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85–062 PDF 2004

S. HRG. 108–253

PATIENT ACCESS CRISIS: THE ROLE OF MEDICAL

LITIGATION

JOINT HEARING

BEFORE THE

COMMITTEE ON THE JUDICIARY

AND THE

COMMITTEE ON HEALTH, EDUCATION,

LABOR, AND PENSIONS

UNITED STATES SENATE

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

ON

EXAMINING THE STATUS OF PATIENT ACCESS TO QUALITY HEALTH

CARE, FOCUSING ON THE ROLE OF MEDICAL LITIGATION AND MALPRACTICE REFORM

FEBRUARY 11, 2003

Serial No. J–108–2

Printed for the use of the Committee on the Judiciary and the Committee on

Health, Education, Labor, and Pensions

(
COMMITTEE ON THE JUDICIARY

ORRIN G. HATCH, Utah, Chairman

CHARLES E. GRASSLEY, Iowa

ARLEN SPECTER, Pennsylvania

JON KYL, Arizona

MIKE DEWINE, Ohio

JEFF SESSIONS, Alabama

LINDSEY O. GRAHAM, South Carolina

LARRY E. CRAIG, Idaho

SAXBY CHAMBLISS, Georgia

JOHN CORNYN, Texas

PATRICK J. LEAHY, Vermont

EDWARD M. KENNEDY, Massachusetts

HERBERT KOHL, Wisconsin

DIANNE FEINSTEIN, California

RUSSELL D. FEINGOLD, Wisconsin

CHARLES E. SCHUMER, New York

RICHARD J. DURBIN, Illnois

JOHN EDWARDS, North Carolina

MANUS COONEY, Chief Counsel and Staff Director

BRUCE A. COHEN, Minority Chief Counsel

COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS

JUDD GREGG, New Hampshire, Chairman

BILL FRIST, Tennessee

MICHAEL B. ENZI, Wyoming

LAMAR ALEXANDER, Tennessee

CHRISTOPHER S. BOND, Missouri

MIKE DEWINE, Ohio

PAT ROBERTS, Kansas

JEFF SESSIONS, Alabama

JOHN ENSIGN, Nevada

LINDSEY O. GRAHAM, South Carolina

JOHN W. WARNER, Virginia

EDWARD M. KENNEDY, Massachusetts

CHRISTOPHER J. DODD, Connecticut

TOM HARKIN, Iowa

BARBARA A. MIKULSKI, Maryland

JAMES M. JEFFORDS (I), Vermont

JEFF BINGAMAN, New Mexico

PATTY MURRAY, Washington

JACK REED, Rhode Island

JOHN EDWARDS, North Carolina

HILLARY RODHAM CLINTON, New York

SHARON R. SODERSTROM, Staff Director

J. MICHAEL MYERS, Minority Staff Director and Chief Counsel

(II)
CONTENTS

STATEMENTS

TUESDAY, FEBRUARY 11, 2003

Page

Peel, Laurie, Releigh, NC; Linda McDougal, Woodville, WI; Leanne Dyess,

Vicksburg, MS; Shelby L. Wilbourn, M.D., on behalf of the American College of Obstetrics and Gynecology, Belfast, ME; Jay Angoff of Roger G.

Brown and Associates, Jefferson City, MO, and former Insurance Commissioner of Missouri; Jose Montemayor, Commissioner of Insurance, State

of Texas, Austin, TX; and Lawrence I. Smarr, President, Physician Insurers

Association of America, Rockville, MD ............................................................... 11

ADDITIONAL MATERIAL

Statements, articles, publications, letters, etc.:

Senator Leahy ................................................................................................... 57

Senator Hatch ................................................................................................... 59

Senator Feingold ............................................................................................... 61

Laurie Peel ........................................................................................................ 62

Linda McDougal ............................................................................................... 62

Leanne Dyess .................................................................................................... 64

Shelby L. Wilbourn, M.D. ................................................................................ 65

Jay Angoff ......................................................................................................... 73

Lawrence E. Smarr .......................................................................................... 90

Senator Gregg ................................................................................................... 119

Senator Frist ..................................................................................................... 122

Senator Enzi ..................................................................................................... 124

Senator Kennedy .............................................................................................. 128

Senator Grassley .............................................................................................. 133

Senator Craig .................................................................................................... 136

Mr. Weldon ........................................................................................................ 137

Mr. Greenwood ................................................................................................. 139

Mr. DeFazio ...................................................................................................... 142

Mr. Strauss ....................................................................................................... 145

Alliance of Specialty Medicine ......................................................................... 149

James Hurley .................................................................................................... 156

National Medical Liability Reform Coalition ................................................. 172

Christian Shalgian ........................................................................................... 175

Mary R. Grealy ................................................................................................. 184

J. Charles Rich ................................................................................................. 188

Answers to questions of Senator Gregg from Mike Pickens ......................... 189

Sister Mary Roch Rocklage .............................................................................. 193

The American College of Obstetricians and Gynecologists ........................... 197

American College of Physicians ....................................................................... 199

American Medical Association ......................................................................... 203

Business Round Table ...................................................................................... 217

Victor E. Schwartz ............................................................................................ 219

Coalition for Affordable and Reliable Health Care ........................................ 234

Dartmouth-Hitchcock Medical Center ............................................................ 239

Rodney C. Lester .............................................................................................. 244

(III)
Page

IV

American Health Care Association ................................................................. 251

Answers to questions of Senators Hatch and Gregg from Jose Montmayer 257

Answers to questions of Senators Hatch and Gregg from Jay Angoff ......... 263

Answers to questions of Senators Hatch and Gregg from Lawrence E.

Smarr ............................................................................................................. 267

Answers to questions from Dr. Shelby Wilbourn ........................................... 306

Jose Montemayor .............................................................................................. 308
(1)

PATIENT ACCESS CRISIS: THE ROLE OF

MEDICAL LITIGATION

TUESDAY, FEBRUARY 11, 2003

U.S. SENATE,

COMMITTEE ON THE JUDICIARY,

AND THE COMMITTEE ON HEALTH, EDUCATION, LABOR, AND

PENSIONS,

Washington, DC.

The committees met jointly, pursuant to notice, at 2:34 p.m., in

Room 106, Dirksen Senate Office Building, Senator Hatch, chairman of the Judiciary Committee, presiding.

Present: Senators Hatch, Specter, Sessions, Cornyn, Gregg, Frist,

Alexander, Enzi, Ensign, Leahy, Kennedy, Dodd, Kohl, Feingold,

Durbin, Edwards, Murray, Reed, and Clinton.

Senator GREGG. If I could get everybody’s attention? There are

a lot of things going on today in the Senate, and a lot of members

are moving back and forth to the floor with the debate involving

Judge Estrada. And I know Senator Kennedy will be arriving soon,

as will Senator Hatch, who are both involved in that debate, and

Senator Leahy, who is also involved in that debate. We have a

number of other members, including the Majority Leader, who are

on the way. There are also a number of members who have expressed an interest in participating in this hearing who I am sure

will be coming and going as we proceed forward.

Let me outline what is going to happen procedurally in this joint

hearing, which we are excited about. We appreciate the opportunity

to be here with the Judiciary Committee.

We are going to begin with opening statements from Senator

Leahy, Senator Kennedy, Senator Hatch, myself, and should the

Majority Leader have time to come over, he will do an opening

statement. Then we will hear testimony from the witnesses who

are very qualified, and how we deal with patients’ access to health

care, lawsuits and the costs of lawsuits as they affect the medical

industry, medical activities, and patients’ abilities to see doctors.

We will rotate with 5-minute questioning periods.

We all recognize, I think, just from watching the news, that this

issue of patient access to their physicians and the fact that many

physicians are finding it difficult to practice because of the costs of

their insurance premiums is a significant public policy concern. We

have seen the problems in West Virginia where numerous people

were unable to see their doctor. One instance I’m aware of involved

a janitor who was unable to get adequate attention and had to

travel to Kentucky to be seen.
2

In New Hampshire ob/gyn practitioners have been especially

hard hit. It has also been a problem across the country. For example, in northern New Hampshire, where we do not have a lot of ob/

gyn doctors, the doctor in that area has found her premium going

from $39,000 to $138,000 in 1 year, making it extremely difficult

for her to practice and could force her into retirement.

Excessive litigation drives up the cost of health care. Health insurance premiums are increasing at their highest rate in over a

decade. Small businesses are particularly hard hit. In New Hampshire, small businesses have seen a 34-percent jump in their premium costs, which limits their ability to expand and create jobs.

The Congressional Budget Office has found that medical litigation reforms would save the Federal Government approximately

$14 billion, and savings would be even greater, of course, for private health insurers.

With health insurance being so costly and out of reach for 41 million Americans, it simply makes no sense to allow excessive litigation to continue to eat up more resources in our health care system.

Today at least a dozen States are facing urgent patient access crises. Insurance carriers have exited these States at an alarming

rate. Physicians, hospitals, nursing homes, and other providers are

also in trouble. All but seven of the remaining States have reached

‘‘near crisis’’ status, and it is only a matter of time before the ‘‘near

crisis States reach full crisis status.’’ The data is clear about what is driving this crisis: dramatic increases in the size of jury awards, the cost of defending lawsuits,

and the frequency of large claims.

Mega jury awards are on the increase. In 1999, the most current

year for which we have litigation data, the median award was

$800,000, up 34 percent in 3 years.

The number of million-dollar-plus jury awards is on the rise. Now more than half of all awards are over $1 million.

The cost of defending lawsuits is extremely expensive, and too

many resources are devoted to defending frivolous lawsuits, as

nearly 70 percent of all medical liability claims result in no payments to the plaintiff.

The trial lawyers are using the medical profession, unfortunately, almost as their ATM machines. Left unchecked, this pattern will continue to escalate and deplete the resources of our medical system. Fear of excess litigation also results in substantial indirect costs when physicians practice defensive medicine by ordering additional and unnecessary tests and procedures. And while

difficult to measure, some experts believe that the defensive medicine practiced as a result of fear of lawsuits is somewhere between

$60 and $108 billion.

Although billions of dollars are spent in our medical liability system in direct and indirect costs, far too few of those dollars actually

flow to the patients. Almost 50 percent of the damages awarded in

court go to attorney’s fees, not to injured patient. And the current

system leaves many injured patients with legitimate cases out in

the cold.

The solution is to restore balance to the health care system, to

ensure fair and timely compensation for patients who are injured

by medical negligence. Unlimited compensation for current and fu-
3

ture medical expenses and loss of wages should be awarded. Quantifiable economic expenses should be awarded. And reasonable compensation for pain and suffering should be awarded. However, the

system must also ensure that patients are not denied access—and

this is the issue—access on the front end. In order to do that, we

must address the acute problem of the excessive litigation and we

must address it now.

As the cry for help from patients and physicians grows louder,

so too do the excuses for not acting. We have heard it all before.

Liability rates aren’t increasing significantly. There is no problem.

Rates are increasing but it is somebody else’s fault. Insurance companies are to blame. State regulators are to blame, or State regulators could do a better job if they would simply pass more regulations. It is bad stock market investments, the business cycle, anticompetitive behavior, so on and so on.

But the facts tell the truth. Insurance rates increase as insurers

pay out more in losses and litigation expenses than they collect in

premiums. According to an A.M. Best study, the medical liability

insurance industry paid out $1.54 in losses for every $1 they collected in premium, and we have a recent study that has been submitted to us, which I will put in the record, from the National Association of Insurance Commissioners which has a similar finding

as to the cause of the problem.

[The prepared study was not received by press time.]

Senator GREGG. We must have the courage to just say no to the

status quo and yes to the patients. We should act quickly to address the problems that we know are leaving patients without care.

At a minimum we should address the litigation lottery that has

added to the unpredictability in liability insurance. To ensure there

is no gaming of the system, we should ensure that reforms apply

across the board to all entities involved in the delivery of patient

care. I believe we should look to a model of success such as the

California Medical Injury Compensation Reform Act upon which

the House bill has been based. We should be open to any additional

reforms to the underlying medical liability system, such as encouraging States to adopt patient safety best practices.

There is a lot that can be done to improve this system to allow

patients better access to their doctors and allow doctors to actually

practice medicine.

At this point, I will yield to the Senator from Massachusetts for

his opening statement, if he wishes to make one. Before the Senator arrived, I stated that our procedure was going to be to have

an opening statement by yourself, Senator Leahy, Senator Hatch,

and the Majority Leader, should he arrive, and then go to questions.

Senator KENNEDY. That is fine. Thank you, Mr. Chairman. Today

we are beginning an investigation into the sudden very substantial

increases in the cost of medical malpractice insurance which some

doctors in a number of States have experienced. And I hope the

committee will conduct a thorough and unbiased examination of

this problem, one which seeks real solutions.

We must reject the simplistic and ineffective response proposed

by those who contend that the only way to help doctors is to further hurt seriously injured patients. Unfortunately, as we saw in
4

the Patients’ Bill of Rights debate, the Bush administration is

again advocating a policy which will benefit neither the doctors nor

the patients, only the insurance companies. Caps on compensatory

damages and other extreme tort reforms are not only unfair to the

victims of malpractice, they do not result in a reduction of malpractice insurance premiums.

Placing arbitrary on compensation for noneconomic loss only

serves to hurt those patients who have suffered the most severe

permanent injury. They are the paralyzed, the brain-injured, and

the blinded. They are the ones who have lost limbs, organs, reproductive capacity, and in some cases even years of life. The Bush administration talks about deterring frivolous cases, but caps by their

nature apply only to the most serious cases which have been proven in court. A person with a severe injury is not made whole merely by receiving reimbursement for their medical bills and lost

wages. Non-economic damages compensate victims for the very real

though not easily quantifiable loss in quality of life that results

from a serious permanent injury. It is absurd to suggest that

$250,000 is fair compensation for a person confined to a wheelchair

for life.

Less accountability for health care providers will never lead to

better health care. It will not even result in less costly care. The

total cost of medical malpractice premiums constitutes less than

two-thirds of 1 percent—two-thirds of 1 percent—of the Nation’s

health care expenditures each year. Malpractice premiums are not

the cause of the high rate of medical inflation.

In the past year, there have been dramatic increases in the cost

of medical malpractice insurance in States that already have damage caps and other restrictive tort reforms on the statute books as

well as in the States that do not. The reason for sky-high premiums cannot be found in the courtroom. Comprehensive national

studies show that medical malpractice premiums are not lower on

average in States that have enacted damage caps and other restrictions on patients’ right than in States without these restrictions.

Insurance companies are merely pocketing the dollars which patients no longer receive when tort reform is enacted. Let’s look at

the facts.

Twenty-three States had a cap on damages in medical malpractice cases in 2001; 27 States did not. The best evidence of

whether the cap affects the cost of malpractice insurance is to compare the rates in the two groups of States. The average liability

premium in 2002 for doctors practicing in States without caps on

malpractice damages was virtually the same as the average premium for doctors practicing in States with caps—31,926 to 30,521.

An examination of the rates for range especially show similar results. There are many reasons why insurance rates vary substantially from State to State. This data demonstrates that it is not

States’ tort reforms which make the difference. Insurance industry

practices are responsible for the sudden steep premium increases

which have occurred in some States in the last year. The National

Association of Insurance Commissioners studies show that in 2000,

the latest year for which data is available, total insurance industry

profits as a percent of premium for medical malpractice insurance

were nearly twice as high, 13.6 percent, as overall casualty and
5

property insurance profits, 7.9 percent. In fact, malpractice was a

very lucrative line of insurance for the industry throughout the

1990s. Recent premium increases have been an attempt to maintain high profit margins despite sharply declining investment earnings. The industry creates malpractice crisis whenever its investments do poorly.

Doctors, especially those in high-risk specialties whose malpractice premiums have increased dramatically over the past year,

do deserve premium relief. That relief will only come as a result

of tougher regulation of the insurance industry. When insurance

companies lose money on their investments, they should not be

able to recover those losses from the doctors they insure. Unfortunately, that is what is happening now. Doctors and patients are

both victims of the insurance industry. Only by recognizing the real

problem can we begin to structure an effective solution to end unreasonably high medical malpractice premiums.

The CHAIRMAN. We will now turn to the distinguished Majority

Leader of the Senate. Senator, if we can have your statement, and

then if Senator Leahy gets here, we will go to him next, and I will

finally conclude.

Senator FRIST. Thank you, Mr. Chairman. And I will be brief. I

want to thank all of the chairmen for holding this timely joint

hearing on a matter that is crucial to our Nation’s health care system.

Today’s hearing in this Congress marks the first step in which

I pledge as Majority Leader in the U.S. Senate, to work with my

colleagues to develop legislation that is passed by this body and ultimately signed by the President to address a crisis that is just

that—a crisis. It was a challenge a couple of years ago, and a problem about 4 years ago. Today, it is a crisis.

The crisis has come today not just in the increasing premiums,

but as a result of that we see diminished access for patients. And

we all either have been patients or will be patients at some time

in our lives. This crisis is a patient access issue. No longer is it doctors that are paying too much money, simply, or having to spend

more and more to stay in practice. Now doctors are leaving the profession entirely. They are leaving their specialty. Trauma centers

are closing doors. We have seen what happens with slow-downs

among physicians who really have no choice. It is an access-to-quality-care issue, and the situation is grave and is worsening daily.

We have all seen the headlines. We have seen the horror stories.

They are occurring with increasing frequency: hospitals closing obstetric wards, trauma centers shutting their doors, expectant mothers unable to find an obstetrician because that obstetrician could

no longer afford that extra $1,300 per baby in a tax, in essence, to

pay for frivolous lawsuits.

Daily we hear about these new stories and new victims. They

used to be anecdotes, and now they are a frequent reality. The

AMA has listed 12 States now that are in crisis and another 30

States that are near crisis.

As all of you know, I am doctor. I have paid malpractice premiums my entire adult lifetime, and I still pay malpractice premiums even though malpractice has diminished as I am not actively practicing today. It does give me the opportunity to talk to
6

a number of doctors who are living with this crisis each and every

day.

It will be a debate whether it is the insurance companies or the

frivolous lawsuits, or the personal injury lawyers who are out looking for cases, creating cases because of the incentives in the system, and that is a debate we will learn from and hopefully have

today. But at the end of the day, we need to recognize that we at

the Federal level must respond to this crisis.

