our children. Everything looked 

great, and then, suddenly, everything changed. Tony was involved 

in a car accident. They suspect he fell asleep, though, we will never 

know. 

What we do know is that after removing him from the car, they 

rushed Tony to Garden Park Hospital. He had head injuries and 

required immediate attention. Shortly thereafter, I received a 

phone call that I pray no other wife should ever have to receive. 

I was informed of the accident and told that the injuries were serious, but I cannot describe to you the panic that gave way to hopelessness when they told me the specialist that Tony needed was not 

there to take care of him, we will have to airlift him to another 

hospital. 

I couldn’t understand this, Mr. Chairman. Gulf Port is one of the 

fastest growing most prosperous regions in Mississippi. Garden 

Park is a good hospital. Where, I wondered, was the specialist who 

could have taken care of my husband? 

Almost 6 hours passed before Tony was airlifted to the University Medical Center, 6 hours for the damage to his brain to continue before they had a specialist capable of putting a shunt into 

his brain to drain the fluids, six unforgettable hours that changed 

our life. 

Today, Tony is permanently brain damaged. He is mentally incompetent, unable to care for himself, unable to provide for our 

children, unable to live the vibrant, active, and loving life he was 

living just moments before the accident. I could share with you the 

58

panic of a woman suddenly forced into the role of both mother and 

father to her teenage children, of a woman whose life is suddenly 

caught in limbo. I could tell you about a woman who had to worry 

about the constant care of her husband, who had to make concessions she never thought she would have to make to be able to pay 

for his therapy and his care. But to describe this would be to take 

us away from the important point and the value of what I have 

learned, and that is that there was no specialist on staff that night 

in Gulf Port because rising medical liability costs had forced physicians in that community to abandon their practice. In that area at 

that time, there was only one doctor who had the expertise to care 

for Tony, and he was forced to cover multiple hospitals, stretching 

him thin and unable to care for everyone. Another doctor had recently quit his practice because of medical practice liability costs. 

And on that hot night in July, my husband drew the short straw. 

I have also learned that Mississippi is not unique to this crisis. 

It rages all across America. It rages in Nevada, where young expectant mothers cannot find OB-GYN’s. it rages in Florida, where 

children in the extremities cannot find pediatric neurologists. It 

rages here in Pennsylvania, where the elderly who have come to 

depend on their orthopedic surgeons are being told that those 

trusted doctors are moving to States where medical liability costs 

are less and practicing medicine is affordable and less risky. 

The crisis, Mr. Chairman, is like termites in the structure of a 

home. They get into the woodwork but you can’t see the damage 

they are doing. The walls of the house remain beautiful. You don’t 

know what is going on just beneath the surface, at least not for a 

season. Then 1 day you go to hang a picture and the whole wall 

comes down, everything is destroyed. Before July 5, I was like most 

Americans, completely unaware that just below the surface of our 

Nation’s healthcare delivery system, serious damage was being 

done by excessive, frivolous litigation, litigation that was forcing liability costs beyond the ability of doctors to pay. I had heard about 

some of the frivolous cases and, of course, the awards that climbed 

into the hundreds of millions of dollars, and like most Americans, 

I just shook my head and said someone hit the lottery. I didn’t 

know the damage it was doing to the system. Just think about it—

it is not until your spouse needs a specialist, it is not until you are 

the expectant mother who needs an OB-GYN, or your child who 

needs a pediatric neurosurgeon, that you realize that the termites 

work beneath the surface. 

From my perspective, sitting here today, this problem far exceeds 

any other challenge facing America’s healthcare, even the challenge 

of the uninsured. The uninsured can go to the emergency room and 

find care; hospitals won’t turn them away. But if doctors aren’t 

able to practice, if they are unable to provide the expertise they are 

trained years to provide, then there is nothing anyone can do. My 

family had insurance when Tony was injured; we had good insurance. What we didn’t have was a doctor. 

Mr. Greenwood, I know of your efforts to see American through 

this crisis. I know of your legislation and of its importance to the 

President. I know of the priority you, and Congress, and many in 

the Senate are placing upon doing something and doing something 

now. Today I pledge to you my complete support. It is my prayer 

59

that no woman or anyone else anywhere will ever have to go 

through what I have gone through and what I continue to go 

through every day with my two children and a husband I dearly 

love. Thank you. 

[The prepared statement of Leanne Dyess follows:]

PREPARED STATEMENT OF LEANNE DYESS

Congressman Greenwood, Governor Rendell, distinguished guests, ladies and gentlemen, it’s an honor for me to be here this afternoon—to share with you the devastating consequences of the crisis surrounding medical liability costs. Others today 

will talk in terms of economics and policy. I want to speak from the heart. I want 

to share with you the life my two children and I are now forced to live because of 

rising liability costs that many doctors in the many parts of the country cannot afford. 

I am a teacher. For twenty years, I have taught some of the brightest young 

minds in Mississippi. I know the value of a story to make an important lesson memorable; but never did I think that my life—and the life of my children—would become the cautionary tale on this important issue. 

Our story began on July 5th of last year, when my husband Tony was returning 

from work in Gulf Port, Mississippi. We had just started a new business. Tony was 

working hard. We were doing our best to build a life for our children. Everything 

looked bright. Then, in an instant, it changed. Tony was involved in a single car 

accident. They suspect he may have fallen asleep, though we’ll never know. 

What we do know is that after removing him from the car, they rushed Tony to 

Garden Park hospital. He had head injuries and required immediate attention. 

Shortly thereafter, I received the telephone call that I pray no other wife will ever 

have to receive. I was informed of the accident and told that the injuries were serious. But I cannot describe to you the panic that gave way to hopelessness when they 

somberly said, ‘‘We don’’t have the specialist necessary to take care of him. We need 

to airlift him to another hospital.’’

I couldn’t understand this, Mr. Chairman. Gulf Port is one of the fastest growing 

and most prosperous regions of Mississippi. Garden Park is a good hospital. Where, 

I wondered, was the specialist—the specialist who could have taken care of my husband? 

Almost six hours passed before Tony was airlifted to the University Medical Center—six hours for the damage to his brain to continue before they had a specialist 

capable of putting a shunt into his brain to drain the swelling—six unforgettable 

hours that changed our life. 

Today Tony is permanently brain damaged. He is mentally incompetent, unable 

to care for himself—unable to provide for his children—unable to live the vibrant, 

active and loving life he was living only moments before his accident. 

I could share with you the panic of a woman suddenly forced into the role of both 

mother and father to her teenage children—of a woman whose life is suddenly 

caught in limbo, unable to move forward or backward. I could tell you about a 

woman who now had to worry about the constant care of her husband, who had to 

make concessions she thought she’d never have to make to be able to pay for his 

therapy and care. But to describe this would be to take us away from the most important point and the value of what I learned. 

Congressman Greenwood, I learned that there was no specialist on staff that 

night in Gulf Port because rising medical liability costs had forced physicians in 

that community to abandon their practices. In that area, at that time, there was 

only one doctor who had the expertise to care for Tony and he was forced to cover 

multiple hospitals—stretched thin and unable to care for everyone. Another doctor 

had recently quit his practice. And on that hot night in July, my husband drew the 

short straw. 

I have also learned that Mississippi is not unique, that this crisis rages in states 

all across America. It rages in Nevada, where young expectant mothers cannot find 

ob/gyns. It rages in Florida, where children in the extremities cannot find pediatric 

neurosurgeons. And it rages here in Pennsylvania, where the elderly who have come 

to depend on their orthopedic surgeons are being told that those trusted doctors are 

moving to states where medical liability costs are less and practicing medicine is 

affordable and less risky. 

The crisis, Mr. Chairman, is insidious, like termites in the structure of a home. 

They get into the woodwork, but you cannot see the damage. The walls of the house 

remain beautiful. You don’t know what’s going on just beneath the surface. At least 

not for a season. Then, one day you go to hang a shelf and the whole wall comes 

60

down; everything is destroyed. Before July 5th, I was like most Americans, completely unaware that just below the surface of our nation’s health care delivery system, serious damage was being done by excessive and frivolous litigation—litigation 

that was forcing liability costs beyond the ability of doctors to pay. I had heard 

about some of the frivolous cases and, of course, the awards that climbed into the 

hundreds of millions of dollars. And like most Americans I shook my head and said, 

‘‘Someone hit the lottery.’’

I did not know the damage it was doing to the system. You see, Congressman 

Greenwood, it’s not until your spouse needs a specialist, or you’re the expectant 

mother who needs an ob/gyn, or it’s your child who needs a pediatric neurosurgeon, 

that you realize there are termites at work beneath the surface. 

From my perspective, sitting here today, this problem far exceeds any other challenge facing America’s health care—even the challenge of the uninsured. The uninsured can go to the emergency room and find care. Hospitals will not turn them 

away. But if doctors are unable to practice—if they’re unable to provide the expertise they’ve trained years to provide—then there’s nothing anyone can do. My family 

had insurance when Tony was injured. We had good insurance. What we didn’t have 

was a doctor. 

Mr. Greenwood, I know of your efforts to see America through this crisis. I know 

of your legislation, and that it’s important to the President. I know of the priority 

you and Congress and many in the Senate are placing upon doing something... and 

doing it now. Today, I pledge to you my complete support. It is my prayer that no 

woman—or anyone else—anywhere will ever have to go through what I’ve gone 

through, and what I continue to go through every day with my two beautiful children and a husband I dearly love.

Mr. GREENWOOD. Thank you, Ms. Dyess. I am going to go just 

out of order to make a comment. About 20 years ago, right up the 

road from where this hospital is located, a woman, a constituent of 

mine—I was in the State legislature—was in a very bad accident, 

and we didn’t have a trauma center in Bucks County and she was 

flown to the nearest one. She didn’t make it because she didn’t get 

there in that golden hour, and as a result of that, I went back to 

Harrisburg and wrote legislation to create the trauma centers, and 

it has been a remarkable success, but it is unbelievably frustrating 

to me now to see trauma centers close down because of the lack of 

physicians. 

Our next witness has been waiting patiently, and she is Heather 

Lewinski. And Heather, I don’t have your address. Where are you 

from? 

Ms. LEWINSKI. Buffalo, New York. 

Mr. GREENWOOD. Okay. Well, we thank you very much for being 

with us and you are recognized for your testimony. 

TESTIMONY OF HEATHER LEWINSKI 

Ms. LEWINSKI. My name is Heather Lewinski. I am a 17 year old 

high school senior. I recently saw President Bush on television saying that Congress should pass a law saying that doctors or hospitals who injure people through their medical mistakes should 

never have to pay the patients more than $250,000 for their pain 

and suffering. I do not believe that doctors should be blamed for 

everything bad that happens to a patient, but if they make a mistake, the patient’s pain and suffering can be way more than 

$250,000. Unfortunately, I know this from personal experience. 

When I was 8 years old, a doctor performed a surgery on my face 

that never should have been done. 

Mr. GREENWOOD. Take your time, sweetheart. 

Ms. LEWINSKI. He told my parents that he had tried this surgery 

successfully on many other patients with my condition, but my parents and I later found out that that was not true. This doctor had 

61

never done the surgery before, and in fact, we were told that no 

doctor in the whole United States had ever recommended this surgery for a condition like mine. I feel like the doctor was using me 

as a guinea pig. 

The doctor told my parents that he would be able to take care 

of my problem with two easy surgeries a few months apart. He also 

told my parents I would have no visible scars. I wish that doctor 

had just told the truth. I ended up with horrible scars all over my 

face and have gone through 14 major surgeries on my face to try 

to correct what he did. I have had so much pain over the past 10 

years, I can’t even begin to tell you all about it. 

I never had any surgery before this doctor operated on me, so I 

never knew what to expect. After I went through the first surgery, 

I had so much pain like I had never felt before. Since then it has 

never gotten better with any of my surgeries, and in addition, has 

instilled a horrible fear. Every time one of my surgeries is approaching, I will get very frightened and always think about the 

surgery and the pain I will be in. I would get so bad that I would 

actually have to sleep with my mother for many nights before the 

surgery. That went on with all my operations, and it did not matter 

whether I was 9, 13, or 14 years old. It just makes me feel stupid. 

Here I am a teenager but I end up sleeping with my mom because 

I am so afraid of the surgery, the hospital, and everything that 

goes with that. 

After every surgery I had, I would be forced to stay in the hospital for a while. Then when I go home, where I would be in bed 

or on the sofa for weeks and weeks and my mouth would be wired 

shut. My face would be swollen, my entire head would be wrapped 

in bandages. Sometimes the pain was so bad it would feel like my 

whole face was going to explode. It was like someone had a hammer and kept hitting me and hitting me. 

I remember one day we were driving to the hospital for one of 

my surgeries and it was around Christmastime. There was a song 

on the radio called, It’s a Marshmallow World, and I started crying 

and saying to myself, it really isn’t a marshmallow world. 

I will never forget the first time I looked at my face after surgery. The doctor told us that I wouldn’t have any noticeable scars. 

I took the bandages off my face and looked in the mirror and I just 

cried. I could not believe what he had done to my face. He tried 

to do another surgery to fix it, but that only made things worse. 

I not only had these thick red scars all over my face, but now the 

corner of my mouth was all pulled down. I looked like I had a 

stroke. 

After all of my surgeries, my face and whole body would hurt so 

bad. I wanted to hide away because I didn’t want anyone to see me. 

My appearance was so gruesome that no one should have to see me 

like that. 

From third grade through eighth grade, I missed so much school 

from all of the surgeries that I had trouble keeping up. In third 

grade, I missed from March until the end of the year. In fourth 

grade, I missed from Thanksgiving break to the rest of the school 

year. In fifth, sixth, seventh, and eighth grades, I missed anywhere 

from 3 months to 5 months of school each year. I had to have tutors and be home schooled all this time. I remember that even 

62

though I had always been a good student, they had to label me as 

special ed because I missed so much time from school. I hated that 

label. 

I still cannot believe I have gone through 14 surgeries. You never 

get used to the pain and the fear never goes away. But by far, the 

worst part about everything that has happened to me is the way 

my face looks and how people treat me. I wish people could see the 

inside of me and know the kind of person I really am, but all they 

see are those scars on my face, and they stare. From third grade 

until now, every time I walk in the halls, or into the class, or in 

the cafeteria, people are staring, and I hate it. The kids in school 

have constantly teased me and called me names like Two Face, the 

character from the Batman movie. I hated to eat in the cafeteria 

because I couldn’t close my mouth and I would drool. Because the 

way the corner of my mouth looked, the kids would walk around 

school and pull down their lip and mock me like they had a stroke. 

I hate to go out in public because adults stare, and some of them 

even come up to me and ask questions. I remember once being in 

an ice cream parlor with my family, and there was a lady with her 

son, and she just kept pointing to my face and then talking to her 

son. This sort of thing happens to me all the time. 

I really like people but I have only one close friend, my 

girlfriend, Angela, who I grew up with. It is so hard for me to meet 

new people and make friends because they just stare. Even a few 

other kids who are supposedly my friends at school will not walk 

with me in the halls, and it seems like they are always 2 or 3 steps 

behind me. I quit riding the bus from school a long time ago because it was torture. My mom has to take me to school and pick 

me up. Sometimes I wish so hard that there was some magic and 

I could just make myself invisible to other people but still be able 

to enjoy them. 

I am now a high school senior and I have never had a boy ask 

me on a date. I will be 18 in a few months and I have never been 

kissed by a boy. I remember one time sitting in the cafeteria a few 

years ago and a boy came up to me and asked me if I was doing 

anything on Friday. I was so excited that I almost fell over, but 

then he went back to the table with his other friends and they all 

started laughing and pointing at me, and then I realized that it 

was just a joke, and I heard him saying that why would I go out 

with a big ugly loser like you. 

The only school dance I have ever attended was in ninth grade. 

It was the Valentine’s Day dance and I wanted to go so bad but 

no one asked me. I finally asked out a boy that lives next to me 

if he would go with me, and he was so nice that he couldn’t say 

no. I was so excited and my parents really bought me the works, 

a new dress, new shoes, makeup, hair. My dad told me that I 

looked like a princess, and then I just remember looking in the 

mirror and seeing my face and hoping that the boy would not be 

looking at my scars. 

I have never really been involved in school activities because I 

just do not have that many friends. The one activity that I have 

that I really love is training and showing dogs. I have been doing 

that for a few years. Other people hire me to train and show their 

dog and I also train and show my own dogs. I usually compete in 

63

dog shows on the weekends in New York and some other States. 

I have been really lucky and have been able to win several awards 

competing against adults at these shows. I think one of the reasons 

that I like dog training so much is that animals can’t stare or 

laugh. 

I will be graduating from high school in a few months and I have 

already been accepted to college. Because of my fears of meeting 

new people, I chose a college that is close to my house so that I 

do not have to stay in a dorm with other kids. My biggest wish is 

that some day I will find a boy who will look and see me for what 

is on the inside of my heart and in my mind and not my appearance. I would love to get married and have a family some day, but 

if I am honest with myself, I do not know if that will ever happen 

so I have made other plans. I will finish college and become a kindergarten teacher. I have always loved baby-sitting kids and being 

around them. Little children do not stare so much and they just accept you for what is inside. I will teach school and live in the country with lots of dogs and I will be self-sufficient. 

I know that the President is trying to make good decisions, but 

if he could see everything that I have gone through the last 10 

years and everything that I am going to go through for the rest of 

my life, I think he would realize that he is wrong about this law 

and that every patient is entitled to be judged as an individual 

based on what they have gone through. I think that most doctors 

try to do the best they can for people, but sometimes they do things 

that should not be done, and when that happens, I think they 

should be responsible for all of the harm they cause and not just 

part of it. 

I know that nothing can be done to change what happened to me, 

but I hope that if we keep the laws strong, maybe a doctor will be 

more careful in the future and no other little girl will have to go 

through what I have. Thank you. 

Mr. GREENWOOD. Thank you, Heather. I have a daughter just 

your age, and let me tell you, it is a courageous thing for you to 

come here and help us understand this issue. I want you to know 

that kids are awful, but the adults in this room can see exactly who 

you are and what is in your heart and it looks pretty good. 

Ms. LEWINSKI. Thank you. 

Mr. GREENWOOD. Can you tell me, Heather, what was the cause 

of your need for surgery? Was it a congenital birth defect or was 

it an injury or disease? 

Ms. LEWINSKI. It was caused by trauma. When I was 3 years old 

I fell down the stairs. 

Mr. GREENWOOD. You fell down the stairs when you were 3 years 

old. Was the doctor ever subjected, do you know, to criminal 

charges for his——

Ms. LEWINSKI. No. 

Mr. GREENWOOD. Okay. And there was a lawsuit. Is that settled 

now? 

Ms. LEWINSKI. Yes. 

Mr. GREENWOOD. Do you know what the settlement was or are 

you able to share that? 

Ms. LEWINSKI. No, I don’t know. 

64

Mr. GREENWOOD. You don’t know what the settlement was. 

Okay. All right. Well, thank you again for being here with us. 

Let me address a question to Dr. Dench. Some parties might dispute that there is a loss of doctors in the Commonwealth of Pennsylvania. In fact, that has been the subject of some speculation. 

The parties point to particularities of Pennsylvania’s licensure, 

MCARE fund, participation, and the like to make their case. Why 

is there any confusion at this point and how can we know the truth 

about the impact situation here in Pennsylvania on doctors leaving 

the State as Dr. Johansson has said she is about to? 

Mr. DENCH. We have done some studies in looking at even anecdotal studies where we look at when physicians have left. The auxiliary or alliance has accumulated the names of doctors that are 

leaving, and we have come up with as many as 900 that are leaving, but by no means is that complete. What we really know, of 

course, is that throughout the State the patients are telling us that 

they can’t find their doctor, their lines are getting longer, they are 

having a very difficult time finding physicians. In fact, many of the 

physicians who have sought to get care, to get a new partner, cannot find anyone to come to Pennsylvania. If you talk to the headhunters, or the people who go out seeking to find physicians, they 

don’t even bring them here. They don’t even show us those people, 

and the reason they don’t is because the reimbursement is lower, 

the malpractice crisis has led to the reputation in this State as a 

problem, and as a result, physicians don’t want to practice here. 

One of the reasons—what you were asking, one of the reasons 

why it is so difficult is because it takes 2 years before the licenses 

come back up and physicians tend not to drop the license. Hopefully, a lot of those physicians that have left the State will be able 

to come back when you fix it at the national level. They love this 

State, they love the patients here, and they would like to be here, 

but they have left, but they don’t give up the license because it 

takes so long to acquire a license in this State. 

Mr. GREENWOOD. Dr. Dench—actually, I want to pose this question to Dr. Dench and also to Dr. Eskin. You heard the Governor 

say that he has a short-term proposal, and that the short-term proposal is, essentially, to throw money at the problem, to put a onetime tax, if you will, on the premium surpluses of health insurers 

and use that to subsidize the medical liability premiums. I think 

that is a good answer in the short run, and I have said for a long 

time that in the short run, there is nothing that we can do except 

throw money at it until we change the liability situation. But I am 

worried because when I attended the Governor’s inaugural, I ran 

into one of the lobbyists for one of the big Blue’s, and I asked him, 

how much do you expect the Governor’s proposal is going to cost 

you when it is finished, and he said zero. And I said, why is that? 

And he said, because it isn’t going to pass because we have the 

votes to block it. So my question—and the reason I am addressing 

this to Dr. Dench, as head of the Pennsylvania Medical Society, but 

also, to Dr. Eskin, who has testified that, essentially, it has an 

IOU. You have got that trauma center in Abington held open by 

baling wire until, and in hopes, that the legislature will pass the 

Governor’s proposal and put some money to subsidize the premiums and get us to long-run solutions. So the question is for both 

65

of you, how confident are you, based on what you know, that this 

is going to happen, that it is going to get through the legislature 

even in the short run? 

Mr. DENCH. I am very concerned about it. In fact, I wanted to 

send a letter to all the physicians warning of the possibility so that 

they can notify their representatives of the problem. If we don’t get 

short-term relief, there are a lot of physicians who have been banking—I mean, literally, banking on this relief. Because even with 

the relief, either the high risk specialist or even the rest of the physicians, their premium is going up this year. Even with 100 percent 

relief, they are still seeing an increase. And many of them have no 

way of paying for it. So they are going to come around in May and 

owe that bill for the year and have no way to pay it. And they are 

going to be in a position where they don’t know what to do, and 

you see the desperation in their voices. 

Mr. GREENWOOD. And what are your lobbyists in Harrisburg telling you about how confident they are that the Pennsylvania House 

and Senate is going to pass these short-term financial reforms, or 

subsidies, I should say, given the fact that I am already hearing 

that State legislators from outside of our Philadelphia metropolitan 

region are not in a hurry to put up votes in this State House and 

State Senate to, essentially, transfer money from premium payments of their constituents in central, northern, western Pennsylvania to subsidize what is a problem that is particularly acute here 

in the southeast? 

Mr. DENCH. I have heard the same thing you have heard. I have 

heard that it isn’t going to pass and that is why I am so concerned 

about the situation. The Rendell taskforce which I sit on did not 

recommend a specific way of getting the money. We, in fact, had 

a whole list of proposals of where we should get it. This was the 

choice of the Governor where we should get those funds. We only 

can hope and lobby that the short-term funds be found, because if 

not, I think there will be a catastrophe in this State. 

Mr. GREENWOOD. You are on the taskforce. What has the discussion been like with regard to support for caps imposed by the Federal Government, let alone getting around to amending the Pennsylvania constitution to do it? 

Mr. DENCH. Well, clearly, all of the physicians and all the defense lawyers feel there should be a cap. Whether or not that 

taskforce was loaded ahead of time with enough——

Mr. GREENWOOD. What is your estimate of that? 

Mr. DENCH. My estimate is that, actually, we will come out in 

favor of caps, but in any case, there will be a minority report if not. 

Our evidence clearly shows that caps is one of the most important 

things that can be done to limit the exposure. I think even the Governor admitted that it was the outlandish awards in Philadelphia 

that caused the problem, not the frequency, but the outlandish 

awards. Obviously, the caps would control that. We have many, 

many examples of awards that are well out of reasonableness that 

are just leading to care not being made available and access for our 

patients. 

Mr. GREENWOOD. Dr. Eskin, how long can you hold out and keep 

the trauma center open while you are waiting for these reforms? 

66

Mr. ESKIN. It is definitely an ongoing concern. While we certainly 

appreciate the Governor’s efforts for both short and long-term solutions, taking the best case scenario that we have now, it is a shortterm 1-year fix. The majority of our high risk specialist premiums 

come due in July or January. And while we probably, hopefully, 

maybe will be able to come through the summer, I fear that this 

coming November and December, we will be back in the same circumstance that we have been, actually, for the last 3 years, in 

terms of trying to hold together a vital service. I remain worried, 

as I said in my testimony. I believe it really is an IOU, but I don’t 

hear a long-term solution at this point. And other States, because 

of differences in the degree of liability reform that they have enacted, are recruiting away some of our best talent. Thank you. 

Mr. GREENWOOD. Dr. Johansson, you said in your testimony that 

there is a difference between a bad outcome and malpractice. What 

do you mean by that distinction? 

Ms. JOHANSSON. Well, I mean, surgery, there is always inherent 

risks when doing surgery, and sometimes thing—there are complications that, I mean, even such a simple complication as a minor 

infection which is treatable with antibiotics, it is not the doctor’s 

negligence, necessarily, that caused this patient to need a course 

of antibiotics; it is, you know, a bad outcome. There are high risk 

pregnancies that no matter how much we try and how hard we 

work to get a successful delivery out of that patient, things happen 

that we cannot—we don’t have control over thing, unfortunately, 

but a lot of times I feel that people assume we are supposed to 

have control over everything that happens, and some things are 

just beyond our control. So a bad outcome does not necessarily 

mean that anybody did anything negligent. I guess that is what I 

mean by that. 

Mr. GREENWOOD. Okay. My time has expired. I just want to 

make one more comment to our brave Heather Lewinski here. I 

want you to understand that the legislation that I am proposing, 

in a situation like yours, would make sure that your doctor, the 

doctor that did this procedure on you, would be responsible to pay 

all of your successive hospitalizations and surgeries, all of your 

medical bills, and on top of that would make you eligible for at 

least $250,000 for your pain and suffering. And if the State in 

which you live chose for that to be $500,000, or $750,000, or 

$250,000, that they could do that and you, certainly, would deserve 

as much as that as reasonable and practical. 

The Chair recognizes the gentleman from Florida for 10 minutes. 

Mr. DEUTSCH. Thank you, Mr. Chairman. Dr. Dench, I guess, you 

know, I really have been learning today and, you know, just in 

terms of different States and different issues. And I have expressed, you know, somewhat very briefly, the experience in Florida, which you very well might be more familiar with than I am, 

since doctors, particularly, heads of medical associations, speak to 

each other and communicate. As I have said, though, in Florida, as 

bad as the situation is, there are sort of these two safety valve 

things that physicians have available to them. One is going bare 

and one is, basically, setting up practice through community hospitals. I guess what I am hearing today is in Pennsylvania, there 

is no type of safety valve. I mean, it basically is you pay the preVerDate jul 14 2003 11:26 Sep 10, 2003 Jkt 086683 PO 00000 Frm 00070 Fmt 6602 Sfmt 6602 W:\DISC\86045 86045
67

mium, or you leave the State, or you stop practicing, and that is 

really the options in Pennsylvania. 

Mr. DENCH. That is correct, but it should be stated that I know 

of no hospital in the country that would let you practice without 

a $1 million coverage. That is generalized and some higher. 

Mr. DEUTSCH. I will tell you for a fact that there are many physicians in Florida that have no coverage, period, do not have $1 million in coverage. 

Mr. DENCH. So they have hospitals that don’t require it? 

Mr. DEUTSCH. Absolutely. 

Mr. DENCH. Unfortunately, in this State that is not the case; 

they, of course, require it. But without a doubt, the Medical Society 

does believe that you shouldn’t tie licensure to malpractice coverage. 

Mr. DEUTSCH. Right. And I guess the reason I say that, in some 

ways it makes it more acute, what you are describing, that, basically—I mean, from a physician perspective—and I, again, completely understand. These are real people and I think Dr. 

Johansson spoke very eloquently as well, who have devoted their 

lives, you know, to a very noble—as noble as any career—with no 

expectation when they entered this that this would be the result, 

that they would be facing 10, or 20, or 30 years into their career. 

And so I guess—I mean, that is really the point. And I guess the 

numbers that we are talking about in terms of premium increases, 

and I really have a sense of it because I have talked to doctors in 

different communities about this, that you are really talking about 

someone whose net income could be $150,000 or $200,000 in a particular specialty, getting a $100,000 increase in malpractice insurance. Is that the type of situation you have seen? And that might 

be an extreme case but those cases do exist. 

Mr. DENCH. Yes. They not only exist, but we are put in that 

problem that government always does. The Secretary of the Commonwealth sent a letter right at Christmas saying to us, we know 

you can’t get insurance, but you have to practice medicine because 

you can’t abandon those patients, but you can’t practice if you don’t 

have malpractice insurance. And that was sent to all the physicians in this State right at the end of the year. 

Mr. DEUTSCH. I mean, is it a fair assessment, I mean, just some 

of the dramatic—I mean, in terms of eating into someone’s net, just 

the premium increase, potentially, could be that large a percentage 

of what their income has been in the previous year? 

Mr. DENCH. Absolutely. The doctors in Scranton whose insurance 

companies left and were forced into the Joint Underwriters Association insurance were facing increases that were equal to their net 

income. 

Mr. DEUTSCH. One of the things you mentioned, and this is 

something I am always curious about when physicians talk about 

medical malpractice issues; you mentioned unnecessary procedures. 

My understanding is you are an anesthesiologist. Can you talk 

about any unnecessary—this is in terms of the interview you had 

with our staff on Saturday—at least what they are telling me is 

that you talked of one of the reasons the current tort system is a 

problem is unnecessary procedures or tests. 

68

Mr. DENCH. Oh, I see. I don’t know about procedures, but certainly, what happens when they are faced with frivolous lawsuits, 

is they will order all kinds of tests to cover themselves For example, as I was growing up, I had eight sprained ankles at one time 

or another. I don’t think there is anyone today that had a sprained 

ankle and wouldn’t get an X-ray for it because they would be afraid 

of being sued because there might have been a small fracture that 

you would have had to wait 2 weeks before you diagnosed. And 

those are the kinds of tests that, clearly, are out there. 

Mr. DEUTSCH. All right. Let me just ask you this just to sort of 

dialog a little bit about that. But isn’t it the case, though, that if 

there weren’t cases where the X-ray, initially, on the sprained 

ankle, shows a fracture which if you didn’t do the X-ray, doing it 

2 weeks later becomes, you know, medically problematic. That is 

the only reason why at some point in time someone could say do 

the X-ray initially? 

Mr. DENCH. Well, that is not what they do. They do the X-rays 

automatically now, but clearly, the fracture, the small fracture that 

is there, would undergo maybe an extra week or two before they 

were casted and that would be the major consequences of not doing 

it. But no one would—you could be sued with no loss. You could 

be sued for that extra pain and suffering, et cetera, et cetera, and 

the net cost to society is tremendous if you have to X-ray every single person whose ankle is sprained. But that is just the beginning 

of the thing. There are all kinds of extra lab tests, all kinds of 

extra procedures in the sense that, I guess if I was referring to procedures, you don’t believe, for example, that the person has a gastric ulcer. You have every reason to believe that they are doing fine 

and you would do a wait and see and give some antacids. Well, you 

could be sued tremendously if they turn around and it just so happens one out of a million is a cancer, and they then try to proceed 

to claim that that cancer could have been cured if you had done 

the scooping that first week. So you are always looking at a cost 

benefit in any procedure done, and now the physicians are asked 

to be able to do these things right away even though their good 

medical judgment says that they don’t need to be done right away. 

Mr. DEUTSCH. Let me, actually, jump around a bit. Dr. 

Johansson, I served 10 years in the State legislature before I got 

to Congress. And in Florida, while I was in the legislature, I would 

see the chairman of the insurance committee at the time. We actually adopted what was called the bad baby bill. I mean, we basically had no fault for babies. Has the legislature here looked at 

that at all as an option? 

Ms. JOHANSSON. As far as I know, there has been nothing discussed about that. And being an obstetrician, I mean, obviously, it 

is very emotional when something happens to a baby whether it 

was the fault of the doctor or beyond our control, and no, nothing 

has been looked at this. 

