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85–403 PDF 2003

HELP EFFICIENT, ACCESSIBLE, LOW-COST,

TIMELY HEALTHCARE (HEALTH) ACT OF 2003

HEARING

BEFORE THE

COMMITTEE ON THE JUDICIARY

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

ON

H.R. 5

MARCH 4, 2003

Serial No. 3

Printed for the use of the Committee on the Judiciary

(

Available via the World Wide Web: http://www.house.gov/judiciary

(II)

COMMITTEE ON THE JUDICIARY

F. JAMES SENSENBRENNER, JR., Wisconsin, Chairman

HENRY J. HYDE, Illinois

HOWARD COBLE, North Carolina

LAMAR SMITH, Texas

ELTON GALLEGLY, California

BOB GOODLATTE, Virginia

STEVE CHABOT, Ohio

WILLIAM L. JENKINS, Tennessee

CHRIS CANNON, Utah

SPENCER BACHUS, Alabama

JOHN N. HOSTETTLER, Indiana

MARK GREEN, Wisconsin

RIC KELLER, Florida

MELISSA A. HART, Pennsylvania

JEFF FLAKE, Arizona

MIKE PENCE, Indiana

J. RANDY FORBES, Virginia

STEVE KING, Iowa

JOHN R. CARTER, Texas

TOM FEENEY, Florida

MARSHA BLACKBURN, Tennessee

JOHN CONYERS, JR., Michigan

HOWARD L. BERMAN, California

RICK BOUCHER, Virginia

JERROLD NADLER, New York

ROBERT C. SCOTT, Virginia

MELVIN L. WATT, North Carolina

ZOE LOFGREN, California

SHEILA JACKSON LEE, Texas

MAXINE WATERS, California

MARTIN T. MEEHAN, Massachusetts

WILLIAM D. DELAHUNT, Massachusetts

ROBERT WEXLER, Florida

TAMMY BALDWIN, Wisconsin

ANTHONY D. WEINER, New York

ADAM B. SCHIFF, California

LINDA T. SA ́ NCHEZ, California

PHILIP G. KIKO, Chief of Staff-General Counsel

PERRY H. APELBAUM, Minority Chief Counsel

(III)

C O N T E N T S

MARCH 4, 2003

OPENING STATEMENT

Page

The Honorable Lamar Smith, a Representative in Congress From the State

of Texas, and Chairman, Subcommittee on Courts, the Internet, and Intellectual Property .................................................................................................... 1

The Honorable John Conyers, Jr., a Representative in Congress From the

State of Michigan, and Ranking Member, Committee on the Judiciary ......... 3

WITNESSES

Mrs. Sherry Keller, Conyers, GA

Oral Testimony ..................................................................................................... 4

Prepared Statement ............................................................................................. 6

Mrs. Leanne Dyess, Member, Coalition for Affordable and Reliable Health

Care

Oral Testimony ..................................................................................................... 7

Prepared Statement ............................................................................................. 9

Dr. Donald J. Palmisano, M.D., President-Elect, American Medical Association

Oral Testimony ..................................................................................................... 11

Prepared Statement ............................................................................................. 12

Mr. Lawrence E. Smarr, President, Physician Insurers Association of America

Oral Testimony ..................................................................................................... 38

Prepared Statement ............................................................................................. 40

APPENDIX

STATEMENTS SUBMITTED FOR THE HEARING RECORD

Statement of the Alliance of Specialty Medicine ................................................... 910

Statement of Mary R. Grealy, President, Healthcare Leadership Council ......... 98

Statement of Frank Clemente, Director, Public Citizen’s Congress Watch ........ 99

Statement of the American College of Physicians-American Society of Internal

Medicine ................................................................................................................ 178

Statement of the College of American Pathologists .............................................. 180

Statement of the American Academy of Family Physicians ................................ 182

Statement of Rodney C. Lester, President of the American Association of

Nurse Anesthetists ............................................................................................... 183

Statement of the American College of Obstetricians and Gynecologists ............ 186

Statement of Mr. John McCormack, Pembroke, Massachusetts submitted by

Representative Delahunt ..................................................................................... 189

MATERIAL SUBMITTED FOR THE HEARING RECORD

Department of Health and Human Services report: Addressing the New

Health Care Crisis: Reforming the Medical Litigation System to Improve

the quality of Health Care, March 3, 2003 ........................................................ 192

Ten questions and answers on H.R.5, the HEALTH Act ..................................... 238

Remarks by the President on Medical Liability Reform at the University

of Scranton ............................................................................................................ 246

The Washington Times Editorial by Bruce Bartlett, ‘‘Toll of Torrential Torts’’ . 252

Page

IV

The Washington Times Editorial by Gary J. Andres and Michael McKenna,

‘‘Malpractice Remedies’’ ....................................................................................... 253

Letter from Premier to the Honorable Jim Greenwood, a Representative in

Congress From the State of Pennsylvania, in support of H.R. 5 ..................... 254

(1)

HELP EFFICIENT, ACCESSIBLE, LOW-COST,

TIMELY HEALTHCARE (HEALTH) ACT OF 2003

TUESDAY, MARCH 4, 2003

HOUSE OF REPRESENTATIVES,

COMMITTEE ON THE JUDICIARY,

Washington, DC.

The Committee met, pursuant to call, at 9:20 a.m., in Room

2141, Rayburn House Office Building, Hon. Lamar S. Smith presiding.

Mr. SMITH. [Presiding.] The Judiciary Committee will come to

order. Today’s hearing is on H.R. 5, the ‘‘Help Efficient, Accessible,

Low-Cost, Timely Healthcare Act of 2003’’, otherwise known as the

HEALTH Act.

We will start with opening statements by me and by the Ranking

Member, Mr. Conyers, and without objection, the opening statements of all other Members will be made part of the record.

Mr. SMITH. After the opening statements, we will look forward to

hearing from our witnesses.

I will recognize myself first for an opening statement.

Today America faces a national insurance crisis that is destroying our health care system. Medical liability insurance rates have

soared, causing major insurers either to drop their coverage or

raise premiums to unaffordable levels.

Doctors and other health care providers have been forced to

abandon patients and practices, particularly in high-risk specialties

such as emergency medicine, brain surgery, obstetrics and gynecology.

Women are particularly hard hit, as are low-income individuals

and rural residents. This is an intolerable problem that cries out

for action.

H.R. 5, the HEALTH Act, is modeled after California’s quartercentury-old and highly successful health care litigation reforms.

Like California’s Medical Injury Compensation Reform Act, known as MICRA, the HEALTH Act includes a $250,000 cap on noneconomic damages, limits on the contingency fees lawyers can

charge, and authorization for defendants to introduce evidence to

prevent double recoveries.

As a result of MICRA, since 1975 premiums paid in California

increased only 167 percent, while premiums paid in the rest of the

country increased 505 percent, or three times as much. What works

in California might work across America.

The Congressional Budget Office has found that, ‘‘In States that

currently do not have controls on malpractice torts, the HEALTH

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Act would significantly lower premiums for medical malpractice insurance from what they would otherwise be under current law.’’

If California’s legal reforms were implemented nationwide, we

could spend billions of dollars more annually on patient care.

Nothing in the HEALTH Act limits in any way the award of economic damages. Economic damages include anything of value that

can be quantified, including lost wages, lost services, medical costs,

and the cost of pain-reducing drugs and lifetime rehabilitation care.

Reasonable legal reforms, such as those in the HEALTH Act, still

allow for very large multimillion-dollar awards to deserving victims. In just the last year, for example, an injured child in California received an award of $84 million, and a 30-year-old homemaker received an award of $12 million for economic damages.

According to the Department of Health and Human Services,

‘‘Unless a State has adopted limitations on noneconomic damages,

the cost of these awards is paid by all other Americans through

higher health care costs, higher health insurance premiums, higher

taxes, reduced access to quality care, and threats to quality of

care.’’

The American people understand this problem. A poll conducted

in early February shows that 59 percent of Americans believe the

crisis should be solved, either by reining in personal injury lawyers

or by placing caps on the amounts juries can award. The obvious

cause of skyrocketing medical liability premiums is escalating jury

verdicts. The median malpractice jury award doubled between 1995

and 2000 from a half a million to $1 million, and that doesn’t reflect the huge cost of cases that don’t result in jury awards. In fact,

70 percent of all medical malpractice claims result in no payments,

because claims are either dismissed or withdrawn.

The CEO of Methodist Children’s Hospital in San Antonio, and

also one of the only three pediatric neurosurgeons in the area,

someone I met with just a few weeks ago, has seen his premiums

increase from less than $20,000 to $85,000 over the last 10 years.

He has been sued three times. In one case his only interaction with

the person suing was that he stepped into her child’s hospital room

and asked how the child was doing. Each jury cleared him of any

wrongdoing, and the total amount of time all three juries spent deliberating was less than 1 hour. Of course, the doctor’s insurance

company did spend a great deal of time, money and effort on his

defense.

Another doctor from Texas, a family physician, was sued 12

times in 13 years. All of the suits were dropped, but her insurance

went up nearly 200 percent.

An out-of control health care litigation system also costs taxpayers billions of dollars annually. As former Democratic Senator

George McGovern has written, ‘‘The legal fear drives doctors to prescribe medicines and order tests, even invasive procedures, that

they feel are unnecessary. Reputable studies estimate that this defensive medicine squanders $50 billion a year, enough to provide

medical care to millions of uninsured Americans.’’

As Representatives of the American people, Congress has a

choice. Will we help solve the current health care crisis by passing

the HEALTH Act?

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Now, that concludes my opening statement, and now I will recognize the gentleman from Michigan, Mr. Conyers, for his opening

statement.

Mr. CONYERS. Thank you, Mr. Chairman. Good morning, Members and friends. I am happy to be here. We are confronted with

a very important problem, and like many legislative problems, it

depends on what perspective you are looking at; it depends on what

experience you bring to the subject.

So I would like to begin with an economic consideration. The reason malpractice insurance premiums are rising, the basic reason,

is that investment income by insurance companies is plummeting.

As we all know, insurers make their money, really, mostly from investment income. During years of high stock market returns and

interest rates, malpractice premiums go down. When investment

income decreases, and we are in the middle of a 4-year bear market, the industry responds by sharply increasing premiums and reducing coverage, creating a liability insurance crisis. This boombust cycle took place in the 1970’s and 1980’s, and it is happening

again now.

Another reason is that draconian laws capping damages do not

reduce insurance premiums. A comparison of States that have enacted severe tort restrictions and those that have not, which was

performed by the Center for Justice and Democracy, found no correlation between tort reform and insurance rates. Indeed, some of

the resisting States experienced lower increases in insurance rates,

while some States that enacted tort reforms experienced higher

rate increases relative to the national trends.

For example, last year’s data showed that in the practice of internal medicine, States with caps on damages had higher premiums

than States without caps. For general surgeons, insurance premiums were 2.3 percent higher in States with caps on damages. On

average, malpractice premiums were no higher in the 27 States

that have no limitation on malpractice damages than in the 23

States that do have such limits.

Now, Mrs. Sherry Keller is here, so I am not going to tell you

about her situation, but with this bill the big insurance companies

are trying to convince us that the cause of skyrocketing medical

malpractice premiums is trial lawyers. And they have really been

bashed these last few years, haven’t they?

My colleagues, the reality is grossly negligent health care professionals unfortunately have more to do with the high awards than

the lawyers. The reality is approximately 100,000 people die each

and every year from medical malpractice. Whatever the reasons for

the anger the President has toward lawyers, and he is one, his proposal doesn’t hurt lawyers nearly as much as it hurts innocent victims of medical malpractice. We will all be watching very carefully

and listening to his remarks before the American Medical Association, which will come on shortly.

I thank you for this opportunity, Mr. Chairman.

Mr. SMITH. Thank you, Mr. Conyers.

I would like to thank all Members for their attendance today.

This is an important subject, and we appreciate their interest and

their presence, and also the interest shown by those who are in the

audience today as well.

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Let’s proceed to our witnesses, and our first witness is Sherry

Keller. Mrs. Keller is here today to tell us how her experience with

medical care left her severely injured.

Our next witness is Leanne Dyess, from Vicksburg, Mississippi.

She is here to testify about how this patient access crisis has affected the lives of herself and her family. Her husband Tony suffered from permanent brain injury because neurosurgeons near the

site of the car accident had been priced out of the profession by

unaffordable medical malpractice liability insurance rates.

Our third witness is Donald J. Palmisano, who is a doctor and

a lawyer, as well as the president-elect of the American Medical

Association, which represents the Nation’s physicians. Dr.

Palmisano is a general and vascular surgeon from New Orleans,

Louisiana, where he was selected recently as one of the top doctors

in New Orleans. Dr. Palmisano is also on the board of directors of

the National Patient Safety Foundation.

Our final witness is Lawrence E. Smarr, President of the Physician Insurers Association of America. The Physician Insurers Association of America is a trade association of more than 60 medical

professional liability companies owned and operated by doctors and

dentists. Collectively these companies insure 60 percent of America’s private practice physicians as well as dentists, hospitals and

other health care providers.

I thank you all for being with us here this morning. I need to

alert you to the fact that testimony will be limited to 5 minutes or

less, if you want to summarize it, and we appreciate your participating today. As I mentioned a while ago, your complete statements will be made part of the record.

Speaking of that, let me take care of one matter here. Without

objection, I would also like to be made a part of the record a new

Health and Human Services report on medical liability that was released yesterday, and two articles in The Washington Times from

yesterday on the President’s speech at the University of Scranton,

in Pennsylvania on January 16th in regard to medical malpractice

reforms, and also 10 questions and answers regarding the

HEALTH Act. And without objection, so ordered.

[The information referred to follows in the Appendix]

Mr. SMITH. The gentleman from Massachusetts.

Mr. DELAHUNT. Thank you, Mr. Chairman. And before we begin,

I would also like to submit for the record a statement by Mr. John

McCormack of Pembroke, MA, who is a constituent of mine. In

there he explains what happened to his daughter as a result of

medical errors that had severe and profound consequences, not just

resulting in her death, but for the entire family.

Mr. SMITH. Without objection, that will be made a part of the

record as well, Mr. Delahunt. Thank you.

[The information referred to follows in the Appendix]

Mr. SMITH. Let’s begin. Mrs. Keller, if you will start, please.

STATEMENT OF SHERRY KELLER, CONYERS, GA

Mrs. KELLER. Good day, ladies and gentlemen. I thank you for

the opportunity to speak to you today. My name is Sherry Keller.

I am a victim of medical malpractice, and I beg for your consideration of my story and the McConnell amendment.

5

I come here at risk of my own best interests, but my commitment

to this cause commands my heart to do so without any reservation.

This is the issue, not the money. One week after a complete

hysterectomy, the staples were removed from my incision site. That

night the wound oozed, and upon notification to my doctor, she told

me to come into the office so she could clean the wound.

I was placed up on the gyno bed. She began to clean the wound,

and when she did so, she pulled on it. And when she pulled on it,

I opened up like a Ziplock bag, hip to hip. While I was now going

to take a little bit more time than what she had planned, she left

me there like that, in the interim, to see other patients, make a

few phone calls. I had gone into shock, lost consciousness, and fell

from the bed, hitting my head on the way down, C2 through C7

spinal cord injury, quite similar to that of actor Christopher Reeve

or that killed Dale Earnhardt.

I lost and regained consciousness at least five times on the floor

of the doctor’s office, in an effort to try to get out into the hallway,

in order to be found. Making it out to the hallway, I called, ‘‘Help

me.’’ the doctor and the nurses then scrambled, saw me laying

there like that, naked from the waist down, my intestines hanging

out, in severe shock. They picked me up from the hallway, and that

is when I began screaming in pain and lost the use of my arms.

My husband was called back from the waiting room; an argument between the two of them about whether or not I needed an

ambulance. She wanted him to take me to the ER on his own, and

he insisted that he could not handle me in that condition. An ambulance was called, but I was not even afforded a neck collar due

to the doctor’s orders of transport only.

Patient care meant nothing. Doctor’s power meant everything.

Unbeknownst to me, she had called ahead to the ER and let them

know that I was her patient, and she would take care of it.

I was left in the ER for 21⁄2 hours before she was able to get to

the ER to dress my wound, my complaints of pain, the obvious contusion to my head ignored, arm function limited by that point, unable to stand completely on my own. I was just sore from the fall.

Go home. I was sent home with a broken neck because of doctor

power and doctor protocol. Patient care meant nothing.

This is not to impugn all doctors. This is not to say all doctors

are bad. I do not hold resentment toward all doctors. My neurosurgeon was a miracle worker. He saved me. But just as there are

good and bad lawyers, good and bad policemen, there are good and

bad doctors.

Our bad doctors need to be held accountable. Just as President

Bush has called for the executives of Enron to be held accountable,

doctors need to be held accountable, and the only recourse I as a

citizen have is our jury system. That is my right. That is the only

right and the only venue I have to hold the physician accountable

for the care and trust that we are conditioned to give them. Even

in a doctor office visit they hold our lives in their hands, and far

too often with far too cavalier an attitude.

I had chosen to give up any form of a career in order to raise

my children, both college scholarship award winners, both academically excelling very well, my younger is now straight A’s, both contributing to this society. But because of my choice to bring in reVerDate 11-MAY-2000 00:10 Apr 11, 2003 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6601 G:\WORK\FULL\030403\85403.000 HJUD3 PsN: HJUD3
6

sponsible members to society, my value through this, through the

McConnell bill, will be nothing. Because I had no economic input,

my value as a person is nothing. The only award, the only recourse,

the only accountability I will have is through the pain and suffering.

I have heard several Representatives mention a malpractice lawsuit is like winning the lottery. Well, I would like to ask any of you

who would turn over a limb or a lung or a life for a lottery ticket.

It is not a lottery. I am not in the position to win anything. I would

gladly give back Bill Gates’ money if I could trade it back for my

spinal cord. No amount of compensation is going to pay me back

for what I have lost, the ability for me to reach for this paper takes

extraordinary effort; the ability to just go to the bathroom, gone.

Things that we take—everyday movement, taken from me. I will

never have the freedom a healthy body has; never the complete use

of my arms, legs. I suffer every day, 24 hours a day. Every time

I have to try to reach for something, the pain is excruciating. No

amount of medicine can take the pain away. It can subside, but it

is always there. In my dreams I suffer. I am awakened many times

during the night because of problems in my spinal cord. I can’t

even sleep through the night.

What kind of money is going to compensate that? None. But to

say that $250,000 is more than enough is an insult. I now have to

hire cleaning people, a driver to do basic errands, go to the bank.

A 10-minute trip to the grocery store now takes 3 hours, of which

I have to hire somebody to do. I will have to do so forever. These

are out-of-pocket expenses that would not be covered. All of the

chores, the errands, gardening, landscaping, cleaning, you name it,

and for the rest of my life I now have to hire somebody else to do

it, and not only is it degrading, but it is coming out of my pocket.

Mr. SMITH. Mrs. Keller, thank you for your testimony.

[The prepared statement of Mrs. Keller follows:]

PREPARED STATEMENT OF SHERRY KELLER

First, I want to thank Chairman Sensenbrenner and Congressman Conyers. I

greatly appreciate the opportunity you have given me. My name is Sherry Keller

and I am a victim of medical malpractice.

I am 44 years old. I live with my husband in Conyers, Georgia, a suburb of Atlanta, and have two college-age sons. This is my story.

About 4 years ago, I underwent a complete hysterectomy. The doctor failed to suture and staple the incision site, instead only stapling me shut. One week after the

staples were removed, I noticed that one area of the wound was oozing. After reporting this to my doctor, I was called into her office the next day so she could clean

the wound.

Once there, she had me lie on the examination table. She pulled on the incision,

and I opened up like a zip-lock bag, just as though I were in surgery. The doctor

said she was going to call a wound care specialist and then left me alone for 35–

45 minutes while she saw other patients and made personal calls to her home.

I went into shock, lost consciousness and fell from the table, hitting my head on

the counter on the way down, causing c2-c7 spinal cord injury similar to that sustained by actor Christopher Reeve and deceased race car legend Dale Earnhardt. I

also suffered traumatic brain injury and a severe concussion.

Eventually, after going in and out of consciousness at least 5 times, drenched in

sweat and with my guts hanging out, I was able to pull myself out into the hallway

to get help. I was immediately picked up out of the hallway so that other patients

wouldn’t see me, causing me to lose all function in my arms.

The doctor then began arguing with my husband about why he, not an ambulance, should take me to an emergency room. My husband finally prevailed, and the

doctor called for an ambulance. When the ambulance came, I was not given a neck

7

collar, because, as I later found out, the doctor had requested transport only and

the EMS workers were required to follow her orders.

After arriving at the emergency room, I was basically given no medical attention,

because my doctor had instructed the ER that she would take care of me when she

arrived at the hospital. Two and a half hours later, the doctor arrived, cleaned my

wound and sent me home, explaining that any pain and soreness I was experiencing

were caused by the fall. I was never given steroids, which could have reduced some

of the swelling and prevented the damage from progressing. Once home, I kept falling down and could barely walk.

Now, four years later, I am an incomplete quadriplegic. I will never have the freedom a healthy body has, never be able to use my arms for the simplest of tasks,

never walk holding a child’s hand, never explore and see the splendour of this country. Even a simple trip to the bathroom is now gone. Every day, each and every day,

for the rest of my life.

We, as victims, endure pain and suffering 24 hours a day, with physical pain that

no amount of medicine can take away. Suffering comes even in sleep, in dreams and

in one’s physical state every day and every night. It will be so for the rest of my

life, all at the hands of one negligent physician, whom we as a society are conditioned to trust.

Far too cavalier an attitude within the medical ranks regarding public trust results in untold pain and suffering within the general public, to be lived constantly

for our entire lives. The inability to reach, sit, anything and everything the average

person takes for granted, also produces incalculable suffering. If pain and suffering

cannot be measured, how can it possibly be capped?

I gave my life to raising my 2 sons and taking care of my family. I feel I’ve contributed more to society by the choice I made. But under H.R. 5, my value is nothing. Despite the extent of my physical pain and suffering, which forced me to abandon my hopes of becoming a painter, the only compensation I would receive is

$250,000. So when I hear doctors and legislators say that medical malpractice

awards are like winning the lawsuit lottery, it really burns my butt.

It is an outrage that victims of medical malpractice are to be trivialized for the

profit margin of big business. In the shadow of Enron, where President Bush called

for the accountability of all responsible, how can physicians not be held accountable

for the extent to which their errors have devastated lives?

Limiting compensation to victims while still fully protecting doctors is not only

terribly unfair, it is immoral, outrageous and reeks of injustice. We are the innocent

victims. To punish us a second time literally adds insult to injury.

Doctors are meticulously trained to cure us, keep us alive and improve our quality

of life. They take a solemn oath to ‘‘do no harm.’’ It is a noble profession, a calling

of sorts. We put our trust in doctors unlike any other profession. They are human.

Mistakes are made, sometimes honest mistakes and sometimes blatantly incompetent ones. Mistakes cost lives, create medical nightmares and destroy the lives of

victims and their families.

The goal must be to reduce medical negligence. This can only happen if physicians

are held accountable. Laws and proposals that increase the obstacles sick and injured patients face in the already difficult process of prevailing in court are the

wrong way to respond to any medical malpractice insurance ‘‘crisis.’’ Tort restrictions only reduce the financial incentive of institutions like hospitals and HMOs to

operate safely, when our objectives should be deterring unsafe and substandard

medical practices while safeguarding patients’ rights.

Caps cannot be allowed, not in a great society like ours that bases itself on fairness and equality to all.

Thank you for your time and consideration.

Mr. SMITH. Mrs. Dyess.

STATEMENT OF LEANNE DYESS, MEMBER, COALITION FOR

AFFORDABLE AND RELIABLE HEALTH CARE

Ms. DYESS. Chairman Smith, Ranking Member Conyers, distinguished Members of the House Judiciary Committee, it is an honor

for me to sit here before you this morning to open up my life and

the life of my family in an attempt to demonstrate how medical liability costs are hurting people across America.

While others may talk in terms of economics and policy today, I

want to speak to you from the heart. I want to share with you the

8

life my two children and I are now forced to live because of a crisis

in health care that I believe can be fixed. And when I leave and

the lights are turned off and the television cameras go away, I

want you and all America to know one thing, and that is this crisis

isn’t about insurance. It is not about doctors or even hospitals or

personal injury lawyers. It is a crisis about individuals and their

access to what I believe is otherwise the greatest health care in the

world.

Our story began on July 5 of last year when my husband Tony

was returning from work in Gulfport, MI. We had started a new

business. Tony was working hard, as I was. We were doing our best

to build a life for our children, and their futures were filled with

promise. Everything looked bright.

Then in an instant everything changed. Tony was involved in a

single-car accident. They suspect he may have fallen asleep, though

we will never know. What we do know is that after removing him

from the car, they rushed Tony to Garden Park Hospital in Gulfport. He had injuries and required immediate attention.

Shortly thereafter, I received a phone call I pray no other wife

will ever have to receive. I was informed of the accident and told

the injuries were serious, but I cannot describe to you the panic

that gave way to hopelessness when they told me, we don’t have

the specialists necessary to take care of him. We will have to airlift

him to another hospital.

I couldn’t understand this. Gulfport is one of the fastest growing

and most prosperous regions in Mississippi. Garden Park is a good

hospital. Where were the specialists who could have taken care of

my husband?

Almost 6 hours passed before Tony was airlifted to University

Medical Center, 6 hours for the damage to his brain to continue before they had a specialist capable of putting a shunt into the back

of his head to relieve the pressure on the brain, 6 unforgettable

hours that changed our life.

Today Tony is permanently brain-damaged. He is mentally incompetent, unable to care for himself, unable to provide for his

children, unable to live the vibrant, active and loving life he was

living just moments before the accident.

I could share with you the panic of a women suddenly forced into

the role of both mother and father to her teenaged children, of a

women whose life is suddenly caught in limbo, unable to move forward or backwards. I could tell you about a woman who now had

to worry about the constant care of her husband, who had to make

concessions she never thought she would have to make in order to

be able to pay for his care and therapy.

But to describe this would be to take us away from the most important point and value of what I have learned. Mr. Chairman, I

have learned that there was no specialist on staff that night in

Gulfport because rising medical liability costs had forced physicians

in that community to abandon their practices. In that area, in that

time, there was only one doctor who had the expertise to take care

of Tony, and he was forced to cover multiple hospitals, stretching

him thin and unable to care for everyone. Another doctor quit his

practice just days before Tony was admitted because his insurance

company terminated all of the medical liability policies nationwide.

9

That doctor could not obtain affordable coverage. He couldn’t practice. And on that hot night in July, my husband and our family

drew the short straw.

I have also learned that Mississippi is not unique, that this crisis

rages in States all across America. It rages in Nevada where young

expectant mothers cannot find OB-GYNs. It rages in Florida where

children cannot find pediatric neurosurgeons. It rages in Pennsylvania, where the elderly who have come to depend on their orthopedic surgeons are being told that those trusted doctors are moving

to States where practicing medicine is affordable and less risky.

The real danger of this crisis is that it is not readily seen. It is

like termites in the structure of a home. They get into the woodwork, but you cannot see the damage. The walls of the house remain beautiful, but you don’t know what is going on beneath the

surface, at least not for a season. Then one day you go to hang a

picture or a shelf, and the whole wall comes down. Everything is

destroyed.

Before July 5, I was like most Americans, completely unaware

that just below the surface of our Nation’s health care delivery system serious damage was being done by excessive and frivolous litigation.

Mr. SMITH. Could I ask you to summarize the rest of your testimony?

Ms. DYESS. In all of these cases, all across America, if you go

somewhere, to an emergency room, you expect there to be a doctor

there, all of us. We have to do whatever it takes, whatever it takes,

to get your child some care, your parents, your grandparents, ourselves care when we need it. If we don’t do something, down the

road she might not have a doctor to take care of her, one that really does her the—like the neurosurgeon she was talking about. We

might not have anybody to take care of us, any of us. We don’t

need to stand still.

Mr. SMITH. Thank you, Mrs. Dyess.

