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86–049CC 2003

ASSESSING THE NEED TO ENACT MEDICAL

LIABILITY REFORM

HEARING

BEFORE THE

SUBCOMMITTEE ON HEALTH

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

FEBRUARY 27, 2003

Serial No. 108–2

Printed for the use of the Committee on Energy and Commerce

(

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

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 

JIM DAVIS, Florida 

THOMAS H. ALLEN, Maine 

JANICE D. 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 HEALTH

MICHAEL BILIRAKIS, Florida, Chairman

JOE BARTON, Texas 

FRED UPTON, Michigan 

JAMES C. GREENWOOD, Pennsylvania 

NATHAN DEAL, Georgia 

RICHARD BURR, North Carolina 

ED WHITFIELD, Kentucky 

CHARLIE NORWOOD, Georgia 

Vice Chairman 

BARBARA CUBIN, Wyoming 

HEATHER WILSON, New Mexico 

JOHN B. SHADEGG, Arizona 

CHARLES W. ‘‘CHIP’’ PICKERING, 

Mississippi

STEVE BUYER, Indiana 

JOSEPH R. PITTS, Pennsylvania 

ERNIE FLETCHER, Kentucky 

MIKE FERGUSON, New Jersey 

MIKE ROGERS, Michigan 

W.J. ‘‘BILLY’’ TAUZIN, Louisiana 

(Ex Officio) 

SHERROD BROWN, Ohio 

Ranking Member 

HENRY A. WAXMAN, California 

RALPH M. HALL, Texas 

EDOLPHUS TOWNS, New York 

FRANK PALLONE, Jr., New Jersey 

ANNA G. ESHOO, California 

BART STUPAK, Michigan 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

TED STRICKLAND, Ohio 

LOIS CAPPS, California 

BART GORDON, Tennessee 

DIANA DEGETTE, Colorado 

CHRISTOPHER JOHN, Louisiana 

JOHN D. DINGELL, Michigan, 

(Ex Officio) 

(II)

2

C O N T E N T S 

Page

Testimony of: 

Hiestand, Fred J., CEO and General Counsel, Californians Allied for 

Patient Protection ......................................................................................... 42

Hurley, James, on behalf of the American Academy of Actuaries ............... 34

Lewinski, Heather ............................................................................................ 29

Palmisano, Donald J., President, American Medical Association ................ 120

Rosenbaum, Sara, Hirsch Professor of Health Law and Policy, George 

Washington University Medical Center, School of Public Health and 

Health Services ............................................................................................. 84

Rosenfield, Harvey, President, Foundation for Consumer and Taxpayer 

Rights ............................................................................................................. 48

Smarr, Lawrence E., President, Physicians Insurers Association of America ................................................................................................................... 88

Material submitted for the record by: 

American Academy of Family Physicians, prepared statement of ............... 171

American College of Obstetricians and Gynecologists, prepared statement 

of ..................................................................................................................... 172

American College of Physicians—American Society of Internal Medicine, 

prepared statement of ................................................................................... 179

College of American Pathologists, prepared statement of ............................. 182

Grealy, Mary, President, Healthcare Leadership Council, prepared statement of ........................................................................................................... 183

Lester, Rodney C., President, American Association of Nurse Anesthetists, prepared statement of .................................................................... 184

(III)

(1)

ASSESSING THE NEED TO ENACT MEDICAL 

LIABILITY REFORM 

THURSDAY, FEBRUARY 27, 2003

HOUSE OF REPRESENTATIVES, COMMITTEE ON ENERGY AND COMMERCE, SUBCOMMITTEE ON HEALTH, Washington, DC. 

The subcommittee met, pursuant to notice, at 10:08 a.m., in room 

2123, Rayburn House Office Building, Hon. Michael Bilirakis 

(chairman) presiding. 

Members present: Representatives Bilirakis, Barton, Upton, 

Greenwood, Deal, Burr, Norwood, Shadegg, Pickering, Buyer, Pitts, 

Ferguson, Tauzin (ex officio), Brown, Waxman, Pallone, Eshoo, Stupak, Green, Strickland, Capps, DeGette, and Dingell (ex officio). 

Staff present: Cheryl Jaeger, majority professional staff member; 

Nandan Kenkeremath, majority counsel; Patrick Morrisey, deputy 

staff director; Eugenia Edwards, legislative clerk; Steve Tilton, 

health policy coordinator; David Nelson, minority economist; Jonathan Cordone, minority counsel; Nicole Kenner, minority staff 

member; and Jeff Donofrio, minority staff intern. 

Mr. BILIRAKIS. The subcommittee will come to order. 

Without objection, the subcommittee will proceed pursuant to 

committee rule 4(e). No objection having been heard, so ordered. 

The Chair recognizes himself for an opening statement. 

First, I would like to thank our witnesses for appearing before 

this subcommittee today. Our committee certainly values your expertise, and we are grateful for your cooperation and attendance. 

The Health Subcommittee held a hearing last year, 

hearings over a period of time have been held on this subject, to 

learn more about a major crisis in our health care system, namely 

how spiralling professional liability insurance premiums are adversely affecting patient access to care. 

I know that during our hearing, the last hearing, there were did 

diverging views about what was causing this spike in insurance 

premiums and what potential solutions might look like. However, 

there was no debate about the fact this crisis is beginning to have 

a devastating effect on patient access to health care; and I know 

that my constituents—and I would like to think all of our constituents—are demanding that Congress act in some way to control 

these run-away insurance premiums. 

Fortunately, Congress does have a model to draw on. California’s 

Medical Injury Compensation Reform Act, or MICRA, has helped 

shield our Nation’s largest and most diverse State from the huge 

increases in insurance premiums that so many other States like 

2

Florida are struggling with. In fact, according to data compiled by 

the National Association of Insurance Commissioners, California’s 

medical malpractice insurance premiums have increased 167 percent from 1976 to 2000, while the rest of the country has experienced increases of 505 percent. California’s experience suggests to 

me that meaningful tort reforms can have a very positive effect in 

terms of controlling increases in professional liability insurance 

premiums.

MICRA was the foundation of H.R. 4600, the Health Care Act 

which the House of Representatives passed during the last Congress. While I was disappointed in our inability to send a bill to 

the President for his signature, I am looking forward to the opportunity that we have before us during this Congress. The crisis has 

certainly not gone away and nor has our need to act. 

While I believe that last year’s Health Subcommittee hearing 

provided members—and we had much debate during our markup—

with an excellent opportunity to learn more about this issue, I 

think we can all benefit from further discussion. I remain especially interested in learning more about how insurance premiums 

are determined. I know we have heard from many people on the 

other side and from witnesses that much of the problem has to do 

with the insurance industry and whatnot. Well, we need to know 

that. We need to learn more about it. So we also need to know 

about how meaningful tort reform is going to control increases and 

professional liability and insurance premiums. 

Again, I would like to extend a warm welcome to all of our witnesses. I would like to take a minute to welcome back Mr. Hurley, 

Jim Hurley, Chairperson of the American Academy of Actuaries, 

Medical Malpractice Subcommittee. I thought your testimony, Mr. 

Hurley, at last year’s hearing was invaluable; and I know that we 

all appreciate the independent, objective perspective your organization provides on how actuarial standards relate to how insurance 

companies develop premium levels. 

While I am well aware of the range of opinions regarding this 

issue in the Health Subcommittee, I sincerely hope that members 

take advantage of the expertise. Frankly, I would love it if we could 

all focus on the one area that we keep hearing about and that is 

the effect that the insurance companies have on this particular 

problem. But I can’t really shut off what one might choose to do 

with our time. But I do hope we will take advantage of the expertise we have before us to learn about the causes of this crisis and 

potential solutions. 

I now yield to the ranking member, my friend from Ohio, for an 

opening statement. 

Mr. BROWN. Thank you, Mr. Chairman; and thank you for your 

cooperation in this issue and your willingness to work with both 

sides and come up with a real solution to medical malpractice. 

I ask unanimous consent to enter into the record member statements, including Mr. Dingell’s here if I could. 

[The prepared statement of Hon. John D. Dingell follows:]

PREPARED STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF MICHIGAN

Mr. Chairman, thank you for holding this hearing to assess the issue of medical 

liability. Although this hearing has been broadly cast to cover a wide range of interVerDate jul 14 2003 13:49 Sep 09, 2003 Jkt 086534 PO 00000 Frm 00006 Fmt 6633 Sfmt 6621 W:\DISC\86049 86049
3

ests that extend beyond doctors and patients, it is an appropriate opportunity to address the rising cost of malpractice insurance, which is a very real problem for doctors and patients alike. 

These high insurance rates are leaving doctors with few options. Those who can 

afford to pay the increased cost of providing medical services, will. Those who cannot afford the increase are forced to assume significant personal liability, leave highrisk specialties, or leave the profession altogether. At best, health care will become 

more expensive for patients. At worst, in addition to higher prices, patients will be 

denied access to care, and lifesaving treatments will not be provided. 

This is a serious problem that deserves deliberate consideration. Unfortunately, 

legislation pending before this committee, H.R. 5, focuses on drastic reforms of the 

judicial system that extend well beyond the issue of medical malpractice. While inefficiencies in our courts may be a contributing factor to this crisis, it is by no means 

the only cause—or even the single largest cause—of the current crisis. 

As the subject of this hearing appropriately indicates, the protections of H.R. 5 

extend well beyond the doctor-patient relationship. The provisions contained in this 

bill will shield HMOs, insurance companies, and drug and device manufacturers 

from liability. No evidence has been presented to the Committee demonstrating that 

these privileged industries need additional protections, yet H.R. 5 grants them a 

special status under the law that is unprecedented. 

Moreover, these dramatic protections hurt the rights of injured patients in an 

equally unprecedented manner. There is a human cost to this legislation that we 

must not forget. We will hear from a courageous and impressive young woman 

today, Heather Lewinsky. She will explain how her life has been affected by the 

malpractice of a plastic surgeon. The pain, suffering, fear, and trauma that Heather 

has courageously confronted are real, and she should be compensated. And the loss 

of seventeen year old Je ́sica Santilla ́n must be devastating to her family. If malpractice is to blame for young Je ́sica’s passing, as it certainly appears, her family 

should be compensated for their loss. Neither Heather nor the Santilla ́n family 

would qualify for significant economic damages. The harm caused to both is almost 

exclusively non-economic in nature, but it unquestionably is still great harm. 

While claiming to provide unlimited economic damages, H.R. 5 would disproportionately hurt women, seniors, and low-income families by limiting non-economic 

damages to $250,000. Because a significant component of economic damages is an 

individual’s income, such a system would disproportionately value the lives of those 

with high incomes over low-wage earners, stay-at-home moms, and senior citizens. 

For example, if the CEO’s of the very drug companies and HMO’s that this bill protects were injured, their economic damages would be worth millions upon millions 

of dollars. By comparison, if a stay-at-home mom were injured in an identical manner, she would have very limited economic damages awarded to her. 

H.R. 5 also limits the amount of time in which an injured patient can seek just 

compensation to three years from the date an injury manifests itself. The concept 

of manifestation is not established in law nor is it clearly defined in the legislation. 

There are certainly circumstances when an injury could manifest itself without a 

patient knowing of its existence for three or more years. An illness such as HIV 

could manifest itself and not be discovered—nor expected to be discovered—by a patient for many years. This legislation would prevent that patient, and many others, 

from being compensated at all. 

Unfortunately, my Majority colleagues are quite determined to move quickly and 

harshly. Their legislation reaches well beyond malpractice and offers no guarantees 

of assistance to providers and communities. Physicians and patients are asked to 

cross their fingers and hope that some of the benefits given to insurance companies 

and large corporations will trickle down to them. And women, seniors, and low-income families are left to pay the very real price of these benefits. It is wrong. 

But the rising cost of malpractice insurance is a real problem—requiring careful, 

balanced, and targeted legislation. I am in the process of finalizing legislation that 

will provide direct, targeted assistance to physicians and communities to assist with 

the current crisis. It will also institute limited, common sense tort reforms to weed 

out frivolous lawsuits and provide stability in our courts while protecting the fundamental rights of patients. Lastly, the legislation I will propose would create an independent commission to examine every aspect of the current insurance crisis, propose 

additional solutions to address the current crisis, and make recommendations to 

avoid any future malpractice insurance crisis. I hope that at some point in the process a balanced approach such as this will prevail, but I’m not holding my breath.

Mr. BILIRAKIS. Without objection, the opening statements of all 

members will be made a part of the record. 

4

Mr. BROWN. First of all, thank you to all the witnesses; special 

thanks to Heather Lewinski for her courage and for joining us. 

Thank you, Heather, and thank you all of you. 

I would suggest that our efforts in this legislative process be 

guided by the following principle: A good medical malpractice reform bill should prevent outrageous increases in medical malpractice premiums and improve access to quality medical care. 

This principle embodies two concepts: We should ensure that the 

bill will—not may but will—address premium spikes and improve 

access to care, and we should ensure that the bill does not reform 

away the medical malpractice liability system’s role in promoting 

responsible quality medical care. 

Let me briefly explore each of these ideas, Mr. Chairman. 

The professed goal of medical malpractice caps is to introduce 

more predictability into the system. Uncertainty, our friends in the 

insurance industry say, is what really endangers patient’s access to 

health care. This is an important point. Insurers make an actuarial 

calculation of the additional premiums needed to counter uncertain 

jury awards. They literally put a number on it. It follows, insurers 

tell us, that we can easily stem the medical malpractice premium 

crisis by capping jury awards. No more uncertainty means no more 

premium spikes. 

The industry doesn’t explain, though, how uncertainty, which has 

been a part of the system for years, can possibly explain the recent 

spike in premiums, but it would be a shame to let a silly little 

thing like logic ruin a good story. 

The industry balks when anyone dares suggest that insurers 

demonstrate that they are, in fact, reducing premiums in response 

to the caps. The insurance industry and my friend Mr. Greenwood, 

who helped kill an amendment to last year’s bill that would establish this requirement, claimed that it can’t be done. Apparently, insurers can make an actuarial calculation and increase premiums to 

compensate for uncertainty, but they cannot make an actuarial calculation and decrease premiums, decrease premiums when that uncertainty is diminished. 

I understand why insurers and the bill’s sponsor would fend off 

attempts to require proof that this bill accomplishes its ostensible 

goal. After all, liability caps are reversible. But because liability 

caps raise serious equity issues, serious ethical issues, I would suggest that any measure that fails to ensure that insurance company 

savings from damage caps are passed on to doctors, that savings 

from caps are passed on to doctors in reduced premiums, they simply can’t meet the first part of our test for malpractice legislation. 

It cannot ensure that our actions will improve access to care. 

Let me suggest a way to reduce doctor premiums and increase 

access to quality medical care. It is pretty straightforward. All we 

need to do find out what the problem is and fix it. 

Insurance companies won’t provide the information we need to 

understand recent premium increases. They won’t demonstrate 

how their bottom line has actually been affected by jury awards, 

by investment income or the lack thereof, by past rate-setting decisions and the like. When asked to provide this information, the industry says that is proprietary information. We can’t give that to 

you.

5

So Congress—get this. Congress is expected to pass legislation 

that caps compensation to patients whose lives have been irreparably harmed by medical malpractice without any concrete evidence that the cause of the crisis stems from higher unpredictable 

jury awards because the insurance industry won’t tell us. It is more 

important to protect proprietary accounting information for that industry than it is to protect patients who have been injured. Have 

our values drifted that far off course? 

Mr. Chairman, this subcommittee doesn’t have to legislate in the 

dark. We have the power to subpoena, to subpoena insurance company records and discover for ourselves what is actually going on 

here. I have offered this suggestion to the majority before but to 

no avail. It is not too late. We can dispense with the glossy arguments and competing statistics. We can get to the bottom of this 

problem. We can pass a bill that addresses it. But to do that we 

need to subpoena the records of medical malpractice insurers. It is 

irresponsible to move forward without doing that. 

The second element of our guiding principle is equally straightforward. Our actions must not compromise the effectiveness of 

America’s medical malpractice liability system. Doctors are as close 

to miracle workers as we have in our society, but, like the rest of 

us, they are not perfect and in a few cases there are a few bad 

guys. When doctors don’t do their jobs, patients suffer. As Heather 

Lewinski’s testimony today amply demonstrates, that suffering is 

personal, and it is lifelong. 

Proponents of Mr. Greenwood’s health bill say the bill is actually 

patient friendly. After all, it doesn’t cap economic damages. But 

Heather was 8 years old when a doctor’s negligence changed her 

life forever. She obviously had no job, she had no prospects for employment when she was 8 in the foreseeable future, and she was 

awarded as a result no economic damages. 

Under the health bill, Mr. Greenwood’s bill, the punitive cap is kept at the lower of $250,000 or double the economic damages. 

One more moment, Mr. Chairman. 

Mr. Chairman, two times zero is still zero. This bill would literally tell children like Heather that the value of punishing people 

who harm them is, in fact, zero. 

The issue of medical malpractice is an important one, deserving 

a serious sincere effort by this committee. We can still develop legislation that improves both access to and quality of care. I hope 

that this subcommittee will do that. 

Thank you, Mr. Chairman. 

Mr. BILIRAKIS. Mr. Greenwood, for 3 minutes or would you defer? 

Mr. GREENWOOD. I think I will take my 3 minutes, Mr. Chairman.

Mr. BILIRAKIS. I am not surprised. 

Mr. GREENWOOD. It is my bill, after all. 

What can we agree on? I don’t think it is difficult for us to agree 

that we have a crisis with regard to the availability and the cost 

of medical liability insurance. I don’t know anyone who disagrees 

with that. 

In my State of Pennsylvania, the crisis is particularly acute. We 

have lost 900 doctors. The trauma center that would serve my family and the families of most of the people that I represent closed 

6

its doors in December because it could—because of its incredibly 

exorbitant increase. I think the insurance rates went from $7 million a year to $21 million a year. They are only open now on the 

promise from Governor Rendell that he will do something before 

this, and I remain very skeptical that that will happen. So there 

is a crisis. 

The question, of course, is how do we fix the crisis? Mr. Brown 

has agreed we ought to fix the crisis. Mr. Brown assigns blame to 

the insurance companies. I can assure you that if I thought that 

there was a fix there I would fix it. I have no particular reason, 

I don’t know of anybody who has a particular reason to not go after 

the insurance companies if that is where the problem is. 

But here is the problem with that argument: 60 percent of the 

doctors in this country get their medical liability insurance from 

physician-owned companies. Physician-owned companies have as 

their purpose trying to provide physicians with the lowest available 

priced policies. 

Now, if these physician-owned companies are not able to underbid the private insurance companies that some are claiming are 

price gouging, then where is the logic? Where is the logic that says 

that the price spikes are caused not by the environment of the 

courtroom and the excessive noneconomic damages that are paid 

but somehow lies in the management practices of the insurance 

companies when, again, 60 percent of the doctors in this country 

get their malpractice, if they can, from physician-owned companies, 

and 30 percent in my State of Pennsylvania get their medical liability insurance from physician-owned companies? 

The gentleman from Ohio suggested that, gee, all we need to do 

is get the insurers in here to open their books and get the information. My understanding is that the Democrats did not invite any 

insurance companies to come in and be questioned at this hearing. 

We have had actuaries testify at hearing after hearing as to the 

causes of the price spikes. I think their testimony has been very 

direct and supports the logic of the bill. 

The bottom line is we need to get this crisis resolved. We need 

to find a bipartisan way to do it. We need to do it in the House 

and the Senate. I personally am open to whatever works, but it will 

be a failure of the Congress and a waste of our time if we pass legislation that becomes so watered down that we get 218 votes in the 

House and 51 votes in the Senate and 60 votes to break a filibuster 

and sign it into law and it doesn’t solve the crisis. I think we ought 

to be focused on solving the crisis, solving it rationally and not 

being partisan about it. 

Thank you, Mr. Chairman. 

[The prepared statement of Hon. James C. Greenwood follows:]

PREPARED STATEMENT OF HO. JAMES C. GREENWOOD, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF PENNSYLVANIA

Mr. Chairman, I thank you for holding this hearing. Today, I look forward to 

hearing from our witnesses as we explore, examine and confront the medical liability insurance crisis. 

The word ‘‘crisis’’ is often thrown around in Washington DC but let me tell you 

something that fits this term, under any definition: From December 21 until January 3 of this year, for thirteen days, the trauma center of Abington Hospital, in Abington, PA closed its doors because the doctors staffing this critical facility could not 

obtain the affordable medical liability insurance they needed to practice. For those 

7

thirteen days, fundamental 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 people 

across the country to find a doctor. What is more, we need to understand why americans in many states can no longer go about their daily lives knowing that if the 

worst happens—the doctor is in place and on call. 

In the Philadelphia region we 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 been 

a leader in health care. Even today, almost one in seven doctors in the United 

States did some part of their medical training in Philadelphia, which is home to a 

host of excellent medical schools and institutions. 

But the signs appear ominous and 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. Why? And what hardships have 

been visited upon the expectant mothers who counted on those services? 

This crisis affects more than just patients and doctors. In an Energy and Commerce Oversight and Investigation Subcommittee hearing I chaired on this crisis in 

my home district on February 10, 2003 we heard from two hopsitals and trauma 

centers operating in southeastern Pennsylvania, St. Mary Medical Center and 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 angered that this crisis is having permanent and longterm effects: Weakening hospitals, debilitating medical schools, reducing the number of doctors who practice, and destabilizing health care institutions—all to the 

detriment of the people desperately in need of skilled medical treatment. 

Again I ask: Why? that is the question we seek to answer here today. 

Let me tell you what I know so far. The access to health care has been restricted 

because the individuals and institutions delivering that care cannot find the affordable insurance required to practice medicine. Insurance 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 risk—the amount they estimate they will have to pay. You would naturally 

expect to pay more to insure a $50,000 home than a $500,000 home. What do you 

think an insurance company would say to someone who wanted to insure a house, 

but could not tell the value except that it could be worth either $10,000 or millions? 

Pennsylvania medical liability insurers face a similar quandary. 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 the entire State of California. In 2000, Pennsylvania had 19 awards individually exceeding $5 million. 

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

I asked ‘‘why’’ earlier. Let’s trace the problem back to this fact: Insurers cannot 

properly, reasonably and competitively offer insurance to medical providers because 

of an unpredictable tort system prone to ‘‘jackpot’’ awards. 

No one 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 put a price tag on suffering, loss 

of enjoyment of life, or embarrassment? A jury of peers is the best and fairest system of justice we have. They make decisions of profound importance every day 

across the country based first on the rule of law but second on their sense of justice. 

But we must ask: What informs, what creates this sense of justice and gives it 

proportion? How have we set benchmarks for putting a dollar value on another person’s pain or embarassment? Are we guided by the amounts we see in sensational 

headlines or advertisements of lawyers trumpeting huge recoveries? Are we guided 

by the woman who won millions for spilled McDonald’s coffee? Where ever we found 

that price tag we hang on another’s suffering—it is clear that all sense of proportion 

seems to have be lost. 

8

Reasonable caps on such subective damages, in my estimation, when teamed with 

a specific package of other reforms, will bring juries, verdicts and insurance rates 

back to earth. 

I have recently introduced legislation in the House designed to address this root 

problem. However, I am ready to work with members on both sides of the aisle, in 

both chambers to achieve a solution that will be signed into law by the President. 

Again, thank you to the two committees for holding this joint hearing.

Mr. BILIRAKIS. I thank the gentleman. 

Ms. Eshoo for 3 minutes, unless she would prefer to defer. 

Ms. ESHOO. Good morning, Mr. Chairman. Thank you for having 

this hearing. 

For 2 years now we have been discussing and debating what to 

do with medical malpractice premiums. Clearly, there is a problem. 

What is not so clear is what our solution should be. 

I am a Californian, and in my State we have a law that we have 

heard mentioned many, many times, MICRA. The bill was passed 

by a Democratic legislature, and it was signed by a Democratic 

Governor in 1975. It has been on the books ever since without a 

single change. While it may not be the sole reason why premiums 

in California have stayed reasonable and stable, I think that it has 

contributed.

Representative Greenwood has introduced a bill that he has described as a Federal version of MICRA. What I want to use my 

time for respectfully is to dispute that assertion. Because it is not 

the same. The bill places a $250,000 cap on noneconomic damages 

for suits against physicians, insurers, HMOs, nursing homes and 

drug and medical device manufacturers. MICRA limits that cap 

solely to physicians. H.R. 5 also places a cap on punitive damages. 

MICRA does not. 

One of the reasons MICRA has worked is because it is proscribed 

in its scope. If we want to get to the heart of this problem, we 

should focus our efforts on those who really need the help. I am 

very concerned that extending these provisions to those outside of 

the physician community will have a deleterious effect on patient 

care and on our legal system. We can do tort reform and weed out 

frivolous lawsuits. We have done it before. I was a part of that. 

Additionally, H.R. 5 doesn’t set up any mechanism to review the 

insurance industry. They are clearly a part of this. It is not about 

assigning blame. You have to look at all the stakeholders. California’s MICRA has never been updated for inflation since it became 

law.

I think there is a downside of it I think that is worth mentioning. 

$250,000 from 1975 is worth approximately $68,000 today. We 

should think about indexing for inflation if we are to do anything 

at the Federal level. Patients should be fairly compensated for any 

wrongs that are visited upon them because every life has worth, regardless of whether they have an income or not. 

So I look forward to hearing our witnesses giving their testimony 

today on these issues and others, and I thank the chairman for 

holding this hearing. 

Mr. BILIRAKIS. I thank the gentlelady. 

The chairman of the full committee, Mr. Tauzin. 

Chairman TAUZIN. Thank you, Mr. Chairman. Thanks for holding this hearing as we try to, as the gentlelady from California indicated, use the experience of States like California and my own in 

9

Louisiana to try to help with the problem that has now become a 

huge national crisis. 

I don’t have to dwell on the problem. I think we all understand 

it. When trauma units close down and obstetric services are denied 

people and pregnant women can’t find a doctor to help them deliver 

a child because the doctors have gone out of business in their community. The system is creating health care victims that have nothing to do with lawsuits and medical errors. It just has to do with 

people that can’t get health care. 

In Louisiana, we are seeing an extraordinary occurrence. Let me 

be honest with you. We in Louisiana passed medical liability reform. I voted against it when I was in the legislature. I am a convert to the principle. I watched it work. I watched it have the good 

effects in Louisiana that we saw in California. I watched in Louisiana incredibly as more and more physicians from the neighboring State of Mississippi are moving into our State because they 

can’t anymore stand the pressure of lawsuits and insurance costs 

in the State of Mississippi. 

I talked to Mr. Pickering about that. I go hunting in Mississippi 

a lot. I wouldn’t ask everybody from Mississippi to move from Louisiana. Doctors, okay, but that is not a good way for them to make 

a choice. The fact of the matter is that when people who have dedicated their lives to serving the health care needs of their neighbors 

find they have to leave their home State, go live in another State 

because the liability system is driving them to a point where they 

no longer look at patients as people who need care but they look 

at them as potential plaintiffs——

I have a young member of the family who is a physician. He is 

a urologist in Thibodaux. He is my younger sister’s husband. I 

watched him go to medical school, brilliant young man. I watched 

him go through his medical training. I watched him come back 

home to Thibodaux. He performed amazing surgery on my father. 

It made such a difference in his health. And I watched him perform 

those medical miracles on friends of mine throughout my community. He got roped into one of these suits not too long ago, and he 

defended it successfully. He was roped into a suit brought against 

the hospital he works in. It has changed him. I have seen what was 

such an incredible feeling he had about his work and his life and 

what he was doing to help people become a much more cautious 

and cynical sort of approach. He still loves his work and does great 

work, but he is a changed man, having gone through that experience.

I know that doctors who might help one another avoid medical 

error don’t share information today because of fear of lawsuits. I 

know doctors prescribe a lot more medical tests and drugs and all 

sorts of things to people in my home community, even with our 

medical reform, because they are afraid if they don’t do these 

things, even though they don’t think they are necessary, somebody 

is going to call that malpractice and drag them through the courts. 

Now, I am a lawyer. I am a recovering lawyer I keep telling people. I used to handle plaintiff cases when I was in practice, and I 

value a legal system that gives people a right of redress when they 

have been harmed. But the legal system needs always to be balVerDate jul 14 2003 13:49 Sep 09, 2003 Jkt 086534 PO 00000 Frm 00013 Fmt 6633 Sfmt 6602 W:\DISC\86049 86049
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anced and sometimes rebalanced to make sure it doesn’t do more 

harm than good. 

While we need to preserve the right of people to recover when 

somebody wrongfully kills their child because of malpractice or 

wrongfully hurts someone’s mouth because of bad dentistry, whatever, it may be we need to preserve those rights and make sure 

there is adequate and fair recovery. We also need to be concerned 

about the young men and women who dedicate their lives to taking 

care of parents and neighbors and their friends and who suddenly 

today look upon their patients with fear instead of the kind of loving attention that they came out of medical school determined to 

show whenever they entered a hospital or surgery room to do a 

medical procedure. I think it is time for to us balance this out on 

the Nation. 

This medical liability reform bill patterned after what was done 

in California, my home State of Louisiana is I think the kind of 

medicine we need to make sure we aren’t creating more victims unnecessarily in this system, to make sure that, in fact, people get rewarded properly when there has been an injury but we don’t encourage lawsuits where 60 percent of them today are either dismissed or withdrawn and where 58 percent of the recovery goes to 

somebody other than the victim, the patient. 

We need some work here. We need to balance this out a little 

better. We need to give the doctors and nurses and health care personnel in our country a little bit of credit. We need to understand 

they didn’t dedicate their lives to service just to be in a lawsuit 

every other day. 

I thank you, Mr. Chairman. 

[The prepared statement of Hon. W.J. ‘‘Billy’’ Tauzin follows:]

PREPARED STATEMENT OF HON. W.J. ‘‘BILLY’’ TAUZIN, CHAIRMAN, COMMITTEE ON

ENERGY AND COMMERCE

Thank you, Mr. Bilirakis for holding this timely hearing. 

Mr. Chairman, our legal justice system is out of balance. Excessive litigation is 

driving up health care costs, forcing doctors to leave their practices, causing hospitals to shut down and leaving America’s patients in a state of ‘‘code red.’’ 

We have seen this issue all over the news in recent years. Last year, we heard 

about a Level 1 trauma center in Las Vegas closing, forcing severely injured patients to travel an additional 500 miles for equivalent care. In Mississippi, one-third 

of the neurosurgeons have left the state—an incredible number especially when you 

consider the substantial toll stroke has on the state. In West Virginia and Pennsylvania, obstetrics units have closed, leaving some pregnant women without direct access to a qualified physician to deliver their baby. The stories go on and on. Patients 

are being victimized by a lack of access to certain health care services across our 

country, partially because of a runaway tort system. 

For those of us who have served in our state legislatures, this issue is not new. 

Louisiana once faced a similar patient access to care crisis. My state responded by 

enacting medical liability reform that has withstood constitutional challenges as 

well as attempts to dilute its effectiveness. Their guidelines for health care lawsuits 

ensure that injured patients receive greater compensation while at the same time 

deter frivolous lawsuits that extort health care professionals and drive doctors from 

the practice of medicine. While medical liability insurance rates have skyrocketed 

across the country, doctors are not leaving their practices in the state of Louisiana. 

In fact, over the past year, doctors in neighboring states have sought refuge in Louisiana. Of course, we love having more people come to our state, but I don’t think 

this is the way we want to accomplish it. 

I know those advocating for federal legislation modeled after California’s Medical 

Injury Compensation Act feel quite the same way as the doctors in Louisiana do: 

medical liability reforms work and they really do have an impact on patient care. 

Without medical liability reform, fear of lawsuits deters doctors from sharing inforVerDate jul 14 2003 13:49 Sep 09, 2003 Jkt 086534 PO 00000 Frm 00014 Fmt 6633 Sfmt 6621 W:\DISC\86049 86049
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mation that is critical to learning how to prevent systematic mistakes, stymieing efforts to reduce medical errors and improve patient safety. Without medical liability 

reform, doctors will continue to engage in defensive medicine, performing tests and 

prescribing medicines that are not necessary to better the health of the patient, 

driving up health care costs for all Americans. 

And the costs to the system are not insignificant. Some analysts estimate tort reforms could lead to reductions of well over $50 billion per year in health care expenditures, without serious adverse consequences for patients. Without medical liability reform, insurance rates will continue to force doctors out of practice, leaving 

some patients without access to health care. Because when doctors spend less time 

thinking of a patient as a ‘‘potential lawsuit’’ and more time treating the patient, 

the patient receives better care. 

I have said it before, and I will say it again. When injured patients have to wait, 

on average, 5 years before a medical injury case is complete, our judicial system has 

failed. When injured patients lose 58 percent of their compensation to attorneys and 

the courts, our judicial system has failed. When 60 percent of malpractice claims 

against doctors are dropped or dismissed, but the fear of litigation still forces doctors with twenty-five years of experience to retire early, our judicial system has 

failed.

Members of this Committee have taken the lead in drafting legislation to help restore some degree of common sense to our tort system. We realize that our current 

system is too slow, too expensive, too inefficient and most importantly, fails to improve the health of our country. I applaud the Members of this Committee for the 

leadership and thoughtfulness they have shown in advancing legislation to address 

this critical issue. 

Today, I look forward to the witness testimony. And I encourage all of my colleagues, on both sides of the aisle, to listen carefully to the information presented 

by the witnesses today. It will, no doubt, prove useful as we move forward H.R. 5, 

the HEALTH Act, through subcommittee and full committee mark-ups next week.

Mr. BILIRAKIS. Mr. Stupak. 

Mr. STUPAK. I will waive, Mr. Chairman. 

Mr. BILIRAKIS. All right. Ms. DeGette. 

Ms. DEGETTE. Thank you, Mr. Chairman. 

The highest maxim of the medical profession is ‘‘first do no 

harm.’’ in other words, unless a patient will benefit from amputation, the doctor should not cutoff their leg. As legislators, I think 

we should also be served by following the same maxim. Unless the 

people will benefit from a reduction in their rights, we should not 

reduce their rights. 

Now, we all know that doctors, particularly doctors in some practice groups and subspecialties, are suffering from high insurance 

rates. But what we have learned from hearings both last year and 

last month is that there are serious reasons to question claims that 

capping damages in medical malpractice lawsuits will actually reduce premiums for those doctors. If we pass reforms with caps, we 

will be denying victims their rights to sue and recover damages for 

medical malpractice while at the same time passing those caps do 

nothing to help doctors. 

Mr. Chairman, we have several charts which all, for some reason, are labeled Exhibit 1 that I am going to ask to have entered 

into the record of this hearing which show that, in States like California, when you put caps on medical malpractice damages, it absolutely did not reduce premiums. So I would ask unanimous consent 

to put those charts in, and I will be showing those later. 

Mr. BILIRAKIS. Without objection. 

[The information referred to follows:]

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Ms. DEGETTE. It is also ridiculous to address medical malpractice 

reform when we don’t look at the cost of insurance and other factors in pricing of malpractice premiums. Among the contributors of 

rising malpractice premium costs are issues totally related to victim’s compensation, the cyclical nature of the insurance business 

cycle, management or mismangement of investments and reserves 

and even pressures health care financiers and the creation of restrictive delivery systems such as managed care have wrought. 

Managed care and the pressures that health care financiers place 

on providers share the blame in part because, as insurers and companies put pressure on physicians to reduce the amount of time 

they spend with patients as well as cut down on the number of referrals to specialists, mistakes are often made. 

Focusing on damage caps as the height of malpractice reform ignores these and other issues acknowledged to be factors. I would 

like to say that many say, well, we are not capping noneconomic—

we are not capping economic damages, we are only capping noneconomic damages. But in the case of Ms. Lewinski, in the case of 

stay-at-home moms, in the case of children, when you cap noneconomic damages to a proportion of economic damages you are 

leaving them with no compensation. 

Now, in fact, I think this is your traditional congressional problem or solution in search of a problem. Because of all of the medical 

malpractice cases, 88 percent of patients did not sue when there 

was bona fide medical malpractice, 22 percent have sued, and the 

reason is because of patient-doctor relationships. So let’s look at 

the real reasons this is going on. 

Mr. Chairman, I do look forward to this hearing. 

Mr. BILIRAKIS. I thank the gentlelady. 

Mr. Upton. 

Mr. UPTON. I have a statement for the record, and I defer. 

Mr. BILIRAKIS. Let’s see. Mr. Norwood. 

Mr. NORWOOD. Thank you, Mr. Chairman. I would like to make 

an opening statement, please. 

I thank you very much and the authors of this bill for bringing 

this critical legislation to us this morning. I think all of you are to 

be commended for your efforts. 

This bill is before us today because we have a crisis in this country. Call it professional liability insurance, call it medical malpractice insurance, whatever you call it, the premiums providers 

pay for insurance are skyrocketing. The impact of these skyrocketing premiums are affecting access people have to health care. 

I think probably all can agree with that. 

Now I understand that the reasons for the recent premium increases are very complex. I happen to believe we should examine 

the insurers’ antitrust exemption. I do believe we should look at 

ways to make sure that investment losses don’t create premium crisis. However, there is one area we can immediately address that 

can change the insurance market. We can limit the damages available to an injured patient. That will bring a much-needed stability 

to insurers, to the providers of health care and, ultimately, to premiums.

Is a $250,000 limit on noneconomic damages the right amount? 

I am not sure it is. I can tell you I don’t know what the right numVerDate jul 14 2003 13:49 Sep 09, 2003 Jkt 086534 PO 00000 Frm 00023 Fmt 6633 Sfmt 6602 W:\DISC\86049 86049
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ber is. I am certain, though, that there must be a number out there 

that we can agree upon that is reasonable and just. 

We are not limiting recovery for economic damages in any way. 

We allow punitive damages to be as much as twice economic damages. But to say that there never can be any limit, any limit on 

noneconomic damages, no matter how high, is not a reasonable position to take today. 

Mr. Chairman, this bill is about access, but it is also about defensive medicine and a lot of money that is being wasted in health 

care. If we don’t address the issue of medical malpractice insurance, we run, in my opinion, the risk of jeopardizing the health of 

patients because they cannot get in to see a doctor when they need 

one. We can do without many lawyers, but since our health care 

facilities are stretched as thin as they are we really cannot afford 

to do without our physicians today. 

It is of interest to me, I wonder, should we come to some reasonable limit, some reasonable number on noneconomic damages, 

might we have a lawyers’ strike? Maybe that is not at all a bad 

idea. But a physicians’ strike scares me to death. 

I strongly encourage members to support this bill. It is like any 

other bill I ever voted for: I hate some of it, and I love some of it. 

Even my own bills I feel that same way about. But we are dealing 

with a crisis, and this is one of the ways we can help with the crisis, save money in health care by defensive medicine and make it 

reasonable so our physicians can protect themselves and their families and go about the business of treating patients. 

Mr. Chairman, I yield back the balance of my time. 

Mr. BILIRAKIS. The Chair thanks the gentleman. 

Ms. Capps for 3 minutes. 

Ms. CAPPS. I will submit a statement, and I will wait. 

Mr. BILIRAKIS. So you will have 8 minutes. 

Mr. Deal. 

Mr. DEAL. I reserve my time, Mr. Chairman. 

Mr. BILIRAKIS. You reserve your time. You also have 8 minutes. 

Let’s see who is next here. Mr. Strickland. 

Mr. STRICKLAND. I would defer at this time and keep my time 

for the questioning, sir. 

Mr. BILIRAKIS. All right. 

Mr. Shadegg. 

Mr. SHADEGG. I reserve my time. 

Mr. BILIRAKIS. Eight minutes. 

Mr. Green. 

Mr. GREEN. Thank you, Mr. Chairman. I will give my statement. 

Mr. Chairman, I appreciate you holding this hearing on assessing the need for enactment of medical liability reform. This is an 

important topic, and it is correct it is a nationwide concern. 

Without question, medical malpractice premiums have been increasing for physicians throughout our country, particularly in my 

home State of Texas. I have heard from many of my physicians 

who are experiencing significant increases in the premiums. These 

doctors have been serving patients in my area for decades and are 

being forced to decide whether they should keep practicing, restrict 

their service or move to another area. 

21

The situation is unacceptable, and something must be done. But 

I am very wary of the Federal Government wading into this area 

of tort reform, an area that has traditionally been under the jurisdiction of States. In my experience in 20 years as a State legislator 

it has been dealt with in the State of California and even in my 

own State of Texas now with the legislature in session. There will 

be an issue, there will be a legislation to address this, because 

these medical malpractice lawsuits are typically only filed in State 

courts. That is where the States should be dealing with it. 

To nationalize this type of issue, one, I think is asking for trouble. Because once Congress passes legislation, unlike our States 

who can change things very—fairly quickly, we do not. Are we 

going to force these cases to Federal courts? Are we going to provide Federal rules that our States have to live by? Which, again, 

I have a lot of elected State judges in Texas who have concerns 

about that. 

My colleagues on the other side of the aisle cite the success of 

MICRA, the California experience; and there is a legitimate question on whether MICRA has, in fact, been successful in reducing 

medical malpractice premiums. But, again, we are looking at a successful case, if it is in California, but it is California who dealt with 

their issue. 