Mr. DEUTSCH. And my understanding is that your practice is 

changing from a practice affiliated with the hospital to a private 

practice. Is that accurate? 

Ms. JOHANSSON. Well, our practice was a private practice, hospital practice, but again will become a private practice, and part of 

the problem with going back to it is obtaining affordable insurance. 

69

We couldn’t even get a quote, you know, a reasonable quote at this 

point in Pennsylvania. 

Mr. DEUTSCH. So you might stay as a hospital practice or have 

they——

Ms. JOHANSSON. Actually, now that is not any longer my concern 

for the group because I am leaving, and that is a decision they are 

going to have to make, unfortunately. 

Mr. DEUTSCH. But my understanding is in a private practice the 

rates are double what they would be, or 50 percent higher, or——

Ms. JOHANSSON. Actually, our rates when I started, even though we are hospital and group, our rates were about $36,000 my first 

year. They are hovering just under $90,000, even though we are 

hospital and group. And I mean, that is——

Mr. DEUTSCH. Per person? 

Ms. JOHANSSON. Right, per physician per year. 

Mr. DEUTSCH. First of all, Mr. Wozniak, thank you for having us 

and I appreciate—I know how much work it takes to really create 

one of these hearings. I would like to, I guess, just ask you a couple 

of questions regarding hospitals and your concern in terms of both 

malpractice, but also safety net issues as they affect it. My understanding is that from the American Hospital Association, the number that the American Hospital Association uses, 40 million Americans are basically served by hospitals as a safety net, uninsured 

Americans. And obviously, by statute, you are required to treat 

people regardless of their health insurance. How has that affected 

your operation as a hospital at this point in time? 

Mr. WOZNIAK. Well, I think being a Catholic faith based hospital 

that St. Mary is, we take care of all people, no matter the ability 

to pay. So first and foremost, that is our ministry. In fact, we go 

to great extremes to go out and find those people that are often left 

behind. And as I referenced before, the Mother Bachmann Center. 

How does that affect us? Well, I really believe for all of you in Congress, you really need to think through those poor people. You and 

I can find healthcare, we can travel, and we can find that 

healthcare. But most of the indigent and the poor are really restricted to their local area, and when they need that healthcare, 

they don’t know where to turn. Our Mother Bachmann Center, we 

go out and we try to enhance the care for that poor and indigent 

group because that is what our mission calls us to do. As we do 

that, we try to treat the whole individual. And as I mentioned in 

my testimony, we have the Mother Bachmann Center. It has cared 

for over 1,600 women over the last 11 years, and I could tell you 

many of those women would not have access to healthcare because 

they wouldn’t know how to find it and they would fall through the 

cracks. So that becomes a challenge. At the same time, to provide 

care for you and I, literally, I use an analogy. It is like the old Ed 

Sullivan show. Do you remember that? And the gentleman that 

was up there spinning plates all the time, and he would run from 

one plate to the next—and as a hospital administrator, we literally 

look at making sure our services are available. And without doctors 

we can’t provide those services. We are literally behind the scenes, 

we are spinning those plates, daily. In all my career the last 15 

years, the most difficult have been these past three because people 

don’t realize. I think the lady to my right talked about termites 

70

eating away at the healthcare system; they are very active and this 

is very fragile at this point in time. And those plates that we keep 

spinning are going to fall. You saw it with Abington. We are concerned with the Mother Bachmann Center. The question that Congressman Greenwood asked earlier of Dench, how long can we hold 

this trauma center together? Our physicians have this IOU, and 

that IOU in their mind comes due April 30. We don’t have a year, 

we don’t have 6 months. We have April 30, and we have to move 

today. If we don’t, like that gentleman this morning that came into 

our trauma center at 7:50 and went to the OR, that neurosurgeon 

won’t be there, and that is not right. 

Mr. DEUTSCH. Thank you. 

Mr. GERLACH. Congressman Greenwood has asked that I assume 

the Chair for a few minutes while he is out, and so I am going to 

do that by using that time to ask some questions, and by that point 

maybe he will be back in and we can continue with his leadership 

on the panel here. But I have a couple of questions I want to raise. 

The first one, perhaps to Dr. Eskin, and maybe you, Mr. Wozniak, 

dealing with the trauma center issue. In Chester County, I served 

on the Brandywine Hospital Board of Trustees for a number of 

years, and Brandywine had a trauma center. Last year, in part because of the sale of the hospital to Community Health Services, a 

for profit entity out of Tennessee, but also because of the increasing 

costs of providing that 24-hour 7-day-a-week coverage that is required from a staffing perspective and a medical care perspective, 

to obtain and continue your trauma center certification, the partnership between the hospital and the University of Pennsylvania, 

which was providing the staffing and the service to the trauma center, that came to an end. And now Chester County does not have 

a trauma center and it is a county approaching 500,000 people, and 

the closest trauma center now would be to come to Abington, or go 

down to Christiana, Delaware, or over to Lancaster for that care. 

In following up on the comments by Ms. Dyess, I think—is that 

how you pronounce your last name? 

Ms. DYESS. Yes. 

Mr. GERLACH. That scares a lot of people in Chester County not 

having that kind of trauma center service available to folks in the 

area. So what is the ripple affect if something happens with Abington then and you are not able to continue to provide trauma center 

coverage? What does that do to this region in terms of the availability of those needed services? And what do you think the impact 

is, generally, on the community when trauma center services are 

not available within a certain geographical area? 

Mr. ESKIN. I will start if that is okay. It is frightening from the 

perspective of one who lives in that community. We are, as I mentioned, the only accredited trauma center in Montgomery County, 

which is a very large county. And if we were to close, that means 

that ambulances would obviously bypass us with trauma patients. 

Patients would have to be either ambulanced or helicoptered to another institution further away. And as Congressman Greenwood 

said before, that first hour or that first period of time, you define 

as critical in terms of proven outcomes for victims of trauma. So 

as one who lives in this community and whose patients live in our 

community, it really is frightening. 

71

Also, I would like to add that it is becoming extremely difficult 

to recruit the appropriate specialists to do what we need our trauma center to do. A specific example, a year ago we had seven neurosurgeons. Now we are down to five and we almost lost two of 

them in the last 2 months to another State. One of the neurosurgeons who left to practice in Ohio, married, in his 40’s, wife, 

four children, believe me, he didn’t want to move. For 31⁄2 years 

this very capable individual attempted to recruit someone to join 

him of high caliber, and it was just—and I met a number of the 

people that came through from institutions whose name you would 

know, and a very good offer at a very good hospital. They chose to 

go elsewhere, they chose not to practice in our State. But to answer 

your question, specifically, it is a major concern to us in terms of 

what we can provide to our community. 

Mr. GERLACH. And it is one thing where through Life Flight or 

Sky Care, the helicopter service, you are able to make up that distance problem pretty effectively through the speed of that service. 

On days like this, inclement weather, when the helicopters can’t 

get up into the sky, then that ambulance route to the next trauma 

center becomes very problematic in terms of traffic issues and everything else, and then decreases the amount of the service and the 

quality of the service able to be provided depending on the time 

that the patient gets there. 

And that really leads in—you are kind of leading me into the 

next question I had about objective data that is now tracking what 

is happening to recent graduates of our medical schools, either in 

this region—and maybe you would know, Dr. Dench, being the 

President of the Medical Society of Pennsylvania—or more nationally, Dr. Palmisano, maybe you have a sense of this. What is happening to the migration of good young physicians into areas where 

there is not a problem, real or perceived, with medical malpractice 

insurance rates versus migration in areas where there is, again, 

real or perceived crisis in medical malpractice rates. What is the 

short-term and long-term impact on the quality of care that a region can expect based on its ability to recruit and retain those physicians? 

Mr. DENCH. Let me just say that when we questioned and 

emailed our residents, almost none of them were considering staying in Pennsylvania. And if they did, it was only because of family 

reasons. I am concerned in the near future that we are going to 

also have the difficulty in filing our residency programs. This State 

trains some of the finest physicians all over the country, a very 

high percentage of physicians relative to the population here are 

trained here because we have seven MD schools and two DO 

schools in this State. We see total indication that no one wants to 

say. The numbers don’t show it again in the medical licensing because, of course, they got a license while they were a resident, and 

they keep the license, but they are not staying, they are not practicing here. They are leaving the State. 

Mr. PALMISANO. We also find on a national level, for instance, I 

had the privilege to visit on behalf of the American Medical Association to Wheeling, West Virginia, and I met with the family practice residents there. In talking with them, none of them indicated 

they were going to stay in the State because of the medical liability 

72

situation. In Wheeling, for instance, one of the emergency room 

physicians came up to me and said let me tell you what it is like 

here. If a 9 year old boy is knocked unconscious in a football game, 

even if he is unconscious for a minute or 2, and he is brought to 

me, I have to air-evac him because I don’t have a neurosurgeon 

that does trauma anymore in the community. So even if the child 

looks okay now, the child could bleed later on and we need to intervene at that point. So he said I air-evac the child to either Pittsburgh, Pennsylvania or Columbus, Ohio, and 30 percent of the time 

the air ambulance can’t fly because of fog or other adverse weather 

conditions. So in talking with the medical students, they are very 

much concerned. They hear about this, and they want to know 

what is happening in the States, and they are very concerned about 

the 12 States that have been designated as crisis States, and it will 

affect their location in practice, yes. 

Mr. GERLACH. Do you at the national level or at the State level 

have data that maybe comes from the medical schools themselves 

as to where a percentage of their graduates went within the first 

year, within the second year, whatever it is, to demonstrate quantifiably that migration, let us say here in Pennsylvania, of graduates from medical schools, or perhaps being able to do that at the 

national level by taking data from all of the Nation’s medical 

schools to track where those graduates are going regionally? Is 

there a way to do that if it doesn’t exist now? 

Mr. PALMISANO. Well, we certainly want to know that information, just like we want to know the numbers of physicians who are 

limiting their practice, retiring early, or moving to another State. 

So we ask all of the States to give us that information as they 

gather it. And the American Medical Association is trying to put 

together an information retrieval system so we can present to legislators the facts for their consideration, and that very issue is an 

excellent one to pursue. 

Mr. GERLACH. Because just as important as it is to know how 

many of your experienced physicians in all the important specialties are leaving a particular area after 10, 15, 25 years of practice, 

it is also important for the future of a region to know how many 

young physicians are coming in and putting down roots, and are 

going to want to be in that community for their working lives. So 

if there is some way to gather that information and get that to the 

committee, that would certainly be of great use. 

I wondered from Dr. Dench if he heard the testimony earlier, 

particularly, the exchange with Governor Rendell about putting 

some limitation on the mandated coverage in Pennsylvania. There 

was a lowering of that under Act 13 from $1.2 million down to $1 

million. Do you have a sense of what would be the impact if that 

were lowered all the more in Pennsylvania, down to $500,000 or 

something like that, what the impact would be on practicing medicine, and more particularly, medical malpractice rates in the State? 

Mr. DENCH. Well, clearly, as you saw in my testimony, it would 

cost us less. But I doubt very highly that many doctors can afford 

to have less than $1 million coverage. Presently, the hospitals all 

require that you have $1 million coverage independent really of 

whatever the other law is. We are at $1 million. Only one other 

State requires as much as Pennsylvania does. There is no question 

73

that we require more, but in reality, most physicians, for example 

in California, have $1 million coverage. So having said that, I don’t 

believe that is the answer because as it was pointed out in that testimony, you want to be able to cover a person who is injured. And 

there needs to be a coverage, and it seems unusual, to say the 

least, to think that you should lower the cap to $500,000 on economic loss and all losses whatsoever, and then be concerned about 

not lowering the non-economic cost to $250,000. What you are saying is that someone who has no economic loss should be able to 

take that cap when someone with economic losses is, essentially, 

capped at the same number, and that doesn’t make sense to me. 

Mr. GERLACH. And then on the issue, finally, of the premium relief that is being talked about for physicians through the use of insurance premiums, surpluses by insurance carriers, you seem to be 

pretty pessimistic of the ability to get that kind of proposal passed 

through the legislature. One of the things that was raised last year 

at some point, and I am just curious about the taskforce’s discussions on this issue of whether or not given about $400 million that 

the Commonwealth is getting every year now through the national 

tobacco settlement agreement, whether there ought to be a discussion in the legislature and with Governor Rendell about 

reprioritizing the use of those dollars from what was initially 

passed, I guess about 11⁄2 or 2 years ago, with the initial tobacco 

settlement legislation. It seems to be there was great consensus in 

the legislature that all of that money ought to be used for 

healthcare and health related issues, and it seems to me there 

can’t be any higher priority than making sure that we retain good 

quality physicians and hospitals in Pennsylvania to provide that 

healthcare. Is there any discussions on the taskforce of using any 

of the tobacco settlement dollars that come in on an annual basis 

and tie that to premium relief for physicians? 

Mr. DENCH. That was on the list. As I said, there was a whole 

list of items that we thought were possible places that you could 

get the money, and one of them was there. We had thought on the 

taskforce that that is a political decision, where to get the money, 

and that we just said that we need this money in the short run. 

In fact, we opposed from the Medical Society saying that for 3 

years. We think this problem may take 3 years to solve, because 

that is how long it will take caps. But we did not want it put on 

the back burner because we solved the financial crisis for 3 years 

by throwing gasoline on the fire. We believe we have to solve the 

problem, and the problem can only be solved when we get meaningful caps, contingency fees, and several other of the proposals we 

have out there. We have a considerable amount of them with Act 

13, but the biggie is caps and contingency fee limitations. 

Mr. GERLACH. Thank you very much. I appreciate it. Congresswoman Schakowsky, do you have questions? 

Ms. SCHAKOWSKY. Thank you very much. I appreciate very much 

all of this panel, and I want to direct myself to Dr. Palmisano. You 

know, for the last couple of years, doctors and patients have really 

been on the same side advocating in Washington for a patient’s bill 

of rights. We have been trying to put power back into the hands 

of healthcare professionals to make decisions about patient care, 

and we have yet to be successful. And I hope that we can continue 

74

to do that because I think when we talk about the quality of the 

ability of doctors to operate and for the benefit of their patient, 

that we do need to look at power that has been taken from them 

by HMO’s and others. 

And also, we have talked about the responsibility of HMO’s, the 

accountability when things go wrong because often they tell you 

that you can’t practice the kind of medicine that you would like to 

do. And that is really where we should be, patients and doctors on 

the same team. And I agree. I think it was Dr. Dench that testified 

that the liability crisis is ‘‘driving a wedge between patients and 

their doctors’’. We agree on the problem, that there are particularly 

some high risk specialties that are paying very high rates and that 

insurance rates are a problem. And I was as moved by your testimony, Ms. Dyess, as I was by Heather’s, where you come to different conclusions. But what I don’t understand is why, as healers, 

the profession focuses almost entirely on victims rather than on the 

insurance companies that are imposing the high rates. 

You talked about—I think it was you, Dr. Palmisano, that talked 

about caps opponents being an affront to both doctors and patients, 

and I think the focus on caps in many ways is an affront. The insurers themselves tell us that rates won’t go down with caps. ‘‘Insurers never promised that tort reform would achieve specific savings from the American Insurance Association.’’ ‘‘We wouldn’t tell 

you or anyone that the reason the passed tort reform would be to 

reduce insurance rates,’’ Sherman Joyce, President of the American 

Tort Reform Association. So it is unclear to me from the evidence, 

just the evidence. Given the States you said, you refer to a patient 

in Florida. Florida has caps. They have the caps that we are talking about in Mr. Greenwood’s bill, so where is the evidence? 

And so what I am asking is would the AMA, would the doctors 

support requirements that in legislation that capped victims? And 

I wanted to—let me say something before I finish that question to 

Heather, because I just want to congratulate you. Through all that 

you have gone through, I know that you graduated from high 

school on time. Is that right? 

Ms. LEWINSKI. Yes. 

Ms. SCHAKOWSKY. I mean, that is really remarkable, and I want 

to thank you so much for the courage that it came here—I asked 

you, I thought, well, maybe you have done this before. This is your 

first time testifying before a hearing. You did a great job and I congratulate you for your courage not just today but over the many 

years. So I want to thank you and tell you how much I really appreciate it. But these bills do not require that rates go down. Given 

States that have caps on awards and on settlements, that have 

caps on non-economic damages, the rates haven’t gone down in 

every case. So why are you so focused on that as the solution to 

the problem? Why is this your No. 1 answer? 

Mr. PALMISANO. Yes, ma’am. Thank you very much for those 

questions. Is it okay if I go down the list? The first thing, we believe we are acting on behalf of patients and physicians, the issues 

on the patient’s bill of rights. And as you know, the American Medical Association continues to advocate a fair contract for patients, 

physicians, and insurance companies. And on the AMA website, we 

have a model managed care contract. It is in its at least second ediVerDate jul 14 2003 11:26 Sep 10, 2003 Jkt 086683 PO 00000 Frm 00078 Fmt 6602 Sfmt 6602 W:\DISC\86045 86045
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tion now, and we believe it is fair to insurance companies, physicians, and patients. 

Ms. SCHAKOWSKY. I would rather not focus on that. 

Mr. PALMISANO. Okay. I will go down the list. And we also have 

just published our market concentration study which shows that 

these insurance companies have too much market power and they 

can control the rates paid to physicians. So we are continuing to 

aggressively move on that particular front. We believe that when 

you look at caps, that you have to go down a little deeper and say 

what kind of caps. For instance, Missouri has a cap but it is a cap, 

it started off around $300,000 or $350,000, and its index up and 

now it is over $500,000. It is a cap per claimant and a cap per physician. That is very similar——

Ms. SCHAKOWSKY. So you wouldn’t support a $500,000 cap? 

Mr. PALMISANO. Well, what we have said is we know that the 

$250,000 non-economic cap, a fixed cap in California per incident, 

is one that has worked over a quarter of a century. 

Ms. SCHAKOWSKY. Well, we are going to hear testimony that disputes that entirely, that after the caps were initiated, that rates 

continued to go up until there was actually rate regulations, so we 

will hear that. 

Mr. PALMISANO. Well, yes, but that is Proposition 103 in California, and when we looked into that, we tried to look into all of 

the issues that are brought up, because we want the legislators to 

have the facts. We found that Proposition 103, actually, the court 

didn’t allow the rate rollback. What they did allow was that if 

someone wants to raise the rates more than 15 percent, then they 

would have to have a public hearing, and we have not found any 

instances where the medical liability rates actually were reduced 

as a result of Proposition 103. We also know that the other States, 

Wisconsin, Colorado, and Louisiana, Indiana, New Mexico, they 

don’t have a Proposition 103. We believe that every insurance commissioner has the duty to make sure that the rates are justified 

based on frequency, severity, and actuarial review. So when people 

say will you support—and I think that is the main thrust of your 

question, unless I am mistaken, will you support a measure that 

forces them to reduce the rates. What we are saying is the free 

marketplace ought to allow companies to come in. Right now, we 

see them all running out. We see no one rushing in. What we found 

in Nevada when I had the privilege to testify for AMA, right after 

our level one trauma center, was a joint meeting of the House and 

the Senate. After I gave my testimony, they introduced an individual who was brought in to start an insurance company just for 

Nevada, and they had their own actuary, and my question—I said, 

may I ask a question, and they said sure. My question was, well, 

what will the rates be for the obstetricians now that you have studied the frequency and the severity, and they said around $90,000, 

as I recall the answer. Well, that was about the price that the insurance company that was leaving, or the one they were complaining, around $90,000 to $100,000, and we know that the physicians there who were obstetricians could leave with their same 

record and move to California and their rates drop down——

Ms. SCHAKOWSKY. You know, I am going to ask that we put up 

Exhibit 4, that actually refers to California, if we could put it up 

76

there. Where we see that after MICRA was instituted, that the 

rates went up, that they went up rather high. From the beginning 

of the chart up to the green line is under MICRA, and we can go 

State by State and look at those. I don’t understand why you 

wouldn’t say then if your main answer to why rates will be reduced 

if we impose caps, why don’t we say you have to then? 

Mr. PALMISANO. Well, you know, you have to look at the whole 

picture when you compare, and Chairman Greenwood made the 

point about the rates going over a quarter of a century. The rates 

went up around 167 percent in California, compared to the rest of 

the Nation, the average was 505 percent. In one of the earlier 

slides, where they talked about average rates, we need to compare 

apples to apples. We need to compare Los Angeles to Miami to 

Philadelphia, and we need to look at the specialty mix. We need 

to look—all we know is that physicians are closing their practice, 

retiring earlier, or limiting their practice, and we find patients at 

risk of not having access to care in that critical moment when they 

are in need so——

Ms. SCHAKOWSKY. If I could just—on Pennsylvania, if we could 

have number 12 of our exhibits? This, Dr. Eskin, is—you told us 

this, reasons for doctors leaving the State, and the yellow being 

medical malpractice, and the green, new professional and personal 

opportunity. So then we wanted to know in the yellow, medical 

malpractice, where did they go. So if we could look at chart number 

13, and what we find is that the majority moved within Pennsylvania or to States with no caps. I mean, you know, the overwhelming majority did. Some moved to States that had a much 

higher cap than is proposed in the chairman’s legislation. The orange are people who simply retired. You may argue they wanted 

to retire, you know, because of this. I don’t know. But clearly, most 

people stayed here in Pennsylvania and probably had a lot of reasons for leaving the practice that they do. Again, this focus on not 

only the rates, I understand that. I agree with you on that, but as 

this one solution that you don’t even want to make as mandatory. 

Mr. PALMISANO. Well, Tillinghast just did a study for the Medical 

Society in New Jersey at the request of the Medical Society to 

evaluate two bills that were proposed in their legislature as to 

whether or not it would have any effect, and they concluded that 

the bills would not, but they did state in that, and that was a public announcement, there was a press conference involved with it, 

that the $250,000 cap would lower rates. And as you increased the 

fixed cap, when you get to $500,000, then it has no further effect. 

So I think there have been enough studies, and that is the challenge that all of you as legislators have, to listen to all of these 

facts, and to come out with something that works. All we are saying is that the States with the fixed caps are the ones that are the 

stable States, the six States are stable, and what we hope is that 

when the final decision is made, either at the State level or at the 

Federal level, we will have doctors around to take care of patients. 

It is——

Ms. SCHAKOWSKY. Well, let me just end this by saying after all 

is said and done, we have to balance that with people like Heather, 

and say that if the awards and settlements aren’t a significant 

enough part of the reason that rates are high, which I would conVerDate jul 14 2003 11:26 Sep 10, 2003 Jkt 086683 PO 00000 Frm 00080 Fmt 6602 Sfmt 6602 W:\DISC\86045 86045
77

tend that that is the case, why would we go after people who, especially, people who are ineligible for high economic awards—that is 

going to be women, and children, and the elderly, and persons, low 

income people that have low wage earning jobs. Why would we 

choose to go after victims not only of malpractice but of prescription drug manufacturers, of nursing homes, of medical device companies, all of which are included in this legislation. You are lumped 

with all of those. Do you think you should be lumped with those? 

Mr. PALMISANO. Well, what we are advocating for is a way to 

keep the physicians in practice, and we believe that the Bill H.R. 

5 is a way to keep physicians in practice. Representative Greenwood, Chairman Greenwood, is going to be the expert on what 

should be done in Congress to make sure we can get it through the 

Senate at the national level. And so what we are saying is you do 

have to balance everything. You have to balance to make sure that 

physicians are available to treat patients. And we know that the 

models in the six States, the California model is the one that AMA 

has embraced since 1989, is a model that works. But it is a difficult 

task that you have and we want to make sure, and that is why we 

want to help. We want to get as much information to you so that 

you can properly evaluate all of this. But the important thing is to 

come up with a mechanism that keeps physicians in practice. 

Ms. SCHAKOWSKY. And finally, let me just say that Democrats, 

and myself included, and let me just—those of us who oppose caps 

want to address this problem. We want to be partners with doctors. 

We want to be advocates for patients, and for victims, and for doctors to stay in practice. I just don’t think this notion of caps is the 

way to go. Thank you. 

Mr. GREENWOOD. The Chair thanks the gentlelady. I do want to 

correct the record in one regard. The gentlelady from Chicago said 

that Florida has caps. In fact, Florida doesn’t have caps and, in 

fact, their Governor’s taskforce, the Governor’s taskforce recommendation is that the legislature should in medical malpractice 

cases cap non-economic damages at $250,000 per incident. So the 

Governor’s taskforce on medical malpractice doesn’t think that it 

has that cap. I did let the——

Mr. DEUTSCH. Mr. Chairman, if I can note—I mean, the only 

time caps do not apply in Florida is with a doctor who rejects arbitration. There are caps in Florida. 

Mr. GREENWOOD. All right. Well, we will need to sort that out 

because, obviously, we have different sources. I did want to let the 

gentlelady from Chicago have an extra 3 or 4 minutes. I just did 

want to ask Dr. Eskin if he wanted to comment about the reasons 

for doctors leaving Abington Hospital and make sure that you feel 

that information was accurate. 

Mr. ESKIN. I will be very brief. The number of physicians represented by that entire pie diagram was 15. For example, the big 

orange wedge was one person who, in fact, retired much earlier 

than he had hoped to retire. Of the 15 physicians that were in that 

pie chart, in fact, 3 remained in Pennsylvania; the other 12 left. 

And the point that we have been trying to make is just that our 

physicians are leaving, it is more difficult to recruit physicians to 

replace and enhance the skills which we have lost. We really have 

a problem and we really ask for your help in helping to solve that 

78

problem. We know that it is a complex problem, not a single issue 

problem, and we are asking for help in bringing this to a proper 

solution. Thank you. 

Mr. GREENWOOD. We appreciate that. And of course, the legislation that I proposed is not just about caps. It touches on a whole 

host of remedies which we don’t need to enumerate right now. I 

want to thank each of the witnesses, particularly, you, Heather, 

who have traveled from New York; and you, Ms. Dyess, who traveled from Mississippi, and not only did you travel, but your stories 

are very personal and very poignant, and it took a lot of courage 

for both of you to be here. Thank you all. This panel is excused, 

and we will call up the next panel. 

Our third and final panel consists of Mr. Lawrence Smarr, President of Physicians Insurers Association of America; Mr. James 

Hurley, Chairperson of the Medical Malpractice Subcommittee of 

the American Academy of Actuaries; Mr. Scott Diener, President 

and Chief Operating Officer of PMSLIC; Mr. Alan G. Rosenbloom, 

President and Chief Executive Officer of the Pennsylvania Health 

Care Association and Center for Assisted Living Management; 

Thomas J. Nasca, Dr. Thomas J. Nasca is the Dean of Jefferson 

Medical School; Dr. Harvey Rosenfield, President of the Foundation 

for Consumer and Taxpayer Rights; Ms. Diane Menio——

Ms. MENIO. Menio. 

Mr. GREENWOOD. Menio? 

Ms. MENIO. Yes, sir. 

Mr. GREENWOOD. [continuing] Executive Director of the Center 

for Advocacy for the Rights and Interests of the Elderly; Mr. John 

Reed of Selinsgrove, Pennsylvania; Dr. Neil Vidmar, Professor of 

Law at Duke Law School; and Mr. James Mundy of Philadelphia. 

We welcome all of you. We thank you for the patience you have 

evidenced so far and the patience you will be required to evidence 

for the next hour or so. We have all but—Okay. I think if you were 

here earlier today, you know that—you have heard me say twice 

now that this is an investigative hearing, and it is the custom of 

this committee to take testimony in investigative hearings under 

oath. And so I would ask if any of you have objections to giving 

your testimony under oath this afternoon? Seeing no such objection, I would advise you that pursuant to the rules of this committee and the House of Representatives, that you are entitled to 

be represented by counsel, and ask if any of you wish to be represented by counsel today for your testimony? Seeing no such request, I would ask if you would rise and raise your right hand, and 

I will give you the oath. 

[Witnesses sworn.] 

Mr. GREENWOOD. Okay. You are under oath. Now, we are going 

to ask that the three of our witnesses who are about to be identified for me, Ms. Menio, Mr. Rosenbloom, and Mr. Doyg. Are you 

going to testify, Mr. Doyg? 

Mr. DOYG. I think Ms. Menio is going to read a statement. I am 

available for any questions that you might have. 

Mr. GREENWOOD. Okay. Well, if you need to, you may advise her 

with regard to her testimony, but if you need to speak yourself, 

then we will have to swear you in. 

Mr. DOYG. Certainly. 

79

Mr. GREENWOOD. But we are going to ask that Ms. Menio and 

Mr. Rosenbloom give their opening statements first. Then we are 

going to ask questions of them, and that is because Ms. 

Schakowsky needs to get a plane and wants to make sure that she 

participates in this part of the discussion, and then we will take 

statements from the rest of the witnesses. And so we will start 

with Mr. Rosenbloom, President and Chief Executive Officer of the 

Pennsylvania Health Care Association. 

TESTIMONY OF ALAN G. ROSENBLOOM, PRESIDENT AND 

CHIEF EXECUTIVE OFFICER, PENNSYLVANIA HEALTH CARE 

ASSOCIATION AND CENTER FOR ASSISTED LIVING MANAGEMENT; DIANE A. MENIO, EXECUTIVE DIRECTOR, CENTER 

FOR ADVOCACY FOR THE RIGHTS AND INTERESTS OF THE 

ELDERLY; LAWRENCE E. SMARR, PRESIDENT, PHYSICIANS 

INSURERS ASSOCIATION OF AMERICA; JAMES HURLEY, 

CHAIRPERSON, MEDICAL MALPRACTICE SUBCOMMITTEE, 

AMERICAN ACADEMY OF ACTUARIES; SCOTT DIENER, PRESIDENT AND CHIEF OPERATING OFFICER, PMSLIC; THOMAS J. 

NASCA, DEAN OF JEFFERSON MEDICAL SCHOOL; HARVEY 

ROSENFIELD, PRESIDENT, FOUNDATION FOR CONSUMER 

AND TAXPAYER RIGHTS; JOHN H. REED; NEIL VIDMAR, PROFESSOR OF LAW, DUKE LAW SCHOOL; AND JAMES MUNDY 

Mr. ROSENBLOOM. Thank you, Chairman Greenwood, and also to 

the members of the subcommittee, thank you for the opportunity 

to appear here today. My name is Alan Rosenbloom and I serve as 

President and Chief Executive Officer of the Pennsylvania Health 

Care Association and its sister organization, the Center for the Assisted Living Management. The association represents about 325 

long-term care providers and senior service providers across the 

Commonwealth of Pennsylvania. 

We, especially, appreciate the opportunity to discuss the effects 

of the medical liability insurance crisis on nursing homes and other 

long-term care providers. For too long, State and Federal officials 

have not seen long-term care as part of an integrated healthcare 

delivery system. The challenges facing long-term providers, however, mirror and in some areas are more acute than those facing 

physicians and hospitals. Given that Pennsylvania is the second 

oldest State in the Nation as defined by the percentage of our population age 65 or older, and given that the fastest growing age 

group in the Commonwealth is the 85 and older cohort, it is both 

necessary and appropriate that our Federal and State officials appreciate that key legislative and policy changes must encompass 

long-term care providers if they and we hope to craft a workable 

healthcare system for today’s seniors and for tomorrow’s aging 

baby boom. 

Put simply, liability insurance for long-term care providers in 

Pennsylvania increasingly is unavailable and unaffordable, and 

now poses a growing threat to access to care. In 1999, seven carriers offered professional liability insurance to long-term care providers in this State. By 2001, that number had shrunk to four, 

which dropped to three in 2002. For all practical purposes, today, 

two or fewer carriers now appear willing to write new long-term 

care business in Pennsylvania. 

80

Not surprisingly, insurance and related costs have skyrocketed. 

Since Pennsylvania requires nursing facilities to maintain insurance and to participate in the CAT and MCare Funds, about which 

other witnesses have testified, much of my commentary will focus 

on them. I would like you to note, however, that the basic trends 

identified affect the entire continuum of long-term care and senior 

services, from nursing homes and assisted living providers, to integrated retirement communities, to home care providers and community based providers. 

In 2001, rates for primary coverage for nursing homes increased 

by as much as 87 percent. In each year since, primary premiums 

have increased by as much as 500 percent for both nursing homes 

and assisted living residences. In addition, the CAT Fund surcharges and MCare Fund assessments have skyrocketed as well. In 

2002, for example, CAT Fund surcharges for nursing homes increased by as much as 121 percent. MCare surcharges for 2003 increased at least 43 percent for most nursing homes across the Commonwealth. I offer a few specific examples. Belle Haven is a single 

site facility, family owned facility, providing nursing home and personal care home services. It has 59 beds, it is located in 

Quakertown, Pennsylvania. In its 40-year history, Belle Haven has 

had no loss experience whatsoever, no claims, no judgments, no settlements, no awards. From 2001 to 2002, its primary premium increased 336 percent. From 2002 to 2003, it increased another 74 

percent. During that last year, its MCare Fund assessment also increased by 97 percent. 