[The prepared statement of Mrs. Dyess follows:]

PREPARED STATEMENT OF LEANNE DYESS

Chairman Sensenbrenner, Ranking Member Conyers, distinguished members of

the House Judiciary Committee:

It’s an honor for me to sit before you this afternoon—to open up my life, and the

life of my family, in an attempt to demonstrate how medical liability costs are hurting people all across America. While others may talk in terms of economics and policy today, I want to speak from the heart.

I want to share with you the life my two children and I are now forced to live

because of a crisis in health care that I believe can be fixed. And when I leave and

the lights turn off and the television cameras go away, I want you—and all America—to know one thing, and that is that this crisis is not about insurance. It’s not

about doctors, or hospitals, or even personal injury lawyers. It’s a crisis about individuals and their access to what I believe is, otherwise, the greatest health care in

the world.

Our story began on July 5th of last year, when my husband Tony was returning

from work in Gulfport, Mississippi. We had started a new business. Tony was working hard, as was I. We were doing our best to build a life for our children, and their

futures were filled with promise. Everything looked bright. Then, in an instant, it

changed. Tony was involved in a single car accident. They suspect he may have fallen asleep, though we’ll never know.

What we do know is that after removing him from the car, they rushed Tony to

Garden Park hospital in Gulfport. He had head injuries and required immediate attention. Shortly thereafter, I received the telephone call that I pray no other wife

will ever have to receive. I was informed of the accident and told that the injuries

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were serious. But I cannot describe to you the panic that gave way to hopelessness

when they somberly said, ‘‘We don’t have the specialist necessary to take care of

him. We need to airlift him to another hospital.’’

I couldn’t understand this. Gulfport is one of the fastest growing and most prosperous regions of Mississippi. Garden Park is a good hospital. Where, I wondered,

was the specialist—the specialist who could have taken care of my husband?

Almost six hours passed before Tony was airlifted to the University Medical Center—six hours for the damage to his brain to continue before they had a specialist

capable of putting a drain into his head to relieve the pressure on his brain—six

unforgettable hours that changed our life.

Today Tony is permanently brain damaged. He is mentally incompetent, unable

to care for himself—unable to provide for his children—unable to live the vibrant,

active and loving life he was living only moments before his accident.

I could share with you the panic of a woman suddenly forced into the role of both

mother and father to her teenage children—of a woman whose life is suddenly

caught in limbo, unable to move forward or backward. I could tell you about a

woman who now had to worry about the constant care of her husband, who had to

make concessions she thought she’d never have to make to be able to pay for his

therapy and care. But to describe this would be to take us away from the most important point and the value of what I learned.

Chairman Sensenbrenner, I learned that there was no specialist on staff that

night in Gulfport because rising medical liability costs had forced physicians in that

community to abandon their practices. In that area, at that time, there was only

one doctor who had the expertise to care for Tony and he was forced to cover multiple hospitals—stretched thin and unable to care for everyone. Another doctor had

recently quit his practice just days before Tony was admitted because his insurance

company terminated all of the medical liability policies nationwide. That doctor

could not obtain affordable coverage. He could not practice. And on that hot night

in July, my husband and our family drew the short straw.

I have also learned that Mississippi is not unique, that this crisis rages in states

all across America. It rages in Nevada, where young expectant mothers cannot find

ob/gyns. It rages in Florida, where children cannot find pediatric neurosurgeons.

And it rages in Pennsylvania, where the elderly who have come to depend on their

orthopedic surgeons are being told that those trusted doctors are moving to states

where practicing medicine is affordable and less risky.

The real danger of this crisis is that it is not readily seen. It’s insidious, like termites in the structure of a home. They get into the woodwork, but you cannot see

the damage. The walls of the house remain beautiful. You don’t know what’s going

on just beneath the surface. At least not for a season. Then, one day you go to hang

a picture or shelf and the whole wall comes down; everything is destroyed. Before

July 5th, I was like most Americans, completely unaware that just below the surface

of our nation’s health care delivery system, serious damage was being done by excessive and frivolous litigation—litigation that was forcing liability costs beyond the

ability of doctors to pay. I had heard about some of the frivolous cases and, of

course, the awards that climbed into the hundreds of millions of dollars. And like

most Americans I shook my head and said, ‘‘Someone hit the lottery.’’

But I never asked, ‘‘At what cost?’’ I never asked, ‘‘Who has to pay for those incredible awards?’’ It is a tragedy when a medical mistake results in serious injury.

But when that injury—often an accident or oversight by an otherwise skilled physician—is compounded by a lottery-like award, and that award along with others

make it too expensive to practice medicine, there is a cost. And believe me, it’s a

terrible cost to pay.

Like most Americans, I did not know the cost. I did not know the damage. You

see, Mr. Chairman, it’s not until your spouse needs a specialist, or you’re the expectant mother who needs an ob/gyn, or it’s your child who needs a pediatric neurosurgeon, that you realize the damage beneath the surface.

From my perspective, sitting here today, this problem far exceeds any other challenge facing America’s health care—even the challenge of the uninsured. My family

had insurance when Tony was injured. We had good insurance. What we didn’t have

was a doctor. And now, no amount of money can relieve our pain and suffering. But

knowing that others may not have to go through what we’ve gone through could go

a long way toward helping us heal.

Congressman Sensenbrenner, I know of your efforts to see America through this

crisis. I know this is important to you, and that it’s important to the President. I

know of the priority Congress is placing upon doing something... and doing it now.

Today, I pledge to you my complete support. It is my prayer that no woman—or

anyone else—anywhere will ever have to go through what I’ve gone through, and

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what I continue to go through every day with my two beautiful children and a husband I dearly love.

Mr. SMITH. Dr. Palmisano.

STATEMENT OF DONALD J. PALMISANO, M.D., PRESIDENTELECT, AMERICAN MEDICAL ASSOCIATION

Dr. PALMISANO. Thank you, Mr. Chairman. Good morning. I am

Donald Palmisano, president-elect of the American Medical Association, and a surgeon from 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 societies, Federal service agencies and other group sections. AMA policy dictates support for national medical liability reform. My testimony represents this policy.

So again, Mr. Chairman, thank you for inviting the AMA to participate in today’s hearing. I want to express our gratitude to you

and the other cosponsors of H.R. 5 for your efforts to bring reasonable reforms to our broken medical liability system.

Mr. Chairman, 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 a pregnant woman cannot find an OB-GYN

physician to monitor her pregnancy and deliver her baby, or 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 efforts to improve patient safety and quality are stifled because of

lawsuit fears. Escalating jury awards and the high costs of defending against lawsuits, even meritless suits, are causing medical liability insurance premiums to soar. Several recent Government

and private sector reports referenced in our written testimony confirm this. Over the past 2 years, many physicians have been hit

with medical liability premium increases of 25 percent to 400 percent, and reports show that the average jury award is reaching

$3.5 million.

The medical liability crisis is a growing national problem that affects more than just physicians and other health care professionals

and institutions. The medical liability crisis has become a serious

problem for patients, affecting their ability to access health care

services that would otherwise be available to them, including services provided to Medicare and Medicaid patients. As medical liability insurance becomes unaffordable or unavailable, physicians are

being forced to close their practices or drop vital services, seriously

affecting patient access to care.

There are now 18 States that are in crisis, up from 12 States last

year, and in many other States a crisis is looming. A key provision

of H.R. 5 is a $250,000 limit on noneconomic damages.

There is a direct and compelling Federal interest in reforming

our outmoded medical liability system. According to estimates by

HHS, excessive medical liability adds $47 billion annually to what

the Federal Government pays for Medicare, Medicaid and other

Government programs. We need a national solution. And I mention—that is why the AMA is supporting H.R. 5, and that is why

we join with numerous other members of a broad-based coalition

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known as the Health Coalition on Liability and Access to urge this

Congress to promptly reform the medical liability system. A key provision is the $250,000 noneconomic cap, and there is

flexibility in the bill for States to adjust the cap to suit their particular circumstances. In Florida, a nonpartisan task force recently

found that the greatest long-term impact on health care provider

liability insurance rates is a $250,000 cap on noneconomic damages, which would eliminate crisis of availability and affordability

of health care in Florida.

As discussed in our written statement, this limit on noneconomic

damages has worked in California, and it can work nationwide.

Mr. Chairman, as you have recognized, the time for action is past

due. We must act now to fix our broken medical liability system.

Recent polls show that the American public is in favor of reasonable limits on noneconomic damages. We must bring common sense

back to our courtrooms so patients can have access to their physicians, whether in emergency rooms, delivery rooms or operating

rooms. Thank you very much.

Mr. SMITH. Thank you, Dr. Palmisano.

[The prepared statement of Dr. Palmisano follows:]

PREPARED STATEMENT OF DONALD J. PALMISANO, MD, JD

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 other

Members of the Committee who are 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.

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 lawVerDate 11-MAY-2000 00:10 Apr 11, 2003 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6621 G:\WORK\FULL\030403\85403.000 HJUD3 PsN: HJUD3
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suits, 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.

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

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(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.

• 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.

15

• 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

AIR’s report are at the national level. One cannot use national data to draw valid

16

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 reasonable compensation for intangible ‘‘non-economic’’ losses such as pain and suffering and, where appropriate, the right to pursue punitive damages.

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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 concluded that caps on non-economic damages reduced insurer payouts by 31%. Caps

on total damages reduced payouts by 38% (Sloan, et al. 1989). Another study concluded that states adopting direct reforms experienced reductions in hospital expenditures of 5% to 9% within three to five years. If these figures are extrapolated

to all medical spending, a $50 billion reduction in national health spending could

be achieved through such reforms (Kessler and McClellan, Quarterly Journal of Economics, 1997).

Further, as discussed above, a 2002 Congressional Budget Office study on H.R.

4600 (107th Congress) asserts caps on non-economic damages have been extremely

effective in reducing the severity of claims and medical liability premiums. Conversely, a 1996 American Academy of Actuaries study shows that medical liability

costs rose sharply in Ohio after the Ohio Supreme Court overturned a liability reform law in the 1990s that set limits on non-economic damages. (Ohio recently enacted a new liability reform law.)

Furthermore, 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.

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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.

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21

APPENDIX B

MEDICAL LIABILITY CRISIS AFFECTS ACCESS TO CARE

CRISIS STATES

THE MEDICAL LIABILITY CRISIS—A NATIONWIDE PROBLEM

Florida

• Women are facing waiting lists of four months before being able to get an appointment for a mammogram because at least six mammography centers in South Florida alone have stopped offering the procedure as a result of increasing medical

liability insurance premiums. ‘‘This trend is troubling. There are a growing number of older people and less and less people to provide mammograms,’’ said Jolean

McPherson, a Florida spokeswoman for the American Cancer Society. South Florida Sun Sentinel, Nov. 4, 2002.

• Aventura Hospital in South Florida closed its maternity ward and cited $1,000

in insurance premiums for each delivery as the prime factor. Aventura is one of

six maternity wards to close in recent months. Now, patients will be forced to

drive to other counties and other facilities. ‘‘There may be waits getting into a

labor-room floor,’’ said OB/GYN Aaron Elkin, MD. Miami Herald, Oct. 19, 2002.

• ‘‘Without a doubt, access to health coverage is being affected. Some of our emergency rooms are losing their effectiveness,’’ said Dr. Greg Zorman, neurosurgery

chief at Memorial Regional Hospital in Hollywood. His unit gets several patients

a week from smaller ERs that have lost neurosurgery coverage. South Florida

Sun Sentinel, February 5, 2003.

• Port Charlotte cardiologist Leonardo Victores, MD, left for Kansas in the face of

medical liability premiums that were going to increase 100 percent. ‘‘He’s moving

to Kansas because that state has caps on malpractice awards,’’ said colleague

Mark Asperilla, MD. Sun Herald, Jan. 1, 2003.

• Despite having no malpractice claims or disciplinary actions on his record, Lakeland OB/GYN John Kaelber, MD, was forced to close his practice and leave the

state in the wake of insurance premiums that doubled. Lakeland Ledger, Nov. 21,

2002.

• More than 50 Bradenton patients had to postpone elective surgeries and more

than 100 office visits were canceled because two physicians were unable to obtain

liability insurance. The insurer may leave the state altogether. Bradenton Herald,

Jan. 24, 2003.

• After recently receiving notice of a premium spike coming in July 2002, Vladimir

Grnja, MD, decided that he would ‘‘go bare’’ and drop all medical liability insurance coverage. Rates for the Hollywood, FL radiologist were to rise to $112,000

from $35,000 a year (a 220% increase), mainly because of litigation over mammograms. ‘‘No doctor wants to go bare,’’ said Dennis Agliano, MD, chairman of the

Florida Medical Association’s special task force on the Florida medical liability crisis. But with significant premium hikes in Florida for specialties like OB/GYN,

neurosurgery, thoracic surgery, radiology and even primary care, ‘‘some doctors

have no choice,’’ he says. Some neurosurgeons in South Florida, are paying a

$200,000 premium for coverage of $250,000 per occurrence, making insurance

practically meaningless. The Florida Medical Association reports that more than

1,000 doctors in Florida have no medical liability insurance. Doctors in West Virginia and Ohio are also reportedly going bare. Modern Physician, April 1, 2002.

• Ob/Gyns in the ‘‘Sunshine State’’ face the highest premiums in the nation, some

as high as $208,000. Many surgeons also are facing premiums in excess of

$200,000.

• Fourteen of the 16 neurosurgeons in Broward County cannot afford insurance and

are going ‘‘bare.’’ Neurosurgeons in Pinellas County are considering doing the

same rather than face increases of 55 percent or greater to more than $100,000.

• The Miami Herald reports one radiologist saw his premiums increase from

$32,000 to $112,000 in one year due to ‘‘mushrooming lawsuits involving mammograms.’’ Another radiologist told the St. Petersburg Times he would no longer read

mammograms because of the high risk of being sued.

• Cardiologists and internists also are seeing insurance rates double or triple this

year.

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• An insurance executive told the South Florida Sun-Sentinel that insurance companies are paying out $1.30 for every $1.00 they collect in premiums, a fact that

cries out for medical liability reform.

• And, what’s worse $100,000 only buys about $1 million in coverage, a small

amount compared to soaring jury verdicts. Tallahassee Democrat, June 30, 2002.

• PHICO, the third largest professional liability insurer in Florida was forced into

liquidation earlier this year. Zurich American Insurance Co., and Clarendon National also are leaving the Florida market. Remaining insurers are on record as

saying they will draw sharper lines between which physician specialty they will

and will not insure.

• Florida’s community hospitals are considering the drastic step of no longer requiring physicians to carry professional liability insurance to ensure the hospitals can

remain open.

• ‘‘The squeeze is hitting South Florida extremely hard, and it’s gradually spreading

out to the rest of the state,’’ Dennis Agliano, MD, FMA secretary and chair of its

tort reform task force. (The South Florida Business Journal)

• Several Florida Supreme Court rulings have weakened tort reforms in Florida.

• ‘‘Litigation was and always will be the problem in Florida until there are caps,’’

said Bob White, COO of First Professionals Insurance Co., Florida’s largest carrier.

• Medical Specialists of the Palm Beaches, a 50-physician group, saw its premiums

rise from $800,000 to $2.5 million this year.

• American Physicians Assurance announced on July 17, 2002 that it is leaving the

state

• Farmer’s Insurance has announced its intent to leave the state. Among other insurers, MAG is still writing policies, while Medical Protective and ProNational are

being very selective. FPIC, the largest medical liability carrier in the state, endorsed by FMA, is only writing very selectively. Both Clarendon and St. Paul have

pulled out entirely.

• According to the FMA’s General Counsel, Florida’s existing caps simply do not

work and are never used. The caps only apply in cases where the physician agrees

to arbitration and in order for the case to go to arbitration the physician must

admit liability. In addition, the original intent of this Florida provision was to

have the cap apply to each incident, but it has been interpreted to apply to per

claimant, which obviously also decreases its effectiveness. The lack of a straight

cap is the primary reason for the current crisis in Florida. Unlike such States as

Kansas, Florida, has not seen an increase in frequency of claims, but there has

been an increase for severity in jury awards.

• In a presentation before FMA, the medical liability insurance carrier, EPIC, presented facts that demonstrate the medical liability crisis in Florida. During 1975,

there were 380 health care lawsuits in Florida, resulting in $10.8 million in jury

awards and costing $1.5 million to defend. In 2000 there were 880 lawsuits alleging malpractice, resulting in awards of $219 million and costing $36 million to defend.

• Dr. Oliver Bayouth says his medical-malpractice premiums are skyrocketing. The

Orlando obstetrician is paying about $100,000 for insurance this year, up at least

25 percent from two years ago. Frustrated, Bayouth says he is thinking about

moving his practice out of Florida. Orlando Sentinel, January 20, 2002.

• In South Florida, where insurers say litigation is the heaviest, ob/gyns pay as

much as $202,949 a year—the highest rates in the country, according to Medical

Liability Monitor, a Chicago-based newsletter. Orlando Sentinel, January 20,

2002.

• Dr. Alan Appley, an Orlando neurosurgeon, moved his practice to Lafayette, Louisiana, last year in part to escape Florida’s soaring malpractice rates. Orlando

Sentinel, January 20, 2002.

• Dr. Joseph Boyer, an Orlando cardiologist, says his rates rose 64.6 percent, to

$99,000, in 2002. Orlando Sentinel, January 20, 2002.

• Central Florida Cardiothoracic Surgery in Orlando says it will pay about $140,000

to insure two surgeons in 2002, compared with about $54,000 last year. Orlando

Sentinel, January 20, 2002.

• Dr. Alexander Jungreis, an Orlando neurosurgeon, said his liability insurance

premiums tripled this year. Orlando Sentinel, January 20, 2002.

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• Dr. Jorge Perez, an Orlando internist, said his insurer canceled his policy last

year even though he never had a claim filed against him. His new company is

charging him $18,000 per year, compared with the $11,000 he previously paid, on

top of a $25,000 fee to cover possible lawsuits from prior incidents. Orlando Sentinel, January 20, 2002.

• Nationwide, one out of every 12 doctors gets sued each year, while in Florida it’s one out of every six, said Bob White, chief operating officer of Jacksonville-based

First Professionals Insurance Co., the state’s largest provider of medical liability

insurance with about 33 percent of the market. Orlando Sentinel, January 20,

2002.

Georgia

• According to a Georgia Board for Physician Workforce study released in January

2003, 2,800 physicians in Georgia are expected to stop providing high-risk procedures to limit medical liability.

• The study also indicated that 1,750 physicians reported that have stopped or plan

to stop providing ER coverage and 630 physicians plan to quit practicing or leave

the state. In addition, 1 in 5 family physicians and 1 in 3 Ob-Gyns reported plans

to stop providing high-risk procedures, including delivering babies.

• But numbers alone do not tell the whole story; there is a very human side to this

crisis. For instance, although she is only in her first year of medical school at

Medical College of Georgia, the liability crisis has already caused Thandeka

Myeni, 26, to reconsider her preference for obstetrics, one of the specialties hardest hit by medical liability increases. ‘‘I definitely think it could be discouraging,’’ she said. The Augusta Chronicle, Nov. 13, 2002.

• Evans Memorial, a rural hospital in Claxton, decided to ‘‘go bare’’—have no coverage at all-instead of paying what it considered an exorbitant medical liability

premium. Only one insurer offered a malpractice policy for the hospital and its

nursing home, and the annual premium for $1 million in coverage would have

been $581,000, up from $216,000 last year. ‘‘We just thought it was outrageous,’’ said Eston Price, Evans Memorial administrator. The Atlanta Journal-Constitution, Oct. 7, 2002.

• The largest hospital in the state’s health system has bought a new policy—with

a deductible of $15 million—covering 953-bed Grady Memorial, a nursing home

and clinics. On each paid claim below that mark, Grady is responsible for every

dollar. The $15 million deductible starts again with each claim. ‘‘Grady faces

open-ended liability,’’ said Timothy Jefferson, Grady Health System executive vice

president and chief counsel. The Atlanta Journal-Constitution, Oct. 7, 2002.

• Knowing that malpractice premiums were rising for everyone in the industry, Ty

Cobb Health System CEO, Chuck Adams earmarked enough money for a 100 percent increase. The bill arrived by fax this summer, just 24 hours before a check

was due. Not only was the insurance company increasing his deductible tenfold,

but the premium jumped from $553,000 to $3.15 million—a 469 percent increase. ‘‘We were numb,’’ said Adams, who eventually got an extension and another cheaper policy at $1.65 million. ‘‘There goes our expansions, like a renovation of

the Hart County Emergency Room.’’ The Atlanta Journal-Constitution, Aug. 11,

2002.

• ‘‘Dr. Edmund Wright, a Fitzgerald family practitioner who performed Caesarian

sections, has given up that part of his practice. His premiums quadrupled to

$80,000 in 2002 and would have been $110,000 if he had continued the surgical

delivery procedure.’’ Wright said, ‘‘I don’t know if I really want to do this any- more.’’ The Atlanta Journal-Constitution, Aug. 11, 2002.

• Insurance costs are rising so high and so quickly because of medical malpractice

lawsuits that many doctors are quitting medical practice, said Michael Greene,

who has a family practice in Macon. The problem is increasing so fast that Georgia will soon face a critical shortage of physician, Greene said. ‘‘It hasn’t hit with

a tidal wave yet, but the waves are beginning to lap at the shore,’’ Greene continued. The Macon Telegraph, Aug. 3, 2002.

• David Cook, executive director of the Medical Association of Georgia, said the

malpractice crisis is driving more doctors into early retirement. ‘‘One-third of doctors 55 and older say they plan to reduce their hours or get out altogether,’’ he

said. ‘‘These are physicians at the peak of their diagnostic powers.’’ The Times

(Gainesville), July 17, 2002).

• 40 percent of the State’s hospitals have seen have seen medical liability premium

go up 50 percent or more in 2002. A rural hospital in Bainbridge actually faced

increases from $140,000 to $970,000.

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• St. Paul was the second largest carrier in Georgia before its pull-out. The remaining insurers are raising rates for some specialties by 70 percent or greater. Some

ER physicians, Ob-Gyns and radiologists have not yet found new coverage.

• On average, Georgia physicians are facing premium increases of 30 percent or

greater for 2002.

• Georgia physicians paid more than $92,000,000 to cover jury awards for 2000.

That amount was the 11th highest in the nation despite Georgia ranking only

38th in total number of physicians in the United States.

• The median jury award increased from $225,000 in early 1990s to $480,000 by

late 1990s.

• The number of paid claims totaling $1 million or more increased from one in 1990

to 13 in 2000. There was one claim of $2 million or more in 1991, and more than

5 so far in 2002; according to MAG Mutual, which insures 70% of Georgia physicians. Atlanta Journal & Constitution Aug. 11, 2002

Mississippi

• Although Mississippi enacted some medical liability reforms late last year, it is

still too early to see if this will stem the exodus of physicians from the State. The

reason: the Mississippi cap on non-economic damages has broad exceptions and

the trial bar is looking for ways to get around its limits. In short, Mississippi remains in crisis.

• The Mississippi State Medical Association still estimates that the state could lose

as many as 10 percent of its 4,000–4,500 physicians.

• Obstetricians in Mississippi still worry about what is going to happen to their patients who face longer trips to the hospital while already in labor. Women who

used to walk or make a short drive for both prenatal visits and delivery now face

a 45-minute drive by car to the only physician in their area who can still treat

OB patients.

• Pregnant women who are considered high-risk, such as someone with diabetes,

cannot be treated at the Kosciusko Medical Clinic because it is too risky for physicians, where seven physicians formerly practiced obstetrics and gynecology. Only

three were predicted to remain in January 2003. The Clarion-Ledger, Aug. 26,

2002.

• Only two neurosurgeons remain in practice in the Gulf Coast-area of Mississippi,

and general surgeons are in short supply because of the state’s medical liability

crisis. ‘‘Everybody is reduced to the same low level of trauma care that we had

20 years ago,’’ said Steve Delahousey, vice president of operations at American

Medical Response ambulance service. Jan. 29, 2003 Biloxi Sun Herald

• Neurologist Terry Smith, MD said he had applied with 14 companies, and Medical

Assurance was his last hope to find coverage before his current policy expired on

Aug. 4, 2002. His premium went from $55,000 a year to potentially $150,000 with

a $132,000 tail to his old insurer. ‘‘I’m looking at writing a check for $300,000,’’

said Smith, who does brain surgery at three hospitals in Jackson and Harrison

counties. Associated Press, July 11, 2002.

• Four rural hospitals in Ocean Springs faced closure, as their insurer, Medical Assurance Company of Alabama, was not renewing their coverage because the insurer was leaving Mississippi.

• Greenwood Hospital—the only trauma center in a 55-mile radius—was unable to

keep its Level-II trauma center rating because area neurosurgeons have left, citing the high cost of liability insurance. Greenwood also has lost 2 of its 4 ObGyns.

• At least 15 insurers, including St. Paul, have left Mississippi in the previous five

years.

• Nursing homes in Mississippi have faced insurance increases as high as 900 percent in the previous two years according to industry representatives.

• Tupelo has lost 3 of its 5 neurosurgeons in the previous two years because of the

State’s legal climate. A physician-delegate to the Mississippi Economic Council

predicts nearly 100 physicians will leave Tupelo in the near future.

• In Cleveland, Mississippi, three of the town’s six Ob-Gyns have stopped delivering

babies. Yazoo City’s 14,550 residents have no ob-Gyns. According to the Mississippi State Medical Association, insurance rates for Ob-Gyns have increased

from 20—400 percent in the previous year.

• Since 1995, Mississippi has been home to 21 verdicts of $9 million or greater. Before 1995, there were none. In the first quarter of this year, $31 million was

25

awarded in such cases. The total for the entirety of last year was $32 million.

Daily Mississippean (Oxford, MS), July 30, 2002.

• A Natchez doctor’s group is seeking to build a $6 million medical office building

across state lines in Louisiana rather than face continuing lawsuits and skyrocketing insurance premiums in Mississippi.

• Mississippi has been voted the nation’s worst liability climate by the U.S. Chamber of Commerce, which has warned businesses away from doing business in the

state. Rural areas are particularly hard hit by the state’s liability crisis. Twentyfive of Mississippi’s 80 counties have fewer physicians today than they did in

1990. 21 of those counties have 10 or fewer physicians.

• ‘‘The legislative process has slammed the proverbial door in the face of the entire

business and medical communities,’’ Mississippi’s director of the National Federation of Independent Business told the Associated Press.

• Mississippi needs doctors like Kirk Kooyer, MD. He is the only pediatrician in

Sharkey and Issaquena Counties, where the majority of patients live below the

poverty level. Kooyer moved to the Mississippi Delta to serve those who cannot

otherwise get medical treatment. Because of increasing litigation risks and high

insurance premiums, Kooyer has decided to leave the Delta. His absence will put

a strain on the community hospital because there is no pediatrician to take his

place.

• In 2001, Bolivar County in western Mississippi had six physicians providing obstetrical care; today it has three. Obstetrics insurance for a doctor in Bolivar

County jumped from $28,000 to $105,000, with a $25,000 deductible. The Wall

Street Journal, May 1, 2002

• In neighboring Sunflower County, all four physicians who delivered babies have

quit private practice. The Wall Street Journal, May 1, 2002

• In the northern half of the state last year there were nine practicing neurosurgeons; now there are just three on emergency call. The Wall Street Journal,

May 1, 2002

• In 1998, 227 Mississippians filed malpractice suits. Based on the suits filed during the first quarter of 2002, the Medical Association Company of Mississippi predicts over 550 medical liability suits will be filed this year.

• Across the State, there is a veritable litigation explosion, in Jefferson County, for

example, there are only about 9,740 residents—but the number of lawsuits filed

in 1999 numbered 10,000. A year later, in 2000, the number of plaintiffs on the

docket increased to 27,000, or nearly three times the number of residents. The

Washington Times, May 11, 2002.

Nevada

• In August, Nevada Governor Guinn called a special legislative session to address

medical liability issues. In just four days, Nevada legislators enacted a meaningful

liability reform bill.