One of the things which affects me so directly is the fact that

highly qualified and committed doctors are leaving their specialties—leaving neurosurgery, leaving obstetrics and the delivery of

babies, and going into gynecology or making that the main part of

their practice. Doctors are leaving certain States and then moving

to another State that already has addressed to some extent some

of the malpractice issues that most other States have not yet addressed.

We see doctors dropping vital services today. We have some of

the very best doctors, the most highly motivated individuals who

go into the profession of medicine to help and to heal and to sacrifice, being able to practice because of these frivolous lawsuits and

skyrocketing premiums.

Defensive medicine, we will talk a little bit about that, I am sure.

We look at the overall cost of medicine, the cost of the frivolous

lawsuits, the incentives that the current system has to have these

multi-million-dollar lawsuits today without any sort of control. Skyrocketing premiums ultimately have to be passed on to patients,

driving up the cost of health care and health care premiums; and

ultimately, putting the overall cost of health care out of reach of

people who are right on the border of being able to obtain insurance. Defensive medicine, as a physician, means that if you are

constantly worried about a frivolous lawsuit, you end up getting

more tests run on patients than necessary.

Action is needed. It is needed now. It is needed in this Congress.

I am going to do everything within my power to make sure that

we develop a bipartisan bill, which pulls the very best out of all of

the ideas that we can pull together, to take that bill to the floor

of the U.S. Senate, and to have further debate. At the end of day

we must have a bill that will address the issues of access and quality that we know are being affected by these skyrocketing premiums.

The CHAIRMAN. Well, thank you, Senator.

We will go to Senator Leahy, and then I will conclude.

Senator LEAHY. Thank you very much, Mr. Chairman.

I think all of us agree on the basic issue that our health care system is in crisis. Unfortunately, we hear that comment so many

times that the force of it actually disappears.

But we do know, as has been stated by everybody here, that dramatically rising medical malpractice insurance rates are forcing

some doctors to abandon their practices or to cross Sate lines to

find more affordable situations. Patients who need care in high-risk

specialties—like obstetrics—and patients in areas already underserved by health care providers—like a lot of rural communities—

are often left without any care at all.
7

Here we are, the United States, the richest, most powerful Nation on earth. We ought to be able to at least ensure access to quality health care to all our citizens. Other countries do. We ought to

be able to assure that the medical profession and its members will

not be driven from their calling by the manipulations of the malpractice insurance industry.

The debate about the causes of this latest insurance crisis and

the possible cures grow very, very shrill. I hope this hearing will

be a lot calmer and more constructive.

My concerns are straightforward: one, that we ensure that our

Nation’s physicians are able to provide the high quality of medical

care that our citizens deserve and for which the United States is

world-renowned; and also that in those instances where a doctor

does harm a patient, that patient ought to be able to seek appropriate redress through our court system.

Now, different States have different experiences with medical

malpractice insurance. As we know, insurance remains largely

State-regulated industry, so each State ought to work to develop its

own solution to rising medical malpractice insurance rates because

each State has its own unique problems. Some States, such as my

State of Vermont, while we may have problems, we do not begin

to face the crisis that so many other States do. One of the reasons

is that Vermont’s legislature is at work to find the right answers

for our State, and some other States are doing the same thing.

But, in contrast, in States such as West Virginia and Pennsylvania and Florida and New Jersey, doctors are walking out of work

in protest over the exorbitant rates being extracted from them by

their insurance carriers.

The distinguished Majority Leader has said that we should try

to find a bipartisan solution, and I agree. I worry, however, that

the administration’s proposal that is the only thing before us ignores that kind of an effort.

This is a problem in the insurance industry. This can’t be laid

just on the rest of the tort system. The administration has proposed a plan that would cap noneconomic damages at $250,000 in

medical malpractice cases. This is one-size-fits-all. Well, that does

not follow the experience in most States. There is nothing to protect true victims of medical malpractice to arbitrarily limit compensation. The medical malpractice reform debate too often ignores

the fact that there are people involved—men, women, and children

whose lives have been dramatically and sometimes permanently,

terribly permanently altered by medical errors.

I look at Linda McDougal, one of our witnesses here today. I will

let her speak through her own testimony. But I would ask anybody

in this room, after you hear Ms. McDougal, to ask yourself if you

would be willing to go through what she did because somebody

gave you $250,000. I know that the answer on this panel would be

that nobody here would do anything comparable for that, and I can

guarantee you, Ms. McDougal, nobody in this room would go

through what you did for that.

Now, one problem is that the insurance industry’s business

model does require legislative correction, and that is its blanket exemption from Federal antitrust laws. They have enjoyed a benefit

novel in our marketplace. The McCarran-Ferguson Act permits in-
8

surance companies to operate without being subject to most of our

Federal antitrust laws, and our Nation’s physicians and their patients have been worse off because of it. Using this exemption, insurers can collude to set rates that can result in higher premiums

than true competition would achieve. And because of this exemption, enforcement officials can’t even investigate that collusion. So

if we are going to really control rising premiums, then we have to

look at this broad exemption in the McCarran-Ferguson Act.

I have introduced the Medical Malpractice Insurance Antitrust

Act of 2003, and I want to thank Senator Kennedy and Senator

Durbin and Senator Edwards and Senator Feingold and others for

cosponsoring it. It modifies the McCarran-Ferguson Act with respect to medical malpractice insurance when we think of some the

antitrust offenses—price-fixing, bid-ridding, market allocations.

Then you are going to go to the real question of premiums. It

wouldn’t stop State regulators from looking into this, but there is

no reason to continue a system in which the Federal enforcers are

stopped from prosecuting the most harmful antitrust violations just

because they are committed by an insurance company. They could

prosecute anybody else, but not an insurance company.

So I hope we can get together just as we did once before when

Senator Hatch and I joined forces in recent years to scale back the

antitrust exemption for baseball, and in the Curt Flood Act we

eliminated the exemption as it applied to employment relations. If

we do the same thing for the insurance industry as we did for baseball, we are all going to be a lot better off.

Thank you.

[The prepared statement of Senator Leahy may be found in additional material.]

The CHAIRMAN. Thank you, Senator.

I have a long statement to make. As a former medical liability

defense lawyer, I recognized medical liability as a tremendous

problem years ago. In fact, 20 years ago, I suggested that the cost

of defensive medicine due to so many frivolous medical liability

suits would be at about $300 billion a year. Now, we need defensive

medicine, there is no question about it. But it goes way beyond

that.

I remember good lawyering encouraged doctors to maintain that

historical record demonstrating that they tried everything possible

in treating their patients, not just the standard of the community

but way beyond the standard of the community. Medicine is not an

exact science. Something can go wrong with a patient, so doctors

must prepare to face lawsuits.

We will have people who will claim that the insurance industry

is what is at fault. Unfortunately, that argument sometimes falls

because a lot of doctors have gone to nonprofit, physician-owned insurance companies or mutual companies to be able to bring the

prices down and still can’t get them down.

We are concerned about doctors who are leaving the profession

because they cannot afford to pay the medical liability premiums,

and I might add that many of them are obstetricians who are critical in our society. Elaine and I had six children. We have 20 grandchildren and the 21st is on the way, and I sure as heck want my

daughters, as I wanted Elaine, to have the best obstetrician that
9

I could find. But if they are not there, what are women going to

do? Are we going to go back to midwives? Which is good, but I

think it is probably better to have obstetricians if you can have

them.

We have cases where women just don’t have access to obstetricians. Some expectant mothers have to travel hundreds of miles to

be able to get pre-natalcare and treatment. What are we going to

do? Are we going to let this continue on, or are we going to do

something constructive about it?

Some States have gone to very rigid methodologies to solve these

problems, and they have concluded that it is better over the long

run to do it in a way that is very cost-saving and cost-effective even

though there will be an occasional injustice.

I don’t agree with that. While it is important to reasonably limit

a physicians’s liability for noneconomic damages. There are tough

cases, really bad cases of gross negligence by a doctor or hospital

where $250,000 is insufficient compensation for the patient’s pain

and suffering.

On the other hand, we all know that the vast majority of these

suits, and certainly in my experience, were frivolous in nature,

should never have been brought. Many of them were brought just

to get the defense costs, which are considerable in these kinds of

cases. That is what we want to avoid. This is a serious set of problems. We can blame one side or the other. We can blame the doctors. We can blame the insurers. We can blame the patients if you

want to. But the fact is we have got to solve this problem. We need

physicians to be able to practice. We need them in this modern day,

with more and more Federal Government intrusion into the health

care industry, to have some degree of independence whereby they

can enjoy being in this profession, or some of the best and the

brightest are not going to become doctors to begin with. They will

go into some other less-intruded-upon professions.

This is a very important hearing because we are going to try and

come up with a way of resolving these problems that will keep incentives alive for the best and the brightest to go into the medical

profession and, of course, to provide the services that all of us need

from time to time when we are in trouble, when we need health

care. I hope we can resolve these issues in a bipartisan way. In

fact, it must be done in a bipartisan way. I hope we can call upon

both sides to work together to get these problems solved.

We are very fortunate to have a physician, a heart surgeon, to

be exact, as the Majority Leader in the Senate. I think he understands these matters as well if not better than anybody. I intend

to help him. I intend to help my colleagues on the other side to see

if we can arrive at a resolution to these problems that will allow

great medicine to go forward, allow patients with difficulties to

have the best access to medicine, and will take care of the truly

bad cases that do arise from time to time where there is no excuse

for them arising.

[The prepared statement of Senator Hatch may be found in additional material.]

The CHAIRMAN. Having said all of that, let us introduce our witnesses. Senator, would you care to do that or——
10

Our first witness will be Laurie Peel. Ms. Peel and her husband

Chris are residents of Raleigh, North Carolina. Together, they are

the co-owners of the Carolina Wine Company. In addition, they recently opened a restaurant, Vin Laurie, the restaurant ‘‘Vin.’’ Laurie is a graduate of UNC, Greensboro. She and her husband have

been married since 1998 and have a two-year-old daughter named

Grace. We welcome you here, Ms. Peel.

We will then go to Linda McDougal. Linda and her husband

Jerry are residents of Woodville, Wisconsin, and both are veterans

of the United States Navy. They have three sons, John, Jared and

Jacob. Linda is an accountant, and is recovering from a double

mastectomy. We welcome you here as well, and we look forward to

your testimony, all of you.

Leanne Dyess and her husband Tony own a small business in

Vicksburg, Mississippi. Due to a disability suffered in a car accident, Tony Dyess currently lives with his parents who assist in providing for his health care needs. They have two teenage children,

a sophomore in high school and a freshman in junior college. We

are really pleased to have you here as well. We appreciate you taking time.

Dr. WILBOURN. Dr. Wilbourn attended the University of Mississippi as an undergraduate and received his medical school training at Tulane University School of Medicine. He performed his residency at the University of Tennessee and then returned to Tulane

University for specialty training in obstetrics and gynecology. After

completing his training, Dr. Wilbourn settled in Las Vegas, Nevada, where he practiced for 12 years, and served as an assistant

professor at the University of Nevada School of Medicine. He recently relocated to Belfast, Maine.

Jay Angoff joined the law firm of Roger G. Brown and Associates

as ‘‘of counsel’’ in December 2001. He was Missouri Insurance director between 1993 and 1998, director of the U.S. Health Care Financing Administration’s Private Health Insurance Group during

1999 and a vice president at quotesmith.com, an Internet insurance

broker in 2000 to 2001.

Before moving to Missouri in 1993, he served as deputy insurance commissioner and special assistant to New Jersey Governor

Jim Florio as counsel to the National Insurance Consumer Organization as an attorney for Public Citizen and as an antitrust lawyer

with the Free Trade Commission.

As Missouri’s Insurance director, Mr. Angoff was—am I pronouncing that right, Angoff?

Mr. ANGOFF. Yes, sir.

The CHAIRMAN. Was chairman of the Commission on State

Health Insurance and vice chairman of the Missouri Consolidated

Health Care Plan. He was also chairman of the National Association of Insurance Commissioners’ Committee on Credit Insurance

and vice chairman of its Committee on Insurance Availability and

Affordability. We are grateful to have you here.

Jose Montemayor currently serves as commissioner of Insurance

for the State of Texas. He was first appointed to this position in

1999 by then Governor George W. Bush and is in the process of

being confirmed for his third term.
11

Commissioner Montemayor currently chairs the National Association of Insurance Commissioners’ Market Conditions Working

Group, which was established to look at issues surrounding medical malpractice insurance and make recommendations to State regulators.

Commissioner Montemayor has been with the Texas Department

of Insurance since 1993, where he held the positions of director of

Insurer Services and associate commissioner for the Financial Program.

He served in the United States Air Force for 24 years, completing his military career as director for Air Force Security Assistance

Program in Latin America. He holds numerous advance degrees,

including an MBA in finance and banking, and an MS in logistics

and an MA in accounting.

That is pretty impressive. We are glad to have you here.

Lawrence ‘‘Larry’’ Smarr is the chief executive of the Physician

Insurers Association of America, a position he has held since 1992.

He has led the trade association which has 50 insurance company

members, insuring over 700,000 physicians and dentists. During

his 10-year tenure as CEO, membership has increased by more

than 40 percent, and the association has become the recognized

voice of the industry.

From 1979 to 1992, Mr. Smarr served as senior vice president of

Government Relations and Research with the Pennsylvania Medical Society Liability Insurance Company. So we are pleased to welcome all of you here. We appreciate the testimony in advance that

you are going to give, and we look forward to hearing from you,

and hopefully we can gain enough from your testimony to be able

to move on and do something constructive about these very serious

problems.

Ms. Peel, we will turn to you first.

STATEMENTS OF A PANEL CONSISTING OF LAURIE PEEL, RALEIGH, NORTH CAROLINA; LINDA McDOUGAL, WOODVILLE,

WISCONSIN; LEANNE DYESS, VICKSBURG, MISSISSIPPI;

SHELBY L. WILBOURN, M.D., ON BEHALF OF THE AMERICAN

COLLEGE OF OBSTETRICS AND GYNECOLOGY, BELFAST,

MAINE; JAY ANGOFF OF ROGER G. BROWN AND ASSOCIATES,

JEFFERSON CITY, MISSOURI, AND FORMER INSURANCE

COMMISSIONER OF MISSOURI; JOSE MONTEMAYOR, COMMISSIONER OF INSURANCE, STATE OF TEXAS, AUSTIN

TEXAS; AND LAWRENCE E. SMARR, PRESIDENT, PHYSICIAN

INSURERS ASSOCIATION OF AMERICA, ROCKVILLE, MARYLAND

Ms. PEEL. Thank you, Chairman Gregg and Chairman Hatch, for

inviting me to testify here today. I am honored to be here.

Since July, when I was asked to participate in a round-table discussion with the President on malpractice reform, I have heard a

lot of tragic, really poignant stories on both sides of the issue. My

own experience may not be tragic, but I do think it illustrates the

difficulties patients across the Nation—and especially women—are

experiencing.

I live in a community, Raleigh, North Carolina, which enjoys

health care probably as good as, if not better, than any in the coun-
12

try. I, and my family, all have excellent doctors. Yet, even in Raleigh, when I first had a health care crisis, I had a very hard time

finding a doctor who would take me. And when I was lucky enough

to find a great one, Dr. John Schmitt, who is here today, he was

ultimately driven out of business by overwhelming frustrations

with the crippling cost of malpractice insurance. He is now on faculty at UVA School of Medicine.

As he explained in a letter to all of his patients in July of 2002,

he could no longer practice medicine the way he wanted to and always had. And that is, frankly, what we should all want from our

doctors and maybe even demand.

I first came to Dr. Schmitt under difficult circumstances. I was

married less than a year and had just moved to Raleigh and had

no Ob/Gyn there. I was 11 weeks pregnant, experiencing complications, which turned out to be a miscarriage, and in need of immediate medical attention. As a high-risk patient, though no Ob/Gyn

would take me in. When I got to Raleigh, I called every practice

I could find and was told again and again that the practice was full

and would not be taking new patients. Fortunately, Dr. Schmitt

learned of my plight, called me back and took me in.

I soon discovered he was one of Raleigh’s leading Ob/Gyns, yet

he had all of the time in the world for my husband and me. In the

5 years that I saw Dr. Schmitt, he helped me through the biggest

disappointment in my life, my biggest health scare, and finally

helped me realize the greatest joy of any life. In short, my relationship with Dr. Schmitt was everything one could hope for from a

doctor. It is also a relationship both he, and all of his patients,

would very much like to continue, but we cannot because of the

crippling cost of medical liability insurance.

What he must pay to protect himself from the remote possibility

of lawsuits—or at least legitimate ones—has prevented Dr. Schmitt

from continuing the outstanding practice he had made his life’s

work, and stories like his are, I believe, truly tragic for us all.

Now, I have seen both sides of the issue in a very real and personal way. My father is a doctor, as are my brother and his wife,

but my family has also suffered from medical errors. I do not want,

and I do not know any doctor who does, to deny victims of medical

errors adequate redress for their injuries. And, certainly, my father, brother and every doctor I know wants to hold the medical

profession to the highest possible standards.

But the way to address malpractice cannot be to destroy the possibility of good practice or drive away those doctors, like Dr.

Schmitt, who do practice to the very best of their abilities. None

of us can afford that. I do not know the solution, but I do urge you

to find one. And, Mr. Chairman, I very much appreciate that that

is what you are trying to do.

Thank you.

[The prepared statement of Ms. Peel may be found in additional

material.]

The CHAIRMAN. Thank you, Ms. Peel.

We will go to Ms. McDougal.

Ms. MCDOUGAL. First, I want to thank Chairman Gregg, Chairman Hatch, and Senators Kennedy and Leahy. I greatly appreciate

the opportunity you have given me.
13

My name is Linda McDougal, and I am a victim of medical malpractice. I am 46 years old. I live with my husband and sons in

Woodville, Wisconsin. It is a small Norwegian community in Northwestern Wisconsin. My husband and I are both veterans of the

United States Navy. This is my story.

About 8 months ago, in preparation for an annual physical, I

went to the hospital for a routine mammogram. I was called back

for additional testing and had a needle biopsy. Within a day, I was

told I had breast cancer. My world was shattered. My husband and

I discussed the treatment options and decided on one that would

give me the best chance of living and maximize my time alive with

my family. We made the difficult life-changing decision to undergo

what we believed was the safest long-term treatment, a double

mastectomy, the complete removal of both of my breasts.