Gwynedd Square is a freestanding nursing facility with 181 beds 

located in Lansdale. It has had no claims in 15 years. From 2000 

to 2001, its premium for $10 million in coverage, which represented 

both primary and excess coverage above the CAT Fund layer, increased 112 percent. From 2001 to 2002, the cost of the policy grew 

so great that the facility cut its coverage in half merely to maintain 

its existing premium level. There are other examples in the written 

testimony, which in the interest of time, I will not present at the 

moment. 

What is ironic about this is that the loss experience among longterm care providers in Pennsylvania does not justify such precipitous increases in insurance costs. In 2000, for example, the average 

non-zero claim against a nursing home in this State, that is one 

that actually resulted in the payment of money, was $61,000, well 

below the national average of $246,00 and well below the current 

CAT Fund attachment point of $.5 million. From the inception of 

the CAT Fund in 1976 until July 2001, the CAT Fund in this State 

paid only $2.6 million in nursing facility claims, yet, collected more 

than $41 million in surcharges from nursing homes. In other 

words, nursing homes paid in more than 15 times what the CAT 

Fund paid out on their behalf. What is driving our insurance rates 

in Pennsylvania is not our loss experience here; it is loss experience in other States, is general market conditions affecting the insurance industry, and it is generalized concern about the out of 

control malpractice environment for physicians and hospitals in 

Pennsylvania. This reality underscores the need for reform that encompasses the entire healthcare delivery system, including longVerDate jul 14 2003 11:26 Sep 10, 2003 Jkt 086683 PO 00000 Frm 00084 Fmt 6602 Sfmt 6602 W:\DISC\86045 86045
81

term care providers, as well as the need for both Federal and State 

reforms if we are to stabilize the insurance marketplace. 

While we applaud the various tort reforms adopted by the Pennsylvania General Assembly in the past 18 months, we reluctantly 

agree with the Governor, that much remains to be done. While we 

are heartened that the Rendell administration has urgently focused 

on the liability crisis, we are dismayed that it has approached to 

date ignores the long-term care component of the Commonwealth’s 

healthcare delivery system. Despite the Governor’s recognition this 

morning that a key factor in this whole problem is the rising insurance shrinking reimbursement vice, as the Governor eloquently 

noted, about 70 percent of long-term care in this State is paid for 

by the combination of Federal and State government, so this vice 

is uniquely one that the Federal Government can solve. 

We do appreciate, Congressman Greenwood, H.R. 5, which you 

introduced last week, and which extends relief to the entire 

healthcare delivery system, whether healthcare services are provided in hospitals, physicians’ offices, long-term care settings, or 

home and community based care settings. Absent prompt and 

meaningful reform, however, it is certain that frail, vulnerable seniors in Pennsylvania will face access to care difficulties. In fact, we 

have already begun to see such problems manifest. In late December 2002, Temple University Hospital announced the closure of the 

Temple Continuing Care Center in North Philadelphia. In addition 

to this 538-bed facility, Temple closed two other nursing homes 

that year, the 180-bed Elmira Jeffries Nursing Home and the 140-

bed Northwood Nursing and Convalescent Center. According to 

press reports, liability insurance costs were cited as a significant 

contributing factor in all three of those closures. 

As a result, some of Philadelphia’s most frail and vulnerable citizens were relocated from facility to facility and some of the Temple’s Continuing Care Center’s 450 residents were transferred as 

far away as Hazelton, Pennsylvania. The added stress of such a 

long move undoubtedly exacerbated the transfer trauma nursing 

home residents typically suffer during any relocation. Given the demographics of the North Philadelphia area in which the Temple 

Continuing Care Center was located, it seems unlikely that many 

family members of residents will have easy access to cars, and it 

is certain that travel from North Philadelphia to Hazelton without 

a car is difficult at best and impossible at worse. Consequently, closures of this kind may well cut residents off from family and 

friends forever. 

A more prevalent and insidious threat to quality care underscores just how crucial it is that we address this problem systemically. Due to growing liability costs, fewer physicians are available 

or willing to serve as medical directors or attending physicians in 

nursing homes. Physicians who do undertake these roles face increasing difficulties in finding specialists for referrals of nursing 

home residents. Unless we take action to stem the rising tide of liability, closures and relocations will become all too routine for the 

more than 135,000 frail, elderly Pennsylvanians who rely on nursing homes and assisted living residences to support their needs. 

Unless we take action, our seniors increasingly will not have the 

access to primary care physicians and specialists they need. Unless 

82

we take action, the more than 700 nursing facilities and 1,800 personal care homes in Pennsylvania will face increasingly serious financial difficulties, threatening the $2.2 billion they pay in salaries 

to 165,000 employees in Pennsylvania and the $30 million they pay 

in local property taxes each year. Indeed, since the government is 

the primary payer of long-term care and senior services in this 

country, through the Medicaid program, and to a lesser extent, 

through the Medicare program, ultimately, the cost of increasing liability costs for the long-term care segment of the healthcare delivery system are disproportionately born by government as those 

costs are passed along through the system. 

It is noteworthy that in States that have not pursued liability reforms that recognize the entire spectrum of the healthcare system 

we have seen situations where Medicare—Medicaid, pardon me—

is now paying as much as 30 percent of every single dollar, 30 

cents of every dollar that is supposed to care for seniors in longterm care settings is going to pay insurance costs, it is going to pay 

settlements and judgments. I, respectfully, submit that that is not 

an appropriate use for the public fisc when money is designed to 

provide quality care and services to older citizens and other vulnerable populations with special needs. 

In conclusion, the professional liability situation for long-term 

care providers in Pennsylvania is bleak. We are on a course that 

will deprive frail and vulnerable seniors access to quality care and 

services, prevent providers from devoting optimal resources to patient care, and compel government to devote a growing percentage 

of scare Medicaid dollars to liability rather than patients. We must 

alter that course quickly and effectively for the good of the Commonwealth and the good of the Nation. Thank you. 

[The prepared statement of Alan G. Rosenbloom follows:]

PREPARED STATEMENT OF ALAN G. ROSENBLOOM, PRESIDENT AND CEO, PENNSYL- VANIA HEALTH CARE ASSOCIATION AND CENTER FOR ASSISTED LIVING MANAGE- MENT

Chairman Greenwood and members of the subcommittee, thank you for the opportunity to testify today. My name is Alan Rosenbloom and I serve as President and 

Chief Executive Officer of the Pennsylvania Health Care Association and its sister 

organization, the Center for Assisted Living Management. The association represents 325 long term care and senior service providers across the Commonwealth 

of Pennsylvania. Our members include publicly traded companies, closely held companies, non-profit facilities and county facilities, and their services run the gamut 

from integrated retirement communities and multi-level care campuses, to freestanding nursing homes and assisted living/personal care homes to ancillary care 

and home care enterprises. 

We especially appreciate the opportunity to discuss the effects of the medical liability insurance crisis on nursing homes and other long term care providers in 

Pennsylvania. For too long, state and federal officials have not seen long term care 

providers as part of the health care delivery system. The challenges facing long term 

care providers, however, mirror and, in some areas are more acute than, than those 

facing physicians and hospitals. Given that Pennsylvania is the second-oldest state 

in the nation, as defined by the percentage of our population age 65 or older, and 

given that the fastest-growing age group in the Commonwealth is the 85+ cohort, 

it is both necessary and appropriate that our federal and state officials appreciate 

that key legislative and policy changes must consider long term care providers if 

they hope to craft a workable health care system for today’s seniors and tomorrow’s 

aging Baby Boom. 

Put simply, liability insurance for long term care providers in Pennsylvania increasingly is unavailable and unaffordable, and now poses a major threat to access 

to care. In 1999, seven carriers offered professional liability insurance to long term 

care providers in the state. By 2001, the number had shrunk to four, which dropped 

83

1 As the Subcommittee presumably is aware, from 1976 until 2002, Pennsylvania maintained 

a Catastrophe Loss Fund, or CAT Fund, which afforded an initial layer of excess coverage to 

physicians, hospitals, nursing homes and a few other provider types. The CAT Fund was administered by the state but funded by surcharges on providers. In 2002, Pennsylvania replaced the 

CAT Fund with the Mcare Fund, as part of a broader plan to eliminate this intermediate government-administered insurance layer altogether. During the transition, however, the MCare 

Fund continues to assess providers in a manner substantially similar to the CAT Fund. 

to three in 2002. For all practical purposes, two or fewer carriers now appear willing 

to write new long term care business here. 

Not surprisingly, insurance and related costs have skyrocketed. In this context, 

it should be understood that nursing homes in Pennsylvania must maintain primary 

insurance coverage and participate in the CAT Fund/MCare Fund 1 as a condition 

of licensure, while personal care homes/assisted living residences and other long 

term care providers are not required by licensure to do so. As a result, I will address 

the situation confronting nursing homes separately, unless otherwise noted. The 

subcommittee should appreciate, however, that the basic trends identified affect the 

entire continuum of long term care and senior services. 

In 2001, rates for primary coverage increased by as much as 87%. In each year 

since, primary premiums have increased by as much as 500% for both nursing 

homes and assisted living residences. In addition, the CAT Fund surcharges and 

MCare Fund assessments imposed on nursing homes have skyrocketed as well. In 

2002, for example, CAT Fund surcharges for nursing homes increased by as much 

as 121% for nursing homes throughout Pennsylvania. MCare surcharges for 2003 

increased at least 43% for most nursing homes. I offer a few specific examples to 

illustrate these trends:

• Belle Haven. Belle Haven is a single site, family owned nursing home and personal care home with 59 nursing beds located in Quakertown, Pennsylvania. In 

its 40 year history, Belle Haven has had no loss experience whatsoever. From 

2001 to 2002, Belle Haven’s primary premium increased 336% and grew another 74% from 2002 to 2003. From 2002 to 2003, the facility’s Mcare Fund surcharge increased 97%. • Gwynedd Square. Gwynedd Square is a freestanding nursing facility with 181 

beds located in Lansdale, Pennsylvania. Gwynedd Square has had no claims in 

15 years. From 2000 to 2001, its premium for $10 million in coverage (both primary and excess above the CAT Fund layer) increased 112%. From 2001 to 

2002, the cost of the policy grew so great that the facility cut its coverage in 

half to maintain a level premium. • Wilmac Corporation. Wilmac Corporation, based in York, Pennsylvania, operates five nursing facilities and a retirement community at various sites in the 

Commonwealth. Despite no claims during the prior reporting period, Wilmac’s 

premium increased 479% from 2001 to 2002, yet its deductible rose from zero 

to $50,000 per incident. • George M. Leader Family Corporation. The George M. Leader Family Corporation, based in Hershey, Pennsylvania, operates assisted living residences 

and nursing homes across the Commonwealth. In 2000, it purchased $25 million of coverage. In 2001, despite modest claims experience, no insurer would 

offer more than $5 million in coverage, yet the premium for 1⁄5th the coverage 

increased 31%, representing an effective 150% increase. 

Ironically, loss experience among long term care providers in Pennsylvania does 

not justify such precipitous increases in insurance costs. In 2000, for example, the 

average non-zero claim against nursing homes was $61,000, well below the national 

average of $246,000 and the $500,000 threshold for CAT Fund attachment. Indeed, 

from its inception in 1976 until July 2001, the CAT Fund paid only $2,670,000 in 

nursing facility claims, yet collected $41,449,325 in surcharges from nursing homes. 

Nursing homes paid surcharges of more than 15 times the amount that the CAT 

Fund paid on their behalf. 

Clearly, factors other than Pennsylvania-specific loss experience are causing precipitous increases in professional liability insurance costs. Nursing home loss experience in other states, general market conditions affecting the insurance industry and 

generalized concern that the ‘‘out-of-control’’ malpractice environment for physicians 

and hospitals in Pennsylvania are the true drivers of our costs. This reality underscores the need for reform that encompasses the entire health care delivery system, 

including long term care providers, as well as the need for both federal and state 

reforms, if we are to stabilize the insurance marketplace. 

While we applaud the various tort reform initiatives adopted by the Pennsylvania 

General Assembly in the past 18 months, we reluctantly must conclude that those 

initiatives have not been sufficient. While we are heartened by the Rendell AdminisVerDate jul 14 2003 11:26 Sep 10, 2003 Jkt 086683 PO 00000 Frm 00087 Fmt 6602 Sfmt 6621 W:\DISC\86045 86045
84

tration’s urgent focus on the malpractice crisis, we are dismayed that its approach 

to date ignores the long term care component of the Commonwealth’s health care 

delivery system. We do appreciate, however, that H.R. 5, which Congressman 

Greenwood introduced last week, extends to the entire health care delivery system, 

whether health care services are provided in hospitals, physicians offices, long term 

care settings or home-and-community-based care settings. 

Absent prompt and meaningful reform, it is certain that frail, vulnerable seniors 

in Pennsylvania will face access to care difficulties. In fact, we already have begun 

to see such difficulties manifest. In late December of 2002, Temple University 

Health System announced the closure of the Temple Continuing Care Center located 

in North Philadelphia. In addition to this 538-bed facility, Temple closed two other 

nursing homes in 2002, the 180-bed Elmira Jeffries Nursing Home and the 148-bed 

Northwood Nursing and Convalescent Center. According to press reports, liability 

insurance costs were cited as a significant contributing factor in all three closures. 

As a result of these closures, some of Philadelphia’s most frail and vulnerable citizens were relocated from facility to facility, with some of the Temple Continuing 

Care Center’s 450 residents transferred as far away as Hazleton, Pennsylvania. The 

added stress of such a long move undoubtedly exacerbated the ‘‘transfer trauma’’ 

nursing homes residents typically suffer during any relocation process. Given the 

demographics of the North Philadelphia area in which the Temple Continuing Care 

Center was located, it seems unlikely that many family members of residents will 

have easy access to cars and it is certain that travel from North Philadelphia to Hazleton without a car is difficult at best and impossible at worst. Consequently, closures of this kind may well cut residents off from family and friends forever. 

A more prevalent and insidious threat to quality care underscores just how crucial 

it is that we address the malpractice liability crisis systemically. Due to growing liability costs, fewer physicians are available or willing to serve as medical directors 

or attending physicians in nursing homes. Physicians who do undertake these roles, 

moreover, face increasing difficulties in finding specialists for referrals of nursing 

home residents. 

Unless we take action to stem the rising liability tide, closures and relocations 

will become all too routine for the more than 135,000 frail, elderly Pennsylvanians 

who rely on nursing homes and personal care homes to support their housing, social 

and health care needs. Unless we take action, our seniors increasingly will not have 

access to the primary care physicians and specialists they need. Unless we take action, the roughly 700 nursing facilities and 1800 personal care homes in Pennsylvania will face serious financial difficulties, threatening the $2.2 billion they pay in 

salaries to 165,000 employees and the $30 million they pay in local property taxes 

each year. 

Unless we take action, taxpayers will bear the brunt of escalating liability costs. 

In the Commonwealth, the Medical Assistance (Medicaid) program pays for roughly 

70% of nursing home days. Since liability costs are apportioned to the Medical Assistance program and since the state and federal governments fund Medicaid jointly, 

the taxpayers ultimately will bear the burden of these costs. 

It is noteworthy that the Commonwealth already has acknowledged this problem, 

at least with respect to county nursing homes. Our state and county governments 

have capitalized a captive insurance company to offer more affordable liability insurance to the Commonwealth’s 40 or so county-owned nursing homes. While somewhat beyond the scope of today’s hearing, this fact both reflects the severity of the 

problem and counsels in favor of affording similar relief to non-governmental long 

term care providers. 

It also is noteworthy that, in states that have not pursued liability reforms encompassing the entire health care delivery system, the result has been catastrophic not 

only with respect to claims and access, but also with respect to Medicaid costs. In 

at least one such state, fully 30% of every Medicaid dollar paid to nursing homes 

and assisted living residences funds insurance, lawyers, settlements or awards rather than patient care and services. 

Frankly, the professional liability situation for long term care providers in Pennsylvania is bleak. We are on a course that will deprive frail and vulnerable seniors 

access to quality care and services, prevent providers from devoting optimal resources to patient care and compel government to devote a growing percentage of 

scarce Medicaid dollars to liability rather than patients. We must alter that course 

quickly and effectively for the good of the Commonwealth and the nation. 

Thank you for the opportunity to appear to day. I am happy to entertain questions.

Mr. GREENWOOD. Thank you, Mr. Rosenbloom. Ms. Menio. Help 

me pronounce that. 

85

Ms. MENIO. Menio. 

Mr. GREENWOOD. Menio. Okay. 

TESTIMONY OF DIANE A. MENIO 

Ms. MENIO. Thank you, Mr. Chairman, for inviting me. My name 

is Diane Menio and I represent CARIE, which stands for the Center for Advocacy for the Rights and Interests of the Elderly. Are 

you hearing me? I am sorry. CARIE stands for the Center for Advocacy for the Rights and Interest of the Elderly. We have been advocating for older adults for over 25 years. Notably, one of the programs we have is a long-term care ombudsman, in which we go 

into nursing homes and personal care homes to help resolve complaints that they have. We cover more than 7,500 residents in 140 

nursing homes in Philadelphia, and we also have other programs. 

We try to be part of the solution as well. 

We have an elder abuse prevention training program which has 

been replicated nationwide, in which we go out and try to train 

staff in detecting and preventing abuse and neglect. I also should 

tell you that Mr. Marty Berger sends his regards and he is the 

President of the Pennsylvania Alliance for Retired Americans. It is 

a 250,000 member group of older adults who are mostly retired 

Union members, steelworkers, mineworkers, and so on, and he concurs with what I am going to be saying. 

Medical liability presents a dynamic issue for advocates concerned about older adults. The issue embraces two major areas of 

interest, access and quality, and as Mr. Rosenbloom very eloquently talked about the stress on the system and residents, we 

are concerned about those issues as well. As medical malpractice 

is splashed through the headlines, the problem of rising premiums 

and the impact on physicians, hospitals, nursing facilities, personal 

care homes, and other providers, presents a compelling problem 

that needs a legislative solution. No one wants to see a caring physician forced out of his or her practice or a quality nursing facility 

close its doors. It is also troubling when quality nursing home or 

personal care home providers must be higher insurance premiums 

when those financial resources could be expended on caring for 

residents. 

While residents receive quality care at most long-term care facilities, there are serious problems with quality care at numerous 

nursing facilities and personal care homes. Since there are about 

55,200 residents in approximately 785 nursing facilities and 1,800 

personal care homes, serving about almost 80,000 residents in 

Pennsylvania, there is much at stake. Advocates have been fighting 

for years at the State and Federal level for reforms needed to improve the crisis and care provided. Pennsylvania, like the rest of 

the Nation, has a real crisis regarding the quality of care provided 

at long-term care facilities. There are numerous studies and research documents documenting the extensive problems that exist. 

In Pennsylvania, the Pennsylvania Health Law project recently released a white paper that examined data from the Pennsylvania 

Department of Public Welfare. And using the Department’s own 

records, it shows how homes have been allowed to operate sometimes for years, even when they are jeopardizing the health and 

safety of residents. 

86

Pennsylvania Auditor General Bob Casey also highlighted serious problems with the oversight of nursing facilities and personal 

care homes. All of these things can be found online. A quote from 

his report, ‘‘Health permitted five nursing homes with a total of 

549 Federal and State deficiencies to continue operating with no 

sanctions.’’ So we are seeing problems in these places and they are 

not—the oversight that is in place, it doesn’t seem to be working. 

Insurance carriers should consider the enforcement actions, licensing history, and claims history when determining premiums. 

Certainly, the examples that Mr. Rosenbloom presented are of 

places that haven’t had this history, that don’t have the risk, and 

we would like to see them not jeopardizing resident care because 

of those benefits. We have talked a lot about public citizen, and you 

know what the statistics show. I just wanted to talk about—I have 

a couple of case examples in my testimony, but yesterday, in the 

Philadelphia Enquirer, on the front page, you might have seen a 

story about a very awful—I don’t know how to say it, but it was 

a horrible situation of resident abuse not too far away from here 

in Yardley, in which a resident was stomped to death. And in that 

case, according to the article, there were 29 incidents, and this 

comes from the Grand Jury, 29 incidents of abuse or of unexplained injury is the way it is described in 8 months before this 

man died. And of those 29 incidents, all but four were during the 

shift of the person who is accused of having committed this harm 

on this individual. In addition, there were reports of her having 

taken drugs from residents, and in fact, when one of the staff who 

saw her do that reported it to the administrator, she was fired. 

And so I talk about that case because this is not very dissimilar 

to other cases that we see. I met Congresswoman Schakowsky last 

year at a press conference for staffing in nursing homes, and we 

know that there are very severe problems with staffing. I don’t 

know why this person’s egregious actions were overlooked, but they 

were, nevertheless, and I do know there is a severe staffing shortage. I also noted the average wage for personal care home workers 

in the State of Pennsylvania is about $6.50 per hour. I am not a 

high paid person. I work for a non-profit organization, but I can’t 

remember the last time I worked for $6.90 an hour. I know that 

I could not take care of my family on that wage. And so we have 

serious, serious problems in this industry that are multifaceted. 

The debate as to how to solve the problem with rising malpractice premiums has led to this idea of proposing caps. While 

conflicting information exists as to whether the caps will reduce 

the malpractice premiums, and we certainly heard a lot about that, 

we are very concerned about that. This gentleman who was 

stomped to death, if you think about him, a gentleman who has 

Alzheimer’s disease, and I don’t know how many of us have had 

people with Alzheimer’s disease in their family, but I have had one 

and I know how difficult it is for families to make decisions, and 

to make a decision to place their loved one in a long-term care facility is very painful in and of itself. But then to find out that those 

you have trusted, those you have paid a fair amount to take care 

of your loved one have actually brutally abused that person is very 

difficult. And I speak today for those who have very few economic 

damages but really have non-economic damages, that pain and sufVerDate jul 14 2003 11:26 Sep 10, 2003 Jkt 086683 PO 00000 Frm 00090 Fmt 6602 Sfmt 6602 W:\DISC\86045 86045
87

fering. And families who have people in long-term care facilities 

have pain and suffering as do those residents. That man worked 

many, many, many years not to be stomped to death. 

I know my time is up, but as we—the solutions, you know, again, 

I think more needs to be done to distinguish between good and poor 

performing providers. There is no better way to decrease liability 

than to quickly bring poor performing providers into compliance, or 

as a last resort, after other remedies have been exhausted, force 

them out of business. I don’t propose we close those facilities, because as Mr. Rosenbloom said, we are in very critical need of longterm care in Pennsylvania. Those providers that have established 

risk reduction program addressing such resident care concerns as 

nutrition and preventing bedsores should be rewarded with lower 

premiums. Ensuring residents receive good care would eliminate 

the need for malpractice suits. Legislators should prohibit non-disclosure agreements so that consumers, providers, and insurers are 

aware of the claims against facilities and the amounts paid. We are 

hoping this is a deterrent. 

Finally, it is important for you to consider other factors facing 

providers that make it difficult to operate a facility, including 

Medicare cuts and inadequate Medicaid reimbursement. Due to the 

lack of insurance competition in Pennsylvania for patient insurance, physicians receive one of the lowest reimbursement rates. 

These fiscal realities make it difficult for providers and physicians 

to cover the cost associated with increasing premiums. 

In conclusion, there are thousands of vulnerable nursing home 

and personal care home residents throughout the Commonwealth 

who deserve better standards of care and better enforcement of 

these standards. There should be no further delays in implementing policies that will work to improve the standard of care and 

ensure the health and well being of residents. The time for change 

is long overdue. We hope that solutions sought to resolve the malpractice problem will not inadvertently be at the expense of frail 

older victims. Thank you, again, for the opportunity to testify and 

for seeking public input into this very important problem. 

[The prepared statement of Diane A. Menio follows:]

PREPARED STATEMENT OF DAVID MENIO, CENTER FOR ADVOCACY FOR THE RIGHTS

AND INTERESTS OF THE ELDERLY

Thank you for convening today’s hearing about medical liability in Pennsylvania 

and for the opportunity to present testimony. 

My name is Diane Menio and I represent CARIE, the Center for Advocacy for the 

Rights and Interests of the Elderly. Founded in 1977, CARIE is a non-profit organization dedicated to improving the quality of life for frail older adults. CARIE’s focus 

of concern spans the long-term care continuum of needs from those who are homebound to those who are institutionalized. Older adults who experience physical or 

psychological impairment frequently have difficulty advocating for themselves and 

are often a silent group. CARIE works to protect their rights and promote awareness of their special needs and concerns. CARIE serves as the long-term care ombudsman providing complaint handling and general advocacy services for about 

7,500 residents of approximately 140 nursing homes and personal care facilities located in various Philadelphia neighborhoods. CARIE also provides a model training 

program that has worked to reduce the incidence of resident abuse and neglect. We 

are also pleased to be initiating a Long Term Care Ethics Network for providers in 

Pennsylvania that is helping them address challenging situations at their facilities. 

It is through this experience that we offer the following comments. 

88

INTRODUCTION

Medical liability presents a dynamic issue for advocates concerned about older 

adults. The issue embraces two major areas of interest: access and quality. As ‘‘medical malpractice’’ is splashed throughout the headlines, the problems of rising premiums and the impact on physicians, hospitals, nursing facilities, personal care 

homes and other providers, presents a compelling problem that needs a legislative 

solution. No one wants to see a caring physician forced out of his or her practice 

or a quality nursing facility close its doors. It is also troubling when quality nursing 

home or personal care home providers must pay higher insurance premiums when 

those financial resources could be expended on caring for residents. While residents 

receive quality care at many long term care facilities, there are serious problems 

with quality care at numerous nursing facilities and personal care homes. Since 

there are about 55,200 residents in approximately 785 nursing facilities and about 

1,800 licensed personal care homes caring for approximately 79,800 residents 

throughout Pennsylvania, there is much at stake. Advocates have been fighting for 

years at the state and federal level for reforms needed to improve the ‘‘crisis in care’’ 

provided. 

CRISIS IN CARE

Pennsylvania, like the rest of the nation, has a real crisis regarding the quality 

of care provided at long term care facilities. There are numerous studies and research documenting the extensive problems that exist. In Pennsylvania, the Pennsylvania Health Law Project recently released a white paper that examined data 

from the Pennsylvania Department of Welfare (DPW). (The white paper can be 

found at www.phlp.org.) A Report on Pennsylvania’s Personal Care Homes and Assisted Living Residences: A Call for Reform That has Gone Unheard for Over 20 

Years provides evidence using DPW’s own records to show that DPW permits personal care homes to operate, sometimes for years, even when they are jeopardizing 

the health and safety of residents. 

Pennsylvania Auditor General Bob Casey also highlighted serious problems with 

the oversight of nursing facilities and personal care homes. (These audits can be 

found online at www.auditorgen.state.pa.us/senior/.) An audit found DPW ‘‘seriously 

deficient’’ in its oversight of personal care homes. A follow-up audit of the Department of Health oversight of nursing facilities found that while there were improvements in the Department’s response time to investigating complaints, there were 

still serious problems with sanctioning poor performing providers. ‘‘Health permitted 

five nursing homes with a total of 549 federal and state deficiencies to continue operating with no sanctions.’’ 

Insurance carriers should consider the enforcement actions, licensing history, and 

claims history when determining premiums. Providers that have a good record in 

terms of the care being provided should not have to subsidize the costs of providers 

that are found to repeatedly provide substandard care. Poor performing providers 

should be forced to pay more and improve the care they provide or get of the business. These actions would not only work to help consumers but also decrease the 

costs associated with malpractice. 

Public Citizen recently released a report, ‘‘Medical Misdiagnosis in Pennsylvania: 

Challenging the Medical Malpractice Claims of the Doctors’ Lobby.’’ (The report can 

be found at www.publicitizen.org.) According to the report, ‘‘repeat offender physicians are responsible for the bulk of medical malpractice costs.’’ ‘‘Only 4.7% of Pennsylvania’s doctors (1,838), each of whom has paid three or more malpractice claims, 

are responsible for 51.4% of all payments.’’ Public Citizen documents that only a 

very small percentage of doctors in Pennsylvania with multiple malpractice payments are disciplined. Good doctors should not be forced to pay for their colleagues’ 

errors. Targeting policies that minimize ‘‘repeat offenders’’ and improve oversight 

would not only help consumers from becoming victims of poor practices but would 

also help contain malpractice costs. 

CASE EXAMPLES

CARIE has visited many facilities that are understaffed, dirty, bug infested, and 

where residents are being neglected. The indignities that many residents endure reflect the fears and anxieties that prospective residents and families have about turning to a nursing home for care. The U.S. Attorney’s Office for the Eastern District 

of Pennsylvania lists some very compelling case examples and these lawsuits have 

had a dramatic impact on care provided. The cases can be found at www.usaoedpa.com/Invest/nursing.htm. One case example describes a 60-year-old man with 

dementia who could walk with a walker when he was admitted to the facility and 

89

participated in activities. He had no bedsores. Two years later, he could no longer 

walk. He lost a substantial amount of weight and continued to lose weight even 

after a feeding tube was inserted. Three years after his admission, he had 15 bedsores. The pain associated with the bedsores and his contracting limbs went unattended. His autopsy showed that several of his bedsores could have easily been prevented with ‘‘simple nursing intervention.’’

$250,000 CAP ON NON-ECONOMIC DAMAGES

The debate as to how to solve the problem with rising malpractice premiums has led some legislators to propose caps of $250,000 for non-economic damages. While 

conflicting information exists as to whether this cap will help reduce malpractice 

premiums, we want to testify that this proposal will ultimately prevent residents 

of long tem care facilities from obtaining justice from egregious acts against them. 

Limits on non-economic damages discriminate against older adults. Since residents 

do not have damages for lost wages, the non-economic damages are the only damages nursing home residents can be awarded. Since California instituted its 

$250,000 cap, virtually no malpractice lawsuits have been litigated on behalf of a 

nursing home resident. While it’s clear that residents lost rights in California, data 

shows that the cap has done little to decrease malpractice premiums. 

Federal estate recovery policies are another factor to consider. The federal government requires states to have estate recovery regulations in place for older adults 

who receive Medicaid services as a condition for participation. If they have resources, older Medicaid beneficiaries are required to pay the state back for any Medicaid expenditures paid on their behalf. As you know, there are many nursing home 

residents who rely upon Medicaid to help pay for their care. Obviously, nursing 

home residents cannot even begin to repay this debt, unless there is a property that 

is sold. However, should a resident receive a settlement, they may ultimately receive 

little or any compensation for their pain and loss to their quality of life as the 

money would go to pay their debt. 

Ageism is pervasive in our society and rears its ugly head in many ways. For example, as we described the substandard level of care that many nursing facility residents receive becomes at times ‘‘acceptable’’ or ‘‘unavoidable’’ because they are old. 

Very little value is placed upon nursing facility residents. The last time nursing 

home residents in Pennsylvania saw a meager increase in their income was when 

the federal government increased their personal needs allowance from $25 to $30 

per month in 1988. 

Civil lawsuits can help to improve care. We have witnessed that when a lawsuit 

is filed, regulators who may have been unresponsive, heighten their attention to 

that facility and often take action to bring the facility into compliance. Lawsuits and 

even the threat of a lawsuit can serve as a deterrent and improve care. Particularly 

since most cases in nursing homes relate to a systemic problem that negatively impacted the individual filing the suit, any improvement tends to impact other residents in the facility. Oftentimes as part of the settlement of civil lawsuits, facilities 

are required to establish policies or implement a follow-up plan to be sure problems 

are corrected. Residents and their families demand that something be done to prevent another human being from suffering as they have. 

SOLUTIONS

As we described, more needs to be done to distinguish between good and poor performing providers. There is no better way to decrease liability than to quickly bring 

poor performing providers into compliance, or as a last resort after other remedies 

have been exhausted, force them out of business. Those providers that have established risk reduction programs, addressing such resident care concerns, as nutrition 

and preventing bedsores, should be rewarded with lower premiums. Ensuring residents receive good care would eliminate the need for malpractice suits. 

Legislators should prohibit non-disclosure agreements so that consumers, providers and insurers are aware of the claims against facilities and the amounts paid. 