• Unfortunately, while Nevada passed needed reforms, the crisis there has not yet

been averted due to continued lack of availability and affordability of medical liability insurance. Insurers in Nevada have not yet reduced their premiums and

physicians are still leaving the state, particularly in Southern Nevada.

• Why? Because the trial bar has threatened to institute legal challenges to this

new law that could thwart and delay its implementation. Without the full force

and effect of reforms right now, the scenario that has crippled access to medical

care in Nevada will continue.

• 60 percent of Las Vegas-area Ob-Gyns have said they would stop delivering babies

in 2002 because of the out-of-control legal system and skyrocketing liability premiums.

• Las Vegas’ only trauma center, which treated more than 11,000 patients in 2001,

closed for 10 days in July 2002 because it did not have enough surgeons to staff

the center.

• When a trauma center closes, ‘‘some patients are going to die that wouldn’t die

. . . the quicker you’re at the trauma center, the better chance you have of survival,’’ a Las Vegas surgeon told NPR. The next closest trauma center is at least

5 hours away.

• ‘‘There is an unavailability of [medical liability] insurance,’’ said Nevada State Insurance Commissioner Alice Molasky-Arman, at a March 4, 2002 hearing where

insurance officials testified they would no longer insure any new obstetricians,

surgeons and other high-risk specialists.

26

• A Las Vegas Ob-Gyn was forced to close her practice and leave 30 pregnant patients behind because her liability insurance increased from $37,000 to $150,000

in one year. She now practices in Los Angeles and pays only $17,000. Some Nevada women have had to call as many as 50 Ob-Gyns just to find one who is accepting new patients.

• Nevada ranks 5th among states with the highest physician liability premiums (at

$94,820 per year), but only 47th out of 50 states in the number of physicians for

its population, according to the American College of Obstetricians and Gynecologists. An ACOG survey concludes that 6 out of 10 Nevada Ob-Gyns will no

longer practice obstetrics.

• ‘‘Approximately 100 Las Vegas physicians have already left Nevada to practice

elsewhere, announced they will be closing their practices, or retire early because

they cannot afford doubling, tripling, or quadrupling rates,’’ according to the Nevada State Medical Association.

• In Las Vegas, it is expected that more than 10% of the physicians will stop practicing or relocate, further adding to the crisis in the state. Los Angeles Times,

March 4, 2002.

• Recently, five trauma surgeons and 26 specialty surgeons made the difficult decision to resign or request leave from the University of Las Vegas Medical Center’s

trauma center. Some plan to leave June 30 and others July 31. This was expected

to reduce by half the number of urologists, spinal surgeons, neurosurgeons, orthopedic surgeons, and cardiothoracic surgeons who could be on call to aid patients

with life-threatening injuries. Las Vegas Review-Journal, June 6, 2002.

• Obstetricians and gynecologists remain particularly hard hit, who, like trauma

centers, face premium increases of as much as 500 percent. Las Vegas ReviewJournal, March 6, 2002.

• Earlier this summer President Bush spoke with Jill Barnes, a Nevada resident

who is more than two months pregnant. Mrs. Barnes and her husband were recently told by their home physician that he would not be accepting any new obstetrics patients. Unable to find a Las Vegas-area obstetrician to treat her, Mrs.

Barnes has been forced to go out of state to find one. ‘‘When she goes into labor,

she’ll have to drive across the desert for two hours’’ to Arizona, her husband told

the Las Vegas Review-Journal. The Washington Times, July 31, 2002.

• Point in fact, Dr. Shelby Wilbourn, a Las Vegas-area obstetrician-gynecologist has

cut staff, stopped taking new patients and decided to leave the state (he’s going

to Maine) after his insurance premium jumped from $33,000 to $80,000 this year.

The Washington Times, July 31, 2002.

New Jersey

• A multi-physician practice in Teaneck, NJ, was forced to layoff employees and reduce the number of deliveries it performed because of medical liability insurance

premium increases of more than 120 percent. ‘‘All of my colleagues are experiencing the same pressures,’’ said George Ajjan, MD. Bergen Record, May 22, 2002.

• One out of every four hospitals—nearly 27 percent—has been forced to increase

payments to find physicians to cover Emergency Departments. Physicians are increasingly reluctant to take on such assignments because of the greater liability

exposure. Hospitals report that more and more physician specialties are being hit

by the crisis. While a previous New Jersey Hospital Association survey in March

2002 found that OB/GYNs and surgeons were primarily affected, the new survey

finds a deepening impact for neurologists/neurosurgeons, radiologists,

orthopedists, general practitioners and emergency physicians. New Jersey Hospital Association, Jan. 28, 2003 news release.

• ‘‘We have as much to lose as they have,’’ said Joan Hamilton, a patient who attended a recent rally in New Jersey in support of her physician. Bergen Record,

Oct. 6, 2002.

• Physicians, nursing homes and hospitals are all in jeopardy. Liability premiums

for hospitals increased more than 150% over the past 3 years. A N.J. American

Hospital Association survey found that nearly 2/3 of hospitals had one or more

instances where physicians were forced out of medicine because of high premiums.

• 64.8 percent of all New Jersey hospitals said they have had physicians stop practicing medicine or plan to stop because of the state’s liability crisis.

• New Jersey’s largest insurer, the MIIX company, declared May 9, 2002, it is getting out of the medical liability business. Previously, MIIX insured 7,000 physicians—nearly 40% of the state. MIIX previously left the medical liability insurVerDate 11-MAY-2000 00:10 Apr 11, 2003 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6621 G:\WORK\FULL\030403\85403.000 HJUD3 PsN: HJUD3
27

ance markets in Ohio, Pennsylvania and Texas, citing those states’ out-of-control

legal climates as an unacceptable business risk.

• After years of only a few large jury awards, New Jersey had 26 greater than $1

million in 2001, and is averaging one a week in 2002, MIIX President Patricia

Costante told the Philadelphia Inquirer June 4. New Jersey has no limits on noneconomic damages in medical liability cases.

• New Jersey physicians are also facing difficulty finding new insurance because

PHICO, which insured 9%, and St. Paul, with 6% of the market, have pulled out.

• After making the difficult decision to no longer deliver babies, one New Jersey obstetrician will see his liability insurance rates plummet from $82,000 to $8,000.

‘‘I’m devastated,’’ one of patients told the Atlantic City Press.

• New Jersey physicians are predicting as many as 25% of the state’s Ob-Gyns will

be unable to afford liability insurance if nothing is done to stabilize the market.

According to the Medical Society of New Jersey, premiums for Ob-Gyns have risen

50% to 200% over the past year.

• The New Jersey Supreme Court ruled May 29, 2002, that ER doctors are not immune from lawsuits under the state’s good Samaritan law and may be sued for

malpractice.

• Some general surgeons are seeing rate increases from $30,000 to $110,000. Zurich, one of the remaining liability insurance carriers has informed physicians it

will raise rates 120 percent.

New York

• New York physicians still pay, in most instances, the highest medical liability premiums in the country. Ob-Gyns’ average premium is $144,973, according to the

American College of Obstetricians and Gynecologists.

• New York continues, by far, to lead the country in total medical liability payouts,

with $633 million total in 2000. That is 80% more than the state with the second

highest total, Pennsylvania (at $352 million), and 300% more than California (at

$200 million). Average medical liability verdicts have skyrocketed recently, going

from an average of $1.7 million in 1994 to $6 million in 1999.

• ‘‘The number of doctors leaving Erie County last year doubled from the previous

year, a trend that continues in 2002,’’ wrote Donald Copley, MD, an officer of the

Erie County Medical Society in Business First of Buffalo. ‘‘I’ve watched sadly as

valued colleagues have left Erie County and even the profession. A competent

young specialist recently quit doing high risk diagnostic procedures to become a

business consultant. Several local obstetricians have stopped delivering babies to

reduce their insurance expenses. A half dozen nationally-known doctors have

quietly left Western New York. The number of doctors leaving Erie County last

year doubled from the previous year, a trend that continues in 2002.’’ Buffalo

Business First, April 15, 2002.

• The Medical Society of New York says the trend of physicians leaving New York

State or retiring early is happening across the state.

• ‘‘The rising cost of malpractice coverage is becoming one of the most important

factors driving inflation for physicians’ services,’’ said a managing director of the

Carlyle Group, the investment group for The New York Times.

Ohio

• The Ohio Supreme Court has overturned three tort reform measures in the past

15 years. Following the state Supreme Court’s 1995 overturning of the state’s tort

reforms, premium increases and jury verdicts began rising. Family physicians in

rural areas are increasingly no longer performing obstetrical services. Recently,

Ohio again enacted medical liability reforms, but it is too soon to tell if the courts

there will let these reforms take root.

• Meanwhile, according to a recent Ohio State Medical Association survey, 79% of

Ohio physicians reported an increase in their medical lawsuit insurance costs over

the last two years, with an average increase of 41%. And 51% of Ohio physicians

are contemplating early retirement, while 15% are considering or have relocated

their practices, as a result of rising costs.

• Physician groups in Cincinnati are seeing increases between 20 and 100%. ‘‘I expect this to get worse,’’ Ken Folz, CEO of Patient First, told the Cincinnati Business Courier.

• According to Daniel J. McLaughlin, a vascular surgeon in Cleveland, some specialists in the region have seen their malpractice premiums increase 600 percent this

year, and typical premiums for surgeons with just three or four years of experiVerDate 11-MAY-2000 00:10 Apr 11, 2003 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6621 G:\WORK\FULL\030403\85403.000 HJUD3 PsN: HJUD3
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ence have doubled or tripled, to from $50,000 a year to as much as $100,000 or

more. Health Leaders Magazine, Sept. 2002.

• In July, Westlake oncologist Dr. Romeo Diaz was faced with an insurance premium of $80,000—double what he paid last year. He would have gone out of busi- ness had it not been for his patients, who raised the needed $40,000 to help Diaz

stay insured. ’’At first I thought he was playing,’’ said Kathy Fritsch, a patient

of Diaz for 10 years. ’’But when he looked up at me, he was crying. He said his insurance rose from $40,000 last year to $80,000 this year. It used to be $20,000.’’ Morning Journal, July 31, 2002.

• Dr. William Hurd, chairman of the department of obstetrics and gynecology at the

Wright State University School of Medicine, said the liability insurance issue already is driving young doctors out of the Dayton area. ‘‘In the last two years, not

a single one of our (OB/GYN) residents has set up a practice in Dayton, or even

Ohio,’’ Hurd said. Dayton Daily News, Aug. 28, 2002.

• The average jury verdict in Ohio was $11.7 million in 2001. In 2000, it was $8.6

million.

• Physicians in Cleveland are being forced to lay-off staff and discontinue high-risk

procedures, reported the Cleveland Plain Dealer February 18, 2002.

• After not replacing a retiring office manager and moving to a smaller office, a 55-

year-old Cleveland-area surgeon who was only sued once quit practicing medicine

rather than accept an 80% liability premium insurance increase. Another surgeon,

who has never been sued, no longer performs high-risk procedures and saw his

insurance rates jump from $40,000 to $90,000 in one year.

• ‘‘If I were advising medical students now, I would tell them to take a real hard

look at going into some of these high-risk specialties,’’ John Bastulli, MD, told the

Plain Dealer.

• Ohio ranked among the top five states for premium increases according to the

Medical Liability Monitor.

• ‘‘My premium jumped this year from $14,000 to $35,000. I can’t afford to continue

obstetrics at that price. I’ll have to give up delivering babies as of Jan. 1, 2003.

I practice in a primarily rural area, and there isn’t any other obstetrical care here,

so expectant women will have to drive long distances to receive prenatal care.

Some 75% of my patients don’t have the financial resources to do so. Yet, studies

have shown that proper prenatal care fosters healthier newborns and healthier

newborns cost society less money. I find it difficult to accept that my liability insurance premiums will force me to give up a side of my practice that has meant

a lot to me and to my patients, but I’ll have no recourse.’’—A Mt. Gilead family

practitioner.

• ‘‘We’ve done the math: If we’re going to take care of this debt (our annual insur- ance payment will increase from $100,000 to more than $500,000), our service is

going to go out the window. To recoup the loss, we’d have to add 400 patient visits

a month. You can’t turn Ob-Gyn into a factory.’’—A Columbus obstetrician-gynecologist.

• ‘‘I just sat down with paper and pencil, and it became not financially rewarding

to stay.’’—An Athens obstetrician-gynecologist, in reference to why he retired from

his practice early.

• ‘‘I practice in southern Ohio in a town of 7,000. We have a small community hospital with a family birth center. There are three of us who do obstetrics—two family practitioners and one OB/GYN. In order to break even, our unit needs 150 deliveries a year. That is 50 deliveries each. If we go over 30 deliveries now, our

premiums are in the $40–60,000 range, which is impossible financially. We are

struggling with limiting our ob to 30 each, but that will cause the OB unit to go

under and close. We all love ob, and are well trained in providing high-risk OB

care, but we’re going to be forced to stop. If this occurs, there will be no OB care

between Athens and Lancaster, Ohio. Tort reform needs to occur yesterday!’’—A

Logan family practitioner

• ‘‘I’m just postponing the inevitable. If the situation doesn’t change, I could be insolvent in five years and have to close my practice. I’m only 49. Who will care

for my patients? Discontinuing obstetrics is not an option. We need help!’’—A

Dayton obstetrician

• ‘‘In the past two years, my medical liability premiums have increased more than

50%. I have no claims, graduated first in my medical school class, and was chief

resident at OSU. I had been treating some of my chronic pain patients with acupuncture (medical research documents decreased pain and decreased inflammation with acupuncture). Due to the skyrocketing medical liability premiums, I will

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have to stop offering this treatment for these patients to try to decrease my costs

of insurance.’’—A Columbus physical medicine and rehabilitation physician.

• ‘‘My premiums increased significantly, but my reimbursement level is down because of the Medicare cuts. In order to stay in practice, I had to float a loan from

my pension fund. I am actively looking to leave this state. I know of one colleague

who gave up his private practice and went to work at the local VA hospital, so

they would cover his liability premium.—A Warren cardiologist.

• ‘‘This five physician practice recently had to give up obstetrics due to our rates.

We have been committed to delivering full-range family practice...true womb to

tomb medicine. We had to send our patients to local OBs. We and our patients

are devastated by this turn of events.’’—A Medina family practitioner

• ‘‘After a mad scramble to obtain insurance, it came down to 5:45 p.m. on the day

before my insurance expired to obtain insurance. I was literally 15 minutes from

having to close a practice that cares for over 4,000 people in this town.’’—A

Coldwater family practitioner

• ‘‘We have an obstetrician-gynecologist retiring because his insurance company

pulled out of Ohio. To buy a tail and the new policy would cost this man $140,000,

which he couldn’t afford to do.’’—A Rossford obstetrician-gynecologist.

• ‘‘I was told two months ago that I will have no insurance after the 11th of September. I have had no claims filed against me.’’—An Akron general surgeon

• ‘‘My carrier has refused to cover me for bariatric procedures. I have had to turn

patients away who need this service.’’—A Massilon general surgeon

Oregon

• Rural families in John Day, Hermiston, and Roseburg counties, Oregon have either lost obstetric care or have seen services drastically reduced. The Business

Journal of Portland, Jan. 10, 2003.

• Only by dropping obstetrics were two Hermiston physicians able to afford their

liability insurance premiums. ‘‘It’s something you don’t like to tell patients,’’ said

Doug Flaiz, MD. The Oregonian, Oct. 29, 2002.

• ‘‘No one with $100,000 in debt from medical school wants to start a practice in

a place where they could find themselves completely broke and having to pick up

and go somewhere else to start all over again,’’ said Rosemari Davis, CEO of Willamette Valley Medical Center, who has seen three of her center’s family practitioners stop delivering babies. The News Register, Jan. 28, 2003.

• In 1999, the Oregon Supreme Court overturned the State’s law capping non-economic damages. Since then, multi-million dollar claims have become commonplace, according to the Oregon Medical Association.

• Since the 1999 decision, Oregon physicians are experiencing rapidly rising premiums and insurers becoming more reluctant to offer policies to physicians, such

as Ob-Gyns and surgeons, who perform high-risk procedures.

• Recent jury verdicts include: $8 million, $8.5 million, $10 million and $17 million.

• Rural patients in Oregon are being particularly hard hit. A small town clinic,

Roseburg Women’s Healthcare, which delivered 80% of the babies for the area,

closed its doors in May 2002 because its liability insurance was canceled after one

large lawsuit. ‘‘We consider this a medical crisis for the community,’’ Mercy Medical CEO Vic Fresolone told the Associated Press.

• The Roseburg clinic physicians paid $17,000 per physician per year in 2001 for

medical liability insurance and are now receiving quotes for $80,000–100,000 per

physician.

• Oregon’s only academic health center—the Oregon Health & Science Center—reports fewer medical students are applying for its Ob-Gyn residency positions. ObGyn residents elsewhere reportedly are increasingly concerned about setting up

practice in Oregon due to the state’s broken liability system.

• A major liability insurer, Northwest Physicians Mutual Insurance Company, announced in 2002 it would not write new policies to obstetricians. Remaining insurers are raising rates by 60% or more.

• ‘‘We lost $12.5 million last year (2001),’’ Jim Dorigan, CEO of Northwest Physicians Mutual, told the Portland Business Journal June 21st. Dorigan also said the

company no longer is renewing policies for any physician who delivers babies.

• A level-III trauma center in Rogue Valley is dropping its trauma designation to

obtain professional liability insurance. Rates would have been unaffordable if neurosurgery continued to be performed.

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Pennsylvania

• According to the Pennsylvania Medical Society Alliance, 919 doctors have decided

to leave the Keystone State or have scaled back their practices as premiums spiraled upward over the past three years. The Baltimore Sun, Feb. 5, 2003.

• Dr. Anthony Clay never thought he would have to leave Philadelphia. He has

spent his whole life there—growing up and attending college, medical school, and

residency to become a cardiologist. He treats families he has known since boyhood. He likes knowing where his patients live, work, and shop. All nine of his

siblings still live there. But, Dr. Clay is leaving his practice in Philadelphia this

Spring because of surging malpractice insurance rates. He is starting over in

Delaware, where his insurance costs will drop from roughly $70,000 a year to

$8,000. ‘‘It’s been terrible,’’ said Dr. Clay, 40. ‘‘In this field, you’ve been with the

patient, and also the family, in some of their most life-defining moments—in the

throes of a heart attack with no blood pressure. Wrongly or rightly, the patient

credits you with being there when they weren’t doing so well. You realize you’ve

created a bond. I take that very seriously.’’ Baltimore Sun, February 5, 2003.

• Brian Holmes, MD, is one of an estimated 18 percent of Pennsylvania neurosurgeons to have left the state, retired, or limited his or her practices because of

the medical liability crisis. ‘‘It saddened me to move, but I had no choice. It was

either move or go out of business.’’ Philadelphia Business Journal, Sept. 25, 2002.

• After 25 years of practice, OB/GYN Michael Horn, MD, stopped delivering babies

in 2002 because of the fear of getting sued. ‘‘It’s just the potential, the not knowing if someone will seek an outlandish reward. I don’t want to expose myself or

my family.’’ Burlington County Times, Oct. 2, 2002.

• Medical students are less likely to seek residencies in Philadelphia, and residents

are less likely to stay and practice in the area because of ‘‘prohibitively high’’ medical liability insurance rates, according to Jefferson Medical College professor Stephen L. Schwartz, MD. Associated Press, Oct. 4, 2002.

• OB/GYN Lawrence Glad, MD, used to deliver about 500 babies a year—40 percent

of all the babies born in Fayette County annually. After his premiums skyrocketed from $57,000 to $135,000, however, he closed his practice in the fall of

2002. Pittsburgh Business Times, Nov. 18, 2002.

• Mercy Hospital chief of surgery Charles Bannon, MD, has watched numerous physicians leave Scranton and Lackawanna County—creating a shortage of surgeons,

fewer medical school applications and residencies. ‘‘It will take generations to get

back the quality of medicine in Philadelphia.’’ Scranton Times, Nov. 20, 2002.

• Physicians across the ‘‘Keystone State’’ have left, retired, and stopped performing

high-risk procedures. Those who have stayed face skyrocketing premiums, extremely nasty legal climate. Methodist Hospital in South Philadelphia closed its

maternity ward and prenatal program last year because of unaffordable medical

liability insurance rates. Mercy Hospital of (South) Philadelphia announced June

19, 2002 it would closed its ob ward August 23rd.

• Pennsylvania has the second highest payouts in the country for medical liability

lawsuits. Pennsylvania’s total in 2000 was $352,309,905—nearly 10 percent of the

national total despite having less than five percent of the national population.

• Orthopedic surgeons in Pennsylvania face insurance premiums of nearly

$100,000. In California, which has strong tort reforms, orthopedic surgeons pay

an average of $36,310 for yearly liability insurance coverage.

• A recent poll, conducted by Susquehanna Polling Research, shows that 31 percent

of doctors participating in the study had their existing liability insurance cancelled or non-renewed for 2002.

• 72% of Pennsylvania doctors have deferred the purchase of new equipment or hiring of new staff because of out-of-control liability costs.

• 270 employees at the Jefferson Health System in Philadelphia have recently lost

their jobs to skyrocketing liability insurance costs. The Einstein Network laid-off

127 workers and eliminated 52 vacant positions in April 2002, citing rising liability costs as the prime factor.

• Philadelphia County, which has one of the worst liability climates in the nation,

has seen its surgical specialist population decrease 13.4% from 1995 to 1999. The

average jury award in Philadelphia County is $970,000 while the rest of state’s

average is $420,000.

• A shortage of radiologists willing to read mammograms has increased the wait

time for screening mammograms at most major hospitals to two to three months,

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according to the Pennsylvania patient advocacy group Concerned Citizens for

Care.

• The Level-II trauma center at Brandywine Hospital in Coatesville closed June

10th, because of rising malpractice insurance rates. Area trauma patients are now

being transported more than 30 miles away to hospitals in Philadelphia and Lancaster. The Washington Times, July 17, 2002.

• ‘‘As I look around and see my friends retiring early or leaving Pennsylvania, I

wonder who will be next,’’ Meadville physician Tom Arno, MD, wrote in USA

Today.

• 414 medical liability lawsuits were filed in Philadelphia County in February

2002—five times the average number filed during the month over the previous

decade, reported the Philadelphia Inquirer.

• One-quarter of respondents to an informal poll conducted by the American College

of Obstetricians and Gynecologists say they have stopped or are planning to stop

practicing obstetrics.

• Statistics compiled for the Pennsylvania Medical Association by Caso Consulting

indicate it costs $96,199 to cover an orthopedic surgeon in Pennsylvania, compared with $37,783 in Delaware, and $36,291 in New Jersey. Best’s Insurance

News, January 7, 2002.

• Howard A. Richter, a neurosurgeon and president of the Pennsylvania Medical Society, said a 2001 survey by the medical society showed that 72% of doctors have

either deferred the purchase of new medical equipment or have not hired needed

staff because of ‘‘sudden and sharp increases’’ in insurance rates. Best’s Insurance

News, January 21, 2002.

• ‘‘To lower their risk and insurance premiums, doctors who normally would take

on high-risk medical procedures are opting not to do so. For example, we’ve seen

obstetrician/gynecologists give up delivering babies. Virtually every medical liability insurance carrier increased their rates in recent years. From the beginning of

1997 through September 2001, major liability insurance carriers writing in Pennsylvania increased their overall rates between 80.7 percent and 147.8 percent.’’

York Daily Record, January 20, 2002.

• Driving premiums through the roof are excessive sums awarded in malpractice

suits. Medical liability payments for physicians in 2000 totaled $3,908,113,303.

York Daily Record, January 20, 2002.

Texas

• In the ‘‘Lone Star State’’ medical liability insurance premiums for physicians have

skyrocketed as much as 300 percent in some regions and for some specialties,

acccording to the Texas Medical Association. As a result, there is only one neurosurgeon serving 600,000 people in the McAllen area.

• In the past two years, four South Texas patients with head injuries died before

they could be flown out of the area for medical attention. As reported in a July

10, 2002, article in The Courier, a community family practice clinic in Conroe

(just north of Houston) was recently forced to turn away half of its normal patient

load because its liability insurance provider would not provide coverage while

‘‘highly lawsuit-risky obstetrics training was conducted.’’

• Even though the Texas legislature has passed medical liability reforms, the Texas

Supreme Court has regularly overturned them.

• Medical liability premiums were expected to increase by at least 20 percent and

perhaps as much as 75 percent in 2002, according to the Texas Department of

Insurance. San Antonio Express-News, April 8, 2002.

• In 1999, 17 companies offered malpractice coverage to doctors in Texas. Today,

the field has dwindled to only four, and Texas is considered the least profitable

state for liability carriers. The Dallas Morning News, September 1, 2002.

• Moreover, premiums this year have climbed at triple-digit rates for many of

Texas’ 36,000 physicians. That’s on top of double-digit increases in prior years.

Now it’s not uncommon for doctors in high-risk specialties such as trauma surgery, emergency medicine, and orthopedic surgeries and obstetrics to pay more

than $ 100,000 annually for coverage. This means that some 6,100 Texas physicians are scrambling to find liability insurance.

• The Doctor’s Company, a national insurer, told the Dallas Morning News the company is selective about which types of physicians it will cover. ‘‘Texas is a very

dangerous venue, and we don’t really encourage . . . [growth] from there—not

without tort reform,’’ said senior vice president Jack Myer.

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• In South Texas, one jury awarded $43 million to a woman who claimed a diabetes

drug damaged her liver, while another gave $15 million to three women who received faulty hip implants. The Wall Street Journal, May 1, 2002.

• 6 of every 7 medical liability claims in Texas are closed with no fault found on

the doctor’s part. Nonetheless, tens of millions of dollars are spent fighting these

cases.

• Family physician Marissa Iniga, MD, has been sued 12 times in the past 13 years.

All of the lawsuits were dropped but her insurance premiums still went up 200

percent. Her situation is mirrored by many physicians throughout Texas.

• Several physicians in Corpus Christi have been sued by patients they have never

seen, but it required thousands of dollars to have the cases dismissed.

• Currently obstetrician/gynecologists in Cameron, El Paso and Hidalgo Counties

are paying one carrier a premium of $102,584 annually compared to their counterparts in Dallas County who pay $59,221. Another carrier charges thoracic surgeons in Cameron, El Paso and Hidalgo Counties $79,218 annually compared to

$57,395 for those practicing in Dallas County.

• 70% of Texas physicians who practice near the U.S.-Mexico border have had medical liability claims filed against them, and 60% have been sued, according to the

Texas Medical Association. 55% of physicians there are inclined to leave the border and practice elsewhere or retire during the next 12 months; 71% to 76% of

border doctors say they cannot recruit new doctors to the border due to lawsuit

crisis, and 1 out of 3 border physicians have had insurance carriers decide to stop

writing coverage.

• The high cost of malpractice insurance for local doctors is driving them away from

Laredo. The three main issues for this exodus are the high price of malpractice

insurance for border area physicians, tort reform and the fact that Medicaid and

Medicare do not reimburse border area physicians proportionate to what they do

farther north, director of Community education/Physician Relations Mindy Casso

said. Laredo [Texas] Morning Times.

• The second-highest premiums for obstetricians/gynecologists are paid in Houston,

Dallas and Galveston, Texas, where the bills amounts to some $160,746 a year.

Orlando Sentinel, January 20, 2002.

• ‘‘Dr. William F. Tucker, an orthopedic surgeon, figured he’d try to curb the cost

of his malpractice insurance premium by abandoning spinal surgeries and reducing his emergency room calls. Both decisions cut down on his income but provided

him with a greater sense of security as malpractice lawsuits against doctors become more common in Texas and the nation. Then came the shocking news that

his premium would rise by 63 percent to $38,000.’’ The Dallas Morning News,

January 20, 2002.

• The problem is particularly acute in Texas, where 51.7 percent of all physicians

in 2000 had claims filed against them, according to the Texas Medical Examiners

Board. Although no concrete numbers are available as a comparison, several industry experts say the frequency is twice the national average. The Dallas Morning News, January 20, 2002.