Forty-eight hours after the surgery, the surgeon walked in my

room and said, ‘‘I have bad news for you. You do not have cancer.’’ I never had cancer. My breasts were needlessly removed. The pathologist switched my biopsy slides and paperwork with someone

else’s. Unbelievably, I was given another woman’s results.

The medical profession has betrayed the trust that I had in

them. How could the doctors have made this awful mistake? It has

been very difficult for me to deal with this. My scars are not only

physical, but emotional. After my breasts were removed, I developed raging infections, and I required emergency surgery. Because

of my ongoing infections, I am still unable to have reconstructive

surgery, and I am nearly 8 months past surgery. I do not know

whether I will ever be able to have anything that ever resembles

breasts again.

After I came forward publicly with my story, I was told that one

of the pathologists involved had a 10-year exemplary performance

record and that she would not be reprimanded or disciplined in any

way until a second incident occurred. Should someone else have to

suffer or perhaps even die before some kind of disciplinary action

is taken?

Now there is a proposal to limit the rights of people like me who

have suffered permanent, life-altering injuries. Arbitrarily limiting

victims’ compensation is wrong. Malpractice victims may never be

able to work again and may need help for the rest of their lives,

and they should be fairly compensated for their suffering. Without

fair compensation, a terrible financial burden is imposed on the entire family.

Those who would limit compensation for life-altering injuries say

that malpractice victims still would be compensated for not being

able to work, meaning they would be compensated for their economic loss. Well, I live in a small town. I did not have any significant economic loss. My lost wages were approximately $8,000, and

my hospital expenses of approximately $48,000 were paid for by

health insurer. My disfigurement from medical negligence is almost

entirely noneconomic.

As you discuss and debate this issue, I urge you to remember

that no two people, no two injuries, no two personal situations are

identical. It is unfair to suggest that all victims should be limited

to the same one-size-fits-all arbitrary cap that benefits the insurance industry at the expense of patients.
14

Victims deserve to have their cases decided by a jury that listens

to the facts of a specific case and makes a determination of what

is fair compensation based on the facts of that case. One size does

not fit all.

I could never have predicted or imagined in my worst nightmare

that I would end up having both my breasts needlessly removed because of a medical error. No one plans on being a victim of medical

malpractice, but it happened, and now proposals are being discussed that would further hurt people like me, all for the sake of

helping the insurance industry.

I am not asking for sympathy. What happened to me may happen to you or to someone you love. When it does, maybe you will

understand why I am telling this story. The rights of ever injured

patient in America are at stake. Limiting victims’ compensation in

malpractice cases puts the interests of the insurance industry

ahead of patients who have been hurt, who have suffered life-altering injuries, like loss of limbs, blindness, brain damage, infertility,

sexual dysfunction or loss of a child, spouse or parent. Instead of

taking compensation away from people who have been hurt and

putting it in the pockets of the insurance industry, we should look

for ways to improve the quality of health care services in our country, to reduce preventable medical errors, like the one that cost me

my breasts, part of my sexuality, part of who I am as a woman.

Medical malpractice kills as many as 98,000 Americans each

year, and it permanently injures hundreds of thousands of others.

We must make hospitals, doctors, HMOs, drug companies and

health insurers more accountable to patients. A good start would

be to discipline health care providers who repeatedly commit malpractice. We should make the track records of individual health

care providers available to the general public, instead of protecting

bad doctors at the expense of unknowing patients.

Limiting victims’ compensation will not make health care safer

or more affordable. All it will do is add to the burden of people

whose lives have already been shattered by medical error. Every

patient should say no to any legislation that does not put patients

first. I urge you to do the same.

Thank you for your time and consideration.

[The prepared statement of Ms. McDougal may be found in additional material.]

The CHAIRMAN. Thank you so much.

Ms. Dyess, we will turn to you.

Ms. DYESS. Chairman Hatch, Chairman Gregg, Senator Kennedy, distinguished members of the Senate Judiciary and HELP

Committees, it is an honor for me to sit here 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

across the country. While others may talk in terms of economics

and policy, I want to speak to you from the heart.

I want to share with you the life of my two children, that 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 that this crisis is not

about insurance, it is not about doctors or hospitals or even per-
15

sonal 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 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 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. He had head injuries and

required immediate attention. Shortly thereafter, I received a

phone call that I pray no other wife has to ever receive. I was informed of the accident and told that the injuries were serious, but

I cannot describe to you the panic that gave way to hopelessness

when they told me, ‘‘We do not have the specialist necessary to

take care of him. We will have to airlift him to another hospital.’’ I could not understand this. Gulfport is one of the fastest-growing and most prosperous regions in Mississippi. Garden Park is a

good hospital. Where, I wondered, was the specialist who could

have taken care of my husband?

Almost six hours passed before Tony was airlifted to the University Medical Center, six hours for the damage to his brain to continue before they had a specialist capable of putting a shunt into

his head to reduce 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 the 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. I could tell you

about a woman now who 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 therapy and

care. But to describe this, would be to take away from us the most

important point in the value of what I learned.

Senator Hatch, I have learned that there was no specialist on

staff that night in Gulfport because of 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 care for Tony, and he was forced to cover multiple

hospitals, stretching him thin and unable to care for everyone.

Another doctor had recently quit his practice because 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,
16

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 is

like termites in the structure of a house. They get into the woodwork, but you cannot see the damage. The walls of the house remain beautiful. You do not know what is going on beneath the surface, at least not for a season. Then, 1 day, you go to hang a picture or a 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 has hit

the lottery.’’ But never, 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 a serious injury. But when

that injury, often an accident or an oversight by an otherwise

skilled physician is compounded by the lottery-like award, and that

award, along with others, make it too expensive to practice medicine, there is a cost, and believe me it is a terrible cost to have to

pay.

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

damage. You see, Senator Hatch, it is not until it is your spouse

that needs a specialist or you are the expectant mother who needs

an Ob/Gyn or it is your child who needs a pediatric surgeon, that

you realize the damage that is beneath the surface.

From my perspective sitting here today, this problem far exceeds

other challenges 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 did not 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 have

gone through could go a long way toward helping us heal.

Senator Hatch, I know of your efforts to see America through

this crisis. I know it is important to you, and it is important to the

President. I know the priority Congress and many in the Senate

are placing upon doing something and doing something now.

Today, I pledge to you my complete support. It is my prayer that

no woman or anyone else anywhere will ever have to go through

what I have gone through and what I continue to go through every

day with my two children and a husband I dearly love.

Thank you.

[The prepared statement of Ms. Dyess may be found in additional material.]

The CHAIRMAN. Thank you, Ms. Dyess. We appreciate your testimony.

Dr. Wilbourn, we will turn to you.
17

Dr. WILBOURN. On behalf of the American College of Obstetricians and Gynecologists, an organization representing more than

45,000 physicians dedicated to improving the health care of women,

I would like to thank Chairman Hatch and Chairman Gregg for

holding this important hearing to examine the medical malpractice

liability crisis facing this Nation.

Women across America are asking, ‘‘Who will deliver my baby?’’

ACOG deeply appreciates your leadership and commitment to ending this crisis.

We urge Congress to pass meaningful medical liability reform,

patterned on California’s MICRA law, and bring an end to the excessive litigation restricting women’s access to health care.

My name is Dr. Shelby Wilbourn, and I am an Ob/Gyn, who recently relocated to Belfast, Maine, after 12 years of practice in Las

Vegas.

Liability is not about fault or bad practice any more. It is about

hitting the jackpot. Even the very best Ob/Gyns have been sued,

many more than once. Even doctors who have never been sued are

seeing their liability premiums double and triple, not because they

are bad docs, but because they practice in a litigation-happy field

where everyone is fair game.

Let me cite a perfect example which demonstrates the imbalance

of the current tort reform system. That is my story. I finished my

residence at Tulane and moved to Las Vegas, one of the first people

in my family to go into medicine. My father is a retired master sergeant in the U.S. Air Force, my mother retired from Sears and Roebuck. I was not raised as a physician’s son or a wealthy family. I

worked very hard and came out of medical school with $186,000 in

debt that I was going to have to pay off.

I worked hard in Las Vegas, teaching at the University of Nevada, private practice, seeing 40 patients a day, 20 to 25 deliveries

a month, operating and was very happy. For 12 years, I had no

lawsuits. I had no claims and no disciplinary actions.

Last year, in March, I was informed by my medical malpractice

carrier that my insurance was going to increase from $33,000 to

$108,000 a year. This was in a year that I had already had trouble

making ends meet and paying the bills of my office at $33,000. On

top of that, I was told that the $108,000 would apply if I limited

my number of deliveries to less than 125 a year because they considered it risky to do more than that. I was already doing 205 deliveries.

How do I choose which half of my patients to tell them, ‘‘I am

sorry. I can no longer take care of you. I have hit my limit for the

year’’?

I was forced into one of three options. I could either get out of

medicine, retire, and find something else to do, relocate, I could

stop practicing obstetrics, but that is one-half of my job—that is

what I trained to do, and that is what I love—or I could start to

pick and choose which of my patients got to stay with me and

which ones got turned out on the street. I could also have the option to go borrow over $100,000 a year, take the gamble that 1 day

the crisis would wear away, and I would be over half a million dollars in debt.
18

None of those options were acceptable, so I chose to relocate. I

looked at positions in the United States where it was less litigious,

malpractice was more affordable, and I felt more physician friendly; thus, my relocation to Maine.

When I got ready to leave Las Vegas, I left over 8,000 active patients. Women were in the office crying, bringing dishes to say

goodbye. I am still getting phone calls in Maine from these women

asking for advice, and I can no longer treat them long distance.

I had a practice of 12 years that was very successful that I could

not sell. There were no new Ob/Gyns coming to Las Vegas. They

were living faster than you could get one in. There were no residents coming out that wanted to stay in Las Vegas and practice.

I took a 12-year business and donated it to the University of Nevada School of Medicine.

I left Nevada because the litigation climate has driven the medical liability premiums to astronomical heights. In 2002, Las Vegas

Ob/Gyns paid as much as $141,760 a year, a 49.5-percent increase

from 2001. In Clark County, Las Vegas, there are only 160 Ob/

Gyns left, that is private, public and resident practitioners, left to

deliver an estimated 23,000 babies in 2003. That is an average of

216 babies per Ob/Gyn, which is already over their 125 limit.

Of those Ob/Gyns in Las Vegas who responded to an American

College of Ob/Gyns survey last number, 86 percent have changed

their practice, such as retired, stopped doing high-risk deliveries,

and 30 percent of the Ob/Gyns have stopped doing obstetrics altogether.

Last July, I was privileged to meet with President Bush in North

Carolina to discuss the medical liability crisis on a national level.

At that time, I had never been named in a lawsuit, a fact that was

made known during that round-table discussion.

Within 6 days of my return from meeting the President, I was

delivered my first lawsuit. All but one of the physicians who served

on the task force to the governor of Nevada received lawsuits within six to 7 days, some multiple. I find that coincidental.

When I left Nevada, my patients, many of whom were with me

for 12 years, were forced to find another Ob/Gyn, among a dwindling population of Ob/Gyns in Las Vegas. This is the real issue.

Patients around this country are losing access to good doctors and

quality health care. The end game of the current system is a society without enough doctors to take care of its citizens. We just cannot let this happen.

Today, we have heard or will hear anecdotes from both sides of

this debate, all of which support each side’s position. However, the

fact remains clear there is a medical liability crisis in this Nation.

Who loses in this environment? Women, good doctors, patients,

communities, businesses and Americans.

On February 5th, 2003, the House of Representatives took an important first step in ending this crisis when Representatives Greenwood, Cox, DeLay and Sensenbrenner introduced H.R. 5, the

Health Act of 2003, with ACOG’s full support. H.R. 5 is fair for everyone. H.R. 5 will restore the balance in the health care system

that has been hijacked by trial lawyers and meritless lawsuits.

Thank you, Senators Hatch and Gregg, for your leadership on

this important issue and for the committee’s attention to this crisis.
19

The College looks forward to working with you as we push for Federal liability reform.

[The prepared statement of Dr. Wilbourn may be found in additional material.]

The CHAIRMAN. Thank you, Doctor.

Mr. Angoff, we will take your testimony now.

Mr. ANGOFF. Thank you, Mr. Chairman and members of the committee. My name is Jay Angoff. I am a lawyer from Jefferson City,

Missouri. I was the insurance commissioner of Missouri between

1993 and 1998.

When I was commissioner, Mr. Chairman, we had a great medical malpractice insurance market. Profits were high, rates were

low, every year rates either stayed the same or went down. The apparent explanation is that we have very good experience in Missouri. We collect data each year from the insurance companies—I

think we have the best data in the country—and that data showed,

during the 6 years I was commissioner, new claims filed every year

were generally down, the number of paid claims generally went

down every year, and the average payment per claim, after accounting for inflation, generally went down.

After I left the Department, the same trends accelerated, particularly between 2000 and 2001, there was a dramatic drop in reported claims, a drop in paid claims, and a drop in payment per

claim. This is based on the data the companies submit to us. Yet,

despite those drops, malpractice premiums skyrocketed in Missouri, just as they are throughout the country.

That does not seem to make sense, but it does make sense once

you understand the underlying characteristics of the insurance

business that are responsible for those sudden and dramatic drops.

By the way, this is not to blame the insurance industry, this is just

the underlying characteristics of the industry that cause it.

No. 1, the investment climate, it is no secret that both the stock

market and the bond market are performing terribly. We can quibble about how much insurers invest in stocks and how much they

invest in bonds, but the fact is there is no place insurance companies can put their money today where they are going to earn any

money. That is reason number one.

No. 2, the cost of reinsurance. The cost of reinsurance was already going up. Reinsurance was the insurance that insurance

companies buy themselves for their real high claims. The cost of reinsurance was already going up before the terrorist attacks. After

the terrorist attacks, it went up even more for reasons obviously

that have to do with international events. Nothing to do with the

medical malpractice business.

Reason number three—and this is probably the most important,

but it is also the most technical, so I will try to make it simple—

when insurance companies say they have a loss, what they mean

is they estimate they will pay out a certain amount in the future,

not that they have actually paid out that amount.

Mr. Chairman, in your opening statement, you talked about insurance companies paying out $1.54 for each premium they take in,

and that is a figure that the insurance industry puts out, and that

is accurate based on insurance accounting principles, under which

what they call their incurred losses, which seems to the average
20

person to mean the amount they actually pay out, but under their

accounting principles, what it means is the amount that they will

project they will ultimately pay out on premiums that they take in,

in a given year.

During the last insurance crisis in the mid 1980s, insurance companies projected that they would pay out a whole lot. They had

very high loss ratios, numbers similar to the $1.54 that you projected, Mr. Chairman. What they found out when these claims,

when it came time to pay these claims, they actually paid out a

heck of a lot less, so they had a lot of money left over with which

to reduce rates in the nineties. That is one reason rates were slow

and profits were so high in the nineties.

The same thing is happening now. Insurers are overinflating the

amount that they project they will pay out. In a few years, and I

know it is no comfort to doctors now, but in a few years, just as

happened after the last insurance crises, it will turn out that these

estimates are inflated, they will be able to reduce their rates.

A fourth factor that is responsible, and I do not want to overstate

this, but it does have some responsibility, and that is the antitrust

exemption for the insurance industry. When times are good, when

insurance companies are making lots of money on their investments, the antitrust exemption is irrelevant. Insurance companies

do not fix prices then, they cut prices. They are competing like

crazy, so the insurance antitrust exemption then is irrelevant.

On the other hand, in times like this, when times are bad, the

antitrust exemption allows insurance companies to price without

fear. They do not have to worry about being able, they do not have

to worry about being prosecuted for pricing collectively. That is not

a violation of the law under McCarron-Ferguson, and I will be glad

to answer any questions about that after my testimony concludes.

Finally, Mr. Chairman, there are things that can be done, although not all at the Federal level. At the Federal level, the antitrust exemption can be repealed or modified. At the State level, it

can be made easier for insurance regulators to roll back and refund

excessive rate increases, and, finally, Mr. Chairman, there is the

California solution which is a very extreme solution, but in California it worked.

In 1988, the citizens of California enacted a ballot initiative

called Proposition 103, which rolled back all property casualty

rates by 20 percent, repealed the State antitrust exemption, established prior approval rate regulation. That has had a very positive

effect on rates in California. It is an extreme solution, but if nothing else works, it is a solution that can be implemented.

That concludes my statement. I will be glad to answer any questions the committee may have.

[The prepared statement of Mr. Angoff may be found in additional material.]

The CHAIRMAN. Thank you so much.

Mr. Montemayor?

Mr. MONTEMAYOR. Thank you, Mr. Chairman, and good afternoon, members. I am Jose Montemayor. I have the honor of being

the commissioner of Insurance for the great State of Texas.

As a member of the National Association of Insurance Commissioners, I also chair that group’s Property and Casualty Committee,
21

and separately a subcommittee or working group looking into the

medical malpractice insurance coverage for physicians and other

health care providers on a national basis. To that end, we will be

having a hearing in March to collect additional data and continue

that study.

Today, however, I am presenting for the record a report first provided to the Texas legislature in late 2001 and again updated in

2002 regarding the availability and the affordability of medical professional liability insurance in Texas.

There are a number of theories, Mr. Chairman, regarding the

current situation in medical malpractice coverage. However, the

sum of our report clearly indicates the loss trends, and what I

mean by that is increasing amounts paid for claims or the primary

costs or rising costs of medical malpractice insurance. Really, all

other costs are a distant second.

This first chart would clearly, it is a 10-year average on a study

that we had been conducting just with 15 States. The chart is on

the left. It basically shows what happens for every dollar of premium taken in compared to losses in defense expenses associated

with claims for that company and their policyholders. And in a

State like Texas, you can see—it is the one in the red bar—that

we have been paying out approximately $1.60 for every single dollar of premium collected.

What that does, it does affect our profitability, which is the chart

on the right, which is basically the net worth of the company after

all profits and investment incomes are declared. You can see that

on a purely underwriting basis, just dollars in per dollars out, California and Michigan managed to stay profitable over a 10-year period. Once you add investment income back in and compare it to

their net worth, almost all States came back to positive, except for

Texas, who experienced a negative 2 percent over a 10-year period.