I hope that we would as Members of Congress respect that the 

States can deal with it, the States are going to address it, and the 

States have addressed it, those States who have been in session. 

I do have some concern about H.R. 5. I think it absolutely goes 

very much further than any medical malpractice. In fact, I am 

somewhat offended that if we are going to pass a medical malpractice reform for our physicians that we are also including 

HMOs, pharmaceutical manufacturers and medical device manufacturers. I think it is a sad day that we send out a doctor who is 

serving our patients as a smoke screen to be able to protect industries that really can stand on their own. If they need to have medical malpractice liability relief, then let them come on their own 

and not use our everyday physicians as a screen. 

Thank you, Mr. Chairman. 

Mr. BILIRAKIS. I thank the gentleman. 

Mr. Buyer. 

Mr. BUYER. I reserve. 

Mr. BILIRAKIS. Mr. Pallone. 

Mr. PALLONE. Thank you, Mr. Chairman. 

Several weeks ago in New Jersey thousands of physicians 

planned a work stop Statewide in response to skyrocketing insurance premiums. Although I sympathize with doctors, especially 

those in high-risk specialties such as obstetricians and other surgeons, I have to express that H.R. 5 is not the solution to the current medical malpractice crisis. 

I have several concerns with this legislation. First of all, if we 

are here to address the issue of medical malpractice, I see no reason why the scope of H.R. 5 must include protections for a broad 

variety of medical participants including HMOs, nursing homes, 

nurses, doctors and drug and device manufacturers. This bill is not 

limited to medical malpractice, and I am astonished that provisions 

22

in this bill protect manufacturers, distributors or suppliers of drugs 

or medical devices from punitive damages. 

It seems to me that what we have here is a very political effort 

to not only mention medical malpractice but also try to deal with 

a lot of other types of tort reform or even product liability reform. 

I don’t think that the public understands that no effort has really 

been made to reach out to the Democrats and do anything on a bipartisan basis and rather just ram something through that is going 

to go to the floor that probably has no chance of ever passing. 

Additionally, I find the statute of limitations outlined in the bill 

to be unacceptable. In most States, the time allowed for statute of 

limitations does not usually begin until the harm or injury is discovered or reasonably should have been discovered. Moreover, for 

children, many State statute of limitations does not begin until the 

child turns 18. I am particularly concerned about this bill being 

detrimental to children. I have three children of my own. So it is 

very much of a concern to me. 

Basically, what I think the authors are saying is that, if we have legislation that limits noneconomic damages to $250,000, then the 

problem of medical malpractice premiums is simply going to go 

away. I don’t buy that. It is a one-size-fits-all approach. It doesn’t 

look at the actual underlying issue of health care and medical malpractice.

I think we have a major problem with insurance premiums.We 

have bad accounting or bad business judgment on the part of the 

insurance industry that hasn’t been taken into consideration here. 

What we should do is provide some kind of Federal reinsurance 

program. I have proposed that with H.R. 485, the Federal Medical 

Malpractice Insurance Stabilization Act. 

I just want to say one more thing. I really don’t think that the 

opportunity has been given today in terms of who is testifying here 

to really even have the option of understanding what the problem 

is all about. 

I read in the papers yesterday about the Santillan family and 

this person, 17-year-old woman, named Jessica Santillan who lost 

her life on Saturday. This is a perfect example of someone whose 

representative should have been here testifying today. I don’t know 

exactly why there isn’t anyone here. I know they have asked to be 

here to have the opportunity to present testimony about why this 

legislation would not allow for a satisfactory outcome in a case like 

that. I think between the witnesses and the way the majority is 

going about this it is really not giving us an opportunity to learn 

what the root cause of this problem is. 

Thank you, Mr. Chairman. 

Mr. BILIRAKIS. Mr. Pitts. 

Mr. PITTS. Thank you, Mr. Chairman, for holding this important 

hearing today. This is one issue on which we cannot afford to waste 

time. The situation in my State of Pennsylvania is dire. Pennsylvania hospitals and physicians face skyrocketing premiums, causing major insurers to drop coverage or raise premiums. It is ridiculous that in some cases the new premiums are more than the actual income a health care provider earns annually. 

What this really means is that we have a serious problem—not 

just a serious problem, actually, it is a crisis—with access to care 

23

in Pennsylvania. The continued deterioration of the medical liability market in Pennsylvania threatens the viability of hospitals, of 

health systems and physician practices. 

Brandywine Hospital in my district was forced to close its trauma center in June of last year due to lack of trauma surgeons. And 

the CEO Allen Larson, who cited, quote, soaring medical malpractice premiums that are driving surgeons out of State or into retirement, close quote, said that he tried to recruit new trauma surgeons only to find that all Pennsylvania graduates of trauma surgery left the State to start practicing elsewhere. This means that 

severely injured patients must be transported to Philadelphia, almost an hour away, or other cities many miles away. 

Chester County Hospital, another in my district, came very close 

to taking the drastic step of closing its maternity ward when insurance for obstetricians skyrocketed. The doctors reported that they 

would have to discontinue offering care at that hospital, and the 

hospital stepped in at the last minute with a temporary solution 

and actually put these independent physicians on their payroll in 

order to provide coverage for them through the hospital captive insurance company. Since Chester County Hospital does 2,100 or so 

deliveries a year, this load was too big for other providers in the 

area to pick up; and women would have to leave our county to have 

their babies. 

Mr. Chairman, we will hear many arguments today from doctors 

and trial attorneys and insurance companies, but I hope we can see 

clearly through all of this to the bottom line: The current system 

is not working. Patients are being denied care because large numbers of physicians are leaving the State. And this is one case in 

which we need to have uniform minimum standards. Doctors 

should not have to choose where to live or work due to their malpractice insurance. 

As you know, the Pennsylvania State legislature did pass legislation this year that included numerous tort reforms and some economic relief. However, the financial pressures created by the escalating medical liability crisis will not be resolved by these limited 

tort reforms. Passage of the health act is critical because it contains important reforms. Key among them is the establishment of 

a cap on noneconomic damages. 

Let’s be honest, at the end of the day, this legislation is not 

about doctors or insurance. It is about mothers having places to deliver their babies and accident victims having a nearby trauma center to go to. 

I strongly support this legislation and look forward to hearing 

from our witnesses before us today. I yield back. 

Mr. BILIRAKIS. I thank the gentleman. 

Mr. Ferguson. 

Mr. FERGUSON. Thank you, Mr. Chairman. Appreciate you holding this hearing. 

In New Jersey, where I am from, we are fortunate to have one 

of the greatest health care systems anywhere. We have top-notch 

hospitals. We have some the best doctors and nurses anywhere. We 

have some the best medical research anywhere in the world. Our 

medical professionals are devoted to their work and to the people 

that they serve. They serve on the front lines of our Nation’s health 

24

care system in a way that I think really exemplifies the best of the 

American spirit. 

But in New Jersey today we face a perfect storm. The dramatic 

rise in lawsuits, coupled with the skyrocketing liability insurance 

costs for doctors and hospitals, they are jeopardizing patient care. 

If we don’t take corrective action now, the situation is only going 

to become more severe. After all, without insurance, doctors can’t 

practice. But high insurance costs are forcing many doctors in our 

State to abandon their practices. With too many frivolous lawsuits 

too many of our doctors are being forced to settle cases for large 

amounts of money, even when they haven’t committed an error. In New Jersey, in the year 2000, more than $190 million was 

paid out to cover jury awards, a figure that put our State in the 

top ten in the Nation. These lawsuits have caused doctors’ liability 

insurance premiums to mushroom and increased the cost of health 

care for all of us. Because premiums and lawsuits are threatening 

doctors in an unpredictable and unlimited manner, many doctors in 

New Jersey can’t afford to get affordable insurance coverage at all. 

What is most disheartening is that litigation fears not only increase the cost of health care but also have discouraged doctors 

from helping individuals who are most in need and who can’t afford 

their services. Many doctors can’t volunteer their services for patients who can’t pay, and the proportion of physicians who provide 

any charity care at all has declined nationwide. This deprives patients of long-term, trusted relationships and sometimes leaves 

them without a doctor altogether. 

My family, as many others, has personally experienced the effect 

of this crisis in New Jersey firsthand. Three weeks ago, my wife 

and I were blessed with our third child. My wife’s due date was the 

very week of the job action that Mr. Pallone had referenced before. 

Over the last few months, we have seen many physicians leaving 

their practice; and in my wife’s doctors OB/GYN practice my wife’s 

doctor’s partner left the State recently because of her insurance 

premiums. My wife’s doctor’s premiums went up 40 percent just 

this year. 

While our physician gave us every guarantee that she would be 

there for us when the day came, and she was, there are fathers and 

mothers and loved ones who I fear for. I fear that the bond between 

patients and their doctors will be broke and that these patients will 

not have access to the trusted professionals because of the frivolous 

lawsuits and the resulting insurance premiums which are forcing 

doctors to abandon their practices. 

There is no reason it has to be like this. It is simply not right 

when those physicians who want to provide their services are discouraged from doing so because of the fear of litigation. Patients 

should have their day in court, and this legislation allows patients 

to have their day in court. But the legislation also protects patients 

by preserving and not breaking the bond of the doctor-patient relationship.

I want to thank Mr. Greenwood for introducing this important 

legislation. I look forward to hearing the testimony from the witnesses today. Thank you. 

Mr. BILIRAKIS. I thank the gentleman. 

Mr. Burr. 

25

Mr. BURR. Thank you, Mr. Chairman. 

Let me take this opportunity to thank our witnesses here today. 

I am sorry we couldn’t provide better weather for you, and hopefully you won’t get stuck here. 

Let me respond to something that was said earlier. I have 

worked very successfully with people on the other side of the aisle 

to produce health care legislation with those individuals who look 

for solutions, and I look across the aisle today with the same intent 

and with the previous history with them of one of accomplishment. 

I also make no bones about the fact that I choose not to work with 

those on the other side of the aisle or on my side of the aisle that 

choose to use this only for political purposes. Because we have 

reached the point in health care where we need answers, and we 

need answers now. 

After working on health care for now 8 years, I am well aware 

of the complexity of the health care delivery system. Some people 

today are going to say that enacting Federal medical malpractice 

reform is not going to help our health care delivery system. Other 

people are going to say that this legislation will serve two important purposes: first, that it will decrease health care costs through 

reductions in the malpractice insurance premiums; and, second, it 

is a positive step toward reigning in a litigious society. 

If it were up to me, the debate on this issue would be a looser 

pay system where we take a much bigger bite at getting at the frivolous lawsuits that I think have become prevalent in society. It is 

somewhat ironic to me that the same individuals that criticize us 

being here debating this and proposing this legislation today are in 

fact the ones that use the argument on other health care issues 

that it is doctors, it is hospitals, it is nurses, it is health professionals who we should empower to make more decisions. 

It is not insurance companies and so on, but it is health care professionals that should be empowered to play a bigger role in the 

health care solution in this country. In fact, it is doctors and hospitals and nurses and health care professionals that have over and 

over and over again said to us that the first thing we need to do 

to try to curb the inflation cost in health care is reign in the lawsuits that are currently taking place. We are attacking exactly the 

place that health care professionals have said is the first place we 

need to go. 

There is no question in my mind that this legislation will help 

our health care system. As long as medical malpractice premiums 

continue to increase, our overall health care costs will increase. I 

want patients to have the access to high-quality and reasonably 

priced health care and, yes, to have the right to pursue when 

harmed. I think we have protected that. 

I urge my colleagues to support Representative Greenwood; and 

I yield back, Mr. Chairman. 

Mr. BILIRAKIS. I thank the gentleman. 

Mr. Pickering. 

Mr. PICKERING. Mr. Chairman, thank you for this very important 

hearing.

As we look at Medicare, Medicaid, veterans’ health care, prescription drugs, the delivery of health care, rural health care, 

health care in States like mine in Mississippi which over the past 

26

few years has been in a State of crisis and we look at our responsibilities as a committee and as a Congress as to how do we have 

a comprehensive health care policy for our country that we have 

access to insurance for the individuals that are providers can practice without the fear of being bankrupted by an excessive jury verdict, what can we do to contain the cost, make health care available to all Americans and my State of all Mississippians? 

This is a very important piece, a very important part, a very important component of a comprehensive health care policy. 

Later this year, we will be working on Medicare reforms. We will 

be working on a prescription drug benefit. The Veterans Committee 

will be looking at what they have to do to get veterans’ health care. 

If we look at all components, this issue about out-of-control lawsuits and the cost increase that is put into every system and every 

place and every community, because of it we have to act on this 

piece of it just as we have to act on all those other things. 

I want to join with Congressman Burr. In my home State of Mississippi, a bipartisan compromise was reached this past year, legislation was passed, and we believe that it will make a significant 

difference in our State. 

Now the caps in the State legislature and Mississippi that were 

passed were higher than the caps passed in this legislation, a 

$500,000 cap on noneconomic damages, and then over time it 

would increase with inflation, $750,000 cap by 2011, $1 million by 

2017. It is a reasonable and a common-sense approach to solving 

the problem in Mississippi. 

I hope the same type of common-sense approach, bipartisan approach can be found here in Congress. As we look at overall health 

care, we have to have this piece as part of our strategy and part 

of our policy to be able to make health care affordable and available and at a high quality to all Americans. 

So, Mr. Chairman, I look forward to working with you on this 

and hope that we can find a way to find a common ground and consensus just as we did in Mississippi this past year. 

Mr. BILIRAKIS. I thank the gentleman. 

I believe that takes care of all the opening statements. As we 

said earlier, any written opening statements could be made a part 

of the record. 

[Additional statements submitted for the record follow:]

PREPARED STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN CONGRESS FROM

THE STATE OF MICHIGAN

Mr. Chairman, I commend you for holding today’s hearing to assess the need to 

enact medical liability reform to address the growing malpractice insurance crisis 

affecting physicians, hospitals, and other health care providers in many states and 

address some of the factors fueling the double-digit increases in health care premiums with which large and small employers and individuals and families across 

the nation are grappling. 

My state of Michigan has already put in place a number of the important reforms 

similar to the federal reforms we are contemplating. As a result, Michigan is not 

experiencing the malpractice insurance crisis that is gripping many other states. 

But we are certainly not immune from such experiences as sharp increases in premiums and insurers withdrawing from our market. Last year, for example, the 

emergency physician group serving one of the largest hospitals in my district almost 

lost its malpractice insurance. Had help not come at the very last minute, an entire 

community could have lost access to emergency care. Similarly, a large physician 

practice serving the poor and uninsured in Southwest Michigan could not afford to 

27

renew its malpractice insurance policy because of a sharp increase in the premium. 

They were eventually able to find more affordable insurance, but only by increasing 

their exposure. 

While I have thus been very supportive of federal medical liability reform, I hope 

that as this process moves along, we will be mindful one potential problem that a 

federal pre-emption of certain state laws could pose for physicians. Specifically, 

many Michigan physicians are concerned that by pre-empting our state joint-andseveral liability provision and replacing it with a ‘‘fair share’’ provision, they may 

face higher malpractice liability insurance premiums and be forced to purchase considerably more coverage than they now typically carry. I hope that during the 

course of these hearings, we can explore these concerns. 

Again, Mr. Chairman, thank you for your leadership on medical liability reform. 

I look forward to working with you again this year as we seek to address this issue 

that is critical to continued access to affordable, community-based care across Michigan and our nation. 

PREPARED STATEMENT OF HON. STEVE BUYER, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF INDIANA

Mr. Chairman. Thank you for bringing this measure, H.R. 5, before the Subcommittee. This is timely legislation to ensure that our constituents have access to 

health care. 

H.R. 5 strikes an appropriate and reasonable balance between the need for patients who have been harmed to seek redress and the need of all patients to have 

access to health care services. 

The State of Indiana has been at the forefront of ensuring an effective medical 

liability system. More than 20 years ago, the State of Indiana enacted reform to its 

medical liability system. This system has served the State and its citizens very well 

and has served as a model for other States, including the State of our fine full Committee Chairman. 

Nothing in the legislation we are moving today would inhibit Indiana from keeping its current medical liability system. In Indiana, a medical review panel is convened to review the validity of the medical claims in the case. Indiana law places 

limits on the liability of health care providers. Recovery over this limit is provided 

by a compensation fund managed by the State. Total recovery is capped and attorneys’ fees are capped. Injured patients receive compensation in a timely fashion. 

It is my understanding that under the intent of H.R. 5, Indiana will be able to 

retain the core aspects of its medical liability system. These include, the medical review panel requirement, the total compensation cap, and the limits on providers’ liability. It is also my understanding that, should this legislation be enacted, other 

States could follow Indiana’s lead and adopt similar reform to their systems. 

With these understandings, Mr. Chairman, I urge that the Subcommittee move 

this legislation forward. 

PREPARED STATEMENT OF HON. ERNIE FLETCHER, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF OKLAHOMA

Mr. Chairman, thank you for conducting this hearing today. As a physician, I 

have always tried to do what is best for my patients. As a Member of Congress, I 

still try to do what is best for patients in Kentucky and across America. 

I hear stories about women who have to drive 75 miles or more to have their babies delivered and end up delivering in their cars, because their doctor quit delivering babies or the nearby maternal wards have closed due to out of control medical 

liability premiums. 

What is best for the patient? I believe that unlimited medical liability awards are 

bad for patients, because they cause malpractice insurance prices to climb, resulting 

in more expensive care, fewer doctors, and an access to care problem. Trial lawyers 

argue that limiting awards is bad for patients because it means that the most serious injuries aren’t properly compensated. However, H.R. 5, the Help Efficient, Accessible, Low-Cost, Timely Healthcare (HEALTH) Act of 2003, which I support, actually ensures fair compensation for everyone. We need to keep in mind that everyone is entitled to full compensation for their actual losses, medical bills and wages 

under H.R. 5. This is very fair. 

Punitive damages under the HEALTH Act would be two times economic damages—which are not capped, or $250,000, whichever is greater. Punitive damages 

are meant to send a message, not to compensate the victims. Unfortunately, trial 

28

lawyers have been winning outlandish punitive damage awards—mainly for themselves—at the expense of the patients, providers, and all Americans. 

Its not unusual to hear stories of doctors moving from Kentucky to Indiana or 

from Nevada to California to take advantage of the lower cost of medical liability 

insurance. Passing H.R. 5, the HEALTH Act, which reasonably reforms our liability 

system, will enable insurers to hold premiums at a lower, more constant rate without arbitrarily setting price controls on premiums that further exacerbate the access 

to care problem we face. 

We will hear today from some who do not support comprehensive liability reform, 

claiming that it is the stock market’s fault that we are seeing malpractice liability 

premiums rising. Yet the stock market hit the insurers in Kentucky and Nevada 

as much as they did in California and Indiana. Furthermore, insurance rates did 

not jump in states like California in the past couple of years, as they did in Nevada, 

Pennsylvania, and West Virginia. Having a reasonable limit on pain and suffering, 

which is unquantifiable, and other reforms in H.R. 5 will help improve the current 

unhealthy cycle, which trial lawyers are currently perpetuating. 

Lawsuits are a poor answer to medical events. They don’t prevent injuries and 

they don’t reduce medical errors. But they do create an atmosphere of fear, defensiveness, and distrust in the physician-patient relationship. As a physician, I took 

an oath ‘‘to do no harm.’’ The only bill today that will help physicians to keep that 

oath is one that safeguards safe and timely access to care through reasonable, comprehensive and effective health care liability reform, and H.R. 5 does just that. 

The rapid escalation in medical malpractice awards and the resulting rise in medical liability premiums are major problems that demand action now. It affects patients’ access to quality care, especially women and patients in rural areas. It is 

clear that these excessive awards are driving the cost of health care up, which is 

a major concern for most Kentuckians and Americans. Legislation must be passed 

to control this critical problem both at the state and federal levels. I have strongly 

supported previous attempts to pass reform and will continue to support passage of 

significant medical liability reform.

Mr. BILIRAKIS. We will go right now to the panel. I want to welcome all of you. 

Ms. Heather Lewinsky is, I know, from the Pittsburgh area or 

that is an address, the Buffalo. But we thank her for her courage 

in wanting to come here. There is nothing to be afraid of. 

Mr. Jim Hurley is here on behalf of the American Academy of 

Actuaries; Mr. Heistand is CEO and General Counsel for Californians Allied for Patient Protection; Mr. Rosenfield is the President 

of the Foundation for Consumer and Taxpayer Rights; Ms. Rosenbaum is Hirsch Professor of Health Law and Policy at G W.; Mr. 

Lawrence C. Smarr is President of Physicians Insurance Association of America; and Dr. Donald J. Palmisano is President of the 

American Medical Association. 

Again, welcome. I am going to set the clock to 5 minutes, and 

your written statement is already a part of the record so we would 

hope that you complement it more than anything else. 

Ms. Lewinski, please proceed when you are ready. 

29

STATEMENTS OF HEATHER LEWINSKI; JAMES HURLEY, ON BEHALF OF THE AMERICAN ACADEMY OF ACTUARIES; FRED J. 

HIESTAND, CEO AND GENERAL COUNSEL, CALIFORNIANS 

ALLIED FOR PATIENT PROTECTION; HARVEY ROSENFIELD, 

PRESIDENT, FOUNDATION FOR CONSUMER AND TAXPAYER 

RIGHTS; SARA ROSENBAUM, HIRSCH PROFESSOR OF 

HEALTH LAW AND POLICY, GEORGE WASHINGTON UNIVERSITY MEDICAL CENTER, SCHOOL OF PUBLIC HEALTH AND 

HEALTH SERVICES; LAWRENCE E. SMARR, PRESIDENT, PHYSICIANS INSURERS ASSOCIATION OF AMERICA; AND DONALD J. PALMISANO, PRESIDENT, AMERICAN MEDICAL ASSOCIATION

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. 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 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 that 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 I 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 about all of 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 would get frightened and always thinking about the 

surgery and the pain I would be in. It would get so bad that I actually would have to sleep with my mother for many nights before 

the surgery. That went on with all of my operations, and it did not 

matter whether I was 9 or 13 or 14 years old. This makes me feel 

stupid. Here I am a teenager, but I end up sleeping with my mom 

because I am so afraid of surgery, the hospital and everything that 

goes with it. 

After every surgery I had I would be forced to stay in the hospital for awhile. Then when I go home where I would be in bed or 

on the sofa for weeks. 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 

30

was going to explode. It was like someone had a hammer and kept 

hitting me. 

I remember 1 day we were driving to the hospital for one of my 

surgeries, and it was around Christmas time. There was a song on 

the radio called, It’s a Marshmallow World. I started to cry, and 

I said 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 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 my whole body would hurt 

so bad. I wanted to hide away because I did not want anyone to 

see me. My appearance was so gruesome that no one should have 

to see me. 

From third grade through 8th grade, I missed so much school 

from all 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 until the rest of the 

school year. In fifth, sixth, seventh, and eighth grades, I missed 

anywhere from 3 to 5 months of school each year. I had to have 

tutors and be home schooled all this time. I remember that even 

though I have always been a good student they had to label me 

‘‘special ed’’ because I missed so much time. 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 the 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 is those scars on my face, and they stare. From third 

grade until now, every time I walk into the halls or into class or 

in the cafeteria people are staring. The kids in school constantly 

tease me and called me names like Two Face, the character from 

the Batman movie. I hated to eat in the cafeteria because I could 

not close my mouth, and I would drool. Because of the corner of my 

mouth, the way 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. And 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 two 

to three 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. 

31

Sometimes I wish so hard that there was some magic that I 

could just make myself invisible to other people and 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 kissed 

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 his table with his friends, and they started laughing and 

pointing at me, and I realized it was just a joke. 

The only school dance I ever attended was in ninth grade. It was 

a 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, and he was so nice that he could not 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 I looked like a princess, 

and 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 

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 the dog shows. I think one of the reasons that I like dog training so much is that animals can’t stare 

or laugh at you. 

I will be graduating from high school on time in a few months, 

and I have already been accepted into college. Because of my fears 

of meeting new people. I chose a college that is close to my house 

so I do not have to stay in a dorm with other kids. 

My biggest wish is that someday I will find a boy who will look 

at and see me for what is on the inside of my heart and 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 that 

that will ever happen, so I have made other plans. I will finish college and become a kindergarten teacher. I have always loved babysitting 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 selfsufficient.

I know that the President is trying to make good decisions, but 

if he could see everything that I have gone through for 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 she should be responsible for all the harm 

they cause and not just part of it. I know that nothing could be 

done to change what has happened to me. But I hope that if we 

keep the laws strong, maybe a doctor will be more careful in the 

32

future and no other little girl will have to go through what I have. 

Thank you. 

[The prepared statement of Heather Lewinski follows:]

PREPARED STATEMENT OF HEATHER 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. 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 was not true. This doctor had 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 I 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 ten years and 

I can’t even begin to tell you about all of 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 was 

approaching, I would get very frightened and always thinking about the surgery and 

the pain I will be in. It 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 of my operations, and it did not matter whether I was 9, 13 or 14 years old. This makes me 

feel stupid. Here I am a teenager, but I end up sleeping with mom because I am 

so afraid of surgery, the hospital, and everything that goes with it. 

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. 

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 Christmas time. 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 did not want anyone to see me. My appearance was so gruesome that no one should have to see me. 

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 til the rest 

of the school year. In fifth, sixth, seventh and eighth grades, I missed anywhere 

from 3-5 months of school each year. I had to have tutors and be home schooled 

all this time. I remember that, even though I have 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 

33

see is those scars on my face, and they stare and glare at me. From third grade 

until now, every time I walk in the halls or into 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 could not close my mouth, and I would drool profusely. 

Because of 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 always stay 2-3 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 kissed 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 his table with his other friends, and they all started laughing and 

pointing at me, and I then realized lit was just a big joke. I heard him say something like ‘‘Why would I go out with an ugly two-face loser?’’ 

The only school dance I ever attended was in 9th grade. It was the Valentine’s 

Day dance, and I wanted to go so bad, but no one asked me. I finally asked our 

a boy that lives next to me if he would go with me, and he was so nice that he 

could not say no. I was so excited and my parents really bought me the works—

a new dress, new shoes, make up, 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 

dog shows on the weekend in New York and some other states. I have been real 

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 at you. 

I will be graduating from high school in a few months, and I have already been 

accepted into 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 someday I will find a boy who will look and see me for 

what is on the inside 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 babysitting kids and 

being around them. Little children do not stare so much, and they just accept you 

for what’s 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 for the last ten 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 very much.

Mr. BILIRAKIS. Thank you, Heather, and you are going to be a 

tough act for anyone to follow. 

But Mr. Hurley is next. 

34

STATEMENT OF JAMES HURLEY 

Mr. HURLEY. It is indeed a tough act to follow. Chairman Bilirakis, Ranking Member Brown and members of the subcommittee, 

thank you for inviting me to testify today on behalf of the American Academy of Actuaries. The Academy is the public policy and 

professionalism organization for actuaries practicing in all specialities 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 develops 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 liability to be carried related to coverage already provided. 

The Academy appreciates this opportunity to comment on issues 

related to the availability and pricing of medical malpractice insurance. In the time available, I would like to highlight a few key 

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. This was contributed to by favorable reserve development on prior coverage years and healthy investment returns. Insurers competed aggressively. Health care 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. 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. 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 or reporting from 

AM Best Company, a company that offers comprehensive data to 

insurance professional and tracks these results. The combined ratio 

is an indication about how the company is doing in its insurance 

underwriting. For all companies reporting to AM Best, the combined ratio of 130 percent and 134 percent for 1999 and 2000 respectively, deteriorated to 153 percent for 2001. For underwriting 

this represents a loss of 53 cents on each dollar of premium written 

in 2001. 

Preliminary projections for 2002 are for a combined ratio of just 

under 140 percent. A measure of the overall profitability of insurers is the operating ratio. The AM Best operating ratio adjusts the 

combined ratio for other expense and income items primarily investment income but it is before Federal income tax. The operating 

ratio for 1999/2000 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. Given lower interest income, the 2002 operating ratio 

will probably not improve as much as the projected improvement 

in the combined ratio. At these levels, 2001 and 2002 results are 

35

the worst they have been in 15 years or more, approximating levels 

of the 1980’s. 

This data is clear. Today the loss in operating environment has 

deteriorated. Benefits of favorable reserve development appear to 

be gone and the available investment income offset has declined. 

In fact, some see that the 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 their 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 AM Best. The 

results for these companies are more favorable than the overall industry, but reflect similar deterioration. 

In chart B on page 6 of my testimony, the total after-tax operating income for these companies is shown. 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 impact on surplus chart E on page 8 of my testimony demonstrates the change in surplus from year to year for these same 

companies. Surplus increased through 1999 but at a decreasing 

rate. 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 insurers 

ability to absorb any adverse development on business written in 

prior years. 

This, coupled with voluntary and involuntary withdrawals, for 

example, Saint Paul, MIIX, reciprocal of America has contributed 

to availability problems in addition to affordability problems. Companies continuing to write medical malpractice insurance must interpret the current experience and determine what rates to charge 

for prospective coverage. In addition, tort reform is discussed as 

one means to address the current challenges. The Academy, which 

takes no position for or against tort reform, has previously reviewed and commented on this subject. These observations include, 

one, a package that performs is more likely than individual reforms 

to affect losses and premiums. 

Two, key among reforms is a per medical injury non-economic 

cap at a relatively low level and mandatory collateral source rule. 

Three, poorly crafted reforms can actually increases losses and 

therefore rates. 

Four, we must have reasonable expectations. Reforms may not 

yield immediate rate reductions, particularly given the rate increases being implemented today, since the actual effect including 

judicial confirmation will not be immediately known. Such reforms 

do not affect the economic components of the claim costs, and thus 

severity will still likely drive the need for increases in the future, 

but perhaps at some lower level. Such reform should make the loss 

environment more predictable, encourage market participation and 

reduce concerns of insurers about large subjective non economic 

damage components to claims. 

36

In closing, I should comment on some frequent misconceptions. 

One misconception is that companies are increasing rates to recoup 

stock market losses. This is not true. The rate making process is 

forward looking and does not reflect loadings for past pricing inadequacy or past investment losses. It reflects expectations of future 

loss costs and on the investment side primarily prospective interest 

yields. In general, when prospective bond yields decline, rates will 

increase, all else being equal. Additionally, rates and investments 

are subject to regulatory oversight in most States. A second misconception is that companies cause the current problems. Medical 

malpractice is difficult to price and underwrite successfully which 

is, in part, why companies specializing in the coverage dominate it. 

Companies made decisions in the mid to late 1990’s expecting continuation of recent stable——

Mr. BILIRAKIS. Please finish up, would you, sir. 

Mr. HURLEY. Yes, sir. Unfortunately, the environment changed 

and loss costs increased, favorable reserve development ceased and 

investment yields declined and reinsurance costs jumped. This 

caused rates that need to increase. The Academy and I appreciate 

the opportunity to provide an actuarial perspective to these important issues, and we will be glad to provide the subcommittee with 

any additional information that would be helpful in your deliberation.

Mr. BILIRAKIS. Thank you. Thank you, sir. I am sure we will give 

you an opportunity during the inquiry to finish up. 

[The prepared statement of James Hurley follows:]

PREPARED STATEMENT OF JAMES HURLEY, CHAIRPERSON, MEDICAL MALPRACTICE

SUBCOMMITTEE, AMERICAN ACADEMY OF ACTUARIES

INTRODUCTION

The American Academy of Actuaries appreciates the opportunity to provide comments on issues related to patient access to health care and, in particular, the availability and pricing of medical malpractice insurance. The Academy hopes these comments will be helpful as Congress considers related proposals. 

This testimony discusses what has happened to medical malpractice financial results and its likely effect on rates, tort reform, and some discussion of frequent misconceptions.

MEDICAL MALPRACTICE—WHAT HAS HAPPENED?

The medical malpractice insurance marketplace is in serious turmoil after an extended period of reported of high profitability and competitiveness during the 1990s. 

This turmoil began with serious deterioration in financial results, continued with 

some consequences of these results and, at least at this point, gives rise to an uncertain future. Industry-wide financial results reflect a 2001 combined ratio (the measure of how much of a premium dollar is dedicated to paying insurance costs of the 

company in a calendar year) that reached 153 percent and an operating ratio (reducing the combined ratio for investment income) of about 135 percent; the worst results since separate tracking of this line of business began in 1976. Projections for 

2002 are for a lower combined ratio of approximately 140 percent and probable lesser improvement in the operating ratio. This follows 1999 and 2000 operating ratios 

of 106 percent. 

The consequences of these poor financial results are several. Insurers have voluntarily withdrawn from medical malpractice insurance (e.g., St. Paul, writer of approximately nine percent of total medical malpractice insurance premium in 2000) 

or have selectively withdrawn from certain marketplaces or segments of medical 

malpractice insurance. In addition, several insurers have entirely withdrawn due to 

poor financial results (e.g., Phico, MIIX, Frontier, Reciprocal of America, some of 

which are under regulatory supervision). Overall, premium capacity has been reduced by more than 15 percent. These withdrawals fall unevenly across the states 

37

and generally affect those identified as jurisdictions with serious problems more severely than others. 

Capacity to write business would have decreased even more if not for the fact that 

much medical malpractice coverage is written by companies specializing in this coverage, some of whom were formed for this specific purpose. 

The future outlook is not positive, at least in the short term. Claim costs are increasing more rapidly now than they were previously. Further, the lower interest 

rate environment would require higher premium rates, even if losses were not increasing. The combined effect is that there are likely to be more poor financial results and additional rate increases. 

Background

Today’s premium increases are hard to understand without considering the experiences of the last decade. Rates during this time period often stayed the same or 

decreased relative to the beginning of the period due to several of the following factors:

• Favorable Reserve Development—Ultimate losses for coverage years in the late 

1980s and early 1990s have developed more favorably than originally projected. 

Evidence of this emerged gradually over a period of years as claims settled. 

When loss reserves for prior years were reduced, income was contributed 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 for 30 provider-owned medical malpractice insurers whose results are shown in Chart A. 

What is evident from that chart is that favorable reserve development (shown 

as a percentage of premium) was no longer a significant factor in 2001 for these 

insurers as the effect approached zero. In contrast to the experience of these 

provider-owned insurers, the prior-year reserves for the total medical malpractice line of business actually deteriorated in 2000 and in 2001. 

• Low Level of Loss Trend—The annual change in the cost of claims (frequency and 

severity) through most of the 1990s was lower than expected by insurers, varying from state to state and by provider type. This coincided with historically low 

medical inflation and may have benefited from the effect of tort reforms of the 

1980s. Rates established earlier anticipated higher loss trends and were able to 

cover these lower loss trends to a point. As a result, rate increases were uncommon and there were reductions in several states. This was justified in part because the rates established at the beginning of the last decade proved too high, 

inasmuch as carriers had assumed higher loss trends. 

Insurers responded to the emerging favorable loss trend in different ways. 

Some held rates stable and paid policyholder dividends or gave premium discounts. Some reduced filed rates. Others increased rates modestly and tried to 

refine pricing models to improve overall program equity. In general, however, 

premium adequacy declined in this period. Collected rates came into line with 

insurers’ costs, but competitive actions pushed rates even lower, particularly in 

some jurisdictions. 

• High Investment Yields—During the 1990s, investment returns produced a real 

spread between fixed income rates of return and economic inflation. Counter to 

what some may believe, medical malpractice investment results are based on 

a portfolio that is dominated by bonds with stock investments representing a 

minority of the portfolio. Although medical malpractice insurers had only a 

modest holding of stocks, capital gains on stocks also helped improve overall financial results. These gains improved both the investment income ratio and the 

operating ratio. 

• Reinsurers Helped—Many medical malpractice insurers are not large enough to 

take on the risks inherent in this line of insurance on their own. The additional 

capacity provided by reinsurers allows for greater availability of medical malpractice. Similar to what was happening in the primary market, reinsurers reduced rates and covered more exposure, making the net results even better. 

• Insurers Expanded Into New Markets—Given the financial results of the earlyto-mid-1990s, some insurers expanded into new markets (often with limited information to develop rates). They also became more competitive in existing markets, offering more generous premium discounts. Both actions tended to push 

rates down. 

What Has Changed? 

Although these factors contributed to the profitability of medical malpractice insurance in the 1990s, they also paved the way for the changes that began at the 

end of the decade.

38

• Loss Trend Began to Worsen—Loss cost trends, particularly claim severity, started to increase toward the latter part of the 1990s. The number of large claims 

increased, but even losses adjusted to eliminate the distortions of very large 

claims began to deteriorate. This contributed to indicated rate increases in 

many states. 

• Loss Reserves Became Suspect—As of year-end 2001, aggregate loss reserve levels 

for the industry are considered suspect. Reserve reductions seem to have run 

their course. As mentioned earlier, the total medical malpractice insurance industry increased reserves for prior coverage year losses in 2000 and 2001, although results vary on a company-by-company basis. Some observers suggest 

that aggregate reserves will require further increases, particularly if severity 

trends continue or intensify. 

• Investment Results Have Worsened—Bond yields have declined and stock values 

are down from 1990s highs. The lower bond yields reduce the amount of expected investment earnings on a future policy that can be used to reduce prospective rates. A one percent drop in interest rates can be translated to a premium rate increase of two to four percent (assuming no changes in other rate 

components) due to the several year delay in paying losses on average. A 2.5 

percent drop in interest rates, which has occurred since 2000, can translate into 

rate increases of between 5 percent and 10 percent. Note that this factor may 

discourage an insurer from maintaining market presence and also may discourage new entrants. 

• The Reinsurance Market Has hardened—Reinsurers’ experience deteriorated as 

their results were affected by increased claim severity and pricing changes earlier in the decade. Because reinsurers generally cover the higher layers of 

losses, their results are disproportionately influenced by increases in claim severity. This, coupled with the broadly tightened reinsurance market after Sept. 

11, has caused reinsurers to raise rates substantially and tighten reinsurance 

terms for medical malpractice. 

The bottom line is that these changes require insurers to increase rates if they 

are to preserve their financial health and honor future claim payments. 

The Results 

To obtain a better understanding of the effect of these changing conditions, we 

focus on the results of 30 specialty insurers that are primarily physician owned or 

operated and that write primarily medical malpractice business. Their results reflect the dynamics of the medical malpractice line. This sample represents about 

one-third of the insured exposures in the United States. 

These insurers, achieving more favorable financial results than that of the total 

industry, showed a slight operating profit (four percent of premiums) in 2000. This 

deteriorated to a 10-percent operating loss in 2001 (see Chart B). 

There are two key drivers of these financial results:

• Insurance Underwriting—For these companies, a simplified combined ratio was 

calculated by dividing calendar year loss and loss adjustment and underwriting 

expenses by premium. The combined ratios were 124 percent and 138 percent 

in 2000 and 2001, respectively. That means in 2001, these insurers incurred 

$1.38 in losses and expenses for each $1.00 of premium. The preceding five 

years were fairly stable, from 110 percent to 115 percent. Deterioration of the 

loss and loss adjustment expense ratio drove these results; the underwriting expense ratio remained relatively constant (see Chart C). 

• Investment Income—Pre-tax investment income (including realized capital gains 

and losses) derives from policyholder-supplied funds invested until losses are 

paid as well as from the company capital (‘‘surplus’’). The ability of investment 

income to offset some of the underwriting loss is measured as a percentage of 

earned premiums. This statistic declined during the measurement period from 

the mid-40 percent to the mid-30 percent level and, in 2001, to 31 percent (see 

Chart D). 

This offset will continue to decline because (i) most insurer-invested assets are 

bonds, many of which were purchased before recent lower yields, and interest earnings do not yet fully reflect these lower yields; and (ii) the premium base is growing 

due to increased rates and growth in exposure. Invested assets are not increasing 

as rapidly as premium and, therefore, investment income as a percentage of premium will decline. 

The effect of these results on surplus is reflected in Chart E, which shows the 

percent change in surplus from one year to the next. Surplus defines an insurer’s 

capacity to write business prospectively and to absorb potential adverse loss development on business written in prior years (see Chart E). 

39

Tort Reform 

Some states enacted tort reform legislation after previous crises as a compromise 

between affordable health care and an individual’s right to seek recompense. The 

best known is the Medical Injury Compensation Reform Act or MICRA, California’s 

tort reform package. Since MICRA’s implementation in 1975, California has experienced a more stable marketplace and lower premium increases than have most 

other states. 

Tort reform has been proposed as a solution to higher loss costs and surging rates. 

Many are suggesting reforms modeled after California’s MICRA, although some 

have cautioned against modifying the MICRA package. The Academy, which takes 

no position for or against tort reforms, has previously reviewed and commented on 

this subject. Based on research underlying the issue, we observe the following:

• A coordinated package of tort reforms is more likely than individual reforms to 

achieve savings in malpractice losses and insurance premiums. 

• Key among the reforms in the package are a cap on non-economic awards (on a 

per-event basis and at some level low enough to have an effect; such as 

MICRA’s $250,000) and a mandatory collateral source offset rule. 

• Such reforms may not assure immediate rate reductions, particularly given the 

size of some increases being implemented currently, as the actual effect, including whether or not the reforms are confirmed by the courts, will not be immediately known. 