• In Texas, about 85 percent of cases are closed without payment to plaintiff, yet

they still cost money to resolve, said Texas Medical Liability Trust president W.

Thomas Cotton. The Dallas Morning News, January 20, 2002.

• Insurance carriers in Texas paid more than $381 million in claims in 2000, according to the Texas Department of Insurance—costs passed on to policyholders.

That’s an 87 percent increase since 1995. Nationally, the median malpractice

award more than doubled from 1994 to 1999, to $800,000. The Dallas Morning

News, January 20, 2002.

• Texans filed 4,501 claims in 2000, up 51 percent from 1990, according to the

Texas Medical Examiners Board. More troublesome is the rise in expenses involved in resolving a case. Each claim cost an average of $68,681 to litigate in

2000, compared with $46,079 in 1995. The figure does not include the amount of

settlement or award. The Dallas Morning News, January 20, 2002.

• Meanwhile, physicians in the Rio Grande Valley are in crisis, said Texas Medical

Liability Trust president W. Thomas Cotton. An Ob-Gyn in North Texas pays

$47,500 annually for $500,000 in coverage, while his Rio Grande Valley counterparts pay $82,300. Neurosurgeons pay even higher premiums. The Dallas Morning News, January 20, 2002.

• Seven in 10 Rio Grande Valley doctors have had medical liability claims filed

against them. A February 2001 survey by the Texas Medical Association found

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that 1 in 3 Valley doctors say their insurance providers have stopped writing liability insurance. The Dallas Morning News, January 20, 2002.

• In Rio Grande Valley, half of the physicians admitted to being inclined to leave

the area or to retire, according to a survey conducted in February 2001 by the

Texas Medical Association. Many doctors in the Valley said they profile patients

and refuse to treat some, because they fear the patients are prone to sue. They

said they deny care for people who pay with cash, because the patients are most

likely poor and may look at a lawsuit like a lottery opportunity. Some physicians

are even hesitant to respond to a ‘‘code blue,’’ which indicates a medical crisis,

in a hospital. Dr. Carlos Cardinez, a gastroenterologist in McAllen, said he doesn’t

want to respond anymore because of the legal uncertainty. The Dallas Morning

News, January 20, 2002.

• Increases in medical practice costs have outstripped revenue increases over the

last 10 years, according to the Medical Group Management Association’s 2000 cost

survey. Operating costs for multispecialty groups went up an average of 35 percent over the past 10 years, while revenue increased 21 percent over that same

period. The Dallas Morning News, January 20, 2002.

Washington

• ‘‘There is a growing crisis in medical malpractice in Washington state and nationally,’’ state insurance commissioner Mike Kriedler said in an April 2002 news release.

• ‘Patients in many communities are finding that their physicians have either started limiting their services or have closed their doors completely due to rising malpractice premiums,’’ said Dr. Maureen Callaghan, president of the Washington

State Medical Association. PR Newswire, Feb. 3, 2003.

• ‘‘I went through my mourning and my grieving, and now I have to find a place

for my [380] patients,’’ said a South Send internist who has not been sued but

can no longer afford liability insurance coverage.

• The cost of medical malpractice insurance has soared so high that Mount Vernon

obstetrician Robert Pringle, MD, has stopped delivering babies, according to the

Puget Sound Business Journal.

• So have his two colleagues at the North Cascade Women’s Clinic, and so have others. ‘‘Of the nine obstetricians in our community, six have stopped delivering babies or left the area,’’ Pringle said.

• When he began his practice 20 years ago, Pringle paid a premium of $1,000 for

medical malpractice insurance, which covers physicians against claims of injury

resulting from negligent medical care. ‘‘Now it’s in the neighborhood of $60,000,’’

he said. ‘‘From an economic standpoint, you would have to be a lunatic to continue

private practice of obstetrics.’’ Puget Sound Business Journal.

• The severe premium hikes besetting many doctors ‘‘could not come at a worse

time,’’ said Dr. Sam Cullison, president of the Washington State Medical Association. Cullison said the high cost of malpractice insurance has combined with low

reimbursement rates from Medicaid, Medicare and private insurers to clamp

many doctors in a financial squeeze. As a result more physicians are retiring

early, or leaving the State, he said. Also, it’s increasingly difficult to recruit doctors from other states.’’ Puget Sound Business Journal.

• ‘‘Everyone is in the same situation in terms of increasing premiums, increasing

overhead and decreasing reimbursement,’’ said Olympia neurologist Maureen

Callaghan, MD. ‘‘The final end point,’’ she added, ‘‘is that people are not to be able

to get in to see a doctor.’’ Puget Sound Business Journal.

• During the past five years, medical liability premiums paid by orthopedic surgeons increased 30 percent, to nearly $40,000, and premiums paid by family physicians who neither deliver babies nor do surgery rose 29 percent, to almost

$10,000. Washington State Medical Association.

• In Washington, from 1999 to 2000, the median jury award rose 43 percent. Last

year, seven medical malpractice verdicts or settlements exceeded $1 million. They

totaled $44.7 million, and ranged from $1.2 million to $16.2 million.

• Washington’s Supreme Court overturned the state’s tort reform law in 1989. As

a result skyrocketing medical liability insurance premiums are forcing physicians

to limit patient loads and services. Some physicians are choosing to move out of

State and retire early as well.

• In the past five years, the average medical liability premium for a family physician has increased a staggering 74 percent, according to the Washington State

34

Medical Association. For obstetricians, the increase has been more alarming—79

percent since 1997.

• The departure of liability insurers St. Paul and Washington Casualty Company

from Washington have left thousands of physicians scrambling to find coverage.

• The Steck Medical Group, which serves 60,000 patients in mostly rural Washington, was forced to close its doors for a few days this year because it could not

find liability insurance coverage. It re-opened only after the state insurance commissioner intervened, but the new policy was at a 160% increase.

• Clinics in Lewis County and Waterville also have been forced to close temporarily

according to The Olympian.

• Recent large jury awards in Washington State include $13 million and $16 million

verdicts.

West Virginia

• The ‘‘Mountaineer State’’ was one of the first states to experience wide-spread

medical liability insurance problems.

• According to the West Virginia State Medical Association, some 100 doctors have

already retired early or moved out of the state within the previous two years.

• That has helped drive 1 out of every 20 doctors out of West Virginia or into early

retirement in the past two years. CNN, Jan. 2, 2003.

• General surgeon Gregory Saracco, MD, only 49 years old, was forced to borrow

money twice in 2002 to pay $73,000 for his liability insurance. His premiums for

2003 are expected to rise to $100,000. He is considering leaving West Virginia and

while he has taken time away from his practice this year to decide what his options are, he said ‘‘my job is to help people—I couldn’t drive past an accident on

the road and not stop. I don’t know any doctor that could.’’ Associated Press, Jan.

2, 2003.

• Although orthopedic surgeon George Zakaib, MD, was raised and went to school

in Charleston, WV, he and his family left because of the state’s medical liability

crisis. Dr. Zakaib’s premiums had increased to $80,000 plus $94,000 in ‘‘tail’’ coverage. Charleston Daily Mail, July 27, 2002.

• Fourth-year medical school student Jennifer Knight isn’t sure she’ll stay in West

Virginia. The Charleston Area Medical Center says fewer medical students are

applying to its residency programs, and fewer students are applying to Marshall

University’s medical school. ‘‘I think the problem is, we have too many frivolous

lawsuits,’’ said Ms. Knight. Sunday Gazette-Mail, Nov. 24, 2002.

• The state legislature has been trying for more than a year to come up with a solution that will prevent more physicians from curtailing services or leaving the

state. A state medical association poll found that 40% of the State’s doctors are

considering similar action to stop practicing or leave the State.

• ‘‘It’s a ’code blue’ emergency’’ threatening the state’s trauma centers and other

health care services in the state, WVSMA President Ahmed D. Faheen, MD, told

The New York Times.

• Wheeling, West Virginia, has no remaining neurosurgeons, forcing closure of its

only trauma center. Trauma patients must be flown by helicopter for care elsewhere.

• Across the State, the pattern is the same, trauma centers are closing or headed

in that direction, and there is incredible difficulty in recruiting high-risk specialty

residents.

• Earlier this year, in the State Capital, the Charleston Area Medical Center

(CAMC) was able to keep its level-I trauma center open only after agreeing to

help surgeons pay their liability premiums. The one part-time and three full-time

surgeons are paying $800,000 in liability premiums this year, according to a report in the April 25, 2002 Charleston Gazette.

• Now, after the loss of several orthopedic surgeons, CAMC can no longer offer 24-

hour coverage seven days a week. That means patients with serious multiple injuries, usually car wreck victims, must be transported to other cities. Precious time

that could mean the difference between life and death will be lost. The Charleston

Daily Mail, August 29, 2002.

• The Medical Liability Monitor reported that West Virginia surgeons paid premiums of $36,094 to $56,371 a year in 2001—the seventh highest in the nation.

This year these premiums have continued climbing dramatically. The Charleston

Daily Mail, August 29, 2002.

35

• As the The New York Times has reported, the Bluefield Regional Center—a rural

hospital—has lost 12 physicians in the previous two years but only has been able

to find two physicians to replace them.

• A survey of state Ob-Gyn residents by the American College of Obstetricians and

Gynecologists found more than half plan to leave when they finish training.

• Without action, the future is not bright. The Charleston hospital faces an 11%–

41% drop in residency applications this year. ‘‘We are concerned that students will

not think the residency opportunities in West Virginia favorable in light of the

recent problems with malpractice insurance,’’ Dean James Griffith, MD, told the

Charleston Gazette.

APPENDIX C

MEDICAL LIABILITY CRISIS AFFECTS ACCESS TO CARE

SELECTED STATES SHOWING PROBLEM SIGNS

THE MEDICAL LIABILITY CRISIS—A NATIONWIDE PROBLEM

Alabama

• The severe liability crisis in the neighboring States of Mississippi, Georgia and

Florida has not left Alabama untouched.

• Atmore Community Hospital has had to close its maternity ward because of soaring medical liability premiums, forcing pregnant mothers to travel 15 miles to the

nearest hospital with an obstetrics department.

Arizona

• Arizona has not been immune to the medical liability crisis. Serious access problems are already developing.

• The Copper Queen Community Hospital, was forced to stop delivering babies in

January after a group of family physicians said they could no longer afford medical liability insurance.

• Pregnant mothers in this part of Arizona must now travel over 35 miles to the

nearest hospital—the only hospital left in that County that is still delivering babies.

Connecticut

• The crisis may be spreading to Connecticut as evidenced by the recent decisions

of 28 OB/GYNs to stop delivering babies.

• Some OB/GYNs in Connecticut are now paying between $120,000–160,000 per

year in insurance premiums, according to state medical society executive Tim

Norbeck.

• Connecticut already is on a ‘‘watch’’ list issued by the American College of Obstetricians and Gynecologists. Hartford Courant, Jan. 3, 2003.

• The average payment made by one of Connecticut’s major insurers to resolve a

claim rose from $271,000 in 1995 to $536,000 in 2001.

• OB/GYN Jose Pacheco, MD’s, insurer stopped offering medical liability insurance,

and he had to seek another carrier. However, because of the high cost of new insurance—estimated around $60,000—combined with ‘‘tail’’ coverage of $80,000,

Dr. Pacheco retired after a 27-year career. Hartford Courant, Nov. 17, 2002.

Kentucky

• Health care access problems will worsen in the ‘‘Blue Grass State,’’ as medical liability premiums continue moving rapidly upward.

• Based on a survey by the Kentucky Medical Association, physicians in Kentucky

have faced a recent average increase in medical liability premiums of 78 percent.

• Kentucky emergency department physicians have reported an average increase of

204 percent, with orthopedists facing a 122 percent increase; general surgeons facing an 87-percent average increase, and Ob-Gyns seeing an average increase of

64 percent.

• Deep in Appalachia, the only provider of obstetrical services in Barbourville soon

may have to close its practice due to the liability crisis. Previously, this physician

group had liability insurance coverage through St. Paul Company, the nations second largest malpractice insurer that pulled out of the market last year.

36

• This same 9-physician practice also has an office in Corbin, where two resident

physicians from the University of Kentucky College of Medicine train in conjunction with Baptist Regional Medical Center. If the physicians are forced to close

the practice, the residents will have to be placed out of State for the remainder

of their training. leaving a tremendous access problem for the Kentucky women

they treat.

Massachusetts

• In the Bay State, eight of 55 OB/GYNs in Springfield, Massachusetts, a state

which has broad exceptions to the state limits on non-economic damages, will no

longer be offering Obstetrics care to their patients because of sharply escalating

liability insurance costs. ‘‘I got into obstetrics because it’s a very happy specialty.

But there comes a point where you can’t make ends meet,’’ said James Wong, MD,

one of two OB/GYNs at a western Massachusetts clinic giving up delivering babies. Boston Globe, Jan. 8, 2003.

• ‘‘The real issue is runaway juries,’’ according to Barry Manual, MD, who serves

as insurer ProMutual’s chairman, and said the number of $1 million-plus claims

paid out doubled between 1990 and 2001. Boston Globe, Jan. 8, 2003.

Missouri

• The State of Missouri is starting the slide into a full-blown medical liability crisis.

• Missouri Ob-Gyns are routinely seeing premium increases of 200–300 percent and

even upwards of 1,000 percent in some cases, forcing some physicians to close part

or all of their practice.

• A recent survey completed by the Missouri State Medical Association found that

31.4 percent of the responding physicians were considering leaving their practice,

and 28.6 percent said they would consider limiting their practice because of rising

liability insurance premiums.

• This same survey showed an average premium increase for medical liability insurance of 61.2 percent for 2002, on top of a 22.4 percent average increase last year.

• Neurosurgeons in Kansas City are facing an increase in premiums of $12,000 to

$42,000 this year, with further increases expected next year.

• The 2002 premiums for Ob-Gyns have increased by as much as $50,000 from

2001. Again, further increases are expected next year.

• According to a separate survey by the Metropolitan Medical Society of Greater

Kansas City, 40% of practices are looking for new coverage because their insurer

has stopped writing medical liability coverage.

• Predictably, an access crisis to needed health care is developing. The St. Joseph

Health Center in Kansas City recently lost another trauma doctor. It is now down

to three. The situation is even worse because a local nearby trauma center has

been virtually shut down, meaning St.Joseph’s must treat double the number of

patients, and it is having trouble finding other surgeons willing to cover trauma.

• According to the St. Louis Business Journal, access issues are spreading. Dr. John

Anstey, an obstetrician/gynecologist, recently faced a difficult choice. He knew he

had to cut expenses after learning his medical malpractice insurance premium,

which cost about $26,000 this year, would jump to $50,000 next year. Consequently, he closed his office in St. Ann effective July 30th. Previously, Anstey

and his partner, Dr. Fred Monterubio, Jr., deliver about 400 babies a year

through their practice, St. Ann OB/GYN. As a stopgap measure, Drs. Anstey and

Monterubio were forced to move their practice to a hospital-based setting where

they await news of their 2003 premium by October.

• The current medical liability insurance market in Missouri is extremely tight,

with at least three insurers having pulled out of the market over the past year.

• Intermed Insurance Company, based in Springfield, is the largest provider of

medical liability insurance coverage in Missouri. The Missouri Department of Insurance said the company had a 34 percent market share in 2001. The company

imposed an 18 percent hike, effective July 1, and also put a moratorium on writing new business in Missouri.

• Andy Bennett, president and chief executive of Intermed, said rates went up because the severity, or average amount paid per settlement or verdict, has continued to go up fairly dramatically in Missouri. St. Louis Business Journal.

North Carolina

• The ‘‘Tar Heel’’ state is on the verge of lapsing into a full-scale medical liability

crisis that could seriously endanger access to needed health care.

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• Hospitals in the Charlotte area are currently facing liability insurance premium

increases of up to 400% this year.

• Dr. Harold Pollard, a physician with Lyndhurst Gynecological Associates, said

‘‘North Carolina is on its way to being one of those crisis states.’’ Dr. Pollard has

said that liability costs are creating a shortage of necessary health care services.

‘‘What that results in is a lack of good obstetricians. We have counties in this

State that have no obstetricians.’’

• Recently, Dr. John Schmitt, an Ob-Gyn whose insurance premiums tripled from

$17,000 to $46,000, causing him to give up his practice to join the medical school

faculty at the University of Virginia. Former patient Laurie Peel said, ‘‘he was

a great doctor. When you are a woman, you try to find a gynecologist who will

take you through lots of things in life. I suffered a miscarriage. You develop a relationship with your doctor. To lose someone like that is very hard.’’ Charlotte Observer, Jul. 25, 2002.

• According to the North Carolina State Administrative Office of the Courts, the

number of medical malpractice lawsuits filed has increased 18 percent in the past

five years.

• A greater number of medical malpractice lawsuits are ending in multi-million jury

awards or settlements across North Carolina. In 2001, 21 lawsuits in North Carolina resulted in multi-million awards or settlements. According to N.C. Lawyers

Weekly, the top five recoveries ranged from $4.5 million to $15 million.

• Facing a 660% increase in medical liability premiums from $53,000 to $350,000

a year, a practicing physician who runs a chain of six North Carolina urgent care

clinics fears that soon he will have to stop practicing medicine and close his clinics’ doors. He needs liability coverage for both himself and nine other physicians

employed by the clinics. For this year, the insurer agreed to renew at a 79 percent

increase, allowing the clinics to stay open for now. Increases like this will make

staying in business and treating patients very difficult if not unsustainable.

Oklahoma

• Oklahoma physicians are beginning to face problems in obtaining affordable medical liability coverage. The Oklahoman, July 17, 2002

• According to The Tulsa World, that makes Oklahoma one of 30 states with a problem in this area.

• The World cites the example of a Tulsa pediatrician whose malpractice insurance

doubled this year. The Oklahoman, July 17, 2002

• Oklahoma pediatricians have far less to worry about than the State’s obstetricians

and surgeons, whose rates in Oklahoma in 2003are expected to rise by 25 percent

to 30 percent, says the Oklahoma State Medical Association.

South Carolina

• The medical liability crisis is rapidly spreading to the Palmetto State.

• A 10-physician OB/GYN group in Columbia had to take out a $400,000 loan this

year to continue to provide OB services and pay malpractice premiums.

• In rural Oconee County, just four physicians deliver babies now, down from 11

physicians one year ago.

• A family practice group in Seneca was forced to drop OB coverage for four of their

six physicians because of skyrocketing premiums. There are currently a total of

four physicians in Seneca treating pregnant women.

• A solo practitioner practicing geriatrics in Charleston has had to quit treating patients in nursing homes because of high premiums.

Tennessee

• Professional liability premiums for physicians in Tennessee have been steadily rising in recent years.

• According to State Volunteer Mutual Insurance Company, which covers most

practitioners in Tennessee, premiums have increased by 45% over the past three

years, in order to keep up with rapidly escalating losses in medical liability lawsuits.

• Only approximately 4% of this 45% increase was related to lower investment

yield, with the remainder being due to increasing medical malpractice losses.

(State Volunteer Mutual Insurance Company is a policyholder owned mutual company with no outside investors).

38

• In recent years both juries and judges in Tennessee have made multi-million dollar awards for non-economic damages, over and above a patient’s actual economic

losses.

• In one recent case, a jury awarded only $25,000 in economic damages but awarded non-economic damages of $1.6 million.

• Another case resulted in a jury award of $100,000 economic loss and $1.9 noneconomic damages.

• A judge in another cases awarded $1,062,080 in economic loss and gave $4.5 million in non-economic damages. Yet another court awarded $687,691 in economic

loss and gave $3 million in non-economic damages. One other jury awarded $7,811

in economic loss and a staggering $2.65 billion in non-economic damages.

• Award in PI and wrongful death cases are dramatically increasing. Tennessee’s

Administrative Office of the Courts reported that in FY 2001, even though fewer

cases were disposed of in Tennessee than in the previous fiscal year, damages

awarded statewide were more than $94 million, representing an increase of more

than $51 million over the previous year. These totals were the largest since the

courts began reporting these statistics.

• According to the same report, the average award for FY01 was $209,284 up

$95,064 from the previous year.

Vermont

• The current medical liability insurance crisis continue to show that events in one

State can have a devastating effect and cause severe problems elsewhere.

• The failure of medical liability insurer, PHICO, which was shut down by the

Pennsylvania Insurance Department on February 1 of this year, left more than

a quarter of Vermont’s physicians scrambling for medical liability insurance.

• Whenever medical liability insurance becomes too expensive or difficult to obtain,

access to needed health care is threatened and typically results.

Virginia

• Physicians in Virginia are starting to see the warning signs of a full-blown medical liability crisis that has engulfed their neighbors to the north in West Virginia,

Pennsylvania and other States. The telltale sign is a sharp upswing in liability

premiums. Over the past two years physician premiums have increased on average over 30 percent.

• For some specialists, medical liability premiums in Virginia have increased upwards of 60 percent for this same recent two-year period.

• A case in point is Manuel Belandres, MD, a general surgeon who was is in the

twilight of his career but still practicing until recently when he was unable to obtain tail coverage. He subsequently closed his practice rather than expose himself

to open-ended future liability.

• In Virginia’s western border, many physicians are no longer treating West Virginia patients who cross the State-line due to aggressive personal injury attorneys

attempting to bring suit against Virginia physician in West Virginia courts. This

has further aggravated the access problem for pregnant West Virginia Medicaid

patients, in particular, and their access to needed care.

Mr. SMITH. Mr. Smarr.

STATEMENT OF LAWRENCE E. SMARR, PRESIDENT,

PHYSICIAN INSURERS ASSOCIATION OF AMERICA

Mr. SMARR. Thank you, Mr. Chairman. I am Larry Smarr, president of the Physician Insurers Association of America. The PIAA

is an association comprised of professional liability insurance companies owned and/or operated by physicians, dentists, hospitals and

other health care providers.

The PIAA members can be characterized as health care professionals caring for the professional liability risks of their colleagues;

doctors insuring doctors, hospitals insuring hospitals. But we believe that the physician-owned/operated insurance company members—that PIAA insures over 60 percent of America’s doctors.

39

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. According to A.M. Best, the

leading insurance industry rating agency, the medical liability insurance industry incurred $1.53 in losses for every dollar of premium it collected in 2001. The industry data for 2002 is not yet

available, but we expect this to be a losing year as well.

The primary driver of the deterioration in the medical malpractice insurance performance 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 his February 7, 2003, letter to Senator Gregg, which is attached

to my written testimony. Exhibit A, and you have these exhibits

before you, shows the average dollar amounts paid in indemnity to

plaintiffs on behalf of individual physicians since 1988. The mean

payment amount has risen by a compound annual growth of 6.9

percent over the past 10 years, as compared to 2.6 percent for the

Consumer Price Index.

The data for this exhibit comes from the PIAA data-sharing

project, a medical cause of loss database which was 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.

To date over 180,000 claims and suits have been reported. 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 percent of all claims were found

to be meritorious, with most of these being paid through settlement. When claims were concluded at verdict, the defendant prevailed an astonishing 80 percent of the time.

As shown on 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 of disposition. As can be seen, the cost for taking a claim for

each doctor named in a case all of the way through trial is fast approaching $100,000.

Exhibit E shows the distribution of claims payments at various

payment thresholds. It can be readily seen that the number of larger payments, represented by the top segments on this exhibit, are

growing as a percentage of the total number of payments. This is

especially true for payments at or exceeding $1 million, which comprise almost 8 percent of all claims paid on behalf of individual doctors in 2001, as shown on Exhibit F. This percentage has doubled

in the past 4 years.

Investment income is very important to insurers. We rely on it

to offset premium needs. Medical malpractice insurers are 80 percent 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

40

states that over the last 5 years the amount medical malpractice

companies have invested in equities has remained fairly constant.

In 2001, the equity allocation was 9 percent. As Exhibit G shows,

medical liability insurance companies invested significantly less in

equities than did all property casualty insurers. While insurers’ interest income has declined due to falling market interest rates,

when interest rates declined, bond values increased. This has had

a beneficial effect in keeping total investment income level when

measured as a percentage of total 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 PIAA firmly believes that the adoption of effective Federal

health care liability reforms as embodied in H.R. 5 will have a demonstrable effect on professional liability costs. The keystone of

these reforms is the $250,0000 cap on noneconomic damages as

passed in California over 25 years ago. These reforms are similar

to the provisions of H.R. 4600 passed by the House last year and

scored by the CBO as providing over $14 billion in savings to the

Federal Government, an additional $7 billion to the States, because

tort reforms works.

Using annual data published by the NAIC, Exhibit I documents

the savings California practitioners and health care consumers

have enjoyed since the enactment of MICRA over 25 years ago. As

noted by the Chairman at the opening, total malpractice premiums

reported to the NAIC since 1976 have grown in California by 167

percent, while premiums for the rest of the Nation have grown by

505 percent. These savings are clearly demonstrated in the rates

charged to California doctors as shown on Exhibit J.

Successful experience in California and other States with tort reform, such as Wisconsin makes it clear that MICRA style tort reforms do work without lowering health care quality or limiting access to care.

The PIAA strongly urges Members of the Committee to support

and adopt H.R. 5, which will ensure full payment of a truly injured

patient’s economic losses, as well as up to a quarter of a million

dollars 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.

Mr. SMITH. Thank you, Mr. Smarr.

[The prepared statement of Mr. Smarr follows:]

PREPARED STATEMENT OF LAWRENCE E. SMARR

INTRODUCTION

Chairman Sensenbrenner, Congressman Conyers 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.

41

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

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

42

(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.

43

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.

44

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.

45

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.

46

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.

47

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.

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.

48

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.

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.

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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.

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.

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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)

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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.

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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.

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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.

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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.

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This is especially true for payments at or exceeding $1 million, which comprised

almost eight percent of all claims paid on behalf of individual practitioners in 2001

(Exhibit 16). This percentage has doubled in the past four years, and clearly demonstrates why insurers are facing dramatic increases in the amounts they have to

pay for reinsurance. While medical liability insurers are reinsured by many of the

same companies having high losses from the World Trade Center disaster, their

medical liability experience was rapidly deteriorating prior to September 11, 2001.

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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.

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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.

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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

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

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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.

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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.

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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.

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. 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

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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 required to reduce rates by 20%, this in no way could explain the wide gap in experience shown on Exhibit 21.

CONCLUSION

Increasing medical malpractice claim costs, on the rise for over three decades,

have finally reached the level where the rates that insurers must charge can no

longer be afforded by doctors and hospitals. These same doctors and hospitals cannot simply raise their fees, which are limited by government or managed care companies. Many doctors will face little choice other than to move to less litigious states

or leave the practice of medicine altogether.

Legislators are now challenged with finding a solution to the medical liability insurance affordability and availability dilemma—a problem long in coming 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.

Mr. SMITH. And thank you all again for your testimony.

Mr. Smarr, let me direct my first question to you, and it is this:

We know for a fact, for example, that jury awards have doubled in

the last 5 years. We also know that 70 percent of all lawsuits filed

against health care providers result in no payment; they may be

frivolous. Those are going to have a dramatic impact on insurance

premiums. So my question is this: If we enact the HEALTH Act,

if that becomes law, do you expect the medical malpractice insurance premiums to at least not increase as projected, to increase as

fast as expected?

Mr. SMARR. Yes. We expect that if the HEALTH Act is adopted,

and it stands constitutional challenge, that we will see medical

malpractice stop their increase, and we will ultimately see medical

malpractice premiums go down. The Congressional Budget Office in

its scoring of H.R. 4600 stated that if that bill were passed into

law, that malpractice premiums would be 25 to 30 percent lower

than they would otherwise have been.

Mr. SMITH. Dr. Palmisano, if the HEALTH Act becomes law,

what impact will that have on health care available to Americans

generally, and also specifically to health care available to women,

lower-income individuals, and those who live in rural areas?

Dr. PALMISANO. Passage of H.R. 5 would have a favorable effect

on access to care. And the States that have stable liability climates,

California, Louisiana, Indiana, New Mexico, Colorado and Wisconsin, are States that have patients who have access to care. So

it would be very favorable.

Mr. SMITH. Thank you, Dr. Palmisano.