Over a four-year period, those claim costs per doctor—this is all

of the claims paid divided by all of the doctors insured—have risen

approximately 50 percent, and this is driven by two things; the

number of claims called the claim frequency and the amount per

claim called the claim severity.

In my own State, we found the problem to be fairly complex, and

in some areas we have a high number of frequency, such as in the

Lower Rio Grande Valley area—my area of the world—and the reversals in other parts of the State, where the amount per claim is

much higher, although the number of claims is lower.

Those loss trends indicate the presence of liabilities which, due

to their unpredictability, it has led a number of insurers, first of

all, to either discontinue writing the line or go insolvent, and it has

cost them, if you go back to the end of 1998 and see what they have

had to do with their premiums, basically, to escalate somewhere

between 80 and 140 percent over the last 4 years for the major

writers in Texas.

With the stock market losses in the last few years and investment income and hard markets, it seemed like reasonable culprits

initially. So we undertook an investigation to see exactly what was

going on with that. And what we found that nationally all property

and casualty companies that specialize in medical malpractice, primarily bonds, into the high 90 percent. The area in blue represents
22

each of the investment years from 1991 to 2001. The area in yellow, it is the area they held in equities or common stocks, and then

there are some holdings in cash and so forth, and this is a natural

allocation that has always existed there because of their cash needs

and their predictability and ability to get cash.

So, from our perspective, what we found again was losses drove

the environment, much more so than any other fundamental reason. It has a much more dramatic effect to have an adjustment in

reserves for anticipated claims than it would to lose badly on their

equity holdings, and that is the whole purpose of this chart.

What is not in any of these charts, Mr. Chairman and members,

can never be conveyed fully through the statistics or the accounts

from people who suffer from lack of access to patient care. There

are stories from the Rio Grande Valley to the Texas panhandle of

how people do not have access to health care.

I have visited with a number of doctor groups who have come to

me for help, saying what can we do about our premiums. They are

escalating to the point where I can no longer hang in business,

where I can no longer do certain procedures, and I am going to

have to either withdraw or change my practice to only do less-risky

procedures.

So I hope that the attached report that I presented, and the summary charts presented, to the committee today would speak volumes on a simple premise that we do need a balance and reasonable limits on losses to stabilize the medical liability insurance

market, and I believe that that will go a long way to alleviate the

looming crisis of access to health care.

I would be very pleased to answer any of your questions.

[The prepared statement of Mr. Montemayor may be found in additional material.]

The CHAIRMAN. Thank you so much.

Mr. Smarr, we will turn to you.

Mr. SMARR. Chairman Hatch, Chairman Gregg, and committee

members, I am Larry Smarr, president of the Physician Insurers

Association of America. The PIAA is an association comprised of

professional liability insurance companies owned and/or operated

by physicians, dentists and other health care providers.

The 43 PIAA insurance company members can be characterized

as health care professionals caring for the professional liability

risks of their colleagues, doctors insuring doctors, hospitals insuring hospitals.

Sitting behind me here today is Dr. Warren McPherson, a practicing neurosurgeon from Murfreesboro, Tennessee. Dr. McPherson

is the chairman of the PIAA board of directors and also chairman

of the State Volunteer Mutual Insurance Company, the largest insurer in Tennessee and Arkansas, and a mutual company owned

and operated by the doctors it insures.

We believe that the physician-owned and operated insurance

company members of the PIAA currently insure over 60 percent of

America’s physicians. Let me get right to the issue. Over the past

3 years, medical liability insurers have seen their financial performance deteriorate substantially due to the rapidly rising cost in

medical liability claims.
23

According to A.M. Best, the leading insurance industry rating agency, the medical liability insurance industry incurred a $1.53 in

losses and expenses, as we have heard here today, for every dollar

of premium they collected in 2001. Best estimates that this number

will be $1.41 in 2002 and decline to $1.34 in 2003, primarily due

to the rising premiums that the insurance carriers are collecting,

and Best also has told us that this statistic would have to go down

to $1.14 in order for the industry to break even.

The primary driver of the deterioration in the medical malpractice insurance industry performance has been paid claim severity or the average cost of a paid claim. Exhibit A 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 in the consumer price index.

The data from 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 to our database.

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. Sixty-one percent of all claims closed in 2001

were dropped or dismissed by the court. An additional 5.7 percent

were won by the doctor at trial. Only 33.2 percent of all claims

closed were found to be meritorious, with most of these being 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 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 per defendant, and these are dollars that are actually paid. These are not

verdicts that juries render and then get reduced at some point in

the future. These are the sum of checks written.

Exhibit D shows the mean expense payment for claims by category of disposition. As can be seen, the cost of taking a claim for

each doctor named in a case all the way through trial is fast approaching $100,000.

Exhibit E shows the distribution of claim payments at various

payment thresholds. It can be readily seen that the number of larger payments are growing as a percentage of the total number of

payments. You can see that the red band at the top is getting larger. Those are claims that are a million dollars or more. Whereas,

the green band at the bottom claims, at a far lesser level, are getting smaller in proportion to their number.

This is especially true for payments at or exceeding $1 million,

which comprised almost 8 percent of all claims paid on behalf of

individual practitioners in 2001, as shown on Exhibit F. This percentage has doubled in the past 4 years.
24

Unfortunately, I must spend the rest of my time debunking a

false premise being propagated by the trial lawyers and a few of

their supporters who oppose effective Federal health care liability

reform. Contrary to the unfounded allegations of those who oppose

effective tort reform, medical malpractice insurers are primarily invested in high-grade bonds and have not lost large sums in the

stock market, as Commissioner Montemayor has just explained.

Brown Brothers Harriman, a leading investment and asset management firm, in a recent investment research report states that

‘‘Over the last 5 years, the amount medical malpractice companies

have invested in equities has remained fairly constant. In 2001, the

equity allocation was 9.03 percent.’’ As Exhibit G shows, medical liability insurance companies,

shown in green, invested significantly less in equities than did all

property casualty insurers.

Brown Brothers states that the equity investments of medical liability companies had returns similar to the market as a whole.

This indicates that they maintained a diversified equity investment

strategy. Specifically, the report states that ‘‘Since medical malpractice companies did not have an unusual amount invested in equities, and what they did was invest it in a reasonable market-like

fashion, we conclude that the decline in equity evaluations 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, I think as we all know,

bond values increase. This has had a beneficial effect in keeping

total investment income level when measured as a percentage of

total invested assets.

This is shown on Exhibit H. As you can see, the top line, which

is the net investment yield on assets, has remained rather level

throughout the last five or 6 years. 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 reform, similar to the California MICRA reforms enacted in 1975, will have a demonstrable effect on professional liability costs. The keystone of the MICRO reforms is a

$250,000 cap on noneconomic damages, largely pain and suffering.

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 to the Federal Government and additional savings of $7

billion to the States because tort reform works.

Using annual data published by the National Association of Insurance Commissioners, Exhibit I documents the savings California

practitioners and health care consumers have enjoyed since the enactment of MICRA over 25 years ago. As shown, total malpractice

premiums reported to the 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, such as Colorado, make it clear that

MICRA-style tort reforms do work without lowering health care

quality or limiting access to care.
25

And as you can see, an Ob-Gyn in California pays almost $55,000

for coverage in Los Angeles. That is a lot of money, but it is not

nearly the same amount of money as that same doctor in Miami

who pays four times as much.

Legislators are now challenged with finding a solution to the

medical malpractice affordability and availability dilemma, a problem long in coming which has truly reached the crisis stage. The

increased cost being experienced by insurers who are largely owned

or operated by health care providers are real and documented. It

is time for Congress to put an and to the wastefulness and inequities of our tort legal system, where only 50 percent of the moneys

available to pay claims are paid to indemnify the only 30 percent

of claims filed with merit, and the expenses of the remainder.

The system works fine for the legal profession, which is why the

trial lawyers and others fight so hard to maintain the status quo.

The PIAA strongly urges members of the Senate to support and

pass legislation which will assure full payment of a truly injured

patient’s economic losses, as well as up to a quarter of a million

in noneconomic damages, thereby assuring fair compensation for

patients and also assuring Americans that they will be able to receive necessary health care services.

Thank you.

[The prepared statement of Mr. Smarr may be found in additional material.]

The CHAIRMAN. Thank you very, very much, Mr. Smarr.

We are going to go to Senator Gregg first, then Senator Kennedy

and then back to me.

Senator GREGG. Mr. Smarr, those statistics which you just presented were rather startling, especially the California experience.

Just to clarify, your organization, which insures 60 percent of doctors is a not-for-profit organization; is that correct?

Mr. SMARR. Senator, they are not really not-for-profit because

there is no such thing as a not-for-profit insurance company, but

there are companies, mostly mutual companies and reciprocals,

that are owned and/or operated by the doctors they insure, and

they started over two decades ago with the philosophy of—— Senator GREGG. Well, their purpose is not to gouge doctors.

Mr. SMARR. Their purpose is not to what, sir?

Senator GREGG. Is not to gouge doctors, correct?

Mr. SMARR. Absolutely, it is not.

Senator GREGG. In fact, the doctors own——

Mr. SMARR. It is not to gouge doctors.

Senator GREGG. So I am interested in this—can you go back to

your chart there, the MICRA chart.

Now, we heard testimony that said that the reason California’s

rates dropped was because of Proposition 103. As I understand

proposition 103, it did not directly impact the malpractice insurance industry. Instead it was MICRA that has driven the drop in

the cost of malpractice insurance, and therefore the affordability of

doctors to practice in California.

Is that your assessment, also?

Mr. SMARR. It is. Prop 103 was aimed primarily at the auto insurance industry. Malpractice carriers were required to rollback, to

provide premium refunds to their insureds, and this was at a 20-
26

percent level. However, in the consent orders that were made with

the Department of Insurance, these refunds of premium were considered as dividends, and at the time the insurers were paying in

excess of 20-percent dividends, in any event, and there was no rollback of insurance rates required in these consent agreements.

Senator GREGG. So it is reasonable to presume that the real driver of the affordability of malpractice insurance, and therefore the

accessibility of, for example, Ob/Gyns in Los Angeles versus Las

Vegas, is the MICRA law.

Mr. SMARR. That is my belief.

Senator GREGG. Commissioner, we received a letter from the National Association of Insurance Commissioners, which was cited as

a source by Senator Kennedy in his opening statement, and I believe it is the bench-mark group for the purpose of insurance commissioners, and it addressed this issue of price fixing. I just wondered if you agreed with their assessment from your experience as

an insurance commissioner in Texas.

The first question was whether or not the legislation, this would

be the legislation introduced by Senator Leahy, presumes that

medical malpractice insurance carriers are engaging in price-fixing,

bid-rigging and market allocation. And the response of the Association of Insurance Commissioners was ‘‘No. To date, insurance regulators have not seen evidence that suggests that medical malpractice insurers have engaged or are engaging in price-fixing, bidrigging or market allocation,’’ and I emphasize the next sentence.

‘‘The preliminary evidence points to the rising costs and defense

costs associated with litigation as the principal drivers of medical

malpractice prices.’’

Then, they go on in another answer to say, ‘‘Again, the evidence

points to high loss ratios, not price-fixing, as the primary drivers

of escalating premium costs.’’

Do you agree with those conclusions?

Mr. MONTEMAYOR. I do, Senator. The bulk of our research points

to losses, the checks written to, as a result of claims, as well as defense costs, as being the primary driver of premiums universally

across the country. I would agree with that assessment.

Senator GREGG. Is it your experience in Texas that 70 percent of

medical malpractice suits are won by doctors?

Mr. MONTEMAYOR. Our experience in Texas is, in fact, even a little higher than that. It is in the mid eighties. Most lawsuits end

up with zero payment to the plaintiff, but they do result in additional costs due to the defense costs.

Senator GREGG. That was going to be my question. A previous

chart noted that even cases that doctors win still cost $91,000 to

litigate. To what extent, are those costs frivolous?

Mr. MONTEMAYOR. I would not be prepared to speak to which

percentage of those were frivolous. I mean, I can tell you that of

those that did go to trial, the doctor won them 85 percent of the

time or so, and the plaintiffs won some 15 percent of the time.

Senator GREGG. Is it reasonable to presume that some percentage of those cases are brought because the plaintiff’s attorney believes that, even though they are not going to win the case, they

are going to win the costs?
27

Mr. MONTEMAYOR. That certainly is one of the conclusions that

we have reached in looking into this issue.

Senator GREGG. How do we address that, from the standpoint of

legislation? Should we make it a ‘‘loser pay’’ situation like the

English have?

Mr. MONTEMAYOR. That is a policy matter, Senator. I do not have

a good answer for that.

Senator GREGG. To the extent that there has been gross negligence, again, Commissioner, should there be a cap on damages if

there is gross negligence or willful negligence, willful misconduct?

Mr. MONTEMAYOR. I will tell you that in speaking to all of our

leaders at the State level and all of the other insurance commissioners, I do not think anybody is interested in denying those people that have been, in fact, the recipients of a medical error access

to have their grievance redressed. I think the real issue is striking

that right balance, in terms of keeping insurance affordable, and

available, to all physicians vis-a-vis the cost of the losses associated

with it.

One of the methods that was tried in the State of California was,

in fact, through caps, and our research shows that they consistently, no matter what specialty we are talking about, they consistently get far better rates in that State than anywhere else. But

there or anywhere else, it is all driven by the cost of actually the

claims themselves.

Senator GREGG. It seems reasonable to me that if there has been

conduct which goes outside the bounds of typical error that you

should have a different recovery system.

Mr. MONTEMAYOR. It would seem reasonable, Senator.

Senator GREGG. Is it not also intuitively obvious that if the number of claims that are over a million dollars is increasing faster

than any other percentage of the group, that it is really the claims

that are driving this problem, not collusion of the insurance companies or loss of revenue from bad investments?

Mr. MONTEMAYOR. Without doubt. All other costs are a distant

second. The primary driver of premium levels is, in fact, claims

made in defense costs.

The CHAIRMAN. Senator Kennedy?

Senator KENNEDY. Thank you very much.

Mr. Montemayor, you State that investment income is not the

real culprit of medical malpractice rate hikes of 80 percent to 140

percent for the major companies in Texas because a preponderance

of the investments in bonds. Are you not overlooking the fact that

with the interest rates at a nearly 40-year low, the bonds have not

been doing very well in recent years?

In fact, I have the document from the Texas Department of Insurance, dated August 15, 2002, which shows that the net investment income is way down for medical malpractice insurance. It

steadily dropped from $1.347 billion in 1997 to $1.228 billion in

2000. This is a decline of $120 million. In 2000, they also sustained

$441 million in unrealized capital losses. The total yield on their

investments has fallen from 8.1 percent in 1997 and 5 percent in

2000.

The reduction in earnings these companies have sustained

sounds pretty substantial. Is that not what your department data
28

shows, and how can you discount it as a cause of the substantial

premium increase which Texas doctors are seeing?

Mr. MONTEMAYOR. Without doubt, Senator, the level of investment income has in fact decreased, as you pointed out, due to a

lower prevailing interest rate on the bond market. However, the old

rates were set on a prospective basis, and what that really, really

means is that the level of help you will normally get, in other

words, your ability to price it at 117 percent, now means that you

have to price it at 110 percent of expected losses in order to break

even. The Medical Liability Trust, which is the primary driver or

writer in Texas—they write some 10,000 doctors out of the approximately 30,000 doctors that are in practice in Texas—projects that

they will need about 10 percent return on income, and it is a Medical Liability Trust. In other words, the level of help is just not

there.

Senator KENNEDY. The point about it is you have had a decline

of $120 million, $441 million in unrealized capital losses. No one

is questioning you have the losses. Someone has to make it up, and

it appears to me it is the doctors that are being asked to make it

up.

Mr. Smarr, you State in your testimony that the net income for

the PIAA companies was only 4 percent in 2000. It fell to minus

10 percent in 2001. By comparison, on page 6, on graph 6 of your

testimony, shows that the net income was over 20 percent per year,

1995, 1996, 1997, and was 17 percent in 1998 and 12 percent in

1999. Those are all very good rates. Net income was so strong in

those years, because as the graph on page 8 shows, investment income as a percent of premiums, was between 43 and 46 percent.

Then in 1999 it dropped to 33 percent. In 2001 it dropped to 31

percent. That is a substantial decline. Companies were taking in

one quarter less in investment profits. Is this substantial decline

of investment income not the largest factor in the timing and the

amount of premium increase we have seen in the last 2 years?

Mr. SMARR. No, Senator Kennedy, I do not believe that it is. Our

companies did earn more investment income in prior years because

prevailing market interest rates were higher, and that is a fact of

life that we have to live with.

Senator KENNEDY. That is just what I am saying. Then you have

less. So you have the losses, and you are increasing the premiums

on the doctors.

Mr. SMARR. It is not losses, Senator. It is the amount of interest

we make.

Senator KENNEDY. Well, whatever way you want to describe it,

counting, it is not there. I mean we got the charts just reflect that

in terms of it—we do not want to spend the time—whatever way

you want to show it, it was not getting the kind of income that you

were getting in the previous years.

Mr. SMARR. Yes, sir. I think none of us are getting the kind of

investment income.

Senator KENNEDY. We just admitted, this is what the charts

show, you had 23 percent, 20 percent in 1996, 1997, 21 percent, 17

percent in 1998, and minus 10 percent in 2001. That is what your

charts show.
29

Let me go to the issue about California, the MICRA. I would like

to ask Mr. Angoff if he would interpret the figures on California.

I have them here. They are part of your testimony, Exhibit 3. We

have heard a great deal about MICRA, about starting in 1976 and

how it basically stabilized. Then we see MICRA is upheld by the

California U.S. Supreme Court, and we get the largest increases.

And then we have Proposition 103, which is the Insurance Reform

in 1988, where from 1988 the premiums were in I guess in hundreds of thousands, 663,155, hundreds of thousands, to in 2000,

609, so there is virtually no actually decline.

Can you explain, since we have heard a great deal about from

1976 to 2000 there are really three sets of figures, one where you

have stability in premiums earned for the first years. Then a very

dramatic, 2 or 3 percent bubble up, and then the stable figures

afterwards. What should we know? What do those figures tell us?

What were the factors that influenced that, and what should we— how should we take those figures in trying to understand the medical malpractice question?