Finally, it is important for you to consider other factors facing providers that 

make it difficult to operate a facility including Medicare cuts and inadequate Medicaid reimbursement. Due to the lack of insurance competition in Pennsylvania for 

patient insurance, physicians receive one of the lowest reimbursement rates from 

insurance companies. These fiscal realities make it difficult for providers and physicians to cover the costs associated with increasing malpractice premiums. 

CONCLUSION

In conclusion, there are thousands of vulnerable nursing home and personal care 

home residents throughout the Commonwealth who deserve better standards of care 

90

and better enforcement of these standards. There should be no further delays in implementing policies that will work to improve the standard of care and ensure the 

health and well being of residents. The time for change is long overdue. CARIE 

hopes that the solutions sought to resolve the malpractice problem will not inadvertently be at the expense of frail older victims. 

Thank you again for the opportunity to testify and for seeking public input.

Mr. GREENWOOD. Thank you for your testimony, and in respect 

for Ms. Schakowsky’s need to get to the airport, we are going to 

allow her to question first, so you are recognized for 10 minutes. 

Ms. SCHAKOWSKY. Thank you, Mr. Chairman. I appreciate this 

and all the other courtesies that you have allowed me today, going 

a little over before, et cetera. I appreciate it. 

I was looking at and listening carefully to your testimony, Mr. 

Rosenbloom, and if there is a—I know something about this industry. I was Director of the Illinois State Council of Senior Citizens 

before I went into public office, and if there were any industry crying out for experience rating; that is, not penalizing the good institutions for the bad, I would think it would be the nursing home industry. You know, you have to know, that there are bad actors in 

your business. There are some places that you would not want your 

parents to go, and you know where they are, and you know that 

they have inadequate care. And then when you tell me in your testimony that the CAT Fund paid only $2,670,000 in nursing facilities claims, yet, collected $41.4 million in surcharges from nursing 

homes, it boggles my mind then in almost a non sequitur why you 

would turn to those who have been compensated $2 million as opposed to those who have collected $41 million. That is, the rates 

don’t make sense, and therefore, the solution should not be to go 

after those who have not been compensated very much. 

When you talk about Medicare and Medicaid, I am with you, and 

Ms. Menio, as well, that the underfunding of healthcare professionals and the quality of care in nursing homes, I am on it, I am 

with you 100 percent. But why you would—I would hope—and let 

me just ask you this. doesn’t experience rating, when you have 

such a variety of quality within your industry, I would think it 

would be your goal to figure out solutions that weed out bad actors 

rather than institutionalizing a system that actually helps them 

exist, which I could think a limitation on payouts would. 

Mr. ROSENBLOOM. Well, first of all, I appreciate that question, 

and I appreciate the information base from which it arises. My initial observation is that with respect to bad actors, my position is 

that bad actors should be eliminated from the system as promptly 

as possible. I believe that our regulatory system, State and Federal, 

gives government currently the opportunity to do that. Whether 

they choose to exercise it or not is a different question. 

Second, with respect to the question of why not go after the insurance companies or at least put those into the mix, I circle back 

a little bit to the dialog between Congressman Greenwood and Governor Rendell this morning. In my judgment, there are a mix of 

issues that need to be addressed to crack not only the medical liability insurance problems, but also, the long-term solutions to providing long-term care and senior services for us, for our parents—

those of us that are in the baby boom are dealing with this right 

now, and for ourselves as we age, and it is a complex mix of issues. 

91

I agree that, in my view, damage caps, whether it is $250,000 or 

something else, are a necessary but not sufficient component of the 

solution. And the reason I draw that conclusion is that in my own 

investigations of what is driving the liability insurance crisis for 

long-term care providers in this State and elsewhere, I have been 

informed by insurance companies, by representatives of insurance 

companies, that in order to stabilize rates—and no one is suggesting that rates are going to go down. We have heard a fair 

amount of dialog about that today. I am not suggesting it. I don’t 

think that caps will reduce rates, necessarily. I think they might 

be one of the important factors in stabilizing them. What I am told 

is here is what we need to stabilize the insurance market. We need 

predictability and regularity. That is true with respect to the number of claims, that is true with the average cost for each claim, not 

just how much is ultimately paid out in judgments and awards, but 

also how much each claim costs to get from filing to ultimate disposition, whether it is dismissal, settlement, judgment, or award. 

And so from my perspective, that is an important component. I 

believe, frankly, Congresswoman, that if we are going to solve this 

problem, we are going to solve it in part by everybody, you know, 

experiencing a little bit of pain, if you will. And I agree with much 

of the comment that we have heard today, that on the quality side 

of the ledger, there has to be more done—excuse me, I have a little 

cold—more done there, as well as more done on the insurance side, 

as well as more done on the civil justice system side. 

Ms. SCHAKOWSKY. Okay. I have to tell you, I actually find it rather shocking, knowing what I know about the industry from personal experience and from GAO reports that were done in my Government Reform Subcommittee that I was on before that you would 

be advocating for some of these bad actors to actually pay lower 

rates. It is just shocking to me. It would seem to me that some of 

those nursing homes that are responsible for some of the abuses 

that we know happen every single day in nursing homes, that you 

would seek a solution that would actually lower their rates. 

Mr. ROSENBLOOM. Congresswoman, I, respectfully, disagree. I 

think my solution that I am proposing is to create and actually to 

use the regulatory tools that exist so that those bad actors simply 

are not providing care and services, so that they don’t exist. But 

a part of my solution is also to say that if we are going to appropriately balance between compensating injured parties for legitimate injuries that they have incurred because of negligence on the 

one hand, and otherwise stabilize the healthcare delivery system 

and use public resources as effectively as possible, that the balance 

has to be struck somewhat differently from where it is right now. 

Ms. SCHAKOWSKY. Could I, in the minute before my taxi comes, 

I wondered if I could ask Ms. Menio—I, actually, just would like 

you to that on behalf of the people who then would be limited to 

$250,000. 

Ms. MENIO. Yes. I just, you know, I did already talk about some 

of these things. And certainly, you made some very good points, 

why should we subsidize bad actors. And one of the areas I am concerned about is nursing homes closing and personal care homes 

closing. They are a resource, and having people that live in our 

92

community have to go miles and miles away is a severe problem. 

We need to be——

Ms. SCHAKOWSKY. The regulatory system—is the regulatory system working? 

Ms. MENIO. No, in some cases it is not. And you know, the reports that I have referenced in my testimony will show you reports 

on Pennsylvania. There are GAO reports about, you know, and a 

CMS report that is available on the Nation. But on Pennsylvania, 

and also a GAO report on Pennsylvania that was done last year. 

You will find that the regulatory system doesn’t always work. And 

we know that firsthand because we are in there reviewing complaints, sitting at exit conferences where the regulators talk about 

what the issues are. And some of the places that I talked about 

were places that have been—we had a personal care home in Philadelphia that was on a cease and desist order for more than 5 years. 

During those 5 years, we were in that facility dealing with residents, severe resident neglect. They stole their money, you know, 

and they don’t have much money. These are not people that—these 

are poor people we are talking about, and that was allowed to happen by the regulatory system that exists. 

I also have to say that we have Federal law that regulates nursing homes. We do not have Federal law that regulates personal 

care or assisted living. And in the State, we have personal care 

home regulations which regulates facilities that call themselves assisted living as well. They are quite minimal. So there aren’t strong 

regulations in place to regulate what in some places are called 

adult care homes, or personal care homes, or assisted living in 

Pennsylvania. 

Ms. SCHAKOWSKY. Let me just ask this final question. Could you 

explain to the committee the relationship between substantial civil 

judgments and criminal prosecutions of nursing home abuses in 

southeastern Pennsylvania? 

Ms. MENIO. Well, you know, my experience has been in working 

with the Eastern District Office of the U.S. Attorney’s Office, which 

a number of years ago did some groundbreaking prosecution based 

on the False Claims Act, because we have providers who are taking 

Medicaid and Medicare moneys to provide care, and then lo and behold, they are not providing care. Nutrition is a good example. Nutrition is something that is included in the Medicaid reimbursement rate. If they are not providing adequate nutrition, they are 

not fulfilling their responsibility as a Medicaid provider. And so the 

judgments that have—or the settlements that have taken place 

here in Philadelphia and the Eastern District, which includes 

southeastern Pennsylvania, have actually—we have seen great advances, because what the settlements include is not just money, 

but include having solutions put in place, having people come in, 

experts come in and monitor medication administration, monitor 

nutrition, and so there is actually solutions being put in place. 

Ms. SCHAKOWSKY. Not just for that individual but——

Ms. MENIO. No. To change the system, to raise the bar so to 

speak, so that is what we see the civil suits can sometimes do, and 

on the Federal level civil suits have accomplished that, and I can 

tell you some of the facilities that we dreaded going into, that we 

93

were in many, many times 10 years ago are better today because 

of those settlements. 

Ms. SCHAKOWSKY. Thank you. And thank you, Mr. Chairman. 

Mr. GREENWOOD. I thank the gentlelady from Illinois for coming 

and recognize that she has a plane to catch so you may slink off 

whenever you choose. 

And now we will return to Mr. Smarr and ask for your testimony, sir. 

TESTIMONY OF LAWRENCE E. SMARR 

Mr. SMARR. Chairman Greenwood, Representative Deutsch, and 

members of the subcommittee, I am Larry Smarr, President of the 

Physician Insurers Association of America. The PIAA is an association comprised of professional liability insurance companies owned 

and/or operated by physicians, dentists, and other healthcare providers. The 43 PIAA insurance company members, such as the 

Pennsylvania Medical Society Liability Insurance Company, can 

also be characterized as healthcare professionals caring for the professional liability risks of their colleagues, doctors insuring doctors 

and hospitals insuring hospitals. We believe that the physician 

owned/operated insurance company members of the PIAA insure 

over 60 percent of America’s doctors. 

Let me get right to the issue. Over the past 3 years, medical liability insurers have seen their financial performance deteriorate 

substantially due to the rapidly rising cost of medical liability 

claims. According to A.M. Best, the leading insurance industry rating agency, the medical liability insurance industry incurred $1.53 

in losses and expenses for every $1 of premium incurred. The primary driver of the deterioration in the medical malpractice insurance industry performance has been paid claim severity or the average cost of a paid claim. 

Exhibit A, and I believe you have these charts before you, shows 

the average dollar amounts paid in indemnity to plaintiffs on behalf of individual physicians since 1988. The mean payment 

amount has risen by a compound annual growth of 6.9 percent over 

the past 10 years. That is compared to 2.6 percent increase in the 

consumer price index. The data from this exhibit comes from the 

PIAA data sharing project, a medical cause of loss data base created in 1985 for the purpose of identifying common trends among 

malpractice claims which are used for patient safety purposes. To 

date, over 180,000 claims and suits have been reported to this data 

base. One very troubling aspect is proportion of claims filed which 

are ultimately determined to be without merit; 61 percent of all 

claims closed in 2001 were dropped or dismissed by the court. An 

additional 5.7 percent were won by the doctor at trial. Only 33 percent of all claims closed were found to be meritorious, and most of 

these being paid through settlement. Of all claims closed, more 

than two-thirds had no indemnity payment to the plaintiff. And 

when the claim was closed at trial at verdict, the defendant prevailed an astonishing 80 percent of the time. 

As shown in Exhibit B, the mean settlement amount on behalf 

of an individual defendant was just over $299,000. Most medical 

malpractice cases have multiple defendants, and thus, these values 

94

are below those which may be reported on a case basis. The mean 

verdict amount last year was almost $497,000 per defendant. 

Exhibit C shows the mean expense payment for claims by category of disposition. As can be seen, the cost of taking a claim for 

each doctor named in a case all the way through trial is fast approaching $100,000. 

Exhibit D shows the distribution of claims payments at various 

payment thresholds. It can be readily seen that the number of larger payments are growing as a percentage of the total number of 

payments. This is especially true for payments at or exceeding $1 

million, which comprised almost 8 percent of all claims paid on behalf of individual practitioners in 2001 as shown on Exhibit E. This 

percentage has doubled in the past 4 years. 

Unfortunately, I am going to spend the rest of my time debunking a major myth being propagated by those who oppose effective 

Federal healthcare liability reform. Contrary to the unfounded allegations of those who oppose effective reforms, medical malpractice 

insurers are primarily invested in high grade bond and have not 

lost large sums in the stock market as we have heard here today. 

Brown Brothers Harriman, a leading investment and asset management firm, in a recent investment research report states that 

over the last 5 years, the amount medical malpractice companies 

have invested in equities has remained fairly constant. In 2001, the 

equity allocation was 9 percent. As Exhibit F shows, the medical 

liability insurance companies invest significantly less in equities 

than did all property-casualty insurers. Brown Brothers states that 

the equity investments of medical liability companies had returned 

similar to the market as a whole. This indicates that they maintain 

a versified equity investment strategy. Since medical malpractice 

companies did not have an unusual amount invested in equities, 

and what they did was invest it in a reasonable market-like fashion, we conclude that the decline in equity valuations is not the 

cause of rising medical malpractice premiums. 

While insurer interest income has declined due to falling market 

interest rates, when interest rates decline, bond values increase. 

This has had a beneficial effect in keeping total investment income 

level when measured as a percentage of total invested assets, as 

this is shown in Exhibit G. Such, the assertion that insurers have 

been forced to raise the rates because of bad investments is simply 

not true. 

The PIAA firmly believes that the adoption and effect of Federal 

healthcare liability reforms similar to the California MICRA reforms enacted in 1975, will have a demonstrable effect on professional liability costs. The keystone of the MICRA reforms is a 

$250,000 cap on non-economic damages. These reforms are similar 

to the revisions of H.R. 5, the Health Act. The same bill was passed 

by the House last year as H.R. 4600 and was scored by the CBO 

as providing over $14 billion in savings to the Federal Government 

and an additional $7 billion to the States, because tort reform 

works. Using annual data published by the National Association of 

Insurance Commissioners, Exhibit H documents the savings California practitioners and healthcare consumers have enjoyed since 

the enactment of MICRA over 25 years ago. As Chairman Greenwood has already pointed out, the total malpractice premiums reVerDate jul 14 2003 11:26 Sep 10, 2003 Jkt 086683 PO 00000 Frm 00098 Fmt 6602 Sfmt 6602 W:\DISC\86045 86045
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ported to the NAIC since 1976 have grown by 167 percent, while 

premiums for the rest of the Nation have grown by 505 percent. 

These savings are truly demonstrated in the rates charged to California doctors as shown on Exhibit I. Successful experience in California and other States, such as Colorado, makes it clear that 

MICRA style tort reforms do work without lowering healthcare 

quality or limiting access to care. 

Legislators are now challenged with finding a solution to the 

medical malpractice insurance affordability and availability dilemma, a problem long in coming, which has truly reached the crisis stage. The increased cost being experienced by insurers, largely 

owned or operated by healthcare providers, are real and documented. It is time for Congress to put an end to the wastefulness 

and inequities of our tort legal system where only 50 percent of the 

moneys available to pay claims are paid to indemnify the only 30 

percent of claims filed with merit and the expenses of the remainder. The system works fine for the legal profession, which is why 

the trial lawyers and others fight so hard to maintain the status 

quo. 

The PIAA strongly urges members of the House of Representatives to pass H.R. 5, the Health Act, thereby assuring fair compensation for patients injured in the healthcare system and also assuring Pennsylvania’s citizens and people across the Nation that 

they will be able to receive necessary healthcare services. Thank 

you. 

[The prepared statement of Lawrence D. Smarr follows:]

PREPARED STATEMENT OF TESTIMONY OF LAWRENCE E. SMARR, PRESIDENT, 

PHYSICIAN INSURERS ASSOCIATION OF AMERICA

INTRODUCTION

Chairman Greenwood, Representative Deutsch and members of the Sub-Committee, I am Lawrence E. Smarr, President of the Physician Insurers Association 

of America (PIAA). Thank you for allowing me the opportunity to appear before you 

today and speak regarding the medical liability crisis as it affects patients and 

health care providers in Pennsylvania and across the nation. 

As we all know, professional liability insurance premiums for doctors and hospitals are rapidly rising in many states such as Pennsylvania to levels where they 

cannot afford to pay them. These increased premiums are caused by the ever-increasing size of medical liability insurance payments and awards. The unavoidable 

consequence is that physicians are moving away from Pennsylvania and other crisis 

states, reducing the scope of their practices, or leaving the practice of medicine altogether. Likewise, hospitals are being forced to close facilities and curtail high risk 

services because they can no longer afford to insure them. 

DOCTORS INSURING DOCTORS

The PIAA is an association comprised of professional liability insurance companies owned and/or operated by physicians, dentists, and other health care providers. 

Collectively, our 43 domestic insurance company members insure over 300,000 doctors and 1,200 hospitals in the United States and our nine international members 

insure over 400,000 health care providers in other countries around the world. 

While PIAA members, such as the Pennsylvania Medical Society Liability Insurance 

Company, are viable insurance companies, they can also be characterized as health 

care professionals caring for the professional liability risks of their colleagues—doctors insuring doctors, hospitals insuring hospitals. We believe that the physician 

owned/operated insurance company members of the PIAA insure over 60% of America’s doctors. Unlike the multi-line commercial carriers, medical liability insurance 

is all that the PIAA companies principally do, and they are here in the market to 

stay. 

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The PIAA was formed 26 years ago at a time when commercial insurance carriers 

were experiencing unanticipated losses and exited the market, leaving doctors, hospitals and other health care professionals no choice other than to form their own 

insurance companies. A quarter century has passed, and I am proud to say that the 

insurers who comprise the PIAA have become the driving force in the market, providing stability and availability for those they insure. 

When the PIAA and many of its member companies were formed in the 1970’s, 

we faced a professional liability market not unlike that which we are experiencing 

today. At that time, insurers, all of which were general commercial carriers, were 

experiencing rapidly increasing losses which caused them to consider their continuance in the market. Many of the major carriers did indeed exit the market, leaving 

a void that was filled by state and county medical and hospital associations across 

the country forming their own carriers. Again we see the commercial carriers, such 

as St. Paul, exiting the market. But, this time, the provider owned carriers are in 

place and are indeed providing access to insurance and stability to the market. 

Unfortunately, the recent exodus from and transformation of the market is of 

such a magnitude that the carriers remaining do not have the underwriting capacity 

to take all comers. Facing ever-escalating losses of their own, many of the carriers 

remaining in the market are forced to tighten their underwriting standards and revise their business plans with regard to their nature and scope of operations. This 

includes the withdrawal from recently expanded markets, which adds to the access 

to insurance problem caused by carriers exiting altogether. 

My goal here today is to discuss what the PIAA sees as the underlying causes 

of the current medical liability crisis in Pennsylvania and other crisis states across 

the nation. I want to stress that I believe that this situation should be characterized 

as a medical liability crisis, and not a medical liability insurance crisis. The PIAA 

companies covering the majority of the market are in sound financial condition. The 

crisis we face today is a crisis of affordability and availability of insurance for health 

care providers, and more importantly, the resulting growing crisis of access to the 

health care system for patients across the country. 

INSURANCE INDUSTRY UNDERWRITING PERFORMANCE

Medical liability insurance is called a long-tail line of insurance. That is because 

it takes on average two years from the time a medical liability incident occurs until 

a resulting claim is reported to the insurer, and another two and one-half years 

until the average claim is closed. This provides great uncertainty in the rate making 

process, as insurers are forced to estimate the cost of claims which may ultimately 

be paid as much as 10 years after the insurance policy is issued. By comparison, 

claims in short-tail lines of insurance, such as auto insurance, are paid days or 

weeks after an incident. 

Over the past three years medical liability insurers have seen their financial performance deteriorate substantially due to the rapidly rising cost of medical liability 

claims. According to A.M. Best (Best), the leading insurance industry rating agency, 

the medical liability insurance industry incurred $1.53 in losses and expenses for 

every dollar of premium they collected in 2001. While data for 2002 will not be 

available until the middle of this year, Best has forecast that the industry will incur 

$1.41 in losses and expenses in 2002, and $1.34 in 2003. The impact of insurer rate 

increases accounts for the improvement in this statistic. However, Best also calculates that the industry can only incur $1.141⁄2 in losses and expenses in order to 

operate on a break-even basis. This implies that future rate increases can be expected as the carriers move toward profitable operations. 

The physician owned/operated carriers I represent insure a substantial portion of 

the market (over 60%). Each year, an independent actuarial firm, Tillinghast Towers-Perrin provides the PIAA with a detailed analysis of annual statement data filed 

by our members with the National Association of Insurance Commissioners (NAIC). 

This analysis is very revealing with regard to the individual components of insurers 

financial performance. 

Exhibit 1 below details the operating experience of 32 physician owned/operated 

insurance companies included in the analysis. A widely relied upon insurance performance parameter is the combined ratio, which is computed by dividing the losses 

and expenses incurred by insurers by the premiums they earn to offset these costs. 

For these companies, this statistic has been deteriorating (getting larger) since 

1997, with major increases being experienced in 2000 and 2001. 

For calendar year 2001, the combined ratio (including dividends paid) was 141, 

meaning that total losses and dividends paid were 41% more than the premiums 

collected. Even when considering investment income, net income for the year was 

a negative ten percent. This follows a meager 4 percent net income in 2000. This 

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1Did Investments Affect Medical Malpractice Premiums? Raghu Ramachandran, Brown 

Brothers Harriman, January, 2003. 

average experience is indicative of the problems being experienced by insurers in 

general, and demonstrates the carriers’ needs to raise rates to counter increasing 

losses. All of the basic components of the combined ratio calculation (loss and loss 

adjustment expense, underwriting expense) have risen as a percentage of premium 

for all years shown. The only declining component has been dividends paid to policyholders. 

To compare this group of PIAA companies with the industry, Exhibit 2 is taken 

from the 2002 edition of Best’s Aggregates and Averages. This shows that medical 

malpractice is the least profitable property and casualty line of insurance in 2001, 

following reinsurance, which has been greatly impacted by the World Trade Center 

losses. The adjusted combined ratio for the entire industry is 153, as compared to 

141 for the PIAA carriers represented on Exhibit 1. 

THE ROLE OF INVESTMENT INCOME

Investment income plays a major role for medical liability insurers. Because medical liability insurance is a ‘‘long tail’’ line of insurance, insurers are able to invest 

the premiums they collect for substantial periods of time, and use the resulting investment income to offset premium needs. As can be seen on Exhibit 3, investment 

income has represented a substantial percentage of premium, and has played a 

major role in determining insurer financial performance. However, investment income as a percentage of premium has been declining in recent years primarily due 

to historic lows in market interest rates. 

Contrary to the unfounded allegations of those who oppose effective tort reforms, 

medical liability insurers are primarily invested in high grade bonds and have not 

lost large amounts the stock market. As can be seen in Exhibit 4, the carriers in 

the PIAA survey have been approximately 80% invested in bonds over the past 

seven years. 

As shown on Exhibit 5, stocks have averaged only about 11% of cash and invested 

assets, thus precluding major losses due to swings in the stock market. Unlike 

stocks, high grade bonds are carried at amortized value on insurer’s financial statements, with changes in market value having no effect on asset valuation unless the 

underlying securities must be sold. 

The experience of the PIAA carriers is confirmed on an industry-wide basis 

through data obtained from the NAIC by Brown Brothers Harriman, a leading investment and asset management firm. Brown Brothers reports that ‘‘Over the last 

five years, the amount medical malpractice companies has invested in equities has 

remained fairly constant. In 2001, the equity allocation was 9.03%.’’ 

Brown Brothers states that the equity investments of medical liability companies 

‘‘. . . had returns similar to the market as a whole. This indicates that they maintained a diversified equity investment strategy. 

The Brown Brothers report further states: 

Since medical malpractice companies did not have an unusual amount invested 

in equities and what they did was invested in a reasonable market-like fashion, 

we conclude that the decline in equity valuations is not the cause of rising medical malpractice premiums.1

While insurer interest income has declined due to falling market interest rates, 

when interest rates decline, bond values increase. This has had a beneficial effect 

in keeping total investment income level when measured as a percentage of total 

invested assets. This is shown in Exhibit 7 below. Thus, the assertion that insurers 

have been forced to raise their rates because of bad investments is simply not true. 

THE INSURANCE CYCLE

Opponents of effective tort reform claim that insurance premiums in constant dollars increase or decrease in direct relationship to the strength or weakness of the 

economy, reflecting the industry’s investment performance. The researchers at 

Brown Brothers also tested this theory, and found no correlation between changes 

in generally accepted economic parameters (Gross Domestic Product (GDP) and 5-

year treasury bond rates) with direct medical malpractice premiums written. In fact, 

Brown Brothers conducted 64 different regression analyses between the economy, 

investment yield, and premiums, and found no meaningful relationship. The report 

produced by Brown Brothers states: 

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2Did Investments Affect Medical Malpractice Premiums? Raghu Ramachandran, Brown 

Brothers Harriman, January, 2003. 

Therefore, we can state with a fair degree of certainty that investment yield and 

the performance of the economy and interest rates do not influence medical 

malpractice premiums.2

INSURER SOLVENCY

A key measure of financial health is the ratio of insurance loss and loss adjustment expense (amounts spent to handle claims) reserve to surplus. This ratio has 

deteriorated (risen) for the PIAA carriers since 1999 to a point where it is approximately two times the level of surplus, as shown on Exhibit 8 below. 

The relationship between reserves (amounts set aside to pay claims) and surplus 

is important, as it is a measure of the insurer’s ability to contribute additional 

amounts to pay claims in the event that original estimates prove to be deficient. At 

the current approximately two-to-one ratio, these carriers in aggregate are still in 

sound financial shape. However, any further deterioration in surplus due to underwriting losses will cause a deterioration in this important benchmark ratio indicating an impairment in financial condition. Under current market conditions, characterized by increasing losses and decline investment interest income, the only way 

to increase surplus is through rate increases. 

Net premiums written as compared to surplus is another key ratio considered by 

regulators and insurance rating agencies, such as A.M. Best. This statistic for the 

companies in the PIAA survey has also been deteriorating (rising) since 1999, showing a 50% increase in the two years ending in 2001. The premium-to-surplus ratio 

is a measure of the insurer’s ability to write new business. In general, a ratio of 

one-to-one is considered to be the threshold beyond which an insurer has over-extended its capital available to support its underwritings. 

As can be seen on Exhibit 9, this statistic has also deteriorated, and the carriers 

in aggregate are approaching one-to-one. As the carriers individually approach this 

benchmark, they will begin to decline new risks, causing further availability problems for insureds. Rate increases the carriers are taking also have an impact on this 

important ratio as well as new business written. 

THE CAUSE OF THE CRISIS

The effects described in the previous pages were caused by the convergence of six 

driving factors making for the perfect storm, as follows:

• Dramatic long term paid claim severity rise • Paid claim frequency returning and holding at high levels • Declining market interest rates • Exhausted reserve redundancies • Rates becoming too low • Greater proportion of large losses 

The primary driver of the deterioration in the medical liability insurance industry 

performance has been paid claim severity, or the average cost of a paid claim. 

Exhibit 10 shows the average dollar amounts paid in indemnity to plaintiffs on 

behalf of individual physicians since 1988. The mean payment amount has risen by 

a compound annual growth of 6.9% during this period, as compared to 2.6% for the 

Consumer Price Index (CPIu). The data for Exhibit 10, as well as that for slides 

which follow, comes from the PIAA Data Sharing Project. This is a medical causeof-loss data base which was created in 1985 for the purpose of identifying common 

trends among malpractice claims which are used for risk management purposes by 

the PIAA member companies. To date, over 180,000 claims and suits have been reported to the data base. 

Allocated loss adjustment expenses (ALAE) for claims reported to the Data Sharing Project have also risen at alarming rates. ALAE are the amounts insurers pay 

to handle individual claims, and represent payments principally to defense attorneys, and to a lesser extent, expert witnesses. Average amounts paid for three categories of claims are shown below. As can be seen, the average amount spent for 

all claims in 2001 has risen to just under $30,000. 

One very troubling aspect of medical malpractice claims is the proportion of those 

filed which are ultimately determined to be without merit. Exhibit 12 shows the distribution of claims closed in 2001 as reported to the PIAA Data Sharing Project. 

Sixty-one percent of all claims filed against individual practitioners were dropped 

or dismissed by the court. An additional 5.7% were won by the doctor at trial. Only 

33.2% of all claims closed were found to be meritorious, with most of these being 

paid through settlement. Of all claims closed, more than two-thirds had no indemVerDate jul 14 2003 11:26 Sep 10, 2003 Jkt 086683 PO 00000 Frm 00102 Fmt 6602 Sfmt 6621 W:\DISC\86045 86045
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nity payment to the plaintiff. When the claim was concluded at verdict, the defendant prevailed an astonishing 80% of the time. This data clearly shows that those 

attorneys trying these cases are woefully deficient in recognizing meritorious actions 

to be pursued to conclusion. 

Analyses performed by the PIAA have shown that of all premium and investment 

income available to pay claims, only 50% ever gets into the hands of truly injured 

patients, with the remainder being principally paid to attorneys, both plaintiff and 

defense. Something is truly wrong with any system that consumes 50% of its resources to deliver the remainder to a small segment of those seeking remuneration. 

A review of the average claim payment values for the latest year reported to the 

PIAA Data Sharing Project is revealing. As shown on Exhibit 13, the mean settlement amount on behalf of an individual defendant was just over $299,000. Most 

medical malpractice cases have multiple defendants, and thus, these values are 

below those which may be reported on a per case basis. The mean verdict amount 

last year was almost $497,000 per defendant. 

Exhibit 16 shows the mean expense payment for claims by category of disposition. 

As can be seen, the cost of taking a claim for each doctor named in a case all the 

way through trial is fast approaching $100,000. 

Exhibit 15 shows the distribution of claims payments at various payment thresholds. It can be readily seen that the number of larger payments are growing as a 

percentage of the total number of payments. 

This is especially true for payments at or exceeding $1 million, which comprised 

almost eight percent of all claims paid on behalf of individual practitioners in 2001 

(Exhibit 16). This percentage has doubled in the past four years, and clearly demonstrates why insurers are facing dramatic increases in the amounts they have to 

pay for reinsurance. While medical liability insurers are reinsured by many of the 

same companies having high losses from the World Trade Center disaster, their 

medical liability experience was rapidly deteriorating prior to September 11, 2001. 

In addition to rising claim severity, like all other investors, medical liability insurers have faced declining market interest rates. Eighty percent of PIAA insurers’ investments are placed in high-grade bonds. Exhibit 17 shows the long-term decline 

in high grade bond earnings. As can be seen, this is not a recent phenomenon, but 

a long term trend. 

Critics of the medical liability insurance industry say that insurers’ reliance on 

investment income to offset premiums has caused turmoil in the marketplace, implying that the use of investment income is a bad thing. Nothing could be further 

from the truth. If insurers did not ever use investment income to offset premium 

needs, then rates would always be 30-40% higher than otherwise necessary. The 

role market interest rates play in determining pricing in medical liability insurance 

(and other lines as well) is a fact of life which we cannot control. 

THE ANSWER

Medical liability insurers and their insureds have faced dramatic long term rises 

in paid claim severity, which is now at historically high levels. Paid claim frequency 

(the number of paid claims) is currently remaining relative constant, but has risen 

significantly in some states. While interest rates will certainly rise and fall in future 

years, nothing has been done over the past three decades to stem the ever-rising 

values of medical malpractice claim payments or reduce the number of meritless 

claims clogging up our legal system at great expense—except in those few states 

that have effective tort reforms. In many states not having tort reforms, costs have 

truly become excessive, and insurers are forced to set rates at levels beyond the 

abilities of doctors and hospitals to pay. States having tort reforms, such as California, provide a compelling example that demonstrates how such reforms can lower 

medical liability costs and still provide adequate indemnification for patients 

harmed as a result of the delivery of health care. 

The following reforms are those which the PIAA advocates be adopted at the federal level, which we also feel should be the standard for any state reforms enacted. 

They are based on the reforms found in the Medical Injury Compensation Reform 

Act (MICRA) which became effective in California in 1976 and which have been successful in compensating California patients and ensuring access to the health care 

system since their enactment. 