Mrs. Dyess, you today were speaking not only on behalf of your

husband, but on behalf of thousands and thousands of other individuals who might not have received proper care because of a broken health care system, and you obviously feel that it is not the

fault of the doctors that a specialist was not available to help your

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husband when he needed help. A lot of people would have suggested that you file suit against the hospital. Why did you not

think this was the proper action to take?

Ms. DYESS. Never entered my mind. It never—my husband’s care

was of utmost importance to me. I felt like the hospital did everything they possibly could do in order to get him the help that he

needed to have.

Mr. SMITH. You feel it wouldn’t solve the problem for you to file

suit because a specialist wasn’t available?

Ms. DYESS. Filing a suit is not going to bring back my husband’s

brain. It is not going to help anything. It is not the right thing to

do. It is not their fault.

Mr. SMITH. And again, though, your point is that you want to

make proper care available to more people, and the way to do that

is not to have doctors’ insurance premiums go up so much that

they are either priced out of the market, they don’t practice medicine, or they reduce their practice.

Ms. DYESS. Absolutely.

Mr. SMITH. Thank you, Mrs. Dyess.

Mrs. Keller, it is my understanding that no settlement or award

has been determined in your case yet; is that right?

Ms. KELLER. That is correct. Still in the court system.

Mr. SMITH. I also recognize that whatever the amount might be,

you would gladly trade it to have your health back and a normal

life back as well?

Ms. KELLER. Exactly.

Mr. SMITH. You also, I assume, want the victims of medical malpractice to be compensated, and I would have to say that we all do.

If physicians have made a mistake, the victims ought to be compensated. But I just wanted to also make you aware that in the

HEALTH Act that we are considering today, a lot of the expenses

that you thought were not going to be covered will, in fact, be covered. Any expense you have a receipt for, any health care provider

that helps you with chores, all of those individuals, you will be reimbursed for the cost of all of those individuals. So it is maybe not

as limited as you might think.

I also wanted to point out, in the time that I have left, that just

because there is a cap on noneconomic damages doesn’t mean there

can’t be fair and sufficient and adequate awards. The three examples that occurred in California just in the last year, you had a 5-

year-old boy who received the $84 million that I mentioned in my

statement, a 3-year-old girl received $59 million, and a 30-year-old

homemaker with brain damage received over $12 million.

In other words, you do get compensated for lost wages, for all

medical care, for all rehabilitation expenses and so forth. Obviously

that can amount to tens of millions of dollars. So I don’t want you

to think that you are going to be left with an inadequate amount

under the HEALTH Act that we are having a hearing on today.

There can oftentimes be very substantial compensation, and that is

simply the point I wanted to make.

But, again, thank you for your very compelling testimony here

today. That concludes my questions.

The gentleman from Michigan, the Ranking Member of the Judiciary Committee.

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Mr. CONYERS. I will yield to Mr. Berman.

Mr. SMITH. The gentleman from California, Mr. Berman, is recognized for his questions.

Mr. BERMAN. Well, thank you very much, Mr. Chairman.

Dr. Palmisano, what this legislation does is essentially takes a

number of the changes made in California law in 1975 and seeks

to provide it as a Federal law that would preempt any less strict

limits that now exist in the other 49 States; is that a fair statement?

Dr. PALMISANO. It is my understanding, sir, that this law has— that this bill, H.R. 5, has a flexibility provision. So if the State of

Florida, Michigan, Colorado, whatever, that if they wanted to have

a cap of $500,000, the legislature could do that. It also provides—— Mr. BERMAN. What, if they have a cap of $500,000 now?

Dr. PALMISANO. It would remain in place.

Mr. BERMAN. What if they don’t have a cap?

Dr. PALMISANO. The Federal law, H.R. 5, if it was enacted into

law, would be the cap for that State. They would have the flexibility to change it.

Mr. BERMAN. And if it were a $5 million cap on pain and suffering?

Dr. PALMISANO. If it was a $5 million cap in that State, it would remain a $5 million cap in that State.

Mr. BERMAN. You are telling States who may not like the $250,000 cap on pain and suffering, if you can put a bill through

and get it signed into law prior to the effective date of this law,

that cap is okay?

Dr. PALMISANO. No, sir. They can do it after the law, too. If this

becomes law, they—— Mr. BERMAN. The only thing you can’t do is be uncapped? You

can have a cap that has never been reached, but you can’t be uncapped; is that what you are saying?

Dr. PALMISANO. Yes, sir. For instance—— Mr. BERMAN. Okay. Good.

When California passed its bill—first, I think we should just note

for the record that the Majority staff report incorrectly states, not

intentionally, I think they picked up a Health and Human Services

Department report, I guess is—the Department of HHS, in order

to sort of stick it to them in a way, said that while Henry Waxman,

Chairman of the Select Committee on Medical Malpractice in 1973

and 1974, proposed the limits that became MICRA that are now

this law. And specifically the cap on pain and suffering of $250,000,

Health and Human Services got it wrong, and as a result of that,

this Committee analysis is in error in that sense, because the select

Committee never proposed a limit on pain and suffering of

$250,000.

But that law at that time created a whole series of other

changes, strengthened medical discipline, made it easier to discipline bad doctors, provided higher levels of immunity to physicians on a hospital committee who could then testify about the

practices of a doctor that they felt should have his privileges revoked, and protect those people against being sued by that doctor,

far greater reporting requirements. In other words, there was a notion, yes, we are going to put some limits on the liability system,

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but we recognize the problem of doctors who aren’t performing up

to a reasonable standard, and we are going to make it tougher for

them to practice medicine.

I notice nothing in this bill that deals—seeks to federalize the

program or compel States to have certain standards of discipline

and reporting for doctors who are not meeting the appropriate

standard of care.

And I guess aren’t you a little embarrassed that you are cherrypicking a series of provisions here, claiming that California has had

great success? You have produced charts, you point out those limits, you claim you are taking those limits and putting them in Federal law, collateral source rule, periodic payments, cap on pain and

suffering, limitations on contingency fees, and then totally ignoring

any efforts to try and strengthen regulation of the medical profession such as was done in California, including even things like allowing other physicians to have immunity if they seek to revoke a

bad physician’s malpractice. Aren’t you a little embarrassed by

that?

Dr. PALMISANO. Well, the California MICRA law has the elements that you mentioned, the periodic payments, the contingency

fee——

Mr. BERMAN. Tougher medical discipline, tougher immunity provisions to protect doctors who want to testify, requirements that

every hospital report to the State board of medical quality assurance acts of negligence and malpractice suits. Aren’t you embarrassed that those aren’t in this bill?

Dr. PALMISANO. I am not embarrassed, because the Health Care

Quality Improvement Act, which was a Federal law, which was

passed later than that, requires that any dollar paid on behalf of

a physician gets reported to the Federal Government, and also gets

reported to the State board of medical examiners.

And so we strongly support State boards of medical examiners

being adequately funded to do the proper investigation so that

every case is looked at by the State board to make sure if there

is any disciplinary situation that needs to be done or anyone’s license revoked——

Mr. BERMAN. Would you be willing to incorporate those—the reporting requirements, to the extent that they are stronger than

that exists at Federal law now, the reporting requirements, the immunity provisions, and the disciplinary authorities mandating that

any State that wants to take advantage and have these limits

apply also adjust their laws to provide that level of protection

against malpracticing physicians? Would you be willing to accept

that kind of an amendment to this legislation?

Dr. PALMISANO. Well, the AMA policy would be to look at any

language that was offered. We do know that we support the——

Mr. BERMAN. How about a top-of-the-head reaction?

Dr. PALMISANO. Well, I am not speaking for myself. I am speaking for the American Medical Association. The American Medical

Association believes in strong physician discipline, and we have

policy on that. It is all on the AMA Website in Policy Finder. We

also strongly support patient safety. That is why we founded the

National Patient Safety Foundation.

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Mr. BERMAN. And where State law doesn’t meet the kinds of requirements that exist in MICRA, could I then—would it be logical

to conclude that it would be appropriate for the Federal Government to mandate that each State meet that minimum standard of

discipline, regulation, immunity, encouraging testimony by other

physicians?

Dr. PALMISANO. Again, anything that would be offered would be

reviewed by the AMA to see how it fits for policy.

Mr. BERMAN. Thank you for your helpful advice.

Mr. SMITH. Thank you, Mr. Berman. The gentleman from Florida, Mr. Keller, is recognized for his questions.

Mr. KELLER. Thank you, Mr. Chairman.

I can tell you there absolutely is a medical liability crisis in my

home State of Florida. Just this week our major hospital in my district, Orlando Regional Medical Center, announced it will close its

Level 1 Trauma Center, which is the only center within 3 or 4

hours to treat head injuries such as those suffered by Mrs. Dyess’

husband because the neurosurgeons can no longer pay the medical

liability premiums. So it is a real problem facing a lot of physicians

throughout this country.

I appreciate you, Mrs. Keller. I especially like your last name. I

appreciate your courage, which it took quite a bit to come here and

testify today. I know everybody is very sympathetic to your case.

The Chairman pointed out that we don’t yet have a verdict or

settlement amount in your case, but you said if you had Bill Gates’

money, you wouldn’t trade it for your injuries. I agree. You seem

like a straightforward person. The challenge facing those of us in

Congress, though, is if we allowed a jury to give you Bill Gates’

money, which is approximately $40 billion, then you are still not

going to be made whole, that hospital is going to be shut down, and

thousands of people are going to be denied access to medical care.

Ms. KELLER. And so what we have got to do is find the strike

zone somehow, so that you are at least fairly compensated and yet

we still have access to health care and us to of people who need

it, and so we are trying to sort our way through this to make sure

we get the fairest result.

I would like to play devil’s advocate a little bit, Mr. Smarr, to you

and ask you a few questions here. Some say that if Congress passes

this $250,000 cap on noneconomic damages, the insurance companies aren’t going to pass on these savings to the doctors. They are

just going to put it in their pocket and they won’t lower premiums.

What do you say to that?

Mr. SMARR. I don’t believe that that is correct. As I have testified, the majority of doctors in America are insured by companies

that are owned and are operated by doctors. These companies operate largely for the benefit of their insureds and are dedicated to

providing a stable market and charging a fair price for their insurance. And once this law goes into effect, this is going to enhance

competition. The insurers that have gotten out of the market are

going to come back in; and that competition, if for no other reason,

that competition is going to drive prices down.

Mr. KELLER. To the best of your knowledge the insurance companies you represent will lower their premiums?

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Mr. SMARR. I believe they will once they can be assured that the

law sticks.

Mr. KELLER. Let me ask you something else that opponents of

this legislation point out. They say insurance companies are just

jacking up doctors’ premiums this year because they lost a bunch

of money in the stock market, not because of any medical liability

crisis. What do you say to that?

Mr. SMARR. There are two comments here. First of all, insurers

have not lost large amounts in the stock market; they are primarily

invested in bonds. And secondly, the State insurance departments

which approve rates will not allow an insurer to take any type of

prior-year losses, whether it be from underwriting or investment,

and impute those values in their future rates. It would be illegal

for them to do that.

Mr. KELLER. So when you say ‘‘a small percent in the stock market,’’ give me an idea; for example, one of your major companies,

what percent?

Mr. SMARR. Ten percent of their investments are in equities.

Mr. KELLER. Okay. And over 90 percent aren’t, then.

Mr. SMARR. Ninety percent aren’t. That is correct.

Mr. KELLER. Okay. Another thing opponents say is that that

1975 California law, MICRA, that capped the noneconomic damage

at 250 really didn’t have anything to do with the malpractice premiums being stabilized in California. It was really Prop 103, a constitutional amendment which dealt mostly with car insurance, I

guess. But they are saying that is what held medical liability insurance premiums down. What are your thoughts on that?

Mr. SMARR. Well Prop 103 had nothing to do with it. As you

state, it was an auto initiative primarily. However, all property and

casualty insurance conditions were covered by its provisions. Prop

103 required that insurers roll back their rates to 20 percent below

those in effect on, I believe it was, November 8 of 1987. Prop 103

was passed in 1988. This was immediately challenged by the insurance industry. And not until 1991 was some progress made in this

regard. The very first insurance company that reached agreement

with the California insurance commissioner about how to handle

Prop 103 was one of my members called NorCal Mutual Insurance

Company. NorCal reached a consent agreement with the commissioner whereby they were required to refund 20 percent of 1 year’s

premiums, which they could then pay as a normal dividend, but

they were not required to roll back their rates at all. At that point

in time, NorCal was paying far in excess of 20 percent annual dividends per year.

Mr. KELLER. So if it had any effect, it would have only been for

1 year.

Mr. SMARR. And really had no effect. It was part of the normal

dividend cycle. Same thing true for other carriers.

Mr. KELLER. Let me ask one more question. Dr. Palmisano, some

say that this sort of tort reform, this 250 cap on noneconomic damages should be left up to the States; that the Federal Government

shouldn’t be meddling. Let me close by asking your thoughts. Is

this an appropriate bill for Congress to be considering?

Dr. PALMISANO. Yes, sir, we believe it is. We believe that it affects Medicare beneficiaries. It affects the major health programs

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that I mentioned earlier, and we know that there is a crisis in 18

States now. And some States have not been able to make changes,

and we are concerned about access to care for patients. So we believe it is a Federal question.

Mr. SMITH. Thank you, Mr. Keller. The gentleman from New

York, Mr. Nadler, is recognized for his questions.

Mr. NADLER. Thank you. Thank you, Mr. Chairman. I think it

was Dr. Palmisano—you were testifying or answering the questions

of the gentleman from California a few moments ago about noneconomic damages. You testified that under this bill, it would not

preempt—that the bill, the limit of $250,000 for pain and suffering

for noneconomic damages would not preempt State laws that were

more permissive; is that correct?

Dr. PALMISANO. That is correct.

Mr. NADLER. So if a State now—traditionally State laws leave it

up to the jury and the courts and have no dollar limit in the bill

or in the law. Is it your testimony that this would—that that would

prevail over the $250,000 limit in this bill?

Dr. PALMISANO. No. The intent of my statement is that if there

is no—if there is a cap, then that cap would prevail in that particular State.

Mr. NADLER. If there is a specific money cap listed in the law.

Dr. PALMISANO. Yes. If there is no cap, then this would become

the level.

Mr. NADLER. Okay. Thank you. Let me ask you the following: A

number of studies have shown over the years—I particularly remember the Harvard study when I was in the New York Legislature in 1985 and we put some rather, I don’t remember what they

were, but major changes in the law at that time. They were supposed to keep malpractice rates down. And we also ordered a study

by Harvard which turned out to say that the major problem, or a

major problem, was that a very small proportion of doctors

unpoliced by any discipline system were causing a very large proportion of the awards, and that the premiums were high because

this very small number of doctors were not properly disciplined.

This morning, in this morning’s New York Times, Dr. Sidney

Wolfe of the Public Citizen Health Research Group brings up some

more modern statistics. He says from 1990 to 2002, 5 percent of

doctors were involved in 54 percent of the payouts, including jury

awards and out-of-court settlements, according to the National

Practitioner Data Bank of the Department of HHS. Of the 35,000

doctors with two or more payouts during that period, only 8 percent were disciplined by State medical boards in any way. Of the

2,800—27,744 doctors who have made payments in five or more

cases, five or more judgments or settlements in which they had to

make payments, only 463, or less than about 20 percent, 1 out of

6, less than 20 percent had been disciplined.

Would you comment on the assertion, the finding of the Harvard

study, the assertion currently that one of the major problems—one

of the major jobs, real causes, of what we all agree are high medical insurance premium rates are the failures of the States or the

medical societies perhaps to crack down on the relatively small

numbers of doctors who perhaps shouldn’t be practicing?

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Dr. PALMISANO. Well, Mr. Nadler, first off, the American Medical

Association supports strong State medical boards, and we know

that any payments paid on behalf of a doctor goes before the State

medical board. The National Practitioner Data Bank, the problem

with the data—and the Government Accounting Office when they

studied the National Practitioner Data Bank pointed this out—is

that a physician can be listed as having multiple claims, when in

reality the physician—it may only be one incident. And so if different—if different entities such as an excess carrier pays on behalf

of the physician, that gets counted as a claim. If the primary carrier pays some money or if the physician also has to pay some

money, that will all get counted as a claim.

Mr. NADLER. As a separate claim.

Dr. PALMISANO. It gets counted.

Mr. NADLER. And there is no way of culling the data to see how

many actual claims there were.

Dr. PALMISANO. That is what the Government Accounting Office

criticized the National Practitioner Data Bank. The other thing,

sir, about that is that it doesn’t differentiate. It doesn’t list the specialties. We were very much interested when we heard about that.

We wanted to find out who these individuals were, their specialties

and so on. And we know, for instance, in south Florida, a recent

study done in South Florida points out that every neurosurgeon

has been sued in this study and the average number of suits

against neurosurgeons is five in south Florida.

And so we certainly——

Mr. NADLER. But that is not the average number of payouts.

Dr. PALMISANO. No, sir. No, an average number of suits. And we

know in the Harvard study that you mentioned, that one of the

lead authors, Dr. Troy Brennan, a very respected researcher at

Harvard, Dr. Brennan wrote in that study that what they found in

that study, that there was no statistical correlation with payment,

either as a result of a jury award or the insurance company, and

negligence. What they did find a direct correlation with was disability. And I had the privilege to be on a panel, a roundtable Secretary Thompson called a couple of months ago, and Dr. Brennan

was on the panel with me. And I asked him if he still agreed, believed that; and he said yes, he did.

Mr. NADLER. All right. Let me, before my time runs out, ask you

one more quick question because this goes to the heart of this.

Mr. SMITH. Mr. Nadler. Without objection, the gentleman is recognized for an additional minute.

Mr. NADLER. Thank you, sir. Thank you, Mr. Chairman. We have

any number of statements here which I am not going to read for

interest of time, by all kinds of insurance companies, saying that

tort reform that specifically limits noneconomic damages would not

result in lower—that they could not promise lower rates, they could

not promise that rates wouldn’t go up as fast as otherwise. The bill

does not require any accountability by insurance companies, and in

fact we know that the truly severe cases where there are large noneconomic damages are a small percentage of all claims and the

medical liability premium dollar that pays the compensation is

dwarfed by the portion that pays for a lot of other things.

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Given this, why are you so certain that even if we were to—that

a limit on noneconomic damages would in fact result in a solution

or any major part of a solution to the premium problem?

Dr. PALMISANO. Thank you, Mr. Nadler. The reason we believe

that is we have observed a quarter of a century of history, looking

at California, looking at my State of Louisiana, and looking at Wisconsin, looking at Indiana, and looking at New Mexico, and that is

exactly what happened. In 1975 California was among the highest.

If you went to Los Angeles as an obstetrician or you went to Miami

as an obstetrician, what happened was over these 25, 27 years,

now they are paying $210,000 in south Florida and the obstetricians in Los Angeles will pay anywhere from 57 to 60 or $70,000

per premium. So we believe it works. It certainly worked in our

case in Louisiana. Once the law was passed, my premiums—I

didn’t have to carry excess insurance anymore. My premiums

dropped in half.

Mr. SMITH. Thank you, Mr. Nadler.

The gentleman from North Carolina, Mr. Coble, is recognized for

his questions.

Mr. COBLE. Thank you, Mr. Chairman. Thank the witnesses. Mr.

Chairman, last Congress I voted for this med/mal bill in Committee

because I felt like it deserved full House floor attention. When it

came to the House floor, you may recall, I voted against it because

I have problems with legislatures imposing caps. I believe when we

insert legislative oars into those waters, we are invading waters

that ought to be more or less exclusively reserved for juries. That

is my philosophical hang-up.

Now, am I not concerned? You bet I am. When I see that specialists are forced to terminate their practices, as you pointed out at

the outset, Mr. Chairman, that results in a crisis and that does

bother me. I am also informed by the coalition supporting the bill

that most of the malpractice cases are either dismissed or settled

prior to trial. Well, even if that is the case, I recognize that defendants incur costs even if it never goes to a jury.

But Dr. Palmisano, if you know, of those that are finally litigated

and jury awards are forthcoming, do you have any idea what the

average jury award would be? And if you don’t, you can get back

to us.

Dr. PALMISANO. We will be glad to supply any data we have, but

I believe Mr. Smarr has some figures that would answer that.

Mr. COBLE. Mr. Smarr, do you have that?

Mr. SMARR. Yes, sir, I do. The mean verdict against an individual

practitioner——

Mr. COBLE. Oh, you may have said that earlier but repeat it for

me, if you will.

Mr. SMARR. It is $496,726 in 2001, and there is usually more

than one defendant in any case.

Mr. COBLE. Mrs. Keller, the physician you mentioned in your testimony, does she continue to practice medicine?

Ms. KELLER. Yes, sir, she does. With more malpractice lawsuits

filed this year against the same doctor.

Mr. COBLE. In what State does she practice?

Ms. KELLER. Georgia.

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Mr. COBLE. Dr. Palmisano, you indicated that the crisis States— have been 8 or 10 additional States added to that list if I am not

mistaken in recent days, in fact, and the total is now how many?

Dr. PALMISANO. It is 18, sir. Six additional States were added.

We will be glad to leave a map with the Committee.

Mr. COBLE. Yeah. In fact I am familiar with that.

Dr. PALMISANO. Yes, sir.

Mr. COBLE. And even though, folks, I have problems with the

capping and I hope you all understand that, I just think that ought

to be a jury question. Not to say that I am uncaring or insensitive,

Mrs. Dyess, for example, about your situation. My gosh, you and

Mrs. Keller have brought compelling arguments that support either

side of this issue. And if there was ever an issue before us, Mr.

Chairman, that invites compelling arguments supporting each side,

I think it is the matter that we have before us today, and I very

much appreciate you all being here.

Mr. Chairman, I appreciate the very precise manner in which

you are conducting this hearing and I yield back my time before

the red light appears.

Mr. SMITH. It is much appreciated, Mr. Coble. Thank you.

The gentleman from Virginia, Mr. Scott, is recognized for his

questions.

Mr. SCOTT. Thank you, Mr. Chairman.

Mr. Smarr, what portion of your income is investment income as

opposed to the difference between the premium and the expected

payments?

Mr. SMARR. In 2001, the insurers that I represent collected 31

cents for every dollar in investment income for every dollar of premium which they collected. They incurred losses in the neighborhood of, and I—it is in my written testimony, actually.

Mr. SCOTT. Well let me—you said $1.53 for every dollar you collected in premium. Are those the numbers you said?

Mr. SMARR. That is for the industry as a whole, yes. That includes the commercial carriers.

Mr. SCOTT. Now, were you making money doing that?

Mr. SMARR. Absolutely not.

Mr. SCOTT. How long were you charging only—how long were you charging only a dollar for $1.53 in premiums in payouts?

Mr. SMARR. How long?

Mr. SCOTT. Yes.

Mr. SMARR. That statistic is called the ‘‘combined ratio,’’ and we

have seen that deteriorate over the past 4 or 5 years. The industry

turned to negative profitability last year.

Mr. SCOTT. I mean you make—I mean you can collect less than

you pay out and still make money, isn’t that right?

Mr. SMARR. Because we have investment income; that is correct.

Mr. SCOTT. Okay. And you are collecting, knowing you were collecting a dollar for $1.53 in expenses, you are going to make up the

rest in investments; isn’t that right?

Mr. SMARR. That is the intent, yes.

Mr. SCOTT. Okay. Now you mentioned 6.9 percent inflation.

Mr. SMARR. The average cost of a paid claim is going up by 6.9

percent per year.

Mr. SCOTT. And you compared that to the Consumer Price Index.

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Mr. SMARR. 2.6 percent.

Mr. SCOTT. Did you compare it to the Health Consumer Price

Index?

Mr. SMARR. No, I did not.

Mr. SCOTT. Wouldn’t that be a more accurate figure to compare

it to?

Mr. SMARR. I don’t believe it would, sir.

Mr. SCOTT. Okay. On the collateral source rule, if a wrongdoer

has created the problems, the plaintiff has paid a premium for the

benefit of insurance. Why shouldn’t either the plaintiff get benefit

for that payment or at least get a lower premium because Blue

Cross/Blue Shield will get their money back?

Mr. SMARR. In health insurance, claims are paid relatively soon

after the incident, if you will, occurs. Oftentimes they are paid

within—well, we would hope within a week or a month or within

the same year. It takes over 5 years to conclude a medical malpractice case after the time of the incident. And the various flows

of cash to pay for the premiums actually through the market, adjust themselves to accommodate the true costs of the insurance.

Mr. SCOTT. So you are saying that the wrongdoer ought to get

benefit from the plaintiffs—two equal plaintiffs, one with health insurance and one without, the benefit of the health insurance ought

to go to the wrongdoer and not to the plaintiff, or Blue Cross/Blue

Shield getting the money back?

Mr. SMARR. No, sir I am not; I don’t look at it in—— Mr. SCOTT. Under this bill, who gets the benefit of the insurance?

The wrongdoer, isn’t that right?

Mr. SMARR. The wrongdoer pays for the insurance.

Mr. SCOTT. No, the wrongdoer, if there is a—if you caused a million dollars’ worth of damage and the plaintiff has a million dollars’

worth of health insurance, who gets the benefit of the health insurance? There are three possibilities. One, the wrongdoer gets the

benefit. Two, the plaintiff gets the benefit. And third, Blue Cross/

Blue Shield can get their money back after the wrongdoer has paid.

Your idea is that the wrongdoer should get the benefit.

Mrs. Keller, can you state with specificity what portion of your

damages were caused by the physician, the hospital, the hospital

personnel and the ambulance personnel?

Ms. KELLER. Well—— Mr. SCOTT. I guess not. That would be an impossible burden for

you to fulfill, wouldn’t it.

Ms. KELLER. Correct. There is no—however, I cannot legally hold

the ambulance liable even though I was given the bill to pay.

Mr. SCOTT. And if everybody pointed at the ambulance as the

cause for your problem, you wouldn’t know one way or the other.

Ms. KELLER. Exactly. I also cannot——

Mr. SCOTT. Wait a minute. Mr. Smarr, can you explain what the

rationale is to force the plaintiff to go all over to figure out who

did what and have a separate duty of care, violation of duty of care,

and proximate cause for each of what in her case could be any

number of different persons?

May I ask for 1 additional minute, Mr. Chairman.

Mr. SMITH. The gentleman from Virginia is recognized for an additional minute.

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Mr. SMARR. I am not a lawyer but it is my understanding that

the courts routinely do apportion fault.

Mr. SCOTT. Now, on a joint and several, and you know this—on

a joint and several, if you get one of them good, they are responsible for the full damage. And if they want to get contribution then

they go chasing after everybody on their dime, not on the plaintiff’s

dime. Can you explain to me what the rationale is to force the

plaintiff, who doesn’t know—all they know is they went in and an

operation was botched. Why is it their responsibility to apportion

how much of it was the anesthesiologist, how much of it was the

surgeon, how much of it was the nurse; having to call in extra witnesses to prove each and every step of the way, and if they miss

5 percent, then all the rest just pay 95 percent? What is the purpose of that?

Mr. SMARR. Well, first of all, plaintiff attorneys normally name

many defendants in a case, many who were not even involved in

the case sometimes. Secondly, it is not the plaintiff’s responsibility

to apportion fault. That is the duty of the court. The court does

that.

Mr. SCOTT. Well the court does it based on the evidence. Mr.

Chairman, the witness is not being——

Mr. SMITH. Mr. Scott—— Mr. SCOTT. Can I make—— Mr. SMITH. I think the witness has done the best he can to answer the question. But the gentleman is recognized for one last

question.

Mr. SCOTT. He did the best he could because he didn’t want to

answer the question.

The court makes the decision based on the evidence that is presented. If no evidence is presented then the plaintiff, with the burden of proof, loses. And if you have got 5 percent over here and 10

percent over there and 8 percent over here, and if you don’t prove

the 3 percent over there, then you lose on the 3 percent. If everybody is pointing to an empty chair or a bankrupt or uninsured person, then the plaintiff will lose that little 3 or 5 percent. The normal law is under joint and several, and this is how you apportion

insurance anyway—if you get one you have got them all. And if

they want contribution then they go chasing after everybody. But

you put that burden where the plaintiff doesn’t know anything

about what happened. Isn’t that an unfair claim?