Mr. ANGOFF. Mr. Smarr is correct that the aggregate increase between 1976 and the present in California is much less than the aggregate increase country wide, but the facts show that that relatively good experience in California is due to Prop 103 for the following reason.

MICRA was tied up in litigation for the first couple of years. The

California U.S. Supreme Court finally upheld the two most significant parts of MICRA, the limit on noneconomic damages and the

limit on attorneys fees in 1985. A year after the California U.S. Supreme Court upheld those two provisions. Medical malpractice premiums in California rose by 35 percent. Now, does this mean that

MICRA caused malpractice premiums to rise? No, that would be

pure demagoguery to take that position, and that is not the position that I am taking.

On the other hand, MICRA clearly did not cause malpractice premiums to fall. Malpractice premiums only started falling after Prop

103 was enacted in 1988. In 1988 medical malpractice premiums

were 663 million. They went down to 633 million the next year.

They kept going down. And even in 2000, 12 years after Prop 103

was enacted, malpractice premiums in California are 609 million,

about 10 percent less than they were in the year before Prop 103

was enacted.

Now, Prop 103 did roll back rates by 20 percent, and as I said

in my testimony, that is a very extreme measure. It might sound

even a little wacky. You cannot just mandate companies to roll

back their rates by 20 percent. But the California U.S. Supreme

Court upheld that rollback as long as insurers had an opportunity

to avoid the rollback if they can show that they cannot earn a fair

rate of return with the rollback. So that was upheld by the California U.S. Supreme Court, and in addition, very importantly, Prop

103 did not only roll back rates by 20 percent, which was very important, but it also repealed the State Antitrust Exemption so that

in California insurers can share data that will allow them to make

prices, set prices more accurately. They can share their past cost

data, which is permitted under the antitrust laws, but they cannot

get together and agree on future prices which is not permitted.
30

And then finally, Senator, MICRA also gave doctors and consumers automatic standing to intervene in rate cases before the insurance department. That is, if an insurance company files for a rate

increase, under Prop 103 any consumer, any policyholder, including

a doctor, can intervene and can try to show why that increase is

excessive. So, yes, I think the evidence shows that Prop 103 is

what is responsible for the relatively good experience in California.

Senator KENNEDY. Thank you.

The CHAIRMAN. Mr. Smarr, as I understand it, California did stabilize rates while other States were continually going up. Am I

wrong about that?

Mr. SMARR. No, Senator, you are correct.

The CHAIRMAN. So that did happen. Let me ask you this. On

page 6 of his written testimony, Mr. Angoff suggests that doctors

who own and operate the companies that you represent are taking

advantage of their colleagues, increasing prices for the wrong reasons to increase profit.

Now help me out with this. Sixty percent of America’s doctors

are insured by these companies. I have not heard from one doctor

that he or she feels that we need legislation to prevent their own

doctor-owned insurer from taking advantage of them. Now, who is

right here? Are doctors being ripped off?

Mr. SMARR. Senator Hatch, I have not heard from one doctor either that they feel like they are being ripped off by their physician

owned or run insurance company. The companies are run very conservatively. They pay dividends to their policy holders, and their

core purpose in being, their only purpose in being, is to provide a

fair and equitable market for their insurers.

The CHAIRMAN. Well, we all know that the stock market has declined during the last 2 years, but is that what is driving the current medical liability crisis?

Mr. SMARR. No, not at all. The malpractice companies are not

largely invested in equities, and there is no way that that could

even be considered a prime driver of this crisis.

The CHAIRMAN. Commissioner Montemayor, there are some who

suggest that one of the principal reasons for the rise in medical liability rates is the McCarran-Ferguson Act, the antitrust exemption for the insurance industry. Yet on page 5 of his written testimony, Mr. Angoff candidly admits, quote, ‘‘The extent to which insurers today are acting in concert to raise prices has not yet been

determined,’’ unquote. Now, I am personally not aware of any evidence to suggest that medical liability insurers have reached specific agreements to raise prices. Are you aware of any specific evidence demonstrating that any of the increase in medical liability

insurance rates is the result of an agreement or agreements among

insurers to fix prices, allocate territories among themselves, or engage in bid rigging? In other words, is there any evidence to suggest that members of the industry are colluding to raise prices?

Mr. MONTEMAYOR. Mr. Chairman, we have come across no such

evidence in Texas. To my knowledge, none of my fellow commissioners have come across any such evidence in their State either,

and in fact, as my own chart here demonstrated, there is enough

variability in terms of what the individual insurance companies operating were doing to sort of lead the indication the other way. In
31

fact, there is ample evidence that they are not getting together to

set those prices.

The primary reason—I cannot overemphasize that enough—for

the dramatic increase in premiums is in fact losses, and that, our

losses would include not only indemnity payments, but also the

duty to defend and defense costs, bar none.

The CHAIRMAN. Mr. Angoff, in your written Statement you write,

quote, ‘‘Whether or not a State enacted such limitations,’’ unquote,

meaning tort reform I take it, quote, ‘‘malpractice rates rose during

the mid 1980s, fell during the 1990s and are sharply rising today,’’ unquote. Yet the evidence that we have seen today suggests that

this is not the case in California. The evidence indicates that the

reforms in California stabilized medical liability premiums, and

that those premiums have remained substantially lower than the

remainder of the country in aggregate since they were enacted.

Now, I would like you to explain, if you will, the dramatic differences between California and the rest of the United States, between 1985 and 1988?

Mr. ANGOFF. I would be glad to, Mr. Chairman. The difference

between California and the rest of the country is that California

enacted Prop 103 in 1988, which had the effect of immediately rolling back rates and keeping them at moderate levels since 1988.

Missouri, it is demonstrable that MICRA, the cap did not have any

effect on limiting malpractice insurance rates, because for example,

in my own State of Missouri, Mr. Chairman, we enacted a cap in

1986. it was held constitutional immediately thereafter. Yet we are

still having the same problems in Missouri. Doctors are still having

100 percent increases in Missouri, even though we enacted a cap.

Other States——

The CHAIRMAN. Now, wait. Is not that cap currently over

500,000, about $550,000?

Mr. ANGOFF. Yes, that is true.

The CHAIRMAN. In other words, it is going up all the time.

Mr. ANGOFF. It is indexed to inflation as most are. But you will,

Mr. Chairman, that today, regardless of whether or not a State has

a cap, malpractice rates are going way up. It happens to be the

case that in my State, based on the data the insurance companies

submit to us, litigation is decreasing, not increasing. The average

payment per claim is decreasing, not increasing. And despite that,

rates have gone up by over 100 percent in a little over a year according to the State Medical Association. So despite the fact that

we have good experience, despite the fact that we already enacted

a cap, malpractice rates are still dramatically increasing in Missouri. That is why it seems obvious to me, Mr. Chairman, that the

cause cannot be the litigation system.

The CHAIRMAN. Let me just ask one more question. I have to

head over to the floor. But let me put it this way. Mr. Smarr, we

have heard from you that in California the Medical Injury Compensation Reform Act, or MICRA, stabilized medical liability insurance costs. We have heard from Mr. Angoff that Proposition 103,

not MICRA, is what worked in California. Now, who is correct? Is

it MICRA or Proposition 103 or both?

Mr. SMARR. Chairman Hatch, the Prop 103 argument I think is

just totally false. I have here consent agreements which were
32

signed by physician-owned insurance companies in California, and

paragraph 4 of the consent agreement for the NORCAL Mutual Insurance Company, for example, States: A rate rollback obligation

is a return of premium, and as such is treated as a policy holder

dividend in accordance with customary industry practice.

Now, this rollback as a return of premium was to be paid in

1992. And with respect to the NORCAL Mutual Insurance Company, which I believe is typical, in 1990, NORCAL paid dividends

back to its policy holders of 27 percent of premium. In 1991 it paid

26 percent. In 1992, the year the 20 percent as to go back, it paid

31 percent of premium. In 1993 it paid 37 percent of premium back

to its policy holders. In 1994, 34 percent and so on. But I have to

tell you that NORCAL currently is paying something like 4 percent

back to its policy holders because of the deterioration in this loss

experience. Prop 103 was not an issue.

The CHAIRMAN. Just one last thing. The Harris poll stated that

the fear of being sued has led 79 percent of doctors to order more

tests than are medically necessary. In other words, doctors are

practicing unnecessary defensive medicine. The same poll stated

that 76 percent of the physicians are concerned that malpractice

litigation has hurt their ability to provide quality care to patients.

Now, I personally believe that that is putting a lot of pressure on

insurance rates as well, because of the high cost of defensive medicine.

I remember when we were advising doctors in these matters—

it was a long time ago, when I had any type of practice in this

area—we just told them: You are just going to have to fill up your

history. You cannot afford to just tell a patient with a common

cold, take 2 aspirins every 6 hours, drink all the liquids you can,

in 6 days, 7 days you will be better, or do not do anything, in 7

days you are going to be better. You are going to have to order respiratory exams, cardiovascular exams, etc., which certainly had the

effect of driving up the cost. Is that what you are experiencing?

Mr. SMARR. Well, defensive medicine drives up health care costs,

and one estimate issued by the National Bureau of Economic Research is that up to $50 billion a year is spent in the health care

system to pay for defensive medicine, and doctors who fear being

sued, in case they do not do a test. Every sprained ankle now apparently gets x-rayed because somewhere in a group of 100

sprained ankles there is going to be a fracture that will wait 2

weeks to be diagnosed. And so this fear of being litigated against

is forcing doctors to order tests that would otherwise not be necessary.

The CHAIRMAN. Thank you. Mr. Chairman.

Senator GREGG [presiding]. As is our tradition, we will recognize

members in order of arrival. Senator Dodd, alternating back and

forth, Senator Dodd.

Senator DODD. Thank you very much, Mr. Chairman. I commend

both the chairmen for holding this joint hearing. Obviously it is a

matter that requires the attention, as I understand it, of both committees. So I appreciate the opportunity to listen to our witnesses.

I want to begin by thanking Laurie Peel and Linda McDougal

and Leanne Dyess for being here. It is not easy to come and talk

about personal stories, and it takes a lot of courage to do so, and
33

we are very grateful to all three of you for being here to share your

stories with us this afternoon, and you have our deepest sympathies for the difficulties you have been through personally.

Just a couple of questions if I could. One is I would like to ask

our two insurance commissioners if I could. People get somewhat

confused. If you have an automobile accident, your premiums on

your insurance for your automobiles is going to go up. But my

neighbors’ generally will not. There is not the sense that because

people live in the same neighborhood, one has an accident, the

other does not, everybody gets a higher premium cost. Why cannot

that work here? It seems to what you have got are doctors paying

this thing, but our physician from Nevada went through here, had

a good record over 12 years, no incidents at all as I understand

you, doctor, and yet your premiums went up. Now, I presume there

were doctors in Nevada that were subjected to malpractice loss, legitimate ones. You acknowledge that, I presume, there were various cases?

Dr. WILBOURN. Yes. There were.

Senator DODD. Let me just finish the question.

Dr. WILBOURN. I am sorry.

Senator DODD. My point being here, why do we not apply the

same standard we do on automobile insurance to medical malpractice insurance?

Mr. ANGOFF. Senator, we could do that. That is something that

would have to be done at the State level. But it would make—it

has frequently been suggested that the categories of doctors should

be broadened so that there are more doctors in a category, thus

spreading the risk more broadly, but that within the category doctors’ rates should be based on experience. That is, a doctor who had

to pay—who was found negligent would be surcharged. A doctor

who was found negligent twice would be surcharged even more,

and then real high risk doctors would be put into a residual market, which exists in auto insurance for the really bad drivers. The

same concept is in place in certain States and it could be put in

place in other States, so that there would be what is called a joint

underwriting association for doctors who have been found negligent

several times, and they would pay higher premiums, but in addition their premiums would be subsidized.

Senator DODD. So in effect, Dr. Wilbourn was driven out of the

State of Nevada, not because of anything he did wrong, but because

of what some of his colleagues did, and that is why his premiums

went up.

Mr. ANGOFF. That can happen. I mean that is happening.

Senator DODD. Want to answer that, Commissioner?

Mr. MONTEMAYOR. Senator, you are on the right trail. I mean everything in property and casualty, which this is, it is frequency and

severity, and so the different classes of doctors are somewhat similar to different kinds of vehicles, Ob/Gyn’s, family practice, neurosurgeons, etc. And so you look at the probability of them being involved in a claim, and then on average how much the claims have

been, and in the most rudimentary of ways you look at both frequency and severity for this period and this period and this period,

and you draw a line, and in estimating the future period, just extend it one more. And that is essentially what they do. And they
34

do have a methodology for surcharging based on individual claims

to try to manage that, but it is basically a spreading of risk by like

class and kind to some manageable level.

Most of the insurance companies will determine how they set up

their territories for rating purposes and so forth, but it is essentially the same type of exercise, Senator.

Senator DODD. In the full disclosure, I represent the State of

Connecticut, and we have a small cottage industry called insurance

in my State, but I am curious on how these issues work. I will also

tell you that my State of Connecticut, we have roughly 13,500 doctors, about 30,000, I think the number is, nurses—in fact we have

a shortage of about 11,000 in my State. We have 31 hospitals in

the State of Connecticut. And I went back and checked with my insurance companies and my physician groups in Connecticut. We

average somewhere around 350 medical malpractice suits each

year in the State of Connecticut. And one of the reasons I am told

we do is because they have a number of rules in Connecticut. One

is that before a claim can be filed, you must have a signature or

a document signed by a physician saying that the claim, if proven

to be true, would be a legitimate malpractice allegation, and you

have got to get that certification before you can go forward. And

it seems to have had the positive effect of reducing the number of

lawsuits being filed.

I wonder if you might share with us, just from your own experience, what other countries may be doing, what others are doing. I,

for one, will tell you, I always wrote the Private Securities Litigation Reform Bill for the U.S. Senate a number of years ago to limit

frivolous lawsuits in the securities field. And I wrote along with

Bob Bennett the restrictions on tort reform, if you will, of some tort

reform, and the Y2K legislation, along with Mike Enzi and others

who were involved in that. So I have certainly been supportive in

the past of tort reform issues. But I for one believe—and I will tell

you very strongly—the idea of putting caps on what people can receive for their pain and suffering is just a nonstarter. I do not know

what will happen here, but I guarantee a lot of us will fight that

tooth and nail. [Applause.]

Senator DODD. I did not mean to get that—but I think there are

other things that can be done.

Senator GREGG. Excuse me, Senator. Actually, demonstrations

are not appropriate to hearings. We appreciate that this is an emotional issue and that people like to express themselves, but it is

better if we maintain a decorum within the hearing process.

Senator DODD. I would like to just ask if I could what the Connecticut experience, which does not have caps but has instituted

these other reforms, it seems to be producing the desired results

that people are looking for here. What is being done elsewhere

along those lines short of a cap approach that you think may be

constructive and positive.

Mr. ANGOFF. Yes. Senator, Missouri has what sounds similar to

Connecticut. It has a requirement that there be an affidavit of

merit, and lawyers on both sides seem to live fairly well with that.

Senator DODD. What is the effect of that in terms of the number

of malpractice claims that are being filed?
35

Mr. ANGOFF. Well, it is tough proving cause and effect, but as I

outlined, the number of claims in Missouri has gone down, both

paid and reported. Whether it can be attributed to that, who

knows? But the experience of Missouri is good.

Senator DODD. Commissioner from Texas?

Mr. MONTEMAYOR. We have got a similar requirement in Texas,

Senator, where an affidavit is required. The number of claims has

gone up roughly at the 5 percent level. The severity of the claims

has gone roughly at the, I believe 7 or 8 percent level. Combined

frequency and severity have made costs go up approximately 11

percent each and every year looking back. But that has been the

trend there. But there is a similar requirement in Texas to date.

Senator DODD. And last, Ms. Dyess, could you just tell me——

Senator GREGG. Senator, I think your time has expired. Can you

just ask during the second round.

Senator DODD. Just ask one last question if I could.

Just out of curiosity, they are obviously a different set of circumstances, but do you support a cap on pain and suffering? Would

you support that?

Ms. DYESS. It really does not matter what I think.

Senator DODD. Well, it does. You are here as a witness.

Ms. DYESS. I would support a reasonable cap, a reasonable cap.

Senator DODD. Thank you.

Ms. DYESS. But you have to understand that I get nothing. I am

not suing anybody.

Senator DODD. No, I understand that. I am just curious, knowing

what you have been through, whether or not a cap of some

$250,000 would be acceptable to you.

Senator GREGG. Senator Alexander.

Senator ALEXANDER. Thank you, Mr. Chairman, and thanks to

the witnesses for being here. I had to step outside the hearing room

for a few minutes to see someone else, but I have enjoyed the discussion.

Let me focus on one aspect of this crisis and use some facts from

our State. The issue that concerns me the most about this crisis is

the effect it has had on prenatal health care for expecting mothers.

I remember a few years ago when I was serving as Governor. Tennessee had the most prenatal health care problems in the country.

One of the things that we wanted to do to change that was to make

sure that every expectant mother had a medical home for her child.

This meant connecting expectant mothers with doctors who deliver

babies. We worked in a voluntary way with doctors, and especially

in Memphis and other parts of our State, we were successful. So,

it concerns me greatly when I hear from doctors and from communities that many doctors are leaving family practice. It must be

very difficult for expectant mothers, especially poor expectant

mothers, to have a medical home for their child before the child is

born. This problem can have a tremendous effect on our future. I

was a Governor who very strongly defended States’ rights in this

case, and I am a lawyer who respects our profession, but I am now

convinced that we have a real problem with runaway lawsuits.

We have talked a good bit about rural areas and how mothers

may have to drive a distance to have their baby, but just this

morning I was visiting with a delegation from Memphis—the Bap-
36

tist Memorial Health Care Corporation. They operate 17 hospitals

in Tennessee, Arkansas and Mississippi, with 52 affiliated physicians. Their liability insurance bill last year was $2.6 million, and

for similar coverage this year is $8.2 million. And I was listening

to the discussion about California and the debate back and forth

as to what seems to have caused it. At least we have identified the

fact that California is different from other States. Tennessee is not

a crisis State among those States that were listed today, so we are

not as bad as other States, but here are the figures.