• These reforms are unlikely to eliminate claim severity (or frequency) changes but 

they may mitigate them. The economic portion of claims is not affected if a noneconomic cap is enacted. Thus rate increases still will be needed. 

• These reforms should reduce insurer concerns regarding dollar awards containing 

large, subjective non-economic damage components and make the loss environment more predictable. 

• Poorly crafted tort reforms could actually increase losses and, therefore, rates. 

FREQUENT MISCONCEPTIONS

In closing, it might 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. 

The vast 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. 

Stocks 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 by stock 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. In many cases, 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 very 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 benefited from favorable reserve development from prior coverage years. Unfortunately, 

the environment changed on several fronts (loss cost levels increased, in several 

states significantly; the favorable reserve development ceased; investment yields declined; and reinsurance costs jumped. 

40

While one can debate whether companies were prudent in their actions, today’s 

rate increases reflect a reconciliation of rates and current loss levels, given available 

interest yields. There is no added cost for past mispricing. Thus, although there was 

some delay in reconciling rates and loss levels, the current problem reflects current 

data.

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. Several companies 

have suffered serious adverse consequences 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, is now in the process of withdrawing from this 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.


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Mr. BILIRAKIS. Let’s see. Mr. Hiestand. Is that correct? 

Mr. HIESTAND. Hiestand. 

Mr. BILIRAKIS. Thank you. 

STATEMENT OF FRED J. HIESTAND

Mr. HIESTAND. There was once a Member of Congress, actually 

there were two by that name. But I don’t know whether we are related. Anyway I appreciated hearing the opening remarks of everyone, and sort of feel from listening to that, that I am not sure how 

much we have to teach you. You seem to be well versed on it. But 

it does sound to me simply like deja vu all over again, as Yogi 

Berra would say. Because when I first had my baptism over this 

issue, it was back in California in 1974 through 1976 when Henry 

Waxman, who was then the chairman of the Assembly Health 

Committee, asked if I would be the consultant on medical malpractice because a number of health care providers, professional associations, had said to him at the time as the chairman of the 

Health Committee, that this was a burgeoning problem. 

They had experienced just a couple of years previously, some 

very large increases in their malpractice rates, and they wanted 

him to look into it and see what could be done. I think Mr. Waxman asked me to get involved because we worked together, and I 

knew nothing about the subject, meaning I didn’t have a bias one 

way or the other, though I suppose since my background was as 

a poverty and public interest lawyer up until then, I had a bias, 

it was sort of plaintiff-oriented. The notion that we would all had 

been taught in law school was the purpose of the tort system was 

to restore people to whole and restoring people to whole meant 

every kind of damage that could be brought to bear on the subject 

in the way of compensation. 

But I did what you are all familiar with doing when I became 

the consultant of this committee, and that is, go around and interview all the experts on the subject, the self-identified and other recognized experts, and then we set up hearings and we held a number of hearings and produced a committee report that made recommendations that are now mirrored in H.R. 5 the heart of it I 

would say, the recommendations on collateral source, you know, 

other sources of income that injured people are entitled to receive 

for the injuries they are suing on, besides just the damages from 

the defendant, periodic payments for future injuries that people are 

going to get, or future damages that they would get; sliding contingency fee scale so that the more seriously injured patients got a 

larger share of the income than the attorney and so forth. 

Now, one of the recommendations that fell on the cutting room 

floor and turns out to be the heart of MICRA was the limit on noneconomic damages. That was felt when the preliminary report 

came out in June 1974 predicting that there was going to be a crisis, but, of course, we predicted what everybody told us with the 

exception of the organized plaintiffs bar that there was a crisis and 

that was going to hit some time soon. You predict those things and 

you never know whether you are going to be accurate or not. We, 

unfortunately, were more accurate than we wanted to be because 

December of that year, California physicians, hospitals and othVerDate jul 14 2003 13:49 Sep 09, 2003 Jkt 086534 PO 00000 Frm 00046 Fmt 6633 Sfmt 6602 W:\DISC\86049 86049
43

ers were hit with 400 percent increases in their malpractice insurance premiums. 

And Mr. Waxman left and came back to Congress. I was still sort 

of stuck there as consultant to the Select Committee, which Howard Berman had taken over at the time. And we had been discussing what we were going to do with that committee in his office 

when the calls came in from the reporters about the increase in the 

malpractice rate. 

So the crisis hit California, but at least we had some recommendations about what to do about it that had been based on 

a 2-year study and a lot of hearings. And Governor Brown called 

a special session and asked if I would be his advisor on malpractice, and that is when he really put his finger on what I think 

is one of the early seminal views about why you probably need to 

limit non-economic damages when you have this kind of a crisis. 

He asked me if anything had been left on the cutting room floor, 

Governor Brown did in the way of recommendations, and I said 

yeah, the limit on non-economic damages. He asked why. I said it 

was felt to be maybe too draconian, too controversial, so we just left 

it out. 

And he said, well, what is controversial about it and I said limiting people for non economic damages just didn’t strike people 

right. And his remark to me was, have you read Roger Traynor’s 

dissenting opinion in the case of Seffert versus L.A. Transit Authority? And to those of you not familiar with Roger Traynor, he 

was the chief justice for the California Supreme Court for a number of years, one of the most respected liberal jurists and the father 

of modern products liability law, a big believer in loss spreading. 

Roger Traynor’s dissenting opinion in that case, which was, in 

1962, over an award of about $54,000 said, you know, you can’t 

continue to pay people for non-economic damages if you really want 

to compensate them for their true losses. 

But that is not for the courts to decide, he said. It is for the legislature. So Governor Brown suggested that we do limit non-economic damages, and when the democratically controlled legislature 

faced with that crisis, they came up with a limit of $250,000, which 

seems, according to the Office of Congressional Office of Technology 

Assessment, the Rand Corporation and the Health and Human 

Services Agency, has been the single most important factor responsible for keeping malpractice premiums from skyrocketing out of 

hand in California. 

So we like what you are doing in H.R. 5. We think things have 

been stable in California for more than a quarter of a century now 

as a result of MICRA. We wish we never had to face the crisis, but 

it turns out we came up with a solution that seems to work. And 

we hope it would work for everybody else. Thank you. 

[The prepared statement of Fred J. Hiestand follows:]

PREPARED STATEMENT OF FRED J. HIESTAND, CEO AND GENERAL COUNSEL,

CALIFORNIANS ALLIED FOR PATIENT PROTECTION

Mr. Chairman and Members of the Committee: Thank you for the invitation to 

share with you the background of how California learned to control what was once 

its own runaway medical liability insurance crisis. 

From 1974-76, I was immersed in an emergency over the cost and availability of 

medical liability insurance for California doctors and hospitals—first as the consultVerDate jul 14 2003 13:49 Sep 09, 2003 Jkt 086534 PO 00000 Frm 00047 Fmt 6633 Sfmt 6621 W:\DISC\86049 86049
44

ant to the Legislative Committee that studied its causes and predicted its occurrence, and then as advisor to the Governor and the Legislature who had to come 

to grips with it through the enactment of legal reforms. Now and for the past four 

years I have served as CEO and General Counsel to CAPP, a broad based organization of health care providers, professional medical associations, medical liability carriers and community clinics dedicated to preserving and protecting those very legal 

reforms that took effect in 1976 and tamed our state’s medical liability crisis. This 

almost thirty year journey of biography as history underscores that what we learn 

from the past may help us to avoid repeating its unfortunate excesses. It also counsels CAPP and our allies to support federal efforts to bring uniformity and certainty 

to the malpractice crises now afflicting numerous states through legislation modeled 

on California’s experience, such as HR 5. Here, in a ‘‘nutshell’’ is that history. 

THE CALIFORNIA EXPERIENCE, OR DEJA VU ALL OVER AGAIN

In late 1974 California physicians and hospitals were shocked by announcements 

from the major insurance companies writing medical liability coverage for them that 

their premiums needed to be raised 400%. This calamity was predicted by the Assembly Select Committee on Medical Malpractice in a report issued earlier that 

summer by its chairman, Assemblyman Henry A. Waxman, which warned that: 

[M]edical malpractice group insurance rates for doctors have increased more 

than four hundred percent (400%) in just two brief years between 1968 and 

1970; [moreover,] [t]he medical malpractice insurance market is a highly unstable one and, if rates continue to escalate as they have in the past few years, 

malpractice insurance carriers may be priced outside the market. 

(Preliminary Report, Assembly Select Committee on Medical Malpractice, June 

1974, Pp. 3-4.) 

Waxman’s warning was prescient, though it did not anticipate the suddenness or 

severity of California’s medical malpractice insurance crisis. Alarmed hospitals and 

physicians responded to it by restricting medical care to emergencies. Access to 

needed health care was jeopardized for Californians in the same way it is today 

threatened for citizens in Florida, New York, Nevada, Kentucky, Ohio, Pennsylvania, West Virginia and other states undergoing their own medical malpractice insurance crises. Within a few months newly elected Governor Jerry Brown called an 

extraordinary session of the Legislature in which he proclaimed: 

The cost of medical malpractice insurance has risen to levels which many physicians and surgeons find intolerable. The inability of doctors to obtain such insurance at reasonable rates is endangering the health of the people of this 

State, and threatens the closing of many hospitals. The longer term consequences of such closings could seriously limit the health care provided to hundreds of thousands of our citizens. 

(Proclamation of Governor Edmund G. Brown, Jr. to Leg. (May 16, 1975) Stats. 1975 

(Second Ex. Sess. 1975-1976) p. 3947.) 

Not everyone agreed at the time that there was a real crisis in California. Personal injury attorneys charged, as they do today about the catastrophes sweeping 

other states, that California’s malpractice insurance emergency was ‘‘contrived,’’ a 

result of bad stock market losses by insurers. To separate fact from fantasy California’s Joint Legislative Audit Committee ordered the Auditor General to undertake 

a study to determine the reasons for the crisis. In December 1975 that study, contracted by the Auditor General to Booz-Allen Consulting Actuaries, reported that 

‘‘premiums paid by California doctors for medical malpractice insurance have increased significantly over the past fifteen years, but have not kept pace with increasing claim costs; [and] the average premium in 1976 is expected to be about five 

times higher than the 1974 average.’’ (California Medical Malpractice Insurance 

Study, Report by Booz, Allen & Hamilton, Inc. for the Office of the Auditor General, 

State of California, Dec. 5, 1975, Pp. 1-2.). 

By the time the Auditor General reported that California’s malpractice insurance 

crisis was indeed ‘‘real,’’ the Legislature enacted the Medical Injury Compensation 

Reform Act of 1975 (‘‘MICRA’’). MICRA’s purpose is stated in its preamble: 

The Legislature finds and declares that there is a major health care crisis in 

the State of California attributable to skyrocketing malpractice premium costs 

and resulting in a potential breakdown of the health delivery system, severe 

hardships for the medically indigent, a denial of access for the economically 

marginal, and depletion of physicians such as to substantially worsen the quality of health care available to citizens of this state. The Legislature, acting within the scope of its police powers, finds the statutory remedy herein provided is 

intended to provide an adequate and reasonable remedy within the limits of 

45

what the foregoing public health and safety considerations permit now and into 

the foreseeable future. 

(Stats. 1975, Second Ex. Sess. 1975-1976, ch. 2, § 12.5, p. 4007.) 

THE ‘‘KEY LEGAL REFORMS’’ FOR TAMING RUNAWAY MALPRACTICE LITIGATION AND

LIABILITY PREMIUMS

The ‘‘statutory remedy’’ that tamed runaway malpractice premium costs was comprehensive and dealt with major changes in the regulation of the medical profession, 

insurance and legal reforms. Most of these reforms were recommended by the Assembly Select Committee on Medical Malpractice that Henry Waxman chaired in 

1974 and Governor Jerry Brown urged be adopted in his proclamation calling the 

Legislature into a special session to solve the crisis. MICRA’s legal reforms curbed 

unfair practices and inefficiencies in our system for resolving medical malpractice 

disputes. It put a ceiling of $250,000 on exploitive non-economic ‘‘pain and suffering’’ 

damages, and assured full compensation for economic losses: wages, medical bills, 

rehabilitation and custodial care for as long as necessary. 

MICRA also permits arbitration of medical liability disputes, lets the jury know 

of other payments a plaintiff is receiving for the same injuries sued on, marshals 

and preserves resources for ongoing care of the plaintiff by allowing periodic payment of future damages, and assures that the most severely injured plaintiffs get 

a proper share of any recovery by requiring that attorneys’ contingency fees be paid 

on a sliding scale—the larger the recovery the smaller the lawyer’s percentage. 

MICRA achieved for California stable and, in comparison to the rest of the country, reasonably affordable malpractice insurance premiums charges. States without 

MICRA reforms are now experiencing their own version of California’s mid-1970s 

medical liability crisis. Since 1975, California’s premiums have risen 168 percent, 

while the average U.S. premium has increased 420 percent. Today, as the chart 

below shows, the average annual liability premium for an Ob/gyn doctor in California is $48,700, half the average doctors pay in the rest of the country.

THE IMPORTANCE OF THE $250,000 CEILING ON NON-ECONOMIC DAMAGE

A seminal opinion upholding the validity of MICRA against constitutional attack 

affirmed that ‘‘the goal of [the $250,000 limit on recoverable non-economic damage] 

[is] to ensure the availability of health care and the enforceability of judgments 

against health care providers by making medical malpractice insurance affordable. 

The amount of non-economic damages is still limited to $250,000 for each injured 

plaintiff and thus will not result in ‘‘the unknown possibility of phenomenal awards 

for pain and suffering that can make litigation worth the gamble.. .’’ (Fein v. 

Permanente Medical Group (1985) 38 Cal.3d 137, 163.)

Courts have consistently and repeatedly made clear the purpose of MICRA and 

its non-economic damage provision:

The legislative history of MICRA does not suggest that the Legislature intended 

to hold down the overall costs of medical care but instead demonstrates...that

the Legislature hoped to reduce the cost of medical malpractice insurance, so 

that doctors would obtain insurance for all medical procedures and would resume full practice; indeed, in this respect [available] statistics suggest that 

MICRA was in fact successful. The statistical information before the Legislature


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1 Bovbjerg & Sloan, No-Fault for Medical Injury: Theory and Evidence (1998) 67 U. Cin. L. 

Rev. 53, 62 (italics added). For empirical evidence on the impact of tort reforms, see Danzon, 

The Frequency and Severity of Medical Malpractice Claims (1984) 27 J.L. & Econ. 115; Hamilton, Rabinowitz, & Alschuler, Inc., Claim Evaluation Project (1987); Danzon, The Frequency 

and Severity of Medical Malpractice Claims: New Evidence (1986) 49 Law & Contemp. Probs. 

57; Sloan et al., Effects of Tort Reforms on the Value of Closed Medical Malpractice Claims: A 

Microanalysis (1989) 14 J. Health Pol. Pol’y & L. 663. 

indicated, however, that insurance costs amounted to only a small percentage 

of overall medical costs (see, e.g., Assem. Select Com. on Medical Malpractice 

Preliminary Rep. (June 1974) p. 49), and thus in an era of substantial inflation—as experienced in the late 1970’s—even the total elimination of mal- practice insurance premiums could not reasonably have been expected to reduce the 

overall cost of medical care.

(American Bank & Trust Co. v. Community Hosp. of Los Gatos (1985) 36 Cal. 3d 

359, 373; italics added.) 

Restricting recovery for non-economic loss is neither a novel nor radical notion. 

Former Chief Justice Roger Traynor, the father of modern products liability law and 

advocate for ‘‘spreading the loss’’ of injury compensation through insurance, long ago 

recognized the need to cabin these subjective and highly elastic damages. In Seffert

v. L.A. Transit Authority (1961) 56 Cal.2d 498, Traynor dissented from approval of a non-economic damage award of $134,000 in a negligence action to a woman whose 

foot was injured while boarding a city bus and whose economic losses were about 

$54,000. There has been forceful criticism of the rationale for awarding damages for pain 

and suffering in negligence cases. Such damages originated under primitive law 

as a means of punishing wrongdoers and assuaging the feelings of those who 

had been wronged. They become increasingly anomalous as emphasis shifts in 

a mechanized society from ad hoc punishment to orderly distribution of losses 

through insurance and the price of goods or of transportation....[¶ ] [A]ny 

change in this regard must await reexamination of the problem by the Legislature.

When the Legislature followed Justice Traynor’s suggestion and reexamined the 

problem of non-economic damage awards in the context of the malpractice insurance 

crisis of 1975, it decided to cap them at $250,000. The considered judgment of the 

Legislature and the Governor was that limiting recovery for non-economic damages 

to that amount would dampen the skyrocketing cost of medical malpractice insurance. This policy decision has withstood numerous legal challenges because it is 

right.

The continuing availability of adequate medical care depends directly on the 

availability of adequate insurance coverage, which in turn operates as a function of costs associated with medical malpractice litigation. Accordingly, MICRA 

includes a variety of provisions, all of which are calculated to reduce the cost 

of insurance by limiting the amount and timing of recovery in cases of professional negligence. [¶ ] MICRA thus reflects a strong public policy to contain the 

costs of malpractice insurance by controlling or redistributing liability for damages, thereby maximizing the availability of medical services to meet the state’s 

health care needs. With specific reference to [the ceiling on non-economic damage], this court has also observed that ‘‘[o]ne of the problems identified in the 

legislative hearings was the unpredictability of the size of large non-economic 

dam- age awards, resulting from the inherent difficulties in valuing such damages and the great disparity in the price tag... different juries place on such 

losses. The Legislature... reasonably... determined that an across-the-board 

limit would provide a more stable base on which to calculate insurance rates.’’ 

(Western Steamship Lines, Inc. v. San Pedro Peninsula Hospital (1994) 8 Cal.4th 

100, 112, citing and quoting from Fein v. Permanente Medical Group, supra, 38

Cal.3d at 163.) 

MICRA’s non-economic damage cap and those from nineteen other states echoing 

it have arrested spiraling malpractice insurance premium charges. As one scholarly 

study 1 states:

The weight of empirical evidence suggests that... some of the legal reforms had 

the intended effect of stabilizing liability insurance markets and reducing the 

overall level of medical malpractice payments. The largest reductions in payments and premiums were attributable to a few provisions, notably caps on 

awards and modifications of the collateral source rule . . . Other studies about the benefits of the damage cap on malpractice insurance rates 

reached the same conclusion. A 1995 study by the American Academy of Actuaries 

found, for example, that in California (since MICRA was enacted) medical malVerDate jul 14 2003 13:49 Sep 09, 2003 Jkt 086534 PO 00000 Frm 00050 Fmt 6633 Sfmt 6621 W:\DISC\86049 86049
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2 Actuaries Use States’ Experiences To Argue For Comprehensive Malpractice Reforms, 22

Health Legislation & Regulation 47 (Nov. 27, 1996)(Faulkner & Gray, Inc.). 3 Id.

4 Id.

5 ‘‘A study released this week by Medical Liability Monitor...found that four insurers are 

charging Cleveland-area obstetricians from $74,581 to $152,496 this year for malpractice coverage . . . A bill pending with the Ohio legislature would place a $300,000 cap on non-economic 

awards for pain and suffering in medical malpractice... Nineteen states already have limits, ranging from $200,000 to $1 million...[T]he average premium for obstetricians nationwide was $56,546. In states with tort reform, that figure ranges from $17,786 to $55,084.’’ (Powell, Docs

Preach at Practices—Physicians Say Limiting Malpractice Awards will Lower Insurance Costs, 

Akron Beacon Journal, Oct. 10, 2002, p. 1.) 6 U.S. Congress, Office of Technology Assessment, Impact of Legal Reforms on Medical Malpractice Costs, OTA-BP-H-119, p. 64 (Washington, D.C.: U.S. Gov’t. Printing Office, Oct. 1995). 7 Confronting the New Health Care Crisis: Improving Health Care Quality and Lowering Costs 

by Fixing our Medical Liability System 12 (Health and Human Services: July 24, 2002). 8 Id. at p. 14. 9 Id. at p. 17. 10 Hiestand, MICRA Management, Los Angeles Daily J., March 4, 1999, p. 6. 

practice costs have fallen substantially from about 28 percent of the national total 

in 1975 to about 10 percent in 1994—while California’s share of physicians held 

steady at 15 percent.2 Paralleling this decrease, the state’s portion of national malpractice premium costs was sliced in half. In New York, however, where a damage 

cap was never enacted despite the adoption of other piecemeal reform measures over 

the years, there were no observable improvements in the state’s relative costs. New 

York’s physician population hovered between 12 and 14 percent of the national 

total, but its malpractice losses zigzagged from just above 16 percent of the national 

cost in 1975 to 22 percent in 1979, to about 15 percent in 1985, and back to above 

22 percent in 1993.3 Ohio experienced a gradual decline—about one percent from 

4 to 3 percent—in costs following tort reforms enacted in 1975.4 This package included a cap on damages that was challenged in court in 1982, resulting in sharp 

increases that peaked in 1985 (at 6 percent) when the cap was overturned. Ohio’s 

loss payments remained fairly constant until this year, when premium charges spiraled over the top for doctors in high risk specialties.5

In 1995, the congressional Office of Technology Assessment also confirmed that 

‘‘caps on damage awards were the only type of State tort reform that consistently 

showed significant results in reducing the malpractice cost indicators.’’ 6 This same 

conclusion was recently reached by the federal Department of Health and Human 

Services (HHS), which reported that ‘‘a major contributing factor to the most enormous increases in liability premiums has been the rapidly growing awards for noneconomic damages in states that have not reformed their litigation system to put 

reasonable standards on these awards.’’ 7 The HHS report emphasizes that the medical malpractice insurance crises now engulfing twelve states ‘‘is less acute in states 

that have reformed their litigation systems. States with limits of $250,000 or 

$350,000 on non-economic damages have average combined highest premium increases of 12-15%, compared to 44% in states without caps on non-economic damages.’’ 8

The HHS study credits MICRA, especially its ceiling on recoverable non-economic 

loss, for holding down medical malpractice insurance rate increases and keeping 

open access to health care: 

California has more than 25 years of experience with this reform. It has been 

a success. Doctors are not leaving California. Insurance premiums have risen 

much more slowly than in the rest of the country without any effect on the 

quality of care received by residents of California. Insurance premiums in California have risen by 167% over this period while those in the rest of the country 

have increased 505%. This has saved California residents billions of dollars in 

health care costs and saved federal taxpayers billions of dollars in the Medicare 

and Medicaid programs.9

MICRA’s substantial public benefits through reduced malpractice premium costs 

have not come at the expense of plaintiffs’ ability to be fairly compensated for their 

losses. ‘‘Leading malpractice carriers report that between 1984 and 1997 payments 

to [medical] malpractice plaintiffs... increased 139 percent while inflation grew less 

than half that amount (54.5%) and health care costs rose less than 120 percent.’’ 10

A plaintiff in a $400,000 medical malpractice case in 1984, where half the 

award was for non-economic damage, today would receive $1.195 million, or 

$442,500 more than what the injury is worth measured by the rise in the cost 

of living. This result is likely due to plaintiffs’ attorneys creatively exploiting 

48

11 Id.

what they get (unlimited economic loss) to offset the MICRA limit [on non-economic loss].11

Numerous scholarly studies show that the $250,000 ceiling on non-economic damages is a major factor accounting for the principal difference between California’s 

stability and the chaos of other states in professional liability coverage costs. Despite these savings, the average malpractice settlement and award in California, adjusted for post-MICRA inflation, is greater today than it was before MICRA. Without MICRA, pay outs by California carriers on behalf of health care providers sued 

for professional liability would mirror the claims experience of other states and send 

corresponding coverage costs through the roof. 

California’s medical malpractice disputes are settled 23 percent faster than in the 

rest of the country. The cost of settlements is 53 percent lower than the national 

average. The Congressional Budget Office stated that medical malpractice reform 

like California’s will result in savings of $1.5 billion over ten years. The congressional study does not include the hidden costs of defensive medicine. A Stanford 

University study shows that California’s medical liability reforms would save the 

national health care system $50 billion a year in defensive medicine costs. Reducing 

health care costs safeguards access to medical care for those who lack basic health 

coverage.

MICRA is a proven success. Medical liability no longer deprives our citizens of access to health care. Congress and other states now look to the California experience 

as they try to fashion solutions to the growing emergency with medical liability insurance. MICRA continues to prove that providing fair and equitable compensation 

for those negligently injured can be achieved in ways that preserve an orderly insurance marketplace and maintain access to quality health care. It is a success for Californians, and if enacted by Congress will benefit patients and taxpayers nationally.

Mr. BILIRAKIS. Thank you very much Mr. Hiestand. 

Mr. Rosenfield. 

STATEMENT OF HARVEY ROSENFIELD 

Mr. ROSENFIELD. Thank you, Mr. Chairman. Good morning, 

members of the committee. My name is Harvey Rosenfield. I am 

the president of the, Foundation for Taxpayer and Consumer 

Rights, which is a Los Angeles-based consumer and citizen advocacy organization. Mr. Chairman, what brought us to the table at 

this hearing today, would be an effort to stop the epidemic of medical malpractice, which claimed the lives of between 100- and 

150,000 Americans every year in hospitals alone. 

Instead, we are worrying about how much doctors have to pay for 

medical malpractice coverage, though for most of them, it is between 1 and 5 percent of their annual revenues, and it is tax deductible. And all the premiums for medical malpractice and all the 

payments by insurance companies for claims amount to an infinitesimal fraction of our national health care expenditures. 

Nevertheless, because of the doctors on strike and some doctors 

experiencing tremendous rate increases, we are here today to talk 

about whether MICRA will lower insurance premium. And on that, 

California can give some guidance because there is a law in California that lowered insurance premiums for doctors and that refunded $135 million in premiums to physicians. I was the author 

of that law. It was not MICRA. It was proposition 103. 

If I could have Exhibit 1, please, on the presentation. If you look 

at the chart that is contained in the second page of our testimony, 

you will see the following: In 1975 the legislature passed MICRA 

in the midst of a crisis, panicked, doctors striking, special session 

of the legislature. Rates after MICRA passed, between then and 

1988 with a brief dip after the insurance crisis of the 1970’s ended 

49

and the insurance industries performance in the economy improved, premiums for physicians rose between 1975, and 1988, 

under MICRA, 450 percent. 

Physicians point out that MICRA, the cap in MICRA was not 

upheld until February 1985. Between 1985 and 1988, which was 

the second insurance crisis in the last three decades when the insurance companies ran into trouble with their investments and interest rates dropped, between those years, after the MICRA cap 

was upheld as constitutional, premiums went up 47 percent alone 

in those 3 years. During the 13 years of MICRA, insurance companies, medical malpractice insurers operating in California, paid out 

only 31 cents in claims for every dollar they took in. 

In 1988, the voters got fed up with the absence of lower insurance premiums, despite repeated so-called tort reform in California, 

and so they put proposition 103 on the ballot. Proposition 103 mandated a rate freeze, a 20 percent rollback, stringent regulation of 

the profits expenses, and most importantly for our debate today, 

projections of future losses. It repealed the industry’s antitrust exemption, created an elected insurance commissioner, and gave the 

public the right to challenge unjustified rate changes. Insurance companies spent $80 million to try to defeat prop 103 

at the ballot box, which gives you some idea of the amount of fear 

that is reflected in the fact that to this day, and before this committee, you are going to be told that it didn’t work, even though 

the results are in disputable. Proposition 103’s $1.2 billion in rate 

refund checks included $135 million from medical malpractice insurers to physicians. 

And don’t you believe that when they tell you today that oh, 

these insurance companies were going to roll back their rates anyhow, because they fought prop 103 bitterly in the courts. They 

spent tens of millions of dollars on attorneys’ fees to try to stop 

that initiative, and only when they lost everything did they finally 

understand as an industry that they had to role back $1.2 billion 

in premiums. After proposition 103 passed in the 13 years that we 

have data for, premiums went down 20 percent in the first 3 years, 

and then between then, 1988 and 2001, premiums in California for 

medical malpractice went down an average of 2 percent. 

Tort reform has never lowered insurance premiums anywhere in 

the country at any time, any kind of tort reform. The insurance industry itself has admitted that in Florida and other States. Why 

does 103 work? 103 works because the crisis concerns the investment and interest rate and investment income of the insurance 

companies and the fear of regulation and the actual regulation of 

prop 103 lowered insurance premiums. Mr. Chairman, I have 1 

minute to talk about MICRA if I may, please. If you will indulge 

that.

Mr. BILIRAKIS. Go ahead, sir. 

Mr. ROSENFIELD. Here is what MICRA has done in California. 

For those of you who really want to understand what it has done, 

it has prevented innocent victims of medical malpractice from getting lawyers because the combination of the caps on the damages, 

the sliding scale caps on the attorney’s fees, and the requirement 

that taxpayer programs pay for the victims before the doctor or the 

negligent hospital or the insurance company pay, has made it fiVerDate jul 14 2003 13:49 Sep 09, 2003 Jkt 086534 PO 00000 Frm 00053 Fmt 6633 Sfmt 6602 W:\DISC\86049 86049
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nancially economically impossible for attorneys to take all but the 

most serious cases involving all but the most wealthy people. 

Health care, which HMO based financial driven health care, in 

which bean counters make decisions about how the quality of medicine is delivered, combined with the MICRA caps, have been a disaster for this State. 

I want to conclude with this, Mr. Chairman. For 200 years, 

American juries have been deciding how to allocate personal responsibility in our country. I want to say that the principle that 

should guide this committee as the Congresswoman suggested at 

the beginning, should be the principle that ought to be followed by 

the American Medical Association and the minority of American 

doctors who are following the AMA in this campaign against the 

rights of patients. First do no harm. With all due respect to members of this committee, I ask you, why you should substitute your 

judgment for juries. I ask you to search your hearts and explain to 

us, tell us who are you to tell Heather Lewinski how much her 

pain and suffering is worth? Thank you very much, Mr. Chairman. 

[The prepared statement of Harvey Rosenfield follows:]

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Mr. BILIRAKIS. Thank you very much, sir. 

Ms. Rosenbaum. 

STATEMENT OF SARA ROSENBAUM 

Ms. ROSENBAUM. Good morning Mr. Chairman, members of the 

subcommittee. I am a law professor at the George Washington University Medical Center, and I am particularly cognizant of the 

problems that malpractice insurance premium cost increases are 

causing for my colleagues. And I have great hope that this committee and Congress ultimately can find a legislative approach to 

this problem that will give them some relief. My background as a 

law professor has me regularly read statutes and my conclusion 

about the legislation that is before you today is that this bill, read 

in its most common sense fashion, goes far, far beyond the problem 

that, it is my understanding, you are here to address. 

There are two problems or two issues that this bill really deals 

with, and it has two pieces of operating legislative proposals in 

them. One is provisions designed to regulate the procedures that 

are used in the health care lawsuit, as the bill defines them. The 

other is a preemption of certain kinds of claims against health care 

providers and manufacturers in health care lawsuits. It is the preemption part of this bill that I want to focus on. 

In the legislation, the term health care lawsuit is defined as any 

health care liability claim concerning the provision of health care, 

goods and services, regardless of the theory of liability on which 

the claim is based. A liability claim is a demand by any person, 

whether or not against a health care provider, which is based on 

the provision of use of or payment for health care services. 

Because of the choices made in drafting this bill, the concept of 

who are plaintiffs, who are defendants and what is a claim covered 

by the preemption provisions of the bill are enormous. Plaintiffs, 

because the word any is used in describing any person, could be 

State attorneys general, could be an assistant United States attorney, it could be government officials acting under the color of law, 

pursuing civil or criminal charges that result in monetary award 

or monetary damages, civil money penalties, anything that results 

in the payment of money. 

It is really not clear where the limits end on who is a plaintiff. 

And in addition, the—because the bill reaches both actions and 

claims, the use of the word ‘‘action’’ is quite distinct from the use 

of the word ‘‘claim.’’ an action is a common term of art in drafting 

used to describe enforcement actions as well as individual civil actions. Defendants, of course, are limitless in this bill because of the 

use of the term ‘‘manufacturer,’’ provider of health care goods and 

services. The kinds of claims that would fall within the ambit of 

this bill, even though the procedural provisions might not apply, 

but the claims that would be preempted go far, far beyond common 

law or statutory claims arising under State law that involve professional negligent on the part of physicians. 

Claims that sound in fraud, claims that sound in unfair practices, violations of civil rights laws, violations of labor laws, potentially violations of criminal laws, violations of consumer protection 

statutes, violation of antitrust laws, violations of environmental 

laws. All of these claims, potentially, are swept into the preemption 

85

provisions of the statute. And the preemption provisions reach Federal laws as well, because the bill is quite clear in which laws are 

saved. But interestingly, it saves defenses, but it doesn’t save 

claims. So Federal fraud claims, Federal antitrust claims, Federal 

civil rights claims, criminal claims, environmental law claims, labor 

claims. I could not find the end point of the claims in this bill. 

My testimony provides you with examples actually drawn mostly 

from either cases that have been litigated in court or that are 

pending at this point involving the kinds of claims resulting in 

large financial recoveries that might or might not be a preempted 

claim under this bill. The examples range from hundreds of millions of dollars in restitution as a result of RICO violations by large 

health care corporations to toxic waste dumping, by manufacturers 

of medical care goods and devices, to, obviously, billions of dollars 

in claims brought by people injured when they use a pharmaceutical drug or device as directed. 

All of this seems to fall within the ambit of this bill, and I think 

that, in that sense, the bill goes well beyond what you need to do 

in order to provide reliever to physicians. Thank you. 

[The prepared statement of Sara Rosenbaum follows:]

PREPARED STATEMENT OF SARA ROSENBAUM, HAROLD AND JANE HIRSH PROFESSOR, HEALTH LAW AND POLICY, INTERIM CHAIR, DEPARTMENT OF HEALTH POLICY, THE

GEORGE WASHINGTON UNIVERSITY MEDICAL CENTER, SCHOOL OF PUBLIC HEALTH

AND HEALTH SERVICES

Mr. Chairman and Distinguished Members of this Subcommittee: I am a professor 

of health law and policy at the George Washington University, specializing in health 

services law. I am the co-author of one of the nation’s leading health law textbooks 

and have regularly appeared as a Congressional witness over the past 25 years. 

Thank you for inviting me to present testimony on H.R. 5, The Help Efficient, Accessible, Low Cost, Timely Healthcare (HEALTH) Act of 2003. My testimony will 

focus on the scope of the legislation’s proposed shield against non-economic damages 

with respect to the plaintiffs whose claims would be affected, the corporate defendants that would benefit from the shield, and the types of injuries that would be 

shielded.

H.R. 5 is drafted broadly and is ambiguous in its use of terms and definitions. 

However, reading the bill in a common sense fashion, I have concluded that this 

measure is so vast in scope that it reaches every conceivable health care claim 

against every health care corporation or manufacturer of health care products, regardless of whether the violation of law in question bears any relationship to what 

would reasonably be considered the types of injury commonly associated with the 

concept of medical liability. In this sense the measure extends far beyond its popular billing as one related to the crisis facing physicians and other medical professionals in individual practice. 

KEY ELEMENTS OF H.R. 5

H.R. 5 would establish federal standards for causes of action that fall within a 

new federal definition of ‘‘health care lawsuit.’’ The term ‘‘health care lawsuit’’ is defined as 

‘‘any health care liability claim concerning the provision of health care goods or 

services affecting interstate commerce, or any health care liability action concerning the provision of health care goods or services affecting interstate commerce, brought in a State or Federal court or pursuant to an alternative dispute 

resolution system, against a health care provider, a health care organization, 

or the manufacturer, distributor, supplier, or market, promoter or seller of a 

medical product, regardless of the theory of liability on which the claim is based 

* * *’’ § 9(7)

A health care liability claim means 

A demand by any person, whether or not pursuant to ADR against a health care 

provider, health care organization, or the manufacturer, distributor, supplier, 

marketer or promoter or seller of a medical product * * * which are based on 

the provision of, use of, payment for (or the failure to provide, use or pay for) 

86

health care services or medical products, regardless of the theory of liability on 

which the claim is based * * * § 9(9)

The term ‘‘health care goods or services’’ means 

Any goods or services provided by a health care organization, provider or by any 

individual working under the supervision of a health care provider that relates 

to the diagnosis, prevention or treatment of any human disease or impairment 

or the assessment of the health of human beings.’’ § 9(12)

The term ‘‘medical product’’ encompasses both drugs and devices as defined under 

the federal Food, Drug and Cosmetic Act. § 9(14). Because it would be the Sense of 

Congress that a ‘‘health insurer should be liable for harm caused when it makes 

a decision as to what care is medically necessary and appropriate,’’ § 13, I interpret 

this provision to extend a shield to managed care organizations for both acts of medical negligence and negligent medical decision-making in the context of coverage of 

coverage determinations. 

THE SCOPE OF THE SHIELD AGAINST DAMAGES IN H.R. 5

The popular understanding of this legislation, as reflected in press coverage, is 

that it is intended to shield individual clinical practitioners against punishing liability judgments. However, the bill’s actual reach is breathtaking. 

Plaintiffs

Because the definitions reach actions by ‘‘any’’ person, I interpret this to cover individual, private legal claimants as well as State Attorneys General and the U.S. 

Attorney General representing the public interest under public laws that permit financial recoveries of any kind (money damages, civil money penalties, fines, and 

other financial penalties). 

I have reached this conclusion based on the fact that the bill specifically reaches 

both ‘‘action’’ and ‘‘claim,’’ and that a customary use of the term ‘‘action’’ is to describe governmental enforcement actions that may carry criminal, injunctive or 

monetary penalties. The bill appears to contain no provision that exempts enforcement actions brought by federal or state public officials. 

Defendants

The sweep of the above-cited definitions mean that any corporate defendant engaged in the ‘‘health care’’ business would be covered by the shield, regardless of 

the size of the corporation or the nature of the offense. The only exception to the 

shield would be if an individual plaintiff could prove either a deliberate failure on 

the defendant’s part to avoid unnecessary injury or a malicious intent to injure, 

which is defined as ‘‘intentionally causing or attempting to cause physical injury 

other than providing health care goods or services.’’ § 9(13).

Claims

The measure appears to encompass within the scope of the claims to which the 

shield applies every conceivable health care liability claim under law, not simply 

claims involving professional medical negligence of a clinical nature. Thus, criminal 

laws, laws to prevent anticompetitive conduct, civil rights law, worker protection 

law, and environmental laws all appear to fall within the ambit of the protection. 

Every conceivable claim appears to be affected regardless of underlying theory (defenses would be preserved). Examples of State law claims theories are:

• common law or statutory medical negligence claims (either individual or against 

medical care corporations under vicarious or direct theories) 

• common law and statutory law theories of product liability such as breach of express or implied warranty, failure to warn, general corporate negligence, defective design, defective manufacturing 

• fraud and deceit 

• unfair trade practices 

• civil rights laws 

• labor law (including worker protection statutes) 

• criminal law 

• consumer protection 

• antitrust law 

• environmental laws 

Examples of Federal law claims apparently covered by the Act are:

• fraud and abuse (e.g., RICO, False Claims Act) 

• antitrust (Sherman Act, Clayton Act, other laws) 

• civil rights laws 

• criminal statutes 

87

• federal food and drug laws including standards for the production and sale of prescription and over-the-counter drugs and devices and dietary supplements 

• federal environmental health laws 

• federal labor laws 

• federal contract enforcement laws that provide for liquidated damages 

• restitution to the extent that restitution is not understood to be part of economic 

damages

The only federal law that appears to be saved is the federal Vaccine Injury program. Otherwise, only federal defenses are preserved. H.R. 5, § 10.

EXAMPLES OF CLAIMS AFFECTED BY THE LEGISLATION

The following examples are meant to be illustrative of the types of claims that 

are filed (or could be filed) against providers of health care goods and services or 

manufacturers, suppliers, or promoters of medical products:

• A nationwide, publicly traded managed care corporation, with full access to the 

medical records of an exceedingly high risk pregnant woman, denies round-the 

clock inpatient preterm management care and orders part day home care instead. An hour after the nurse leaves for the day, the woman goes into preterm 

labor and loses her baby before they can be transported to the hospital. The corporation rebuffed both the overwhelming evidence in her case (including a similar previous labor) as well as all appeals by her physician. 

• A renowned organ transplant medical center fails to institute the most basic ‘‘redundancy’’ safeguards within its organ transplant surgery program, such as deliberate and repetitive matching of donor and recipient blood types. As a result, 

the wrong organs are transplanted and the patient dies. 

• A national health care corporation is sued by the United States Attorney for 

knowingly and deliberately overcharging ERISA subscribers hundreds of millions of dollars in premiums by deliberately concealing the actual cost of goods 

and services covered, even while promising to pay 80% of subscribers’ claims. 

In some cases, subscribers actually paid nearly 80% of the claim as a result of 

fraud. The federal government seeks billions of dollars in restitution. 

• A restraint of trade action is brought by generic drug manufacturers against large 

pharmaceutical companies for price-fixing, with the potential for recovery of treble damages under U.S. antitrust law. 

• A False Claims Act case is instituted against a large for profit hospital chain for 

deliberately overcharging the federal government by manufacturing unnecessary surgeries through its cardiac care centers. 