Mr. SMARR. I don’t understand. If somebody is not responsible,

then why should they have to pay?

Mr. SCOTT. If they are not responsible, they don’t have to pay at

all.

Mr. SMARR. I believe that is true, yes.

Mr. SMITH. And, Mr. Scott, the gentleman’s time has expired.

Mr. SCOTT. But they don’t have to apportion it.

Mr. SMITH. The gentleman from Ohio, Mr. Chabot, is recognized

for his questions.

Mr. CHABOT. Thank you, Mr. Chairman. I think we all appreciate

you holding this very important hearing on a topic that is clearly

timely.

While the issues of rising health care cost and dramatic increases

in medical malpractice rates are a national problem, families in my

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district back in Cincinnati, they have been especially hard hit by

this crisis. I have spoken with dozens of families who are not only

facing large increases in their insurance premiums, but who are

finding it increasingly difficult to find specialists to treat their families. I have also met with many doctors in my district and they are

extremely concerned about the rising cost of medical malpractice

insurance and the potential long-term effects on patient care.

Excessive medical liability costs have had a serious impact on

the health care system in Cincinnati. Medical malpractice insurance rates have skyrocketed in recent years and patients are paying the price, unfortunately. And insurance costs rise to astronomical levels. Health care providers have been forced to pass those

costs on to their patients and cut back on services and even taken

the drastic step in many instances of closing their practices. And

I have had a number of doctors that have told me that is what they

have had to do as a result of this.

Today Dr. Palmisano has testified that patient access to care had

reached the crisis level in Ohio and in 17 additional States, due to

unrestrained medical malpractice litigation. According to the October 2002 Medical Liability Monitor, Ohio ranked among the top

five States for premium increases.

In Cincinnati, in my district, physician groups have experienced

premium increases between 20 and 100 percent in recent years.

But Cincinnati is not the only community confronting this issue, as

we know. This rising cost of medical liability insurance is a growing national problem and it requires a national solution, and that

is why we are here today.

Just a couple of questions. Dr. Palmisano, and Mr. Smarr, you

had a chart up here before, ‘‘America’s Medical Liability Crisis: A

National View.’’ I wonder if somebody could put that chart back up

for a moment. The white States which are at this point currently

okay according to the chart. Now obviously, California is one in

which the reform has already been under—in effect for 25 years

now. Could you touch on the other States. Are there any similarities? Why the other States; Colorado, New Mexico, Louisiana, Wisconsin and Indiana also seem to be in better shape than the other

States?

Dr. PALMISANO. Yes, sir. Those are all States with caps. My State

of Louisiana is a State that passed a cap in 1975. It is a total cap

on damages, but future medicals as incurred vary similar to New

Mexico’s law. Colorado has a cap on noneconomic damages. Indiana

has a total cap and Wisconsin has a cap on noneconomic damages.

Mr. CHABOT. Okay. Do any of the other States that are either in

trouble, or the yellow States which it says they are showing problem signs but aren’t necessarily in crisis like the red States, have

any of those enacted any caps?

Dr. PALMISANO. Yes, sir, they have. Some of the States, for instance, Missouri, which has now become a crisis State, it has a cap.

But the cap is a cap per individual, per claimant. So you could

have multiple caps in one case. Nevada, which closed its level one

trauma center on July 3, 2000 for 10 days, it went into special session and passed a cap but its cap is also per claimant and per doctor. So what we have found is that the caps that are fixed caps per

incident are the ones that have resulted in stability.

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Mr. CHABOT. Okay, thank you. Could you identify which physician specialties are most affected by the medical malpractice crisis

that we are discussing today and why those particular areas would

be in difficulty?

Dr. PALMISANO. Yes, sir. The obstetricians, the neurosurgeons,

the emergency physicians, because these are the ones that—the

physicians who are involved with complicated procedures, with

more risky cases, and the outcome sometimes is not the—is not a

complete cure. The neurologically impaired newborn, for instance,

can—if a baby is born with neurological impairments there can be

multiple suits filed as a result of babies being born that way.

A recent study by the American—ACOG, the obstetricians, gynecologists, and the pediatricians, their recent studies show that the

majority of these had nothing to do with events surrounding the

birth of the child, but were for other reasons, in utero, when the

baby was in the uterus.

Mr. CHABOT. Thank you. Mr. Chairman, I ask unanimous consent for 1 additional minute.

Mr. SMITH. Without objection, the gentleman from Ohio is recognized for an additional minute.

Mr. CHABOT. Thank you. Opponents of the HEALTH Act have

claimed that capping noneconomic damages prevents patients from

adequately recovering from their injuries. And as you have already

discussed to some degree, there are still clearly some things which

are not capped which there are no limits on. Would you discuss

briefly, again, what you can recover for and where there are no

limits?

Dr. PALMISANO. The only limit on the damages in H.R. 5 is the

noneconomic damages, the ones that can’t be quantified.

Mr. CHABOT. You are talking about pain and suffering.

Dr. PALMISANO. Pain and suffering-type damages. But certainly

all medical costs, all rehabilitation, child care, and anything that

can be economically documented. And I think Chairman Smith has

pointed out cases in California where multiple millions of dollars

have been awarded to an individual for the rehabilitation, medical

expenses, and so on.

Mr. CHABOT. Thank you very much.

Mr. SMITH. Thank you, Mr. Chabot. The gentlewoman from

Texas, Ms. Jackson Lee, is recognized for her questions.

Ms. JACKSON LEE. Thank you very much, Mr. Chairman. I appreciate all of the witnesses’ testimony this morning because this is

an extremely painful process, particularly for the victims that are

here. And certainly, Dr. Palmisano, I appreciate very much the concerns that physicians have. I interact extensively with my local

medical community and realize the importance of having physicians based in the community, in the neighborhoods. And representing a particularly poor district in this Nation, we face the crisis of health care every day. And so I know this is an important

hearing.

Let me start with Mrs. Keller, and I want to thank you very

much. I am not sure if that is a picture of you behind you. Maybe

I need to put on—it is not yours. Thank you very much. I see that.

But let me just raise this point with Mrs. Keller. As I understand

it, you had initially a botched surgery that caused you to be in the

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doctor’s office, and you were being examined. Is that correct? You

were in the doctor’s office?

Ms. KELLER. Yes, I was in the doctor’s office. Whether or not the

surgery itself was botched would be argumentative. No sutures

were used underneath the layers, which is no longer substandard

of care.

Ms. JACKSON LEE. So you were in there for an examination; is

that correct? You were in there for an examination?

Ms. KELLER. No, ma’am. I was—the initial surgery, they did not

use complete and total suturing procedures, which is what caused

my wound adhesion there in the office a week later.

Ms. JACKSON LEE. Okay. And so you were inside an examining

room. That is what I am trying to understand.

Ms. KELLER. Yes, ma’am.

Ms. JACKSON LEE. And then you lost consciousness and you fell.

Ms. KELLER. Yes, ma’am.

Ms. JACKSON LEE. Okay. The reason why I wanted to just get

that clear is I wanted to sort of track the scenario. With that in

mind, let me sort of call the roll of the many people that might be

involved. I am not in any way suggesting that we have all these

names, but the doctor whose examining room you were in, the

nurses, the hospitals, and the surgical individuals who may have

done the surgery, the nurses, as I said in the doctor’s office, the

ambulances, the ambulance drivers, the emergency room staff, physicians and doctors. Ultimately there is a long list that may have

had some impact on your present condition.

Ms. KELLER. Exactly.

Ms. JACKSON LEE. During part of that time you were in great

pain and during part of that time you were unconscious; is that

correct.

Ms. KELLER. Correct.

Ms. JACKSON LEE. So part of the legislation that we are now

talking about would require you to have been at the fullest peak

of your health, to have a notepad, taking notes, maybe even a camera, taking pictures through the entire process of this terrible tragedy that has befallen you; is that correct? Would that have had to

be the case for you to be knowledgeable about who you would point

the finger at if this legislation we are now having a hearing about

would pass?

Ms. KELLER. Precisely.

Ms. JACKSON LEE. And let me offer to you my appreciation for

your courage for being here. I want to cite for the record, Mr.

Chairman, my State, the State of Texas, approximately 3 to 7,000

preventable deaths in Texas each year due to medical errors. The

preventable medical errors in Texas cost between 1.3 billion to 2.2

billion. Medical malpractice insurance is 421.2 million. And we

have found that medical malpractice claims have dropped in the

last 2 consecutive years.

At the same time, we find that Texas is 49 in the quality of care.

We find that Louisiana is 51, and California is 44. So it is interesting to note that States that have had an impact by medical malpractice changes or law changes are still at the bottom of the totem

pole in terms of access to medical care or quality of care. And

Texas, of course, remains at the bottom of the totem pole as well.

77

My question, then, is to Dr. Palmisano, to simply ask this one

question. If, through the devices of the insurance companies, they

could devise an investment formula or a pricing formula that would

eliminate or bring down the costs of premiums across the Nation,

would that be acceptable to the American Medical Association?

Dr. PALMISANO. Well, thank you for the question. The American

Medical Association wants to make sure that patients have physicians, and so it is the escalating rates that cause us problems. We

also are concerned about the number of cases that are filed.

Ms. JACKSON LEE. Doctor, you are not answering my question. If

the insurance companies devise a formula that would bring down

the rates, would that be acceptable to the American Medical Association?

Dr. PALMISANO. If they were reasonable rates and we didn’t have

a crisis, then the American Medical Association wouldn’t be here

today.

Ms. JACKSON LEE. Thank you. Mr. Chairman——

Mr. SMITH. Thank you, Ms. Jackson Lee. The gentleman from

Virginia, Mr. Goodlatte, is recognized for his questions.

Mr. GOODLATTE. Thank you, Mr. Chairman.

Gentlemen, I support this legislation because I believe that the

caps are effective. I think the evidence points to that. We have a

different type of a cap in Virginia and I think it has had some effect in Virginia, and I like the fact that that legislation provides

some flexibility to the States to adjust the amount of the cap on

noneconomic losses. But I am concerned that I don’t think this legislation does a great deal to screen out the most frivolous and

fraudulent lawsuits.

If you open up the Yellow Pages here in Washington or any other

city in the country, you will see ad after ad after ad and they have

one common theme: It says, ‘‘No fee if no recovery’’ meaning, no

risk to you. So, you know, if you think you have got a case, go

ahead and take it. Now, the attorney has got to impose some

screening because they are not going to want to take a lot of cases

in which they get no recovery. However, given the pressures that

are on insurance companies to settle these cases and given the fact

that physicians hate to have cases settled that are essentially

harmful to their reputation if they don’t believe that any real malpractice has occurred, why isn’t there something in this legislation

to penalize those who bring truly frivolous or fraudulent lawsuits?

Right now in our Federal courts and I imagine in many State

courts that mirror the rule 11 sanctions in Federal courts, those

are very weak, they are very rarely applied, and why aren’t there

some greater sanctions in here; for example, some form of a loserpays type of mechanism imposed upon those who bring frivolous

cases that would encourage insurance companies, encourage doctors to be able to defend their case and if they win, recover some

attorneys’ fees and know that because of that risk, attorneys on the

other side are going to be even more diligent in screening out those

cases that have no merit?

Dr. Palmisano.

Dr. PALMISANO. Thank you, sir. Well, certainly, the American

Medical Association has policy regarding loser pays. It is not in this

particular bill but we will be glad to submit to the Committee our

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policy on loser pays. We have policy on medical—I will read it to

you just briefly. ‘‘Implementation of the Loser-Pays Rule in Medical Liability Litigation. Responsibility for prevailing party’s legal expenses including attorneys’ fees should not be shifted to a losing party in medical liability litigation unless (a), some provision is made for retrieving fees owed to a prevailing party from the losing party’s attorney in the event the losing party has no available assets; (b),

some provision is made to calculate fees owed to a plaintiff’s attorney on the basis of a reasonable value of time expended regardless

of the existence of a contingency fee arrangement.’’ Mr. GOODLATTE. I would love to have a copy of that and I would

suggest to you that the modified loser-pays provision that this

Committee has passed out attached to other legislation, Y2K liabilities and tort reform passed during the Contract With America,

would meet those criteria. And I would commend to you an examination of that, because I think that is a weakness in this matter.

The second thing that concerns me about this is on the other

hand, I am not a strong believer in the Government stepping in

and with regard to an individual’s right to contract with somebody

else, to interfere with that. And this bill does put caps on attorneys’

fees. Every case is different and the merit of whether or not a particular case should be taken by an attorney based upon how much

work is going to have to go into the case is measured into what

kind of a contingent fee they will charge. And when you start capping that, you are, in my opinion, being unfair.

Now, I understand that the reason for doing that, at least one

of the reasons is that you are in effect having the opportunity to

reduce your overall costs if the overall amount of money that is

paid out by insurance companies is reduced. But the same—the

same standard applies, it seems to me to defense attorneys. Why

aren’t we capping that? So in my opinion, I would not cap defense

attorneys’ fees. I would also not cap plaintiffs’ attorneys’ fees, and

I think that is a provision in here that I would prefer not to see.

And I would welcome Mr. Smarr or Dr. Palmisano’s response to

that.

Mr. SMARR. Well, insurers try their best, I can assure you, to cap

defense attorneys’ fees. In fact, we pay very close attention to that.

The plaintiff attorney fees in this bill are capped on a sliding scale

such that the smaller amounts of indemnity amounts that might be

paid, the plaintiff attorney gets a larger percentage of it. But even

so, in a million dollar case, the plaintiff attorney still gets $220,000

in fees.

Mr. GOODLATTE. But, Mr. Smarr, there are million-dollars’ cases

and there are million-dollars’ case. One might be a very open-andshut type of case where you might think the attorney has been unjustly enriched with their fee, and there might be another milliondollar where it is $900,000 worth of economic loss, and the fact of

the matter is that that attorney had to go to tremendous additional

efforts to prove the case and to bring in a multitude of witnesses.

There might be a multiple number of defendants in the case. And

you are arbitrarily setting that fee based simply on the dollar

amount in the case without recognizing the fact that there is different amounts of work in different cases; just like the defense atVerDate 11-MAY-2000 00:10 Apr 11, 2003 Jkt 000000 PO 00000 Frm 00082 Fmt 6633 Sfmt 6601 G:\WORK\FULL\030403\85403.000 HJUD3 PsN: HJUD3
79

torney who in an open-and-shut million-dollar case will probably

submit a small bill because the attorney didn’t spend a lot of time

on it, but another million-dollar case, the attorney might have a

very substantial bill because a tremendous amount of time was put

into it.

Mr. SMARR. I agree that there can be outliers, as you are describing. But I think the legislation is intended to treat the majority of

cases that come forward in some rational manner, and this system

has worked well in California for over 25 years.

Mr. SMITH. Thank you Mr. Goodlatte.

The gentleman from Massachusetts, Mr. Delahunt, is recognized

for his questions.

Mr. DELAHUNT. Mr. Smarr, how do you feel about capping CEOs’

salaries? You wouldn’t.

Mr. SMARR. I don’t think that would apply here.

Mr. DELAHUNT. Okay. I see it doesn’t apply in this case. This legislation also benefits HMOs; is that correct? Mr. Smarr.

Mr. SMARR. Would you say that again, sir?

Mr. DELAHUNT. This particular proposal before us benefits

HMOs; is that correct?

Mr. SMARR. To the extent that they are included in the malpractice claim, yes.

Mr. DELAHUNT. Thank you. There have been crises in the past,

haven’t there, in the mid-1970’s and the mid-1980’s?

Mr. SMARR. There have been periods where we have seen more

rapid escalation of multi——

Mr. DELAHUNT. Let’s call them crises. Would you agree with me

there have been crises in the past.

Mr. SMARR. Not to the extent we are seeing today. But if you

wish, yes.

Mr. DELAHUNT. Okay. Is part of the problem the fact—and you

are correct in your statement in terms of percentage of bond holdings that various insurers and insurance companies hold, the interest rates have gone down.

Mr. SMARR. That is true.

Mr. DELAHUNT. And is that a significant piece of the problem?

Mr. SMARR. It is a piece of the problem, but at the same time

bond values have gone up.

Mr. DELAHUNT. All right. I understand bond values, but in terms

of the flow of cash and income, you know when we are getting 1,

11⁄2 percent as opposed to 6 or 7 percent, it creates a significant

cash flow problem.

Mr. SMARR. We are getting 4 to 5 percent instead of 7.

Mr. DELAHUNT. I want to know where you are getting that 4 or

5 percent and I will change my portfolio accordingly.

Mr. SMARR. Long-term corporate bonds.

Mr. DELAHUNT. Okay. But, again, those long-term corporate

bonds, presumably 4 or 5 years ago you’d be getting 9 or 10 percent. What I am saying is that you know there is great disagreement in terms of what is causing this particular spike. But there

have been crises in the past and we have worked our way out of

them.

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Let me ask you this. Your association, PIAA, is it a for-profit organization, or—you said it is owned by physicians and other stakeholders in the health care system.

Mr. SMARR. The PIAA is an association, is a 501(c)(6) nonprofit.

The insurance company members are insurance companies, forprofit companies.

Mr. DELAHUNT. Okay. And those insurance companies were for

profit. To a large degree, they are owned by physicians and other

health care providers.

Mr. SMARR. Correct.

Mr. DELAHUNT. So they are making a profit obviously on the return of their investment.

Mr. SMARR. Yes, sir. It is necessary that they make a profit.

Especially——

Mr. DELAHUNT. Okay. Thank you. That is all, I just wanted to

know.

Why 250,000? How was that calculated in terms of a cap?

Mr. SMARR. Two hundred fifty thousand is the cap, as you know,

that was enacted in California.

Mr. DELAHUNT. But wasn’t that enacted back in 1975?

Mr. SMARR. Yes, it was.

Mr. DELAHUNT. Okay. That is all. I am just—I just want to continue because, again, we don’t have too much time. I have seen various studies, and maybe you could help me with this, that indicate

that deaths as a result of medical malpractice vary from 48,000 annually to 98,000 annually. Which is the right figure? Mr. Smarr.

Mr. SMARR. Well, the 98,000 figure comes from an extrapolation

of data of the Harvard medical practice study. In that study, 171

people were determined to have died partially because of——

Mr. DELAHUNT. Which figure do you accept?

Mr. SMARR. I don’t accept either one of them, sir.

Mr. DELAHUNT. You don’t?

Mr. SMARR. No. There is some number. I agree that there is

some number, but I don’t accept——

Mr. DELAHUNT. Is it closer to 48,000 or closer to 98,000?

Mr. SMARR. I do not know.

Mr. DELAHUNT. You don’t know. Okay. In terms of confidentiality

agreements, I understand most of these settlements that are made

are subject to a confidentiality agreement. Would you have any objection to an amendment to the bill that would allow confidentiality

agreements be at the discretion or at the option of the patient?

Mr. SMARR. I can’t comment on that because I am just not aware

of the nature of those agreements.

Mr. DELAHUNT. Okay. And the statute of limitations, why 3

years? What if—let me give you a hypothetical. What if, for example, the injury is not discovered during the course of a 3-year period?

Mr. SMARR. It’s my understanding it is 3 years from the time the

injury manifests itself.

Mr. DELAHUNT. No, you are wrong. It is from the time the injury

occurred. Would you be willing to change that, 3 years from the

date that the injury manifests itself?

Mr. SMARR. I would have to go and look at the legislation, sir.

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Mr. DELAHUNT. Okay. I just have one final question if I may. If

1 year after you found out—and, Mrs. Dyess, I know, believe me.

Mr. SMITH. Will the gentleman from Massachusetts yield and I

will read to him from the legislation?

Mr. DELAHUNT. I—what I would like to do is have an additional

minute because I know my questions, and I just want to—— Mr. SMITH. Let me read from the legislation and I will be happy

to grant you an additional minute.

Mr. DELAHUNT. Thank you.

Mr. SMITH. The time for the commencement of a health care lawsuit shall be 3 years after the date of manifestation of injury or 1

year after claimant discovers, or, through the use of reasonable

diligence, should have discovered the injury.

Now the gentleman is granted an additional minute.

Mr. DELAHUNT. Well, I thank my friend, the Chairman. I really—and I know we all sympathize with what you are saying, and

it really is a problem that has to be addressed in terms of access

to health care. I recently met a woman who had a son; his name,

Steve Olsen. He is a 12-year-old from San Diego who is blind and

brain damaged because of medical negligence. It was proven. When

he was 2 years old, he fell on a stick in the woods. Steve’s doctor

gave Steve steroids and sent him home. Although his parents

asked for a CAT scan, the doctor refused. The following day Steve

returned to the hospital in a coma because of the growing brain abscess he had developed which would have been detected had the

CAT scan been performed. At trial, the jury concluded that the doctor had committed medical malpractice and awarded $7.1 million

in noneconomic damages. Remember, this is a 12-year-old. One of

the jurors later explained that they saw Steve as a boy doomed to

a life of darkness, loneliness, and pain. He would never play sports,

work, or enjoy normal relationships with his peers. He would have

to endure a lifetime of treatment, therapy, prosthesis fitting, and

around-the-clock supervision. The judge, however, was forced to reduce that damage award to $250,000 because of the cap in California. What do you say to that mother? What do we say to that

mother?

Ms. DYESS. Do we ever hear about the good cases? Do we ever

hear anything good about what doctors do? No, we are here to hear

all the bad. We never hear about the good.

Mr. DELAHUNT. No, I am not here to bash or criticize doctors.

And I even think Mrs. Keller in her testimony indicated that it was

her neurosurgeon who worked a miracle. But this is about—it is

not about doctors. It is not about lawyers. It is not about anything.

And it ought to be about potential victims and patients like your

husband.

I yield back.

Mr. SMITH. Thank you, Mr. Delahunt. The gentlewoman from

Pennsylvania, Ms. Hart, is recognized for her questions.

Ms. HART. Thank you, Mr. Chairman.

Mr. Smarr, you noted in your testimony that 61 percent of medical malpractice claims are dropped or dismissed. Do you find that

this is typical across the spectrum of tort claims in all different

States? I am interested especially in Pennsylvania which is my

home. Our insurance rates in Pennsylvania have increased over

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125 percent over the last 4 years. Have the dropped or dismissed

cases impacted our rate jump differently and is that a number that

changes from State to State?

Mr. SMARR. It is a number that varies slightly from State to

State. I spent 13 years working in the Pennsylvania market and

the numbers there are very similar.

Ms. HART. Do you think that the dropped or dismissal rate is different in States, you know, some of the like white States, for example?

Mr. SMARR. I don’t know. I would have to find out.

Ms. HART. I would be interested in knowing that.

Mr. SMARR. I can get that for you.

Ms. HART. If you could possibly find that out for us.

Ms. HART. Okay. Dr. Palmisano, I happen to be a graduate of a

liberal arts college and as a result have a lot of friends who practice medicine now. They are all in pretty much a good spot in their

careers, beginning to take over and beginning their own practices.

One of my best friends is an OB-GYN who told me in November

that she was going to cease practicing by the end of the year because she had lost insurance coverage and didn’t see any hope of

being able to regain it. Aside from that problem—fortunately she

found insurance at the very last minute and is still practicing, but

at a much higher rate. Eighty percent of the doctors in Pennsylvania, according to the Pennsylvania Medical Society, say they

can’t even recruit new physicians for their practices. Do you see

that trend in other States? Is it more acute in the red States such

as mine?

Dr. PALMISANO. Yes, Ms. Hart. We see that in the States that are

designated as red States in crisis. In Wheeling, West Virginia, for

instance when I visited there and I met with the family practice

residents, every one that I—they brought the whole residency crew

to meet me and every one of them said that they were not going

to stay in West Virginia because of the liability situation. They

were going to go somewhere where it was more stable.

Ms. HART. Okay. Then, as far as this issue—and you say it is actually reaching pretty deeply into health care provision. Do you

find—and it seems to me, from what I have heard about Pennsylvania, for example, the Uniontown Hospital, which is in Fayette

County, which is a very poor area, now doesn’t provide any obstetric services. It seems that health care for the poor has actually

been made significantly worse by this crisis. Do you see that happening in other regions across the country? Is it adversely affecting

the poor even more?

Dr. PALMISANO. Yes. We find that people who would volunteer to

work in clinics are saying that they are unable to do this because

of the liability problems and some of these clinics are closing. We

have heard people come forward and say that they wouldn’t be able

to continue their services because of the liability for the clinic. We

have had physicians come and give statements regarding volunteer

work that they wanted to do as retired physicians and go into

areas where they could help, where there was no available physicians in that area, that they are—because of the liability climate

they are unable to do that, and they want to do that. So there are

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a number of people that are willing to do that but they are just

concerned about the liability system.

Ms. HART. I read recently in that vein, a story of a physician who

had wanted to volunteer, had been consistently volunteering like 6

months at a time on Indian reservations providing medical services, and just recently, just couldn’t do it because of the liability

costs.

I have one quick final question, and that is—actually I think

probably both Mr. Palmisano and Mr. Smarr—regarding the claim

that California’s success in this area is not really due to MICRA

but due to Prop 103. Do either of you have a comment on that?

Mr. SMARR. Yes, I do. Prop 103, as I testified earlier, was an auto

initiative that also included malpractice insurers. But the crux of

this matter is that the malpractice insurers reached agreements

with the insurance commissioner, and I have them here and I

would like to present them to be included in the record, if you

would, that they did not have to roll back their rates. They made

a one-time return of premium equal to 20 percent of annual premium to be paid as a dividend. This happened at a time when the

California malpractice carriers were paying dividends in excess of

20 percent. And so it was a way to break the logjam to get these

unintended targets, or nontargets rather, out of the way and to go

on and deal with the auto carriers which were the real focus of the

issue. So that is—it just didn’t have an effect.

Mr. SMITH. Thank you, Ms. Hart.

The gentleman from California, Mr. Schiff, is recognized for his

questions.

Mr. SCHIFF. I thank the Chairman and in particular want to

thank Mrs. Keller and Mrs. Dyess for coming today and sharing

your personal stories with us. I am from California and very familiar with the MICRA law out there, and MICRA did impose

$250,000 limits but that was a quarter of a century ago.

Doctor, why wouldn’t it be appropriate in this bill to remedy

what many in California see as a flaw of the MICRA bill, that

MICRA never had a cost-of-living adjustment? Two hundred fifty

thousand dollars in California a quarter of a century ago was very

different than today. Why not add a COLA to this bill?

Dr. PALMISANO. That question comes up on a number of occasions and what we note is that the California market is stable. It

is a proven treatment. We know that the Medical Society of New

Jersey wanted some advice on some bills that were introduced in

New Jersey and they called in Tilling Haas in the last couple of

months, and they said that those particular bills would not lower

rates. But, they did comment on caps. They said that a $250,000

fixed cap would stabilize the market and decrease the insurance

rates, and they said as you increase the noneconomic cap to the

point that when this reaches $500,000 it no longer has any effect.

So, that is a recent study done by Tilling Haas.

Mr. SCHIFF. That really doesn’t answer my question. If you put

a COLA in this bill, then it doesn’t get to $500,000 until so many

years of cost-of-living increases have gone up. Why not have a costof-living adjustment in this? Plainly it would have the same effect

on the insurance premiums. It might not be quite as dramatic as

without the COLA, but isn’t what really is going on here is that

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in California there has been an inability to pass a COLA because

of the institutional difficulty of really changing anything in this

area? And isn’t the lack of a COLA in this bill really premised on

the same presumption of inaction in Congress, that if we pass this

bill with no COLA in it, it will be at least another quarter of a century before a COLA can be provided? What would be unfair about

having a cost-of-living adjustment so that this amount is not static

over the years?

Dr. PALMISANO. Well, you know, Missouri did—the State of Missouri did pass a cap with—that could increase the cost-of-living.

And now they have become—they are now over $500,000 with their

cap and now have turned into a red State, a crisis State. Also in

H.R. 5—— Mr. SCHIFF. Doctor, is your contemplation, then, that this cap

should go on indefinitely at this amount?

Dr. PALMISANO. It depends what the future holds. What we do

know it has a flexi-cap provision.