In 2002, the medical liability insurance premium for general sur- geons in Tennessee was $35,000; 2003, $62,000. For an Ob/Gyn in

Tennessee, the medical liability insurance premium was $62,000 in

2002; in 2003, it increased to $160,000. In California medical liability insurance for Ob/Gyns is only $57,000.

I am seeing that at least we have identified something right is

happening in California. The issue seems to be what the cause of

it can be. I am very skeptical about the idea that the caps on limits

and the caps on fees have not been the greater cause of the lower

costs in California.

For example, the comment was made that litigation is going

down. In our State, Volunteer Mutual Insurance Company insures

about 10,000 doctors. There are 2,000 pending medical malpractice

lawsuits against these 10,000 doctors.

Mr. Smarr, is it reasonable to you that for every five doctors

there should be one medical malpractice lawsuit? Are doctors that

negligent? Is this a reasonable circumstance? It seems to me that

this represents a condition of runaway lawsuits that require some

sort of corrective action.

Mr. SMARR. Senator Alexander, that is not an unexpected statistic, but I the it is unreasonable that there are that many lawsuits,

especially since 70 percent of those on average will be found to

have no merit.

Senator ALEXANDER. I talked with the chief medical officer at

Vanderbilt Medical Center. Dr. John Sergent says that for the first

time Ob/Gyn doctors in Tennessee are saying they may be forced

out of practice, and we are not a crisis State in Tennessee, according to this list. At the University of Tennessee, Dr. Jim Gibb Johnson says that one third of all residents in training since 1990 have

been served with a malpractice suit. That sounds like runaway

lawsuits to me. So I welcome the opportunity to have this hearing,

and appreciate the emotional feelings on all sides. I am glad to

have the California experience, and I hope that as time goes on we

can isolate which of the causes made the most difference. It sounds

to me like, Mr. Smarr, that you have the better side of the argument, but I will keep listening.

Senator GREGG. I believe Senator Clinton is yielding to Senator

Edwards. Senator Edwards.

Senator EDWARDS. Thank you, Mr. Chairman.

Ms. Peel, welcome. We are glad to have my neighbor from Raleigh here testifying today. Appreciate you being here.

Let me go to the question just raised by Senator Alexander, because I think we have to be very careful not to have a complete

disconnect about what we are talking about. The President likes to

use the term ‘‘frivolous lawsuits.’’ I think it is important to distin-
37

guish between frivolous lawsuits and the remedy that is being proposed here. The remedy, frivolous lawsuits are lawsuits that never

should have been brought, that have no merit, where the contentions of the person bringing the case should never have been in the

court system. What the President is proposing is that we put a

limit on the most serious cases, because what he is suggesting is

the way to curb frivolous lawsuits is to limit the rights of the most

seriously injured, because they are the only people affected by noneconomic damage caps, which is what we are talking about.

And let me just say to begin with, I think that talking about the

lawsuit lottery is not productive. We have people, including some

people in this audience, kids that have been paralyzed for life, children who are blinded, who I represented for 20 years. And those

families, I promise you, do not think they have won any lottery.

They are faced with very, very difficult circumstances, not for a

year, not for 5 years, but for 60, 70, 75 years. So I think that is

not a good way for us to talk about this issue.

I do believe that the doctors have a serious complaint. I think the

question is, what is it that is causing this problem? And there is

a difference between cases that should never have been brought

and cases where people are very—in many cases, kids, women, senior citizens, have been very seriously injured. Because the cap on

noneconomic damages for people who earn a good living, the senators at this table and others, economic damages are not being

capped. So if you make a good living, and you have had a huge economic loss as a result, you are going to have a—your recovery will

be just fine. It is people like Ms. McDougal, children. These caps

on noneconomic damages hit children and seniors and women like

a laser, particularly for example a stay-at-home mom who is not

working, and as a result has no lost wages or what is commonly

talked about as economic damages. So I think we have to be very

careful about distinguishing between frivolous lawsuits on the one

hand, cases that should never have been brought—and I was interested in Senator Dodd’s idea about dealing with doctors on an individual loss basis—and second, cases of people who are very badly

hurt, in many cases kids, and putting a limit on their rights. Those

two things have nothing to do with one another.

Mr. Smarr, I wanted to ask you a couple of questions if I can.

You were testifying about MICRA and whether MICRA has had an

effect or whether it is Prop 103 that had an effect in California. I

mean I have got from the State insurance commissioner the actual

numbers in California as opposed to your chart.

In 1976 the insurance premiums paid in California, the year that

MICRA was passed, $228 million. In 1988, $663 million, or an average increase of 24 percent. So over the first 12 years that MICRA

was in place, there was an average increase of 24 percent. In 1988

Prop 103 was passed. Between 1988 and 2001, in other words, for

the 13 years after passing of Prop 103, insurance premiums went

from 663 million to 647 million. They actually went down. So for

the first 12 years that MICRA was the law of California, insurance

premiums went up 24 percent a year. I doubt that the doctors

think that is okay. And after Prop 103 was passed, the insurance

premiums actually came down over the course of the next 13 years.
38

Mr. Angoff, is that your understanding of roughly what happened?

Mr. ANGOFF. Yes, it is, Senator.

Senator EDWARDS. On the issue of cases that should not be

brought, so-called frivolous lawsuits, in my State as in your State,

Mr. Angoff, we have a requirement, what is called an affidavit of

merit. And the idea is that before a case comes to court and gets

involved in the court system, we make the lawyers involved thoroughly investigate the case, have the case in fact reviewed by an

independent expert in the field to make sure that cases that are

actually getting into the court system are cases that have merit.

Now, I know that is not a nationwide law. That law only exists in

selected places around the country. It exists in North Carolina, and

apparently exists in Missouri. I think actually it is a very good idea

because we want cases that are going to be in the court system,

taking up the court’s time, taking up cost.

Commissioner, you talked about some of the costs associated

with defensive cases, and those costs are legitimate and acceptable

so long as they are cases that are serious, that ought to be in the

court system and should have been brought. On the other hand, if

there are cases that should not be in the court system—I mean, we

would like to find a mechanism to make sure that the cases that

get into the court system are actually meritorious and are serious

cases like the cases that I described earlier. And whether this is

the specific mechanism, I think it is actually a good one, but if

there is another better way to do that, we should talk about that

because—I can only speak for myself. I did this kind of work for

20 years, almost 20 years, and I did this myself anyway, but it

seems to me that we want to make sure that people who are bringing cases have serious legitimate cases that belong in the court system, and some screening mechanism to make sure that that is true

I think is reasonable. I do not think it is reasonable—and I agree

with Senator Dodd about this—to say to women and kids and senior citizens, who have been paralyzed for life or blinded, we are

going to take away your rights. First of all, I do not think there

is any cause and effect. I think this testimony today shows absolutely no cause and effect between those two. And I do, I might

add, have a little trouble—and Senator Kennedy asked questions

about this—accepting the argument which I hear being made, that

the fact that the malpractice crisis in the 1980s and this malpractice crisis, which is very real for the doctors, no question in my

mind about that, that has no relation to the fact—it is just a pure

coincidence that those happen to be times that the market was

doing poorly. You know it is difficult for me—I mean I hear all of

your use of numbers, but it is just difficult for me to accept that

those things have nothing to do with one another.

Senator GREGG. If the senator would not mind concluding his remarks, because we do have others.

Senator EDWARDS. I will conclude there. Let me just say one last

thing. I do think that we need to do something about the problems

that the doctors are facing. I think these insurance premium increases are serious. I think the place that I differ with some of the

witnesses at least is about addressing what the cause of those

problems are. And if we can keep cases that should not be in the
39

system out of the system, I think that is a very good thing and we

should figure out a way to do that.

At the same time I still believe that there is a relationship between what is happening in the markets and investment income,

which Senator Kennedy asked about, and these premium increases,

which clearly are much more than even what you are contending

are the increases in payouts.

Thank you, Mr. Chairman.

Senator GREGG. Thank you, Senator.

Senator Enzi.

Senator ENZI. Thank you, Mr. Chairman. I appreciate having

this hearing. I have learned a great deal today. I would ask that

a Statement that I have be made a part of the record.

[The prepared statement of Senator Enzi may be found in additional material.]

Senator ENZI. I want to bring a different dimension to some of

the discussion here. I am from Wyoming. Wyoming is the least populated State in the Nation. We are one of those two square States

out there in the West—we could not exist if the square had not

been invented. We are about 300 plus miles on a side, and we have

a little over 493,000 people in the State. Our biggest city is 50,000

people. It goes downhill pretty quick from there, so we have a little

problem with the number of doctors that we have, and we are considered a risk pool all by ourselves.

I do not have a way to check and see how drastically that affects

the insurance rates, but I know that it does. Not only are our obstetricians leaving, a few days ago in the Washington Post, page

2, there was almost a full page article about a doctor in Wheatland,

Wyoming, whose insurance premiums just went up above $150,000.

He is going to quit his practice.

Now, in Wheatland he delivered all of the kids. He was interviewed at a basketball game in Douglas—that is 60 miles away. He

delivered a third of the kids there. In Casper, Wyoming, we have

a doctor who is also leaving his practice there. He delivered a third

of the kids in that town. That city is just under 50,000. In

Torrington, they are losing their only doctor, which means all medicine, not just obstetrics.

So we have got this huge problem. I am willing to consider any

kind of a solution. Actually, what I would like to do at the moment

I think is join California as part of their risk pool. I guess that is

not an option.

We have two insurance companies for doctors. I remember when

we had our first child. It was a difficult delivery, came about 3

months early, and consequently, when we were having our second

child, there was no doctor in our town. There was only one to begin

with, but he was not willing to take on a second child with those

kinds of difficulties.

I hope when we are looking for the solutions on this, we will take

into consideration those areas of the country that are extremely remote and extremely rural. Dr. Wilbourn comes from a State that

is considerably more populated than Wyoming, but is still down on

the bottom of the chart. And you described some of the medical liability and patient access problems that are in your part of the
40

country. Do you think that the crisis you described is less severe

in States that have enacted medical litigation reforms?

Dr. WILBOURN. I am sorry. Could you repeat that one more time?

Senator ENZI. Yes. Do you think that the problems you described,

the crisis you described, the thing that is getting you out of the

field, is less severe in States that have enacted medical litigation

reform?

Dr. WILBOURN. I think it is to a great degree. There is a lot of

reform that can be done. But when we see these lawsuits go forth

and there is no limit to what you might get from a jury, then there

is nothing to deter someone from saying, ‘‘Let us sue 100 people

this week, and maybe one of them will—or maybe they will settle just because they do not want to spend $91,000 defending this case,

and we will get something, and I really do not even have to go to

the courtroom. I do not have to try this case. I will just get enough

in this settlement and that settlement because the insurance companies will do that.’’ So there is no deterrent to keep the number of suits down. So

we get into this situation where more and more suits are filed, the

premiums keep, in my opinion, keep going up. Yes, there is a lot

of different answers here today as to who thinks it is whose fault.

The problem that we have is the doctors are sitting here saying,

I do not know who you are going to say whose fault it is, but I cannot practice medicine under these conditions. I cannot pay my malpractice insurance premium. I am left to either go out of business

or move somewhere else.

I chose a State that does not seem to be litigious. I jokingly said

the other day that in Maine if there is a problem, instead of suing

you they just run the snowplow past your driveway so you cannot

get out in the morning. [Laughter.]

Dr. WILBOURN. But it does not seem to be as a litigious environment in that State. Perhaps that is why the rates are still affordable. I am greatly concerned. There was just an article in yesterday’s Bangor Daily, editorial that was written by the chairman of

NEH, New England Health Care Systems that has Pen Bay Hospital in Camden, citing this concern, the increase in insurance that

the hospital was having to pay this year for the hospitals that are

in Camden, and that he was concerned that the problems that were

in New Jersey and Pennsylvania were going to start to move northward into our States, and that perhaps our senators should look at

that now before we get to a crisis in Maine.

Senator ENZI. Thank you. And since my time has expired, I will

be giving you written questions, including a couple others of you,

particularly Mr. Montemayor on his feelings among insurance commissioners for expanding beyond their borders to have bigger risk

pools for the liability. So I will send that to you in writing though

since I have run out of time.

Dr. WILBOURN. Senator, I will look forward to it.

Senator GREGG. Senator Specter has to leave, so he would like

to make a comment for the comment in a couple seconds.

Senator SPECTER. I compliment, Mr. Chairman, on scheduling

the hearing, and I have a commitment at 5 o’clock, and I will try

to get back to ask questions, but if I do not I will submit them for

the record. Thank you very much.
41

Senator GREGG. Senator Clinton.

Senator CLINTON. Thank you, Mr. Chairman.

And I want to thank all of our witnesses today. I think that the

testimony we have heard, particularly from Ms. Peel, Ms.

McDougal and Ms. Dyess, put into very stark terms what it is we

are here about. And underneath the current of conflicting charts

and information and ideas about what should be done, I think

there actually is some common interest, or at least I hope so, because as we evaluate the options that are before us, it will not do

us or anyone any good if we merely fight ourselves to a draw and

point fingers at each other and then nothing changes. And the kind

of poignant and painful stories that we hear, not just from the witnesses on the panel, but from the people in the audience and literally around our country will be in vain.

I think, Mr. Chairman, that we have actually made some

progress in elucidating these issues today, and for me, we ought to

be looking at five different factors as we move forward. Each of

them are equally valid, it strikes me.

First. Does any plan that we propose or that anyone were to propose in a State or in the private sector reduce liability insurance

premiums for physicians? I think there is unanimity on this panel

that we have a problem, and even if it is a problem that ebbs and

flows with the economic conditions in the marketplace, it still is a

problem, and it is a problem that discourages and deters people

from practicing in certain places and from being available.

No. 2. Does any plan that we would consider provide for adequate access to high-risk specialists or the availability of high-risk

procedures? I mean it is heartbreaking that Ms. Peel would move

to a major city in our country and not be able to find easily a Ob/

Gyn to care for his high-risk pregnancy, or that Ms. Dyess’s husband would not be taken care of. That we should deal with regardless of the context in which we are concerned, because that is just

absolutely unacceptable.

Third. Does any plan reduce the current rates of preventable injuries and damage? You cannot, as a woman, sit and listen to Ms.

McDougal’s story without just being horrified, and I really thank

you for your courage in coming forward. I know that it cannot be

easy for you and your family. And we have to ask ourselves what

is it we need to do? Because there is a lot of evidence from GAO

reports in 1999, from the Institute of Medicine report, that there

are problems, there are preventable problems. There is ordinary, if

you can call negligence ordinary, and then there are the very rare

instances of intentional harm that can be traced to a history of

drug or alcohol abuse or other very unfortunate circumstances.

Fourth. In conjunction with reducing the current rates of preventable injury for individual patients, we do not want to do anything, it strikes me, that closes the door on raising larger problems

within the medical and health care community. And by that I mean

that it was malpractice cases brought on behalf of individual patients that brought to attention issues like IUDs that caused injuries and infertility, or DES which we know was used for trying to

prevent problems, but created miscarriages but created birth defects and cancers. And there are many other instances of that. Unfortunately, in our system, given the way our economy and our sys-
42

tem works, lots of times you do not get the attention you need on

these medical procedures and devises in the absence of somebody

bringing a lawsuit, and sometimes more than one lawsuit. So as we

go forward we have to think to ourselves, Wait a minute. We do

not want to do something that inadvertently causes harm and

where perhaps a lot of doctors are not aware in one part of the

country what is happening in another part of the country until the

lawsuits reach a critical mass.

And finally, I am concerned about the kind of catastrophic injuries and the level of compensation that is available, and it does

particularly fall on families whose children were injured at birth or

had some other kind of difficulty, and therefore you have lifelong

care requirements, women who have no income or at least not a

very high amount of it, so the economic damages are not significant. And there are those cases where as a society we have to figure out how to deal with them.

So I think, Mr. Chairman, there are many people of good faith

on all sides of this issue. This is not, in my view anyway, a either/

or, black or white, good guys/bad guys kind of routine, depending

upon where you are. But if we can work together to try to figure

out what are the questions that we want to have answers for to

deal with the legitimate concerns, not the exaggerated ones, not

the sky is falling, but really just honestly, what are the problems?

How do we sort them out? How do we move forward? Then I think

that we actually might be able to make some progress.

I really appreciate the Chairman and his counterpart holding

this extraordinary joint meeting to try to air all of these issues.

Senator GREGG. I thank the Senator. Your points are very cogent

and right on as far as I am concerned.

Senator Cornyn? You were here first?

Senator ENSIGN. Yes.

Senator CORNYN. I defer to my senior.

Senator GREGG. I was given an incorrect list. I apologize. Senator

Ensign.

Senator ENSIGN. Thank you, Mr. Chairman.

First of all, Senator Clinton, I appreciate the spirit in which you

offer your comments. I want to start by addressing one of the

things that you said. Being a health care professional myself, it is

very difficult to legislate better outcomes. It is one of the most difficult things that there is. Each one of the colleges—the American

College of Surgeons, the American College of Obstetrics and Gynecology—they all try to police themselves somewhat.

But, Dr. Wilbourn, I think that my profession and your profession, all of them need to do a much better job. However, one of the

problems that we also see is that they are afraid at the State board

level that they are going to get sued. There is a huge problem that

if you police one of your own peers, then you can be sued because

you are potentially taking away their livelihood. That is one of the

big problems that people are afraid to clamp down on.

Ms. McDougal, you mentioned disciplinary actions of physicians.

Again, this is what I am talking about at the State board level.

That is something that needs to be addressed, maybe even some

tort reform as far as State boards are concerned. You do not want

them to be all powerful, but it is very difficult the State boards to
43

enforce penalties. I am a veterinarian by profession. I see this firsthand. Sometimes I cannot believe some of these people are still

practicing. However, after talking to some members on the boards,

they are afraid that their livelihood is going to be taken away because of their disciplinary actions. Obviously, there is a serious

problem there.

The second thing I want to make a comment on is the point you

made about high-risk procedures. This is a very, very serious problem.

In Las Vegas—Dr. Wilbourn, you know this—a lot of the physicians have changed their practice—and you have talked about

this—to not take the high-risk pregnancies any more.

And, Ms. McDougal, your story broke my heart as well. You hate

to hear these horrible cases where neglect happened. But, I also do

not want to hear that because somebody had a child that needed

a certain type of care—a high-risk pregnancy—and now there is

not a doctor that will take care of them because they cannot afford

to risk everything that they had worked their whole life to attain.