• A national nursing home chain is accused by HHS and the U.S. Attorney of deliberately incentivizing its members to engage in a series of unsafe practices, ranging from over-medication to the unlawful use of restraints. The same chain is 

accused by the Department of Labor of numerous violations of federal occupational safety violations. 

• A manufacturer of medical devices develops a form of contraceptive that when 

used as directed causes death and injury including rare and oftentimes fatal 

septic abortions. 

• A pharmaceutical company manufacturers a drug which, when used as directed, 

causes a rare form of malignant vaginal cancer. 

• A device manufacturer develops a heart valve that when inserted as directed, actually results in valve failures caused by fractures at the point at which struts 

were welded to the valve rings. 

• A large manufacturer of health care goods and services fails to exercise reasonable 

care when getting rid of toxic manufacturing materials and succeeds in poisoning the water supply of a community. 

• A pharmaceutical manufacturer produces an appetite suppressant that when 

taken as directed causes heart valve abnormalities, disability and death. 

Virtually none of these claims relates to specific acts of professional negligence by 

individual clinicians while furnishing health care to patients. They all involve acts 

by in many cases enormous corporations, and range from violations of health laws 

to violations of every conceivable form of state or federal law that relates to health 

care services or the manufacturing of health care products. 

I am happy to answer questions.

Mr. BILIRAKIS. Thank you, Ms. Rosenbaum. 

Mr. Smarr. 

88

STATEMENT OF LAWRENCE E. SMARR 

Mr. SMARR. Chairman Bilirakis, Congressman Brown and committee members, I am Larry Smarr, and I am the president of the 

Physician Insurers Association of America. The PIAA is an association comprised of professional liability insurance companies that 

are owned and/or operated by doctors, dentists hospitals and other 

health care providers. Our 43 member companies really can be 

characterized as health care professionals caring for the professional liability risk of their colleagues, doctors insuring doctors, 

hospitals insuring hospitals. We believe that our member companies insure over 60 percent of the private practicing physicians in 

the United States. 

Over the past 3 years, medical liability insurers have seen their 

financial performance deteriorate substantially due to the rapidly 

rising costs of medical liability claims. The primary driver of the 

deterioration has been paid claims severity or the average cost of 

a paid claim. This has been confirmed by the president of the National Association of Insurance Commissioners in its February 7 

letter to Senator Gregg, which is attached to my written testimony. 

Exhibit A before you shows the average dollar amounts paid in 

indemnity to plaintiffs on behalf of the individual physicians since 

1988. The mean payment amount has risen by a compound annual 

growth of 6.9 percent over the past 10 years, as compared to 2.6 

percent for the consumer price index. The data for this exhibit 

comes from the PIAA data-sharing project, which is 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 by the PIAA member companies. 

Right now there are over 180,000 claims and suits in this data 

base. One very troubling aspect is the proportion of those claims 

and suits filed, which are ultimately determined to be without 

merit. As shown on Exhibit B, 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 33.2 percent of all 

claims closed were found to be meritorious, with most of these 

being made through settlement. 

When claims are concluded at verdict, the defendant prevailed an 

astonishing 80 percent the time. As shown in Exhibit C, the mean 

settlement amount on behalf of an individual defendant was just 

over $299,000. Most medical malpractice cases have multiple defendants, and thus these values are below those which may be reported on a case basis. The mean verdict amount last year was almost $497,000. 

Exhibit D shows the mean expense payment for claims by category or 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. And we win 80 percent of these. Exhibit E 

shows the distribution of claim payments at various payment 

thresholds. It can be readily seen that the number of larger payments represented by the upper bars on this chart 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 the individual practitioners in 2001 as shown in exhibit F. 

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This percentage has doubled in the past 4 years. Insurers rely on 

investment income to offset premium needs. Medical malpractice 

insurers are primarily invested in high grade bonds and have not 

lost large sums in the stock market. Brown Brothers Harriman, a 

leading investment and asset management firm in a recent investment research report states that over the last 5 years, the amount 

medical malpractice companies have invested in equities has remained fairly constant. 

In 2001, the equity allocation was 9.03 percent. As Exhibit G 

shows, medical liability insurance companies invested significantly 

less in equities than did all property casualty insurers with med 

mal being the short black bar on that exhibit. While insurer interest income has declined due to falling market interest rates, when 

interest rates declined, bond values increase. This has had a beneficial effect in keeping total investment income level when measured as a percentage of total invested assets. This is shown on Exhibit H. Thus the assertion that insurers have been forced to raise 

their rates because of bad investments is simply not true. The answer to the current problem, the PIAA firmly believes is the adoption of effective Federal health care liability reform similar to the 

California MICRA reforms enacted in 1975. 

The keystone of the MICRA reforms is the $250,000 cap on noneconomic damages. These reforms are similar to the provisions of 

H.R. 5 passed by—which is before you now. Last year’s bill, H.R. 

4600, was scored by the CBO as providing over $14 billion in savings to the Federal Government, and an additional $7 billion to the 

States. Using annual data published by the National Association of 

Insurance Commissioners, Exhibit I documents the savings California practitioners and health care consumers have enjoyed since 

the enactment of MICRA over 25 years ago. 

As shown, total malpractice premiums reported to the NRC since 

1976 have grown in California by 167 percent, compared to 505 

percent in the rest of the Nation. These savings are clearly demonstrated in the rates charged to California doctors as shown on 

Exhibit J. Successful experience in California and other States, 

such as Wisconsin, make it clear that MICRA style tort reforms do 

work without lowering health care quality or limiting access to 

care. Now we have heard about prop 103. Prop 103 actually had 

no effect on California medical liability or premiums. 

In an effort to derail desperately needed tort reforms, the Association of Trial Lawyers of America and related individuals and 

groups have stated that the beneficial effects shown on Exhibits I 

and J are due to prop 103. This is just not true. Medical liability 

insurers were not the intended target of prop 103, but were nonetheless subject to it. However, given the high level of dividends 

being paid by medical malpractice insurers at the time, they were 

not required by the insurance commissioner to roll back rates. 

While malpractice insurers did make one-time refunds equal to 20 

percent of 1 year’s premium, which, in these amounts, were improved in normal dividends they were paying during that period of 

time.

Prop 103 did not result in the lowering of insurance rates and 

did not result in the return of additional moneys that would have 

ordinarily been paid through the normal insurance dividend procVerDate jul 14 2003 13:49 Sep 09, 2003 Jkt 086534 PO 00000 Frm 00093 Fmt 6633 Sfmt 6602 W:\DISC\86049 86049
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ess. The PIAA strongly urges members of the committee to support 

and pass legislation, which will assure full payment of a truly injured payment’s economic losses as well as up to $250,000 in noneconomic damages, thereby assuring fair compensation for patients, 

and also assuring Americans that they will be able to receive necessary health care services. Thank you. 

[The prepared statement of Lawrence Smarr follows:]

PREPARED STATEMENT OF LAWRENCE E. SMARR, PRESIDENT, PHYSICIAN INSURERS

ASSOCIATION OF AMERICA

INTRODUCTION

Chairman Bilirakis, Congressman Brown and Committee Members, 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 

about the need for the enactment of H.R.5, The Help Efficient, Accessible, Low-cost, 

Timely Healthcare (HEALTH) Act of 2003. 

As we all know, professional liability insurance premiums for doctors and hospitals are rapidly rising in many states 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 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. The 

PIAA member insurance companies 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 

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. 

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 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. 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 

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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 that 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 insurers’ 

incurred losses and expenses 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 

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 in 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. 

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1Did Investments Affect Medical Malpractice Premiums? Raghu Ramachandran, Brown 

Brothers Harriman, January 2003. 2Did Investments Affect Medical Malpractice Premiums? Raghu Ramachandran, Brown 

Brothers Harriman, January 2003. 

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%.’’ As Exhibit 6 

shows, medical liability insurers invested significantly less in equities than did all 

property casualty insurers. 

Brown Brothers states that the equity investments of medical liability companies 

‘‘. . . had returns similar to the market as a whole. This indicates that they maintained a diversified equity investment strategy. 

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 liability 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: 

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 declining 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. 

93

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, and 

their associated expenses. The National Association of Insurance Commissioners 

(NAIC) confirmed this in a February 7, 2003 letter to Senator Judd Gregg, which 

states in part: ‘‘The preliminary evidence points to rising loss costs and defense 

costs associated with litigation as the principal drivers of medical malpractice 

prices.’’ (letter attached) 

Exhibit 10 shows the average dollar amount 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 database, which was created in 1985 for the purpose of identifying common 

trends among malpractice claims. PIAA member companies use the database for 

risk management and patient safety purposes. To date, over 180,000 claims and 

suits have been reported to the database. 

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 indemnity 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 (2001) 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 14 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 

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(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 

damages. An important component of MICRA is a reasonable limitation on plaintiff 

attorney contingency fees, which 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 are 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. 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 would result in savings of $14.1 billion to 

the federal government through Medicare and other health care programs for the 

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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 

$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, 4 Background on Insurance Reform—A Detailed Analysis of California Proposition 103,. 

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 that 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 20, 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 needed 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 21 are due to Proposition 103, a ballot initiative passed in 1988 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:

• 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 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 that intervene in 

hearings conducted by the Department of Insurance 3.

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 reducing 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. 

Prop 103 added a provision to the California Insurance Code at Section 1861.01, 

which required insurers to roll back their rates to 20 percent lower than those in 

effect on November 8, 1987. However, this is not what happened to medical malpractice insurers. 

One major California insurer, the NORCAL Mutual Insurance Company reached 

the very first consent agreement of any insurer with the California Department of 

Insurance in November of 1991. To satisfy the requirements of Prop 103, 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 by 

March 31, 1992. NORCAL was not required to roll back its rates as a result of Prop 

103. As NORCAL was already paying dividends exceeding 20% per year during the 

period in question, no additional monies were returned to policyholders as a result 

of Prop 103. The experience of other California physician owned companies, such as 

The Doctors’ Company and the Medical Insurance Exchange of California, was similar to that of NORCAL. Even if California medical liability insurers had been reVerDate jul 14 2003 13:49 Sep 09, 2003 Jkt 086534 PO 00000 Frm 00099 Fmt 6633 Sfmt 6621 W:\DISC\86049 86049
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quired 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 that 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 to pass effective federal health 

care liability reform, thereby stopping the exodus 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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NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS

February 7, 2003

Honorable JUDD GREGG

Chairman, Committee on Health, Education, Labor, and Pensions 

United States Senate 

Washington, DC 20610-6300

DEAR CHAIRMAN GREGG: On behalf of the National Association of Insurance Commissioners (NAIC), I am pleased to respond to your letter of January 31, 2003 requesting information on medical malpractice insurance. Many states are experiencing escalating premium costs for this critical insurance coverage for doctors, 

while also encountering problems of availability and insufficient capacity to support 

a healthy competitive market.

State insurance commissioners share the concerns you and other Members of Congress are raising about improving the availability and affordability of medical malpractice insurance. We are vested with the responsibility of protecting the rights of 

consumers and assuring that insurers remain financially solvent and able to meet 

their claims obligations. While the recent trends in some states over limited availability and escalating premiums make oversight critical, we would caution that any 

reforms be considered carefully, especially in recognition of reforms already enacted 

in several states.

In September 2002, we established a Market Conditions Working Group to look 

at these issues more closely and based upon that review make recommendations to 

regulators. The working group has scheduled a public hearing on Saturday, March 

8, 2003. We are hopeful this hearing and other efforts will help guide state and federal policymakers as they work to explore potential solutions. We will look forward 

to sharing with you the results of this hearing.

Our responses to the questions in your letter are as follows:

(1) Are medical malpractice insurance rates subject to state law prohibitions on excessive, inadequate, or unfairly discriminatory rates?

Almost all states have rating laws for property and casualty insurance, including medical malpractice. These rating laws require that insurance rates not 

be excessive, inadequate, or unfairly discriminatory.

(2) If a state determines that a rate is excessive, inadequate, or unfairly discriminatory, does the insurance regulator have the authority to reject or modify such 

a rate?

If a state receives a filing from an insurer that contains a rate that is believed 

to be out of compliance with the statutory rating standards, there are remedies 

available to address the problem. The most common regulatory approach available to insurance regulators is the ability to order a hearing on the non-complying rate. In states with prior approval laws, the commissioner generally has


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authority to disapprove the non-complying rate, however the insurer is generally provided an opportunity for a hearing if it disagrees with the commissioner’s decision. Only in rare instances does an insurance commissioner have 

authority to unilaterally modify a filed rate. Because of extremely high loss ratios in many states, regulator concerns have been with rate inadequacy, and not 

excessiveness or unfair discrimination. 

(3) If states do have this authority, can you provide any examples where a state 

insurance regulator has rejected or modified an excessive or unfairly discriminatory medical malpractice insurance rate? 

We are not aware of any recent state actions in this regard. State insurance 

regulators generally do have the authority to prevent anti-trust activities by insurers. These state laws are based on the NAIC model rating laws, which contain the following provisions. 

‘‘No insurer or advisory organization shall attempt to monopolize, or combine or conspire with any other person to monopolize an insurance market or 

engage in a boycott, on a concerted basis, of an insurance market.’’

‘‘No insurer shall agree with any other insurer or with an advisory organization to mandate adherence to or to mandate use of any rate, prospective 

loss cost, rating plan, rating schedule, rating rule, policy or bond form, rate 

classification, rate territory, underwriting rule, survey, inspection or similar 

material, except as needed to facilitate the reporting of statistics to advisory 

organizations, statistical agents or the commissioner. The fact that two or 

more insurers, whether or not members or subscribers of an advisory organization, use consistently or intermittently the same rates, prospective loss cost, 

rating plans, rating schedules, rating rules, policy or bond forms, rate classifications, rate territories, underwriting rules, surveys or inspections or similar 

materials is not sufficient in itself to support a finding that an agreement exists.’’

‘‘No insurer or advisory organization shall make any arrangement with any 

other insurer, advisory organization, or other person which has the purpose 

or effect of unreasonably restraining trade or lessening competition in the 

business of insurance.’’

States generally have adopted the NAIC model law provisions or equivalent 

provisions, thus comparable authority currently exists. Again, due to extremely 

high loss ratios, the concern has been with rate inadequacy. 

(4) The Leahy legislation presumes that medical malpractice insurance carriers are 

engaging in ‘‘price fixing, bid rigging, and market allocation.’’ Does the NAIC, 

or any of your members have evidence that medical malpractice insurance carriers are engaging in these types of criminal behaviors? If so, could you detail 

that information for us? 

No. To date, insurance regulators have not seen evidence that suggests medical malpractice insurers have engaged or are engaging in price fixing, bid rigging, or market allocation. The preliminary evidence points to rising loss costs 

and defense costs associated with litigation as the principal drivers of medical 

malpractice prices. A July 2002 report prepared by the Department of Health 

and Human Services also cites the impact of litigation and defense costs on this 

line of insurance. 

(5) Notwithstanding the McCarran-Ferguson exemption from federal anti-trust laws, 

do state insurance regulators and attorneys general have the authority to prevent ‘‘price fixing, bid rigging or market allocations’’ under current state law? 

If so, could you explain the deficiencies in those laws and provide us with proposed remedies? 

As noted in the previous question, states have strong laws that prohibit pricefixing and anti-competitive practices by insurers. The sharing of loss data 

among insurers is permitted, however, because it is necessary to encourage competition by giving potential new entrants to the marketplace and smaller insurers enough underwriting and rate-setting information to enter and remain viable in the medical malpractice marketplace. Again, the evident points to high 

loss ratios, not price-fixing, as the primary driver of escalating premiums. 

(6) What percentage of the medical malpractice insurance market is composed of 

non-profit physician-owned mutuals? What incentive or incentives, if any, do 

you think these types of medical malpractice carriers face that would cause 

them to engage in ‘‘price fixing, bid rigging or market allocations?’’

Non-profit physician-owned mutual insurers have developed in response to 

market availability concerns. Since the owners of these mutuals are also the 

customers, it would appear on the surface that market allocation might be occurring. Careful inspection will show that a mutual insurer is concerned with 

its policyholders’ interests. Since each policyholder is also an owner of the comVerDate jul 14 2003 13:49 Sep 09, 2003 Jkt 086534 PO 00000 Frm 00112 Fmt 6633 Sfmt 6621 W:\DISC\86049 86049
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pany and the company is a non-profit entity, the goal of the mutual insurer is to 

deliver medical malpractice insurance to its policyholder/owners as inexpensively as possible. To do otherwise would contradict the goals of the mutual and 

jeopardize its non-profit status (7) Finally, if the Leahy legislation were to be enacted, would it lower the underlying medical malpractice claims costs and stabilize medical liability insurance 

premiums? If yes, in what way would it do so? No, we do not believe enactment of the Leahy legislation as originally drafted 

would change the underlying costs of malpractice claims or premiums. We now understand this language is being modified. The reason insurers are not writing, or 

are pulling back from medical malpractice insurance, is because there are many 

other lines of insurance that offer more opportunities for profit at a lower risk. The 

uncertainties and historical return in this line of business lead many commercial 

insurers to commit capital in other lines of commercial insurance. It is our experience this market will remain volatile in some states until such time as claims costs 

stabilize.

Finally, while we are seeing difficult market conditions in some states, it is by 

no means widespread in all states. Like all insurance markets, medical malpractice 

insurance markets vary from state to state. However, the cost drivers in all states 

are closely linked to claims losses. I hope this information is helpful, and we look forward to being of assistance as 

your Committee continues its review of these issues. The NAIC and its members 

stand ready to provide whatever data and resources we have available to help Congress and the states improve the market for medical malpractice insurance. 

Sincerely,

MIKE PICKENS

Commissioner of Insurance, Arkansas, President, NAIC 

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Mr. BILIRAKIS. Thank you, Mr. Smarr. 

Dr. Palmisano. 

STATEMENT OF DONALD J. PALMISANO 

Mr. PALMISANO. Good morning. I am Donald Palmisano, president-elect of the American Medical Association and a surgeon in 

New Orleans. The policy of the American Medical Association is decided through a Democratic policymaking process involving physician delegates representing every State, nearly 100 national specialty medical societies, Federal service agencies and other group 

sections. AMA policy dictates support for national medical liability 

reform. My testimony represents this policy. Thank you, Mr. Chair, 

for inviting the AMA to participate in today’s hearing. I want to 

express our gratitude to you, Representatives Greenwood, Cox and 

Tauzin, and other cosponsors of H.R. 5 for your efforts to bring reasonable reforms to our broken medical liability system. 

Mr. Chair, you know that our health care system is facing a crisis when patients have to leave their State to receive urgent surgical care or when pregnant women cannot find an OB-GYN physician to monitor their pregnancy and deliver their baby, or when 

community health center have to reduce their services or close 

their doors because of liability insurance concerns. You know that 

our health care system is facing a crisis when physicians and other 

health care professionals believe they work in a culture of fear 

rather than a culture of safety, or when efforts to improve patient 

safety and quality are stifled because of lawsuit fears. 

Escalating jury awards and the high cost of defending against 

lawsuits, even meritless claims, are causing medical liability insurance premiums to soar. Over the past 2 years, many physicians 

have been hit with medical liability premium increases of 25 to 400 

percent as reports show the average jury award reaching $3.5 million.

As medical liability insurance becomes unaffordable or unavailable, physicians are forced to close their practices or drop vital 

services seriously affecting patient access to care. Twelve states are 

currently in a crisis, and we are concerned that more States will 

be in a full-blown crisis in the near future. Several recent government and private sector reports confirm that the cause of the liability crisis is the unrestrained escalation of jury awards. Opponents 

claim that the soaring medical liability insurance premiums are the 

result of declining investments in the insurance industry, and that 

liability reforms do not stabilize the insurance markets. These 

claims are misleading based on flawed analysis and contrary to the 

facts.

AM Best recently reported 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 sources, including Brown Brothers Harriman’s recent study, conclude that ‘‘investment did not precipitate the current crisis.’’

In Florida, a nonpartisan taskforce recently found the recommendation that the greatest long-term impact on health care 

provider liability insurance rates, and thus eliminate the crisis of 

availability and affordability of health care in Florida, is a 

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$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.

In addition, studies show that the tort system is an extremely inefficient mechanisms for compensating patients, returning less 

than 50 cents on the dollar already to claimants, and less than 22 

cents for actual economic losses. 

Mr. Chair, as you have recognized, the time for action is past 

due. We must act now to fix our broken medical liability system. 

That is why the AMA is here supporting H.R. 5, and that is why 

we join with numerous members of a broad based coalition known 

as the Health Coalition on Liability and access to urge this Congress to promptly reform the medical liability system. We must 

bring common sense back to our courtrooms so that patients have 

access to their physicians, whether in emergency rooms, delivery 

rooms or operating rooms. In effect, we need to have balance. We 

need to make sure that all of the patients in America have access 

to care. Thank you. 

[The prepared statement of Donald J. Palmisano follows:]

PREPARED STATEMENT OF DONALD J. PALMISANO, ON BEHALF OF 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 gratitude to you, Mr. Chair, and Representatives Jim Greenwood (R-PA), Chris Cox (R-CA), Billy Tauzin (R-LA), and 

other cosponsors of H.R. 5 for providing a much needed focus for action at the national level. 

I am Donald Palmisano, MD, JD, President-elect of the AMA and a general and 

vascular surgeon from New Orleans, LA. The policy of the AMA is decided through 

its democratic policy-making process in the AMA House of Delegates, which meets 

twice a year. Our House is comprised of physician delegates representing every 

state, nearly 100 national medical specialty societies, federal service agencies (including the Surgeon General of the United States), and six sections representing 

hospital and clinic staffs, resident physicians, medical students, young physicians, 

medical schools, and international medical graduates. AMA policy dictates support 

for national medical liability reform. In particular, the AMA supports H.R. 5, the 

HEALTH Act. 

Mr. Chair, you know that our health care system is facing a crisis when patients 

have to leave their state to receive urgent surgical care. You know that our health 

care system is facing a crisis when pregnant women cannot find an OB/GYN to 

monitor their pregnancy and deliver their baby. You know that our health care system is facing a crisis when community health centers have to reduce their services 

or close their doors because of liability insurance concerns. You know that our 

health care system is facing a crisis when dedicated professionals, who have trained 

for years, want to give up the work of a lifetime and retire. You know that our 

health care system is facing a crisis when physicians and other health care professionals believe they work in a culture of fear, rather than a culture of safety. You 

know that our health care system is facing a crisis when efforts to improve patient 

safety and quality are stifled because of lawsuit fears. An unrestrained medical liability system is driving our health care system into crisis. 

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. That is why we are here supporting H.R. 5, and that is why we join with 

numerous other members of a broad-based coalition known as the Health Coalition 

for Liability and Access to urge this Congress to promptly reform the medical liability system. 

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ACCESS TO CARE IS AT RISK

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. Over the past two years, many physicians 

have been hit with medical liability premium increases of 25 to 400 percent. Some 

hospitals have seen premiums increase 140 percent in the same time period. 

The most troubling aspect of this crisis is its impact on patients. As insurance becomes unaffordable or unavailable, physicians are being forced to close their practices or drop vital services—all of which seriously impede patient access to care. 

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. According to the American Hospital Association’s 2002 TrendWatch 1, more than 26% of health care institutions have reacted to the liability crisis by cutting back on services, or even eliminating some 

units.

A 2002 survey conducted by Wirthlin Worldwide shows that 78 percent of 

Americans say they are concerned about access to care being affected because doctors are leaving their practices due to rising liability costs. 

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. On top of this, we expect at least five more states to be in a full blown crisis in the near future, with 

a crisis looming in at least 26 other states. A sample of media reports in the appendices to this testimony illustrates the problems faced by patients and physicians in 

some of these states—problems many other states will face if effective tort reforms 

are not enacted. 

We must bring common sense back to our courtrooms 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. 

In his State of the Union Address last month, 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. 

Recent Federal Government Reports 

In a July 2002 report released 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. This federal government report states that insurance premiums are largely determined by the litigation system, and that the litigation system is inherently costly, unpredictable, and slow to 

resolve claims. Just to defend a claim now costs on average over $24,000. 

Further, 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 squandered on fruitless legal wrangling—resources that could be 

used to reduce health costs so that more Americans could find health insurance.

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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. The federal government 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. (emphasis added) 

This federal government update further highlights that liability insurance rates 

are escalating faster in states that have not established reasonable limits on 

unquantifiable and arbitrary non-economic damages. The government’s report states 

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 non-economic damages have not experienced the same rate spiking. 

(emphasis added) 

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 medical 

liability premiums. In Florida, which does not limit non-economic damage awards, 

OB/GYNs paid up to $211,000 for liability coverage. 

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. 

In Florida, as indicated in the example given above, 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.’’

Recent Private Sector Reports 

Evidence that the litigation system is broken, and that the medical liability crisis 

is growing, is further established in a study released by Tillinghast-Towers Perrin 

on February 11, 2003. Tillinghast reported that ‘‘The cost of the U.S. tort system 

grew by 14.3% in 2001, the highest single-year percentage increase since 1986,’’ 

which is ‘‘equivalent to a 5% tax on wages.’’ This is the only study that tracks the 

cost of the U.S. tort system from 1950 to 2001 and compares the growth of tort costs 

with increases in various U.S. economic indicators. Some of the key findings of this 

study are stunning:

• The U.S. tort system is a highly inefficient method of compensating injured parties, returning less than 50 cents on the dollar to people it is designed to help 

and returning only 22 cents to compensate for actual economic loss. 

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• As of 2001, U.S. tort costs accounted for slightly more than 2% of GDP, signaling 

an increase after a 13-year decline in the ratio of tort costs to GDP. • While the cost of the U.S. tort system has increased one hundred fold over the 

last fifty years, GDP has grown by a factor of only 34. • Medical malpractice costs have risen an average of 11.6% a year since 

1975 in contrast to an average annual increase of 9.4% for overall tort 

costs, outpacing increases in overall U.S. tort costs. 

The study also adds that ‘‘These trends continued in 2002, with no sign of abatement in the near future.’’ In a press release accompanying this study, a Tillinghast 

principal stated that, ‘‘Absent sweeping tort reform measures, we expect most of 

these trends to continue in 2003 and beyond.’’

In a 2001 report by Jury Verdict Research, data show that in just a one year period (between 1999 and 2000) the median jury award increased 43 percent. Further, 

median jury 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.

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. 

Blaming Insurance Industry Investments Is A Red Herring 

Organizations opposing H.R. 5 have claimed 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. The reports discussed above, as well as several other authoritative and credible studies, reveal such 

claims to be misleading, based on flawed analysis, and contrary to the facts. 

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 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.’’

In addition, a summary of medical liability insurer annual statement data in A.M. 

Best’s Aggregates & Averages, Property-Casualty, 2002 edition shows that the investment yields of medical malpractice insurers have been stable and positive since 

1997. A.M. Best reports that medical liability insurers have approximately 80% of 

their investments in the bond market. Also, 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. 

The report on which H.R. 5 opponents base most of their speculations, produced 

under the direction of J. Robert Hunter for the Americans for Insurance Reform 

(AIR), is flawed in a number of ways. The AIR/Hunter study purports 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 

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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 statespecific 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. 

In addition to claiming that the current medical liability crisis is an insurance 

issue, there have been attempts to argue that medical liability insurance premium 

rates in California have remained stable because of Proposition 103, not because of 

the successful medical liability reforms (known as MICRA—discussed later) that 

have been in place in California since 1975. Such claims are misguided. Proposition 

103, also known as the Insurance Rate Reduction and Reform Act, applies to all 

lines of insurance, not just medical liability insurance. It was passed as an initiative 

by the voters in 1988 (thirteen years after MICRA), yet did not take effect until 

1989. This is when the state’s high court struck down its rate rollback provisions 

while maintaining the remainder of the law. 

Proposition 103 implemented a basic standard that ‘‘no rate shall be approved or 

remain in effect which is excessive, inadequate, unfairly discriminatory or otherwise 

in violation of this chapter.’’ However, Proposition 103 provides that ‘‘every insurer 

which desires to change any rate shall file a complete rate application with the commissioner.’’ Proposition 103 also requires that the Department of Insurance grant 

a hearing for a challenge to any increase above 15 percent for commercial lines of 

insurance.

According to Californians Allied for Patient Protection, ‘‘Insurers have regularly 

applied for and obtained significant rate increases in all lines of insurance, except 

medical liability where MICRA has kept the rates from rising astronomically. Between September and the end of October, 2002, for instance, the Insurance Department approved more than 75 applications for double-digit increases in insurance 

rates.’’ None of these approved increases included medical liability insurance. This illustrates that Proposition 103 is not responsible for keeping medical 

liability premiums down. Rather, as we discuss later, it is MICRA that has been 

the force behind California’s success. 

Such misdirected claims as discussed above 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, 

these claims are counterproductive to the debate on resolving the medical liability 

crisis.

FEDERAL SOLUTION

The medical liability crisis is a growing national problem that requires a national 

solution. If the crisis was just a matter of physicians obtaining or affording medical 

liability insurance in one state, we might agree that a national approach would not 

necessarily be required. However, the problem goes far beyond physicians and other 

health care professionals and institutions. The medical liability crisis has become a 

serious problem for patients and their ability to access health care services that 

would otherwise be available to them, including services provided to Medicare and 

Medicaid patients. 

Also, the premise that it is within the ability of every state to enact legislation 

to effectively resolve their respective medical liability crisis has been shattered by 

the fact that many state liability reform laws have been nullified by activist state 

courts or stripped of their most effective provisions under state constitutions that 

limit reforms. Taking into consideration that studies show the litigation system to 

be an ineffective, and often unfair, mechanism for resolving medical liability claims, 

we believe that the time is ripe for a uniform, federal approach to resolving the liability crisis. 

Moreover, there is a direct and compelling federal interest in reforming our outmoded medical liability system. According to estimates by HHS, altogether medical 

liability adds $60 billion to $108 billion to the cost of health care each year. This 

means higher health insurance premiums and higher medical costs for all Americans, and especially for the federal government given that one-third of the total 

health care spending in our country is paid by the Medicare and Medicaid Programs. Further, HHS estimates that excessive medical liability adds $47 billion annually to what the federal government pays for Medicare, Medicaid, the State Children’s Health Insurance Program, Veterans’ Administration health care, health care 

for federal employees, and other government programs. 

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THE LIABILITY CRISIS AND PATIENT SAFETY

The AMA’s policy is to be part of the solution to improving patient safety and 

quality. The AMA believes that one preventable error is one error too many. In fact, 

the AMA helped launch the National Patient Safety Foundation (NPSF) in 1996 to 

address patient safety issues, well before publication of the IOM report. The NPSF’s 

approach is to create a culture of cooperative learning and mutual improvement, as 

opposed to a culture of shame and blame. 

Quality of care improves when there is greater access to physicians and health 

care services. A culture of safety requires a legal environment that encourages professionals and organizations to work together to identify problems in providing care, 

evaluate the causes, and use that information to improve care for all patients. An 

over-litigious system is anathema to building a strong and effective national patient 

safety program. 

Under our current liability system, the reality of being sued is daunting to just 

about everyone in the medical community. A 2002 Harris Interactive study (The

Fear of Litigation Study—The Impact on Medicine) illustrates just how detrimental 

the litigious nature of our society is to physicians and other health care professionals. This study reveals the extent to which the fear of litigation affects the practice of medicine and the delivery of health care—‘‘From the increased ordering of 

tests, medications, referrals, and procedures to increased paperwork and reluctance 

to offer off-duty medical assistance, the impact of the fear of litigation is far-reaching and profound.’’

The study shows, among other things, that more than three-fourths (76%) of physicians believe that concern about medical liability litigation has negatively affected 

their ability to provide quality care in recent years, and nearly all physicians and 

hospital administrators feel that unnecessary or excessive care is provided because 

of litigation fears. It also shows that an overwhelming majority of physicians (83%) 

and hospital administrators (72%) do not trust the current system of justice to 

achieve a reasonable result to a lawsuit. 

The Harris study found that a majority (59%) of physicians believe (‘‘a lot’’) that 

the fear of liability discourages open discussion and thinking about ways to reduce 

health care errors. The AMA has long believed that health professionals and organizations should be encouraged to report and evaluate health care errors and to share 

their experiences with others in order to prevent similar occurrences. However, this 

‘‘culture of fear’’ caused by our over-litigious society suppresses such information. 

The AMA strongly supports the principle underlying the 1999 Institute of Medicine (IOM) report entitled, To Err is Human: Building a Safer Health System, that

the health care system needs to transform the existing culture of blame and punishment, which suppresses information about errors, into a ‘‘culture of safety’’ that focuses on openness and information-sharing to improve health care and prevent adverse outcomes. The AMA also supports the IOM’s focus on the need for a systemwide approach to eliminating adverse outcomes and improving safety and quality, 

instead of focusing on individual components of the health system in an isolated or 

punitive way. 

Toward this end, the AMA supports H.R. 663, the ‘‘Patient Safety and Quality Improvement Act,’’ which was favorably reported by the House Energy & Commerce 

Committee on February 12, 2003. H.R. 663 would provide a framework to create a 

‘‘culture of safety’’ by establishing a confidential, non-punitive, and evidence-based 

system for reporting health care errors. There is a very broad and strong consensus 

of agreement on this legislative approach within the health care community. By implementing this approach, errors can be identified and analyzed to improve patient 

safety by preventing future errors. 

In addition to patient safety and quality improvement, the fear of litigation stifles 

the advancement of new medical treatments and medications, encourages physicians 

to practice defensive medicine, overwhelms the health care system with paperwork—leaving less time for patient care, and discourages qualified candidates from 

pursuing a career in medicine or from moving to a state with a bad liability climate. 

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 reaVerDate jul 14 2003 13:49 Sep 09, 2003 Jkt 086534 PO 00000 Frm 00130 Fmt 6602 Sfmt 6621 W:\DISC\86049 86049
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sonable 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. As mentioned above, studies show 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. 

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 the ‘‘Help Efficient, Accessible, 

Low-Cost, Timely Healthcare (HEALTH) Act,’’ a bipartisan bill that would 

bring balance to our medical liability litigation system. 

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; • Awarding injured patients punitive damages up to $250,000 or up to two times 

economic damages, 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, 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 (i.e., amount of the claim) (Zuckerman et al. 1990). 

Another study published in the Journal of Health Politics, Policy and Law con- cluded 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, 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. 

This Gallup poll is consistent with a 2002 survey conducted by Wirthlin Worldwide 

showing that three-quarters of Americans understand the detrimental effect that excess litigation has on our health care system. The Wirthlin survey shows that the 

vast majority of Americans agree we need common sense medical liability reform. 

128

In addition to the 78 percent discussed above who said that they are concerned 

about access to care, the survey found that:

• 71 percent of Americans agree that a main reason health care costs are rising is 

because of medical liability lawsuits. 

• 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. 

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 emotional, 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 H.R. 5, the HEALTH Act.

Mr. BILIRAKIS. Thank you very much, sir. 

A number of the members up here have 8 minutes for their inquiries, and we will remind you of that. I will just go ahead and 

start the questioning. 

Mr. Rosenfield, and not that this question is not maybe appropriate to all of the others too, but I—late in the fall, I was invited 

to attend a large gathering, I will call it a seminar, if you will, because that is really what it turned out to be. Of an awful lot of 

medical providers in my part of Florida where they had, and my 

part of Florida is the Tampa Bay area, where they had, I guess, 

he is an attorney from Miami, come up and others, to advise doctors on how to go bare, b-a-r-e, I guess, that bare, advise them how 

to get rid of their assets and protect their assets and whatnot, and 

just go bare, without any insurance at all. 

Now, it has been stated by at least one or two of you, didn’t have 

to be stated, that we are taking away, in effect, constitutional 

rights of some of the—a patient, of Ms. Lewinski, and others, to be 

able to get a proper remedy, et cetera. But I would ask you, if a 

doctor has gone bare, and more and more are going that way, now 

you are talking about, I mean, if you are talking about a proper 

remedy, we are talking about no assets. And is that not more injurious to the patient than, let’s say, a cap would be where there is 

insurance there, there is coverage and there is insurance, and certainly, the economic damages would be covered, would be picked 

up?

Mr. ROSENFIELD. Mr. Chairman, that is seriously injurious. But 

the premise of your question is that it is an inescapable reality. I 

think the experience in California under proposition 103 with stringent regulation is that you can force insurance companies to reduce 

their rates. And I think the message you are hearing from the—

and we heard in Langhorne in the subcommittee hearing was that 

before the Congress, the 108th Congress moves to limit how much 

129

victims of medical malpractice can receive, we ought to, it ought to 

investigate what is really going on with the insurance industry. 

Because of the vast and overwhelming majority of evidence, even 

from the insurance industry, and I have included some of it in my 

written testimony, and I have an exhibit, with your permission, I 

would like to make part of the record. Even the insurance industry 

itself acknowledges that there is a cycle that occurs. And we have 

had three of them in the last 30 years, when we run into trouble 

in the market, when insurance companies’ interest rates are lower 

and their investment income is reduced and the stock market goes 

bad, which this is a double whammy for them this time around. 

When all of those things happen, the insurance companies run 

into trouble. The investigation should be into whether there is 

away to lower insurance premiums. And if the private insurance 

companies do not wish to sell insurance to doctors, the Congress 

could do many things to make it more—I am sorry. 

Mr. BILIRAKIS. Well, forgive me. But I didn’t want you to take 

up my entire 5 minutes. 

Mr. ROSENFIELD. I am sorry. 

Mr. BILIRAKIS. You pretty well, I guess, answered my question. 

Mr. Hurley, do you agree with the gentleman? 

Mr. HURLEY. Agree in the sense that it is caused by investment 

losses and things like that? 

Mr. BILIRAKIS. Well, certainly he made that comment here toward the end. 

Mr. HURLEY. No, I do not agree that this investment losses cause 

companies to increase rates. As I mentioned in my testimony, rates 

are developed in a forward looking fashion. They do not depend on 

or look back at and recoup past investment loses. They do not recoup past inadequate rates. They are made based on projections of 

expected losses and expected future rates of return, not past rates 

of return or losses. 

Mr. BILIRAKIS. Well, you seem to be awfully positive. Mr. 

Rosenfield seems to be awfully positive, and yet you disagree and 

we are supposed to leaf through all that and come up with what—

Mr. Smarr. Comment? You are certainly, you certainly disagreed 

on proposition 103 and its effect. 

Mr. SMARR. I indeed do disagree with that. Medical malpractice 

insurers were not the intended target of proposition 103. It was an 

automobile insurance initiative. Nevertheless, prop 103 did cover 

them. Prop 103 was passed in, I guess, 1988 and the insurance industry was very opposed to prop 103. In fact, insurance companies 

were still negotiating with the commissioner into the mid 1990’s as 

to how they were going to fulfill the requirements of prop 103. The 

very first insurance company that did come to an accord with the 

insurance commissioner was the Norcal Mutual Insurance Company, one of my physician-owned malpractice insurance companies. 

And Norcal, in its agreements with prop 103—now prop 103 required the rollback of rates to 20 percent below those in effect in 

some date in November 1987. It did not require the refund of any 

money if you read prop 103. 

But Norcal reached an agreement with the insurance commissioner that it would refund 20 percent of premium for 1 year to its 

doctors and that would be the entire commitment they had under 

130

prop 103. And this was a sizable amount of money. And I have the 

consent order signed by Norcal and two other of my member companies here, which I would like to have entered into the record 

where they did. 

Mr. BILIRAKIS. Without objection. 

[The information referred to follows:]


g:\graphics\86049.066
131

Mr. SMARR. Norcal, at the time, showing the exhibit before you 

now, was paying dividends in each of the years during the prop 103 

issue in excess of 20 percent. And so Norcal was able to fulfill its 

obligation to refund 20 percent through the normal dividend process. And that is also stipulated in paragraph 4 of Norcal’s consent 

order. And thus, Norcal did not pay out any more money than it 

otherwise would have paid because of prop 103, and it clearly did 

not roll back its rates. And I have talked to my other California 

member companies, and I have been told the same story. 

Mr. BILIRAKIS. Thank you, sir. My time is expired. 

Ms. DeGette for 5 minutes. 

Ms. DEGETTE. Thank you, Mr. Chairman. Well, just following up, 

it is correct, isn’t it, Mr. Smarr, that the vast majority of States require physicians to have malpractice insurance so the vast majority 

of physicians would not be able to go bare, correct? 

Mr. SMARR. I believe that is true. 

Ms. DEGETTE. Thank you. 

Ms. Lewinski, I want to thank you for coming today. We all sit 

around and talk about actuarial issues and this and that. But we 

really heard the human face, and I know your mom tells you this 

because I am a mom, too. But let me tell you and you might listen 

to it from me, you will find a boyfriend because you are so pure 

of heart and so articulate and someone’s going to love you very 

much. So I just want to tell you that. And I know we all appreciate 

you being here. I just want to ask you two questions. First of all, 

when you—when you had this terrible injury by your doctor, you 

were 8 years old, right. 

Ms. LEWINSKI. Right. 

Ms. DEGETTE. And so the jury did not give you any award of economic damages, correct? 