The keystone of the MICRA reforms is the $250,000 cap on non-economic damages 

(pain and suffering) on a per-incident basis. Under MICRA, injured patients receive 

full compensation for all quantifiable damages, such as lost income, medical expenses, long-term care, etc. In addition, injured patients can get as much as onequarter million dollars for pain and suffering. Advising juries of economic damages 

that have already been paid by other sources serves to reduce double payment for 

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3 Ironically, the Proposition 103 Enforcement Project headed by Harvey Rosenfeld, a self-proclaimed consumer advocate who led the fight for the adoption of Prop 103, has received almost 

damages. An important component of MICRA is a reasonable limitation on plaintiff 

attorney contingency fees, which currently can be 40% or more of the total amount 

of the award. Under MICRA, a trial lawyer must be satisfied with only a $220,000 

contingency fee for a $1 million award. 

A Gallup poll published on February 5, 2003 by the National Journal indicates 

that 57% of adult Americans feel there is too many lawsuits against doctors, and 

74% feel that we are facing a major crisis regarding medical liability in health care 

today. Seventy-two percent of respondents favored a limit on the amount that patients can be awarded for their emotional pain and suffering. Only the trial lawyers 

and their front groups disagree, seeing their potential for remuneration being reduced. Especially displeasing to them is MICRA’s contingency fee limitation, which 

puts more money in the hands of the injured patient. (at no cost reduction to the 

insurer). 

The U.S. House of Representatives adopted legislation containing tort reforms 

similar to MICRA, including a $250,000 cap on non-economic damages, for the seventh time in September of last year. HR 4600, known as the HEALTH Act, was introduced and adopted on a bi-partisan basis. We are very pleased that Chairman 

Greenwood and his many co-sponsors have reintroduced this legislation as HR 5 in 

the 108th Congress. The Congressional Budget Office (CBO) conducted an extensive 

review of the provisions of HR 4600, and reported to Congress that if the reforms 

were enacted, ‘‘. . . premiums for medical malpractice insurance ultimately would be 

an average of 25 percent to 30 percent below what they would be under current 

law.’’

The CBO found that HR 4600 reforms, the same reforms found in HR 5, would 

result in savings of $14.1 billion to the federal government through Medicare and 

other health care programs for the period 2004-2012. An additional $7 billion of savings would be enjoyed by the states through their health care programs. The CBO’s 

analysis did not consider the effects federal tort reform would have on reducing the 

incidence of defensive medicine, but did acknowledge that savings were likely to result. 

The US Department of Health and Human Services published a report on July 

24, 2002, which evaluated the effects of tort reforms in those states that have enacted them. As stated in Exhibit 23, HHS found that practitioners in states with 

effective caps on non-economic damages were currently experiencing premium increases in the 12-15% range, as compared to average 44% increases in other states. 

Annual data published by the National Association of Insurance Commissioners 

(NAIC) also documents the savings California practitioners and health care consumers have enjoyed since the enactment of MICRA over 25 years ago. As shown 

in Exhibit 21, total medical liability premiums reported to the NAIC since 1976 

have grown in California by 167%, while premiums for the rest of the nation have 

grown by 505%. These savings can only be attributed to MICRA. 

These savings are clearly demonstrated in the rates charged to California doctors 

as shown in Exhibit 22. Successful experience in California and other states makes 

it clear that MICRA style tort reforms do work without lowering health care quality 

or limiting access to care. 

PROP 103 HAD NO EFFECT ON CALIFORNIA MEDICAL LIABILITY PREMIUMS

In an effort to derail desperately need tort reforms as described above, the Association of Trial Lawyers of America and related individuals and groups have stated 

that the beneficial effects of MICRA as shown on Exhibit 24 are due to Proposition 

103, a ballot initiative passed in 1989 aimed primarily at controlling auto insurance 

costs. The ballot initiative passed by a 51% majority vote, with voters in only 7 of 

California’s 58 counties approving the measure. The major changes made by Prop 

103 include:Q02

• Making the insurance commissioner of California an elected, rather than appointed, official; 

• Giving the insurance commissioner authority to approve rate changes before they 

can take effect; 

• Requiring insurers to reduce rates by 20 percent for two years from their levels 

on November 8, 1987; 

• Requiring auto insurance companies to offer a 20 percent ‘‘good driver discount.’’

• Requiring auto insurance rates to be determined primarily by four factors; 

• Allowing for payment of ‘‘intervenor fees’’ to outside groups which intervene in 

hearings conducted by the Department of Insurance 3. 

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$1.5 million in intervenor fees through 1997. In total, ‘‘consumer organizations’’ and individuals 

have received over $7.1 million in intervenor fees and administrative costs through 1997. 

Source: Personal Insurance Federation of America, www.pifc.org/insurance/prop103.html. 4 Background on Insurance Reform—A Detailed Analysis of California Proposition 103, 

www.consumerwatchdog.org/insurance/fs/fs000159.php3. 

Medical liability insurers were not the intended target of Prop 103, but were covered by the resulting regulations. However, Prop 103 did not have any substantive 

effect on medical liability insurance rates. Prop 103 did have the effect of freezing 

most insurance rates in California until as late as 1994.4 This all came at a time 

when medical liability insurers across the nation were seeing their rates level off 

or even decline. One major California medical liability insurer, the NORCAL Mutual 

Insurance Company, actually had two rate decrease filings (-2%, -12%) which had 

been made with the department of insurance in 1990 and 1991 held up until the 

conclusion of legal challenges and exemption issues were resolved. NORCAL 

reached a consent agreement with the California Department of Insurance in November of 1991, at which time its rate decreases were granted. NORCAL was specifically permitted to declare a one-time 20% return of premium for policyholders 

insured between November 8, 1988 and November 8, 1989 as a dividend and was 

not required to reduce its rates as a result of Prop 103. As NORCAL had already 

paid dividends exceeding 20% during the period in question, no monies were returned to policyholders as a result of Prop 103. The experience of other California 

physician-owned companies was similar to that of NORCAL. Even if California medical liability insurers had been required to reduce rates by 20%, this in no way could 

explain the wide gap in experience shown on Exhibit 21. 

CONCLUSION

Increasing medical malpractice claim costs, on the rise for over three decades, 

have finally reached the level where the rates that insurers must charge can no 

longer be afforded by doctors and hospitals. These same doctors and hospitals cannot simply raise their fees, which are limited by government or managed care companies. Many doctors will face little choice other than to move to less litigious states 

or leave the practice of medicine altogether. 

Legislators are now challenged with finding a solution to the medical liability insurance affordability and availability dilemma—a problem long in coming which has 

truly reached the crisis stage. The increased costs being experienced by insurers 

(largely owned/operated by health care providers) are real and documented. It is 

time for Congress to put an end to the wastefulness and inequities of our tort legal 

system, where only 50% of the monies available to pay claims are paid to indemnify 

the only 30% of claims filed with merit and the expenses of the remainder. The system works fine for the legal profession, which is why trial lawyers and others fight 

so hard to maintain the status quo. 

The PIAA strongly urges members of the House of Representatives to pass HR 

5, the HEALTH Act, thereby stopping the exodus from Pennsylvania and similar 

states of health care professionals and institutions which can no longer afford to 

fund an inequitable and inefficient tort system which benefits neither injured plaintiffs or the health care community. 

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Mr. GREENWOOD. Thank you, Mr. Smarr. Mr. Hurley. 

TESTIMONY OF JAMES HURLEY 

Mr. HURLEY. Good afternoon, Chairman Greenwood, Ranking 

Member Deutsch, and members of the subcommittee. Thank you 

for inviting me to testify today on behalf of the American Academy 

of Actuaries. It is an honor to be here in a facility where so much 

good is accomplished. 

The Academy is the public policy and professionalism organization for actuaries practicing in all specialties within the United 

States. The Academy is nonpartisan and assists the public policy 

process through the presentation of clear and objective actuarial 

analysis. The Academy also developed and upholds actuarial standards of conduct, qualification, and practice. For those not familiar 

with actuaries, actuaries collect and evaluate loss and exposure 

data to advise about rates to be charged for prospective coverage 

and reserve liabilities be carried related to the coverage already 

provided. 

I appreciate this opportunity to comment on issues related to the 

availability and pricing of medical malpractice insurance, and in 

the time available, I would like to highlight a few points from my 

written statement. I will start by discussing recent experience in 

the medical malpractice line of business. During the 1990’s, the 

medical malpractice line experienced favorable operating results. 

These results were contributed to by favorable reserve development 

on prior coverage years and healthy investment returns. Insurers 

competed aggressively. Healthcare providers shared in the benefit 

of improved loss experience and higher levels of investment income 

through stable or decreasing charged premiums. 

Recently, however, the cost of medical malpractice insurance has 

been rising, and Pennsylvania is but one State with the symptom 

of several others. Rate increases have been precipitated in part by 

the growing size of claims, more frequent claims in some areas, and 

higher defense costs. The decline in expected future bond yields exacerbates the need for rate increases. From a financial standpoint, 

medical malpractice results deteriorated for the 3 years ending 

2001. The 2002 data is not yet available but is projected to reflect 

similar results. 

Two indicators of financial results are the combined ratio and the 

operating ratio. We can obtain these indicators for reporting companies from A.M. Best Company, a company that offers comprehensive data to insurance professionals and tracks these results. The 

combined ratio is an indication of how the company is doing in its 

insurance underwriting. For all companies reporting to A.M. Best, 

the medical malpractice combined ratio of 130 percent and 134 percent for 1999 and 2000, respectively, deteriorated, as Mr. Smarr 

noted, to 153 percent for 2001. For underwriting, as Mr. Smarr 

noted, this represents a loss of 53 cents on each dollar of premium 

written in 2001. Preliminary projections for 2002 are for a combined ration just under 140 percent. 

A measure of the overall profitability of insurers is given by the 

operating ratio. The A.M. Best operating ratio adjusts the combined ratio for other expense and income items, primarily, investment income, but with the exception of Federal income tax. The opVerDate jul 14 2003 11:26 Sep 10, 2003 Jkt 086683 PO 00000 Frm 00117 Fmt 6602 Sfmt 6602 W:\DISC\86045 86045
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erating ratio for both 1999 and 2000 was approximately 106 percent, indicating a net loss of 6 cents on every dollar of premium. 

This deteriorated to 134 percent in 2001, indicating a loss of 34 

cents on every dollar of premium. Given lower interest income, the 

2002 operating ratio will probably not improve as much as the combined ratio. At these levels, 2001 and 2002 results are the worst 

they have been in 15 years or more, approximating levels of the 

1980’s. 

As is clear from this data, today, the laws and operating environment has deteriorated. Benefits of favorable reserve development 

appear to be gone, and the available investment income has declined. In fact, some observe that reserve liabilities may require increases to cover current ultimate loss obligations. As a result, rates 

for both insurers and reinsurers need to increase to properly align 

with current loss and investment income levels. Companies failing 

to do this jeopardize their surplus base and financial health. 

My written statement summarizes the two key drivers of financial results and their effects on operating results and surplus for 

some 30 companies specializing in this coverage. These companies 

represent about one-third of the companies reporting to Best. The 

results for these companies reflect similar deterioration. In Chart 

C on page 6 of my testimony, it shows the total after tax operating 

income for these companies. The favorable operating income of the 

earlier years in the 20 percent neighborhood declines to a slight 

profit in 2000 and to a 10 percent loss in 2001. Regarding the consequential impact on surplus, Chart D on page 7 of my testimony 

demonstrates the change in surplus from year to year for these 

same companies. Surplus increased through 1999 by 5 percent, to 

as much as 20 percent at the beginning of the period, but at a decreasing rate over the timeframe. 

Importantly, however, surplus declined in 2000, and more significantly, in 2001. This is important because surplus represents the 

capital base for these insurers. Its decline reduces capacity to write 

new or renewing business prospectively and lessens their ability to 

absorb any adverse development on business written in prior years. 

And this includes their opportunity to write business that is becoming available due to companies no longer writing the coverage. 

Companies continuing to write medical malpractice coverage 

must interpret the current experience and determine what rates to 

charge for prospective coverage. The term ratemaking is used to 

describe this process. In ratemaking, the company must estimate 

the cost of the prospective coverage, set a price for it, and assume 

the risk that the cost may differ, perhaps substantially, from those 

estimates. The ratemaking process is forward looking and normally 

does not reflect loadings for past pricing inadequacy or past investment losses. In short, ratemaking reflects future costs and expectations. 

The ratemaking process starts with historical experience for the 

specific coverage, usually, within a State, and is intended to determine rates for that coverage and that jurisdiction for a given time 

period. To appropriately adjust a loss experience, a company must 

incorporate consideration of expenses, the time value of money, and 

an appropriate provision for risk and profit associated with the insurance transaction. 

115

Some liens of business are more predictable than others. Medical 

malpractice is generally viewed as being more difficult to predict 

than most other lines. This is because the relatively low number 

of claims, high and variable size of claim paths, and the long delay 

between occurrence, report, and disposition of a claim. Hence, rate 

setting is more uncertain for medical malpractice coverage. My 

written testimony provides a bit more detailed discussion of this 

process, however, three additional observations: (1) It should be 

noted that rates are generally subject to regulatory oversight in 

most jurisdictions; (2) Likely, or in similar fashion, investment 

portfolios of insurance companies are also regulated by the insurance code; and (3) Because rates are generally reduced to reflect investment income on the insurance transaction based on prospective 

bond yields when interest rates yields decrease, rates need to increase. 

In conclusion, I appreciate this opportunity to provide an actuarial perspective on these important issues. As the person who 

chairs the Medical Malpractice Subcommittee at the Academy, let 

me say that we are encouraged by the interest the chairman and 

others have shown in working toward long-term solutions in this 

area, and I would be glad to answer any questions you have or provide any additional information that would be helpful to the committee. Thank you. 

[The prepared statement of James Hurley follows:]

PREPARED STATEMENT OF JAMES HURLEY, CHAIRPERSON, MEDICAL MALPRACTICE

SUBCOMMITTEE, AMERICAN ACADEMY OF ACTUARIES

The American Academy of Actuaries is the public policy organization for actuaries 

practicing in all specialties within the United States. A major purpose of the Academy is to act as the public information organization for the profession. The Academy 

is non-partisan and assists the public policy process through the presentation of 

clear and objective actuarial analysis. The Academy regularly prepares testimony 

for Congress, provides information to federal elected officials, comments on proposed 

federal regulations, and works closely with state officials on issues related to insurance. The Academy also develops and upholds actuarial standards of conduct, qualification and practice and the Code of Professional Conduct for all actuaries practicing in the United States. 

INTRODUCTION

The American Academy of Actuaries appreciates the opportunity to provide comments on issues related to the availability and pricing of medical malpractice insurance. The Academy hopes these comments will be helpful as the subcommittee considers related proposals. 

This testimony provides some facts about medical malpractice financial results 

updated through 2001, contributing factors, and some common misconceptions about 

the results. Additionally, we provide ratemaking information. 

Then and Now 

During the 1990s, the medical malpractice insurance line of business experienced 

favorable operating results primarily due to favorable development of prior coverage 

years and healthy investment returns. Insurers offering this line of coverage in the 

1990s competed aggressively. Healthcare providers shared in the benefit of improved loss experience and higher levels of investment income through stable or 

even decreasing premium charges. Specialty companies have had a substantial market share for this line of business because it has been considered a high-risk type 

of insurance, which requires specialists to underwrite policies and administer 

claims. 

Recently, however, the cost of medical malpractice insurance has been rising. Rate 

increases have been precipitated in part by the growing size of claims, more frequent claims in some areas, and higher defense costs. The decline in expected future 

bond yields exacerbates the need for rate increases. 

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From a financial standpoint, medical malpractice insurance results deteriorated 

significantly during the last three years ending in 2001. One measure of financial 

results is the combined ratio—the ratio of all incurred losses and expenses to premium. For all companies reporting to A.M. Best (an organization offering comprehensive data to insurance professionals), the combined ratio of 130 percent and 

134 percent in 1999 and 2000, respectively, deteriorated to 153 percent in 2001. Results for 2002 are not yet available, however, preliminary A.M. Best projections for 

2002 are for a combined ratio slightly under 140 percent. This means insurers are 

expected to pay out $1.40 in losses and expenses for every dollar of premium they 

collect. 

A measure of the overall profitability of insurers is the operating ratio. The A.M. 

Best operating ratio adjusts the combined ratio for other expense and income items, 

primarily investment income, with the exception of federal income tax. The operating ratio for 1999 and 2000 was approximately 106 percent, indicating a net loss 

of six cents on every dollar of premium. This deteriorated to 134 percent in 2001, 

indicating a loss of 34 cents on every dollar of premium. Considering the lower investment income return likely to be achieved by insurers in 2002, the 2002 operating ratio will probably not improve as much as the combined ratio. At these levels, 

2001 and 2002 results are the worst they have been in 15 years or more, approximating levels of the 1980s. State insurance laws regulate the type of allowable investments for insurers and these laws have fairly low limits on the amount of equity 

investments permitted. 

Today, the loss environment has deteriorated, the benefits of favorable reserve development appear to be gone, and the expected future investment income has declined. As a result, rates for both insurers and reinsurers need to increase to properly align with current loss and investment income levels. Companies failing to do 

this jeopardize their surplus base and financial health. Counter to what some may 

perceive, the investment results I have mentioned are based on a portfolio that is 

dominated by bonds with equity investments representing a minority of the portfolio. 

SOME FACTS

The following discussion is based on results of 30 companies (the Group), primarily physician-owned and/or operated medical liability insurers. Notably, these 

results exclude St. Paul and other commercial insurers, as well as MLMIC, the latter primarily a writer insuring New York state physicians. These results represent 

more than one-third of the exposure reported to A.M. Best. Information is shown 

for the last seven years ending 2001 because 2002 results have not been reported. 

Results for these companies reflect a four percent after-tax operating profit in 

2000. However, the results deteriorate to a 10 percent operating loss for 2001. 

The following is a discussion and charts summarizing the two key drivers of financial results and their effects on operating results and surplus: 

Driver #1—Higher combined ratio (defined here as all incurred loss and expenses 

to premium earned). The combined ratio deteriorated by ten points in 2000 and a 

further 14 points in 2001. The ratios were 124 percent and 138 percent in 2000 and 

2001, respectively. The preceding five years reflect a rather stable 110-115 percent 

range. The driver of the poorer experience in 2000 and 2001 is the deterioration in 

the loss and loss adjustment expense ratio, because the underwriting expense ratio 

has remained relatively constant. The earlier years reflect the benefit of significant 

reserve reductions from prior coverage years. 

Driver #2—Decreased investment income (shown here as pre-tax investment income divided by premium earned). As shown in Chart A, these insurers generally 

spend more money on loss and expense than they collect in premium. This is possible because investment income can offset a modest underwriting loss. 

In Chart B, pre-tax investment income is divided by earned premium to estimate 

the amount by which the underwriting combined ratio can be offset by investment 

income. This percentage has declined from the mid-40s in the early years, to the 

mid-30s in 1999, and in 2001, to 31 percent. This ‘‘offset’’ will continue to decline 

in the future. Most insurance company invested assets are in bonds, which are affected by the current lower yield environment. Overall yields going forward will be 

less than they were in the past. 

Effect #1—Net operating income falls (shown in Chart C as a percentage of premium). Net operating income represents the net impact of the combined ratio and 

investment income ratio, adjusted for other income statement items (primarily policyholder dividends, miscellaneous other income, and federal income tax). The 

strong operating returns of the early years have been followed by the slight 2000 

profit and 10 percent loss for 2001 described earlier. 

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Effect #2—Chart D shows the percentage change in surplus from one year to the 

next. Surplus represents the capital base for these insurers, and its decline in 2000 

and 2001 reduces their capacity to write new or renewing business prospectively, 

and lessens their ability to absorb adverse loss developments on business written 

in prior years. 

CONTRIBUTING FACTORS

There are several factors contributing to the financial results described in Chart 

D. It is probably best to note the factors contributing to the favorable results of the 

early and mid-1990s and then discuss the changes in these factors today. 

Factor #1: Throughout the 1990s, premium rates for the insurance industry as a 

whole were relatively flat or down in several states. Rates decreased toward the 

middle and end of the period in comparison to rates at the beginning of the decade. 

Note that the final price charged is a function of several different items, including 

the filed rate and premium discounts. 

Factor #2: Loss-cost trends (the annual change in the frequency and severity of 

claims) during this time period were relatively low. Long-term indications suggest 

a low single-digit change, three percent to five percent, varying from state to state. 

Rates established at the beginning of the period contemplated higher trends. Companies responded to this emerging data in different ways. Some held rates stable 

and paid policyholder dividends or gave premium discounts. Some reduced filed 

rates. Others found they needed to increase rates modestly and tried to refine pricing models to improve the equity of their program costs. Many insurers employed 

combinations of these, with resulting increases in some programs and decreases in 

others, depending on specific facts and circumstances. However, in general, there 

was a decline in the adequacy of premiums during this period. Collected rates came 

into line with insurers’ costs, but competitive actions pushed rates even lower in 

some jurisdictions. 

Factor #3: Ultimate losses for accident years in the late 1980s and early 1990s 

ultimately were lower than originally projected. Evidence of this emerged gradually 

over a period of years as claims settled. When loss reserves for prior years are reduced, it contributes income to the current calendar years, improving financial results (i.e., the combined and operating ratios). That was the pattern during the middle to late 1990s, as shown in Chart E. What is evident from that chart is that favorable reserve development was not a significant factor in 2001 for these companies. In contrast, the total medical malpractice line of business increased reserves 

in 2000 and even more significantly in 2001. 

Factor #4: During the 1990s, there was a real spread between returns on fixedincome investments and economic inflation. In addition, returns on the Group’s 

modest equity investments contributed to produce significant investment gains, improving overall financial results. These gains increased the investment income ratio 

(see earlier graph) and improved the operating ratio. 

Factor #5: Given the financial results of the early-to-mid-1990s, some companies 

considered expansion into new markets (although they may have had limited information to develop rates), became more competitive in existing markets, and offered 

more aggressive premium discounts. In most jurisdictions, ‘‘discounts’’ against the 

manual premium became common, reducing the actual premiums paid by health 

care providers. As a consequence, market prices decreased. 

Factor #6: Loss-cost trends, particularly claim severity, began to increase toward 

the latter part of the 1990s. The number of large claims increased, but even analyses designed to eliminate the distorting effects of very large claims began to show 

a significant increase. This, coupled with the cumulative effect of the low loss-cost 

trend and rate activity in the earlier part of the decade, produced rate indications 

that were increasing rapidly in many states. 

Factor #7: In 2001, there was little favorable loss reserve development or ‘‘good 

news’’ from prior coverage years, although results varied on a company-by-company 

basis. By comparison, total industry medical malpractice results reflected adverse 

or unfavorable loss development (defined as approximately 20 percent of premium) 

in 2001. The increase in loss/cost trends calls into question, however, whether current reserve levels will ultimately be adequate to pay all future losses. 

Factor #8: Rates of return on bonds declined and equity values fell. This affected 

investment earnings on newly invested assets and the expected future investment 

earnings that are used to offset prospective premiums A one percent drop in interest 

rates can be translated into a rate increase of two to four percent. A two and onehalf percent drop in interest rates, which has occurred since 2000, can translate into 

a rate increase of between five and ten percent. 

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Factor #9: Reinsurers’ experience deteriorated as their results were affected by 

the increased claim severity and pricing changes in the early-to-mid-1990s. Many 

medical malpractice insurers are not large enough to take on the risks inherent in 

this line of insurance on their own. They require someone else (reinsurers) to share 

the risk. There would be less medical malpractice insurer capacity without reinsurers. Because reinsurers generally cover the higher layers of exposure, their results were disproportionately affected by claim severity increases. This, coupled with 

the broadly tightened reinsurance market after the events of Sept. 11, 2001, caused 

reinsurers to substantially increase rates and tighten terms of reinsurance for medical malpractice. 

THE RATEMAKING PROCESS

Ratemaking is the term used to describe the process by which companies determine what premium is indicated for a coverage. In the insurance transaction, the 

company assumes the financial risk associated with a future, contingent event in 

exchange for a fixed premium before it knows what the true cost of the event is if 

any. The company must estimate those costs, determine a price for it and be willing 

to assume the risk that the costs may differ, perhaps substantially, from those estimates. A general principle of ratemaking is that the rate charged reflects the costs 

resulting from the policy and the income resulting from the anticipated policy covered losses, not what is actually paid or is going to be paid on past policies. It does 

not reflect money lost on old investments. In short, a rate is a reflection of future 

costs. 

In general, the actuarial process used in making these estimations for medical 

malpractice insurance starts with historical loss experience for the specific coverage 

and, usually, for a specific jurisdiction. Rates are determined for this coverage, jurisdiction, and a fixed time period. To the appropriately projected loss experience, a 

company must incorporate consideration of all expenses, the time value of money 

and an appropriate provision for risk and profit associated with the insurance transaction. 

For a company already writing a credible volume of the coverage in a state, the 

indications of the adjusted ultimate loss experience can be compared to its current 

premiums to determine a change. For a company entering the line or state for the 

first time, obtaining credible data to determine a proper premium is often difficult 

and, sometimes, not possible. In the latter situation, the risk of being wrong is increased significantly. 

Additionally, some lines of insurance coverage are more predictable than other 

lines. The unpredictability of coverage reflects its inherent risk characteristics. Most 

companies would agree that costs and, therefore, rates for automobile physical damage coverage, for example, are more predictable than for medical malpractice insurance because automobile insurance is relatively high frequency/low severity coverage compared to medical malpractice insurance. In the case of auto physical damage, one has a large number of similar claims for relatively small amounts that fall 

in a fairly narrow range. In medical malpractice insurance, one has a small number 

of unique claims that have a much higher average value and a significantly wider 

range of possible outcomes. There also is significantly longer delay for medical malpractice insurance between the occurrence of an event giving rise to a claim, the 

reporting of the claim, and the final disposition of the claim. This longer delay adds 

to the uncertainty inherent in projecting the ultimate value of losses, and consequently premiums. 

The following facts explain the ratemaking process:

1. Historical loss experience is collected in coverage year detail for the last several 

years. This usually will include paid and outstanding losses and counts. The 

data is reviewed for reasonableness and consistency, and estimates of the ultimate value of the coverage-year loss are developed using actuarial techniques. 

2. Ultimate losses are adjusted to the prospective level (i.e., the period for which 

rates are being made). This involves an appropriate adjustment for changes in 

average costs and claim frequencies (called trend). Adjustments also would be 

made for any changes in circumstances that may affect costs (e.g., if a coverage 

provision has been altered). 

3. Adjusted ultimate losses are compared to premium (or doctor counts) to determine a loss ratio (or loss cost per doctor) for the prospective period. 

4. Expenses associated with the business must be included. These are underwriting 

and general expenses (review of application, policy issuance, accounting, agent 

commission, premium tax, etc.) Other items to consider are the profit and contingency provision, reinsurance impact, and federal income tax. 

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5. A final major component of the ratemaking process is consideration of investment 

income. Typically for medical malpractice insurance, a payment pattern and anticipated prospective rate of return are used to estimate a credit against the 

otherwise indicated rate. 

These five steps, applied in a detailed manner and supplemented by experienced 

judgment, are the standard roadmap followed in developing indicated rates. There 

are a number of other issues to address in establishing the final rates to charge. 

These include recognizing differences among territories within a state, limits of coverage, physician specialty, and others. The final rates will reflect supplemental studies of these various other aspects of the rate structure. 

Many states have laws and regulations about how premium rates can be set and 

what elements can or must be included. The state regulators usually have the authority to regulate that insurance premium rates are not excessive, inadequate, or 

unfairly discriminatory. It is not uncommon for state insurance regulators to review 

the justification for premium rates in great detail and, if deemed necessary, to hold 

public hearings with expert testimony to examine the basis for the premium rates. 

In many states, the insurance regulator has some authority to restrict the premium 

rates that insurance companies can charge. 

FREQUENT MISCONCEPTIONS

In closing, it may be helpful to address some frequent misconceptions about the 

insurance industry and medical malpractice insurance coverage. 

Misconception 1: ‘‘Insurers are increasing rates because of investment losses, particularly their losses in the stock market.’’

As we have pointed out, investment income plays an important role in the overall 

financial results of insurers, particularly for insurers of medical professional liability, because of the long delay between payment of premium and payment of losses. 

Insurers are restricted in their investment activity due to state insurance regulation 

and competition in the market. The majority of invested assets are fixed-income instruments. Generally, these are purchased in maturities that are reasonably consistent with the anticipated future payment of claims. Losses from this portion of 

the invested asset base have been minimal, although the rate of return available 

has declined. 

Equities are a much smaller portion of the portfolio for this group, representing 

about 15 percent of invested assets. After favorable performance up through the latter 1990s, there has been a decline in the last few years, contributing to less favorable investment results and overall operating results. Investment returns are still 

positive, but the rates of return have been adversely affected somewhat by equity 

declines and more so by lower fixed-income investment yields. 

In establishing rates, insurers do not recoup investment losses. Rather, the general practice is to choose an expected prospective investment yield and calculate a 

discount factor based on historical payout patterns. The insurer expects to have an 

underwriting loss that will be offset by investment income. Since interest yields 

drive this process, when interest yields decrease, rates must increase. 

Misconception 2: ‘‘Companies operated irresponsibly and caused the current problems.’’

Financial results for medical liability insurers have deteriorated. Some portion of 

these adverse results might be attributed to inadequate knowledge about rates in 

newly entered markets and to being too competitive in offering premium discounts 

on existing business. However, decisions related to these actions were based on expectations that recent loss and investment markets would follow the same relatively 

stable patterns reflected in the mid-1990s. As noted earlier, these results also reflect 

favorable reserve development from prior coverage years or, in other words, ‘‘good 

news on old business.’’ Unfortunately, the environment unexpectedly changed on 

several fronts—loss/cost levels increased, in several states significantly; the favorable reserve development ceased; investment yields declined; and reinsurance costs 

jumped. Today’s rate increases reflect a reconciliation of rates to current loss and 

reinsurance cost levels, given available interest yields. The ‘‘current problem’’ reflects current data. 

Misconception 3: ‘‘Companies are reporting losses to justify increasing rates.’’

This is a false observation. Companies are reporting losses primarily because 

claim experience is worse than anticipated when prices were set. Further, it would 

seem illogical that companies would have reported profitable results during most of 

the 1990s and, at the end of the decade, decide to report unsupported losses in an 

effort to justify higher rates. Several companies have suffered serious adverse conVerDate jul 14 2003 11:26 Sep 10, 2003 Jkt 086683 PO 00000 Frm 00123 Fmt 6602 Sfmt 6621 W:\DISC\86045 86045
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sequences given these financial results, including liquidation or near liquidation. 

Phico, MIIX, Frontier and, most recently, the Reciprocal of America, are all companies forced out of the business and in run-off due to underwriting losses. Further, 

the St. Paul Cos., formerly the largest writer of medical malpractice insurance, are 

now in the process of withdrawing from the medical liability insurance market. One 

reason for this decision is an expressed belief that the losses are too unpredictable 

to continue to write the business. 

The Academy appreciates the opportunity to provide an actuarial perspective on 

these important issues and would be glad to provide the subcommittee with any additional information that might be helpful.

Mr. GREENWOOD. We thank you, Mr. Hurley, very much. Scott 

Diener or Diener? 

Mr. DIENER. Diener. 

Mr. GREENWOOD. Mr. Diener. 

TESTIMONY OF SCOTT DIENER 

Mr. DIENER. Chairman Greenwood, Ranking Member Deutsch, 

members and staff of the committee, thank you for this opportunity——

Mr. GREENWOOD. You may want to pull that microphone right in 

front of you, if you would, please. 

Mr. DIENER. Our views on the need for Federal medical liability 

reform—is that better? My name is Scott Diener, and I am President and CEO of PMSLIC, a physician owned and physician managed medical professional liability insurance company. PMSLIC 

was formed by the Pennsylvania Medical Society and began to 

issue policies in 1978 when the Argonaut Insurance Company 

ceased writing. We have been providing medical professional liability insurance to Pennsylvania physicians for 26 years. We insure 

approximately 7,000 physicians in Pennsylvania. We are no longer 

a subsidiary of the Medical Society. We operate independently as 

a member of the NORCAL Group of insurance companies. Our only 

business mission is to be a long-term stable provider of medical liability insurance in Pennsylvania. We have stayed true to that mission by using cost based pricing strategies that have routinely resulted in our rates being the highest in the Pennsylvania market. 