Dr. Wilbourn, would you like to address the problem as far as

the high-risk procedures?

Dr. WILBOURN. Well, it is just in obstetrics I think anything can

be high risk. We were taught in residency the first thing, never

trust a pregnant woman. Just when you think everything is going

well, something will happen.

There are some factors that we can identify in patients who are

pregnant that we know are going to be risk factors. One of the biggest risk factors in a woman’s obstetrical care is lack of prenatal

care. When that patient has not had access to health care. Therefore, she has not gone to the Ob/Gyn because he was unavailable

or she did not have health insurance, and that physician has chosen no longer to take Medicaid. She goes for weeks and weeks and

months and months. We do not know if she is anemic so we can

correct that. We do not know if there are abnormal testing for genetic abnormalities. We do not have an opportunity to get in early

and even avert a possible problem. So now some physicians, when

we talk about limiting high-risk obstetrics, a lot of people think

that just means I am not going to take care of triplets any more.

No. Physicians are saying if you have a due date after this point,

in other words, if you are more than 14 weeks or 16 weeks pregnant, I will not see you because I have already missed opportunities early in your pregnancy to avert a potential bad outcome,

hence, I will be sued.

So that is another way we have. A limit of access to care has

nothing to do with that patient’s high risk. We perceive her to be

high risk because she has not had care.

Senator ENSIGN. Is it not also true that if you happen to be in

an emergency room, such as a physician on call there, and somebody asks you to take a quick look at a patient, once you care for

that patient, you cannot fire that patient. Is that not correct?

Dr. WILBOURN. Absolutely. There is a very long process you have

to go through in firing a patient. The patient has to be notified verbally, in writing for 30 days. It varies from State to State. I am

more familiar with Nevada since I just came from there. But in Nevada you have to send out a letter, return receipt. You have to pro-
44

vide any care that they need for 30 days until they have adequate

time to find another physician. If they happen to be pregnant and

show up in labor, you still have to take care of them. It does not

matter if they were abusive.

Senator ENSIGN. I hate to interrupt you, but I just want to make

one final point. I wish we had more time. Perhaps there is a second

round of questioning.

The issue was brought up about investment, and everybody is

going back and forth on this issue. What I have not heard addressed is if it is investment income that is now causing the problem. Was it in fact the good returns that allowed the medical liability rates not to increase during the 1990s?

Well, let us say it is the stock market. I am just saying give them

their argument—give them their argument that it is investment income. It still does not take away the fact that we are paying out

a lot more based on the things that you presented, Mr. Smarr.

There are still increased jury award amounts, such as, we are seeing in Nevada. The statistics are very clear in Nevada on the number of huge payment awards, and I imagine around the country

they are going up as well. That seems to be certainly a large contributing factor, if not the most important contributing factor.

Mr. SMARR. Yes, Senator, Ensign, I agree with you, and to put

it in perspective, actuaries tell us that a 1-percent drop in market

interest rates on bonds equates to a 3- to 4-percent increase in premiums. At their height in recent years, long-term bonds are paying

7-8 percent, and they are now down in the 4- to 5-percent range,

and so the math is fairly simple to tell that the increase in premiums we are seeing is due not largely to the drop in bond rates,

but due to the increase in the cost of the claim.

Senator ENSIGN. Thank you, Mr. Chairman. My time is up.

Senator GREGG. Senator Cornyn?

Senator CORNYN. Thank you, Mr. Chairman.

I want to do as Senator Clinton and Senator Dodd did, and I

know really all of us feel the same way in expressing our appreciation to Ms. Peel, Ms. McDougal and Ms. Dyess for coming forward

and the courage you have shown talking about your story.

I know Senator Dodd was candid to talk about the fact that a

number of insurance companies do business or call their home office in Connecticut, and Senator Edwards, I noticed, talked about

the fact that for 20 years he made a living suing doctors and hospitals, and perhaps I need to be candid as well and say I used to

be, back when I was a young lawyer, on the other side of that, defending doctors and hospitals. That was a long time ago.

But as much as I have high regard for doctors and hospitals, I

have even a greater concern for patients because that includes, of

course, all of us.

I wanted to just ask Commissioner Montemayor, since I know

him best, being the Insurance commissioner from Texas, who does

this crisis of access affect most profoundly? I know, in my travels

around the State during the last year, in Corpus Christi, and

McAllen, and the Rio Grande Valley, in terms of the socioeconomic

stratum that this affects most profoundly, who would that be, Commissioner?
45

Mr. MONTEMAYOR. Senator, you just put your finger on it. First

of all, medical malpractice carriers provide coverage not only for

physicians, but also for clinics, also for hospitals and also for nursing homes. In fact, this is where the vast majority of the disruptions began at, but it is pretty much spread throughout the system,

and without fail, with the research we have done, some of the very

best physician cities, regardless of the specialty, seem to be in

places like Sacramento, California. At the worst end of the scale,

at four or five times those rates, regardless of the specialty, are

places like Miami and Fort Lauderdale. Not very far behind that

were places like McAllen, Texas, and Brownsville, Texas.

Senator CORNYN. Would those be the poorest really regions of our

State and the most medically underserved?

Mr. MONTEMAYOR. That is correct, Senator. That, in fact, just exacerbates the issue of trying to recruit new physicians and replace

retiring ones or those that simply give up the practice.

Senator CORNYN. I know, I think Senator Clinton said it very eloquently, none of us are interested at all in denying people who are

injured as a result of the fault of some physician or some person

employed by a hospital access to or without a remedy.

I wonder, Ms. McDougal, would you mind, for example, have you

filed a lawsuit as a result of your terrible incident that occurred to

you?

Ms. MCDOUGAL. At this time, no. I am still experiencing infection, and they cannot continue with my reconstruction until the infections are taken care of. It could be several years.

Senator CORNYN. And without asking you to tell me who the lawyer is and that sort of thing, have you talked to lawyers about the

possibility of representing you in a lawsuit?

Ms. MCDOUGAL. Yes, I have.

Senator CORNYN. Can you give us, the committee, an idea of the

range of attorney’s fee that that lawyer would require in order to

represent you, I presume, on a contingent-fee basis.

Ms. MCDOUGAL. That is correct.

Senator CORNYN. What would that percentage be that you have

been told would be pretty much what the market does in that area?

Ms. MCDOUGAL. It is 30 percent.

Senator CORNYN. Thirty percent in your part of the country.

Well, actually, that is relatively low, compared to some parts of the

country. I know, in San Antonio, Texas, my hometown, many lawyers who file these kinds of lawsuits demand 50 percent of the recovery. And, in fact, after the attorney is paid and after the expenses are paid to expert witnesses, court costs and the like, the

patient actually gets just pennies on the dollar and is not literally

made whole, which is sort of the legal theory that I know sometimes is applied here. The idea is you get full compensation for

your injury, but the fact is, under the current system, that does not

happen. Is that your understanding?

Ms. MCDOUGAL. Yes. I am a layperson, though.

Senator CORNYN. Sure, I am not asking you to—— Ms. MCDOUGAL. I have no remedy without an attorney.

Senator CORNYN. I am not asking you to explain it. Is that your

understanding, though, that basically you would receive what is

left over after your lawyer gets paid and after the court costs?
46

Ms. MCDOUGAL. Yes, it is.

Senator CORNYN. I guess, Mr. Angoff, you testified, I know, in

your capacity as a former insurance commissioner, but actually you

are a personal injury lawyer, are you not, sir?

Mr. ANGOFF. No, I am not a personal injury lawyer. I am a lawyer specializing in insurance issues. I represent more plaintiffs

than defendants, but I do represent defendants and also State insurance departments.

Senator CORNYN. And your firm website lists medical negligence

cases as one of the things that you and your firm do for a living?

Mr. ANGOFF. I do not. Some other people in my firm do.

Senator CORNYN. And you typically represent, people in your

firm who do those kinds of cases, represent people on a contingentfee basis; would that be correct?

Mr. ANGOFF. Yes, sir.

Senator CORNYN. Mr. Chairman, I just wonder, just sort of in

closing, whether a system that I think as we all want, which leaves

no injured person without a remedy, but at the same time as having devastating impact on people who want to give their life to help

heal others, physicians and health care providers, and leaves them

in such dire straits, but at the same time seems to provide a very

healthy rate of return for lawyers, whether the transaction costs

associated with getting the money to people who really need it and

deserve it are far too high, and perhaps as part of this committee’s

and this Congress’s consideration over what would be the best way

to address this, would figure some way that perhaps let doctors

and health care providers practice their chosen profession, gave patients access to good-quality health care, provided a full remedy to

people who actually were hurt as the result of the fault of others,

but at the same time did not result in such huge transaction costs,

for which lawyers profit.

Thank you.

Senator GREGG. Thank you, Senator.

Senator Durbin?

Senator DURBIN. Thank you very much, Mr. Chairman, and

thank you to the panel. I apologize for having stepped out to go to

an Intelligence Committee hearing, but I did read your testimony

before I left, and I am sorry I could not be here as you presented

it, but I am familiar with what you said to the committee.

Unlike some of my colleagues here who have said that in the

past they have defended doctors and others have sued doctors, I

have done both. Before I was elected to Congress, I spent 5 years

defending doctors in medical malpractice cases and 2 years on the

other side, on the plaintiffs’ side. So I have seen, at least in my

time a few years back, both sides of the equation.

Let me disabuse you from the notion immediately about frivolous

lawsuits. If someone walked in my office and said they had a medical malpractice claim, I quickly calculated that I would be spending

out of pocket thousands of dollars in preparation of that claim. I

was not about to take a flier and run the possibility of contempt

for filing a case that made no sense at all and lose money in the

process.

In my State, and many others, you are going to file an affidavit

with your complaint from another doctor saying you could have a
47

claim, you could have a cause of action. There is a lot of work that

goes into these cases, and people who file frivolous lawsuits should

be dismissed, and I doubt that that is the source of the problem

here today.

Let me also tell you that I listened to this debate here about contingency fees, and without fail, the people that came into my office

when I was an attorney could not have had an attorney any other

way. They could not afford to put up $10-, $20-, $30 thousand of

their own money after they had gone through a devastating medical injury. They only could operate under a contingency fee, and

different lawyers charge different percentages, but many of them

run the risk of ending up with nothing when it is all over.

People have argued that this issue is all about doctors, and trial

lawyers, and Americans who cannot find medical care because

medical malpractice premiums are driving doctors out of business.

I think it is about all three of those, but I think it is about three

other groups, too. It is about doctors guilty of negligence and reckless misconduct; it is about Americans who are innocent victims of

medical malpractice and face a lifetime of pain suffering and death;

and it is about insurance companies who have somehow escaped

the scrutiny of the White House and many Members of Congress

when it comes to this medical malpractice crisis.

These same groups that now argue we should not look at insurance companies as part of the problem also said we should absolve

HMOs from liability when they make the wrong decisions as to

whether or not you can even qualify for medical care. I do not think

that that is consistent with this theory of accountability, which we

hear so often in Washington, DC. All of us are held accountable.

We should be held accountable in a reasonable way.

I would like to ask Dr. Wilbourn, if I could, you had a personal

life experience that was clearly, I mean, demonstrates the problem,

where you had to pick up and move from a practice in Nevada to

Maine under these circumstances.

Now, you know that since you left, probably, maybe—I do not

know how long you left—but since you left Nevada, but they passed

a medical malpractice law. Are you aware of the fact that the malpractice insurance companies have said they are not going to reduce premiums even with the caps?

Dr. WILBOURN. Yes, sir, I am aware of that. That special session

was called while I was actually meeting with President Bush in

High Point. The special session went into effect and the law was

passed after I had closed my practice July 31st, but prior to me

physically leaving town, as I was trying to put my house on the

market.

I was aware that those rates would not go down. We had been

told by our liability writers that, number one, do not expect a decrease in rates until a case test has gone through and U.S. Supreme Court has upheld it and, number two, enough exceptions

were put into the bill that was passed in Nevada that left enough

legal loopholes that they really did not find that it was going to

help them at all, as far as costs.

Senator DURBIN. If you look at the States that have imposed

caps—I know you have probably gone over this ground, and I will

not repeat it—the States that have imposed caps on recovery and
48

lawsuits for people who are injured and die, those caps really have

not resulted in significant differences in malpractice premiums in

these States. So what we are doing is limiting the day in court for

the person who is a victim and not achieving the goal that we are

seeking, affordable medical malpractice insurance so doctors can

practice medicine.

I just cannot understand why this administration will not consider looking at insurance companies. Why is it that they cannot

be part of the solution here?

Let me ask this of the people on the panel here, you have probably heard of cases, and there have probably been some described

here today, do you feel that $250,000 is fair compensation for some

of these cases you have heard of? A case that I had of a little baby

brought in for baby shots, which every parent does without a second thought, who within days was a quadriplegic, unresponsive because the doctor failed to note that this baby was suffering from

a fever and a problem that made a reaction to pertussis, the

whooping cough vaccine at the time? Think about that child living

5 years/10 years in that State. Two hundred and fifty thousand dollars, is that enough compensation for the pain and suffering of that

child and the family associated with them? Do you all feel that $250,000 is adequate or generous under

those circumstances or the circumstances described by Ms.

McDougal? I ask my friends in the insurance industry.

Mr. SMARR. Senator, I do not know if there is any amount that

could make a severely injured patient whole, and whether the

amount is $250,000 or some other reasonable number, we have

reached the point in time where the excessive awards of noneconomic damages have driven malpractice insurance rates to the

point where doctors simply cannot practice medicine any more, and

if we are going to draw the line at some point, we know that

$250,000, which is in effect in California today, and Colorado

today, and Kansas today, and a few other States, works, and has

kept their premiums down and their doctors practicing in those

States.

Senator DURBIN. I know Senator Dodd suggested this, that you

start looking at individuals, rating them. People with a bad driving

record pay more for auto insurance. We know that 54 percent of

the claims are filed against 5 percent of the doctors, and it seems

to me that those are the target doctors who should be paying higher medical malpractice premiums, unlike Dr. Wilbourn, who I

guess had no experience with medical malpractice liability before

his premiums went through the roof.

I also have heard suggestions in other States of kind of a crosssubsidy, where they would say that there would be a certain small

amount taken from all specialties to provide some subsidy to those

that are higher-risk specialties, but a necessary part of medical

practice.

It seems to me that, unless we are willing to honestly talk about

the insurance industry and your practices, this is really an exercise

in bashing away at trial lawyers, rather than getting to the heart

of the problem.

Mr. SMARR. I am glad you brought up the topic of experience rating for doctors, and such does exist. In my own experience in work-
49

ing in the market in Pennsylvania, the market leader carrier in

Pennsylvania has an experience rating program, and yesterday in

House testimony in Bucks County, Pennsylvania, the president of

that company explained what they were doing.

Essentially, they have a 15-percent discounted premium for physicians that are claim free for a certain period of time. They also

have a 5-percent risk management discount for doctors that participate in their risk management programs, and they have the Consent to Rate Program, which is a special mechanism for insureds

that have very adverse loss experience, where they asked to consent to a rate that is very much higher-than-normal filed annual

rate, and that is filed with the State insurance department.

I think that programs like this are in effect with insurance carriers, the doctor-owned carriers I represent, at least, in States

across the Nation.

Senator DURBIN. I think it is a reasonable alternative.

Thank you, Mr. Chairman.

Senator GREGG. Senator Sessions?

Senator SESSIONS. Thank you, Mr. Chairman. I do believe there

is a problem. We did some checking in Alabama and the circumstances there. I notice that the chart up there rated Alabama

as okay, but it does not appear that all things are going well.

On the question of access, I have two notes. Atmore Community

Hospital in Atmore, Alabama, was forced to close its obstetrics program because it could not afford a 282-percent increase in malpractice insurance from $23,000 to $88,000. That is a small hospital, with a $50,000/$60,000-hit. I visited that hospital, and I

know the things they are doing to try to deal with a wage index

that are hurting smaller hospitals. But I now expect that mothers

in that area have to go long distances to hospitals.

One that touched me particularly was an article in the paper, on

the 7th of February, in Huntsville, Alabama, about Dr. Sumter

Blackman. He thought he had seen everything in his 31 years as

a family physician in rural Wilcox County. Nothing prepared him,

though, for the epidemic sweeping Alabama’s malpractice insurance business. Two of the State’s five malpractice insurers, Reciprocal of America and a sister company, Doctors Insurance for Reciprocal Risk Retention Group, are in disarray because of money

woes. Another, St. Paul Fire and Marine, has stopped writing premiums in Alabama.

I will not go into the details, but it says Blackman, the Wilcox

County doctor, may have to put down his stethoscope this summer.

Dr. Blackman is my mother’s doctor. He organizes and leads one

of the smaller hospitals in the State. He is, if you took a poll of

who is the most respected man in that county, it would be Dr.

Sumter Blackman. And to think that he is at the point of losing

his career over this is not an insignificant matter to me. I do not

know what the county would do without him.

The hospital was named J. Paul Jones Hospital, for Dr. Paul

Jones, who is one of the finest family practitioners ever, I guess,

and they named the hospital for him. This was not a problem he

had to deal with in his career, I am sure.

One of the oldest nursing homes, the oldest nursing home in Alabama, has reported to me that their premiums for liability insur-
50

ance has gone up 865 percent over the last 4 years. Premium costs

per bed, according to Bill Roberts, the fine leader of that nursing

home, have gone up from $370 in 1979, Mr. Chairman, to $3,204.

In other words, he is paying $3,000 per nursing home bed just for

liability insurance.

And Jackson Hospital in Montgomery has seen an increase in liability insurance from $591,000 in 1999 to $1 million in 2003.

There was a 28-percent increase between 2002 and 2003, and the

chart up there says we are doing okay.

So I do not know what the answer is. I sometimes I thought it

might be the insurance companies, but, Mr. Smarr, you make a

pretty strong case that investments and those matters are really

small compared to the hits you are taking on the difference between your premium and what you are paying out.

Are you confident your numbers can withstand scrutiny? As I understood your testimony, there is no doubt in your mind that all

of these other problems that have been raised about insurance payments, there is no doubt in your mind that any analysis of your

companies will show that they are paying out more than they are

taking in, and that is what is causing the crisis?