Ms. LEWINSKI. That is correct. 

Ms. DEGETTE. Mr. Chairman, I would just like the record to reflect that if this legislation passed, Ms. Lewinski, despite everything that happened to her, would be entitled to an award of zero. 

Now, I have a couple of more questions. 

Mr. Hurley, I listened very carefully to your testimony today and 

the upshot is, for a variety of reasons, you have no idea, really, how 

passage of this bill would affect malpractice insurance rates for 

doctors, do you? 

Mr. HURLEY. I have not made any projection about what the impact of that bill would be no. 

Ms. DEGETTE. Right. So you don’t really know what, if any, effect 

this bill would have on these doctors’insurance rates, right? 

Mr. HURLEY. I have not projected to answer your question, I 

have not made a projection on what the effect would be in terms 

of the impact on rate level. I think it is safe to say that over the 

long term, a bill of this nature would, in fact, stabilize price increases because it will stabilize increases and losses over the long 

term.

Ms. DEGETTE. Thank you. 

Now, Mr. Smarr, I also want to ask you, you don’t really have 

any idea, if premiums will go down, if Congress passes this law either, do you? 

132

Mr. SMARR. I do believe that if Congress passes this law, and it 

stands constitutional muster, that rates will be reduced. 

Ms. DEGETTE. Do you have data to support that contention, sir? 

Mr. SMARR. The data that I have is that produced by the Congressional Budget Office and by the GAO, which looked at this 

issue.

Ms. DEGETTE. Okay. 

Mr. SMARR. Pardon me. I misspoke. It is the Department of 

Health and Human Services, not the GAO. 

Ms. DEGETTE. Okay. Mr. Smarr and Mr. Rosenfield, I would like 

to have you take a look at Exhibit 2-A. I am sorry. Yeah. 2-A and 

2-B, it is this chart right here. It should be on the back screen, if 

we could have someone put it up. It is labeled ‘‘premiums and damage caps for top 26 States.’’ 2-B is for bottom 27 States. I don’t 

know if you have that in front of you or not. There it is, behind 

you. Now, take a look at the top five States in terms of premium, 

Florida, Michigan, Nevada, Ohio, West Virginia. Do you see that? 

Mr. SMARR. Yes. 

Ms. DEGETTE. Now, in all of those states they have caps, correct, 

Mr. Smarr? Yes or no? 

Mr. SMARR. No, I don’t agree with that. 

Ms. DEGETTE. You don’t agree that they have caps? Mr. 

Rosenfield, do you believe they have caps in those five States, Mr. 

Rosenfield.

Mr. ROSENFIELD. Yes, I do believe that. I will double-check, but 

I believe it. 

Ms. DEGETTE. Okay. Now, if you take a look, but yet, what I am 

looking at, those are the five States that have the highest premiums in the country, but they also have caps, correct, Mr. 

Rosenfield?

Mr. ROSENFIELD. You know, I can’t—this is not our chart. I have 

been to those States. They have caps. I can’t tell you what the 

amounts are. 

Ms. DEGETTE. What the premium is? 

Mr. ROSENFIELD. Yeah. I can’t tell you. 

Ms. DEGETTE. Okay. Take a look at now Exhibit 2-B, if you will. 

Take a look at the bottom, at least the bottom State, Oklahoma, 

they have the lowest premiums and they also have no cap; is that 

correct, Mr. Rosenfield? 

Mr. ROSENFIELD. That is what that chart says. 

Ms. DEGETTE. Do you know if that’s true or not? 

Mr. ROSENFIELD. It is not my chart. No, sorry. 

Ms. DEGETTE. Mr. Smarr, do you know if that is true? 

Mr. SMARR. I have no idea. 

Ms. DEGETTE. Do you have any reason to disagree with that? 

Mr. SMARR. I can’t comment on the chart because I don’t know 

where the data comes from. 

Ms. DEGETTE. The data comes from Medical Liability Monitor. 

Are you familiar with that publication? 

Mr. SMARR. I am very aware of that publication. 

Ms. DEGETTE. Is that a legitimate publication? 

Mr. SMARR. Yes, it is. 

Ms. DEGETTE. Would you have any reason to disagree with this 

data?

133

Mr. SMARR. I might, because I don’t know how the data was extracted from the publication. 

Ms. DEGETTE. Okay. So you think that in Oklahoma they might 

have a cap. Do you disagree with these charts which indicate that 

the States with the highest premiums also have caps and the 

States with the lowest premiums either have very high caps or no 

caps whatsoever? 

Mr. SMARR. Congresswoman DeGette, I can’t agree with anything 

on that chart because I do not know how it was derived. 

Ms. DEGETTE. Do you agree with the concept? 

Mr. SMARR. The concept? 

Ms. DEGETTE. Yeah. 

Mr. SMARR. Yeah. 

Ms. DEGETTE. Thank you. 

Mr. BILIRAKIS. Mr. Greenwood. 

Mr. GREENWOOD. Thank you, Mr. Chairman. It is difficult for us 

to reach a consensus on how to solve the problem since we can’t, 

haven’t reached anything like a consensus on what causes the 

problem. And the opponents of this legislation seem convinced that 

the cause of the problem has to do with either bad investments by 

insurance companies, or price gouging. That seems to be the 

mantra that is repeated over and over again. 

Mr. Hurley, I know you have been asked this before, but looking 

at the chart there, we see a number of States, California, Colorado, 

New Mexico, Indiana, Wisconsin and Louisiana, that don’t seem to 

be in crisis right now. Mr. Rosenfield believes that he is the hero 

in California, that the reason they don’t have a problem is because 

of his efforts. That is disputed by others. But Mr. Rosenfield didn’t 

pass propositions in those other States, so do you have any—can 

you offer us any wisdom or why there would be such variation 

among the States, even though you have said that you do not believe that investments, bad investments are the causal factors of 

these malpractice increases? Can you give us some wisdom as to 

why there is a variation in States? 

Mr. HURLEY. Congressman, I will try. I think that to reiterate, 

it is not investments that is driving the prices. The prices are driven by losses. The losses are driven by the frequency and severity 

of claims in each jurisdiction and each jurisdiction has its own set 

of rules as to what happens in that jurisdiction in terms of filing 

a claim many so it is the frequency and severity of claims, that is 

affected by the rules that operate in each of those several States. 

And just to touch on the issue of prop 103, any form of regulation 

that is in place is not going to stop a company from going broke. 

If the losses are bad, companies will seek increased rates. If a regulation stops them from getting those increased rates commensurate 

with the losses they will go broke. The fact of the matter is that 

the losses didn’t increase enough to cause companies to file rates 

in California that require them to get higher rates and therefore——

Mr. GREENWOOD. Okay. Let me stop you in the interest of time. 

So what we know is all of the—the stock market applied to all of 

those 50 States, even if it were, even if you tried to make the arguments that this is all about stupid investments, or not even stupid 

investments, but loss in the stock market, you would have the difVerDate jul 14 2003 13:49 Sep 09, 2003 Jkt 086534 PO 00000 Frm 00137 Fmt 6602 Sfmt 6602 W:\DISC\86049 86049
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ficulty, I think, you would have a difficult time, I think, explaining 

why some States are insurance companies that provide insurance, 

liability insurance in the white States there, somehow had a different investment history than the States, than the companies providing insurance in the red States. That is nonsensical. 

But you are saying it doesn’t have anything to do with investments. It has everything to do with losses, and losses are a function of State law and an important function of State law is caps. 

And it so happens that the one thing that those white States all 

have in common is they all have caps. 

Now, let me turn to Mr. Smarr. Mr. Smarr, I said in my opening 

statement that I had a hard time believing that this was, I would 

be delighted to solve this problem if we could figure, if we could 

lay the blame at the fault of the insurers and do something to fix 

that. That would be great with me. I just want to make health care 

available in my State. But you represent the physician-owned insurance companies, and would it be fair to say that the physicianowned insurance companies fundamentally exist for the purpose of 

trying to provide physicians with the lowest possible and most affordable medical liability premiums? 

Mr. SMARR. Yes, sir, it would. The companies were formed back 

in the late 1970’s, specifically for that purpose to provide a market 

for doctors and hospitals and dentists and to be able to ascertain 

the two true crosses of medical liability insurance, because nobody 

believed the commercial carriers at that time that things were as 

bad as they were. 

Mr. GREENWOOD. Right. So you had to get away from those big 

bad private insurers which might have been price gouging, and let 

the physicians go about it themselves. Have you been able to significantly offer rates to your physicians, these companies that you 

represent, at a different, a significantly different rate than the private sector has. 

Mr. SMARR. No. 

Mr. GREENWOOD. Why is that? 

Mr. SMARR. Because the costs were real. 

Mr. GREENWOOD. The costs were real. So it is not that, even with 

all of their alleged price gouging and overpricing and all of their 

stupid investments and all of the rest, you are out there trying to 

find—to make investments that make sense. And I think it is only 

15 percent of all insurance companies, I think, have—medical liability insurance companies invest in the stocks, isn’t that what 

you said, Mr. Hurley? 

Mr. HURLEY. It is approximately. 

Mr. GREENWOOD. It is only 15 percent in stocks to begin with. 

Okay. But you are out there, your companies, who provide insurance for 60 percent of the doctors in the country; is that right? 

Mr. SMARR. That’s what we estimate yes? 

Mr. GREENWOOD. So you are out there trying your level best to 

be as conservative with your investments, to be as conservative 

with your premiums, and you are still not able to significantly, if 

at all, offer a product at a lower price than any of the private sector; correct? 

Mr. SMARR. Essentially correct, yes. 

Mr. GREENWOOD. Okay. Thank you, Mr. Chairman. 

135

Mr. BILIRAKIS. I thank the gentleman. 

Mr. Brown, 5 minutes. 

Mr. BROWN. Thank you Mr. Chairman. I have a couple of quick 

questions. Dr. Palmisano, you are a physician. Do you believe a $250,000 

cap for all victims of malpractice is sufficient, no matter how severe 

the injury? 

Mr. PALMISANO. The American Medical Association’s policy is the 

MICRA legislation. That has been the policy for a number of years. 

And this past year, the American Medical Association voted to 

make medical liability reform its No. 1 legislative——

Mr. BROWN. Is that a yes? 

Mr. PALMISANO. [continuing] priority. 

Mr. BROWN. Could you give me a yes or no on that? 

Mr. PALMISANO. Well, we believe you have to have a balance. 

Mr. BROWN. Would you give me a yes or no? Do you think 

250,000—I mean, you have got a policy. I don’t want it explained. 

If you——

Mr. PALMISANO. I just want you to understand, it is the American Medical Associations policy. I am not giving my personal opinion here. 

Mr. BROWN. Well, the American Medical Association thinks 

$250,000, regardless of the severity of the damage, is sufficient. 

Mr. PALMISANO. For noneconomic damages, in order to balance 

and be sure we have access to care for all of the patients. 

Mr. BROWN. No, I don’t need the editorial comment. I only have 

5 minutes. 

Mr. PALMISANO. I am giving you the background. 

Mr. BROWN. I appreciate that. Thank you, Dr. Palmisano. Mr. 

Smarr—I apologize for cutting you off like that. I just have several 

things I want answered. Studies show that only one in seven victims of malpractice ever file a claim. Is that too many? One out of 

seven?

Mr. SMARR. Is that too many? 

Mr. BROWN. Yeah. 

Mr. SMARR. No. 

Mr. BROWN. Okay. What percentage of victims—what percentage 

of victims are entitled to compensation? If only one out of seven 

files.

Mr. SMARR. Well, I personally believe that any victim is entitled 

to be made whole. 

Mr. BROWN. Made whole. Do you think a $250,000 cap is adequate always in every case? 

Mr. SMARR. I believe that a $250,000 cap is an equitable standard, yes, I do. 

Mr. BROWN. In every case? 

Mr. SMARR. Yes. 

Mr. BROWN. Okay. That’s interesting. Okay. My friend, Ms. 

Rosenbaum, my friend Mr. Greenwood, mentioned in his opening 

statement there is no reason to subpoena insurance industry 

records, because he said because 60 percent of medical malpractice 

insurance is provided by physician-owned companies. The goal of a 

subpoena is, however, to gather information so we can justify the 

kind of sweeping change that this legislation offers. 

136

Would you tell us what information we should want, we should 

need from insurance companies, the information that we can’t, we 

seem to not be able to get, short of a subpoena? And the majority 

party won’t allow a subpoena for whatever reason. They don’t want 

us to know more about the inside workings of the insurance industry. Should we have to—what should we want, data on investment 

practices? Payroll of the executives? Amount in the reserves pay 

out on claims? What kind of information should we want? 

Ms. ROSENBAUM. I think what you need to focus on, particularly 

are any internal studies that breakdown the relative magnitude of 

the various components of payouts. For example, there are studies 

that suggest that by far, in many cases, the highest part of the 

payout is the economic damage, that, in fact, non-economic damages are relatively modest. And that is because of the length of life 

of certain injured persons, the complexity of the treatment. 

So I would want to know a great deal about exactly what a claim 

breaks down into. I would also want to know, I think, the extent 

to which there are internal memos and studies that identify the 

losses that a company experiences that are attributable to a shortfall in the premium-paid increases to the payout, versus the kinds 

of underlying shortfalls that simply come because of the way in 

which revenues are managed. This is true for any complex corporations; it is true for my own university, where our dilemma right 

now is not the tuition payments are too low, it is that the return 

on our endowment is too low. 

And that drives tuition payments. And I assume that it is the 

same kind of complicated issue for any corporation—public, private, 

nonprofit, for profit. So it is that—it is the underlying cause of the 

escalation that you would have to get at. 

Mr. BROWN. Thank you for that. 

Mr. Rosenfield, you seemed, when Mr. Smarr was talking about 

Prop 103—not to try to read into your facial expression, but you 

seemed not to agree with that. But could you—we don’t have a lot 

of time, but talk about briefly why you think 103 brought down 

rates and why MICRA didn’t seem to? Briefly. 

Mr. ROSENFIELD. Well, it is not my thinking. That exhibit 1 

shows that premiums soared 571 percent until Prop 103 passed, 

and then they went down 20 percent. It is that insurance industry 

data. And the reason why is because—nothing inherent in tort reform—it does stop insurance companies from boosting premiums. 

There is no requirement that they not. And so when Proposition 

103’s regulatory structure took effect, it forced the insurance companies to reduce premiums for a one-time rollback and refund. 

But then if you look at the other charts in the testimony, you will 

see that unlike the other States, where these wild gyrations—that 

is caused by the insurance industry cycle; that is actually documented by the medical insurer itself in my exhibit here, unlike 

other States because Prop 103 does not allow unjustified decreases, 

ill-advised decreases. So in California, 103 has eliminated the instability of the insurance cycle. That is a value too. 

Mr. BILIRAKIS. Mr. Deal for 8 minutes. 

Mr. DEAL. Thank you, Mr. Chairman. 

I think all of you have provided very valuable insight. I want to 

question some of your statements and see if I can make some sense 

137

out of it even further. Obviously one of our purposes here is to do 

something that is going to be effective, and one of the things that 

I think would be effective is to determine if several things will happen with H.R. 5 passing. 

One would be, are we going to see a decrease in malpractice premiums?

Now, I think from hearing the testimony and reading the material here, I don’t see that happening. Mr. Smarr, I am looking at 

your testimony on page 14, and you list the causes of the crisis, 

and it appears that only the latter one maybe is directly related to 

what we are doing here and that is a greater proportion of large 

losses. And you say the primary driver of the deterioration in the 

medical liability insurance industry performance has been paidclaim severity. 

You go on to point out in your letter to Senator Gregg that the 

preliminary evidence points to a rising loss cost and defense cost 

associated with litigation as the principal drivers of medical malpractice prices. 

So, are we going to see a decrease in medical malpractice cost if 

H.R. 5 passes? 

Mr. SMARR. Yes, sir, I believe we will. And I believe that the experience in States that have effective tort reforms speaks to this. 

The Congressional Budget Office, in scoring H.R. 4600, stated 

that if that bill, which is essentially identical to H.R. 5, were to become law, medical malpractice rates would be—I believe it is 25 to 

30 percent lower than they would otherwise be had the legislation 

not been adopted. 

Mr. DEAL. That seems to fly in the face of the testimony that Mr. 

Rosenfield had submitted as to what happened in the State of Florida, which immediately after their legislation was put in place, two 

of the larger ones immediately asked for rate increases and indicated that their reforms had no relationship to the cost of malpractice coverage. 

How do you distinguish that? 

Mr. SMARR. If you are referring to the cap on noneconomic damages that is in place in Florida, I can’t remember if it is a $250- 

cap or a $500,000 cap, that cap only applies in cases where the 

issue is settled through arbitration; and that rarely happens because both sides have to agree to arbitration. So the cap in effect 

is not in effect. 

Mr. DEAL. Okay. We have some very qualified people on this 

panel. I am going to ask you about the portions of this bill that, 

in my opinion, should relate to overall cost and their relation to the 

marketplace. I am going to ask if any of you have any studies to 

indicate if any of these have individually been scored as having an 

effect on premiums or availability, the cap on noneconomic damages.

Does anybody have any statistics to show what effect, if any, that 

has on rates or availability of coverage? What about statute of limitations?

Excuse me. Go ahead. 

Mr. SMARR. Yes, sir. The Congressional Budget Office did indeed 

score that. 

138

Mr. DEAL. Did they score that element alone as having a cost factor associated with it? 

Mr. SMARR. I believe that is cited as being the primary driver, 

yes, sir, but I would have to go read the scoring analysis. 

Mr. DEAL. So by capping the pain and suffering area, that has 

an effect on the ratio, on the availability and the cost of liability 

insurance?

Mr. SMARR. Yes, sir. 

Mr. DEAL. Statute of limitations change? Anybody have anything 

associated with that? The apportionment of damages, anybody have 

any information indicating that makes a difference? 

Mr. HURLEY. May I add something? I think there have been 

studies done of these things. I have not personally done those studies, but I think a couple of references have been made to studies 

that did look into some of these elements. They would have been 

done, for example, by the Office of Technology Assessment back in 

the earlier part of the decade, in those types of timeframes. 

There have been other academic studies done by RAND and others that looked at some of those. Those might be helpful to access. 

Mr. DEAL. Would that be true of the apportionment of damages 

provision, the collateral source rule, the periodic payments? 

Mr. HURLEY. I think most of those elements have been addressed.

Mr. DEAL. If any of you have that material, I think it would be 

helpful if you could get that to us at a later time. 

Let me tell you about one of the things that concerns me. And, 

Mr. Smarr, I have taken your statistics on chart 14, and I think 

all of us are concerned that we deal with this issue fairly. Based on your mean indemnity payment of $310,215, if I calculated out using the limit on collateral fees for the plaintiff’s attorney, let’s assume you won that case at your average $310,000. 

As I calculate it out, he will be paid $78,198 out of that award. 

Now, if I look at what you are paying your attorneys to defend that case, they lost the case, they are paid $91,423. In other words, 

the winning plaintiff’s lawyer gets only 85 percent of the amount 

that the losing defense attorney gets. And if you have to reduce 

what the winning plaintiff’s attorney gets from the award being received by the injured plaintiff, you reduce that award down to the 

point that your losing attorney is going to be paid 40 percent of the 

amount that the winning plaintiff, the individual injured party, is 

actually receiving. 

Now, how do we reconcile that? 

Mr. SMARR. Congressman Deal I didn’t follow the first part of 

your calculation when you came up with the $78,000. 

Mr. DEAL. Well, I have taken the contingent fee schedule on your 

average award of 310,000-plus. A winning attorney who gets that 

award is going to receive a little over $78,000; your losing attorney, 

by your statistics, is going to be paid in excess of $91,000. 

What I am saying is—well, my bottom line, I guess, is, would you 

favor a situation in which the loser pay prevails? Or would you consider it fair that if we are going to disclose collateral sources, 

where some of these expenses may have been paid, the jury be told 

that the plaintiff’s attorney is going to get a certain percentage of 

the award or anything along those lines? 

139

You know, I think there is a basic element of feeling that the 

person who is the injured party here and their attorney are having 

to take the risk in filing the suit. I know you win most of the cases, 

I know you do; but if we are going to reveal collateral source, 

shouldn’t the jury also know in this average award that 25 percent 

of it is going to go to the plaintiff’s attorney and that they are not 

allowed to award the winning party that 25 percent? Is that fair? 

Mr. SMARR. Award the winning party 25 percent? 

Mr. DEAL. Yes. Yes. They are not allowed to consider an award 

for the plaintiff’s attorney who wins the case, are they? 

Mr. SMARR. Well, the plaintiff’s attorney who wins the case gets 

the contingency fee, which is far in excess of 25 percent, as I understand it. 

Mr. DEAL. Not according to what the law calls for that we are 

looking at. But he has to take that out of his plaintiff’s award. 

Mr. SMARR. That is true. That is the way the system works. 

Mr. DEAL. Well, would you be amenable to the jury knowing 

that?

Mr. SMARR. My organization does not have a policy on that, 

and——

Mr. DEAL. Because your defendant’s attorney is going to get paid 

anyway, aren’t they, whether they win or lose? 

Mr. SMARR. That is true. 

Mr. DEAL. In fact, according to your chart, get paid a little more 

to lose than they do to win. 

Can you give us an idea what the average per hour rate is that 

your companies are having to pay for defense attorneys? 

Mr. SMARR. These costs are not, by the way, just attorneys’ fees. 

About 75 percent of the costs are attorney fees, but they are also 

expert witnesses and court costs that are included. 

Mr. DEAL. Expert witness fees are usually other doctors that are 

being paid to come testify. 

Mr. SMARR. Usually other doctors; that is right. 

Mr. DEAL. Can you give us an idea what the average per hour 

rate is being paid for the defense of these cases? 

Mr. SMARR. I do not know an average because we have not computed one, but lawyers usually make $150, $200 an hour, $250 an 

hour.

Mr. DEAL. In this area, they get paid substantially more as a 

general rule, wouldn’t you think? 

Mr. SMARR. In malpractice work, my own personal experience in 

trying to control these costs is that the companies do a pretty good 

job of riding herd on the defense attorneys and keeping their fees 

down. The attorneys do a good bit of business with the malpractice 

companies, so they have some leverage over the defense attorneys 

so the fees are not as high as if you went downtown and hired 

a——

Mr. DEAL. Less you misunderstand my position, I do support the 

legislation. I just think there are some hard questions that we have 

to answer, and I think if you can help us answer those, we need 

to answer those. 

Mr. BILIRAKIS. The gentleman’s time has expired. I apologize, 

Mr. Smarr. 

Mr. Waxman for 5 minutes. 

140

Mr. WAXMAN. Thank you very much, Mr. Chairman. 

I believe medical malpractice is a serious problem, but I am 

amazed when my Republican colleagues want to take issues like 

health care for these seniors and the poor in our society and shift 

all that over to the State or important national environmental 

standards and say, we will let the States deal with it. Suddenly 

they don’t think the States are capable of dealing with the medical 

malpractice issue even though it is the States that license the doctors and health care professionals, the States that regulate the insurance ndustry, and the States that discipline medical professionals if they don’t do their job adequately. 

I was involved with—as Mr. Hiestand pointed out in his testimony, the California proposal prior to when it was adopted when 

I was in the State legislature. But California adopted a proposal 

that I didn’t fully agree with because I don’t like the idea of arbitrary limits on recoveries for pain and suffering. But California did 

what it did; other States can do what they think is appropriate. 

I think we ought to let the States operate in this area and not 

have the Federal Government take it over. I don’t think Washington knows the best for everybody in the country, and I think 

States ought to deal with this matter. But the whole purpose of 

medical malpractice lawsuits is twofold: one, to make the injured 

person as a result of medical malpractice whole, to compensate 

them for their loss; and second, to deter doctors and other medical 

professionals from committing medical malpractice. 

If you are going to make someone whole who has been injured, 

you ought not to put a limit, an arbitrary limit, on what they can 

recover. Heather Lewinski is here and testified from her own experience. To just say there ought to be an arbitrary limit of $250,000 

for all the pain and suffering you have gone through—in how many 

operations was it, 13——

Ms. LEWINSKI. 14. 

Mr. WAXMAN. [continuing] 14 separate operations from a doctor 

that didn’t know what he was doing, committed clear malpractice; 

and to say that you were going to be compensated by an arbitrary 

amount for the rest of your life, how does that make you feel? 

Would you feel that you were compensated fully if you were given 

that limit? 

Ms. LEWINSKI. Absolutely not. 

Mr. WAXMAN. I think it is so unfair not to look at each individual 

case and then decide what is the right compensation for that individual.

Now, California has a law that appears to be successful; at least 

some people think it is very successful. But California does a lot 

of things that MICRA doesn’t do. As I understand it, California 

regulates insurance a lot more than if this bill were adopted at the 

Federal level. 

Is that right, Mr. Rosenfield? 

Mr. ROSENFIELD. Yes, sir. 

Mr. WAXMAN. So I don’t know if the Republicans are going to say 

we ought to regulate insurance at the Federal level. I doubt it. 

They have been pretty accommodating to the insurance industry as 

long as I have been in the Congress of the United States. 

141

So it is troubling to me to hear this notion that Washington 

knows best, one size fits all, that we can take away from the States 

the responsibility to figure out what is best for their own people, 

and then put some limit that is arbitrary on what somebody could 

recover when they are injured. 

Now, whatever the figure someone had about the number of people that are injured from medical malpractice that never get any 

recovery, never even get into court—do you know that figure, Mr. 

Rosenfield?

Mr. ROSENFIELD. I think it is only one out of every eight injured 

victims actually filing a lawsuit. 

Mr. WAXMAN. Why is that? 

Mr. ROSENFIELD. Maybe the nature and extent of the injury, 

maybe that they are not sufficiently represented. In California, it 

is certainly because MICRA alters the cost-benefit ratio to make it 

impossible for an attorney to take all but the most egregious cases 

involving all but the most wealthy people. 

Mr. WAXMAN. Well, the idea of a limit on pain and suffering was 

to—somebody said, to balance it out. But the real purpose then is 

not only not to compensate the person adequately, but to keep 

them from being able to get a lawyer? 

Mr. ROSENFIELD. The undeniable impact of California of 

MICRA—and this has been and acknowledged by the insurance industry’s top defense counsel who spoke before Congress on this 

point—is that it has deterred legitimate cases from getting into the 

courthouse.

Mr. WAXMAN. Let me ask another Californian, Mr. Hiestand. 

Do you believe that the limit on pain and suffering of 250,000, 

which has not been adjusted for inflation, keeps some people from 

ever getting a lawyer to represent them? 

Mr. HIESTAND. Well, the statistics don’t show that. The frequency, that is, the number of claims that have been failed for 

medical malpractice, given the growth of physicians and the growth 

of the population, has not changed in California both before 

MICRA and after MICRA. So the number of lawsuits with those 

adjustments would indicate that there has not been an inability for 

people to get doctors. 

And the Federal experience——

Mr. WAXMAN. Get lawyers. 

Mr. HIESTAND. The Federal experience——

Mr. WAXMAN. Do you believe that there are a lot of people who 

are not compensated, who are victims of medical malpractice because the system does not lend itself to hearing their problems? 

Mr. HIESTAND. Well, people, as Mr. Rosenfield mentioned——

Mr. WAXMAN. Yes or no? 

Mr. HIESTAND. Yes or no. 

Yes. People with small injuries can’t get lawyers in all kinds of 

contexts. And that happens in medical malpractice. 

Mr. WAXMAN. I thank you all. My time has expired. 

Mr. BILIRAKIS. Mr. Norwood for 5 minutes. 

Mr. NORWOOD. Yes, sir. Thank you, Mr. Chairman. 

Ms. Rosenbaum, I want to—I know that you have taken time to 

try to go through some of the definitions, which is a very hard 

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stand when words don’t mean anything; one person thinks a word 

means this and another person thinks a word means that, so sometimes it is not clear what actually the definitions are. And I think 

most of us appreciate your insight on this very difficult part of trying to understand H.R. 5. 

You made a comment that I found interesting when you said that 

perhaps we have the focus on the wrong thing. And I don’t want 

to go here particularly, but you said that maybe we ought to be 

really looking at economic damages rather than noneconomic damages; and I find that very interesting and would appreciate it if you 

would respond to the committee on that and give us your thoughts 

about that. 

I don’t want to go there because we don’t have but 5 minutes, 

but I have been suspecting that was maybe part of the problem too. 

Could you just simply answer for me, do you support any 

changes to the existing medical liability system? 

Ms. ROSENBAUM. What I support is some intervention that would 

stabilize, control and not allow these rapid price swings in malpractice——

Mr. NORWOOD. Would you be good enough to respond to the committee your thoughts on what changes would be appropriate, in 

writing, so that we could have time to look at that? 

I have some thoughts about H.R. 5 that I believe I am right on, 

and I want to go through some of those, if I may, with you. Get 

this chart put up, please. I would like to go through some of those 

and see if you disagree with me. 

I don’t believe H.R. 5 prevents an injured patient from recovering 

so-called ‘‘pain and suffering’’ or noneconomic damages. I don’t believe this bill prevents that, do you? 

Ms. ROSENBAUM. Well, there is a limit on noneconomic damages. 

Mr. NORWOOD. I understand there is a limit, but there is not a 

prevention of recovery of whatever that limit is. 

Ms. ROSENBAUM. My understanding is, it is a cap. 

Mr. NORWOOD. I believe H.R. 5 simply establishes a minimum 

Federal standard of $250,000 for noneconomic damages in States 

that have not already set a specific monetary amount on the size 

of noneconomic damage awards. 

Do you agree with that? 

Ms. ROSENBAUM. I do not. I think the preemption language only 

withholds preemption in those States whose limits are stricter. 

Mr. NORWOOD. There are other attorneys who don’t agree, obviously, the people—the lawyers who wrote up the bill; and somehow 

or another we have to figure that out. Perhaps—could you give us 

some information on that? 

It is my understanding that the $250,000 for noneconomic damages in States that already have set an amount—if the State of 

Georgia sets an amount of 350,000, that is the amount that is 

going to be in the State of Georgia, according to the results of this 

bill. And I believe that—help me if you don’t. I believe H.R. 5 does 

not change existing straight caps on noneconomic damages, even 

though some of those may be higher than 350,000—and obviously 

they are, according to that chart behind us. 

And you don’t believe that to be true in this bill? 

Ms. ROSENBAUM. Looking at section 11(b) of the bill, I do not. 

143

Mr. NORWOOD. I am informed by another lawyer that the 11(c) 

part of the bill does allow for that. So again it is one of those areas 

where we have a very friendly disagreement. 

I guess I believe the 11(c) part does. I believe H.R. 5 does not 

prevent a State from keeping or enacting an entirely different 

standard to guide the award of compensatory and/or punitive damages.

Do you think H.R. 5 doesn’t do that? 

Ms. ROSENBAUM. I am sorry. Would you repeat the question? 

Mr. NORWOOD. H.R. 5 doesn’t prevent a State from keeping or 

enacting a different standard to guide the award for compensatory 

and punitive damages. In other words, other States can have higher damages if those other States pass that in their State. 

Ms. ROSENBAUM. I would have to look at 11(b) and (c) and respond to you in writing. And it would be of great help to me if this 

part of the record could be sent to me so that I will have your full 

question.

Mr. NORWOOD. I am trying to make sure what I believe about 

H.R. 5, that I am going to vote for, is in fact so and I believe it. 

But I don’t mind giving you the opportunity to make me look another way. 

Last, let me point out this chart behind us that was put up—Mr. 

Smarr and others, I think you were pretty wise not to pay attention to that because you look at the top five who have high caps, 

also high premiums, and one would think it would be implied that 

all those caps didn’t work. 

But I think we all ought to note that Nevada and Ohio and West 

Virginia—in fact, West Virginia just had a special session of their 

legislature and just put those caps in place. So to say those caps 

equate to those premiums is very misleading. 

Thank you, Mr. Chairman. 

Mr. BILIRAKIS. I thank the gentleman. 

Mr. Dingell for 5 minutes. 

Mr. DINGELL. Mr. Chairman, thank you. I would like to defer to 

Mrs. Capps, if I could. 

Mr. BILIRAKIS. Well, Mr. Stupak would be first. 

Mr. Stupak for 8 minutes. 

Mr. STUPAK. Thank you, Mr. Chairman. 

And thank you, Mr. Dingell. 

Mr. Rosenfield, you indicated in your testimony that insurance 

companies are exempt from antitrust. 

Should Congress repeal that and why? 

Mr. ROSENFIELD. Well, the voters repealed it in California because it is anticompetitive. And one of the problems with the industry has been that it circulates among insurers’ data concerning 

losses, expenses, projections of future losses whether they materialize or not; and the circulation of this information is, by definition, anticompetitive since it allows all the other insurers to base 

their rates upon the same data. 

Mr. STUPAK. So we heard testimony of a 400 percent increase, 

like that in California. If you are not subject to antitrust laws, you 

can set it wherever you want; isn’t that correct? 

Mr. ROSENFIELD. That is correct. And it is very easy, because 

they circulate this insurance among themselves as insurers and evVerDate jul 14 2003 13:49 Sep 09, 2003 Jkt 086534 PO 00000 Frm 00147 Fmt 6602 Sfmt 6602 W:\DISC\86049 86049
144

erybody is aware of it, everybody knows what all their competitors 

are doing. 

Mr. STUPAK. So if we are really concerned about lowering rates 

for malpractice, should we not take away that exemption for insurance companies and make a more competitive market to help drive 

down the cost of insurance? 

Mr. ROSENFIELD. That is what we did in California, and the impact not only on medical malpractice, but on auto insurance premiums was profound. 

Mr. STUPAK. Well, we had that amendment, and actually it 

failed. So hopefully it will be part of this bill if it moves forward 

in this committee and onto the House floor. 

Mr. Smarr, in your testimony, I was intrigued with your exhibit 

number 22 where you had the 2000 rates for L.A., Milwaukee, Chicago, Philadelphia, Miami. I come from Michigan, and we mirror 

Illinois quite a bit. Looking at it, Illinois doesn’t have any caps, and 

Michigan does. In fact, our caps go back to, I believe, 1982. They 

were then increased again in—not increased, but more limitations 

were put on plaintiffs in 1994. 

And in your chart here on exhibit number 22 you have for IM, which is internal medicine, $26,000 paid in Chicago; GS, general 

surgery, $68,000—these are in premiums—and then OB/GYN, 

$102,000. And you have got, ‘‘as reported by the Medical Liability 

Monitor.’’

Well, you know, I have got the Medical Liability Monitor here in 

front of me, a copy of it, and it is October of 2002, the same time; 

and when you take a look at internal medicine, it is $19,000, this 

for State of Illinois—Michigan, it is $26,000, again we have the 

caps. On general surgery, it is only $51,000, not the $68,000 you re- port; Michigan it is $71,000—again, Illinois no caps, Michigan has 

caps. And your OB/GYN for Illinois—again, no caps—at $79,000; Michigan, with the caps it has $88,000. 

Every one of your figures is one-third higher than what is reported. And we are both citing the same Medical Liability Monitor, 

which you said was credible, and you even cite it in your report. 

How do we get a third higher for these folks in your figures when 

I have the other figures from the magazine that are a third less? 

Mr. SMARR. Well, Congressman, I am reading from the source 

document of the ISMIE mutual insurance company, which is the 

largest writer in the State; it is a company that is formed and operated by the State medical association. 

Mr. STUPAK. So you are saying, you took only one medical malpractice provider and used their statistics, which were probably the 

highest in Illinois. You didn’t take the average of all the underwriters in Illinois to get the average that an Illinois physician 

would pay? 

Mr. SMARR. I took the leading writer in the State that had the 

largest market share. 

Mr. STUPAK. And also the highest? 

Mr. SMARR. No, I did not do it with that in mind. 

Mr. STUPAK. Answer me this question. We will disagree on the 

premiums.

145

Why would Illinois—why would Michigan be higher, $88,000 to 

$79,000 for OB/GYN, 71 to 51 for general surgery, 26 to 19 for internal medicine—why would Michigan be higher, and we have all 

these caps? We have had them in place for over 20 years. Why 

would it be higher than Illinois that have no caps if caps are the 

panacea to our problem here. 

Mr. SMARR. First of all, ProAssurance has higher rates in Illinois 

than does ISMIE. Michigan, I am told, has what is called a frequency problem in that the doctors in Michigan actually buy lower 

limits of insurance than in other places in the United States, and 

they get sued more often. 

Mr. STUPAK. Wait a minute. They have got lower rates? But according to your monitor, Medical Liability Monitor, which you 

agree on, Michigan’s premiums are actually higher than Illinois. 

You would think Illinois, then, would have these problems. We 

don’t have any caps there in Illinois. 

Mr. SMARR. Again, it is related to the tort environment and the 

area of Michigan. 

Mr. STUPAK. Well, the tort environment, Illinois would be much 

more generous to a plaintiff because they have no caps; and Michigan has caps, so they would be less generous to a plaintiff, correct? 

Mr. SMARR. Michigan’s caps simply aren’t working. 

Mr. STUPAK. How can they not work? If our cap is $280,000 in 

Michigan for noneconomic damages, how does an jury award more 

than $280,000 and the judge not roll it back if that is the State 

law?

Mr. SMARR. I believe the caps are higher for serious injuries. 

Mr. STUPAK. Oh, really? 

Mr. SMARR. There are exceptions to the Michigan cap, yes, sir, 

there are. 

Mr. STUPAK. The highest you can get in Michigan, like the loss 

of a child, is $500,000. So how is that so much higher? I mean, in 

Illinois it is unlimited. 

Mr. SMARR. Again, on a per doctor basis, if you will, there are 

more lawsuits. There is a frequency problem in the State of Michigan which is also driving rates in that State. 

Mr. STUPAK. Do we have bad defense attorneys there or what? 

Mr. SMARR. I don’t know. 

Mr. STUPAK. Let me ask you this one. 

You know, you talk about your median. I want to go to your 

chart again; I think it is number 13 were you had almost like a 

half million dollars. You had, chart 13, median verdict is $496,726. 

And in the National Practitioner Data Bank—are you familiar with 

that?

Mr. SMARR. I am. 

Mr. STUPAK. Is that a credible organization? 

Mr. SMARR. Yes, sir, it is. 

Mr. STUPAK. They have got—I have got to read right here from 

the National Practitioner Data Bank—the median medical malpractice payout for 2000 is $125,000 not $496,000. 

How do you reconcile that? It is four times, your numbers are 

four times higher. 

Mr. SMARR. I can reconcile that, Congressman. 

146

First of all, you are comparing a median with a mean. Second, 

you are comparing an average payment value for all payments with 

an average payment value for a verdict. 

Mr. STUPAK. You agree with me, these numbers just don’t jibe? 

Mr. SMARR. They are apples and oranges. 

Mr. STUPAK. Apples and oranges. Okay. 

How about this one. You run an insurance company. Some professors at Duke University, for Indiana, State of Indiana, looked at 

the medical liability issue there. And we always hear this thing 

that insurers constantly must settle frivolous lawsuits in order to 

make them go away. 

Do you settle frivolous lawsuits to make them go away, your 

company?

Mr. SMARR. I don’t work for a company. I work for a trade association.

Mr. STUPAK. Your association that provides the insurance——

Mr. SMARR. The physician-owned companies are much more reticent to make what is called an economic settlement. And that is 

where it is cheaper to pay a small amount in indemnity than incur 

large amounts in defending a claim. It is part of the fabric of why 

the company has reformed. 

There are some cases where it is—where it is done, such as there 

are changes in the records and things like that. 

Mr. STUPAK. Let me read this statement, professors from Duke 

Law School, who did this for Indiana, when they were looking at 

their case, they said—here is what the insurers said, We don’t settle frivolous cases. The insurers’ policy on frivolous cases is based 

on the belief that if they begin to settle just to make them go away, 

their credibility will be destroyed and this will encourage more litigation. Is that true? 

Mr. SMARR. I believe in that, yes, I do. 

Mr. STUPAK. So you don’t settle frivolous claims? The only cases 

settled are valid claims? 

Mr. SMARR. By and large, that is true. There are exceptions. 

Mr. STUPAK. I have got to stop now. I was just having fun. 

Mr. BILIRAKIS. Let’s see. 

Mr. Shadegg for 8 minutes. 

Mr. SHADEGG. Thank you, Mr. Chairman. I want to thank each 

of our witnesses for being here today. I think it is a very interesting discussion. As is often the case, I just come at this from a 

different perspective, perhaps, than anybody else. I am deeply troubled by the crisis we face in the tort system in medical malpractice 

right now, but I am also deeply troubled by the notion of hard dollar caps. I just can’t get beyond the notion that that is government 

price fixing. 

When Ms. Lewinski sits here and you think about the application 

of a government-set cap to her circumstance, it is a very, very difficult situation. I have supported this legislation in the past, and 

I may support it again, but I simply believe we are going in the 

wrong direction. 

I want to follow up on some of the questioning that Mr. Stupak 

just asked. Is there anybody in this room that doesn’t believe that, 

in fact, we are—that there are many claims in which settlement is 

paid at some cost higher than its merit to avoid the cost of defense? 