Mr. SCHIFF. Well let me ask you, then, another question. I do

think there is a crisis and a problem here. What I want to make

sure is that the solution is one that works over time but also addresses the problem. And if I could, Mr. Smarr, the presumption

is if we pass this bill, insurance premiums go down, correct?

Mr. SMARR. Correct.

Mr. SCHIFF. Would you be willing to support a sunset provision,

that if we pass this bill and, in fact, insurance premiums do not

go down, that rather than the difference is merely pocketed by the

insurance companies, that the bill will be sunsetted?

Mr. SMARR. I can’t speak to that because I am speaking for my

organization. I don’t know.

Mr. SMITH. Would the gentleman from California yield for a second? A few minutes ago Mr. Smarr testified that they may not go

down. They just may not increase as quickly as projected. So you

might want to incorporate that into your question. Thank you for

yielding.

Mr. SCHIFF. Well, I mean this is really a part of what I am trying

to wrestle with, which is are we merely going to be enhancing the

bottom line of the insurance firms without doing anything for the

patients that are really at the core of this? This seems to be a

struggle between the doctors, the lawyers, and the insurance companies. And I am not clear that the outcome is going to really benefit the patients yet, at least from what I have learned thus far.

Let me ask about one other point, Doctor, if I could, on the preemption question. Because after your testimony I went through the

bill because I wasn’t sure I understood the preemptive impacts. As

I read the language of the section now, it provides that State limits

on compensatory or punitive damages would be allowed to maintain, unless there were no such limits, whether you passed them

before this bill or after this bill. They would continue on and not

be preempted. But other than that, and defenses that are available

to hospitals or HMOs or health care providers which would also not

be preempted, everything else would be preempted. So the rules

about statutory limitations in States would be preempted. Fair

share rules would be preempted, contingent fees would be preempted, collateral source rule would be preempted.

85

Mr. SCHIFF. The standard for punitive damages might be preempted; is that your reading? If the bill says that only the amounts

will not be preempted, does that mean that this Federal law would

change the standard for when punitive damages can be demonstrated in the 50 States, such that if one State felt that to protect its patients, it needed to make it easier for people to prove the

punitive damages standard, that that would not be preempted by

what we are doing now?

Mr. SMITH. The gentleman is recognized for an additional minute

to get an answer to his question.

Dr. PALMISANO. Let me make sure. I will talk to counsel to make

sure that I know how to answer this properly.

Thank you for your patience. If there are punitive damages—if

there are no punitive damages, for instance, in Louisiana there are

no punitive damages unless someone is killed. There are two exceptions, but it has nothing to do with medical malpractice; it has to

do with someone who is drunk and kills someone while driving intoxicated.

So it would not give punitive damages in the State of Louisiana.

What it would do is, it—if the State had a lesser standard, this

would preempt it as far as the punitive damages, the way I understand it.

Mr. SCHIFF. So that while a State could continue to maintain a

certain limit on punitive damages, the standard of proof that you

would have to meet would be preempted by this bill?

Dr. PALMISANO. If it was lesser.

Mr. SCHIFF. If it was less rigorous. In other words, if California

or any other State—— Dr. PALMISANO. If it was a less rigorous State law.

Mr. SCHIFF. So it is not only the naked amounts of the damages

that are not preempted, but the level of protection that a State

wishes to give in terms of how it defines when punitive damages

should be awarded, that would be preempted, as well as all of the

other provisions that I mentioned?

Dr. PALMISANO. That is correct, talking to legal counsel, yes.

Mr. SMITH. Thank you.

The gentleman from Michigan, the Ranking Member of the Judiciary Committee, Mr. Conyers, is recognized for his questions.

Mr. CONYERS. Thank you, Mr. Chairman.

I want to thank Mrs. Keller and Mrs. Dyess for being here today.

Their testimony was very important. We appreciate you helping us

out.

Now, I want to talk to the President-elect of the AMA, who is a

renowned jazz aficionado from New Orleans. And I appreciate my

earlier talks with him.

But this conversation is about a board of trustees of the American Medical Association, Report 35, that responds to Resolution

212 instructing the board of trustees to make professional liability

reform the association’s highest priority and to report back to the

House of Delegates on the activities initiated.

And here is the part that we have to talk about. For several

years, insurers kept prices artificially low while competing for market share and new revenue to invest in a booming stock market.

As the bull market surged, investments by these historically conVerDate 11-MAY-2000 00:10 Apr 11, 2003 Jkt 000000 PO 00000 Frm 00089 Fmt 6633 Sfmt 6601 G:\WORK\FULL\030403\85403.000 HJUD3 PsN: HJUD3
86

servative insurers rose to 10.6 percent in 1999, up from a more typical 3 percent in 1992.

With the market now in a slump, the insurers can no longer use

investment gains to subsidize low rates. The industry reported realized gains of $381 million last year,

down 30 percent from the high point in 1998, according to the A.M.

Best Company, one of the most comprehensive sources of insurance

industry data. Remember that?

Dr. PALMISANO. Yes, sir.

Mr. CONYERS. Okay. And this phrase, or this sentence, ‘‘Insurers

now acknowledge their miscalculation. ’We should have raised

prices sooner,’ said Mike Miller, the senior executive in charge of

liability coverage at the St. Paul Companies.’’ Remember that?

Dr. PALMISANO. Yes, sir.

Mr. CONYERS. Okay. But in your testimony, Mr. President, you

made no reference to the economic circumstances that have caused

malpractice insurance premiums to rise.

Is that—well, you tell me why there was no reference made.

Dr. PALMISANO. Well, when—this was in the annual report 2002,

Mr. Conyers—and it is good to see you again, sir. We did cite the

latest information that we could get in our written testimony,

which talks about the investment income being stable. We continue

to gather information and knowledge.

But even if you take this statement, as—the statement that the

insurers failed to raise the rates sooner, we would have had the crisis sooner, because the rates are determined, according to these experts, by frequency and severity in the defense costs.

Mr. CONYERS. So that is why you left it out?

Dr. PALMISANO. We didn’t leave it out intentionally. We are just

trying to give you something that is the latest information that we

have.

Mr. CONYERS. I appreciate it.

If you get any new information along these lines, would you

make it personally available to me?

Dr. PALMISANO. Yes, sir.

Mr. CONYERS. I am not able to make too many of those meetings.

Dr. PALMISANO. Thank you, I will.

Mr. CONYERS. Now, Mr. Smarr, this is known as true or false:

A comparison of States that have enacted severe tort restrictions

and those that have not reformed found no correlation between tort

reform and insurance rates?

Mr. SMARR. I am not aware of the study.

Mr. CONYERS. But are you aware of the statement?

Mr. SMARR. I am aware of——

Mr. CONYERS. Is it true or false?

Mr. SMARR. If it is the statement that I am aware of, then that

statement is false.

Mr. CONYERS. Okay. Are you aware of the Center for Justice and

Democracy?

Mr. SMARR. I am.

Mr. CONYERS. They are the ones that did the report.

Mr. SMARR. Then the statement is false.

Mr. CONYERS. Because of who it came from?

87

Mr. SMARR. Because I have reviewed the work of the Center for

Justice and Democracy, and I do not agree with it.

Mr. CONYERS. Okay. I see.

Number two: Some of the resisting States have experienced lower

increases in rates while some States that enacted tort reforms experienced higher rate increases relative to national trends. True or

false?

Mr. SMARR. If the source is the Center for Justice and Democracy, I do not agree.

Mr. CONYERS. Well, suppose it wasn’t from them.

Mr. SMITH. The gentleman is recognized for an additional

minute.

Mr. CONYERS. But, I mean, in your experience, we are not testing

the Center for Justice and Democracy, we are testing—we are trying to seek your experience in this market, of which you are a professional, to determine whether you agree with these, regardless of

where it came from.

Do you want me to read it again?

Mr. SMARR. Please.

Mr. CONYERS. Some of the resisting States experienced lower increases in insurance rates, while some States that enacted tort reforms experienced higher rate increases relative to the national

trends.

Mr. SMARR. That statement could be true depending on the context and the States.

Mr. CONYERS. All right.

Mr. SMITH. If you will yield, I will grant the gentleman 2 additional minutes and hope he can conclude.

Mr. CONYERS. I thank you for your kindness.

In the practice of internal medicine, States with caps on damages

in some States had higher premiums than States without caps.

Mr. SMARR. Again, sir, it would depend upon the analysis. I have

seen studies that show that those are not truthful analyses.

Mr. CONYERS. Uh-huh. So what do you think about this as a general proposition?

Mr. SMARR. I think, in general, sir, that States that have adopted

tort reforms have lower rates and have lower rates of increase than

States that have not adopted tort reforms.

Mr. CONYERS. Good. Thank you very much.

Okay. Two more and we are through.

For general surgeons, insurance premiums have been 2.3 percent

higher in States with caps on damages.

Mr. SMARR. I don’t know that that is true.

Mr. CONYERS. Okay. And here is the last one. On average, malpractice premiums have been no higher in the 27 States that have

no limitations on malpractice damages than in the 23 States that

do have such limits.

Mr. SMARR. Again, I don’t know that that is true.

Mr. CONYERS. All right. Well, you have done very well on this

true and false test. I want to compliment you.

And I want to thank the Chairman for the additional time.

Mr. SMITH. Thank you, Mr. Conyers.

Before we adjourn, I want to recognize two Members so that they

can each ask an additional question. And what I would ask them

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to do is to keep the exchange short out of fairness to the Members

who have already left, because they were not expecting to be able

to ask additional questions.

The first person to be recognized is the gentleman from Virginia,

Mr. Scott.

Mr. SCOTT. Thank you, Mr. Chairman. And, I will just ask a

somewhat brief question. We are talking on the joint and several

problem.

If Mr. Smarr could indicate what the costs would be in terms of

expert witness fees to prove all of the cases—in Mrs. Keller’s case,

against the physician, a nurse, an ambulance driver, hospital, the

neurologist, emergency room at the hospital. About what kind of

expert witness fees are we talking about, and whether or not,

under the bill, those fees would be covered by—within the attorneys’ fees limitation, or would the plaintiff just have to pay these

out of whatever was left of the settlement?

Mr. SMARR. Those fees—expenses are not paid, generally, out of

the contingency portion of an award; they are in addition to the

award.

As to the level of those fees, I have never seen any data on plaintiff expert witness fees and the like. I don’t know that it is published.

Mr. SCOTT. You have expert witness fees on the defense side?

Mr. SMARR. Yes, we do.

Mr. SCOTT. How much do you pay your doctors to testify?

Mr. SMARR. I can’t give you an accurate answer. But I do have

that data, and I will provide it to you and to the Committee.

Mr. SMITH. Thank you, Mr. Scott.

The gentlewoman from Texas, Ms. Jackson Lee, is recognized for

her question.

Ms. JACKSON LEE. As I indicated, I read some numbers into the

record that show that whether or not you are in a crisis or not, the

quality of care, or the quality of care in terms of a particular State

is no better, no worse—Texas, 49th in quality of care; Louisiana,

51; and California, 44. In those States, those last two States have

implemented some sort of reform.

Mr. SMITH. Are those figures, are they quality of care or expenditures, median expenditures?

Ms. JACKSON LEE. Quality of care.

Mr. SMITH. Who did the rankings of those?

Ms. JACKSON LEE. Quality of care, it was reported in the Journal

for the American Medical Association. It was—the source is the

American Health Quality Association on Care Delivered to Medicare Beneficiaries.

Mr. SMITH. Thank you.

Ms. JACKSON LEE. I don’t have a quarrel, Dr. Palmisano, with

you and the victims that are here in this room. I think the important point is, how can we resolve you being able to do your job

weeding out bad doctors, promoting good doctors and saving the

lives and helping these victims? So, Mr. Smarr, let me ask you

these questions regarding who my quarrel actually is with.

First of all, I would like you to provide us with a 5-year reading

of the profits of your organization. I don’t know if it is in your documentation. I did not see it. But I would like to know whether you

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would accept amendments regarding the idea that if a physician

has had a clean record, as many of the physicians in my congressional district have had, that they will be guaranteed not only a,

if you will, tabling or staying of their rates, but a decrease in their

rates and, as well, that we would put in the language that those

rates would remain in place for 5 years.

In addition, I would like to ask you the question as to how serious is the consideration—I know you are a corporation, and I am

not sure what the incorporation status is—of your need for profits

over the ability to ensure those who are seeking insurance?

My understanding is—from the physicians in my community is

that basically no matter how well they practice medicine the insurance rate goes up, up and up, regardless of whether they are making profits or not, and mostly it goes up because you are attempting to make profits as opposed to serving as physicians and helping

victims.

Mr. SMARR. Well, most of the doctors in Texas are insured by the

Texas Medical Liability Trust, which is a physician-owned——

Ms. JACKSON LEE. Let us not speak to the Texas issue. I just

used them as an example.

I want to ask whether your organization would accept those

amendments of staying—of decreasing the cost of any physician

who could show that they have not been sued and, as well, staying

those costs for 5 years; and also to give me your record of profits

over the last 5 years.

Mr. SMARR. The record of profits, I will be glad to provide to you.

In fact, that is stated in my written testimony, the first exhibit.

Secondly, in terms of freezing rates for physicians that do not

have claims experience, I can’t commit to the members of my association that that would do that. But I——

Ms. JACKSON LEE. Wouldn’t that be reasonable, that if you are

not a problem, that your rates should not go up?

Mr. SMITH. We have been generous in allowing you extra time.

But we will need to conclude our——

Ms. JACKSON LEE. I appreciate it, Mr. Chairman. I will let him

answer the question.

Isn’t that reasonable, Mr. Smarr?

Mr. SMARR. It is reasonable. It is being done now. Because insurers do employ merit rating plans where doctors that have—do not

have significantly adverse loss experience either receive discounts,

or those doctors that do have significantly adverse loss experience

receive surcharges.

Ms. JACKSON LEE. So you wouldn’t mind its being federalized in

this bill?

Mr. SMITH. The gentlewoman’s time has expired.

Ms. Jackson Lee, your time has expired.

Ms. JACKSON LEE. Thank you.

Mr. SMITH. I would like to thank all Members for their participation today, and also our witnesses for their input. You have been

instructive and revealing, which will be helpful to us as we consider the HEALTH Act.

The Judiciary Committee stands adjourned.

[Whereupon, at 11:30 a.m., the Committee was adjourned.]

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A P P E N D I X

STATEMENTS SUBMITTED FOR THE HEARING RECORD

PREPARED STATEMENT OF THE ALLIANCE OF SPECIALTY MEDICINE

ASSESSING THE NEED TO ENACT MEDICAL LIABILITY REFORM

Chairman Sensenbrenner, and Members of the Committee, the Alliance of Specialty Medicine, a coalition of 13 medical organizations representing over 160,000

specialty care physicians in the United States, appreciates the opportunity to comment on the impact that our current medical litigation system is having on patient

access to medical care and the need to enact medical liability reform legislation. The

Alliance would also like to take this opportunity to thank you for the leadership that

you and your committee have shown on this issue. We believe that the reforms contained in HR 5, the Help, Efficient, Accessible, Low Cost, Timely Health Care Act,

which were approved by your Committee last year, will go a long way to solve the

current medical liability crisis.

And it is a crisis. The media now report on a daily basis that the situation has

become so critical that many physicians are forced to limit services, move to other

states where the medical liability system is more stable, or retire altogether. Much

of the ‘‘face’’ of this crisis has centered around the great difficulties that pregnant

women are having in finding obstetricians to deliver their babies, but the simple

truth is that this is a problem that potentially affects all of our citizens: the mother

whose little boy has fallen off of the jungle gym and needs an orthopaedic surgeon

to fix his broken arm; the teenager who has been in a serious car accident and

needs a neurosurgeon to treat his severe head injury; the woman who needs a pathologist to evaluate her Pap smear to screen for cervical cancer; the elderly man

who has a poor heart and needs a cardiologist or cardio-thoracic surgeon to unblock

a clogged artery or replace a failing valve; the woman who has a family history of

breast cancer and needs a radiologist to perform a mammography to make sure she

is cancer free; the business man who needs a gastroenterologist to treat his ulcer;

the man who needs a urologist to screen for prostate cancer; and the list goes on

and on.

Cause of the Crisis: The Current Medical Litigation System is Out of Control

The root cause of this problem is quite simple: the unrestrained escalation of jury

awards and settlements, in even a small number of medical liability cases, is driving

up doctors’ liability insurance premiums and is forcing some insurance companies

out of business altogether. This problem is making it difficult, and sometimes impossible, for doctors to obtain affordable liability insurance so they can remain in practice. Adding to this is the fact that doctors distrust and fear the medical litigation

system, causing them to alter the way they deliver medical care to their patients,

and in some cases this fear is causing doctors to cease practicing altogether. There

is a wide body of evidence to substantiate these conclusions:

Medical Liability Awards are On the Rise

Medical liability awards have been growing steadily, and according to Jury Verdict Research data, from 1994 to 2000 the median jury award rose by 176 percent.

The number of mega-verdicts is also on the rise, with the proportion of million

dollar plus awards increasing dramatically over this same time period. In 1996,

34 percent of all jury awards exceeded $1 million. Four years later, the number

of million dollar awards increased to 52 percent, and the average jury award in

2000 was nearly $3.5 million.

Medical Liability Insurance Premiums are Skyrocketing

It is clear that the increasing number of multi-million dollar jury awards is driving up the costs of medical liability insurance and insurance companies are now

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paying out approximately $1.40 for every premium dollar collected. Obviously,

this is not sustainable, and this trend is therefore forcing insurance companies,

which must set their rates based on anticipated future losses, to steeply increase

doctors’ medical liability premiums to ensure adequate reserves to pay future

judgments. As a result, over the past several years, physicians across the country

have faced double, and sometimes triple, digit rate increases. Alliance members,

including high-risk specialists like neurosurgeons, orthopaedic surgeons and emergency physicians, have been disproportionately affected by these premium increases. For example:

• According to a national survey of neurosurgeons, between 2000 and 2002 the

national average premium increase was 63%, from $44,493 to $72,682. In some

states, neurosurgeons are now paying medical liability insurance premiums in

excess of $300,000 per year.

• Utah orthopaedic surgeons have seen medical liability rate increases of 60%

since last year and in Texas they are rising by more than 50 percent. In Pennsylvania, a survey conducted in June 2002 revealed rate increases as high as

59 percent. In other areas of the country, orthopaedic surgeons are finding that

their premiums have risen by over 100 percent, even if they have never had

a claim filed against them.

• Over the past several years, over 95 percent of emergency medicine physicians

have experienced medical liability premium increases, with approximately 69

percent facing increases between 60 to 500 percent. This is attributed to the

fact that emergency medicine physicians are almost always named in any litigation that arises from a patient encounter that begins in the emergency department. Since most hospital admissions now come through the emergency department, these doctors are experiencing steep premium rises even though the lawsuits against them may have no merit and result in either dismissal or a defendant’s verdict.

• Even those specialists who are not in high-risk categories are affected by this

upward trend in premium costs. For example, 80 percent of recently surveyed

dermatologists reported that their premiums increased last year and those dermatologists who were insured by a state plan were paying nearly double what

their colleagues were paying in the private market.

Medical Liability Insurance is Unavailable

Not only are medical liability insurance premiums rising at astronomical rates,

but many doctors are also finding it increasingly difficult to obtain medical liability insurance at any price. Citing the increases in liability losses, several companies, including, St. Paul, MIXX, PHICO, Frontier Insurance Group and Doctors

Insurance Reciprocal, have recently stopped selling medical liability insurance or

have gone out of business, leaving thousands of doctors scrambling to find replacement coverage. Of the companies that have remained in the market, many are

no longer renewing insurance coverage for existing policyholders and/or they are

not issuing new insurance policies to new customers. This is particularly true in

states that have no effective medical liability reform laws in place, where, for instance, in Mississippi fifteen insurers have left the market in the past five years.

Alliance members have witnessed the impact of this problem first hand. For example:

• In 2002, nearly 40 percent of orthopaedic surgeons in Pennsylvania were not

able to renew their medical liability coverage with the same carrier and 31 percent did not find new coverage. Close to 50 percent of Pennsylvania orthopaedic

surgeons have reported that their liability policies will not be renewed for 2003.

• In 2002, 15 percent of dermatologists experienced difficulties securing their liability insurance. In some cases, dermatologists in solo practice who have never

even been sued were forced to turn to the state for coverage because the remaining insurers in their area made a blanket decision to no longer insure solo

practice physicians, regardless of specialty.

• Today in Mississippi, the only way a neurosurgeon can even be considered for

coverage is if he or she joins an existing group that already is covered by the

state medical society’s insurance company. The other two companies providing

insurance coverage in Mississippi will not issue new policies for neurosurgeons

at all. In addition, neurosurgeons in Florida have been unable to obtain medical

liability insurance at any cost, forcing them to ‘‘go bare’’ or self-insure.

• Recently one internationally-recognized pathologist, who has never had a claim

filed against him, was turned down by three insurers and a fourth offered him

a policy that was simply too expensive.

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• Three of four insurance carriers with the largest market share in Missouri have

stopped writing policies in that state. This means that physicians can often obtain a quote from only one company. For example, one group of 12 cardiologists

could get only one quote with an 80 percent increase for 2003.

Medical Litigation System Breeds Fear in Doctors

Given the litigious nature of our society, every physician faces the reality that he

or she may at some time be named in a medical liability lawsuit, whether meritorious or not, and the current medical litigation system breeds fear in all doctors.

This fear of litigation, particularly among high-risk specialists, is a contributing

factor in doctors’ decisions to change the way in which they are practicing medicine. Data from a 2002 Harris Interactive study conducted for the Common Good,

a bipartisan legal reform organization, validates this point. According to the data,

nearly all physicians feel that unnecessary care is provided because of fear about

litigation. To protect themselves in the event that they might be sued:

• 91 percent of doctors are ordering more tests than are medically needed;

• 85 percent of doctors refer patients to specialists more often than is necessary;

and

• 73 percent of doctors suggest that patients have invasive procedures to confirm

medical diagnoses

The report aptly concludes: ‘‘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.’’

Result of the Crisis: Patient Access to Medical Care is in Jeopardy

There are many casualties of the current medical liability crisis—but those affected the most are patients. Because the medical litigation system is broken, across

the nation patients are finding it harder and harder to get access to the care they

need, when they need it. As medical liability insurance becomes unaffordable or unavailable, more and more doctors, especially specialists, are no longer performing

high-risk procedures, or they are being forced to move their practices to states with

stable medical liability systems, or they are simply retiring from medical practice—

all of which seriously impede patient access to care. Once gone, these doctors are

hard to replace, and those states currently facing a medical liability crisis are having a difficult time recruiting new physicians to their communities adding to the

shortage of doctors in many parts of the country. The combination of these factors

is also now severely straining our nation’s already stressed emergency medical system, as patients who have no access to doctors inevitably end up on the emergency

department’s doorsteps, further exacerbating the hospital emergency department

overcrowding problem. A growing list of examples demonstrates just how serious

this crisis is becoming:

Doctors are No Longer Performing Complex and High-Risk Medical

Procedures

• According to a nationwide survey conducted last year, 43 percent of neurosurgeons reported that they are no longer performing high-risk surgery such as

treating brain aneurysms, removing brain and spinal tumors, or complex spinal

surgery. In addition, many neurosurgeons are no longer serving on-call to hospital emergency departments or operating on children.

• A recent survey found that 55 percent of orthopaedic surgeons nationwide have

reduced the type of operational procedures they perform, with 39 percent avoiding performing spine surgery and 48 percent altering their practice in other

ways, including eliminating emergency room call or trauma call.

• The elderly are particularly affected, as decreases in reimbursements for complex medical procedures have declined to the point where Medicare no longer

even covers the cost of medical liability insurance. Specialists with a high volume of Medicare patients, such as cardiologists and cardio-thoracic surgeons,

and their patients who need high-tech, lifesaving heart therapy, will feel the effects the most.

Doctors, Trauma Centers and Other Medical Providers are

Closing their Doors

• In the case of neurosurgery, in 2001 alone, 327 board certified neurosurgeons

retired, representing an alarming 10 percent of the neurosurgical workforce in

the United States. Recently, the only neurosurgeon practicing at Cottonwood

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Hospital in Salt Lake City, Utah quit practicing following a steep insurance premium increase.

• Recent press accounts are replete with stories about the closure of trauma centers in Pennsylvania, West Virginia, Nevada, Mississippi, Missouri and Florida

because of a shortage of orthopaedic surgeons, neurosurgeons and other specialists available to provide emergency medical care. Chicago’s trauma centers are

also now vulnerable to closing or downgrading their status.

• In the last 18 months, nearly 700 mammography facilities have closed nationwide. The continued and steady closing of mammography facilities throughout

the country has led to increased waiting times for women seeking both screening mammograms and diagnostic mammograms. The longer waiting times are

now on the brink of affecting clinical outcomes for those women who must wait

for a possible diagnosis of breast cancer.

Doctors are Moving to States with a More Favorable Medical Liability

Climate

Every state that is experiencing a medical liability crisis reports that doctors are

leaving in droves in search of another location in which to practice where the

medical litigation climate is more favorable. The list of states experiencing the exodus of doctors continues to grow, and as with other elements of this crisis, specialists are most likely to ‘‘hit the road’’ in search of a safe haven state. For instance:

• Pennsylvania has been especially hard hit, and some counties no longer have

any practicing orthopaedic surgeons. For example, Bedford County’s only

orthopaedic surgeon left the state in October 2001, and Pike and Monroe Counties are down from nine to five orthopaedic surgeons. Huntingdon County has

just one orthopaedic surgeon remaining to take trauma call at two hospitals.

The situation is the same in West Virginia, and a number of orthopaedic surgeons either have left the state or are scaling back their practices. At the end

of 2002, five orthopaedic surgeons in Parkersburg moved their practice to Ohio.

• Neurosurgery’s survey data show that nearly 19 percent of practicing neurosurgeons either plan to, or are considering, moving their practice to another

state where the medical liability costs are relatively stable. Mississippi, for instance, has lost 35 percent of its neurosurgeons in the past two years, and the

flight of neurosurgeons from Pennsylvania and West Virginia mirrors the Mississippi experience.

The State of America’s Health Now and in the Future is at Risk

The combination of all the above factors is clearly placing the health of our nation’s citizens at considerable risk. Because of the medical liability crisis, more

and more people are finding it difficult to get the specialized medical attention

they need, when they need it. This is causing a national health care emergency.

Thus:

• When patients can’t find a specialist close to home, they must sometimes travel

great distances, often going out of state, to get their medical care.

• When fewer specialists are available, hospital emergency departments and trauma centers must shut their doors, and patients with emergency medical conditions lose critical life-saving time searching for an available emergency room.

• When specialists stop performing high-risk medical services, patients are often

referred to academic medical centers, and these medical facilities are already

overburdened and are ill equipped to handle the increase in patient volume.

• When specialists retire at an early age, the looming shortage of doctors is accelerated, which, if left unchecked will place additional burdens on the health care

system as the population ages and requires more medical care from an increasingly shrinking pool of practicing doctors.

• When the practice of medicine becomes so uninviting, fewer and fewer of our

nation’s best and brightest will want to become doctors, thus jeopardizing our

country’s status as one of the finest health care systems in the world.

Scope of the Crisis: A National Problem that Requires a Federal Solution

Those who oppose federal legislation to address this crisis cite various reasons to

support their contention that this is not a national problem that merits a federal

solution. In particular, they note that the regulation of insurance and health care

are generally state issues, and therefore principles of Federalism preclude federal

legislation to address this problem. They are, however, wrong. The undisputed truth

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is that this problem now touches nearly every American and a federal solution is

therefore a national imperative. As the following demonstrate:

Nearly All States are Facing a Medical Liability Crisis

The AMA has identified 12 states that are in a medical liability crisis for all physicians. These include: Florida, Georgia, Mississippi, Nevada, New Jersey, New

York, Ohio, Oregon, Pennsylvania, Texas, Washington and West Virginia. However, for many high-risk specialties, like neurosurgery and orthopaedic surgery,

the situation is even more widespread than the AMA reports. A 2002 national

survey of neurosurgeons identified 25 states that are in a severe medical liability

crisis, with an additional 12 states in potential crisis. In addition to those identified by the AMA, the crisis states for neurosurgery include: Alabama, Arkansas,

District of Columbia, Illinois, Kentucky, Missouri, New Hampshire, North Carolina, South Carolina, Rhode Island, Tennessee, Utah and Virginia.