Even with this cost based strategy, the unpredictable nature of 

both the number of lawsuits filed against physicians, frequency, 

and the amount needed to pay injured patients, severity, make it 

very difficult to determine an adequate premium. Please allow me 

to briefly provide some statistical background. In 2002, we received 

1,800 new claims and lawsuits and had 4,300 open at year-end; 85 

percent of our claims and lawsuits are closed without any payment 

to patients or their lawyers. Our average defense costs are $8,000 

on cases closed without payment to patients or their lawyers. 

Conceptually, the job of rate setting is relatively simple. We first 

analyze historical data to establish a trend line. We use that trend 

line to estimate the ultimate cost of the claims and suits that will 

be made against our insured physicians during the next year. We 

then estimate the amount of investment income that we will earn 

between the time we collect the premium and the time we pay the 

claims. This we used to subsidize the rate we would otherwise have 

to charge. We then add in taxes, expenses, divide by the number 

of insureds, and send out the bills. 

The actual ratemaking process is, naturally, more complicated. 

On average, our claims are generally resolved a little over 3 years 

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after they are filed, about 6 years after the incident occurs. During 

that time, the costs of medical care go up, new theories of liability 

are developed, investment yields fluctuate, and juries willingness 

to award money changes. Even using the best experts as we do, 

these factors make rate setting very difficult, more of an art than 

a science. 

In our view, a solution to the medical availability crisis must include four elements: real medical liability reform, improvements in 

patient safety, increased reimbursements to physicians, and improved insurance regulation. PMSLIC supports real, proven, time 

tested reforms such as MICRA. I have been in the medical liability 

insurance business for over 20 years. I have worked in Arizona and 

California, coming to Pennsylvania a year ago. I can tell you that 

MICRA works to produce a more stable and predictable insurance 

market, and is fair to the medically injured, and improves access 

to healthcare. 

Injured parties in California are fully compensated for their medical bills, lost wages, and all economic damages. This is as it should 

be. However, here in Pennsylvania and other states without caps 

on non-economic damages, there is always the potential in a case 

that the jury will be persuaded to award millions of dollars in noneconomic damages. This introduces tremendous uncertainty into 

our process. By capping these non-economic damages at $250,000, 

a large part of the lottery system we have in Pennsylvania is removed. 

PMSLIC also supports the limits on plaintiff attorney contingency fees in MICRA. This, naturally, makes more money available 

to the injured plaintiff. PMSLIC supports efforts to improve patient 

safety. We have a long history of offering our insureds risk management programs with the goal of improving patient safety. In 

1999, for example, in response to an increase in the number of lawsuits alleging diagnostic errors, we produced a risk management 

course entitled, The Diagnostic Dilemma, which approximately 

4,000 physicians requested. Those physicians who completed it successfully earned a 5 percent premium reduction. The Pennsylvania 

Legislature has taken aggressive steps to address patient safety in 

the MCare legislation. We look forward to the results of those efforts. 

PMSLIC supports increases in physician reimbursements. Physicians need to be able to make a reasonable income so that they can 

pay their costs of doing business and continue to provide excellent 

healthcare to our citizens. PMSLIC supports insurance reforms 

that ensure companies are charging adequate rates for medical liability insurance. PIC, PIE, and PHICO are insolvent. In Pennsylvania, as in many states, there is a guaranty fund that pays the 

claimants of these insolvent carriers. The money for these payments comes from assessments on the companies still writing coverage. From 1997 through 2002, PMSLIC paid $5 million in guaranty fund assessments, thus, those physicians insured by properly 

run carriers, who many times have paid higher premiums all along, 

are now also paying for the claims of the insolvent carriers. 

We are committed to ensuring physicians in the Commonwealth 

of Pennsylvania at adequate rates that are based on our loss experience. We believe that if we are to restore stability and predictVerDate jul 14 2003 11:26 Sep 10, 2003 Jkt 086683 PO 00000 Frm 00125 Fmt 6602 Sfmt 6602 W:\DISC\86045 86045
122

ability to our medical liability market, all interested parties must 

be willing to seek and accept the comprehensive solution. 

In conclusion, we encourage you to enact Federal medical liability reform to improve access to healthcare by bringing stability and 

predictability to the medical liability market, like that in California, to the rest of the United States. Mr. Chairman, thank you, 

again, for the opportunity to present our views. I will be happy to 

answer any questions. 

[The prepared statement of Scott Diener follows:]

PREPARED STATEMENT OF SCOTT DIENER, PRESIDENT AND COO, PENNSYLVANIA

MEDICAL SOCIETY LIABILTY INSURANCE COMPANY

Chairman Greenwood, Ranking Member Deutsch, members and staff of the committee, thank you for this opportunity to present our views on the need for Federal 

medical liability reform. 

My name is Scott Diener and I am President and COO of PMSLIC, a physician 

owned and physician managed medical professional liability insurance company. 

PMSLIC was formed by the Pennsylvania Medical Society and began to issue policies in 1978 when the Argonaut insurance company ceased writing. 

We have been providing medical professional liability insurance to Pennsylvania 

physicians for 26 years. We insure approximately 7,000 physicians in Pennsylvania. 

We are no longer a subsidiary of the Medical Society. We operate independently 

as a member of the NORCAL Group of insurance companies. 

Our only business mission is to be a long term and stable provider of medical liability insurance in Pennsylvania. 

PMSLIC has stayed true to that mission by using cost based strategies that have 

routinely resulted in PMSLIC’s rates being the highest in the Pennsylvania market. 

Even with this cost based strategy, the unpredictable nature of both the number 

of lawsuits filed against physicians (frequency) and the amount needed to pay injured plaintiffs (severity) make it very difficult to determine an adequate premium. 

Please allow me to briefly provide some statistical background:

• In 2002 we received 1,800 new claims and lawsuits and had 4,300 open at year 

end. 

• 85% of our claims are closed with no payment to patients or their lawyers. 

• Our average defense costs are $8,000 on cases closed without payment to patients 

or their lawyers. 

Conceptually, the job of rate setting is relatively simple. 

We first analyze historical data to establish a trend line. We use that trend line 

to estimate the ultimate cost of the claims and suits that will be made against our 

insured physicians during the next year. 

Next we estimate the amount of investment income that we will earn between the 

time we collect the premium and the time we pay the claims. This we use to subsidize the rate we would otherwise have to charge. We then add in taxes and other 

expenses, divide by the number of insureds and send out the bills. 

The actual rate making process is naturally more complicated. 

On average, our claims are generally resolved a little over three years after 

they’re filed, about six years after the incident. During that time the costs of medical care go up, new theories of liability are developed, investment yields fluctuate 

and juries’ willingness to award money changes. 

Even using the best experts as PMSLIC does, these factors make rate setting very 

difficult—more of an art than a science. 

In our view, a solution to the medical availability crisis must include four elements: real medical liability reform, improvements in patient safety, increased reimbursements to physicians and improved insurance regulation. 

PMSLIC supports real, proven, time-tested reforms such as MICRA (the Medical 

Injury Compensation Reform Act) in California. 

I have been in the medical liability insurance business for over twenty years. I 

have worked in Arizona and California, coming to Pennsylvania just over a year 

ago. I can tell you that MICRA works to produce a more stable and predictable insurance market and is fair to the medically injured and improves access to health 

care. 

Injured parties in California are fully compensated for their medical bills, lost 

wages and all ‘‘economic damages.’’ This is as it should be. 

123

However, here in Pennsylvania and other states without caps on non-economic 

damages, there is always the potential in a case that the jury will be persuaded to 

award millions of dollars in non-economic damages. 

This introduces tremendous uncertainty into the process. By capping non-economic damages at $250,000 a large part of the ‘‘lottery’’ system we have in Pennsylvania is removed. 

PMSLIC also supports the limits on plaintiff attorney contingency fees in MICRA. 

This makes more money available to the injured plaintiff. 

PMSLIC supports efforts to improve patient safety. 

PMSLIC has a long history of offering our insureds risk management programs 

with the goal of improving patient safety. In 1999, for example, in response to an 

increase in the number of lawsuits alleging diagnostic errors, we produced a risk 

management course entitled The Diagnostic Dilemma, which approximately 4,000 

physicians completed. 

Those physicians who completed it successfully earned a 5% premium reduction. 

The Pennsylvania Legislature took aggressive steps last year to address patient 

safety in the MCARE legislation. We look forward to the results of those efforts. 

PMSLIC supports increases in physician reimbursements. 

Physicians need to be able to make a reasonable income so that they can pay their 

costs of doing business and continue to provide excellent health care to our citizens. 

Currently they are being squeezed between increasing costs and reduced revenue. 

This needs to be addressed. 

PMSLIC supports insurance reforms that ensure companies are charging adequate rates for medical liability insurance. 

PIC, PIE and PHICO are insolvent. 

In Pennsylvania, as in many states, there is a guaranty fund that pays the claimants of these insolvent carriers. The money for these payments comes from assessments on the companies still writing coverage. 

From 1997 through 2002 PMSLIC paid $5 million in guaranty fund assessments. 

Thus, those physicians insured by properly run carriers, who many times have 

paid higher premiums all along, are now also paying for the claims of the insolvent 

carriers! 

PMSLIC is committed to insuring physicians in the Commonwealth of Pennsylvania at adequate rates that are based on our loss experience. 

PMSLIC has been working for meaningful medical liability reform for over twenty 

years. 

We believe that if we are to restore stability and predictability to our medical liability market, ALL interested parties must be willing to seek and accept a comprehensive solution. 

In conclusion, we encourage you to enact federal medical liability reform to improve access to health care by bringing stability and predictability to the medical 

liability market, like that in California, to the rest of the United States. 

Mr. Chairman, thank you, again, for the opportunity to present our views this 

afternoon. I would be happy to answer your questions.

Mr. GREENWOOD. Thank you, sir. Dr. Nasca. 

TESTIMONY OF THOMAS J. NASCA 

Mr. NASCA. Chairman Greenwood, members of the subcommittee, 

thank you for the opportunity to address you today on this important issue. By way of introduction, my name is Thomas J. Nasca, 

MD. I am a Board certified nephrologist, I am the Senior Vice 

President of Thomas Jefferson University, the Dean of the Medical 

College, and the President of Jefferson University Physicians, the 

practice plan of Jefferson’s 469 full-time physician faculty. My curriculum vitae is attached to my testimony. 

I would like to address the impact of medical liability insurance 

issues on medical schools, their faculty, students, and residents, 

specifically, using Jefferson as an example. Let me start with a 

story. I was approached by a young physician who was completing 

his training at Jefferson last June. I have known him for almost 

10 years. He is from Coal Country in Pennsylvania and he was a 

high school quarterback. He was a local hero but decided to pursue 

124

his dream of becoming a doctor rather than play football in college. 

He came to Jefferson, graduated in 1993, he completed his medicine training, and just completed 4 years of additional cardiology 

training. He had a budding career in academic medicine. He was 

offered a position on the faculty, which he reluctantly declined. He 

entered the private practice of cardiology less than two miles away, 

just across the river in New Jersey. His reasoning was that he was 

afraid that the medical liability crisis in Pennsylvania could never 

be solved and that he had to be sure that he could support his family and pay back his student loans. He clearly indicated that this 

was a pragmatic decision, as he had always dreamed of being a 

teacher of doctors. 

Now, give me a few moments to emphasize four points developed 

in greater detail in my written testimony. First, medical schools 

and their related academic medical centers have unique tripartite 

missions. These missions are public goods and are carried out in 

an environment with significant governmental and accrediting 

agency oversight. They are threefold: the mission of education, the 

mission of discovery and scholarship, and the mission of clinical 

care. Medical schools are much more than hospitals. They are not 

only the germinal centers for the miracle cures and clinical innovations which have enhanced the lifespan and quality of life of all 

Americans. They are also educational gems, the desired destination 

of potential physicians and researchers around the world. They are 

a unique subset of our American healthcare delivery system. 

Second, the education and research missions of medical schools 

are based on the fundamental ability of the clinical enterprise to 

support the physician cohort of the faculty and to subsidize unfunded components of their educational and research enterprise. 

Third, academic physicians and their institutions care for all patients who come to their doors regardless of their ability to pay. Patients with severe or unusual illnesses seek out experts at academic medical centers. These patients require more time, more effort, and more oversight. Differential reimbursement for these services is not routinely provided by governmental or third party payers and is often systematically inadequate to cover the cost of provision of care. Academic physicians have traditionally accepted 

lower salaries in order to participate in this wonderful tripartite 

mission. Indeed, medical schools have utilized this altruistic dimension of the academic physician to subsidize the education of medical students, residents, and clinical fellows. 

Fourth, the unprecedented escalation in medical liability insurance premiums for the 469 clinical faculty at Jefferson will result 

in an increase of over $30 million over the 3-year period from 2001 

through 2004. Jefferson’s physicians—this is not the hospital, this 

is just the physicians—will spend approximately $50 million in 

these 3 years for the opportunity to care for the citizens of this region, to teach medical students, and to conduct research. 

The impact of these cost increases at Jefferson have been significant. The net result of such phenomena is predictable. Faculty morale is suffering. There is less and less time available to conduct 

research and to teach and there is less and less time to care for 

each individual patient. This phenomena is by no means confined 

to Jefferson. The impact, if continued, is clear. While the country 

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is looking to the academic medical community to solve the problems of our population, such as cancer, heart disease, neuro-degenerative diseases, while providing protection from bioterrorism and 

emerging diseases, the academic medical community may be disintegrating. 

Medical schools and their academic medical centers are clearly in 

jeopardy and the message is reaching those who are choosing medicine as a career. Applications are down from a high of over $45,000 

in 1996 to less than $32,000 in the year 2002. Further, the attitudes of graduating students and residents are very concerning. 

The Association of American Medical College graduation questionnaire and the graduate medical education tracking system questionnaires indicate significant medical student and graduating resident dissatisfaction with the practice environment in Pennsylvania. 

Of programs completing the graduate medical education tracking 

survey over the last 2 years, no graduating neurosurgeons—that is 

zero graduating neurosurgeons, orthopedic surgeons, or radiologists 

entered private practice in Pennsylvania last year. The number of 

young obstetricians decreased by nearly 40 percent entering practice in Pennsylvania. Further, the number of anesthesiologists decreased by over 80 percent. Young graduates are voting with their 

feet. 

Another closing story, a young surgeon at Jefferson developed a 

new technology that would permit the safe operation of a previously lethal heart condition. He worked on this machine day and 

night for over 5 years, testing it in animals, working with engineers from a computer manufacturer, and discussing each nuance 

with a host of other medical specialists. His salary was paid by Jefferson from funds generated by others. He finally tested his machine on a patient and it worked. That test occurred 50 years ago 

this spring at Jefferson. The physician was John Gibbon and the 

machine he tested was the first cardiac bypass machine ever successfully used in a human. Dr. Gibbon revolutionized the care of 

patients with heart disease and has saved millions upon million of 

lives because of his invention. He was a clinical scientist, a translator of results from the laboratory to the bedside. He was doing 

something that no one thought feasible. Were he trying to accomplish a like feat in today’s environment, I fear that I, as dean, 

might not have the dollars to support his work. 

The physician who educates the next generation of physicians is 

performing a societal good greater than the actual provision of individual patient care. She is making it possible for thousands of 

other patients to receive healthcare from those she is training. The 

physician scientist who creates a new treatment not only treats the 

patient on whom the treatment is proven efficacious, he gives that 

treatment to others to treat others. We cannot as a Nation learn 

the physician teachers or the physician scientists. We cannot permit the medical liability insurance costs to consume tens of millions of dollars a year at Jefferson or any other institution while 

similar costs are half as much nearly two miles away. These are 

dollars required to constructively build the future of healthcare, its 

practitioners, and its innovations, all with the goal of improving 

the care of our citizens. 

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I believe that States such as Pennsylvania, because of unique circumstances, may be incapable of fixing this problem. Short-term 

fixes fail to solve the fundamental structural issues and merely divert resources from other needs. I wish you well as you tackle and 

hopefully solve for all of us this pressing national issue that threatens the fabric of our medical schools and their related academic 

medical centers. Thank you. 

[The prepared statement of Thomas J. Nasca follows:]

PREPARED STATEMENT OF THOMAS J. NASCA, BOARD CERTIFIED NEPHROLOGIST, SEN- IOR VICE PRESIDENT OF THOMAS JEFFERSON UNIVERSITY, DEAN OF JEFFERSON

MEDICAL COLLEGE

Chairman Greenwood, Members of the Subcommittee on Oversight and Investigations of the Committee on Energy and Commerce, of the United States of America 

House of Representatives: 

Thank you for the opportunity to address you today on the important issue at 

hand. By way of introduction, my name is Thomas J. Nasca, M.D. I am a Board 

Certified Nephrologist, and am the Senior Vice President of Thomas Jefferson University, the Dean of Jefferson Medical College, the 8th oldest medical school in the 

United States, and the President of Jefferson University Physicians, the ‘‘practice 

plan’’ of the nearly 500 full time clinical faculty of Jefferson Medical College. My 

curriculum vitae is attached to my written testimony. 

I will not present views concerning the causes of the medical liability insurance 

crisis in this and a number of other states. You have many experts providing testimony clarifying prevailing, often conflicting views on this very difficult issue. 

Rather, I would like to present to you the impact, both currently measurable, and 

anecdotally not yet measurable (but felt ‘‘on the ground’’) in at least one major medical school and academic medical center which has served the citizens of this country for nearly 200 years. To do so, I will take the liberty of briefly explaining the 

missions of the academic medical center, the basics of its funding streams, and the 

impact of rapid escalation of costs, in this case medical liability insurance costs, on 

these core missions. 

MISSIONS OF MEDICAL SCHOOLS AND ACADEMIC MEDICAL CENTERS

The missions of the 125 allopathic medical schools and their related academic 

medical centers are public goods. These missions are carried out in an environment 

with significant governmental and accrediting agency oversight. They are threefold:

1.The Mission of Education: education of the next generation of caregivers, including physicians and nurses. 

2. The Mission of Discovery and Scholarship: the search for basic and clinically 

relevant discoveries which lead to prevention of disease, enhancement of survival, or amelioration of suffering of persons. This mission also includes the dissemination of this information to all practitioners to enhance care across the nation and the world. 

3. The Mission of Clinical Care: the provision of state-of-the-art care, often research based, which will lead to the patient centered care of the individual, provide the opportunity for education of the next generation of caregivers, and the 

development and dissemination of knowledge beyond the individual patient. 

These institution are not only the germinal center for the miracle cures and clinical innovations which have enhanced the life span and quality of life of all Americans. They are also educational gems, the desired destination of potential physicians 

and researchers across the world. I89Funding Streams to Support the Missions 

1. Funding the Educational Mission 

Medical student education is partially supported through tuition dollars of medical students. Educational efforts of the faculty in the pre-clinical years for medical 

students are supported largely through these dollars. 

In the clinical setting and in the conference room, trainees are supervised in the 

care of patients. This model of progressive responsibility under direct faculty supervision ultimately yields (after 4 years of medical school, and up to 10 years of graduate medical education) a practitioner who is competent to practice medicine independent of direct supervision. There are limited dollars from tuition to support medical student education. (Tuition supports less than 40% of the total costs of provision 

of medical student education at Jefferson Medical College). The majority of clinical 

education is supported through willingness of the physician to perform this imporVerDate jul 14 2003 11:26 Sep 10, 2003 Jkt 086683 PO 00000 Frm 00130 Fmt 6602 Sfmt 6621 W:\DISC\86045 86045
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tant task without institutional compensation. This is done at a cost of time of the 

physician faculty. 

Thus, medical student education in the clinical phase is provided through the volunteer efforts of clinicians who are faculty members of the school, whether they are 

‘‘full time’’ or ‘‘volunteer’’ clinical faculty. In essence, the time spent teaching is 

being subsidized by the clinical income of the physicians’ practice. 

Medicare (and in some states Medicaid) recognizes faculty expenses incurred in 

the education of residents and fellows, but this is not the case for most other insurance providers. Thus, teaching efforts by the faculty on behalf of residents and fellows in the clinical setting are partially supported by Medicare Direct Graduate 

Medical Education (DGME) funding. These dollars come to the faculty from the hospital, in Jefferson’s case, Thomas Jefferson University Hospital (TJUH). 

2. Funding the Research Mission 

In general terms, direct research awards pay for the actual costs of conducting 

research. Indirect cost recovery is provided by federal sponsors and some other sponsors to support the institutional infrastructure costs incurred in creation of the research environment. Since all direct and indirect costs of the research enterprise are 

not reimbursed, shortfalls must be provided by the institution. 

Of important note in these discussions is the unique role of the ‘‘Translational Scientist-Clinician.’’ These are the specialized physician scientists who search for cures 

for illness found in his or her patients. These physician-scientists are the translators 

of discoveries made in the laboratory into relevant clinical treatments, procedures, 

or cures. They are usually highly sub-specialized clinicians who care for a group of 

patients with a particular disease, while also conducting laboratory-based research. 

Thus, they practice medicine ‘‘part time,’’ usually between 15-50% of their effort. 

Their research time is usually funded through National Institutes of Health awards, 

or other sources of research funding. Their clinical time must be supported through 

their clinical practice. Since their practice is part time, high fixed costs, such as 

medical liability insurance premiums, make the economic dimensions of clinical 

practice increasingly difficult, or impossible. 

Shortfalls in research faculty, facility and other related costs are born by the institution. Sources of funding for these shortfalls are:

a. Institutional Endowments 

b. Philanthropy 

c. Surplus clinical revenue from the practice plan (the ‘‘dean’s tax’’) 

3. Funding the Clinical Mission 

Clinical care is supported through the clinical revenue generated in the care of 

patients. Institutional support is provided during start-up of new faculty, but the 

clinical enterprise is expected to be largely self-supporting. Academic physicians and 

their institutions care for all patients who come to their doors, regardless of their 

ability to pay. Furthermore, patients with severe or unusual illnesses seek out experts at academic medical centers. These patients require more time, more effort, 

and oversight. Reimbursement for these services is not routinely recognized by third 

party payors, and is often systematically inadequate to cover the costs of provision 

of care. Academic physicians have traditionally accepted lower salaries in order to 

participate in the tripartite mission of the medical school and academic medical center. Indeed, medical schools have utilized this altruistic dimension of the academic 

physician to subsidize the education of medical students, residents, and clinical fellows over the past 100 years, in the post-Flexnerian era of medical education. 

THE IMPACT OF THE CURRENT CRISIS ON JEFFERSON MEDICAL COLLEGE

The tenuous balance between clinical service, education, and the funding of research at Jefferson is in jeopardy of disruption due to the recent, unprecedented increases in cost for medical liability insurance. 

The impact of such dramatic increases, in excess of 100%, are significant on the 

financial health of the organization. With approximately $145,000,000 in total revenue and expenses in the practice plan (Jefferson University Physicians), malpractice costs in the current fiscal year account for 12.8% of all expenses. Furthermore, the increase in medical liability insurance costs has not abated since it doubled in 2001-2002. The continued annual increase in premiums has forced increases 

in clinical service provision to merely ‘‘keep pace’’ with the unprecedented costs of 

insurance. Further, it should be noted that Jefferson University Physicians has had 

a lower than expected claims history over the past 15 years than expected (by specialty) according to actuarial analysis. It is also important to understand that these 

figures do not include medical liability insurance costs for the University Hospital 

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(TJUH), where resident physician liability costs hare borne. They are merely the 

cost of insuring the 469 full time clinicians of the faculty. 

It is instructive to review specialty specific data. Below in Table 1. is listed the 

per physician medical liability insurance annual premiums for Jefferson physicians 

for 1996-97 to the present. As can be seen in this data, the striking increase has 

not only been seen in specialized surgical disciplines such as Obstetrics and Gynecology, but also in the primary care discipline of General Internal Medicine. The impact on actual salaries of physicians in these disciplines is predictable, and seen in 

Table 2.

Table 1. Specialty Specific Medical Liability Insurance Premiums, son University Physicians 

Specialty 1997-1998 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 

Proj. 

OB/GYN ................ 48,400 48,000 51,300 60,948 106,600 122,000 137,188

General Surgery ... 41,600 40,300 43,390 48,500 82,600 91,946 100,164

Internal Medicine 9,780 9,702 10,714 12,000 22,185 24,981 29,650

Table 2. Median Specialty Specific Compensation, Jefferson University Physicians 

Specialty 1997-1998 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003. 

OB/GYN ......................................... 100,000 103,796 114,478 119,544 112,435 110,000

General Surgery ............................ 196,500 191,350 197,386 172,703 193,734 212,715

Internal Medicine .......................... 180,983 167,770 157,500 158,713 169,869 147,102

The result of these increases in medical liability insurance costs at Jefferson has 

been threefold.

1. The clinical faculty are providing more clinical services, and spending more time 

seeing patients. 

2. The clinical faculty are seeing compensation decrease in constant dollars, and in 

many instances decrease in total dollars. This is despite the fact that salaries 

at Jefferson are, in general, lower than competitive salary scales at our regional 

competitors, and when viewed in comparison to other Northeastern University 

Medical Schools (AAMC Salary Survey). 

3. The time for teaching, conducting clinical research, and for each patient encounter is decreasing. 

The net result of such phenomena is predictable. Faculty morale is suffering, and 

individual faculty members are questioning the utility of spending as much time in 

direct clinical practice as the physicians in private practice, with less and less time 

able to be dedicated to research and education. This phenomena is not confined to 

Jefferson. In a soon to be published study conducted by the Group on Practice Affairs of the Association of American Medical Colleges, faculty morale brought about 

by these and related phenomena is dropping significantly. (Lynne Davis Boyle, 

AAMC, unpublished data). 

The impact on faculty, if continued, is clear. Dissatisfaction with the academic 

practice of medicine will lead to loss of faculty from medical schools, and the inability to recruit the best and brightest young faculty to fill their shoes. Deterioration 

of the educational and translational research efforts will have long-ten-n disastrous 

effects on the public. As the country is looking to the academic medical community 

to solve problems such as cancer, heart disease, while providing protection from bioterrorism and emerging diseases, the academic medical community will be disintegrating. 

Much has been written concerning the fragility of the American Health Care system. After over a decade of absent capital reimbursement, ‘‘cost minus’’ adjustments 

in hospital reimbursement, managed care ‘‘discounting’’ of physician reimbursement; 

recent reductions in Medicare reimbursement for physician services, and dramatic 

escalations of medical liability insurance premiums for hospitals and doctors, the 

health care system is in a precarious state. An important subset of this health care 

system is the Medical School-Academic Medical Center. These 125 medical school 

based delivery systems are a national resource. They clearly are jeopardized, and 

the message is reaching those who are choosing medicine as a career. In addition 

to those students who have chosen not to pursue medicine as a career (applications 

are down from a high of >45,000 in 1996 to <32,000 in 2002, source, AMCAS, 

AAMC), the attitudes of graduating students and residents are instructive. Attached 

in the Appendix to this testimony are two documents obtained from the Association 

129

of American Medical Colleges (AAMC). The first is a comparison of the results of 

the graduation questionnaire administered to all medical students (>95% response 

rate). In analysis of this question, responses of students indicating an intent to ultimately practice in the state of Pennsylvania are compared to all other students completing the questionnaire. Of note are two important phenomena. First, there was 

little difference between students interested in practicing in Pennsylvania and the 

rest of the country in 2001. Additionally, there were 525 students intending to practice in Pennsylvania. 

Second, in 2002, there is a clear trend seen in the students interested in ultimately practicing in Pennsylvania, with 92.1% of students agreeing or strongly 

agreeing (with 60.0% strongly agreeing) with this statement, in comparison to a stable 84.6% (40.1% strongly agreeing) in students interested in practicing in other 

states. Finally, a trend may be developing. There were only 445 students indicating 

intention to practice in Pennsylvania. This is a reduction of 80, or 15% over the 

prior year.

Table 3. Opinion of Graduating Medical Students (2001 and 2002) on Medical Liability: Students 

Planning to Practice in Pennsylvania vs. All Graduating Students 

Question: Based on your experiences, indicate whether you agree or disagree with the following statement: ‘‘Physicians’ legal 

liabilities and the high cost of malpractice insurance are major problems.’’

Year Category of Graduating Medical Student 

Strongly

Agree

%

Agree %

No

Opinion

%

Disagree %

Strongly 

Disagree %

Count

%

2001 ................ Plan to Practice in Pennsylvania ...... 39.8 46.9 10.3 2.9 0.2 525

2001 ................ All Graduating Students .................... 34.4 48.10 12.8 4.6 0.1 14,139

2002 ................ Plan to Practice in Pennsylvania ...... 60.0 31.2 5.6 3.1 0.0 445

2002 ................ All Graduating Students .................... 40.1 44.2 11.7 3.8 0.2 14,162

Source: 2001 and 2002 Medical School Graduation Questionnaire, Association of American Medical Colleges. Lynne Davis Boyle, personal 

communications. 

Medical students are years away from a practice site choice. Residents and fellows 

make that choice at the end of their training. GME Track (AAMC) is a survey intended to follow these and other trends. Results from the recent GME Track survey 

provide more concerning information which, if it is a trend, would demonstrated significant concerns for the future flow of young physicians to Pennsylvania.

Pennsylvania-Trained Residents in ‘‘High-Risk’’ Specialties: Immediate Career Plans Upon 

Completion of Training Programs, 2000-2002*

Source: AAMC GME Track, 2000-2002

Specialty 

Of Those Choosing 

Private Practice: % 

Remaining in Pennsylvania 2000

Of Those Choosing 

Private Practice: % 

Remaining in Pennsylvania 2001

Of Those Choosing 

Private Practice: % 

Remaining in Pennsylvania 2002

% Change 2000-2002

Neurosurgery ......................................... 25% 0% 0% 100% decline 

OB/GYN ................................................. 44% 42% 28% 36% decline 

Anesthesiology ...................................... 56% 25% 10% 82% decline 

Orthopedic Surgery ............................... 50% 50% 0% 100% decline 

Radiology (Diagnostic) ......................... 0% 40% 0% 0%

Internal Medicine .................................. 46% 45% 41% 11% decline 

Summary: 

While the table reflects data compiled via a relatively new survey (responses are not high, but are increasing over time), preliminary data 

show a trend of residents leaving the state upon completion of their training program. 

Although there is no specific evidence of a relationship between residents’ choices and the liability issue, there is also no evidence that would rule it out. *Notes on Data: 

‘‘GME Track’’ surveys residency program directors annually. The survey includes a request for program directors to identify the immediate career plans of residents who have completed their training. 

Data reflects only those residents who have completed their training, plan to enter private practice, and whose program directors responded 

to the survey. 

‘‘High-Risk’’ reflects specialties commonly identified by the physician community and the press, as well as specialties that have helped 

lead recent physician strikes’’. 

As can be seen from this early data, the Pennsylvania practice environment is 

viewed negatively by young physicians entering residencies (graduation questionnaire) and leaving residency and entering private practice (GME Track data). 

These data, coupled with the emerging national data on faculty morale, the local 

information I have provided to you raise issues which must be addressed. The 

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emerging realization that Medical Schools and Academic Medical Centers are nearing their limit of survivability of the external economic factors that are buffeting all 

of health care should be of concern to all. 

The physician who educates the next generation of physicians is performing a societal good greater than the actual provision of patient care. She is making it possible for thousands of other patients to receive health care from those she is training. The physician-scientist who creates a new treatment not only treats the patient 

on whom the treatment is proven efficacious, he gives that treatment to others, to 

treat others. 

Two anecdotes may help underscore these points. 

I was approached by a young physicians who was completing his training at Jefferson last June. I have known him for almost 10 years. He was from coal country 

in Pennsylvania, and was a high school quarterback. He was a local hero, but decided to pursue his dream of becoming a doctor rather than play football in college. 

He came to Jefferson, graduating in 1993. He completed his hitemal Medicine residency at Jefferson, and just complete 4 years of Cardiology training. He had a budding career in academic medicine, having already written two research papers, and 

showing tremendous teaching talent as well. He was offered a position on the faculty, but reluctantly declined. He entered the private practice of Cardiology less 

than 2 miles away, across the river in New Jersey. His reasoning was that he was 

afraid that the medical liability crisis in Pennsylvania could never be solved, and 

that he had to be sure that he could support his family, and pay back his student 

loans. He clearly indicated that this was a pragmatic decision, as he always had 

dreamed of being a teacher of doctors. (Physician’s name withheld). 

A young surgeon at Jefferson developed a new machine that would permit the 

safe operation of a previously lethal heart problem. He worked on this machine day 

and night for over 5 years, testing it in animals, working with engineers from a 

computer manufacturer, and discussing each nuance with a host of other medical 

specialists. His salary was paid by the institution, from funds generated by others. 