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That is, does anybody in this room believe that the ability of someone to bring a lawsuit in the United States and to know that since 

we do not have loser pay, there is no penalty, isn’t used to extort 

settlements for some cases that lack merit? 

Does everybody agree that that does, in fact, happen? 

Mr. ROSENFIELD. Are you discussing medical malpractice or all 

tort laws? 

Mr. SHADEGG. Let’s stay with medical malpractice. That is the 

topic. You believe that does not happen? 

Mr. ROSENFIELD. I can tell you definitively in California it is simply not feasible for an attorney. It would be economic insanity for 

an attorney who is paid on a contingency basis—unless they are 

being paid on an hourly basis like defense lawyers. If you are being 

paid on a contingency, there is no economic advantage to bring 

such a case. 

Mr. SHADEGG. If you get a settlement in that case, you don’t get 

the gain of that settlement? 

Let me ask a different question. Does anybody on the panel believe, for example, that meritorious claims should not be paid? Does 

anybody believe that if you have got a meritorious claim, you 

should not be able to recover? 

All right. Does anybody believe that frivolous claims should be 

paid?

I think that takes us to a reform that we are not contemplating 

in this proceeding today and that we should be, and that is some 

form of loser pays. 

First of all, I believe the United States is the only Nation in the 

world—at least to my knowledge; there may be one or two others 

I am not aware of, and maybe one of you can bring it to any knowledge—the only Nation in the world that abides by a strict American rule in which losers are not accountable for the cost of the defense of the prevailing party. We call it the English rule, but in 

fact, it is the rule in all the rest of the world that if you bring a 

lawsuit and you lose, you are required to pay the attorneys’ fees. 

It seems to me that the reason—and I have done some review of 

the literature. This is a Law Review article by the Arizona Journal 

of International Comparative Law; and in it, it has a lengthy discussion of loser pays and of the so-called ‘‘American rule’’ versus 

the so-called ‘‘English rule,’’ the English rule, in fact, being the rule 

of the rest of the world, which is losers do pay. 

And in that discussion one sentence stuck out at me as something very, very impressive. It said—at the end of the day, basically it said, we are a society that really does not want people to 

be denied justice because they are not rich enough to pay for it. 

And I think that is exactly right; I think there is a sense that when 

you have a loser-pay rule, it would mean that those who cannot afford to bring the lawsuit cannot bring the lawsuit. For that reason, 

out of fairness, we don’t go to a loser-pay rule. 

But I would argue that that is making a mistake. I would argue 

that we should look at loser-pay and say, you know what, there are 

serious potential problems with loser-pay because it could discourage people without financial resources from bringing meritorious 

lawsuits.

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So why is it we do not proffer language that says the loser shall 

pay provided, however, that the court shall look at the merits of 

the claim at the time it was brought, at the reasonableness of the 

conduct of the attorney who brought it, at the reasonableness of the 

conduct of the attorney in pursuing it through the litigation itself 

and may make an award, and take all those factors into consideration? Because it seems to me that in America we do not want to 

discourage anyone, whether they are wealthy or not wealthy, from 

bringing a meritorious lawsuit. 

But it also seems to me that it is undeniable that the current 

American rule, which says you can bring this lawsuit and no matter how meritless the claim is, you can take your shot at extorting 

some kind of settlement and there is no consequence for it—are 

any of you aware of any State or any country that has looked at 

some form of a modified loser-pay, that looks at the merits of the 

claim in determining an award against the losing party? 

Mr. ROSENFIELD. Congressman, in California that actually was 

raised as a possibility, that proposal. And they could not work out 

language in the legislature that adequately protected against those 

situations in which it was a legitimate case; that, for one reason 

or another, was not successful. It was that danger that caused the 

proposal to fail. 

Mr. SHADEGG. It seems to me what we are talking about is fundamental reform of the system. It is a system that is abused, but 

it is a system I believed in. I worked in a tort law firm for a number of years, and I am very painfully aware that the tort system 

helps people who need help, who don’t have resources. 

Mr. ROSENFIELD. I just want to say, Congressman, that you 

nailed the fundamental problem with the cap, which is the cap, by 

definition, affects a nonfrivolous case. 

Mr. SHADEGG. That is right. Ms. Lewinski’s case is a classic example of why hard dollar caps create very, very serious problems. 

I want to ask another question. It seems to me you could also 

submit a jury instruction which educates the jury on where the 

proceeds that pay any claim will come from, fundamentally explain 

to the jury, look, if you make an award in this case, you must understand it will likely come from a fund established by contributions, insurance payments paid by everybody, we all pay for them, 

so you bring some rationality to their deliberation process. 

They could then go on and say, you know what, this is a meritorious case, and I don’t care where that fund comes from, it may 

come from all people who get medical services, but in this case this 

doctor did something outrageous, such as with Ms. Lewinski, and 

by gosh, we are going to award a judgment and we are going to 

award a big judgment in this case, something far in excess of 

$250,000, a pretty small sum of money for some of the outrageous 

kinds of injuries that can occur. 

It just seems to me that when we pursue only arbitrary caps as 

a way to address the kind of problems that exist in this system we 

are making a grave mistake. 

Dr. Palmisano, do you want to make a comment on that? Would 

your organization be willing to look at other remedies besides regulatory caps? 

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Mr. PALMISANO. Yes, sir, the American Medical Association, as I 

stated earlier, has a policy in favor of the MICRA law. 

But we also have—last year we formed a committee to look at 

all possibilities as we go forward. We believe the MICRA law needs 

to be implemented now. We believe there is an emergency in the 

United States, certainly in 12 States. We are looking at a number 

of things. 

On loser-pays, we do have a policy on that. We would glad to 

submit that. 

Mr. SHADEGG. I would like to see it. 

In the 6 seconds I have, I want to make it clear, I intend to offer 

a loser-pays amendment. I intend to offer an amendment I offered 

a year ago on EMTALA, saying if a doctor is forced to give care 

under EMTALA and that care is not compensated, that it should 

be the Federal Government that responds in any damages that are 

awarded against that doctor. 

I may offer some form of an amendment dealing with a jury instruction to instruct the jury about awards. It may be, what we 

ought to be doing is looking at not having the contingent fee come 

out of the award, but submit the issue of attorneys’ fees to the jury 

after the fact. 

I don’t quite know why you wouldn’t say after a defense verdict, 

let’s—turn to the jury and say, you awarded the defense verdict in 

this case. Do you, the jury, believe this was a frivolous lawsuit that 

shouldn’t have been brought, in which case you are going to award 

attorneys’ fees against the losing party; or do you, the jury, believe 

when they brought this lawsuit, it appeared to be a pretty meritorious lawsuit and the plaintiff’s attorney was reasonable and you 

are not going award any attorneys’ fees against the losing party 

and in favor of the defense party? 

It seems to me we can be more creative in this process. I appreciate the time. 

Mr. GREENWOOD [presiding]. The gentlelady from California, 

Mrs. Capps. 

Mrs. CAPPS. I think it is so important for Congress and this committee to address barriers to the access to health care. Thank you 

for holding the hearing. I thank my ranking member Mr. Dingell 

for yielding his time to me, so I could go ahead. 

One emerging barrier seems to be the rise in medical malpractice 

insurance rates that are taking place in various parts of this country. I want to associate myself with the remarks made by Henry 

Waxman and Anna Eshoo, my colleagues from California, and also 

my colleague from Texas, Mr. Green, that these are cases which 

are tried in State courts. Doctors are licensed by States; I think it 

is appropriate that this matter be handled by States, as it isn’t 

very many. 

And also my colleague, Ms. Eshoo, who noted that if there is 

great inertia when setting caps or fixed awards, inertia about raising them according to the adjusted cost of living, that the $250,000 

cap in California is actually worth about $68,000 in today’s money. 

That being said—and, Dr. Palmisano, I am pleased that you are 

here representing the AMA and doctors in our country, many communities are asking serious questions about how they can keep 

their doctors in their communities. And the question we have to 

150

ask is why doctors are increasingly leaving the field and showing 

their dissatisfaction. 

Your counterpart in California, the medical association, recently 

surveyed doctors; 75 percent of those who responded described the 

practice of medicine as being less satisfying now than it was 5 

years ago, only 9 percent find it more satisfying. Another finding: 

53 percent who are dissatisfied cite low reimbursement rates and 

53 cite managed care hassles as the causes, both topics in which 

we have a role to play in Congress. 

I live in California. This is very disturbing news for those of us 

who get our medical care in that State. Yet this is the State where 

we have had medical injury compensation reform, MICRA, for almost 30 years. Now, there is still serious debate, and I am happy 

we are engaging in it, about why premiums are rising and what 

should be done to stem that growth. Insurance companies argue 

that we need to limit noneconomic damages to patients who have 

been harmed by a doctor’s mistake or negligence. 

At this point I want to thank all of our expert witnesses for your 

testimony today, but I want particularly to thank Heather 

Lewinski. Your bravery did not go unnoticed by me. And if it is 

your family that is with you, they can be very proud of what you 

have done with a very horrible experience in your life. You are sitting before us, and testifying is hard, it is nerve-wracking—it is 

even for me, being on this side of the aisle—not for any gain that 

will benefit you, but because of what you personally have gone 

through. And you are, to me, such a fine example of someone whose 

true spirit comes from within and who will take a very horrible 

time in your life and experience and negligence and make something positive for someone else out of it. 

And I hope that is the case, and I wish you well. You are such 

an example to me of how this legislation could penalize innocent 

victims of medical negligence. 

Discriminating as it is against children, moms who stay at home, 

people who have disabilities and people who earn low wages. It 

says what we are going to do if we pass this legislation is that the 

health and well-being of a corporate CEO is worth more than the 

health of a janitor or a janitor’s child. Because economic damages 

are based on wages, the CEO would get more money in damages. 

Noneconomic damages would make—are the only real guarantee 

for to us make sure that everyone can be treated fairly. 

There is a very prominent case in the news now that is going to 

really provoke a lot of discussion on this topic. If I could turn to 

you again Dr. Palmisano, you are a doctor, and I don’t have to remind you of your Hippocratic Oath. I am a nurse, and I think we 

see things very clearly in this arena. You have just heard the story 

of Heather Lewinski; you know there are other stories like hers. 

I will ask you point-blank so you can answer for the record: Do 

you think she was well served by her doctor? 

Mr. PALMISANO. Well, obviously, from what she has told us, she 

was not well served by her doctor. It is tragic whenever someone 

is hurt through negligence. 

Mrs. CAPPS. All right. 

To go on, her doctor and his insurer paid the damages. Do you 

think he should be allowed to continue to practice medicine after 

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what has happened to Heather and her family? Do you think there 

should be have been any disciplinary action taken against him? 

Mr. PALMISANO. I think the American Medical Association supports strong State board medical examiners to review, in fact, in 

every case where there is payment in a medical malpractice case, 

that goes before the State board of medical examiners. It is mandatory reporting. We should have State boards to look and see whether or not a doctor needs to be removed from practice. 

Mrs. CAPPS. With the number of cases before us in this country, 

a small percentage of which are reported and acted upon, perhaps 

that is something that should be strengthened. But in this case, 

Heather’s story, she received no economic damages in her suit because of her age. Under the proposal and the legislation before us, 

she would have received only $250,000. Instead, the court awarded 

her noneconomic damages of more than a million because the jury 

and the court system that saw and tried this situation felt that 

that was appropriate. Do you think it was too high? 

Mr. PALMISANO. As far as—do I think what was too high? 

Mrs. CAPPS. The award that she was given. 

Mr. PALMISANO. I don’t know what the award was. 

Mrs. CAPPS. It was a million dollars. Am I right? 

Ms. LEWINSKI. The jury awarded me $3 million. 

Mr. PALMISANO. Well, you can’t put a price on life. You can’t put 

a price on serious injury. What you have to do is try to balance 

what you are going to do if you can’t compensate—if you can’t take 

care of the rest of the American public. 

Mrs. CAPPS. I want to underscore the sentence you just said. You 

can’t put a price. But that, in effect, is what this Congress is attempting to do with this. 

And it is my understanding, Ms. Lewinski, that you actually had 

to settle for quite a bit less. 

Ms. LEWINSKI. Yes, because of the lack of insurance that the doctor had. 

Mrs. CAPPS. Because of the amount of insurance that the doctor 

had. Keeping in mind that you have had 14 subsequent surgeries, 

and who knows what will be awaiting you in the future of your 

life? This is something that only you know. 

Again, we have a jury system that is designed for the story to 

come before a jury of your peers or of your parents’ peers to make 

this case. 

If I could now turn to you, Mr. Rosenfield, and ask you about sincere—my California, one of my California representatives there to 

see—and I don’t have much time left—since MICRA—would you 

say this again, what have the rates of malpractice insurance done 

in those first 13 years? 

Mr. ROSENFIELD. The premiums for doctors went up 450 percent 

after MICRA was passed, through 1988. 

Mrs. CAPPS. Is there anyone on this panel who believes that 

MICRA by itself capped—did anything to affect the insurance premiums in California? 

You do. Okay. Well, that is a little bit of a pull right there. 

For some reason, Mr. Rosenfield—and you were instrumental in 

this—Proposition 103 passed, which meant that all of the voters in 

the State of California had to approve something, which meant 

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they didn’t quite trust this insurance industry as it was self-regulated.

After Prop 103, was there any sign of malpractice insurance companies leaving the California market in response to this effort to 

control them? 

Mr. ROSENFIELD. No. 

Mrs. CAPPS. Thank you very much. Thank you for my time. And 

I will yield back what I don’t have left. Thank you. 

Mr. GREENWOOD. Mr. Buyer is recognized for 8 minutes. 

Mr. BUYER. Mr. Waxman brought up a point—you know, both political parties have to be relatively honest here. We do like to pick 

and choose when the Federal Government should act and when 

they shouldn’t. We really do. And so Republicans are no different 

than when Democrats were in the majority. They would pick and 

choose and use the Commerce Clause when to act and when to 

defer to the States. 

One thing that has worked well—as I have observed as I look at 

Mr. Dingell that I am a relatively young bird here, but he has seen 

this in his lifetime—when you look at how we establish EPA, you 

set out the guidelines, then you turn to the States and you let them 

go ahead and conduct their own environmental, but they can have 

stricter standards. It is a system that sort of works well. So all we 

do pick and choose. 

I am not going to get sucked into this debate today about cap and 

a cap, only a cap. 

I am somewhat bothered by where the debate has really gone 

today. I come from a State where I am very pleased that the atmosphere is pretty good. When I look back on this one, medical 

malpractice in the 1960’s was liberalized by legislatures. There was 

a destablization that was occurring in the early 1970’s. Indiana responded because we had an exodus of doctors. So in 1975—we had 

a Governor at the time who was an M.D., Dr. Otis Bowen—and I 

believe that what came out of that legislature is really a model. 

Now, I am not king and, boy—but if I could say what would be 

wonderful—obviously, I come from Indiana—boy, if every State had 

what Indiana has, Congress wouldn’t need to act. 

So I guess we have members from different States today that 

have been saying unto this panel, Oh, comment on this particular 

cap and tell me why the premiums have increased and why they 

haven’t. It isn’t just about caps. I sat here and sort of made some 

notes as I was pondering about this, and I think that there is just 

a series of interrelated problems that involve regulation, that involve the social control of medical practice. There is the quality of 

care, of insurance markets, there is consistent assessment liability 

laws, there is the existing paradigm of the social attitudes toward 

the practice of medicine. 

So the question of the equitable and efficient solutions to the series of problems involves, I think, action on multiple fronts. So you 

can’t just say, well, legislature, what you ought to do is just throw 

out a cap there. 

So Indiana didn’t just throw out a cap. Some States may have 

just thrown out a cap. What we did was, we intensified the peer 

review system. So I tell you what, in Indiana we—yes, there are 

some limitations on claims, but we went ahead and we placed a 

153

limit and said, it should be no more than $1.25 million. But then 

we come in and go, you know what, we are going to create a compensation fund. 

So we have this government-sponsored system whereby the doc 

is responsible for the first 100,000 and his insurance company, but 

we then have a patient’s compensation fund. 

We also have a medical review panel. So we are focusing on uplifting the standards of practice also. 

So this whole question today about changes in legal doctrine may 

not likely reverse the current trend. That is the reason some of my 

colleagues threw up a chart earlier and said, look at all these different States out there that have caps. There is no impact on premiums whatsoever. What are we doing with caps? My gosh, if those 

States out there are unwilling to take on multiple fronts—well, of 

course.

But I do have a chart. Would you throw up my chart? Who has 

got it? If the panel would turn around and look at this for just a 

second, what I have attempted to do here is look at Indiana and 

our contiguous States. Now this comes from the Medical Monitor, 

the Liability Monitor everybody is citing, and these are, I apologize, 

2000 figures. But what I attempted to do here was use the lower 

numbers.

[The chart follows:] 

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g:\graphics\86049.067
155

Mr. BUYER. For Illinois, for example, you could go to Cook County, Chicago, and the OB is like 89,000; surgery was 54,000, and internist was 22. I tried to use the lower numbers. 

But here is my point. What is occurring in Indiana where we 

have a good system that addresses not only costs but medical review, peer review, quality assurance; not just throwing out some 

form of a cap, but a compensation fund system, look at the impact 

it is having. So where before we had doctors leaving our State, 

when you look at having a system like this and you have contiguous States, guess what we have? We have an influx of doctors to 

Indiana. That is a problem. 

So I am challenged at the moment, because I love States’ rights. 

And now we are having to review this, saying, well, we are going 

to have the Federal Government come in and set standards, but 

look at the mess we are creating out there across the country. And 

I just think it is horrible. 

I want to ask, is anyone on the panel familiar with Indiana’s 

laws? Are you? And I appreciate your comments on my comments 

today.

Go ahead, please. 

Mr. PALMISANO. Well, we are very familiar with the Indiana law 

as was originally proposed, because that is where Louisiana, Dr. 

John Cooksey, who was formerly in Congress, he got the idea of 

bringing Senator Benjamin down to Louisiana. And several of us 

met with Senator Benjamin. He explained how your law was 

passed, and we then introduced that law into Louisiana as Act 

1465 and it became Act 817 of 1975. It was a total cap on all damages as was the law in Indiana. 

It also had the medical review panel, so before you could file a 

claim, you had to go before a medical review panel. The plaintiff 

would pick one doctor in the same specialty, the defendant would 

pick one doctor, the two doctors would pick a third. Then there was 

an attorney who had no vote to make sure that everything went 

by the appropriate statutory requirements. 

And then—so you have a patients’ compensation fund. You paid 

a percentage of your premium for—the first 100,000 went into the 

patients’ comp fund. That was a total cap. That gave another 

$400,000.

Since that time—I don’t know if I am saying too much—but Louisiana, we then modified our law more like New Mexico, where we 

pay all medicals as incurred. 

Mr. BUYER. There are some saying if you have a medical review 

panel, you will have an increase in scrutiny, and all that is going 

to do is lead to costs because you will have defensive medicine, you 

will have doctors asking for more tests and procedures. 

But, you know what, the reverse has happened in Indiana. These 

doctors are now focusing more on their patients and not having to 

worry about that. So you may have some States out there, I am 

just—my editorial comment, people throwing out, this State has 

this particular cap and you have got this cap and you have got this 

cap. If you are not addressing this continuum, obviously you are 

not going to affect these insurance rates whatsoever. This is my 

own feeling. 

156

So I am glad to see what Louisiana has done and Indiana. And 

these States have to do more than just throw out some cap on 

something.

Do you have a comment, Mr. Smarr? 

Mr. SMARR. Yes, sir, I do. 

The Indiana cap right now is a $1.25 million cap on all damages 

of any kind. And I believe the primary insurance carrier provides 

the first $250,000 in coverage and then the compensation fund provides a million in coverage on top of that. 

Just a word about compensation funds. Your fund in Indiana is 

unfunded, basically. It is a pay-as-you-go mechanism. It has a huge 

outstanding incurred loss for claims that are going to be reported 

to it for coverage that is offered. There is a similar fund in Pennsylvania that ran into huge problems with its unfunded liability 

and the surcharges to fund that fund became astronomical. 

Mr. BUYER. Our legislature addressed that. I know my time has 

expired, but we have addressed the underfunded. 

Thank you, Mr. Chairman. 

Mr. GREENWOOD. The Chair thanks the gentleman. 

The gentleman from Michigan, the ranking member, Mr. Dingell. 

Mr. DINGELL. I commend you for holding this hearing. 

I want to begin by saying, Ms. Lewinski, we appreciate your 

courage and your presence this morning. I believe it is very important that this hearing reflect some of the human experiences which 

are involved in the questions before us. 

I want to welcome you, Dr. Palmisano. I have great sympathy for 

the concerns that you have expressed as you very well know. 

I want to thank you, Ms. Rosenbaum, for being here. And Mr. 

Rosenfield, you have been of help to us before. 

Ms. Rosenbaum, I will direct my first question to you. Ms. Rosenbaum, you are a law professor. You have tried lawsuits. How long 

have you been in this business? 

Ms. ROSENBAUM. I have been a lawyer now for almost 30 years. 

Mr. DINGELL. Your comments were very interesting about how 

this bill preempts State and Federal law and literally preempts any 

possible lawsuit against almost anybody. And I found your testimony with regard to who gets out from under these lawsuits to be 

very interesting. 

In the case of State laws, you referred to questions relating to 

fraud and deceit, unfair trade practices, civil rights laws, labor law, 

including workers’ rights protections, criminal law, consumer protection, antitrust laws and environmental laws. 

Are you sure you are right on that? 

Ms. ROSENBAUM. I can only testify to what I read in this bill. 

The charge to me as a witness was to take a close look at the 

legislation. And reading the legislation, the kind of health law I 

teach has me spending a great deal of time on the text of legislation. Reading the text of this legislation which is very broad and 

with very few definitions——

Mr. DINGELL. Let me try to make this a little quicker. It is almost—there is no exemption——

Ms. ROSENBAUM. Exactly. 

Mr. DINGELL. [continuing] from any of these things with regard 

to the States; is that correct? 

157

Ms. ROSENBAUM. That is correct. And, for example, the word 

‘‘any person’’ is not modified to take public officials out of the 

phrase, ‘‘any person.’’

Mr. DINGELL. So then I note that you have here examples of—

Federal law. Apparently covered are fraud and abuse, RICO, false 

claims, antitrust, Sherman-Clayton Act, civil rights laws, criminal 

statutes, Federal food and drug laws, Federal environmental health 

laws, Federal labor laws, Federal contract enforcement laws that 

provide for liquidated damages, restitution to the extent that restitution is not understood to be a part of economic damages. 

Do you make the same statement with regard to Federal laws 

too?

Ms. ROSENBAUM. I do. 

Mr. DINGELL. Now, Dr. Palmisano, I can sympathize with the 

problem that you and the members today at the AMA may have. 

I have had many of my doctor friends, who have talked to me about 

their concerns. I believe that they are legitimate and real. You are 

not here advocating that we go beyond addressing the problems of 

health, are you? 

Mr. PALMISANO. No, sir. 

Mr. DINGELL. Are you familiar with the testimony of Ms. Rosenbaum?

Mr. PALMISANO. Just what I heard today. I haven’t reviewed it 

in advance. 

Mr. DINGELL. You don’t endorse that kind of broad exemption, do 

you?

Mr. PALMISANO. No, sir. We talk about what is on page 19 of the 

bill that relates to the diagnosis, prevention, treatment of any 

human disease or impairment of the assessment of the health of 

human beings. In other words——

Mr. DINGELL. Your concern here is about legitimate questions of 

health and legitimate protection of people who are legitimate 

deliverers of health care; is that right? 

Mr. PALMISANO. Yes, sir. 

Mr. DINGELL. Now, Mr. Smarr, I found your comments to be very 

interesting. You are appearing on behalf of the insurance industry, 

is that right, and are active in one of the associations which addresses the problems of insurance, is that right? 

Mr. SMARR. Yes, I am appearing on behalf of the provider-owned 

or -operated malpractice insurance company. 

Mr. DINGELL. Now, are you advocating the kind of broad exemption here that Ms. Rosenbaum has defined as being a real possibility?

Mr. SMARR. No, sir, we are not. 

Mr. DINGELL. That would be wrong, wouldn’t it, to give exemption from civil rights laws, environmental laws, consumer protection laws, labor laws, antitrust laws, fraud and abuse under RICO, 

or the False Claims Act, Federal environmental laws, Federal labor 

laws? We shouldn’t give exemptions there, should we? 

Mr. SMARR. This is the first time that I have heard of these 

issues, and so I am hesitant to comment on it. But on the face of 

it, yes, you are correct it would be wrong to exempt people from 

those laws. 

158

Mr. DINGELL. You have read the bill and they apparently snuck 

this in on you too, didn’t they? 

Mr. SMARR. Well, I don’t know that that’s what the bill says. I 

would have to have a read of it. 

Mr. DINGELL. You didn’t see it there? 

Mr. SMARR. I didn’t see it there. 

Mr. DINGELL. But I don’t detect that you are ready to argue with 

the professor of law, are you? 

Mr. SMARR. No, sir, I am not. 

Mr. DINGELL. Now, Mr. Rosenfield, what do you think about 

this? Is it your view that this is something which relates to the 

matters that have been discussed by Ms. Rosenbaum? 

Mr. ROSENFIELD. Well, it reminds me of that little deal that the 

Senate passed exempting in the Homeland Security bill, exempting 

certain manufacturers of vaccines. I think it is something that is 

stuck in there and everybody hoped that we wouldn’t see it until 

was too late. I am glad you are calling attention to it. 

Mr. DINGELL. Would you generally agree with what it is that Ms. 

Rosenbaum has said here with regard to this piece of legislation? 

Mr. ROSENFIELD. That is our analysis, yes. 

Mr. DINGELL. I read it, and with profound regret, I think that 

somebody is trying to pull the wool over the eyes of the committee 

here. And it looks like there may have been some sneaky draftsmanship here. 

Not referring to you, Mr. Chairman. I have great respect for you. 

But that some slippery soul outside the committees’ tutelage may 

have engaged in a little bit of doubtful practice here. And I find 

that to be a very troubling, very troublesome situation. 

I would note, Ms. Rosenbaum, that at page 21 I see here other 

Federal law, ‘‘Except as provided in this section, nothing in this act 

shall be deemed to affect any defense available to a defendant in 

a health care lawsuit or action under any other provision of law.’’ 

That would tend to add to the sweep and the breadth of this exemption in all kinds of wrongdoing which we have seen in the bill 

before us; am I correct? 

Ms. ROSENBAUM. That and the saving of the vaccine injury 

claims led me to my conclusion that everything else was preempted.

Mr. DINGELL. In other words, we would use here the old legal interpretation of expressio unius est exclusio alterius; is that right? 

Ms. ROSENBAUM. Exactly. 

Mr. DINGELL. I wonder, we ought to have—I think Mr. Chairman, we do need to have some more hearings on this matter. And 

I want to commend you for this hearing. What other witnesses, Mr. 

Chairman, do we have coming in? Do we have government, somebody from the Attorney General, somebody from HHS who would 

be able to help us wander through this thicket and perhaps guide 

us in some appreciation of just whether some really slippery rascals are going to get out from under the law here? 

Mr. BILIRAKIS. I would remind the gentleman—your time is up, 

but I would remind——

Mr. DINGELL. In order to show my respect for the chairman I ask 

for 2 additional minutes so that you can tell us if we are going to 

have some more hearings here. 

159

Mr. BILIRAKIS. I plan to go into a second round, very brief second 

round, hopefully limiting it just to the people who are in the room 

right now. 

Mr. DINGELL. Well, that’s splendid, Mr. Chairman, I would observe. But I am profoundly saddened by the fact that our witnesses 

here agree with me that this is a bad piece of legislation because 

it gives all of these profound exemptions from law to a bunch of 

people who are not here to say they need this help, and we don’t 

have the assistance of people from the Attorney General or the Department of HHS or the Federal Trade Commission or the SEC. 

And I really think we ought to know whether these matters are, 

in fact, valid because it looks like there is some slipperiness going 

on here, Mr. Chairman. 

Mr. BILIRAKIS. Markup is scheduled next week, as you already 

know, No. 1. No. 2, we gave the minority the opportunity—I wanted to delve into things like insurance in this particular hearing, 

and we gave the minority the opportunity. They didn’t bring in a 

single insurance witness that might set out their particular point 

of view, which is—so——

Mr. DINGELL. Well, you see, we didn’t know what Ms. Rosenbaum was going to have to say to us. What she has said here is 

very, very——

Mr. BILIRAKIS. We have also had other witnesses who have had 

other things to say to us, who are supportive of the legislation. 

The gentleman’s time has expired. Let us just go in regular 

order.

Mr. DINGELL. The other witnesses totally disagree with Ms. 

Rosenbaum.

Mr. BILIRAKIS. With all due respect, we are going to go into a 

quick second round limited—you have 8 minutes don’t you? That 

takes care of our second round I think. 

Mr. DINGELL. All but me, Mr. Chairman. 

Mr. BILIRAKIS. Mr. Strickland has——

Mr. STRICKLAND. I have 8 minutes, Mr. Chairman. 

Mr. BILIRAKIS. You have 8 minutes. 

Mr. STRICKLAND. And if my good friend will promise me he will 

limit his remarks to 2 minutes I will yield 2 minutes of my 8 minutes to Mr. Dingell, so that he can continue his questioning. 

Mr. BILIRAKIS. You are very free to do that. 

Mr. DINGELL. I thank my good friend. I don’t want to take the 

time away from him. I know the chairman is going to very generously give me my additional time on the second round, so that I 

can continue discussing these matters. 

Mr. STRICKLAND. Reclaiming my time, Mr. Chairman, I did not 

make an opening statement, but I—before I ask my questions, I 

would like to say something that just, to me, is the core conflict 

which I face as a legislator in this matter of caps. And if I could 

settle this inside myself, I think I perhaps could take a different 

position than I have taken. 

But in this country, we use the jury system to make life-anddeath decisions. In the State of Texas we execute people frequently, 

and we are going to execute people in the State of Ohio, based on 

the decision made by a jury. And in fact, the President has said 

that he is confident that no one has been executed in Texas that 

160

was not guilty; and he has made that assumption, based on the decision of a jury. And it troubles me that we would allow the jury 

system to be so valued and utilized in a way that they could actually make a decision regarding taking the life of another person, 

and yet, when it comes to monetary matters, when it comes to 

money matters, we don’t trust the jury system. 

We say, somehow it is flawed, it is broken, it can’t be trusted. 

Now, I don’t know how to deal with that. I just don’t know how 

to deal with that personally. I struggle with this matter. And I am 

open to questions or suggestions or to information that could help 

me resolve that internal conflict. 

Ms. Lewinski, thank you for being here. And I hope you understand how important your testimony was to all of us. As a result 

of your injury, did you receive any economic compensation? 

Ms. LEWINSKI. Strictly pain and suffering, yes. 

Mr. STRICKLAND. But not economic compensation? 

Ms. LEWINSKI. No, sir. 

Mr. STRICKLAND. So the only compensation you received was 

based upon pain and suffering, which is a noneconomic matter? 

Ms. LEWINSKI. Right. 

Mr. STRICKLAND. I am going to ask each of the panelists a question, and I think it is a fair question. And I am going to ask you 

to answer yes or no, or I need more information. 

Do you think—and could we just go down the line? Do you think that Ms. Lewinski was entitled to no more than $250,000 as a result of her injuries? 

Mr. HURLEY. I am here as an advisor. I would prefer to advise. 

Mr. STRICKLAND. But I think you are here to give testimony, 

which will have an impact upon a decision that we make that could 

relate to how much compensation someone like Ms. Lewinski gets; 

and so I believe it is fair to ask for your personal opinion about this 

matter.

Mr. HURLEY. I am deeply saddened by the experience that Ms. 

Lewinski had, and I favor patient safety initiatives and all those 

things to try and make things better from that standpoint. 

But I think the dilemma for legislators like you is to determine 

what the balance is between compensating on noneconomic damages, and any other type of damages for that matter, against providing health care for everyone, and making health care more 

broadly available. So that is the dilemma. 

My opinion is, we need to make a compromise somewhere. I don’t 

know where that compromise is. Unfortunately, that is your decision, not mine. 

Mr. STRICKLAND. But would your personal opinion be that that 

level of compensation should be $250,000? 

Mr. HURLEY. I don’t have an opinion on what the right number 

is, sir. 

Mr. STRICKLAND. Do you not have an opinion, sir, or do you not 

want to share it with us? 

Mr. HURLEY. I have not formed an opinion about the number, to 

be honest with you. That is my—that is absolutely my honest answer. I have not formed an opinion about what the right answer 

is from my standpoint. 

Mr. STRICKLAND. Mr. Hiestand. 

161

Mr. HIESTAND. I would like people to get as much money as they 

could get in an ideal world for their injuries, but I don’t believe 

that that can be done. 

And in relation to your earlier concern that you expressed about 

tying juries’ judgment, juries have to make decisions according to 

the rules of law, as you know; and one of the ironies I have always 

found in this—as a lawyer, is that if a lawyer commits malpractice 

on someone, depriving them of their liberty or their property, you 

know what the limit on noneconomic damages is for that injured 

party.

Mr. STRICKLAND. You know, sir, I don’t. But——

Mr. HIESTAND. Zero. 

Mr. STRICKLAND. But I feel like you are avoiding my question. It 

is a very simple question about a very particular circumstance, and 

you are here urging us to support H.R. 5, which will have an effect 

on someone like Ms. Lewinski. You have an obligation, I believe, 

to answer a simple question. I am asking you a very simple question.

Mr. HIESTAND. I believe that what California did in setting the 

amount at 250,000, what Congress did at setting it——

Mr. STRICKLAND. You are not answering my question. 

Mr. HIESTAND. This is the answer: The 250,000 which Congress 

also set as a limit for what is paid for noneconomic damages to the 

survivors of the 9/11, and then currently——

Mr. STRICKLAND. We are not talking about 9/11. I am talking 

about——

Mr. HIESTAND. I am talking about the amount, 250,000. 

Mr. STRICKLAND. With all due respect, sir, I am asking a very 

simple question. 

Ms. Lewinski has provided us with testimony about her circumstances. It is an individual circumstance. The law we are considering will impact individuals, and I am asking you about this individual circumstance. 

Do you believe that what has happened to her is a situation that 

should require her to be paid no more than $250,000? I think that 

is a simple question. And if you need more information, say, I need 

more information; I am not going to answer it yes or no. 

Mr. HIESTAND. Well, it is a two-step answer, and the first answer 

is, as a person, as an individual, as I said at the beginning, I favor 

unlimited compensation for people who have injuries. 

If I was a lawmaker, like you are, and I have to make a decision 

to try to balance how you are going to prevent malpractice or restore people to whole and at the same time keep access to your 

health care system, I favor setting some limit on noneconomic damages.

Mr. STRICKLAND. Okay. If I can stop you there. 

And before I ask the others to respond, do you think MICRA was 

a good law when it was passed? 

Mr. HIESTAND. Yes. It is a good law today. 

Mr. STRICKLAND. Do you think the level of compensation was an 

appropriate level of compensation when it was passed into law? 

Mr. HIESTAND. Yes. 

162

Mr. STRICKLAND. Do you favor having that $250,000 indexed so 

that it would have the purchasing power today that it had at the 

time was passed into law? 

Mr. HIESTAND. No, because that amount today would be in ex- cess of $800,000 if it was indexed. 

Mr. STRICKLAND. If the purchasing power is the same, explain to 

me why the purchasing power when it was passed was appropriate 

and it would not be appropriate today to have the same——

Mr. HIESTAND. Two answers. First, the experience in California 

is that even with the limit of 250,000, people who sue for medical 

malpractice today are getting more adjusted for inflation than they 

were getting before the $250,000 limit, more in the overall judgment, because the economic damages—lawyers have become very 

good at getting them up to make up for that. 

Mr. BILIRAKIS. You are past your 8 minutes. 

Mr. STRICKLAND. Are my 8 minutes up? 

Mr. BILIRAKIS. Oh, yes. You are into your 9th minute. 

Mr. STRICKLAND. Well, I am sorry because I wish——

Mr. BILIRAKIS. Well, if you hang around, Ted, you will get another shot. 

The gentleman’s time is up. I am being reminded that I have 3 

minutes.

Does anyone disagree that—let’s not go into, for the moment, in 

terms of what the solution might be or should be or whether it 

should be left completely up to the States or whatever the case may 

be. Does everyone agree that there are problems out there that 

would require enacting medical liability reform of some sort? 

And we haven’t even touched on it here, but when we used to 

talk about this subject, we quite often talked about how it increases the cost of medical care because of all of the additional 

tests and whatnot that have to take place, that physicians feel 

have to take place in order to protect themselves. Do we have any 

disagreements there? 

You disagree? Heather, you have been listening to all of this. I 

guess it has probably been a little bit of an education to you. Do 

you—let’s not go to 250,000 or 800,000 or whether there should be 

a cap. But do you understand the need for something to take place 

because a lot of doctors are leaving professions, a lot of doctors are 

leaving geographical areas, going to another geographical areas, 

things of that nature—access, in other words, being a problem. OB/

GYNs are not as available these days; do you agree? 

Ms. LEWINSKI. Yes, sir. But I think you are going after the wrong 

people, the victims instead of the real problem. 

Mr. BILIRAKIS. And the real problem is the doctors? 

Ms. LEWINSKI. I am not—I am just not sure why the doctors 

don’t want to weed out the bad ones. I mean, the majority of doctors are good. Why don’t you want to weed out the bad doctors? 

Mr. BILIRAKIS. Yes. You said that in your written statement, 

which is fair. 

Mr. Hurley, a real quick comment because I don’t have much 

time. You agree that something has to be done? I believe you do. 

Mr. HURLEY. I believe that you need to look at some solutions. 

Mr. BILIRAKIS. Yes. Mr. Hiestand? 

Mr. HIESTAND. Yes. 

163

Mr. BILIRAKIS. Mr. Rosenfield, I know you don’t believe. I don’t 

want to know your answer, you just don’t believe, because I don’t 

have time. 

Ms. Rosenbaum. 

Ms. ROSENBAUM. I would recommend a complete alternative to 

the current system. 

Mr. BILIRAKIS. But something being done, yes. 

Ms. ROSENBAUM. Yes. 

Mr. BILIRAKIS. Right. 

Mr. BILIRAKIS. Mr. Smarr? 

Mr. SMARR. Yes, I do believe something needs to be done. 

Mr. BILIRAKIS. And Dr. Palmisano? 

Mr. PALMISANO. Yes. 

Mr. BILIRAKIS. I don’t have enough time to ask you to tell me 

what you think should be done, but I would like to invite you and 

someone over here—I think asked Ms. Rosenbaum, Mr. Norwood. 

But I would like to invite you—if you feel that something ought to 

be done; if you feel that nothing needs to be done, then you don’t 

have to submit anything—give you the opportunity to let us know 

in writing how you think we ought to approach this. 

I mean, you are experts here, and I—you know, we do have biases. We are human beings and many people on the other side 

have biases and they are accused by many of being for it, in the 

pocket of the trial lawyers. 

Mr. Waxman has already said that the Republicans are basically 

biased for the insurance companies. There may be some truth in 

all of that. But I would like to think that we sincerely want to do 

something that will help to solve the problem. So I invite you to 

do that. 

Having done that, I yield 3 minutes to Ms. DeGette. 

Ms. DEGETTE. Thank you, Mr. Chairman. 

Mr. BILIRAKIS. Do you want the 3 minutes now Mr. Dingell? You 

have that right. 

Mr. DINGELL. No, I will wait. 

Mr. BILIRAKIS. Ms. DeGette. 

Ms. DEGETTE. Thank you, Mr. Chairman. 

Mr. Smarr, as I understand it, there are different risk groups for 

doctors and, in fact, in one of the charts Mr. Buyer put up, you saw 

that some doctors pay much higher insurance rates because they 

are in different risk groups than other doctors. For example, OB/

GYNs, neurosurgeons, folks like that, pay substantially higher insurance rates than, say, family practitioners; is that correct? 

Mr. SMARR. That is correct. 

Ms. DEGETTE. And a lot of the crisis that we have seen in malpractice insurance rates has been with these doctors who are paying high premiums in high-risk groups, right? 

Mr. SMARR. They are experiencing it greater than the others; 

that is right. 

Ms. DEGETTE. Now, as I understand it—and unfortunately, I 

couldn’t be in Pennsylvania; I had another obligation in my district. 

But as I understand it, some of the conversation in Pennsylvania 

said, if you spread the risk out among all doctors, that the lowestrate doctors in Pennsylvania would end up paying like $5,000 to 

$7,000 more per year in malpractice insurance premiums. But then 

164

the high-risk groups would be lowered if you spread them out over 

different polls; is that correct, Mr. Smarr? 

Mr. SMARR. The direction of change is correct. I am not—I don’t 

know about the order. 

Ms. DEGETTE. But, I mean, it makes sense. 

And, Mr. Rosenfield, you—even though they say you are not an 

expert on insurance, I know you are an expert on insurance, so I 

would just like to set the record straight for that. But my understanding is that if you spread the risk out, some people, some doctors’ insurance might go up a little bit, but the highest-risk doctors’ 

insurance would go down substantially; would that be correct? Just 

very short. 