Every American Pays for the Costs of the Current Medical

Litigation System

According to the U.S. Department of Health and Human Services (HHS), in its

report entitled, ‘‘Confronting the New Health Care Crisis: Improving Health Care

Quality and Lowering Costs by Fixing our Medical Liability System,’’ the current

medical litigation system imposes enormous direct and indirect costs on the

health care system. These costs are passed on to all Americans in the form of increased health insurance premiums, higher out-of-pocket medical expenses and

higher taxes. The report estimates that enacting federal medical liability legislation could save between $60–108 billion in health care costs each year. These savings would in turn lower the cost of health insurance and make health care more

affordable and available to many more Americans.

Federal Medical Liability Reform Will Save the Federal Government

Money

Each year, the Federal Government pays for the increased costs associated with

the current medical litigation system through various health care programs, including Medicare, Medicaid, Community Health Centers and other health care

programs for veterans and members of the armed forces. The Department of

Health and Human Services estimates that the direct cost of medical liability insurance coverage and the indirect cost of defensive medicine, increases the Federal Government’s costs of these health programs by $28.6 to $47.5 billion each

year. In the above referenced report, HHS estimates that if reasonable limits were

placed on non-economic damages, it would reduce Federal Government spending

by $25.3 to $44.3 billion per year. The Congressional Budget Office (CBO), in its

cost estimate of HR 4600, the HEALTH Act of 2002, confirms that passage of federal medical liability reform legislation that includes a cap on non-economic damages will increase federal tax revenues, and at the same time reduce the costs of

federal health care programs.

States Face Significant Barriers to Implementing Medical Liability

Reforms

Many states face barriers—some legal and some political—to enacting effective

medical liability reform laws. Some states, including Texas, Florida, Ohio and

Pennsylvania, have enacted medical liability reform laws, only to have their state

Supreme Courts strike them down as unconstitutional. New laws passed by Mississippi and Nevada face certain court challenge, and it will be years before it is

determined whether these laws pass state constitutional muster. Finally, in some

other states, the issue has become a political one, effectively killing any chances

for passage. As a consequence, despite the increasing medical liability crisis in

many of these states, they are effectively powerless to act to effectively solve the

problem.

Solution to the Crisis: Medical Liability Reform Legislation Patterned After California’s MICRA

Fortunately, Congress does not need to start from scratch and identify and implement a solution that is untested. Faced with a similar crisis in the early 1970’s, the

state of California, with bipartisan support, enacted the Medical Injury Compensation Reform Act or MICRA. The key elements of MICRA include:

• Providing full compensation for all economic damages, including medical bills,

lost wages, future earnings, custodial care and rehabilitation;

• Placing a fair and reasonable limit of $250,000 on non-economic damages,

such as pain and suffering;

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• Establishing a reasonable statute of limitations for filing a lawsuit;

• Allowing for periodic payments of damages rather than lump sum awards;

and

• Ensuring that the bulk of any award goes to the plaintiffs, not attorneys

The clear and simple truth is that MICRA works. For nearly three decades, this

law has ensured that legitimately injured patients get unfettered access to the

courts and receive full compensation for their injuries, while at the same time

providing stability to the medical liability insurance market to ensure that doctors can remain available to care for their patients. In a similar manner, the

HEALTH Act will ensure that patients and doctors nationwide will reap the

benefits of this rational approach to solving the professional liability crisis.

Consider the following points about the effectiveness of MICRA:

MICRA Fully Compensates Injured Patients

First and foremost, under MICRA, patients receive full compensation for legitimate injuries resulting from medical negligence. Detractors of federal reform legislation are attempting to obfuscate the facts by scaring the public and policymakers into believing that injured patients will only receive a maximum of

$250,000 to compensate them for their injuries. This is simply not the case. Patients receive full compensation for all of their quantifiable needs, with up to an

additional $250,000 for non-economic damages, such as pain and suffering. To

demonstrate this fact, the Californians Allied for Patient Protection recently compiled a sample of total awards (including both economic and non-economic damages) provided to injured patients. For example:

December 2002

$84,250,000 total award

Alameda County

5-year-old boy with cerebral palsy and quadriplegia because of delayed treatment of jaundice after birth.

October 2002

$59,317,500 total award

Contra Costa County

3-year-old girl with cerebral palsy as a result of birth injury.

July 2002

$12,558,852 total award

Los Angeles County

30-year-old homemaker with brain damage because of lack of oxygen during recovery from surgery.

November 2000

$27,573,922 total award

San Bernardino County

25-year-old woman with quadriplegia because of failure to diagnose a spinal injury.

MICRA Significantly Minimizes Premium Increases

Opponents of reform cite statistics that over the past several years, premiums for

doctors in California have also been rising; thus proving that MICRA does not

have any impact in holding down the costs of medical liability insurance. While

it is true that premiums are on the rise in nearly all states, including California,

the rate of increase of premiums for California doctors is significantly lower than

in other states, and over time, MICRA has, in fact, stabilized medical liability insurance premiums as compared to the rate of increase in the rest of the country.

As the following chart demonstrates, from 1976 to 2000, premiums for physicians

in California have risen only 167 percent as compared to an increase of 505 percent for the entire United States.

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Data collected from high-risk medical specialties from 2000 to 2002 also validate

these trends. For example, according to a nationwide survey of neurosurgeons, the

national average premium increase for California neurosurgeons was 39 percent as

compared to 63 percent for neurosurgeons in the entire country. In addition, the

same survey clearly demonstrated that the rate of increase for an individual neurosurgeon in Los Angeles, California, as compared to other neurosurgeons who practice medicine in crisis states where there are no reforms in place, is significantly

lower. The average rate of increase for the neurosurgeons in these non-reform states

was 143 percent as compared to just 8 percent in Los Angeles, CA.

The Alliance does acknowledge that despite the successful reforms contained in

MICRA, the average medical liability claim in California has outpaced the rate of

inflation. This is in large part due to the fact that economic damages are not limited

under MICRA and have grown as a component of medical liability claims. Notwithstanding this, however, the undisputed fact remains that MICRA prevents runaway

juries from awarding outrageous awards for subjective, arbitrary and often

unquantifiable non-economic damages, which allows insurance companies to adequately predict future lawsuit awards, bring stability the health care delivery system.

Federal Government Validates that MICRA Works

U.S. Government experts agree that MICRA does in fact hold down the costs of

medical liability insurance, and over the years there have been a number of studies that have identified MICRA’s $250,000 cap on non-economic damages as a critVerDate 11-MAY-2000 00:10 Apr 11, 2003 Jkt 000000 PO 00000 Frm 00101 Fmt 6601 Sfmt 6621 G:\WORK\FULL\030403\85403.000 HJUD3 PsN: HJUD3
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ical element in stabilizing premium costs. For example, dating back to September

1993, the former U.S. Office of Technology Assessment (OTA), in a report entitled,

‘‘Impact of Legal Reforms on Medical Malpractice Costs,’’ concluded that caps on

damages were consistently found to be an effective mechanism for lowering medical liability insurance premiums. Most recently, the previously referenced HHS

report, ‘‘Confronting the New Health Care Crisis’’ and the CBO cost estimate report of the HEALTH Act, came to the same conclusion.

Justification for Federal Reform Legislation: Americans Overwhelmingly Support a

MICRA-Style Solution

Americans are becoming acutely aware of the impact that this crisis is having on

our nation’s health care system, and overwhelmingly favor having Congress pass

legislation to reform the current medical liability system and create one that balances the rights of patients to seek and obtain appropriate compensation for injuries

caused by medical negligence against the right of all our citizens to have continued

access to medical care. Two recent polls clearly demonstrate this support. In January 2003, Gallup conducted a poll on this issue and found the following:

• Americans believe that the medical liability insurance issue is either a major

problem (56%) or a health care crisis (18%);

• 72 percent favor passing a law that would limit the amount that patients can

be awarded for their emotional pain and suffering; and

• 57 percent responded that they think patients bring too many lawsuits

against doctors

This Gallup poll confirms the findings of last year’s Wirthlin Worldwide study

conducted for the Health Care Liability Alliance (HCLA), which found that:

• 78 percent of Americans are concerned that skyrocketing medical liability

costs could limit their access to care;

• 73 percent favor a federal law that guarantees injured patients full payment

for lost wages and medical costs and reasonable limits on awards for ‘‘pain

and suffering’’ in medical liability cases; and

• 48 percent believe the number of medical liability lawsuits against doctors is

higher than justified

CONCLUSION

We have reached a very important juncture in the evolution of the U.S. health

care system. At a time when lifesaving scientific advances are being made in nearly

every area of health care, patients across the country are facing a situation in which

access to health care is in serious jeopardy. Thus, as the Congress deliberates the

many facets of this issue, the Alliance urges you to continue to keep in mind that

this issue is not about doctors, lawyers and insurance companies. Rather, it is about

patients and their ability to continue to receive timely and consistent access to quality medical care. By reforming the medical litigation system, the crisis will ultimately be abated. Patients are calling for reform. Doctors are calling for reform.

President Bush is calling for reform. And the Alliance urges the Congress to heed

these calls and, at a minimum, pass the HEALTH Act so all Americans are able

to find a doctor when they most need one. Ultimately, when the question ‘‘Will your

doctor be there?’’ is asked, the answer must be an unqualified yes.

Thank you for considering our comments and recommendations. The Alliance of

Specialty Medicine, whose mission is to improve access to quality medical care for

all Americans through the unified voice of specialty physicians promoting sound federal policy, stands ready to assist you on this and other important health care policy

issues facing our nation.

PREPARED STATEMENT OF MARY R. GREALY

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

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cases have increased by 76 percent. These spiraling increases add directly to the

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 Apaying@ 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 Acrisis@ states. It is estimated that as many as 30 other

states are in Anear 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 Adefensive 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 urge

that the Committee favorably report H.R. 5 to the full House for consideration. We

stand ready to work with you to address this growing crisis.

PREPARED STATEMENT OF FRANK CLEMENTE

On behalf of Public Citizen’s 125,000 members, I am pleased to provide this testimony to the Judiciary Committee for the hearing record on H.R. 5, the HEALTH

Act of 2003.

Public Citizen strongly opposes H.R. 5. We sympathize with the plight of some

medical specialists who are experiencing a large spike in malpractice insurance premiums. But that is a temporary problem caused by the insurance cycle. Yet, H.R.

5 proposes a permanent—and draconian—reduction in patients’ access to the courts,

which plays no role in this temporary ‘‘crisis.’’ It would be a travesty of justice for

Congress to take away patients’ legal rights in the name of protecting insurance

company profits and doctors’ income. Caps on damages hurt those most seriously

injured. The fact is that the legal system is all patients have to ensure just compensation for injury and to force improvements in patient safety. It’s clear that the

current regulatory system is not up to the task.

This testimony consists of four elements:

• A summary of the key facts about the medical malpractice issue, as reported by

reputable government and private sources.

• A summary of Public Citizen’s objections to this anti-consumer and anti-patient

legislation.

• A briefing book prepared by Public Citizen entitled ‘‘Medical Misdiagnosis: Challenging the Malpractice Claims of the Doctors’ Lobby.’’ Perhaps the greatest malpractice in this debate has been the promulgation of phony facts from the medical

lobby. This report cites numerous government studies—many from the Bush AdVerDate 11-MAY-2000 00:10 Apr 11, 2003 Jkt 000000 PO 00000 Frm 00103 Fmt 6601 Sfmt 6621 G:\WORK\FULL\030403\85403.000 HJUD3 PsN: HJUD3
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ministration—and reputable academic studies to challenge the claims of H.R. 5’s proponents.

• Summaries of Public Citizen reports on the medical malpractice ‘‘crisis’’ in nine

states—Arkansas, Florida, Mississippi, Nevada, New Jersey, Pennsylvania, Rhode

Island, Texas, and West Virginia. The American Medical Association has declared

most of these states ‘‘crisis’’ states. The striking thing about the government data

contained in these reports is that they provide concrete evidence that the ‘‘crisis’’ is not a result of the legal system.

In conclusion, we encourage the committee to focus on the true medical malpractice crisis—the 50,000 to 100,000 Americans who are killed each year from preventable medical errors, and the many more people who get injured each year and

whose lives have often been shattered.

It is very unfortunate that rather than reducing the real threats that current

medical care poses to their patients, the doctor’s lobby has proposed to shift the

costs of injuries onto innocent individuals, their families, voluntary organizations

and taxpayers. Doctors, patients and consumers should be allies on this issue—

which fundamentally comes down to improving the quality of medical care in the

U.S.—not be pitted against each other.

FACTS ABOUT MEDICAL MALPRACTICE

The facts do not support the contention that our tort system needs radical change.

Here is a summary of findings from key government reports and academic studies.

They are explored in more detail in the attached briefing book.

Costs of Medical Negligence to Patients

• Between 44,000 to 98,000 Americans die in hospitals each year due to preventable

medical errors. (Institute of Medicine, To Err Is Human: Building a Safer Health

System, 2000.)

• The annual costs to society for medical errors in hospitals at $17 billion to $29

billion. (Institute of Medicine, To Err Is Human: Building a Safer Health System,

2000.)

• The total amount spent on medical malpractice insurance in 2000 was $6.4 billion—at least three to five times less than the Institute of Medicine’s estimate of

the costs of malpractice to society. (National Association of Insurance Commissioners, Statistical Compilation of Annual Statement Information for Property/

Casualty Insurance Companies in 2000, (2001).)

Frequency of Medical Malpractice Claims

• Only one in eight preventable medical errors committed in hospitals results in a

malpractice claim. (Harvard Medical Practice Study Group, Patients, Doctors and

Lawyers: Medical Injury, Malpractice Litigation, and Patient Compensation in

New York, 1990.)

• From 1996 through 1999, Florida hospitals reported 19,885 incidents but only

3,177 medical malpractice claims. In other words, for every 6 medical errors only

1 claim is filed. (The Agency for Health Care Administration; Division of Health

Quality Assurance. Reported malpractice claims by district compared to reported

adverse incidents 1996, 1997, 1998, 1999.)

• The number of new medical malpractice claims declined by about four percent between 1995 and 2000. There were 90,212 claims filed in 1995 and 86,480 claims

filed in 2000. (National Association of Insurance Commissioners, Statistical Compilation of Annual Statement Information for Property/Casualty Insurance Companies in 2000, 2001.)

• Punitive Damages are awarded in less than 1 percent of medical malpractice

cases. (Bureau of Justice Statistics, 1996.)

Physicians’ Costs of Medical Malpractice Insurance

• Malpractice insurance costs amount to only 3.2 percent of the average physician’s

revenues. (Official Transcript, Medicare Payment Advisory Commission, Public

Meeting, December 12, 2002.)

• While medical costs have increased by 113 percent since 1987, the total amount

spent on medical malpractice insurance has increased by just 52 percent over that

time, less than half of medical services inflation. (Bureau of Labor Statistics—

Medical Services CPI; Best’s Aggregates and Averages.)

• The median medical malpractice payout by a physician to a patient rose 35 percent from 1997 to 2000, from $100,000 to $135,000. (National Practitioner Data

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Bank Annual Reports, 1997 through 2001.) But during the same time, the average

premium for single health insurance coverage has increased by 39 percent. (Kaiser Family Foundation and Health Research and Educational Trust, Employer

Health Benefits Surveys, 1998–2002; National Practitioner Data Bank Annual Reports, 1997 through 2001.)

Medical Malpractice Award Trends

• The size of damage awards has been steady since 1991. The mean payout was

$135,941 in 2001, up 8.7 percent from $125,000 in 2000. Over ten years, malpractice payouts have grown an average of 6.2 percent per year. That’s almost exactly the rate of medical inflation: an average of 6.7 percent between 1990 and

2001. (National Practitioner Data Bank and the Journal of Health Affairs, as

quoted by Lorraine Woellert, Commentary: A Second Opinion on the Malpractice

Plague, Business Week, March 3, 2003.)

• Malpractice payouts by physicians and their insurers were a mere $4.5 billion in

2001—less than 1 percent of the country’s overall health care costs of $1.4 trillion.

(National Practitioner Data Bank, as quoted in Business Week, March 3, 2003.)

• In 2001, only 895 out of 16,676 payouts, or about 5 percent, topped $1 million.

(National Practitioner Data Bank, as quoted in Business Week, March 3, 2003.)

Insurance Industry Economics Have Caused the Premium Price Spike

• ‘‘For several years, insurers kept prices artificially low while competing for market

share and new revenue to invest in a booming stock market. As the bull market

surged, investments by these historically conservative insurers rose to 10.6% in

1999, up from a more typical 3% in 1992. With the market now in a slump, the

insurers can no longer use investment gains to subsidize low rates.’’ (American

Medical Association Report 35 of the Board of Trustees (A–02), available at http:/

/www.ama-assn.org/ama1/upload/mm/annual02/bot35a02.rtf.)

• Premiums charged do not track losses paid, but instead rise and fall in concert

with the state of the economy. When the economy is booming and investment returns are high, companies maintain premiums at modest levels; however, when

the economy falters and interest rates fall, companies increase premiums in response. (J. Robert Hunter, Americans for Insurance Reform, ‘‘Medical Malpractice

Insurance: Stable Losses/Unstable Rates,’’ October 10, 2002. See also: http://

www.insurance-reform.org/StableLosses.pdf.)

Small Number of Dangerous Doctors Commit Most Malpractice

• Only 5 percent of doctors (1 out of 20) are responsible for 54 percent of malpractice payouts. (National Practitioner Data Bank, Sept. 1, 1990-Sept. 30, 2002.)

• Only 8 percent of doctors (1 out of 12) with 2 or more malpractice payouts have

been disciplined by their state medical board. (National Practitioner Data Bank,

Sept. 1, 1990-Sept. 30, 2002.)

• Only 17 percent of doctors (1 out of 6) who have made 5 or more malpractice payouts have been disciplined by their state medical board. (National Practitioner

Data Bank, Sept. 1, 1990-Sept. 30, 2002.)

THE UNFAIRNESS OF H.R. 5

H.R. 5 would do nothing to reduce the incidence of medical errors. Instead, it

would reduce compensation to victims of malpractice and make it harder for them

to seek justice. Public Citizen’s objections to H.R. 5 include:

Broad scope: not just doctors are let off the hook. While sponsors say that

H.R. 5 is intended to benefit doctors, other special interests are along for the ride.

Nursing home operators, medical device manufacturers, pharmaceutical companies,

hospitals, and even HMOs are all covered by the bill’s definition of ‘‘health care liability claim’’ and would be equally insulated from liability.

Reckless conduct no longer subject to punitive damages. Punitive damages

are rarely awarded in medical malpractice cases, but the threat of punitive damages

is important to deterring reckless disregard for patient safety by HMOs, nursing

homes, and drug and medical device manufacturers. H.R. 5 would reward these special interests with a benefit that even the conservative 104th Congress rejected-a

complete ban on punitive damages for reckless conduct.

$250,000 cap on non-economic damages. Awards for non-economic loss (pain

and suffering resulting from injuries such as lost childbearing ability, disfigurement,

and paralysis) compensate for the human suffering caused by medical negligence

and defective medical products. Typically, such damages exceed $250,000 only in

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1 Institute for Legislative Practice, Jury Verdicts in Medical Malpractice Cases and the MICRA

Cap (1999); ‘‘Jury Awards for Medical Malpractice and Post-verdict Adjustments of Those

Awards,’’ 48 DePaul L. Rev. 265 (1998)

cases of NAIC Level 6 injury severity or higher 1—that is, cases involving permanent significant injuries. Thus, the cap will not affect patients with minor injuries;

instead, it targets only victims of injuries such as deafness, blindness, loss of limb

or organ, paraplegia, or severe brain damage. Since the cap makes no allowance for

inflation, its arbitrary limits become more unjust as each day passes.

Caps on attorney fees. Conservatives often say that ‘‘price controls reduce supply.’’ In H.R. 5 they practice what they preach. By limiting attorney fees, the sponsors hope to reduce the supply of representation for victims. These price controls

will almost certainly succeed—they reduce the potential rewards of litigation that

already carries with it high risks in terms of the expenses attorneys must advance

and the sympathy that juries have for doctors. By drastically altering the risk/reward formula, H.R. 5 will prevent many victims from obtaining legal counsel.

Leaves patients holding the bag when a doctor is insolvent. The doctrine

of joint and several liability says that when two defendants, such as a doctor and

a hospital, are both found liable for negligence, a plaintiff may collect the entire

award from either of them if necessary. H.R. 5 would change this rule, and leave

patients with no recovery for the share of damages assigned to an uninsured, underinsured, or bankrupt defendant.

Lets defendants control payouts for future damages. By instituting a ‘‘periodic payment rule’’ for future damages over $100,000, the bill would allow defendants and insurance companies to string out payments for future damages over the

life expectancy of the victim, rather than have to pay up front. This is money the

jury has determined rightfully belongs to the plaintiff, yet defendants and insurers

would be able to invest and earn interest on the vast majority of a plaintiff’s damage award. Victims would be left to cope with unexpected needs or changing medical

costs and increased transportation and housing costs. The bill would provide no protection to the victim if his or her needs change, or if the insurance company becomes

insolvent.

Shortened statute of limitations to one year after discovery of the injury.

This severe limitation will extinguish many meritorious claims. Although in most

cases an injury is immediately apparent, a victim may not know until much later

whether the injury was caused by malpractice. The law in most states starts the

limitation period running from the discovery of the malpractice, not discovery of the

injury.

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PREPARED STATEMENT OF THE 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 medical specialty society and the second largest medical organization in the United

States. We congratulate the House Committee on the Judiciary 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 Jim Sensenbrenner, Jr., Committee Ranking

Member John Conyers, Jr., 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

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longer ignore. ACP-ASIM strongly believes that Congress must act to stabilize the

market to avoid further damage to the health care system.

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 inVerDate 11-MAY-2000 00:10 Apr 11, 2003 Jkt 000000 PO 00000 Frm 00183 Fmt 6601 Sfmt 6621 G:\WORK\FULL\030403\85403.000 HJUD3 PsN: HJUD3
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surance 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.

CONCLUSION

ACP-ASIM is pleased that the House Committee on the Judiciary 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 Judiciary 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 Committee on the Judiciary hearing on H.R. 5, the Help Efficient, Accessible, Low-Cost, Timely Healthcare Act of 2003. 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 lastminute 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 liabilVerDate 11-MAY-2000 00:10 Apr 11, 2003 Jkt 000000 PO 00000 Frm 00184 Fmt 6601 Sfmt 6621 G:\WORK\FULL\030403\85403.000 HJUD3 PsN: HJUD3
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ity 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 the HEALTH Act

of 2003. This critically important bill, introduced by Rep. Jim Greenwood, R-Pa.,

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 CAP appreciates the opportunity to present its views to the Committee on

the Judiciary and offers its support and continued assistance as Congress works to

meet the challenge posed by the nation’s liability insurance crisis.

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PREPARED STATEMENT OF THE AMERICAN ACADEMY OF FAMILY PHYSICIANS

This statement is submitted to the Judiciary Committee on behalf of the 93,400

members of the American Academy of Family Physicians. This hearing, concerning

H.R. 5, The Help Efficient, Accessible, Low Cost, Timely Health Care (HEALTH)

Act, is especially 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 without 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

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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 support passage of H.R. 5 out of the

Judiciary Committee. We look forward to working with the Committee to find a

workable solution for patients and physicians.

PREPARED STATEMENT OF RODNEY C. LESTER

Chairman Sensenbrenner, Jr. and Congressman John Conyers, Jr., 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.

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 anesVerDate 11-MAY-2000 00:10 Apr 11, 2003 Jkt 000000 PO 00000 Frm 00187 Fmt 6601 Sfmt 6621 G:\WORK\FULL\030403\85403.000 HJUD3 PsN: HJUD3
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thesia 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 and 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

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

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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 (commonly

referred 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 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

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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 108th Congress, the AANA is pleased to support Rep. Jim Greenwood’s (RPA) legislation, H.R. 5. 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.

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 committee.

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 limitless 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 as a whole body, 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

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. MEDICAL LIABILITY REFORM: SAFEGUARDING PATIENTS’ ACCESS TO CARE

The common sense provisions of the HEALTH Act safeguard patients’ access to

health care and address the health care crisis:

PROMOTES SPEEDY RESOLUTION OF CLAIMS

The Act balances the needs of all parties involved in litigation and promotes a

fair result. Health care lawsuits can be filed no later than 3 years after the date

of injury. Additionally, the bill acknowledges that in some circumstances, it is imVerDate 11-MAY-2000 00:10 Apr 11, 2003 Jkt 000000 PO 00000 Frm 00190 Fmt 6601 Sfmt 6621 G:\WORK\FULL\030403\85403.000 HJUD3 PsN: HJUD3
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portant to guarantee patients additional time to file a claim. Accordingly, the Act

extends the statute of limitations for minors injured before age 6.

FAIRLY ALLOCATES RESPONSIBILITY

Under the current system, defendants who are only 1% at fault may be held liable

for 100% of the damages. This bill eliminates the incentive for plaintiffs’ attorneys

to search for ‘‘deep pockets’’ and pursue lawsuits against those minimally liable or

not liable at all.

COMPENSATES PATIENT INJURY

HR 5 ensures injured patients are compensated. The Act does not limit the

amount a patient can receive for physical injuries resulting from a provider’s care,

unless otherwise restricted by state law. The Act only limits unquantifiable non-economic damages, such as pain and suffering, to no more than $250,000.

MAXIMIZES PATIENT RECOVERY

Patients will receive the money needed for their health care. HR 5 discourages

baseless lawsuits by limiting the incentive to pursue merit-less claims. Without this

provision, attorneys could continue to routinely pocket large percentages of an injured patient’s award.

PUTS REASONABLE LIMITS, NOT CAPS, ON THE AWARD OF PUNITIVE

DAMAGES

The Act provides for reasonable punishment without unnecessarily jeopardizing a

defendant’s fundamental constitutional rights or risking the defendant’s bankruptcy.

It does not cap punitive damages, rather, it delineates a guideline, allowing for punitive damages to be the greater of two times the amount of economic damages

awarded or $250,000.

ENSURES PAYMENT OF MEDICAL EXPENSES

HR 5 ensures that injured patients will receive all of the damages to which they

are entitled in a timely fashion without risking the bankruptcy of the defendant.

Past and current expenses will continue to be paid at the time of judgment or settlement while future damages can be funded over time through the purchase of an annuity or other instrument of secured payment.

ALLOWS STATE FLEXIBILITY

The HEALTH Act establishes a ceiling on non-economic damages, and guidelines

for the award of punitive damages, only in those states where the state legislature

has failed to act. A state legislature may also act at any time in the future to impose

a cap the limits of which differ from those provided for in the HEALTH Act.

II. HOW THIS CRISIS 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.

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

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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 malpractice. Rather, it demonstrates a lawsuit culture where doctors are held responsible for less than perfect outcome. And

in obstetrics gynecology, there is no guarantee of a perfect outcome, no matter how

perfect the prenatal care and delivery.

III. WOMEN’S HEALTH CONSEQUENCES OF LIMITLESS LITIGATION

The medical liability crisis is complex, affecting 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,

women’s access to health care will continue to suffer. Bring an end to the meteoric

rise in liability premiums that is already impeding women’s access to health care.

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 will also be reduced, depriving them of the proven benefits of early intervention.

Limitless 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.

Legislative intervention 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. Help sustain those providers dedicated

to caring for America’s rural women and mothers.

Allowing the crisis to continue will mean community clinic cutbacks. Also hurt by

the medical liability crisis are 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 insurance 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 continue to 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. Last year, 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.

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.

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IV. CONCLUSION

Thank you, Mr. Chairman, for your leadership on this important issue and for the

Subcommittee’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.

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