He finally tested his machine on a patient, and it worked. That test occurred 50 

years ago this Spring, at Jefferson. The physician was John Gibbon, M.D., and the 

machine he tested was the first cardiac by-pass machine ever successfully used in 

a human. Dr. Gibbon revolutionized the care of patients with heart disease, and has 

saved millions upon millions of lives because of his invention. He was a Clinician 

Scientist, a translator of results from the laboratory to the bedside. He was doing 

something that no one thought feasible. Were he trying to accomplish a like feat 

in today’s environment, there might be inadequate institutional money to support 

his clinical research. 

We cannot, as a nation, loose the physician teachers, or the physician scientists. 

We cannot permit the medical liability insurance costs to consume tens of millions 

of dollars per year at Jefferson, or any other institution. These are dollars required 

to constructively build the future of health care, its practitioners, and its innovations, with a goal of improving the care of our citizens. I believe that states such 

as Pennsylvania, because of unique circumstances, may be incapable of fixing this 

problem. Short term fixes fail to solve the fundamental structural issues, and merely divert resources from other needs. I wish you well as you tackle, and hopefully 

solve for all of us, this pressing national issue that threatens the fabric of our academic medical centers.

Mr. GREENWOOD. Thank you, Dr. Nasca. Mr. Rosenfield. 

TESTIMONY OF HARVEY ROSENFIELD 

Mr. ROSENFIELD. Thank you, Mr. Chairman, members. My name 

is Harvey Rosenfield. There is, indeed, a law in California that has 

lowered malpractice insurance premiums for doctors and other 

medical providers. It is not MICRA. I am the author of that law. 

I was the sponsor of the measure before the voters in 1988 and ran 

the campaign that defended the measure against an $80 million 

campaign by the insurance industry, including medical malpractice 

insurers. That law is known as Proposition 103. 

Prior to Proposition 103, let us go back to 1976 when MICRA 

was passed. We had an insurance crisis in California. Once MICRA 

was passed, between 1976 and 1988, 12 years, medical malpractice 

insurance premiums for doctors rose 190 percent. During the critVerDate jul 14 2003 11:26 Sep 10, 2003 Jkt 086683 PO 00000 Frm 00134 Fmt 6602 Sfmt 6602 W:\DISC\86045 86045
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ical years, between 1985 and 1988, and as the chairman will know, 

those are the years of the last insurance crisis in our Nation, years 

during which the insurance companies were inflating their losses, 

their projections of future losses, in order to show poor financial results, in order to justify rate increases; losses, the projections of 

which never came to pass. During that crisis, medical malpractice 

insurance premiums in California rose 47 percent. 

In 1988, the voters of California were confronted with this dilemma. The voters had previously enacted insurance industry sponsored tort reform; not just MICRA, other tort reforms in the mid 

1980’s, and rates had not gone down. So they put Proposition 103 

on the ballot and it was approved by the electorate. It took effect 

in May 1989 and it mandated across the board rate rollbacks. I 

want to be very clear about this, Mr. Chairman, because the insurance industry and the AMA have told people around the country 

that Proposition 103 did not apply to medical malpractice carriers. 

They have also—and Mr. Smarr’s testimony states that rollbacks 

were not paid under Proposition 103. These assertions are incorrect. Proposition 103 applied to all forms of property-casualty insurance. It required a 20 percent rollback and stringent regulation 

of the industry thereafter. Of the $1.2 billion in rate refund checks 

issued by insurance companies between 1989 and 1995 under Proposition 103, $135 million went to doctors. If the committee would 

like to see them, I have got the actual settlement agreements here. 

These were not, as the testimony suggests, dividends. They were 

rate rollbacks. Here are the actual legal documents. I would be 

glad to make them available to the committee. 

Mr. GREENWOOD. Mr. Rosenfield, is that a copy that we can incorporate into our record? 

Mr. ROSENFIELD. It is my only copy, but if you want to take it, 

could you make me a copy? 

Mr. GREENWOOD. If it is your only copy, it is going to be difficult 

for us to incorporate it into the record unless we take it. 

Mr. ROSENFIELD. Could I Fed-Ex it to you tomorrow? 

Mr. GREENWOOD. We will work that out. 

Mr. ROSENFIELD. Okay. Thank you. 

Mr. GREENWOOD. Why don’t you make it available to our staff 

and we will see if we can find a copier. 

Mr. ROSENFIELD. Okay. Thank you, Mr. Chairman. Now, after 

Proposition 103 passed, the major insurance carriers that sold medical malpractice coverage, as is noted in my testimony, dropped 

premiums 20 percent. They paid the 20 percent rollbacks and they 

dropped their premiums, and that is why between 1988 and the 

year 2000, California premiums for medical malpractice insurance 

coverage dropped 2 percent over that period of time. 

My testimony goes into much more detail in this, Mr. Chairman, 

but I want to move to a different area. I want to talk about 

MICRA, because MICRA has become the model, as it were, for your 

bill, for the President’s proposal, and I wrote a book about it 10 

years ago: Silent Violence, Silent Death, the Hidden Epidemic of 

Medical Malpractice. Mr. Chairman, if you could be in my shoes as 

a consumer advocate and take the phone calls day after day, month 

after month, and year after year, from people in California who 

cannot even get a lawyer to bring a legitimate lawsuit. Why? The 

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one thing that has not been mentioned today is that MICRA not 

only caps non-economic damages, but it caps attorneys’ fees. And 

as we all know, unless you are a very wealthy person and can afford to pay a lawyer $400 an hour, like insurance companies do, 

most victims of medical malpractice have to find a contingency fee 

lawyer, and they will not take most medical malpractice cases in 

California. It is simply not profitable. As a result, I have what I 

call death bed voicemails where people call and say, Harvey, can 

you please find my next of kin, a lawyer to represent them, because 

I am dying and I couldn’t find one. 

The tragic thing here is that the medical profession, whose principle is do no harm, is the lead advocate for reforms which in California have done harm. And this terrible conflict of interest comes 

on top of a decade of fighting with HMO’s and profit driven medical 

care. Our organization—I am the President of the Foundation for 

Taxpayer and Consumer Rights. It is a nonprofit, nonpartisan organization. We have led the battle in California successfully to 

force HMO’s to focus on quality healthcare, not just the bottom 

line. And doctors have been the victims of that battle, yet, today, 

they side with the insurers against the victims of medical malpractice. 

I want to close my testimony by suggesting that this committee 

follow the principle that should be applicable to the medical profession. First, do no harm. Come to California, Mr. Chairman. Come 

to California and let us provide some not only public input on 

MICRA, but let us have a real debate. It is the debate the insurance company and the AMA do not want to have about the alternative, which is rate regulation, which is really what lowered premiums in California. 

And finally, if you will come to California, here is one of the 

things you would find. I found it on the California Medical Association’s website, buried. It is a 2001 report. This is before the current 

‘‘crisis’’. This is a study done by the CMA of its physicians and it 

is titled, And Then There Were None, the Coming Physician Supply Problem. This is in California, the nirvana of where MICRA exists. I am quoting now, ‘‘43 percent of surveyed physicians plan to 

leave medical practice in the next 3 years; 75 percent of physicians 

have become less satisfied with medical practice; more than onequarter of physicians would no longer choose medicine as a career; 

58 percent of physicians have experienced difficulty attracting 

other physicians to join their practice.’’ These findings foretell a 

dark and startling picture concerning physician supply in California. They predict a future with many fewer physicians. A majority say they will express this dramatically in the next 3 years by 

quitting practice. Physician flight from California is dramatic. 

There is much to be learned in this debate. A few minutes ago 

one of the panelists here said everybody has to experience a little 

pain. As an advocate working in the legislature and in Congress, 

I know that there is a tendency for people to say let us just spread 

the pain, let everybody force something to give—force everybody to 

give something. I leave you with this one thought. Why should 

Heather Lewinski experience even 1 second more pain? Thank you, 

Mr. Chairman, members of the committee. 

[The prepared statement of Harvey Rosenfield follows:] 

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Mr. GREENWOOD. Thank you, Mr. Rosenfield. I think no one 

would suggest that she should. Mr. Reed. 

TESTIMONY OF JOHN H. REED 

Mr. REED. Thank you, Mr. Chairman. Members of the committee, 

thank you for inviting me to appear here. Notwithstanding the passage of significant remedial legislation in Pennsylvania in 2002, the 

insurance affordability and availability problem being faced by hospitals and physicians today in the commercial marketplace has not 

been corrected. This problem has confronted healthcare providers 

across a broad front, including those who don’t have a record of 

prior lawsuits and who practice in regions of the State where juries 

have consistently proven to be unreceptive to medical malpractice 

claims. Indeed, the cost of traditional coverage is escalating sharply, even though the aggregate amount of jury verdicts in Pennsylvania in medical malpractice cases has declined in each of the last 

2 years, with the amount awarded last year being 65 percent lower 

than in 2000. 

The factors that contribute to the current difficulty are complex 

and by no means did they develop overnight. The insurance cycle 

and insufficient regulatory oversight has played a role. Carrier insolvency has created added expense for all insurers in Pennsylvania, triggering an estimated $30 million annual additional cost 

for the Pennsylvania medical professional liability CAT Fund, now 

know as the MCare Fund, at the peak of the PIC, PIE, PHICO and 

Reliance debacle. The current situation has also been distorted by 

the pace of the medical malpractice insurance privatization process 

initiated by Act 135, with healthcare providers now having to bear 

the burden of purchasing increased primary limits from private insurers before that expense can be offset by the winding down of 

fund obligation which by legislative design were not funded in advance. 

Pennsylvania’s CAT Fund is one of the Nation’s largest medical 

malpractice insurers. During my 7 years there as Director, the 

agency reviewed, administered, and defended more than 30,000 reported catastrophic medical malpractice claims. While agency staff 

worked with defense counsel and medical experts to succeed in 

closing 85 percent of those claims without payment by the fund, 

the agency also paid more than $2.2 billion in compensation to 

catastrophically injured patients and their families. As part of my 

testimony, I have attached copies of several memoranda that were 

authored addressing a number of the issues discussed here today 

while I was serving as Director of the Pennsylvania fund. In particular, I invite your attention to the February 2002 memorandum, 

outlining several alternative approaches that would immediately 

reduce the cost of medical malpractice insurance and thereby help 

avert the overall financial crisis in medicine. 

The following, however, are some recommended solutions. First, 

I recommend self-insurance or risk retention groups as an approach. A risk retention group permits healthcare providers to 

reach substantial and immediate savings on their malpractice insurance premiums. Other than a governmental mechanism, such as 

Pennsylvania’s fund, RRG’s provide the least expense, most flexible, self-insurance vehicle available to the healthcare community. 

214

When designed properly, these programs can serve to reduce losses 

through peer review by the owners insured and consequently result 

in savings. 

Many hospital systems are now using this approach, and this 

past year, a number of new insurers for physicians in Pennsylvania 

have used this model. When operating on a nonprofit basis, such 

programs have the potential to offer coverage to Pennsylvania 

healthcare providers at premium levels that are substantially less 

than what is otherwise available in the marketplace today. However, individual physicians are often reticent to take advantage of 

this insurance alternative absent some protection in the event of 

program insolvency. A provision in the Federal enabling legislation, 

15 United States Code Section 3902(a)(2) presently precludes risk 

retention groups from participating in the State guaranty funds. 

Were Congress to address that problem, I am certain that a significant percentage of the physician community would elect to benefit 

from the lower cost and long-term assured availability of coverage 

that the risk retention approach can provide. 

I also discussed compressing the rate schedule, and to shorten 

it—I mean, in Pennsylvania, we have multiple rate territories and 

we have a breakout of physicians by specialty. At the fund level, 

premiums ranged on a low from $1,500 last year up to, I think it 

was $44,000 for a neurosurgeon. As I pointed out in that memo, if 

the State were to compress its rate schedule into one, premiums for 

the higher level physicians in the Philadelphia area, obviously, 

would drop by one-third. If you were to add $1,000 to the insurance 

level of physicians paying $10,000 or less to the CAT Fund at the 

present time, you would also achieve another one-third savings. I 

did some calculations in the process of representing some risk retention groups and other things, and also, again today. The cost of 

malpractice insurance and using the rates that I have from the actuaries that I have been working with, a governmental model, on 

average, could insure every physician in this Commonwealth from 

dollar one up to $1 million for under $17,000, if you did it on an 

average basis. 

I am suggesting that we focus more on risk management and 

problem providers. Many medical errors are preventable through 

proper selection, training, and coordination of professional personnel and provider programs. In addition, the economic stresses 

faced today by the medical profession have sometimes led to business decisions that adversely impact patient care. Notwithstanding, 

risk management has traditionally not ranked as a top priority and 

the medical profession has been slow to identify, monitor, and 

counsel the small subset of providers that are responsible for a 

major portion of medical malpractice awards. I submitted a chart 

that shows that 10 percent of Pennsylvania physicians who have 

practiced since the fund was established back, I believe in 1975, 

are responsible for 100 percent of the agency’s payout, while just 

2 percent of the physician population account for 41 percent of the 

payout. 

And yes, while there are physicians in the high risk specialties 

that obviously are at higher risk, even though they are great physicians, there are also a number of rogue physicians out there who 

have had multiple paid claims. I have seen them at the fund. We 

215

have had individuals having as many as 17 paid claims by the 

agency. And one of the frustrations I had as director of that agency 

is that I had no power over the pricing. I could not give a doctor 

with a great claims record a lower price and I couldn’t charge the 

guy with a bad claims record any more. 

I recommend that we look at fast track arbitration of claims. The 

adoption of a fast track mediation or arbitration of claims before 

a qualified medically knowledgeable panel would lower litigation 

costs and ensure greater consistency and fairness of results. The 

findings of that panel would be nonbinding and the case could subsequently be presented to a jury, but the arbitration results would 

be admissible at trial. This approach would reduce the risk of aberrant verdicts while also assuring that healthcare providers across 

the State would be accountable to a uniform and predictable standard of care. 

I am also suggesting that we look at regional juries. As with the 

suggestions regarding fast track arbitration, this would better assure fairness and uniformity of results given similar fact patterns. 

I think we need to closely monitor the impact of the reforms already adopted in Pennsylvania. The substantial changes were 

adopted in 2002 and these will eventually produce the lowering of 

claim payments. The venue provisions alone will transfer 40 percent of the claims in Philadelphia County when you measure them 

by fund payout to courts in suburban counties and elsewhere. This, 

combined with reforms to the collateral source rule, reduce payments for future losses and restrictions on joint and several liability should serve to lower claim payments for all insurers. The impact of these reforms should be monitored to assure that they accomplish their intended purpose of maintaining a fair balance between the interest of the medical profession and the public that 

they serve. 

In short, I think there are a number of things that can be done 

that will reduce medical malpractice premiums for physicians immediately, and I am not certain that caps will. In fact, I read just 

a couple of weeks ago that one of the representatives of General 

Electric was quoted in the Scranton Times as saying that caps 

won’t reduce malpractice premiums. But reforms such as the ones 

I am suggesting can reduce premiums for doctors immediately 

without having to lock the door to the courthouse. 

A lot has been said today about defense costs. I want to just 

bring a couple of facts to you. Obviously, defense costs were a factor. I had to hire a lot of lawyers to defend doctors at the CAT 

Fund. We spent anywhere from $13 to $15 million a year defending 

claims. It was a relatively small portion of our overall payout. Defense costs are a higher portion, obviously, for the private or the 

primary carriers. However, looking at the National Association of 

Insurance Committee data for the various States, I did this about 

a year ago, and I found out that defense costs in Pennsylvania constitute only about 14 percent of the total insurance dollar. The vast 

majority of the dollars in Pennsylvania are paid over to victims of 

claims. The total defense cost, obviously, is about $100 million, 

which is relatively small compared to the overall payout. 

Now, a lot has been made recently about the statistic which I put 

out in public for the first time several years ago, about the PhilaVerDate jul 14 2003 11:26 Sep 10, 2003 Jkt 086683 PO 00000 Frm 00219 Fmt 6602 Sfmt 6602 W:\DISC\86045 86045
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delphia awards equaling what goes on in the State of California, 

and that was true at the time I put it out, and it may still be true 

today. However, I have also since learned a lot more and there is 

some misleading in that, in that the insurance premiums in Pennsylvania—excuse me—in California aren’t as low as people think 

they are. In fact, I did a survey a year ago, and in many places 

in Pennsylvania, you could get insurance for a given professional 

for less than you could do it for in California. And this is another 

interesting observation. While the premiums are up there in California and the payouts to the victims are down there, they have a 

tremendous layer that goes for defense costs. It is totally different 

than in Pennsylvania. 

As I mentioned at the outset, through risk retention groups, doctors can save a great deal of money because they don’t have the 

same cost factors that commercial insurers have and I am certainly 

not critical of PMSLIC. They are a good company. And MedPro is 

a good company. Those are the only two insurers left in our State. 

In fact, our group has recruited a number of physicians simply on 

the basis that PMSLIC and MedPro aren’t taking on new business. 

But at any rate, with that said, I know that a lot that has been 

talked about with premiums for various groups are sometimes misleading because they relate to the Joint Underwriting Association. 

And from my experience, seeing the cost data of the insurance companies, seeing the cost data of the medical CAT Fund, and looking 

at the things that MedPro and PMSLIC do, I know that doctors, 

and working with actuaries, can be insured for a lot less than what 

has been said sometimes before in front of this committee. 

Mr. GREENWOOD. Mr. Reed, I have given you 11 minutes and 44 

seconds of your 5 minutes so far, so we are going to have to ask 

that you reserve the rest of your comments for questions. 

Mr. REED. I will reserve the rest of my comments. 

[The prepared statement of John H. Reed follows:]


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Mr. GREENWOOD. Thank you, sir. Dr. Vidmar. 

TESTIMONY OF NEIL VIDMAR 

Mr. VIDMAR. Thank you very much for—is that on? 

Mr. GREENWOOD. I think it is, yes. 

Mr. VIDMAR. I am here as a professor of law, but I am neither 

a lawyer nor a medical doctor. I have a Ph.D. in Social Psychology. 

Mr. GREENWOOD. Now we have the expert here. 

Mr. VIDMAR. Well, only somewhat. I want to say that, obviously, 

we have a serious crisis in many places throughout the United 

States, and I have given two written submissions to this committee 

and I simply want to touch on a couple of highlights in those. I 

have been mapping the litigation system. That is what I do; especially, medical malpractice, and I published a book called Medical 

Malpractice and the American Jury in 1995. Most recently, I have 

done some work in Mississippi. And although we are talking about 

Pennsylvania today, I just want to make a couple of comments 

about the Mississippi study, and that is part of my written submission. 

Mississippi has been picked on as one of the other States where 

there is a major crisis. The problem is that we so often get a distorted picture of what goes on in the litigation system. And just to 

give you an example, during the debate in the Mississippi legislature, doctor groups and others were saying that there were 52 

awards since 1995 that were over $1 million. And I have heard the 

American Medical Association make some similar sorts of comments. I actually managed to get those data of those 52 awards. 

It turns out there were only seven medical malpractice cases over 

$1 million. The rest were some tort things, some contracts. In fact, 

the second largest award in Mississippi turned out to be the State 

of Mississippi as the plaintiff in a contract dispute. 

So the point that I am making is that often we see things at a 

certain surface level that are not so apparent. Over a year ago, the 

Pennsylvania trial lawyers asked me to look at Pennsylvania, and 

I managed to get a little bit of data and I thought that I would be 

able to share that with you. Again, these data are in the report 

that you have before you. In Pennsylvania, seven out of ten lawsuits that go to trial are won by the doctors. In the year 2000, 

there were 76 plaintiff verdicts. The average verdict was a little bit 

over $5.5 million, but the median verdict was $1,200,000. In the 

year 2001, there 76 plaintiff verdicts and the average was 

$2,620,000, or a median award of $872,000. 

Now, you ask what is the difference between the mean and the 

median. Well, you can have outlier awards, these large awards that 

actually increase the median. So I looked at those. And in fact, the 

Governor this morning talked about 19 cases over $5 million; it 

turns out I found 22 in these data. But what I also found was that 

the average recovery in these cases was 22 percent of the actual 

verdict, and that is very consistent with research that I have done 

in Florida, and New York, and in California. In other words, jury 

verdicts are not necessarily the end result. One of the things that 

I found in Pennsylvania was that in a number of cases there were 

high-low agreements before the case even got to trial. The lawyers 

in advance had said, well, it won’t be any higher than this and it 

228

won’t be any lower than this, and in fact, the whole issue was one 

of a planned settlement, but all that is reported is that $20 million 

verdict that appeared in the newspapers when, in fact, that is not 

what the ultimate outcome was. There are post trial settlements, 

judges reduce awards. So that is one of the things you have to look 

at is not what is in the surface in the claims that are being made, 

but rather, what actually happens in the system. 

Second, as many people pointed out, the economic costs when 

there is medical negligence are very high. In the 1990’s, Frank 

Sloan, an economist, examined bad baby cases and emergency room 

cases and examined with a team of economists only economic costs, 

not the pain and suffering costs. In today’s awards, the average 

economic loss for these was $2.1 million, and there was a lot of variation around that. So you can think of someone who has got a high 

income could lose a lot more, but let us stick with the figure of $2.1 

million. I think that caps on pain and suffering isn’t going to do 

a lot in a case like that. So one of the things you have to look at 

is what are the actual economic costs, and that was probably the 

most careful study that I know of that has been published showing 

what the actual costs are when someone is injured through medical 

negligence. 

I would make a little side comment, Congressman Greenwood, 

about Pennsylvania versus Indiana. Indiana actually has—I think 

you talked about some physician that was leaving. Indiana has a 

cap on economic damages. I mean, the total award can only be 

$750,000. It is being raised, but there are some clear instances of 

great injustice through that, simply because of the actual economic 

cost, and it is something that needs to be taken into consideration. 

I have two final comments to make. Again, many of these are 

continued in the paper. There is the comment about frivolous litigation, and I don’t deny that there is some frivolous litigation, and 

I do not know the exact situation here in Pennsylvania, but what 

I do know is that the figure that says 40 percent of cases that are 

filed end up receiving no payment as an instance of frivolous litigation is just not correct. When I was doing my work on the medical 

malpractice in North Carolina, we were fortunate in that we convinced three medical insurers to give us some samples of their files. 

So I was able to trace—and they kept fairly detailed files of what 

was going on. In the first place, for a lawyer to begin to sue for 

a plaintiff, he has to get, he or she has to get the medical records, 

and doctors often resist this. So they have to file a lawsuit to get 

the medical records. Once they get the medical records, then they 

get someone to examine them. And what I learned from the insurers’ files was something very interesting. After the filing, the plaintiff says I have got this expert and we think it is medical malpractice, the defendant says, well, I am going to have somebody 

take a look at the case and we will get it. Well, it turns out they 

often get a local doctor who says, no, there is no medical malpractice here at all. The next thing is the plaintiff comes in with 

an expert that says, yes, there really is, and here is the reason 

why. And we get this in the deposition. All of a sudden, the insurer 

says—it is the lawyers who are doing this, but this is in the insurer’s records—oh, my gosh, maybe this doctor really didn’t have a 

very accurate estimate of what this was. We should go out and get 

229

our own insurer—I mean, get our own doctor outside the State. 

They go outside the State and they get someone, and then this doctor from the defense side says, yes, I think there was negligence 

here. And this goes on for a period of time. That is why it takes 

so long to resolve these kinds of cases, is what we discovered. But 

ultimately, it may turn out that the plaintiff says after they have 

gotten a couple of doctors to look at this, the plaintiff says, you 

know, we thought we had a case, and we don’t, and we drop it. 

My point about this is—and 40 percent of the cases in North 

Carolina were dropped in the study that I was doing. But the point 

is these were not frivolous cases; these, ultimately, were non-meritorious cases, but through the process of discovery, it only turns 

out that these are complex issues when you get involved in medical 

malpractice, and then the case is dropped. That doesn’t mean it 

was frivolous, and therefore, I think it is very misleading when you 

say that these dropped cases end up being frivolous cases. 

And finally, I have been studying juries, civil juries, for the better part of two decades now. And in fact, doing some interesting 

work in Arizona where I have actually been able to videotape the 

deliberations of 50 civil juries with my colleague, Sherry Diamond. 

This is a court initiated project. And the data that we found from 

seeing real juries deliberating and videotaping what they have 

done, and it is all kept within our research group, is consistently, 

juries have heard and read about medical malpractice cases, they 

have heard about the large awards, and juries consistently end up 

being very conservative in what they do. 

And you know, this system wouldn’t have lasted if it was as 

crazy as people say that it is. It is part of our American Constitution and it is part of the practice that we have had. And when you 

talk to judges who sit side by side with juries and hear the same 

evidence, and you do studies of them asking are juries crazy, what 

they say is no, I agree with the juries most of the time, 80 percent 

of the time. In fact, more recently, they show 80 percent of the 

time, and when I did disagree with them, it was close enough because of the cases that one would have to say it could have gone 

either way, and therefore, maybe the jury was right and I was 

wrong. So there is a whole body of research that suggests that juries are not so crazy as this. They tend to be rather conservative. 

And so all of those need to be looked at. 

Now, that is only part of the problem, but what I am suggesting 

in my paper, in the testimony, is—and this goes back to what the 

Governor was saying, is to me, the focus on a single issue like caps 

on pain and suffering, and trying to lose sight of what the major 

problem is, and blaming it all on the litigation process—the tort 

system is very inefficient. It ends up in making bad mistakes, it 

is very costly, and I would be the first person to jump up and say 

that to you. But it is the only system we have got, and it is the 

only system that we have got that allows people to get compensation when they have been injured. I could find alternatives, Workmen’s Comp of some form for this, but our system won’t allow it, 

and so we have to stick with what we have. Thank you very much. 

[Material submitted by Neil Vidmar is retained in subcommittee 

files.] 

Mr. GREENWOOD. Thank you, Dr. Vidmar. Mr. Mundy. 

230

TESTIMONY OF JAMES F. MUNDY 

Mr. MUNDY. It is Jim Mundy, Mr. Chairman. You and I go back 

to the days when you were in the Pennsylvania Legislature. I have 

known you for many years, and it is a privilege for me to be here 

before this committee. And let me just say that I had always heard 

that Congress works very hard. It is 3:10 in the afternoon, there 

has been no break, you have been here since 10 this morning, and 

I think you should be congratulated, all of you, on the kind of zeal 

you have for this project that would keep you here with no break 

at all for the better part of a day. 

Mr. GREENWOOD. Thank you. And by the way, the day is young. 

Mr. MUNDY. And I know that, too, and I know there is more that 

you will be doing after this is over. 

Let me tell you the perspective from which I come to this problem. First of all, I am a claims lawyer. I represent victims, and a 

good percentage of those victims are medical malpractice victims. 

I am also a patient. I have some great and wonderful physicians 

who have taken care of me. I have great friends who are physicians. I have worked on this problem with physicians for almost 20 

years. I go back to a day when I was very perhaps naive, or idealistic, or some combination thereof, when the then majority leader 

of the Pennsylvania Senate, Bob Jubelirer, called us in and said we 

had to come up with a solution to the 1985 malpractice problem 

which had succeeded from where the 1974 medical malpractice had 

left off. And I went out on my own, and I went to nine state-wide 

organizations, hat in hand, and I asked them to give me money, 

a minimum of $10,000 each, so we could go out and have a study 

done to find out what in the heck was going on with the medical 

malpractice insurance delivery system in Pennsylvania. 

It was recommended to us that we hire two professors from California, two Ph.D.’s from California, because they had done a study 

for the Los Angeles Medical Society and the Los Angeles Medical 

Society said they had done a great job, and we did. We hired Al 

Hofflander and Wayne Nye. If Wayne Nye’s name registers with 

you, he was one and the same, a Dallas Cowboys offensive guard 

for a decade. They came to Pennsylvania and did an in-depth 

study. They were given all of the CAT Fund data, and the CAT 

Fund was 10 years old then. They were given all of PMSLIC’s data 

because the Pennsylvania Medical Society was one of those nine organizations along with the Hospital Association of Pennsylvania, 

the Defense Research Institute, the Philadelphia Bar, the Pennsylvania Bar, and the Allegheny County Bar. Most of them didn’t even 

know who I was. They put up the money, not for me, because they 

believed in this. And we found then that there were myths, things 

that we had all believed which was that if medical malpractice 

rates or any insurance rate is high, there must be too many claims 

and too much payout. 

The reason it is relevant what we did in 1985 is because those 

same professors, Hofflander and Nye, came back here in 2001 and 

brought the study up-to-date. And so there is a few things that 

have been said today, and I like to give you a little bit of perspective from what I have learned about them. First of all, there is 

nothing more damaging that has been said here today to consumers and patients than the concept of physicians are leaving this 

231

State. The statistics are that in the decade from 1990 to 2000, the 

number of physicians coming into this State increased at 12 percent. The general population of Pennsylvania increased to 3.4 percent, so there was a fourfold influx of physicians into Pennsylvania 

greater than the population growth. But in 2000, according to CAT 

Fund data, we lost 900 physicians, 3.5 percent, and that is a big 

loss. 

What are the causes for that? One, I am sure, is what you hear 

about, the medical malpractice rates. But there is another. We 

rank in Pennsylvania—and this was alluded to by the Governor 

earlier—almost dead last in physician reimbursements across the 

board, not just Medicare, across the board. We have a monopoly of 

providers here and our doctors are being hurt by that. Why they 

are not saying that here, I can’t fathom, because that is a fact. I 

have, part of my practice is representing physicians. Usually, they 

come to me after they have been sued by somebody because they 

know I will do my best to help them get through it. But in part 

of that, just an anecdotal story to give an idea how this affects our 

doctors, the chairman of the department of gastroenterology at a 

major hospital called me in and said I need your advice on something. I have high risk patients for colon cancer. I want to give 

them a colonoscopy once a year, but the reimbursement I get on 

that costs me more money to use the hospital’s facilities to give the 

colonoscopy than I get in reimbursement. In other words, I lose 

money every time I do a medical procedure. That is wrong. And his 

question to me was if I start spreading these patients out, the person who should get it every year, the high risk person every 2 

years, and the person who should get it every 2 years to every 4 

years, and somebody ends up with colon cancer, will I be liable? 

And his next question to me when I said, yes, you probably will, 

because you probably won’t testify that it was the provider that 

made me do it, he said, well, why can’t you barracudas do something about that? Why can’t you do something about reimbursements? I would like some physicians to come forward and talk 

about that. 

Physicians are victimized in another way rather uniquely in 

Pennsylvania, and maybe it is because we had an absent market 

in the 1970’s that was filled by a captive insurance company, 

PMSLIC, when first formed, and it was difficult to compete as a 

noncompetitive carrier, somebody who is trying to service their 

members, with a private carrier that would come in and be a very 

selective carrier. So what we have in Pennsylvania is a rate classification distribution, 13 to 16 rate classifications. What does that 

mean? There is a neurosurgeon in this audience. There were 250 

neurosurgeons in Pennsylvania in 1985, approximately. If you put 

them in one group and say you are a rate classification, the basic 

principle of insurance is violated, which is spread the risk. That 

neurosurgeon may have been missing in Mississippi because of a 

rate classification that sent his rates through the roof and his partner had to leave. To put it basically, if in 1620 there were 20 ships 

insured in Plymouth, England, instead of 200, and one went down, 

there wouldn’t be any insurance today. There is a need to come in 

and what we call collapse the pyramid. We started out with three 

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classifications, those who don’t operate, minor surgery, and major 

surgery. Now we are at 16. 

We have another problem addressed in both studies, the problem 

of recidivism and an absolute lack of doing anything about this. 

And it is not just—I know neurosurgeons take great risk and work 

with brains and spines and do wonderful things, but within the 

specialties, we have a problem. In 1985, 228 doctors, 1 percent, 

were responsible for 25 percent of the 10-year payout of the CAT 

Fund; 10 percent of the neurosurgeons were responsible for 47 percent of the 10-year payout of that specialty; 4 percent of the orthopedic surgeons were responsible for 45 percent of the 10-year payout; one ophthalmologic surgeon, one alone, was responsible for 25 

percent of the 10-year payout of the CAT Fund for that specialty. 

That was in 1985. We had 17 years to do something about that. 

When Hofflander and Nye came back in, this is what they found: 

less than 2 percent of all the physicians in Pennsylvania were responsible for 41.5 percent of the 25-year payout, less than 2 percent. That is half the number that left Pennsylvania in the year 

2000; 151 doctors, all with four paid claims or more, .27 percent, 

were responsible for 12 percent of the 25-year payout of the CAT 

Fund. If something had been done about that, we wouldn’t be here. 