Mr. ROSENFIELD. Yes. 

Ms. DEGETTE. Thank you. Because here is what I am sitting here 

thinking. When I hear Mr. Hurley and Mr. Hiestand and all these 

folks saying we really think there is a problem—and I agree there 

is a problem; no one doesn’t think there is a problem. The question 

is, who should bear the burden? And here is the thing I am thinking.

Ms. Lewinski, or the lady who, through medical malpractice, had 

both of her breasts amputated needlessly, or so many other victims 

that may not have high economic damages, why should we limit 

their noneconomic damages to $250,000 arbitrarily when they may 

have substantially higher damages, but we are limiting them? 

But we are saying to doctors, we don’t want to make people with 

low—in low-risk groups just pay a little bit more insurance premiums to help their colleagues in higher risk groups? I think that 

is appalling that we, as Representatives of the American citizenry 

in Congress, would make that value judgment to say to these victims, you are arbitrarily capped. You might have noneconomic 

damages of millions of dollars, but you only get this much. 

But doctors, forget it. We don’t want you to have to pay higher 

insurance rates nor do we want to examine the insurance industry. 

And I am even more opposed to this bill, if possible, than as I 

was before. I told my dear friend I would be willing to try to work 

with them on this, but I just think this is the totally wrong road 

to go down. Thank you for your comity. 

Mr. GREENWOOD [presiding]. Well, and I wanted to make a comment just to respond to my friend, Mr. Strickland, with regard to 

juries and how much leeway they have. Our jury system is critical 

and almost sacred in our country, but I would also note that we 

give juries the right to determine fault and we give the juries the 

right to determine the ability to determine guilt, but we don’t say—

we don’t give juries, for the most part, unlimited abilities to—with 

regard to sentencing, for instance. We don’t say, you can execute 

someone for shoplifting and so forth. 

Mr. STRICKLAND. Will my friend yield just a moment? 

Mr. GREENWOOD. I will yield to you, but just let me finish my 

thought here, if you would. 

So I think, in fairness, this is not about whether we remove the 

jury system from its deliberations to determine where there is fault 

in a case and so forth. But what we are trying to do is, as Mr. 

Hiestand said, set some limits to have justice and affordable health 

care and available health care. 

165

Mr. STRICKLAND. Can I respond in 10 seconds? 

Mr. GREENWOOD. Ten seconds. 

Mr. STRICKLAND. Some juries recommended death or life sentences. That is a pretty weighty decision. And I think as long as 

juries are trusted to make those kind of decisions, they should be 

trusted to do that. 

Mr. GREENWOOD. Reclaiming my time, I understand the gentleman’s point. The point I was trying to make is that this is not an 

alien notion that there would be some limits imposed by lawmakers 

on the discretion available to juries. 

The other point I think that needs to be made is there has been a constant repetition of the $250,000 figure. It needs to be understood that the $250,000 figure is there, in part, because it is what 

has worked in California. It is there, in part, because the California 

delegation, many of them, felt that they didn’t want us to trump 

their existing cap, and so we have allowed the States to set that 

cap wherever they wanted. 

So, my friend Mr. Waxman talked about States’ rights. We were 

very clear in this legislation that any State legislature in the country that wants to set noneconomic damage at a number higher 

than 250, whether it is $500,000 or $750,000 or $1 million, wants 

to decide to move it periodically with time and so forth, is certainly 

free to do that. 

Now let me try to wedge a question in here for Mr. Smarr, and 

referring to Ms. DeGette’s comment that has to do with rating. 

Do you have any recommendations with regard to—because this 

question comes up a lot. Is it—do we have any structural problems, 

with the physician-owned companies at least, that have to do with 

classes of coverage being too small to actuarially rate fairly, with 

giving different rates to physicians that have more claims paid because of their malpractice than others? How does that work? 

Mr. SMARR. Each company looks at its insureds usually by medical specialty and then by a geographical unit, such as a county—

and this is true of a lot of lines of insurance; auto insurance, for 

example—and assigns relativities to each type of insured, based 

upon the loss experience within their medical specialty, or group of 

specialties, and within their county or group of counties and territories to try to fairly charge each individual doctor in proportion to 

his or her losses for the type of practice they have. 

In addition——

Mr. GREENWOOD. My time has expired. But—so if physician A 

has had more losses as a result of settlement or judgments than 

physician B, and they are in the same county in the same specialty, 

do they tend to pay different rates? 

Mr. SMARR. They indeed can. Through other mechanisms, the insurance companies offer to do merit rating, and that is not an unusual concept. 

Mr. GREENWOOD. Thank you. My time has expired. 

The gentleman, Mr. Dingell, is recognized for 3 minutes. 

Mr. DINGELL. Mr. Chairman, thank you. I wanted to just go into 

this business, the definition of health care provider who would be 

sued, or health care organization. 

Where is there a limitation on who might fall into that particular 

category of persons in the legislation? Is there one, anywhere? 

166

Ms. ROSENBAUM. I saw none. 

Mr. DINGELL. Maybe—Mr. Smarr, you are our expert on insurance. Do you find any limitation on who that individual might be? 

Mr. SMARR. I have not looked at this, so I can’t comment sir. 

Mr. DINGELL. Should there be a limitation on who would get out 

from under the liability here, Mr. Smarr? 

Mr. SMARR. Well, the legislation, I think——

Mr. DINGELL. No. No. 

Mr. SMARR. [continuing] addresses who is covered by——

Mr. DINGELL. The question is quite clear. And there are 13 sections left? 

Mr. SMARR. I don’t know. 

Mr. DINGELL. Who would be able to tell us? 

Mr. Rosenfield, maybe you can help us. Do you find any limitations on who gets out under this liability here? 

Mr. ROSENFIELD. No. 

Mr. DINGELL. Is there anybody that finds any limitations on any 

fellow that gets out from under it? 

Mr. Hiestand, maybe you are a better lawyer than all the rest 

of us here. 

Mr. HIESTAND. I understood Dr. Palmisano is also a lawyer, referring to page 9 of the——

Mr. DINGELL. I am not sure Dr. Palmisano wants to get into this 

discussion.

Do you want to get into this discussion, Doctor——

Mr. HIESTAND. On page 9 of the bill, it ties it in in terms of medical and health care services and goods. 

Mr. DINGELL. But who is defined? 

Mr. HIESTAND. Diagnosis and treatment and I think that is the 

limitation. And I mean, the professor may be right that that is not 

confining enough. But I think the intent of the legislation was to 

limit it. 

Mr. DINGELL. When I was in law school, I didn’t argue with my 

professor.

Mr. HIESTAND. Pardon? 

Mr. DINGELL. Are you a lawyer? 

Mr. HIESTAND. Yes. 

Mr. DINGELL. You are. Did you ever argue with your professor? 

I was always taught not to. 

Mr. HIESTAND. I sometimes argued with my professor, but you 

know, it is not a winning kind of thing. 

Mr. DINGELL. Where is the language that you would rely on to 

exempt some person, rather to remove them totally. 

Mr. HIESTAND. Dr. Palmisano has it scored in yellow over there 

at the top of the page. If he could sort of read that——

Mr. DINGELL. If you tell me it is there, it must be there. I am 

just waiting to hear you tell me what language you rely on here. 

Dr. Rosenbaum can’t find it. Mr. Rosenfield can’t find it. I can’t 

find it. The staff can’t find it. The chairman of the committee can’t 

find it. 

I am sure the legal counsel for the committee, when we get 

around to holding hearings, won’t be able to find it. We don’t have 

any other witnesses who can tell us. 

167

I am just curious who can help me out of this thicket, because 

I really want to know who this would be. 

Mr. HIESTAND. It is page 19, I am sorry, not page 9; I misunderstood him. 

The operative definition, as I understand it, on page 18 you have 

both; 11 is a health care provider and beneath that which—it ties 

into health care provider—is the health care goods or services. 

When you flip over on page 19 of that definition, it says that relates to the diagnosis prevention or treatment of any human disease or impairment or the assessment of the health of human 

beings. I think that is the limiting language that is supposed to 

control both the goods and services and who they are provided by. 

So I think that was the intent of the drafters here, to make sure 

it didn’t go as broadly. 

Mr. DINGELL. To what, though, does that language and that definition refer? I mean, it just sits there in glorious, solitary splendor. 

I don’t think it refers to anything. 

Mr. HIESTAND. Well, it might well be tightened up. But it says 

that relates to—you don’t—if you are providing services that relate 

to diagnosis prevention or treatment of human disease, that eliminates a whole lot of other services. 

Mr. DINGELL. I have to assume that you would advocate that if 

this defect is—as it appears at this time, that it be corrected, 

wouldn’t you? 

Mr. HIESTAND. Well, I think one ought to look at it to see if it 

should be tightened, yeah. I mean, you raise and the professor 

raises a legitimate point for consideration. 

But I am just saying, the bill, I think, does intend to try to relate 

it, in the language on the top of page, to narrow it, and the language on the top of page 19 reflects that. 

Mr. GREENWOOD. The time of the gentleman has expired. 

Mr. DINGELL. I would love to see to what it refers, but it doesn’t 

say what it refers to. It just defines. That is different. 

Mr. GREENWOOD. If the gentleman from——

Mr. DINGELL. I notice my time has expired, Mr. Chairman. 

Mr. GREENWOOD. It has. Perhaps you noticed me telling you that. 

Mr. DINGELL. I am sorry, Mr. Hiestand. This has been a fascinating discussion. You haven’t helped me, but I know you have 

tried hard, and I thank you. 

Mr. GREENWOOD. Mr. Strickland is recognized for 3 minutes. 

Mr. STRICKLAND. Thank you, Mr. Chairman. I am going to continue my line of questioning because, you see, you folks come here 

and I don’t think any of you are under a subpoena to do so. You 

come here willingly to talk with us about this important issue and, 

hopefully, to affect our thinking about it. So I think we have got 

a right to explore your thinking. And I think that means you have 

got a right to answer or an obligation, a responsibility to answer 

the question. 

So I will go on down. 

Mr. Rosenfield, do you feel like Ms. Lewinski should have been 

limited to a compensation of $250,000? 

Mr. ROSENFIELD. No. 

Mr. STRICKLAND. Thank you. I appreciate that concise, direct, understandable answer. 

168

Ms. Rosenbaum. 

Ms. ROSENBAUM. I don’t, and I think the distinction between the 

two kinds of recoveries are a terrible example of legalisms. 

Mr. STRICKLAND. Could I ask you this then? Do you think perhaps if we are going to consider capping noneconomic damages, 

that it is fair to consider capping economic damages? 

Ms. ROSENBAUM. I think the issue is that an individual who is 

damaged or injured should recover. I think the attempt to distinguish is shown in all of its futility in a case like Ms. Lewinski’s. 

Mr. STRICKLAND. And I think it portrays a utilitarian view of 

human beings, that I find incredibly offensive. 

Mr.—I am sorry, I can’t see your name tag. 

Mr. SMARR. My name is Larry Smarr. 

Mr. STRICKLAND. Larry. Respond. 

Mr. SMARR. Well, my short answer is, I need more information. 

And let me tell you why. 

Mr. STRICKLAND. Okay. And that is a fair response. 

Mr. SMARR. Well, as I understand it—and I don’t know if I heard 

everything here—the total amount received was $1 million in noneconomic damages, and I would expect under——

Mr. STRICKLAND. It was not, we are being told. 

How much it was, Ms. Lewinski? 

Ms. LEWINSKI. Well, the jury awarded me $3 million, but because 

of the lack of insurance of the doctor, I received a substantial 

amount less. 

Mr. STRICKLAND. Did you receive less than $1 million? 

Ms. LEWINSKI. Yes, sir. 

Mr. STRICKLAND. While I am talking with you, who has paid for 

your surgeries, your multiple surgeries? 

Ms. LEWINSKI. Insurance. 

Mr. STRICKLAND. Your father’s insurance, I understand. 

Ms. LEWINSKI. Correct. 

Mr. STRICKLAND. Okay. Continue. 

Mr. SMARR. Well, I would expect in most cases—and I am not 

sure about this one—that there would be considerable economic 

damages that would be awarded. And that is why I need more information to know the actual amount. 

But to get to your question about 250 and is that sufficient for 

noneconomic damages, I think we are really at a societal question 

here, and that is whether there is enough money in the system to 

pay the unlimited awards because——

Mr. STRICKLAND. Can I interrupt you? I have got 15 seconds, and 

I want to get to the good doctor. And I want to tell you, my very 

best friend is a pediatric surgeon, and I go through these conversations with him all the time. 

I don’t want this hearing to end without expressing to you that 

there is no professional group that I have more respect for and that 

I value more than those who provide medical services to our people. 

And so I hope anything that I say is not construed as an attack 

upon the medical profession that I truly admire and honor. Thank 

you very much. 

Thank you, Mr. Chairman. 

Mr. GREENWOOD. Mr. Stupak, if he has caught his breath, is recognized for 3 minutes. 

169

Mr. STUPAK. Thank you, Mr. Chairman. I had to run from the 

floor, but I appreciate that. 

Heather, thank you for testifying; your testimony is certainly 

helpful to all of us as we try to wrestle with this issue. 

Mr. Smarr, you had indicated at one time during testimony today that the $250,000 cap you thought was reasonable and fair. Is that 

correct?

Mr. SMARR. Yes, sir. 

Mr. STUPAK. Okay. In 1975, when California put on their $250,000 cap, did you think it was fair then? 

Mr. SMARR. I wasn’t aware of it then, but yes, I believe it was. 

Mr. STUPAK. Okay. Well, today that $250,000 cap in 1975, by to- day’s value—is $40,389 by today’s actual dollars when compared to 

1975. Do you think that is fair? 

Mr. SMARR. I think that it is very hard to determine a level for 

noneconomic damages when it is an issue that is just 

unmeasurable.

Mr. STUPAK. Okay. So yes or no. I am just——

Mr. SMARR. Yes, I think that $250,000 is the correct level for it 

today.

Mr. STUPAK. Even today? 

Mr. SMARR. Today. 

Mr. STUPAK. So the $250,000 that California put in in 1975, if you took it to today’s value, it is $1,547,461 in 2002 dollars. Is that 

fair?

Mr. SMARR. Is that calculation fair or is that a fair amount? 

Mr. STUPAK. Do you think that is a fair amount for noneconomic 

damages?

Mr. SMARR. West Virginia has a $1 million limit, which is similar 

to the number you are citing, and West Virginia is one of the most 

troubled States in the Nation with regard to medical liability incidents.

Mr. STUPAK. So you don’t think that is fair for noneconomic damages?

Mr. SMARR. I think it is too high. 

Mr. STUPAK. We have heard a lot of people throw around the figure, or not the figure, but the phrase ‘‘noneconomic damages.’’ some 

have even claimed that they are frivolous, pain and suffering. But 

this is much more than pain and suffering, isn’t it? 

Mr. SMARR. Yes. There are different categories of things that are 

deprived that——

Mr. STUPAK. Well, let me tell you, the standard jury instructions 

that we use probably everywhere in the State describes noneconomic damages to compensate for real, permanent harms that 

are not easily measured in terms of money, as we have seen by just 

the answers there, to compensate for these injuries; and they include noneconomic damage injuries—blindness, physical disfigurement, loss of fertility, loss of sexual function, loss of a limb, loss 

of mobility, and loss of a child. 

Do you think that $250,0000 is a fair cap for those noneconomic 

damages? That is the real definition of noneconomic damages; it is 

more than just pain and suffering. 

Mr. SMARR. I believe that $250,000 is the appropriate cap for this 

legislation.

170

Mr. STUPAK. Okay. 

Mr. Hurley, you had indicated in response to Mr. Strickland that 

you thought health care should be for everyone. All of us up here 

certainly agree with that and access to it. 

But do you believe that the high malpractice premiums for doctors cause patients’ health insurance premiums to go up? 

Mr. HURLEY. I believe that the high price of malpractice premiums does cost health care—does cause health care costs to go up, 

yes.

Mr. STUPAK. The Consumer Federation of America, do you know 

that organization? 

Mr. HURLEY. I have heard their name. 

Mr. STUPAK. So you don’t know if they are a credible group or 

not?

Mr. HURLEY. I do not. 

Mr. GREENWOOD. The time of the gentleman has expired. 

Mr. STUPAK. Is it time already? 

Mr. GREENWOOD. Time flies when you are having fun, Mr. Stupak.

Mr. STUPAK. I would like to have a little more fun, if you would 

let me. 

Mr. GREENWOOD. You can have as much fun as you want, but 

not today. 

Mr. STUPAK. Could I make a motion though on behalf of this 

side? Mr. Dingell brought up earlier about the need for having 

more hearings on this before we go to markup. And I know we are 

sort of on a fast track, but when we—we are talking about insurance and all that, insurance companies’ investments and payrolls 

and reserve practices and costs of payouts for settlement and 

claims, it would really be helpful if we had that before we went to 

a markup, not only to structure amendments, but also to get the 

full picture out here of insurance premiums, insurance policies. 

So I would hope that we would at least get another hearing, at 

least on the insurance aspect, because as a couple of the members 

said, we need to look at all the stakeholders here, and the insurance companies certainly are a big one. 

I, for one, believe we should take away their antitrust exemption—and to get some competition in here. So could we slow this 

process down, or—there is no real rush here to do this, other than 

a calendar that someone created. 

Can’t we have a hearing on just that aspect of it? 

Mr. GREENWOOD. Well, No. 1, I am not empowered. I am not 

even the chairman of this subcommittee, let alone the chairman of 

the full committee. 

Mr. STUPAK. But you have the Chair right now. You can say 

that.

Mr. GREENWOOD. I don’t think that the gentleman truly means 

to make a motion to that effect. 

Mr. STUPAK. Well, consideration. Do you guys second that motion?

Mr. GREENWOOD. It will be taken into consideration. But you 

have got two guys here, and I have got just me, so we are not going 

to vote on it. 

171

Mr. STUPAK. Oh, come on. You mean we can’t get democracy in 

malpractice?

Mr. GREENWOOD. With that objection, I would like to enter the 

following documents into the record. 

One is the National Association of Insurance commissioners’ letter to Senator Gregg, dated February 7 of 2003; the Federation of 

State Medical Boards of the United States of America summary of 

the 2001 board actions, dated April 9, 2002; the study entitled, 

Who Pays for Tort Liability Claims: An Economic Analysis of U.S. 

Tort Liability System, written by the Council of Economic Advisers 

in April 2002; a study entitled Do Doctors Practice Defensive Medicine, written by Daniel Kessler and Mark McClellan; and a study 

entitled Did Investments Affect Medical Malpractice Premiums by 

the Insurance Asset Management Group; as well as documents—

exhibits I believe presented by the Democrats, one entitled Medical 

Malpractice: What Did MICRA Do to California Premiums, and another one entitled California Medical Malpractice Premiums, 1975 

to 2001. 

Without objection, those documents will be entered into the official record. 

We thank the witnesses. You have been here for 41⁄2 long hours 

without so much as a courtesy break. Thank you for your testimony, every one of you. We appreciate it. This hearing is adjourned.

[Whereupon, at 1:55 p.m., the subcommittee was adjourned.] 

[Additional materiial submitted for the record follows:]

PREPARED STATEMENT OF THE AMERICAN ACADEMY OF FAMILY PHYSICIANS

This statement is submitted to the Health Subcommittee of the House Energy and 

Commerce Committee on behalf of the 93,400 members of the American Academy 

of Family Physicians. This hearing, entitled ‘‘Assessing the Need to Enact Medical 

Liability Reform,’’ is timely. The current lack of professional liability insurance does 

threaten patient access to care in some states. The continued trend of increasing 

insurance premiums drives up the cost of health care and forces physicians to drop 

certain services when they cannot afford professional liability insurance. 

PATIENTS AFFECTED BY THE LACK OF MEDICAL LIABILITY INSURANCE

Medical liability insurers have left the medical insurance market in the past year 

in alarming numbers. One major reason for this exodus is the unpredictable rise in 

jury awards that exists in states without adequate tort reforms. According to the 

Physician Insurers Association of America (PIAA), the last decade has seen a dramatic increase in awards in excess of $1 million even while the number of suits filed 

has remained the same. As a result of the steady rise in record-breaking awards, 

most insurers find it more difficult to predict their risk. The remaining insurers 

have raised rates or refused new applications for insurance. Family physicians are 

beginning to experience difficulty in finding insurance companies to provide liability 

insurance or are receiving renewal notices with anywhere between 60 percent and 

200 percent increases for the second year in a row. 

Stories of family physicians closing their practices because of liability insurance 

premiums are turning up across the U.S. Recently, for example, AAFP Direct reported that AAFP Past President Neil Brooks, M.D., sent a letter recently to the 

Hartford Courant, saying that he was giving up his practice of thirty-two years because the liability premiums had become too expensive. 

In rural Morrow County, Ohio, Brian Bachelder, M.D., President of the Ohio 

Academy of Family Physicians, decided to stop delivering babies after his liability 

premium increased by $21,000 last year. Dr. Bachelder was the only Morrow County 

physician providing prenatal and obstetrical care. 

In rural Chipley, Florida, Greg Sloan M.D., found his malpractice premium has 

risen from $4,500 to $13,600 in one year. This was in spite of a 24-year career withVerDate jul 14 2003 13:49 Sep 09, 2003 Jkt 086534 PO 00000 Frm 00175 Fmt 6602 Sfmt 6621 W:\DISC\86049 86049
172

out a suit being filed against him. Dr. Sloan said it has reached the point that he 

cannot pay his staff and the liability premiums. 

Most state laws, hospital accreditation requirements and managed care contracts 

mandate that physicians carry medical liability insurance. If family physicians cannot afford insurance coverage, they must choose between shutting down their practice altogether or restricting the range of services they provide. For family physicians in rural settings, this usually means being forced to stop delivering babies or 

providing prenatal care due to mounting liability premiums. 

The tools needed to counteract this alarming trend are derived from state experiences. Last year, the Department of Health and Human Services released a report 

entitled, ‘‘Improving Health Care Quality and Lowering Costs by Fixing Our Medical Liability System.’’ According to this study, liability premiums have been growing rapidly in states that have failed to place reasonable limits on non-economic 

damages. While economic losses, such as lost wages, medical expenses and rehabilitation costs are fully compensated, non-economic damages reflect the monies collected for intangible losses. Over the previous two years, states without caps on 

these non-economic damages have experienced a 44-percent increase in liability premiums. In contrast, states with caps on non-economic damages of $250,000 experienced on average an increase of only 15 percent in medical liability insurance premiums.

The reforms contained in California’s Medical Injury Compensation Reform Act of 

1975 (MICRA) have already brought stability and fairness to the California legal 

system for the past 27 years. Californians Allied for Patient Protections (CAPP), a 

major consumer group supportive of MICRA, found that legal disputes in California 

are settled 23 percent faster than the national average. At the same time, the number of suits filed in California matches the national average. In the ensuring 27 

years, medical liability insurance premiums have risen 505 percent nationwide compared with California’s increases of 167 percent. 

AAFP SUPPORT FOR H.R. 5, THE HEALTH ACT

But the states cannot, by themselves, resolve this national crisis. The House of 

Representatives addressed this issue by passing, H.R. 4600, The Help Efficient, Accessible, Low Cost, Timely Health Care (HEALTH) Act in the 107th Congress. The 

HEALTH Act has been reintroduced into the 108th as H.R. 5. The Academy supports H.R. 5, which would bring the same rational reforms contained in MICRA to 

all states’ professional liability systems. The AAFP supports federal legislation to 

stabilize the medical tort reform systems in the states since spiraling insurance premiums mean increasing numbers of pregnant women in rural areas of the U.S. will 

not be able to find a physician to deliver their babies. 

There is an important additional reason that the AAFP supports The HEALTH 

Act. H.R. 5 requires that a party pay damages only to the extent that the party was 

liable for the harm caused. Family physicians provide primary care which is comprehensive and coordinated care for all life stages and both genders. Because they 

are the overall medical managers for a vast number of patients in the U.S., with 

responsibility for making referrals to subspecialists, family physicians need the protections of joint and several liability reforms to ensure that they are not held responsible for the clinical decisions of others. 

CONCLUSION

The Academy appreciates the opportunity to address the Health Subcommittee of 

the Energy and Commerce Committee regarding the need to pass medical liability 

reform. We look forward to working with the Committee to find a workable solution 

for patients and physicians. 

PREPARED STATEMENT OF THE AMERICAN COLLEGE OF OBSTETRICIANS AND

GYNECOLOGISTS

On behalf of the American College of Obstetricians and Gynecologists (ACOG), an 

organization representing more than 45,000 physicians dedicated to improving the 

health care of women, we urge you to bring an end to the excessive litigation restricting women’s access to health care. 

ACOG resoundingly supports HR 5, the bipartisan HEALTH Act of 2003, and we 

urge this Committee, and the House of Representatives, to pass this meaningful 

medical liability reform legislation, which protects women’s access to health care. 

Across the country, the meteoric rise in medical liability premiums is threatening 

women’s access to health care. Faced with the unaffordability and unavailability of 

173

insurance coverage, ob-gyns are forced to stop delivering babies, reduce the number 

of deliveries, scale back their practices by eliminating high-risk procedures, or close 

their doors entirely. 

This statement will also highlight how the medical liability crisis is acutely affecting a growing number of states, explaining how access to basic and important women’s health care in those states is severely jeopardized because of a liability system 

gone awry. 

I. EFFECTS OF EXCESSIVE LITIGATION ON WOMEN’S HEALTH CARE: AN OVERVIEW

The number of lawsuits against all physicians has been rising over the past 30 

years in an increasingly litigious climate, and obstetrics-gynecology—considered a 

‘‘high risk’’ specialty by insurers—remains at the top of the list of specialties affected by this trend. 

An ailing civil justice system is severely jeopardizing patient care for women and 

their newborns. Across the country, liability insurance for obstetrician-gynecologists 

has become prohibitively expensive. Premiums have tripled and quadrupled practically overnight. In some areas, ob-gyns can no longer obtain liability insurance at 

all, as insurance companies fold or abruptly stop insuring doctors. 

When ob-gyns cannot find or afford liability insurance, they are forced to stop delivering babies, curtail surgical services, or close their doors. The shortage of care 

soon affects hospitals, public health clinics, and medical facilities in rural areas and 

inner cities. 

Now, women’s health care is in jeopardy for the third time in three decades. This 

crisis will only end soon with legislative intervention. The recurring liability crisis 

involves more than the decisions of individual insurance companies. The manner in 

which our antiquated tort system resolves medical liability claims is at the root of 

the problem. 

A liability system—encompassing both the insurance industry and our courts—

should equitably spread the insurance risk of providing affordable health care for 

our society. It should fairly compensate patients harmed by negligent medical care. 

It should provide humane, no-fault compensation to patients with devastating medical outcomes unrelated to negligence—as in the case of newborns born with conditions such as cerebral palsy. Our current system fails on all counts. It’s punitive, 

expensive, and inequitable for all, jeopardizing the availability of care. 

Jury awards, which now soar to astronomical levels, are at the heart of the problem. The average liability award increased 97% between 1996 and 2000, fueled by 

states with no upper limits on jury awards. The current liability system is enormously expensive, and patients who need, but can’t get, health care, pay the price. 

The current liability system encourages attorneys to focus on relatively few claims 

with exorbitant award potential, ignoring other claims with merit. Even then, much 

of a jury award goes straight into the lawyers’ pockets; often, less than half of every 

medical liability dollar ever reaches the patient. 

Patients and physicians need a real solution to this crisis. In the 1980s, the Institute of Medicine warned that the liability crisis compromised the delivery of obstetric care for women across the nation. It urged Congress to provide both immediate 

relief and long-term solutions. ACOG has asked the Institute to reexamine this 

issue and update its report. 

The liability crisis continues to compromise the delivery of health care today. A 

recent Harris survey showed that three-fourths of physicians feel their ability to 

provide quality care has been hurt by concerns over liability cases. And, patients 

understand the problem, too. An April 2002, survey by the Health Care Liability 

Alliance found that 78% of Americans are concerned about the impact of rising liability costs on access to care. 

II. HOW EXCESSIVE LITIGATION COMPROMISES THE DELIVERY OF OBSTETRIC CARE

Obstetrics-gynecology is among the top three specialties in the cost of professional 

liability insurance premiums. Nationally, insurance premiums for ob-gyns have increased dramatically: the median premium increased 167% between 1982 and 1998. 

The median rate rose 7% in 2000, 12.5% in 2001, and 15.3% in 2002 with increases 

as high as 69%, according to a survey by Medical Liability Monitor, a newsletter 

covering the liability insurance industry. 

A number of insurers are abandoning coverage of doctors altogether. The St. Paul 

Companies, Inc., which handled 10% of the physician liability market, withdrew 

from that market last year. One insurance ratings firm reported that five medical 

liability insurers failed in 2001. One-fourth of the remaining insurers were rated D+ 

or lower, an indicator of serious financial problems. 

174

According to Physicians Insurance Association of America, ob-gyns were first 

among 28 specialty groups in the number of claims filed against them in 2000. Obgyns were the highest of all specialty groups in the average cost of defending 

against a claim in 2000, at a cost of $34,308. In the 1990s, they were first—along 

with family physicians-general practitioners—in the percentage of claims against 

them closed with a payout (36%). They were second, after neurologists, in the average claim payment made during that period ($235,059). 

Although the number of claims filed against all physicians climbed in recent decades, the phenomenon does not reflect an increased rate of medical negligence. In 

fact, ob-gyns win most of the claims filed against them. A 1999 ACOG survey of our 

membership found that over one-half (53.9%) of claims against ob-gyns were 

dropped by plaintiff’s attorneys, dismissed or settled without a payment. Of cases 

that did proceed, ob-gyns won more than 65% of the cases resolved by court verdict, 

arbitration, or mediation, meaning only 10% of all cases filed against ob-gyns were 

found in favor of the plaintiff. Enormous resources are spent to deal with these 

claims, only 10% of which are found to have merit. The costs to defend these claims 

can be staggering and often mean that physicians invest less in new technologies 

that help patients. 

When a jury does grant an award, it can be exorbitant, particularly in states with 

no upper limit on awards. Jury awards in all civil cases averaged $3.49 million in 

1999, up 79% from 1993 awards, according to Jury Verdict Research of Horsham, 

Pennsylvania. The median medical liability award jumped 43% in one year, from 

$700,000 in 1999, to $1 million in 2000: it has doubled since 1995. 

Ob-gyns are particularly vulnerable to this trend, because of jury awards in birthrelated cases involving poor medical outcomes. The average jury award in cases of 

neurologically impaired infants, which account for 30% of the claims against obstetricians, is nearly $1 million, but can soar much higher. One recent award in a 

Philadelphia case reached $100 million. 

We survey our members regularly on the issue of medical professional liability. 

According to our most recent survey, the typical ob-gyn is 47 years old, has been 

in practice for over 15 years—and can expect to be sued 2.53 times over his or her 

career. Over one-fourth (27.8%) of ACOG Fellows have even been sued for care provided during their residency. In 1999, 76.5% of ACOG Fellows reported they had 

been sued at least once so far in their career. The average claim takes over four 

years to resolve. 

This high rate of suits does not equate to malpractice. Rather, it demonstrates a 

lawsuit culture where doctors are held responsible for less than perfect outcome. 

And in obstetrics and gynecology, there is no guarantee of a perfect outcome, no 

matter how perfect the prenatal care and delivery. 

III. WOMEN’S HEALTH CONSEQUENCES OF EXCESSIVE LITIGATION

The medical liability crisis affects every aspect of our nation’s ability to deliver 

health care services. As partners in women’s health care, we urge Congress to end 

the medical liability insurance crisis. Without legislative intervention at the federal 

level, women’s access to health care will continue to suffer. 

This crisis is obstructing mothers’ access to obstetric care. When confronted with 

substantially higher costs for liability coverage, ob-gyns and other women’s health 

care professionals stop delivering babies, reduce the number they do deliver, and 

further cut back—or eliminate—care for high-risk mothers. With fewer women’s 

health care professionals, access to early prenatal care is reduced, depriving women 

of the proven benefits of early intervention. 

Excessive litigation also threatens women’s access to gynecologic care. Ob-gyns 

have, until recently, routinely met women’s general health care needs—including 

regular screenings for gynecologic cancers, hypertension, high cholesterol, diabetes, 

osteoporosis, sexually transmitted diseases, and other serious health problems. Staggering premiums continue to burden women’s health care professionals and will further diminish the availability of women’s care. 

Federal legislation is needed to avert another rural health crisis. Women in underserved rural areas have historically been particularly hard hit by the loss of physicians and other women’s health care professionals. With the economic viability of 

delivering babies already marginal due to sparse population and low insurance reimbursement for pregnancy services, increases in liability insurance costs are forcing rural providers to stop delivering babies. 

This crisis also means that community clinics must cutback services, jeopardizing 

the nation’s 39 million uninsured patients—the majority of them women and children—who rely on community clinics for health care. Unable to shift higher insurVerDate jul 14 2003 13:49 Sep 09, 2003 Jkt 086534 PO 00000 Frm 00178 Fmt 6602 Sfmt 6621 W:\DISC\86049 86049
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ance costs to their patients, these clinics have no alternative but to care for fewer 

people.

Acting now can save more women from the ranks of the uninsured. Health care 

costs continue to increase overall, including the cost of private health care coverage. 

As costs escalate, employers will be discouraged from offering benefits. Many women 

who would lose their coverage, including a large number of single working mothers, 

would not be eligible for Medicaid or SCHIP because their incomes are above the 

eligibility levels. In 2001, 11.7 million women of childbearing age were uninsured. 

Without reform, even more women ages 19 to 44 will move into the ranks of the 

uninsured. If fewer doctors are available to deliver babies, the crisis becomes even 

more acute. 

IV. WOMEN’S HEALTH SUFFERS NATIONWIDE

As ob-gyns, our primary concern is ensuring women access to affordable, quality 

health care. It is critical that we maintain the highest standard of care for America’s 

women and mothers. Currently, ACOG has identified a medical liability crisis in the 

following nine ‘‘Red Alert States’’: Florida, Mississippi, Nevada, New Jersey, New 

York, Pennsylvania, Texas, Washington, and West Virginia. In three other states—

Ohio, Oregon, and Virginia—a crisis is brewing, while four other states—Connecticut, Illinois, Kentucky and Missouri—should be watched for mounting problems.

In identifying these states, the College considered a number of factors in the escalating medical liability insurance crisis for ob-gyns. The relative weight of each factor could vary by state. Factors included: the lack of available professional liability 

coverage for ob-gyns in the state; the number of carriers currently writing policies 

in the state, as well as the number leaving the medical liability insurance market;—

the cost, and rate of increase, of annual premiums based on reports from industry 

monitors; a combination of geographical, economic, and other conditions exacerbating an already existing shortage of ob-gyns and other physicians; the state’s tort 

reform history, and whether tort reforms have been passed by the state legislature—or are likely to be in the future—and subsequently upheld by the state high 

court.

A. Florida 

• According to First Professionals Insurance Company, Inc., Florida’s largest medical liability insurer, one out of every six doctors is sued in the state as compared to one out of every 12 doctors nationwide. 

• In Dade and Broward counties in South Florida, where insurers say litigation is 

the heaviest, annual premiums for ob-gyns soared to $210,576—the highest 

rates in the country, according to Medical Liability Monitor. 

• In a recent ACOG survey, 76.3% of the Florida ob-gyns who responded to the survey indicated that they had made some change to their practice such as retire, 

relocate, decrease gynecologic surgical procedures, no longer perform major 

gynecologic surgery, decrease the number of deliveries and amount of high-risk 

obstetric care. 21.69% of Florida respondents indicated that they have stopped 

practicing obstetrics due to the unavailability and unaffordability of liability insurance.

• The liability situation is so severe the state allows doctors to ‘‘go bare’’ (not have 

liability coverage), as long as they can post bond or prove ability to pay a judgment of up to $250,000. 

• Double and triple-digit premium increases have forced some doctors to cut back 

on staff, while others have left the state or have stopped performing high-risk 

procedures. Ob-gyns in this state are more likely to no longer practice obstetrics.

• Florida already has some tort-reform laws aimed at protecting doctors. But more 

recent Florida Supreme Court rulings have weakened such laws, causing the 

number of lawsuits to climb again. Now, Florida is one of at least a dozen states 

contemplating another round of legislation. 

B. Mississippi 

• According to the Mississippi State Medical Association, medical liability insurance 

rates for doctors who deliver babies rose 20% to 400% in 2002, for various carriers. Annual premiums range from $40,000 to $110,000. 

• The Delta Democrat Times reported that from 1999 to 2000, the number of liability lawsuits faced by Mississippi physicians increased 24%, with an additional 

23% increase in the first five months of 2001. 

176

• According to the Delta Democrat Times, 324 Mississippi physicians have stopped 

delivering babies in the last decade. Only 10% of family physicians deliver babies.

• In a recent ACOG survey, 66.7% of the Mississippi ob-gyns who responded to the 

survey indicated that they had made some change to their practice such as retire, relocate, decrease gynecologic surgical procedures, no longer perform major 

gynecologic surgery, decrease the number of deliveries and amount of high-risk 

obstetric care. 12.82% of Mississippi respondents have stopped practicing obstetrics.

• In Cleveland, Mississippi, three of the six doctors who deliver babies dropped obstetrics in October 2001 because of the increase in premiums. 

• In Greenwood, Mississippi, where approximately 1,000 babies are born every year, 

the number of obstetricians has dropped from four to two. The two remaining 

obstetricians are each limited by their insurance carriers to delivering 250 babies per year, leaving approximately 500 pregnant women searching for maternity care, reports the Mississippi Business Journal. 

• Yazoo City, Mississippi, with 14,550 residents, has no obstetrician. 

• A Grenada, Mississippi ob-gyn recently stopped taking obstetric patients, leaving 

two ob-gyns to deliver approximately 700 babies a year. 

• Natchez, Mississippi, which serves a 6-county population of over 100,000, has only 

three physicians practicing obstetrics. 

• Days before HB2 (legislation aimed at reducing liability insurance costs and improving access to health care) took effect, there was a rush of medical liability 

lawsuits filed in Mississippi. State Insurance Commissioner George Dale said 

these claims will be in the system for a long time and the market for medical 

liability insurance is not likely to get better any time soon. 

• The state’s major insurer of hospitals, Reciprocal of America, is facing financial 

difficulties and recently asked participants to pay $30 million to help keep it 

afloat, according to the state insurance commissioner’s office. 

C. Nevada 

• In December 2001, The St. Paul Companies, Inc., the nation’s second largest medical liability insurer, announced it would no longer renew policies for 42,000 

doctors nationwide—including the 60% of Las Vegas doctors who were insured 

by St. Paul. Replacement policies are costing some Nevada doctors four or five 

times as much as before: $200,000 or higher annually, more than most doctors’ 

take-home pay, the Los Angeles Times reports.

• In Las Vegas, ob-gyns paid premiums as high as $141,760, a 49.5% increase from 

2001.

• In the ACOG survey, 86.2% of the Nevada ob-gyns who responded to the survey 

indicated that they had made some change to their practice such as retire, relocate, decrease gynecologic surgical procedures, no longer perform major 

gynecologic surgery, decrease the number of deliveries and amount of high-risk 

obstetric care. 27.59% of Nevada respondents stopped practicing obstetrics. 

• As of October 2002, according to Clark County OB-GYN Society, only 80 private 

practice physicians, 14 HMO physicians, and 12 residents are doing deliveries, 

totaling 106 doctors. With an estimated 23,000 deliveries expected in Nevada 

in 2003, each physician will have to deliver 216 babies. 

• According to a March article in the Las Vegas Review-Journal, many Las Vegas 

Valley doctors say they will be forced to quit their practices, relocate, retire 

early or limit their services if they cannot find more affordable rates of professional liability insurance by early summer. 

• According to the Nevada State Medical Association, between 200 and 250 physicians will face bankruptcy, close their offices, or leave Nevada this year. 

• In February 2002, the Las Vegas Sun reported that medical liability cases in 

Clark County had more than doubled in the past six years. In that period, 

plaintiffs’ awards in the county totaled more than $21 million. 

• USA Today reports that in the past two years, Nevada juries have awarded more 

than $1.5 million each in six different medical liability trials. 

• Recruiting doctors to Las Vegas is extremely difficult because of escalating medical liability premiums and litigious-ness. Nevada currently ranks 47th in the 

nation for its ratio of 196 doctors per 100,000 population. The state’s medical 

school produces just 50 physicians a year. 

• The Nevada tort reform legislation went into effect in January 2003. In December 

2002, the frequency of lawsuits filed against health care providers skyrocketed 

with 170 suits filed in December 2002 (as compared to 8 suits field in 2001). 

177

D. New Jersey 

• In the ACOG survey, 75.6% of the New Jersey ob-gyns who responded to the survey indicated that they had made some change to their practice such as retire, 

relocate, decrease gynecologic surgical procedures, no longer perform major 

gynecologic surgery, decrease the number of deliveries and amount of high-risk 

obstetric care. 19% of New Jersey respondents have stopped practicing obstetrics. • In February 2002, the Newark Star-Ledger reported that three medical liability 

insurance companies went bankrupt or announced they would stop insuring 

New Jersey physicians in 2002 for financial reasons. The state’s two largest remaining are rejecting doctors they deem high risk. • MBS Insurance Services of Denville, one of New Jersey’s largest medical liability 

insurance brokers, estimates that approximately 300 to 400 of the state’s doctors cannot get insurance at any price. • According to the Medical Society of New Jersey, premiums have risen 50% to 

200% over last year. • According to the Star-Ledger, ‘‘An obstetrician with a good history—maybe just one dismissed lawsuit—can expect to pay about $45,000 for $1 million in coverage. Rates rise if the physician faces several lawsuits, regardless of whether 

the physician has been found liable in those cases.’’ • The president of the New Jersey Hospital Association says that rising medical liability premiums are a ‘‘wake-up call’’ that the state may lose doctors. Hospital 

premiums have risen 250% over the last three years, and 65% of facilities report 

that they are losing physicians due to liability insurance costs. 

E. New York 

• New York State faces a shortage of obstetric care in many rural regions. Increasing liability insurance costs will only exacerbate these access problems. 

• In the ACOG survey, 67% of the New York ob-gyns who responded to the survey 

indicated that they had made some change to their practice such as retire, relocate, decrease gynecologic surgical procedures, no longer perform major 

gynecologic surgery, decrease the number of deliveries and amount of high-risk 

obstetric care. 19.28% of New York respondents have stopped practicing obstetrics.

• In 2002, an ob-gyn practicing in New York could pay as much as $115,500 for 

medical liability insurance, according to Medical Liability Monitor. 

• In 2000, there was a total of $633 million in medical liability payouts in New 

York State, far and away the highest in the country, and 80% more than the 

state with the second highest total. 

• Increased insurance rates have forced some physicians in New York to ‘‘quit practicing or to practice medicine defensively, by ordering extra tests or procedures 

that limit their risk,’’ according to a recent New York Times report.

• Physician medical liability insurance costs have historically been a problem in 

New York State. The legislature and governor had to take significant action in 

the mid-1970s and again in the mid-1980s to avert a liability insurance crisis 

that would have jeopardized access to care for patients. 

F. Pennsylvania 

• In the ACOG survey, 77.4% of the Pennsylvania ob-gyns who responded to the 

survey indicated that they had made some change to their practice such as retire, relocate, decrease gynecologic surgical procedures, no longer perform major 

gynecologic surgery, decrease the number of deliveries and amount of high-risk 

obstetric care. 21.61% of Pennsylvania respondents have stopped practicing obstetrics.

• Pennsylvania is the second-highest state in the country for total payouts for medical liability. During the fiscal year 2000, combined judgments and settlements 

in Pennsylvania amounted to $352 million—or nearly 10% of the national total. 

• From the beginning of 1997 through September 2001, major liability insurance 

carriers writing in Pennsylvania increased their overall rates 80.7% to 147.8%, 

according to a January 2002 York Daily Record article.

• Philadelphia and the counties surrounding it are hardest hit by the liability crisis. 

From January 1994 through August 2001, the median jury award in Philadelphia for a medical liability case was $972,900. For the rest of the state, including Pittsburgh, the median was $410,000. 

• One-quarter of respondents to an informal ACOG poll of Pennsylvania ob-gyns say 

they have stopped or are planning to stop the practice of obstetrics. 80% of medical students who come to the state for a world-class education choose to practice elsewhere, according to the Pennsylvania State Medical Society. 

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• On April 24, 2002, Methodist Hospital in South Philadelphia announced that it 

would stop delivering babies due to the rising costs of medical liability insurance. The labor and delivery ward closed on June 30, leaving that area of the 

city without a maternity ward. Methodist Hospital has been delivering babies 

since its founding in 1892. 

• Some tort reform measures passed the state legislature (House Bill 1802) in 2002. 

However, the law did not include: caps on jury awards; sanctions on frivolous 

suits; changes in joint and several liability; limits on lawyers’ fees; or a guarantee that a larger share of jury awards will go to injured plaintiffs. 

• The rules for venue of court cases in Pennsylvania are very liberal. Recently approved measures only appoint a committee to study venue shopping, but do not 

limit the practice. 

• Since HB 1802 passed, experts predict a 15% to 20% overall reduction in doctors’ 

liability premiums. But with the 50% to 100% premium increases of the last two 

years, medical officials believe the bill is not enough to stop physicians from 

leaving practice or to attract new physicians. Nor do they believe new insurers 

will begin writing policies in Pennsylvania. 

G. Texas 

• In the ACOG survey, 67.5% of the Texas ob-gyns who responded to the survey 

indicated that they had made some change to their practice such as retire, relocate, decrease gynecologic surgical procedures, no longer perform major 

gynecologic surgery, decrease the number of deliveries and amount of high-risk 

obstetric care. 13.79% of Texas respondents have stopped practicing obstetrics. 

• Preliminary results of a recent Texas Medical Association physician survey indicate that: 

• More than half of all Texas physicians responding, including those in the 

prime of their careers, are considering early retirement because of the state’s 

medical liability insurance crisis. 

• Nearly a third of the responding physicians said they are considering reducing the types of services they provide. 

• Medical liability insurance premiums for 2002 were expected to increase from 30% 

to 200%, according to the Texas Medical Association. In 2001, ob-gyns in Dallas, 

Houston, and Galveston paid medical liability insurance premiums in the range 

of $70,00 to $160,000. 

• The Abilene Reporter News reported on October 13, 2002, that the obstetrics unit 

at Spring Branch Medical Center is set to close December 20, 2002. The hospital’s $600,000 premium for labor and delivery liability was set to increase by 

67% next year. In 2001, 1,003 babies were born at Spring Branch Medical Center.

• According to Governor Rick Perry’s office, between 1996 and 2000 one in four 

Texas physicians had a medical liability claim filed against them. In the Lower 

Rio Grande Valley, the situation is even worse. In 2002, Valley ob-gyns paid liability insurance premiums up to $97,830, a 34.5% increase from 2001. 

• According to a February 2001 Texas Medical Association survey, one in three Valley doctors say their insurance providers have stopped writing liability insurance.

• In 2000, 51.7% of all Texas physicians had claims filed against them, according 

to the Texas Medical Examiners Board. Patients filed 4,501 claims, up 51% 

from 1990. 

• As many as 86% of medical liability claims filed in Texas are dismissed or 

dropped without payment to the patient. Yet providers and insurance companies must still spend millions of dollars in defense, even against baseless 

claims.

• According to a Texas Medical Association study, the amount paid per claim in 

2000 was $189,849 (average for all physicians), a 6% increase in one year. 

• Texas has no limits on non-economic damages in medical liability cases, although 

the legislature enacted such limits in the 1970s as part of a comprehensive set 

of reforms. The Texas Supreme Court later rejected them in the 1980s. 

• Texas has procedures in place to screen lawsuits for merit and to sanction lawyers 

who file frivolous suits, but these are not enforced uniformly across the state, 

according to an April 2002 news release issued by Governor Rick Perry. 

• Only about 30% of the medical liability insurance market is served by insurance 

companies that are regulated by the Texas State Department of Insurance and 

subject to rate review laws, according to Governor Perry’s office. 

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H. Washington 

• According to Medical Liability Monitor, in late 2001, the second largest carrier in 

Washington State announced that it was withdrawing from providing medical 

liability insurance for Washington physicians. This decision by Washington Casualty Company impacted approximately 1,500 physicians. 

• In 2001, state ob-gyns paid medical liability insurance premiums in the range of 

$34,000 to $59,000. For many physicians, this meant an increase of 55% or 

higher from the year 2000. 

• In the ACOG survey, 57.2% of the Washington ob-gyns who responded to the survey indicated that they had made some change to their practice such as retire, 

relocate, decrease gynecologic surgical procedures, no longer perform major 

gynecologic surgery, decrease the number of deliveries and amount of high-risk 

obstetric care. 15.06% of Washington respondents have stopped practicing obstetrics.

• According to the Pierce County Medical Society, some Tacoma specialists reported 

300% increases. 

• Unlike California, Washington has no cap on non-economic damages in medical 

liability cases. The State Supreme Court found a previous cap unconstitutional 

in 1989. 

• In April, The Olympian reported that the Washington State Insurance Commissioner’s office heard from physicians throughout the state that they might be 

forced out of Washington because of high medical liability rates or the lack of 

available insurance. 

I. West Virginia 

• There are only three carriers in the state—including the state-run West Virginia 

Board of Risk and Insurance Management—currently writing medical liability 

policies for doctors. Annual premiums range from $90,700 to $99,800. 

• In the ACOG survey, 82.2% of the West Virginia ob-gyns who responded to the 

survey indicated that they had made some change to their practice such as retire, relocate, decrease gynecologic surgical procedures, no longer perform major 

gynecologic surgery, decrease the number of deliveries and amount of high-risk 

obstetric care. 23.66% of West Virginia respondents stopped practicing obstetrics.

• In 2000, many physicians had problems affording or finding insurance. This urgency prompted Governor Bob Wise to issue a request for proposals to commercial insurance carriers asking them to provide terms under which they would 

be willing to come to the state. The governor’s office received no response at all. 

To date, some carriers previously active in West Virginia are under an indefinite, self-imposed moratorium for new business in the state, according to the 

West Virginia State Medical Society. 

• Legislation eked out during a grueling special session in the fall of 2001 reestablished a state-run insurer of last resort. However, with rates 10% higher than 

the highest commercial rate, and an additional 50% higher for physicians considered high risk, the state-run insurer does not solve the affordability problem, 

according to ob-gyns in the state. 

• According to an informal survey of ACOG’s West Virginia section, more than half 

of all ob-gyn residents plan to leave the state once they have completed training 

because of the state’s medical liability insurance climate. A majority of private 

practitioners who provide obstetric care plan to leave the state if there is no 

improvement in the insurance crisis. 

• West Virginia cannot afford to lose more doctors. The West Virginia State Medical 

Society reports that a majority of the state is officially designated by the federal 

government as a health professional shortage area and medically underserved. 

V. Conclusion 

Thank you, Mr. Chairman, for your leadership on this important issue and for the 

Committee’s attention to this crisis. ACOG appreciates the opportunity to present 

our concerns for the panel’s consideration and again urges the passage of HR 5, the 

HEALTH Act of 2003. The College looks forward to working with you as we push 

for a solution. 

PREPARED STATEMENT OF AMERICAN COLLEGE OF PHYSICIANS—AMERICAN SOCIETY

OF INTERNAL MEDICINE

The American College of Physicians-American Society of Internal Medicine (ACPASIM)—representing 115,000 physicians and medical students—is the largest medVerDate jul 14 2003 13:49 Sep 09, 2003 Jkt 086534 PO 00000 Frm 00183 Fmt 6602 Sfmt 6621 W:\DISC\86049 86049
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ical specialty society and the second largest medical organization in the United 

States. We congratulate the House Committee on Energy and Commerce Subcommittee on Health for holding this important hearing on a subject matter that 

has more relevance today than ever before. Of the College’s top priorities for 2003, 

addressing the health care liability crisis and its impact on access to care is one of 

the most critical to our members. ACP-ASIM wishes to thank Committee Chairman 

W.J. Tauzin and Subcommittee Chairman Michael Bilirakis, Committee Ranking 

Member John Dingell and Subcommittee Ranking Member Sherrod Brown, and 

other members, for holding this important hearing to discuss the immediate need 

to enact meaningful medical liability reform. 

BACKGROUND

Doctors across the country are experiencing sticker shock when they open their 

medical malpractice insurance renewal notices—if they even get a renewal notice. 

After more than a decade of generally stable rates for professional liability insurance, physicians have seen costs dramatically increase in 2000-2003. And in some 

areas of the country, premiums have soared to unaffordable levels. According to the 

Medical Liability Monitor, in mid-2001, insurance companies writing in 36 states 

and the District of Columbia claim to have raised rates well over 25 percent. Unfortunately, rates continue to rise dramatically with no sign of the market beginning 

to stabilize. 

While obstetricians, surgeons and other high-risk specialists have been hit hard, 

internists have been one of the hardest hit specialties—having seen a record nearly 

50 percent average increase over the last two years. In some cases, physicians, even 

those without a track record of lawsuits, cannot find an insurance company willing 

to provide coverage. These physicians are being forced to decide whether to dig 

deeper and pay the steeper bill, change carriers, move out of state, or retire from 

the practice of medicine. 

Of these options, changing carriers may not even be an alternative. Finding replacement coverage won’t be as easy as it was in a buyer’s market. Companies writing professional liability coverage are fleeing or being chased from the market. As 

an example, St. Paul Companies, which insures doctors in 45 states and is the second largest medical underwriter in the country, announced late in 2001 that it no 

longer would write medical liability policies. It plans to phase out coverage as physicians contracts expire over the next 18 to 24 months. Frontier and Reliance are also 

gone. Other commercials, such as PHICO, CNA and Zurich, are significantly cutting 

back. Even some provider-owned insurers, committed to this market by their founders, are pulling back from some states in which they extended sales. 

THE PERFECT STORM

At a time when the market is squeezing physician and hospital margins, the rise 

in professional liability insurance may be the deciding factor that contributes to 

whether physician offices and emergency rooms keep their doors open. Recently, the 

costs of delivering health care have been driven by increased costs of new technologies; increased costs of drugs that define the standard of care acceptable for 

modern medicine; the rising costs of compliance under increasing state and federal 

regulation; the low reimbursement rate under Medicare and Medicaid; and the declining fees from managed care have all been contributing factors that have affected 

patient access to health care. 

Unquestionably, there is real potential that rising insurance rates ultimately will 

reduce access to care for patients across the country. Indeed, press accounts on a 

daily basis are demonstrating exactly that from coast to coast. Physician offices and 

emergency rooms have been closing their doors all across the country due to the exorbitant costs. The states most severely hampered by the spiraling out-of-control 

rates are: Florida, Georgia, Illinois, Michigan, Mississippi, Nevada, New Jersey, 

New York, Ohio, Oregon, Pennsylvania, Texas, Washington, and West Virginia. Several other states are just beginning to feel the impact. 

Some states have tried to address the dramatic increase in professional medical 

liability insurance rates with very little success. At best, attempts by the states to 

solve this problem have resulted in only band-aid approaches to the more underlying problem: the escalation of lawsuit awards and the expense of litigation has led 

to the increase in medical liability premiums. This fact has resulted in many patients not receiving or delaying much needed medical care—a fact Congress can no 

longer ignore. ACP-ASIM strongly believes that Congress must act to stabilize the 

market to avoid further damage to the health care system. 

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RELIEF FOR PHYSICIANS FROM SOARING MALPRACTICE PREMIUMS

Federal legislation has been introduced in the 108th Congress to help curb the 

spiraling upward trend in malpractice premiums. H.R. 5, the ‘‘Help Efficient, Accessible, Low Cost, Timely Health Care’’ (HEALTH) Act of 2003, will attempt 

to safeguard patient access to care, while continuing to ensure that patients who have been injured through negligence are fairly compensated. 

ACP-ASIM strongly endorses this legislation as a means to stabilize the 

medical liability insurance market and bring balance to our medical liability litigation system. The HEALTH Act achieves this balance through the following common sense reforms:

• Limit on pain and suffering (non-economic) awards. This requirement limits 

unquantifiable non-economic damages, such as pain and suffering, to no more 

than $250,000. 

• Unlimited recovery for future medical expenses and loss of future earnings (economic) damages. This provision does not limit the amount a patient can receive 

for physical injuries resulting from a provider’s care, unless otherwise restricted 

by state law. 

• Limitations on punitive damages. This requirement appropriately raises the burden of proof for the award of quasi-criminal penalties to ‘‘clear and convincing’’ 

evidence to show either malicious intent to injure or deliberate failure to avoid 

injury. This provision does not cap punitive damages, rather, it allows punitive 

damages to be the greater of two times the amount of economic damages awarded or $250,000. 

• Periodic payment of future damages. This provision does not reduce the amount 

a patient will receive. Rather, past and current expenses will continue to be 

paid at the time of judgment or settlement while future damages can be funded 

over time. This ensures that the plaintiff will receive all damages in a timely 

fashion without risking the bankruptcy of the defendant. 

• Elimination of double payment of awards. This requirement provides for the jury 

to be duly informed of any payments (or collateral source) already made to the 

plaintiff for her injuries. 

• A reasonable statute of limitation on claims. This requirement guarantees that 

health care lawsuits will be filed no later than 3 years after the date of injury, 

providing health care providers with ample access to the evidence they need to 

defend themselves. In some circumstances, however, it is important to guarantee patients additional time to file a claim. For example, the legislation extends the statue of limitations for minors injured before age 6. 

• A sliding scale for contingency fees. This provision will help discourage baseless 

and frivolous lawsuits by limiting attorney incentives to pursue meritless 

claims. Without this provision, attorneys could continue to pocket large percentages of an injured patient’s award, leaving patients without the money they 

need for their medical care. The sliding scale would look something like this: 

• Forty percent (40%) of the first fifty thousand dollars recovered 

• Thirty-three and one-third percent (33 1/3%) of the next fifty thousand dollars 

recovered

• Twenty-five percent (25%) of the next five hundred thousand dollars recovered

• Fifteen percent (15%) of any amount recovered in excess of six hundred thousand dollars 

• Proportionate liability among all parties. Instead of making a party responsible 

for another’s negligent behavior, this requirement ensures that a party will only 

be liable for his or her own share. Under the current system, defendants who 

are only 1 percent at fault may be held liable for 100 percent of the damages. 

This provision eliminates the incentive for plaintiff’s attorneys to search for 

‘‘deep pockets’’ and pursue lawsuits against those minimally liable or not liable 

at all. 

These common sense recommendations have been proven to work. The HEALTH 

Act is largely based on provisions contained in the California Medical Injury Compensation Reform Act (MICRA). Since its enactment in the mid-1970’s, the MICRA 

reforms have helped reduce the overall costs of medical malpractice and have contributed to an increase in patient access to care. During this recent malpractice insurance crisis, California’s rates have changed only slightly, while other states have 

spiraled to out of control levels. ACP-ASIM strongly supports the elements contained in MICRA. Further, we believe that any legislation proposed must include 

these basic, proven elements in order to assure the stabilization of malpractice premiums.

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CONCLUSION

ACP-ASIM is pleased that the House Committee on Energy and Commerce Subcommittee on Health agreed to conduct this important hearing to address the serious problem of soaring medical malpractice premiums that physicians are facing 

across the country. We strongly urge the House Energy and Commerce Committee to pass common sense reform contained in the HEALTH Act that 

would allow for greater access to care, while adequately compensating injured patients. We thank the Committee and appreciate the opportunity to present 

our views. 

PREPARED STATEMENT OF THE COLLEGE OF AMERICAN PATHOLOGISTS

The College of American Pathologists (CAP) is pleased to submit this statement 

for the record of the Energy and Commerce Health Subcommittee hearing on the 

need to enact medical liability reform. The College is a medical specialty society representing more than 16,000 board-certified physicians who practice clinical or anatomic pathology, or both, in community hospitals, independent clinical laboratories, 

academic medical centers and federal and state health facilities. 

Pathologists, like all physicians, face severe hardships resulting from the worsening medical liability insurance crisis. For many, just finding coverage has been 

an arduous task at best and, for some, nearly impossible. Those who have found 

willing insurers are paying substantially higher premiums—in some cases, several 

times the previous year’s rates—for coverage plans, regardless of their claims history.

The realities of this crisis are clear: Pathologists and other physicians can no 

longer offer certain procedures or are leaving their practices altogether because of 

the exorbitant costs of malpractice premiums. These are desperate decisions brought 

on by a tort system with no mechanism to restrain runaway ‘‘pain and suffering’’ 

and punitive awards. Damages rise beyond reason and, in the end, all patients and 

providers suffer as the nation’s health care costs soar and access to quality care declines.

Real-world examples in the laboratory community highlight the problem:

• The chief executive of a small, rural Pennsylvania hospital recently told a Senate 

Appropriations subcommittee that he nearly was forced to close the facility 

when an insurer declined to renew a malpractice policy for his pathologist, a 

17-year practice veteran with no claims history. Only through a last-minute 

joint underwriting agreement was the pathologist able to retain insurance coverage, which allowed the hospital to continue offering laboratory, blood banking 

and surgical pathology services and remain open, the executive said. 

• A pathology group that provides services to all Hawaii’s outer island hospitals and 

five facilities on Oahu—about 20 pathologists, in all—is, like many physician 

practices, shopping for a new insurance carrier. The group’s current insurer recently sent a renewal notice quoting a four-fold increase in premiums compared 

with 2002 rates. 

• In general, malpractice insurance premiums for pathologists have doubled in the 

past year, reports JLT Services Corp., the College’s member insurance broker. 

In some locations, particularly urban areas, the increases have been significantly higher. Pathologists have been particularly hard hit by The St. Paul 

Companies’ December 2001 decision to leave the medical liability insurance 

marketplace. The St. Paul, which provided about 9 percent of all malpractice 

insurance nationwide at the time, had been the underwriter of the CAP-endorsed Professional Liability plan. 

Pathologists and other physicians are increasingly hard-pressed to continue providing services, given the heavy burden rising insurance premiums have placed on 

their practices. Insurance rates of $200,000 or more for some high-risk specialties 

have forced many physicians to limit services, retire early or move to states where 

reforms have brought greater stability to premiums. The skyrocketing cost of liability insurance comes at a particularly critical time for physicians, who also face a 

widening gap between Medicare reimbursements and practice costs. 

Severe patient access problems brought on by the liability insurance crisis have 

been documented in at least a dozen states and it is expected that 30 more soon 

will join that list. In the crisis states, obstetrician-gynecologists have been forced to 

stop delivering babies, trauma centers have closed and many physicians are grappling with how they can continue to provide other high-risk procedures. 

Congress must act now to bring commonsense reforms to America’s medical liability system. The CAP strongly supports the approach contained in subcommittee 

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member Rep. Jim Greenwood’s bill, the ‘‘Help Efficient, Accessible, Low-Cost, Timely Healthcare Act (HEALTH Act) of 2003’’ (H.R. 5). This critically important bill 

would:

• place a reasonable limit ($250,000) on non-economic damages and no limit on economic damages; 

• create mechanisms to ensure that only justifiable punitive damages are paid, with 

a guideline to limit punitive damages to two times economic damages or 

$250,000, whichever is greater; 

• structure settlements to be paid in increments, rather than lump-sum payments, 

so that expenses are reimbursed as they occur and earnings, as they would have 

accrued;

• establish a three-year statute of limitations, with special provisions for minors. 

• establish criteria to ensure that defendants would pay damages in proportion to 

their fault; 

• ensure that states with damage caps in place would be permitted to retain them; 

and

• set a sliding scale for attorney contingency fees to discourage frivolous lawsuits. 

The HEALTH Act can work because it is modeled on a California law that has 

worked well for nearly three decades. It was enacted in circumstances much like 

those the nation faces today. California suffered a meltdown of its health care system in the early 1970s and physicians saw their premiums soar more than 300 percent. Liability carriers left the state and some physicians closed their office doors. 

The Medical Injury Compensation Reform Act, or MICRA, which came into effect 

in 1976, provided a $250,000 limit on non-economic damages, unlimited economic 

damages, a statute of limitations on claims, sliding-scale limits on contingency fees, 

advance notice requirements before claims were filed, binding arbitration of disputes 

and periodic payment of future damages. 

The effect of this legislation was dramatic. The average liability premiums decreased 40 percent in the 25-year period ending in 2001 (expressed in constant dollars). In 2001, the Medical Liability Monitor published data that demonstrated that 

the average premium paid by California physicians practicing internal medicine, 

general surgery and obstetrics/gynecology ranged from 43 percent to 51 percent of 

the average premiums of their counterparts in Florida, Illinois, New York, Texas 

and Michigan. This was supported by a 53 percent lowering in the dollar amounts 

of settlements in California, compared with the nation as a whole. 

Our current liability crisis is not one of increasing litigation, but one of unreasonably high judgment amounts. Patients are not eager to sue their doctors. In fact, 

in 1991, the New England Journal of Medicine reported that only 1.53 percent of 

those injured by possible medical actions even file a claim. Severity of awards is the 

problem, and that is what the HEALTH Act of 2003 is designed to address. 

The College supports such reforms to promote the basic goal of ensuring access 

to a wide range of health care services and promoting patient safety and quality 

medical care. In particular, the College strongly supports the bill’s establishment of 

limits on non-economic and punitive damages. These provisions, combined with a 

sliding scale limit on contingency fees, make for a strong, positive step toward reforms that benefit the whole health care system and protect patient access to affordable, quality care. 

The College thanks Rep. Greenwood and other Energy and Commerce members 

for their leadership on the medical liability reform issue. The CAP appreciates the 

opportunity to present its views to the Health Subcommittee and offers its support 

and continued assistance as Congress works to meet the challenge posed by the nation’s liability insurance crisis. 

PREPARED STATEMENT OF MARY R. GREALY, PRESIDENT, HEALTHCARE LEADERSHIP

COUNCIL

Our liability system is broken. If it is not fixed soon, it will break our health care 

system as well. 

One of the founding principles of the Healthcare Leadership Council (HLC) B 

which represents the CEO’s of the nation’s leading health care companies and organizations B is that patients should have access to high quality health care. Skyrocketing liability costs threaten patient access to quality care. This is no longer 

simply about lawyers and doctors. This is about patients. 

The cost of excessive jury awards is causing staggering increases in medical liability premiums. Between 1996 and 1999, average jury awards in medical liability 

cases have increased by 76 percent. These spiraling increases add directly to the 

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cost of health care, contributing significantly to premium costs and the growing 

number of uninsured Americans. 

Just as harmful to patients and consumers, however, are the indirect costs of the 

crisis. Patients are increasingly ‘‘paying’’ for excessive litigation by losing access to 

medical specialists such as obstetricians and surgeons. An estimated 1 in 11 obstetricians/gynecologists say they have strictly limited their services solely to gynecology due to the malpractice crisis. In some areas, the situation is far worse. In 

Miami, average annual malpractice premiums for Ob-Gyns are $210,578, while the 

average salary for an Ob-Gyn in Florida is $118,435. In Wyoming, premiums average $116,000, while average salaries for Ob-Gyns are $108,700. 

As medical malpractice insurance rates skyrocket B or become unavailable B medical specialists such as neurosurgeons, orthopaedic surgeons and obstetricians/gynecologists are leaving states such as Pennsylvania, Mississippi, West Virginia, New 

Jersey, Florida and others. While these states have been in the news lately, the crisis goes far beyond the 13 ‘‘crisis’’ states. It is estimated that as many as 30 other 

states are in ‘‘near crisis’’ and will soon join the ranks of states where patient access 

is endangered. 

Patients also are losing access to nearby hospitals, trauma centers, and other facilities as a result of the crisis. Patients are subjected to, and pay for, unnecessary 

tests and procedures as physicians must practice ‘‘defensive medicine.’’’ In addition, 

patients ultimately are the ones who suffer when new drug therapies and medical 

technologies are not developed due to litigation or the fear of it. 

The cause of the liability crisis is clear. Medical malpractice insurance rates are 

set prospectively. These rates are set primarily on the basis of projections of jury 

awards. This trend line is in one direction: straight up. Solving the cost problem 

requires dealing with the size and unpredictability of these awards. The bottom line 

is that medical malpractice premiums cannot keep up with claims. A typical state 

is Oregon, where a Governor’s task force reported that medical liability insurers 

paid out $71 million in losses and defense costs, while receiving $50 million in premiums over the same period. In Ohio, medical malpractice insurers are losing $1.62 

for every $1 in premiums. Clearly these trends are unsustainable and will drive 

more physicians out of practice. 

The only proven way to bring these costs under control B while actually enhancing patients’ ability to recover economic damages for injuries B are reforms which 

include capping non-economic and punitive damages, establishing reasonable levels 

for attorneys’ fees, and setting fair share rules for joint and several liability. 

HLC strongly supports these and other reforms embodied in the Help Efficient, 

Accessible, Low Cost, Timely Health Care (HEALTH) Act of 2003 (H.R. 5). 

We stand ready to work with you to address this growing crisis. 

PREPARED STATEMENT OF RODNEY C. LESTER, PRESIDENT, AMERICAN ASSOCIATION

OF NURSE ANESTHETISTS

Chairman Bilirakis and Congressman Sherrod Brown, I am Rodney C. Lester, 

CRNA, PhD, President of the American Association of Nurse Anesthetists (AANA). 

I appreciate the opportunity to submit for the record a statement on issues surrounding medical liability reform, which are the most challenging facing healthcare 

today.

For those of you who may be unfamiliar with the AANA, we represent approximately 30,000 Certified Registered Nurse Anesthetists (CRNAs) across the United 

States. In the administration of anesthesia, CRNAs perform virtually the same functions as anesthesiologists and work in every setting in which anesthesia is delivered 

including hospital surgical suites and obstetrical delivery rooms, ambulatory surgical centers, health maintenance organizations’ facilities, and the offices of dentists, 

podiatrists, ophthalmologists, and plastic surgeons. Today, CRNAs administer approximately 65% of the anesthetics given to patients each year in the United States. 

CRNAs are the sole anesthesia provider in at least 65% of rural hospitals, which 

translates into anesthesia services for millions of rural Americans. 

CRNAs have been a part of every type of surgical team since the advent of anesthesia in the 1800s. Until the 1920s, nurses almost exclusively administered anesthesia. In addition, nurse anesthetists have been the principal anesthesia provider 

in combat areas in every war the United States has been engaged in since World 

War I. CRNAs provide anesthesia services in the medical facilities of the Department of Defense, the Public Health Service, the Indian Health Service, the Department of Veterans Affairs, and countless other public and private entities. Given the 

current state of affairs with Iraq and Afghanistan, it is not surprising that our deployed forces depend greatly upon the services and skills of CRNAs. 

185

You may be aware of the widely publicized nursing shortage. While we do not 

have enough rank and file nurses there is an increasingly acute shortage of CRNAs. 

Quite simply, there are not enough CRNAs to fulfill the demand. Our News Bulletin 

tends to be chock full of advertisements for vacant positions. Quite simply if the rest 

of the economy was similar to the employment situation for CRNAs, our nation 

would be at full employment. 

Hardly a day goes by for most anesthesia practices when a CRNA is not called 

by an employment recruiter attempting to entice them into seeking additional pay 

at another group or hospital. Practices are offering bonuses, attractive benefits, and 

higher pay in order to recruit CRNAs. 

We graduate approximately 1,000 students per year and it is not enough to fill 

the demand. Our Foundation has recently funded a manpower shortage study and 

its results are expected shortly. 

HOW ARE CRNAS DIFFERENT FROM ANESTHESIOLOGISTS?

The most substantial difference between CRNAs and anesthesiologists is that 

prior to anesthesia education, anesthesiologists receive medical education while 

CRNAs receive a nursing education. However, the anesthesia part of the education 

is very similar for both providers, and both professionals are educated to perform 

the same clinical anesthesia services. CRNAs and anesthesiologists are both educated to use the same anesthesia processes and techniques in the provision of anesthesia and related services. The practice of anesthesia is a recognized specialty within both the nursing and medical professions. Both CRNAs and anesthesiologists administer anesthesia for all types of surgical procedures, from the simplest to the 

most complex, either as single providers or in a ‘‘care team setting’’. 

WHAT IS OUR EXPERIENCE ON MALPRACTICE INSURANCE?

For the past several years, CRNAs have relied largely on two main major malpractice carriers—St. Paul and TIG. On December 12, 2001, AANA Insurance Services—a wholly owned subsidiary of the AANA—was notified by the St. Paul Companies that it would exit this market and would seek to sell their malpractice book 

and eventually transition out of the medical malpractice market. We were advised 

that this difficult decision was based upon ‘‘its anticipated worst annual loss in its 

148-year old history.’’ The St. Paul further stated that the decision is part of an 

overall plan ‘‘that will put St. Paul on sound financial footing so that they can continue serving their thousands of customers in their other businesses.’’ Their news 

release goes into more detail concerning losses relative to its losses in malpractice, 

other insurance lines and those associated with the September 11 terrorist attack. 

AANA Insurance Services worked to prepare and assist its policyholders in this 

transition period and kept them informed of developments relative to their continuing insurance coverage. 

The AANA and AANA Insurance Services Staff prepared strategies to respond to 

this situation proactively to assure a smooth transition for our members insured 

through St. Paul. We contacted our other carrier at the time, TIG Insurance, to seek 

support from them assessed other potential medical malpractice carriers to assure 

that our members have more than one choice for professional liability insurance as 

we have in the past. 

While we were aware that St Paul Companies were experiencing difficulties along 

with the rest of the insurance industry, we—along with many other providers and 

perhaps the general public—were surprised by the sudden decision to withdraw 

completely from the medical malpractice market. St Paul stated that they would do 

everything possible to make the transition smooth. We had an excellent relationship 

with the St. Paul and this transition continues. 

Following this announcement, we worked even closer with TIG Insurance Company to ensure a smooth transition for the policyholders of AANA Insurance Services. A few months ago, TIG Insurance Company announced it would no longer be 

providing medical malpractice insurance. Coverage for CRNAs through TIG will not 

be available after June 30, 2003. TIG’s announcement comes almost exactly a year 

after St. Paul’s announcement that it was withdrawing from the medical malpractice marketplace. 

On Monday, December 16, 2002, Fairfax Financial Holdings Limited announced 

that it would be restructuring TIG. Fairfax, the parent company of TIG, is a financial services holding company which, through its subsidiaries, is engaged in property, casualty and life insurance, reinsurance, investment management and insurance claims management. 

As part of the restructuring, TIG indicated that it will be discontinuing its program business. Program business, a specialty of TIG’s that represents a majority of 

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its business, is defined as insuring large groups of insured with very similar characteristics. According to Fairfax, TIG’s program business was not meeting Fairfax’s financial expectations. Unfortunately, all of TIG’s medical malpractice business, including the coverage it provides to CRNAs, falls into this program business category.

It should be noted that medical malpractice only accounted for 25% of TIG’s program business and TIG’s CRNA program was only a small part of the medical malpractice business. Fairfax representatives have informed AANA that the decision to 

restructure TIG was based neither on the performance of its medical malpractice 

business in general or its CRNA business in particular. 

It is no secret that the number of insurance companies willing to offer medical 

malpractice coverage has shrunk dramatically over the past few years. Although it’s 

of little consolation, there are many classes of healthcare providers who are facing 

even greater insurance challenges than CRNAs. While TIG’s decision is disappointing, it is not surprising considering the current medical malpractice environment.

Unlike when St. Paul exited from the medical malpractice marketplace, TIG’s 

withdrawal won’t be as immediate. TIG will continue to offer both new and renewal 

policies to AANA members through June 30, 2003. After June 30, 2003, TIG will 

not provide coverage to new applicants. 

Currently AANA Insurance Services provides coverage for members through CNA 

Insurance Company. It is our understanding that CNA has been approved to do 

business in 43 states and the District of Columbia. CNA is awaiting approval in the 

states of Alaska, Nebraska, Nevada, New Hampshire, New York, Vermont and 

Washington. AANA Insurance Services expects CNA to have approval in all these 

states by June 30, 2003. 

Obviously this has become extremely troubling to our members. While we have 

an excellent relationship with CNA Insurance Company, CRNAs are increasing concerned that with only one major medical malpractice carrier remaining, issues of 

coverage could become problematic. It should be noted that unless a CRNA had a 

particular issue with claims or licensure, coverage could easily be found, whether 

it was with St. Paul or TIG. That remains relatively true today with the CNA Insurance Company. But with more carriers leaving the marketplace, what does that do 

to providers? More importantly, what does it mean to patients and consumers? How 

do we attract more carriers to this market? Without major reforms, will carriers 

have any reason to go into the market? 

PATIENT SAFETY

Given the strong safety record of CRNAs, we had no reason to believe then, nor 

do we now, that there was any nexus between the decision of either St. Paul or TIG 

to exit the medical malpractice market due to bad claims from CRNAs. 

America’s CRNAs are committed to advancing patient safety so that actual instances of malpractice are reduced. These commitments including active membership in the cross-disciplinary National Quality Forum (NQF) and the National Patient Safety Foundation (NPSF), closed-claims research that transforms tough cases 

into educational and practice improvements, and the most stringent continuing education and recertification requirements in the field of anesthesia care. With CRNAs 

providing two-thirds of all U.S. anesthetics, the Institute of Medicine reported in 

1999 that anesthesia is 50 times safer today than 20 years ago. 

OUR DILEMMA

Educational programs that prepare nurse anesthetists rely solely on hospitals, 

surgery centers and even office based surgical practices to provide students with the 

required clinical experiences to enable them to become competent anesthesia providers. These healthcare facilities rely on surgeons and other high-risk specialties 

for their patient admissions. As these high-risk specialties leave, operating rooms 

close and patients have less access to needed care, and students have less access 

to patients for clinical training. 

Looking at Pennsylvania as an example, the hospitals and surgeons who are part 

of a healthcare system located in Southeast Pennsylvania have seen their primary 

premiums increase more than 60 %, their CAT fund increase more than 30%, and 

their excess premiums increase more than 600%, all within the last year. 

The Medical Professional Liability Catastrophe Loss Fund (commonlyreferred to 

as the CAT Fund) was established to ensure that victims of medical malpractice are 

compensated and that medical malpractice insurance is available to health care providers. Health care providers (physicians, surgeons, podiatrists, hospitals and nursing homes) are required to carry a set minimum amount of primary coverage. The 

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health care providers then must pay a surcharge to the CAT Fund in order to fund 

a layer of insurance above the primary insurance coverage. Failure to comply with 

this requirement may result in revocation of one’s license. 

This is reflective of what other healthcare systems in Pennsylvania are experiencing. In addition that system has seen its high-risk specialty physicians relocate 

out of Pennsylvania or give up the surgical part of their practice. Each time a physician closes his/her office or reduces practice, employees of their practice lose their 

job. Fewer high-risk specialists mean fewer cases requiring anesthesia are performed. These are exactly the specialties that nurse anesthesia educational programs rely on to provide their students with the required clinical cases. 

As surgeons leave the state or reduce surgery because they can not afford the 

malpractice insurance there are fewer surgical cases, operating rooms are closed, 

daily operating room schedules are prolonged, overtime costs increase, hospitals’ 

earn less money, layoffs occur and hospitals close. This directly affects patients’ access to needed and timely care, and the ability of our educational programs to provide the necessary clinical experiences to educate nurse anesthetists. If this trend 

continues unabated, nurse anesthesia educational programs (and other healthcare 

educational programs) will face accreditation issues, declines in student enrollment 

and delays in graduation as they struggle to find enough clinical experiences for 

their students. All of this occurring during a time when there is a critical shortage 

of anesthesia providers nationwide to provide care to an older and sicker population. 

The medical malpractice crisis affects all levels of society. Unlimited individual 

awards for pain and suffering will severely limit the availability and access to care 

for the majority. The value we place on timely and complete access to care for all 

our citizens is reflected in our allowance of an individual’s unlimited right to take 

precedence over the needs of all our people. To insure a healthy society, we must 

insure access to health care even if it means we place limits on a single category 

of damages to the individual. 

If carriers continue to leave the market and if there should be in difficulty obtaining coverage, it could ultimately mean a slow down for hospitals in providing surgeries. In addition, when CRNAs are employed by hospitals or group practices, these 

entities have to pick up the tab. If increasing rates continue to become an issue, 

hospitals will increasingly have to make difficult choices. In those rural hospitals 

where CRNAs are the sole anesthesia provider, hospitals have no choice if they wish 

to keep their doors open. 

That is why the AANA supports medical liability reform. Many can point an accusatory finger as to why carriers exit the market. However, it makes no sense for 

an insurer to remain in a market if it cannot do so profitably. High costs and runaway juries and large malpractice awards have become unrealistic and disproportionately high. This is not to say that providers, be they nurses or physicians, 

should not be held responsible for their actions. All providers must take responsibility. And those providers who may be disproportionately responsible for rate hikes 

because they have had more than one claim must increasingly take responsibility 

for their actions as do the nursing and medical boards regulating providers. But by 

the same token, awards have become too high and many insurers have decided that 

with the unpredictability of determining how to insure a risk that is seems to be 

increasingly incalculable, they simply exit the market. 

In the last Congress, the AANA was pleased to support Rep. Jim Greenwood’s (RPA) legislation, H.R. 4600. The HEALTH Act would permit individuals to recover 

unlimited economic damages and allow for non-economic damages or ‘‘pain and suffering’’ up to $250,000. The states would have the flexibility to establish or maintain 

their own laws on damage awards. Other provisions in the HEALTH Act address 

the percentage of damage awards and settlements that go to injured patients as well 

as allocate damage awards fairly and in proportion to a party’s degree of fault and 

works to decrease the time it takes for a case to settle or go to trial. Similar legislation will be considered in the 108th Congress. 

Ultimately, it will be incumbent upon insurers, providers, and yes the trial lawyers to work together to find a common solution that works for consumers and patients.

Again, thank you for the opportunity in allowing us to share our views on medical 

liability reform with the members of this subcommittee. 

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