We have had one physician lose his license in 25 years for incompetence, one. If we cannot get the licensure department to look at 

that problem as they did not after 1985,m there is another way to 

do it, and that is to mandate experience rating, make it too expensive for someone who is not capable of performing adequate medicine to practice here. 

Is there a crisis in torts? The number of filings in Pennsylvania, 

according to the organization that keeps track of all filings in all 

State courts, we are in the middle; 26 States and the District of 

Columbia file more medical malpractice cases per population than 

does Pennsylvania. We are in the low middle. The mean verdict, 

according to the National Practitioners Data bank, which has been 

around for 10 years, over that 10-year span, nationally, was 

$209,000 and Pennsylvania was $211,000. In fact, if you take away 

asbestos claims, Pennsylvania is one of the least litigious States in 

the whole United States. Only in Maine do they file fewer suits per 

population than does Pennsylvania. 

We have unique problems. We had a unique system in place to 

answer it. We chose to do it—that was the CAT Fund. We chose 

to do away with that at a period of time when there is no market. 

There is no investment market. And in those 30 years that I have 

been around here and testifying before committees, every time we 

have a bear market and no interest rates we have a tort reform crisis. They go hand in hand. You first have an insurance availability 

problem because no one wants to write, and then when you have 

a seller’s market, you have a price problem, too, affordability problem. That is the way it goes, that is the cycle. 

The statistics from the CAT Fund in its last 2 years showed we 

have already probably turned around in that cycle and we are on 

our way back down. Does that mean you shouldn’t look at it? No. 

We shouldn’t be victimized every 13 years or so by these horrible 

fluctuations in the market that are terrible for our physicians to 

try to handle. There is no way to plan for it, there is no way to

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Mr. GREENWOOD. Thank you. Thank you all for your testimony. 

Without objection, we will enter into the record the document provided by Mr. Rosenfield, which is entitled, The Matter of Rate Rollback and Refund Obligation of NORCAL Mutual Insurance Company. And let me turn to you, Mr. Rosenfield, if I could. The Chair 

recognizes himself for 10 minutes. 

When there is a rate rollback, the money has to come from somewhere. I don’t think it is too much of an oversimplification to say 

that a medical liability insurance company has two sources of revenue. It has premiums coming in and it has return on investments 

which are usually positive. Its returns on investments are usually 

a positive number, not a negative number. And then it pays out 

claims. It made investments in order to get that return, but that 

is, as I said, a net plus. And it has some profit and administrative 

costs. 

Now, if we look at the physician owned and operated insurance 

companies, which I believe is 60 percent of the market in the 

United States, and you look at PMSLIC in Pennsylvania, if the solution is rollback rates, you have to help me understand where that 

comes from, because PMSLIC isn’t paying shareholders profits, it 

doesn’t have—it is not a privately held company pouring big whopping salaries into its administrators, and yet, it is completely competitive with the private sector. So what I have a difficulty trying 

to understand is there is a lot of interest in blaming the insurance 

companies, and let me tell you something. If I thought the insurance companies were the culprit here, I would go get them, both 

guns blazing. You ask me to name somebody who operates a medical liability insurance company, I don’t know anybody. I can’t 

name them. If you ask if they have come into my office, I can’t tell 

you that they have. If you ask me if anybody ever contributed to 

my campaign, I would say I don’t think so. So I have no vested interest in going easy on those guys if those guys are the culprit. 

But when I look at the PMSLIC’s of the world and the other physician operated systems and see that they are sitting here saying 

it is paid claim severity, I don’t know where to squeeze that stone 

and get blood out of it. So why don’t you help me with that?


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Mr. ROSENFIELD. Well, first, I do think there is a distinction between the commercial carriers and what we call in California the 

bedpan mutuals that were set up largely after MICRA passed and 

the commercial insurers wouldn’t come in. But we have found—and 

what happened with Proposition 103 and the rollback shows that 

they had—they were holding too much money, and that was the 

fact of it. There were very specific rollback regulations that were 

approved and litigated, by the way, for years. 

Mr. GREENWOOD. All right. Let me stop you there. Let us talk 

about here and now. Let us not talk about California many years 

ago. 

Mr. ROSENFIELD. Sure. 

Mr. GREENWOOD. I would be very surprised if the physicians who 

own and operate PMSLIC, and who pay the premiums that 

PMSLIC sets, are sitting around in this crisis allowing them to 

withhold too much money. Let us assume that is not the case here. 

Mr. ROSENFIELD. Well, let me talk to you about that, let me answer that question. My experience is that most physicians just 

want to practice medicine and they aren’t such great consumers 

themselves. And that has turned out to be an interesting thing in 

California, where under Proposition 103, anybody can challenge a 

rate increase over a certain percentage and obtain a mandatory 

hearing. No physician has ever done that. Now, rates are starting 

to go up in California because of the cycle, and in the absence of 

any physician group challenging a rate increase request—we did 

about 3 months ago. We challenged NORCAL—that is right, I am 

sorry, we did not challenge NORCAL. We challenged SCPIE, which 

is the second largest medical malpractice liability insurer in the 

State, and we—then wanted a 15 percent rate increase. We had an 

actuary examine it, preliminarily, to determine that it was excessive, filed the request, filed the demand for hearing, the company 

withdraws its application. All of a sudden, it doesn’t want a rate 

increase. And then we made a big deal about that nationwide, 

which is maybe a mistake. And I think what happened was it got 

all of the people all over the country who understood the political 

ramifications of them withdrawing their requested rate increase 

and how that endorsed regulation, and so they went to the commissioner and said how about a little rate increase, can you do it 

under the table so you don’t have to give a hearing, and the commissioner said no. 

Mr. GREENWOOD. Well, this is a physician operated——

Mr. ROSENFIELD. Yes. 

Mr. GREENWOOD. So explain to me what the motivation is for a 

physician operated medical liability insurance company to charge 

excessive rates. 

Mr. ROSENFIELD. Well, I can give you two motivations and I can’t 

tell you about this one company, but I can tell you this for sure. 

There is two options. One is that they are mistakenly projecting 

claims payments, claims payouts, for this year, for the future years. 

Or two, they may have goofed on their investments. 

Mr. GREENWOOD. So it is incompetence? When you say goofed on 

their investments, now, PMSLIC invested in treasury bills, and we 

are going to go to them, and I think they are going to tell you 

under oath that of their 54 percent rate increase, a very small porVerDate jul 14 2003 11:26 Sep 10, 2003 Jkt 086683 PO 00000 Frm 00243 Fmt 6602 Sfmt 6602 W:\DISC\86045 86045
240

tion of that is attributable to investment issues. And we have also 

heard from Mr. Hurley that the investment issue is not about the 

fall of the stock market in the past, it is about projections of what 

investments are likely to yield in the future. Isn’t that accurate? 

Mr. ROSENFIELD. Well, I think that is correct. That is how it is 

supposed to be. But the reason why we set up a regulatory system 

in California is to not have to be in this hearing and rely on that 

kind of discussion. Without being able to have our own actuaries, 

the public and the Department of Insurance own actuaries go in 

there and look at the——

Mr. GREENWOOD. So you think that you need to get the government and public advocates in between the doctors and the insurance companies that they own to protect the doctors from their own 

insurance companies? 

Mr. ROSENFIELD. Unequivocally, yes. And I know that for somebody like you with your particular beliefs, the idea of government 

intervention——

Mr. GREENWOOD. No, I don’t—government intervention is cool 

with me. I am just trying to figure out why we need it to get in 

between a physician and the insurance company that is his own 

physician nonprofit insurance company. 

Mr. ROSENFIELD. All I can tell you is this. They paid the 

rollbacks in the early 1990’s, without suffering, without going into 

insolvency. There was legal constitutional protection for them. 

They had to roll it back. 

Mr. GREENWOOD. But you said that is all you can tell me, so that 

is all you are going to tell me. Let us hear on this question from 

Mr. Smarr and Mr. Diener, because to me, this is critical, and then 

I want to go to Mr. Hurley. This is a critical issue. What Mr. 

Rosenfield said is, essentially, that the problem here is not severity 

of paid claims, as you gentlemen have testified, but it is really that 

you need rate regulation. Now, I am trying to understand, if for 

profit insurance companies were charging rates up here and you 

guys were out there in the marketplace looking at your exposure 

to liability and you were way down here in your premiums, then 

I would say, well, look what the guys who aren’t trying to price 

gouge are doing. But in fact, you can’t get a premium—you can’t 

sell a premium policy for less than the private sector can. So I am 

trying to figure out where the fat is in the process that we are supposed to cut out here if you are owned and operated by physicians 

and you can’t find it. Would you like to comment? We will start 

with you, Mr. Smarr. 

Mr. SMARR. Well, you are exactly correct, Mr. Chairman. There 

is no fat in the process. In fact, the physician owned carriers lost 

10 cents on the premium dollar in 2001, and medical malpractice 

insurance is a line of insurance. Just like any other, it is a free 

open market under our free enterprise system. There are a large 

number of competitors in the market, although, dwindling very 

rapidly in Pennsylvania due to the very unfavorable situation with 

losses. 

Mr. GREENWOOD. Somebody told me that there are only a couple 

insurance companies. How many people are selling—how many 

companies are selling medical malpractice insurance, medical liability insurance in Pennsylvania? 

241

Mr. SMARR. I am aware of three at this time. The major market 

is PMSLIC and the Medical Protective Company. 

Mr. GREENWOOD. What percentage of the market do you have, 

does PMSLIC have? 

Mr. DIENER. It is a difficult market to identify in size, but if you 

will allow me to use round numbers, probably around 30 percent 

if you define the market as physicians who buy their own malpractice insurance. 

Mr. GREENWOOD. Okay. I am sorry. I interrupted you, Mr. 

Smarr. 

Mr. SMARR. And I think First Professionals Insurance Company 

is also writing in the State. 

Mr. DIENER. It is our understanding that our company and Medical Protective are the only two large companies writing. We understand that a new company has begun business in Philadelphia, and 

with the State run Joint Underwriting Association, that would 

make four insurers that we are aware of. 

Mr. GREENWOOD. Let me ask a question of you, Mr. Hurley. In 

your testimony, you say that recently, the cost of medical malpractice insurance has been rising, rate increases have been precipitated, in part, by the first item you list is growing size of claims. 

The second item you list is more frequent claims. The third item 

you list is higher defense costs. And the fourth item you list is the 

decline in expected future bond yields. Now, I guess you must have 

forgotten to say all of the money that was lost by the insurance 

companies in the stock market decline, because that is what we are 

hearing is the real culprit. Why did you not identify that? 

Mr. HURLEY. No, sir, I did not forget to include it. It is because 

it should not be included. 

Mr. GREENWOOD. because it is not a factor? 

Mr. HURLEY. It is not a factor in determining——

Mr. GREENWOOD. Explain that, because I swear to you my good 

friend, Peter Deutsch, thinks it is. 

Mr. HURLEY. As indicated in the testimony, the ratemaking exercise is a forward looking process. 

Mr. GREENWOOD. Is that in all States? 

Mr. HURLEY. The ratemaking exercise is forward looking in all 

States. What happens is companies will collect historical data. 

They will adjust that historical data to make it an appropriate estimate of what they think their loss experience is going to be for the 

upcoming period. They will consider the time value of money; that 

is to say, investment income they think they can make in the future, and they will incorporate their costs and a profit contingency 

load if that is the appropriate component to incorporate for that 

particular company, and that will depend. However, that is the 

process that they go through. It is uniform, or I think it is consistent across State lines. It is subject to State review in many jurisdictions, more thorough in some than in others, but it is reviewed at the State level by insurance regulators. It is documented, 

the process is documented in actuarial principles of practice, and 

again, is subject to review at the State level. And it does not encompass, it does include a provision for prior year’s losses in the 

stock market, for example. There is no provision for that. 

242

Mr. GREENWOOD. Okay. I itemized the four causes that you cite, 

growing size of claims, more frequent claims, higher defense costs, 

decline in future bond yields. Did you list them in that order—are 

they in any order? Did you mean to list them in the order of the 

sort of percentage of the contribution that they make? 

Mr. HURLEY. I had not intended them to be in any order in terms 

of order of magnitude, for example, sir, but I would say that the 

interest income component, investment income component, is probably less important than the others. 

Mr. GREENWOOD. So growing size of claims, and frequency of 

claims, and the higher defense costs, which are associated with the 

tort system, are the main drivers, and the decline in expected future bond yields, you are saying, is the smaller of the causes? 

Mr. HURLEY. That is correct. 

Mr. GREENWOOD. You don’t have a dog in this fight. Right? You 

are not paid by the doctors, or the lawyers, or the hospitals. Are 

you? 

Mr. HURLEY. I am here as the representative of the American 

Academy of Actuaries. In my work, where I do get paid, I work for 

insurance companies, I work for regulators, I work for healthcare 

providers, so I work for the broad spectrum of folks interested in 

this sort of question. I, actually, do work for PMSLIC, as a matter 

of fact. 

Mr. GREENWOOD. The final question—I am over, but this will be 

my last series of questions, I think. And I want to address this to 

you, Mr. Diener. In setting your premiums, you take into account 

the investment income you expect to make from the premiums that 

are collected until you make any payments. We have been talking 

about that. And again there is this allegation or assumption that 

is made in some corners that what has changed here is the recent—we know what the stock market has done. We have all seen 

it in our 401K’s, and IRA’s, and so forth. What do you currently 

use as your assumed rate of return this year in this poor market, 

and how have those assumptions changed since the bull market of 

the 1990’s? In other words, what do you expect now as opposed to 

then? 

Mr. DIENER. If you would allow me a brief digression to a point 

of clarification, I think that SCPIE, the company that the gentleman from California alluded to, is in fact, not a physician owned 

company. It is, in fact, a publicly traded, publicly held insurance 

company. I am not certain of that, but that is—we have lowered 

our investment rate assumption in the 2003 filing, which we filed 

with the State in October 2002, from that we used in our 2002 filing, which we filed with the State, in October 2001, from about 6 

percent to 5 percent. 

Mr. GREENWOOD. So that is it. It is a 1 percent difference? 

Mr. DIENER. From last year to this, yes, sir, that is correct. I am 

sorry I am not able to tell you what it was from the 1990’s. I would 

expect the differential is not anything that would astound you. We 

are 100 percent invested in treasury’s and investment grade 

corporate’s. 

Mr. GREENWOOD. Okay. The gentleman from Florida is recognized for 10 minutes. 

243

Mr. DEUTSCH. Thank you. Mr. Hurley, again, I think this is really sort of a follow-up on what the chairman was saying, but you 

know, I think we need to really distinguish between losses versus 

less investment income in the future. I mean, losses are not the 

change at all, but less investment. Could you try to follow up a little bit on Mr. Diener’s statement. Let us say, 2000, what would 

have been, you know, your recommendation for a company to use 

as a rate of return for investment income? 

Mr. HURLEY. Well, I can’t recollect, specifically, but in general, 

when we make a determination about—or when an actuary makes 

a determination about what investment yield to use, it will seek 

the input of the advisors of the particular circumstance he is dealing with. In the case of a company, you might ask what yields do 

you expect to get with this money that you are going to collect in 

the year 2001 in the case of the example you are talking about in 

the year 2000, and based on that yield, do a calculation to reflect 

the implied investment credit associated with the assumption of 

that yield. Those yields have come down, as I think is your inference, over the course of the last couple of years, not unlike what 

Mr. Diener said. I would say that in most situations, we probably 

have seen occasions where that yield has come down to less than 

5 percent, probably 4 percent. There are some occasions where I 

have seen 3 percent used. 

Mr. DEUTSCH. And in the past, what is the highest percent you 

ever saw? 

Mr. HURLEY. I have seen, historically, as high as 7, 8 percent. 

Mr. DEUTSCH. That is the highest you have ever seen? 

Mr. HURLEY. I don’t want to say that is the highest I have ever 

seen, but I think I can recollect seeing 7, 8 percent. 

Mr. DEUTSCH. Well, I am not going to hold you on it, but I mean, 

I just, you know——

Mr. HURLEY. Well, this is sworn testimony, so I want to be a little careful. 

Mr. DEUTSCH. Right. Okay. I mean, so even in 1999, 2000, 

2001—I mean, 8, 9 percent, or even going back to, you know, a 

point in time when inflation was higher. Let me, I guess, get a 

sense of let us say you went from 8 percent to 3 percent. What effect would that have on rates? The same year, same deal, use 8 

percent, use 3 percent. What would the increase in rates be? 

Mr. HURLEY. Maybe 10 percent at the low end and it could be 

as high as 20 percent at the high end, something along those lines. 

Mr. DEUTSCH. Okay. So I mean, just even from the—does anyone 

want to, again, from this panel, offer a different estimate of that? 

Okay. I mean, you are the actuary on the panel. Let me—I want 

to jump around a bit, because really, the testimony hasn’t really integrated completely, but I think all of you have said significant 

things. Mr. Diener, we have had testimony today on a number of 

occasions saying that, as far as people are aware, there is only one 

physician who has actually lost their license in Pennsylvania in the 

last 20 years because of incompetence. I mean, that is my understanding, which is interesting. I mean, comparative in terms of 

other States. You told the staff that you cut 50 doctors from coverage because the risks were too high. Now, were these bad doctors 

244

or, I mean, why did you choose to eliminate coverage for those 50 

doctors? 

Mr. DIENER. We non-renewed about 50 physicians at year end 

2002 because we felt they represented an exceptional risk to the 

company. 

Mr. DEUTSCH. And I mean, were they bad doctors? I mean, why 

were these particular doctors problematic for you? 

Mr. DIENER. We look at trends. We try and understand frequency 

and severity and the risk that different physicians present to our 

company. We do not non-renew or surcharge as a punishment for 

past losses, but rather, as a projection of future losses. I would be 

unable to characterize the quality of care those physicians delivered, but I can tell you that after considerable study, we felt their 

risk profile was exceptional. 

Mr. DEUTSCH. And again, I just want to be—you know, I would 

want to get some comparative sense from other States about this 

but, you know, one of the things that we really haven’t touched on 

today is, really, the issue of maybe looking at the whole problem 

of malpractice at least a little bit differently. We have talked about 

a variety of, you know, legislative issues, but I think one of the 

things that on a personal basis, I know stuff is going on. I know 

hospitals are doing risk evaluation things, and you probably give 

discounts, I would assume, for certain programs that physicians or 

hospitals sponsor. And one of the things that I guess, you know, 

I would hope when we finally, if we do come to legislation, that we 

spend a lot of time on, is, ultimately, trying to reduce malpractice. 

You know, not just dealing with the premium side, because again, 

I guess one of the ways I view it is if there were no malpractice, 

there would be no malpractice crisis. And ultimately, I guess have 

enough sense in the system. And maybe, you know, we hear these 

things continuously of, you know, unjust rewards. I want to see the 

case where, you know, a $1 million claim was awarded by a jury 

or by a judge where there wasn’t malpractice by the standard of, 

you know, reasonable care in the specialty. And you know, from a 

societal basis, it is really sort of putting it on its head. And again, 

I think we have also talked about that the procedures by their nature of risk, either it is going to be a certain percentage that, you 

know, just the human condition is not perfect, that there are going 

to be sometimes, you know, the wrong leg is going to be amputated, 

and it is going to happen, but how do we prevent that from occurring. 

And I guess—I mean, I open it up really to Dr. Vidmar, if you 

can kind of talk maybe a little bit about that because that really 

addresses the research that you talked about, I mean, in terms of 

malpractice itself, or is there anyone else here that can really talk 

about where from a policy side, because ultimately, there is a reasonable chance that there will be Federal legislation. Both the 

chairman and I are well aware of the politics. The House is going 

to pass a bill for sure. The House passed a bill in the last Congress 

and it will be a very protracted debate in the Senate in terms of 

what the legislation will be, and hopefully, as it goes to the Senate, 

some of these issues, some of these other concerns, will be addressed. And ultimately, you know, I hope that I want to reduce 

malpractice premiums as much as my colleague, and I really want 

245

to. I think our goal is exactly the same. I mean, I have discussed 

it somewhat in anecdotal conversations during this hearing is that 

not just on a policy basis, but definitely on a policy basis—I mean, 

I have an incredible amount of respect for physicians at so many—

I mean, I have not met a physician in my life who did not get into 

the profession for the best reasons, and I understand, I have plenty, you know, friends, relatives who are physicians, and understand, you know, the commitment that it takes, and also, some 

other issues related to it. But I think, you know, we have really 

gotten to a point where premiums throughout the country, Pennsylvania does seem to be more problematic than most States, where 

the analogy that I use, if there is a doc out there that the net income is, let us say, $180,000, and that person has a $30,000 increase, and we really are in this world, in the malpractice rate, 

where they just can’t do anything to generate an additional $30,000 

more of income. I mean, they are not going to get more reimbursement from their managed care company, they can’t do anymore 

procedures, they can’t see anymore patients, and so that person—

you know, a lot of people in America have more serious concerns, 

but for that person it is an unfair situation. And from the policy 

side, for us, I think the challenge for us is how to deal with that 

person, specifically, and all the implications in terms of the access 

to care issues. 

But I guess I focus back—I mean, have you looked at that at all 

in terms of things we can do in terms of reducing malpractice 

itself? 

Mr. VIDMAR. Well, this is not my area of specialization. I probably shouldn’t go beyond that, but I can point you to the fact that 

people have been working on that. In fact, just this week I was 

talking with a doctor at Duke Medical Center. He and I are going 

to have a mini-seminar on medical malpractice litigation at the end 

of this month. He informs me that there are things, but I think you 

should turn to someone who is more specialized in that area. 

Mr. DEUTSCH. Let me ask Mr. Diener. In terms of what types of 

programs do you have in place, in terms of discounts for physicians 

who are doing certain things to reduce malpractice? 

Mr. DIENER. We offer up to a 15 percent reduction in premiums 

for physicians who stay claims free. That does not address your 

question specifically, but it hasn’t been talked a lot about today. 

We do make an effort to differentiate between physicians who have 

not had claims. Every year, in addition, we offer a risk management course written by either our risk management staff or lawyers and physicians whom we use as consultants, successful completion of which gets an addition 5 percent. We endeavor to make 

that course responsive to what we are seeing in our loss trends. 

Mr. DEUTSCH. And presently, of your clients, how many are actually participating in that risk management? 

Mr. DIENER. In any given year, probably about 4,000 of our 7,000 

physicians will take advantage of that. 

Mr. DEUTSCH. And has your experience been that it is justified 

based on the claims? 

Mr. DIENER. I wish I could say we had data that correlates risk 

management activity directly to loss experience. We do not. We 

nonetheless proceed to give those discounts in the assumption, in 

246

the hope, that it must be in the better interest of improving patient 

care to make physicians more sensitive to those situations that are 

creating losses. 

Mr. DEUTSCH. Let me take one last question to Mr. Smarr. We have spent a lot of time today talking about the $250,000 cap in 

non-economic damages. In one of the perspectives, I am just curious from your point of view, if that was applied across the Nation 

in medical malpractice cases, what percentage do you think member companies would reduce the premiums that physicians would 

pay? 

Mr. SMARR. Well, for companies writing in States that do not al- ready have a $250,000 cap, we could expect that rates would decrease significantly. The Congressional Budget Office recently did 

a scoring analysis of H.R. 4600, and in that analysis, which they 

found $14 billion in savings to the Federal Government and $7 billion in savings to the States, they also state that if H.R. 4600 were 

to become law, that rates would be 25 to 30 percent lower than 

they would be if H.R. 4600 would not be adopted into law. And 

those estimates are consistent with other actuarial estimates I 

have seen over the years as to the effect of the California MICRA 

reforms. 

Mr. DEUTSCH. Now, one of the questions, and it would make 

many of us feel a lot better if, in fact, you know, if this legislation 

ends up passing, that there would be, really, a requirement that 

goes along with that. Because I guess, you know, I would want to 

go through the analysis of that calculation. But you know, if we actually believe that, I mean, would you expect your companies—how 

aggressively would your companies fight mandating that pass 

through savings? I mean, are you willing to say that companies 

would agree to the actuarial savings on that? I mean, the CBO 

number that comes up with a 25 percent savings? 

Mr. SMARR. I think I can tell you that the companies would not 

agree to automatically reduce their rates. We have seen in States 

throughout the country that have adopted tort reforms that these 

tort reforms are automatically challenged on constitutional 

grounds, and the companies would be reticent to take any significant reduction actions until any such law passed constitutional 

muster. But what I can tell you is that if H.R. 5 would become law, 

this would immediately take the pressure off the marketplace. Carriers that are thinking of coming back into the marketplace and 

new carriers that would come into the marketplace would see some 

potential sign of relief because there would be the hope in the future that the continuing spiraling cost in severity would be taken 

care of. I think that because of that you would have more competition in the market, there would be more providers in the market, 

more doctors would be able to afford insurance. The normal competitive model would force rates down somewhat, but I don’t think 

you would see any large reductions until there is some assurance 

that this law would not be thrown out. 

Mr. DEUTSCH. Thank you. 

Mr. GREENWOOD. I am just going to use the prerogative of the 

Chair to ask a few more questions and then reserve the same to 

the ranking member. Dr. Nasca, have you noticed a decrease in the 

number of medical students who want to specialize in the areas 

247

that are seeing the greatest rate problems, obstetrics, orthopedics, 

neurosurgeons? 

Mr. NASCA. You know, interpreting these trends are difficult because it is a multifactorial influence. It is clear that in general surgery there has been over the last 5 years a fairly significant reduction in the number of medical students choosing general surgery. 

Anecdotally, the number of graduating seniors seeking obstetrics 

and gynecology seems to be decreasing. There has been a shift in 

gender as well, with almost all of the young physicians interested 

in OB-GYN women, and there is some movement of that subgroup 

more toward some of the other primary care disciplines, internal 

medicine and family medicine, and so that may cause those numbers to further drop. Neurosurgery is a very small discipline. There 

are very few trainees nationally. The applicant pool is equally 

small and highly qualified. Thus far, that applicant pool, to my 

knowledge, is relatively stable. Orthopedic surgery, because of the 

desirability of the field and the opportunities for the excitement of 

the medical advances, continues to have a strong interest, as does 

ophthalmology, which has seen a resurgence. Anesthesiology, a 

critical discipline, has seen a beginning of a resurgence, but has 

tremendously low numbers interested in comparison to a decade 

ago. 

If I might, there was a question posed about decreasing malpractice. I think that the Institute of Medicine report is very instructive in that regard, you know. There are numbers that are 

thrown around and they are challenged, but if we take it on its face 

that there is somewhere between 50 and 100,000 lives lost or major 

injury caused by the healthcare delivery system, one must read 

that report even further because it points out that most of that is 

not related to individual malfeasants in conduct of their duties, 

that it is a fundamental systems issue. I think that—and I did 

mention, by the way, physician reimbursement in passing. I think 

we are approaching a time where the systematic underfunding of 

the healthcare delivery system in this Nation is reaching crisis proportion. The analogy of termites is very applicable. We have had 

cost minus escalations in Medicare payments, Medicaid payments, 

across almost 20 years now. We have systematically dismantled the 

ability of institutions, whether it be physician groups or hospitals, 

to cost shift and reap surpluses from the commercial side because 

of managed care, and so we are down to the margin for every 

payer. If you add to that the fact that the Federal Government did 

away, and therefore, all other insurers did away with capital reimbursement, you are seeing the systematic underinvestment in systems to support patient care, and so we are not as a Nation in the 

healthcare delivery side able to take advantage of the information 

system technology that would minimize or do away with medical 

errors, prevent overdosing or underdosing medication because it is 

not possible in a computerized medical system, that would enhance 

the transmission of information with the patient from provider to 

provider. 

There are very few healthcare delivery systems in the United 

States now that are operating with the kinds of surpluses necessary to make the tens to multiples of ten million dollar investment in information systems necessary to take advantage of what 

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is available and has been pointed out would dramatically decrease 

the number of medical errors in this system. This has to be addressed. We cannot continue to systematically underfund while expanding the responsibilities and the numbers of patients, the numbers of uncompensated patients, as well as the technology mix that 

our population demands. 

Mr. GREENWOOD. Amen to that, but the follow-up question that 

I would pose is, of course, there are medical errors committed by 

physicians all across this country. Of course, there are things such 

as the ones you have just suggested that we could do to try to reduce medical errors using the best in technology, et cetera, but as 

I look at Pennsylvania, and I look at what we are going through 

here with regard to premiums, no one has suggested so far that the 

fundamental cause of that is because Pennsylvania physicians are 

making higher rates of—committing higher rates of malpractice, 

that they are making more errors, that our system of preventing 

those errors are as uniquely lacking as our premiums are extraordinarily high. 

Mr. NASCA. I agree with you 100 percent. I was merely responding to the question, what can we do to decrease the front end, because as a physician, and I think as a member of the general public, I would much rather see not worrying about limiting pain and 

suffering awards to have no one having any pain and suffering. I 

think all of us are interested in that. 

Mr. GREENWOOD. Let me quickly—Mr. Rosenfield, just one factual thing we need to get corrected here. You had said that this 

company, SCPIE, or whatever, if that is how that is spelled or——

Mr. ROSENFIELD. It is the Southern California Physicians Insurance Exchange, and you know, I apologize. I don’t know for sure. 

It is my impression, but I am a little jetlagged. I will write a letter 

to the committee. 

Mr. GREENWOOD. We need to know because we have had two different statements about whether it is physician owned or not. 

Mr. ROSENFIELD. I will get that information for you. 

Mr. GREENWOOD. And you representing the Foundation for Consumer and Taxpayer Rights. Can you tell me who funds that, 

where does your funding come from? 

Mr. ROSENFIELD. Seventy-five percent from foundation grants, 25 

percent from donations from the public. 

Mr. GREENWOOD. Okay. And are any of those foundations, do 

they tend to be foundations like Pew and so forth? 

Mr. ROSENFIELD. Yes. 

Mr. GREENWOOD. Are any of those foundations specifically funded primarily by physicians, or trial lawyers, or——

Mr. ROSENFIELD. No. 

Mr. GREENWOOD. Can’t get you that way? 

Mr. ROSENFIELD. No, but we do get—you know, of the 25 percent 

or so of our individual donors, defense lawyers, trial lawyers, a few 

insurance company honoraria, so you can get me that way if you 

want. 

Mr. GREENWOOD. We can get you that way. All right. Very well. 

My last point that I want to make, a question, Mr. Mundy, and this 

goes—some other people made the comment about we need to have 

more money in the system. We need to pay doctors more and they 

249

need to get more from their HMO’s, they need to get more from 

Medicare, and so do hospitals. I am working on all of those issues. 

But again, if what I looked at when I looked across the country 

were fairly uniform premiums, and Pennsylvania physicians just 

not earning enough money to pay the same kind of premiums that 

are affordable in the rest of the States, I would say that is the No. 

1 culprit, but I don’t think that is what you are suggesting. Is it? 

I mean, that is a universal problem. It is not the case that we have 

got reasonably priced premiums but docs here don’t make enough 

money, as much as it is that we have docs in this State like docs 

in every State, who are underpaid, and in this State, we have got 

these out of reach premiums that they just can’t afford. 

Mr. MUNDY. What I am saying is physicians are willing to jump 

from Pennsylvania to New Jersey, where premiums are just as 

high but they had earned twice as much money. And that is why 

the reimbursement disproportion that Pennsylvania physicians 

have is a big factor in the——

Mr. GREENWOOD. Are premiums just as high in New Jersey as 

they are in Pennsylvania, Mr. Diener? 

Mr. DIENER. I am sorry, Congressman, I don’t know what they 

are in New Jersey. 

Mr. GREENWOOD. Does anybody know the answer to that? Are 

premiums—nobody knows the answer to that. In that case——

Mr. MUNDY. They just went on strike in New Jersey. 

Mr. DEUTSCH. I would ask that the record stay open for any written questions from any members of the subcommittee. 

Mr. GREENWOOD. Okay. With that, I would like to thank all of 

our witnesses on this panel, the witnesses on the other panel, and 

I thank Mr. Deutsch and his staff for your help. I want to thank 

my splendid staff in Washington and here in the District for all of 

your work. I thank St. Mary Hospital. This hearing is adjourned. 

[Whereupon, at 4 p.m., the subcommittee was adjourned.] 

[Additional material submitted for the record follows:]


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