Mr. SMARR. Senator Sessions, there is no doubt in my mind that

at the present time malpractice insurers are incurring losses that

are far in excess of the premiums and the investment income they

are collecting, and every independent organization that has looked

at this, such as the Congressional Budget Office, such as the Department of Health and Human Services, such as the National Association of Insurance Commissioners in its February 7th letter to

Chairman Gregg, confirmed this.

The industry is in crisis. A.M. Best, the leading rating agency in

this area, confirms this as well. There is no doubt it is being driven

by losses.

Senator SESSIONS. Mr. Chairman, that is something we ought to

be able to determine pretty conclusively as the time goes by.

I will tell you one thing, it offends me a little bit people say,

‘‘Well, you are doing up there to protect the insurance company,

you sorry politicians. You talk about reform of the litigation, and

it is to protect insurance companies.’’ I do not know about the other

Senators, but they do not call me about these issues. They do not

really care, I think. The more they pay out, the more people have

to have insurance.

But who are calling me are employers who pay insurance for

their employees, hospitals and doctors. That is who are calling me,

and I am not getting any pressure from any insurance company

about this matter, so far as I know. It certainly is not anything like

the concern I am hearing from people out there.

I would just say this. There are some concerns about how we do

this, what the role of the Federal Government should have in this

matter. One thing that is pretty significant to me, Mr. Chairman,

is that probably 60 percent or more of health care in this country

is paid for by the Federal Government. Would any of you doctors

or panelists, Dr. Wilbourn, do you have an opinion of how much of

health care is actually funded by the Federal Government, directly

or indirectly?
51

Dr. WILBOURN. No, I would not know that. I think I have heard

it mentioned a couple of times today about whether States should

handle this problem themselves or whether the Federal Government should be involved, and I would like it if States could handle

this problem. It would be nice if all of the States had already handled the problem. We would not even be meeting today. But, obviously, some States can handle the problems and some cannot.

What we have to ask ourselves, as Americans, as patients, just

because I am lucky enough to live in California, I cannot take my

children to Las Vegas or my wife to Vegas for the weekend for fear

that something will happen to her and there is not available care.

I can no longer vacation in Florida because there is not a neurosurgeon or Gulfport, Mississippi.

You are restricting my movement around America if I have got

certain areas of this country that I do not want to go. There are

not enough doctors there, and if we are in a car wreck, the Trauma

Center is closed.

So it is a Federal issue when you get down to that.

Senator SESSIONS. Well, you do have, I am told, and I visited 20

or more hospitals/30 or more hospitals in Alabama, they tell me

well over 50 percent is Medicare, then you have Medicaid, and then

you have veterans and other things that are paid for by the Federal Government. So that is causing me to think that there is, indeed, a Federal interest here that is significant, but certainly an

individual tort inside a State, we have traditionally seen as a State

matter.

Thank you, Mr. Chairman.

Senator GREGG. Thank you, Senator.

I am going to have to depart, but before I do, I would like to ask

unanimous consent that the statement of Senator Grassley be inserted in the record and note that the record will be kept open for

2 weeks for submission.

[The prepared statement of Senator Grassley may be found in

additional material.]

Senator GREGG. I especially want to thank the panel.

I am going to turn it over to Dr. Ensign because he had a couple

of other questions.

I especially want to thank the panel. It has been an extraordinarily strong panel, in my opinion, and I especially want to thank

the folks who have had individual experiences which are extremely

moving—Ms. Peel, Ms. McDougal, and Ms. Dyess, and Dr.

Wilbourn, who chose Maine, instead of New Hampshire, which I

take is a personal—— Dr. WILBOURN. You had no availability in New Hampshire. I

checked there. [Laughter.]

Senator GREGG. As a number of Senators said, to come forward

and share your story with us is courageous, and it is important,

and we thank you for that, and we thank you for the expert testimony we have received from the other members of the panel.

Unfortunately, I have to move on, but I am going to turn the

hearing over to Senator Ensign.

Senator ENSIGN [presiding]. Thank you, Mr. Chairman.

Mr. Angoff, I want to start with you on talking about Prop 103

in California, where you credited that that was controlling medical
52

malpractice premium increases. The 20-percent refund that you

talked about, the rollback, was that a one-time rollback or was that

year-to-year?

Mr. ANGOFF. No, the 20 percent is a one-time rollback.

Senator ENSIGN. So is a one-time rollback going to be responsible

for all of the years of stabilizing the rates?

Mr. ANGOFF. It is not. What is responsible for all of the years of

stabilizing rates are the other provisions of Prop 103, particularly

two. No. 1, the most significant, Prop 103 repealed the State antitrust exemption for the insurance industry. So that in California,

unlike other States, insurance companies can get together, and

they can share their past cost data in order to be able to project

more accurate rates for the future, but what they cannot do is to

agree on rates. In most States, they can. So that I think is the most

significant thing in Prop 103 that has kept rates moderate.

The second provision of Prop 103, in addition to the rollback and

the antitrust exemption, that has kept rates at moderate levels

over the long run is it gave doctors and consumers automatic

standing to challenge any proposed rate increase by any property

casualty insurer, and because of that automatic standing consumers do intervene and do prevent insurers from raising rates to excessive levels, which would not be the case in other States.

Senator ENSIGN. When you talk about your experience in Missouri, with all of the data that you provided from Missouri, you

said there was no increase in the number of claims. In fact, you

said it was going down. However, we are hearing from other people

that all across the country claims is going up. Do you have different numbers?

Mr. ANGOFF. Yes, I do not doubt that there are differences

among States in litigiousness. In Missouri, we are just not a very

litigious State.

Senator ENSIGN. Correct, but the rest of the country is experiencing dramatic increases in especially the severity of claims. You saw

the chart—do you have that chart that shows the $1 million? It

was the top red line, I think, was it not?

That one is good enough. Those are the percentages of milliondollar-plus claims. You can see it, year-to-year, is obviously going

to up, and it is almost going up logarithmically.

Mr. ANGOFF. Well, Senator, if you look at Mr. Montemayor’s

chart of about 15 States, which shows the rate of return of the malpractice industry in each State, it shows a dramatic difference by

State. Traditionally—I was a member of the National Association

of Insurance Commissioners—traditionally, the NAIC has been

very, very strong in insisting that each State has its own market.

There are different issues in each State, and that right-hand chart

there, Senator, shows that.

It is true that for some reason—I do not know the Texas market

well enough to say what it is—for some reason, yes, there is a problem in Texas, but look at all of the other States. Many of those

States are not just making adequate rates of return, they are making excessive rates of return. So it just does not make sense for

Congress to pass a law which would prohibit injured people from

recovering in States where the insurance companies are already

making excessive rates of return.
53

Senator ENSIGN. Could you put up the chart comparing California and Colorado and their rates.

These are the rates. And, Mr. Smarr, maybe you can address this

since your company does business all across the country. Los Angeles, $54,000, as far as for an OB, but if you go up and

down the chart, it seems to me that Colorado does not do too badly

there, compared to these other rates. As a matter of fact, if you put

Nevada in there, and especially Southern Nevada, where some of

the bigger claims have been, although Northern Nevada just got

their rate increases and from what I have been hearing their rates

just took a huge increase, that $54,000 would be a small rate. Dr. Wilbourn, your experience of the $108,000, I think that that

was on the low end of a lot of them. I think a lot of people I have

heard from have been up to the $130- $140 thousand range in Nevada.

Dr. WILBOURN. That was quoted to me because I would have discounts; the 5-percent discount for attending educational——

Senator ENSIGN. Right.

Dr. WILBOURN. —and discounts for having no lawsuits, but also

the $108- was quoted if I reduced the number of deliveries.

Senator ENSIGN. Right. And, by the way, these numbers are not

cheap. I do not think anybody is looking at that. Those numbers

are not cheap in the first place. I mean, the Los Angeles and the

Denver numbers, those are fairly significant numbers in the first

place, let alone when we start getting to the right side of these

charts.

But the thing that is most evident to me is that Colorado did not

have a Prop 103, and they have had very, very good success.

Dr. Wilbourn, I want to ask you about the part of Colorado’s legislation that requires somebody to be an expert in their field to testify. Now, I do not have any statistics on this, but I have heard

time and time again from physicians that a common practice has

become in fact it is becoming almost an industry, for some physicians out there that only go around and testify. They are not an

expert in that field, but trial lawyers know that they can pick them

off, bring them in, and they are very convincing. They are becoming

professional witnesses, and they are able to convince those juries

that they are an expert in areas they are not, so this seems to be

a big problem with our legal system today.

Can you comment on that?

Dr. WILBOURN. I sure can. I do not know if you are aware, Senator Ensign, that when I was in Nevada, I sat on the medical-dental screening panel for the State before it was abolished with our

last legislative act. For those not aware, many of the Senators

today talked about having an affidavit or someone to verify this is

an adequate lawsuit, in Nevada, the way it used to work when I

was there, if someone sued you, it went to the medical-dental

screening panel. At that panel, was three physicians and three attorneys who reviewed the chart for probability of malpractice.

If the panel felt that there was a probability of malpractice, that

was the ruling that went out and could be presented in court. If

they felt there was no reasonable probability of malpractice, that

was the ruling that went out and could be presented in court. And

from what I understand, if the panel could not agree, which often-
54

times happen when you have three attorneys and three physicians

in a room together, it went out as no report. This did not keep a

case from going to trial. They could still take it.

In that capacity, in reviewing those cases, first of all, it was very

rare to have one of the physicians on that panel be someone who

was a specialist in that field. We often had to exempt ourself because we knew that person from medical meetings.

But then even when we got into reviewing, their expert witness,

the plaintiff’s expert witnesses, most, and I will point out that most

of the attorneys who served on that panel were plaintiff trial lawyers, they would even make comment about, you know, it must be

really bad if this is the only expert witness they could find. They,

themselves, recognized that there were very bad expert witnesses

that were more or less hired guns—if we give this person enough

money, they will raise their hand and swear an oath.

So I agree with you that I think a lot of times there is no legitimacy to who is an expert witness. Many times the expert witness

does not even practice in the same field of medicine.

Senator ENSIGN. Thank you. I need to excuse myself. We are

going to turn the gavel over to Senator Sessions.

Mr. Montemayor, if you have to excuse yourself for a flight, go

ahead and feel free to do that.

Thank you very much for the rest of the panel. I will turn it over

to Senator Sessions.

Senator SESSIONS [presiding]. Thank you, Mr. Chairman.

Mr. ANGOFF. May I excuse myself for a flight, too, Mr. Chairman?

Senator SESSIONS. Certainly.

Mr. ANGOFF. Thank you very much.

Senator SESSIONS. At this moment I am the chairman, I guess.

Thank you very much, both of you, for your insightful testimony.

It is something that we are going to have to wrestle with. We are

going to have to get the facts, and then make some decision about

what action, if any, we should take.

Mr. Smarr, you have heard the argument over the Proposition

103. Do you have anything further to add or to raise about that?

That was the question that Dr. Ensign asked me to ask you.

Mr. SMARR. Senator Sessions, only to reiterate that Prop 103 was

a one-time 20-percent rollback in rates that was to be refunded to

California physicians, and it was the only thing that was required

of the medical malpractice insurers in California. They did not

lower their premiums.

I read from one of the consent agreements, paragraph 2, ‘‘The

amount specified in paragraph 1 above...’’ which is the 20 percent ‘‘. . . including the interest specified therein shall constitute

respondent’s entire rollback refund obligation pursuant to Insurance Code Section 186101.’’ Now, the California carriers did not decrease their rates, and

they returned the 20 percent as part of their normal dividend process. But one other thing, I mentioned the NORCAL Mutual Insurance Company, during the legal contest of Prop 103, NORCAL actually had two independent rate decreases filed and which were

held up by the legal mechanisms of considering whether or not

Prop 103 was constitutional.
55

And so the doctors in California actually did not benefit from the

two filings, a reduction of 12 percent and the other was, I believe,

a reduction of 2 percent, and so they paid higher premiums because

of Prop 103 for a period of a couple years, until this mess could be

sorted out.

Senator SESSIONS. I know someone well in a law firm, and they

defend hospital and nursing home lawsuits, and Mississippi has

passed some reform, and I understand hundreds of lawsuits have

been filed in advance of that law becoming effective. So that would

indicate to me that there is some impact on litigation.

But, you know, I tend to believe that it is difficult under current

circumstances to do away with a contingent fee, in general. Sometimes that is just a necessary part of the system under the way we

operate today. But when you have circumstances like asbestos,

where we had testimony that only 40 percent of the money paid out

by the asbestos companies actually got to the victims, and what we

also know is that many, many people are being paid substantial

sums of money who were exposed but have never gotten sick. We

know there are 200,000-some-odd cases pending. We know that the

cost of litigation, and there are great delays in it.

It seems to me that since the asbestos companies have ceased to

contend they did not know that asbestos was dangerous and are

willing to compensate ill patients, somehow we ought to have a system so if you mesothelioma, cancer or that sort of thing as a result

of asbestos, then somebody ought to write you a check, and you

should hardly even need a lawyer at all.

Certainly, these large fees could be reduced, and then the asbestos company would have less money to expend on defense, the

plaintiffs would have less litigation expense, there would be less

delay, and the ill person could be paid.

Does that make sense to you, Mr. Smarr?

Mr. SMARR. Oh, it does, Senator Sessions. And I agree that it is

hard to understand how a contingency fee applies to a case where

there really is no contingency, where it is a question not of causation, but of damages and how much.

The legislation that the PIAA supports in the House is H.R. 5,

which was passed as H.R. 4600 last year in the House. I think Senator Ensign introduced a similar bill in the Senate last year. That

has a sliding scale for plaintiff attorney contingency fees, and for

example under that provision, and that is similar to the California

MICRA provisions, that the contingency fee is 40 percent of the

first $50,000, and it slides up until it is 15 percent of amounts over

$600,000.

In the case of a million-dollar payment, the plaintiff attorney has to be satisfied with only $220,000 in a contingency fee, but that is

better than 40 percent or 50 percent of a million dollars. That provision, we feel, actually tempers the effects of the contingency-fee

arrangement and puts more money into the pocket of the patient.

Senator SESSIONS. Well, we need to wrestle with that issue of

compensation, and certainly we need to deal with the question of

when the defendant knows they did wrong, they know there was

an error occurred, they are willing to compensate. There should be

a better way of getting prompt compensation under those circumstances.
56

The question of, as Ms. McDougal raised, pain and suffering, disfigurement, those are matters that are very important, and how we

control or limit that I am not sure at this time. I am not sure precisely what role that this Congress should carry out at this time.

I would just say this: I have no doubt we do have a crisis because

we are trying to wrestle with how to give more health care to more

Americans and not have the costs go through the roof. Every year

we are dealing with Medicare and Medicaid costs that seem to be

going up. More and more people are aging, and they need more

health care. We need the absolute most efficient system that this

country can provide to get good, quality health care.

And when you see these huge premiums being paid out by hospitals and doctors, those are not expenditures reasonably likely to

produce much direct health benefit.

So I think if we could come up with a way to compensate those

who truly need it, keep the overall costs down, speed up perhaps

that system and at the same time reduce this heavy insurance burden would be good.

I would also ask Dr. Wilbourn if a series of—you know, the theory is that the punitive damages punish, but if you have 10 OBs

in a community, and two of them get sued and get hit with big verdicts, what happens to the premiums for all 10 doctors in the community?

Dr. WILBOURN. They all go up.

Senator SESSIONS. They all go up.

Dr. WILBOURN. They all go up.

Senator SESSIONS. So, in effect, if one doctor fails, the way our

system works, the punitive damages is not just punishing that doctor, it is punishing innocent doctors, also.

Dr. WILBOURN. Correct.

Senator SESSIONS. So we need to wrestle with our legal system.

It has been great for us. The rule of law has preserved our freedoms and provided our strong economy, and I believe we can make

some progress on this, and I look forward to working on it.

I thank all of you for your attendance. Is there anything else you

would like to add for the record? We will give you some time to do

that in writing if you would like.

Dr. WILBOURN. Thank you for having us.

Senator SESSIONS. Thank you very much. It has been a very interesting panel. We are adjourned.

[Additional material follows.]
57

ADDITIONAL MATERIAL

OPENING STATEMENT OF SENATOR LEAHY

Today I am pleased to introduce the ‘‘Medical Malpractice Insurance Antitrust Act of 2003’’ along with Senators Kennedy, Durbin,

Edwards, Rockefeller, Reid, Boxer, Feingold, and Corzine. In the

deafening debate about medical malpractice, I believe this legislation is a clear and calm statement about fixing one significant part

of the system that is broken—skyrocketing insurance premiums for

medical malpractice. Our health care system is in crisis. We have

heard that statement so often that it has begun to lose the force

of its truth, but that truth is one we must confront and the crisis

is one we must abate.

Unfortunately, dramatically rising medical malpractice insurance

rates are forcing some doctors to abandon their practices or to cross

state lines to find more affordable situations. Patients who need

care in high-risk specialties—like obstetrics—and patients in areas

already under-served by health care providers—like many rural

communities—are too often left without adequate care.

We are the richest and most powerful nation on earth. We should

be able to ensure access to quality health care to all our citizens

and to assure the medical profession that its members will not be

driven from their calling by the manipulations of the malpractice

insurance industry.

The debate about the causes of this latest insurance crisis and

the possible cures grows shrill. I hope today’s hearing will be a

calmer and more constructive discussion. My principal concerns are

straightforward: That we ensure that our nation’s physicians are

able to provide the high quality of medical care that our citizens

deserve and for which the United States is world-renowned, and

that in those instances where a doctor does harm a patient, that

patient should be able to seek appropriate redress through our

court system.

To be sure, different states have different experiences with medical malpractice insurance, and insurance remains a largely stateregulated industry. Each state should endeavor to develop its own

solution to rising medical malpractice insurance rates because each

state has its own unique problems. Some states—such as my own,

Vermont—while experiencing problems, do not face as great a crisis

as others. Vermont’s legislature is at work to find the right answers for our state, and the same process is underway now in other

states. To contrast, in states such as West Virginia, Pennsylvania,

Florida, and New Jersey, doctors are walking out of work in protest

over the exorbitant rates being extracted from them by their insurance carriers.

Thoughtful solutions to the situation will require creative thinking, a genuine effort to rectify the problem, and bipartisan consensus to achieve real reform. Unfortunately, these are not the characteristics of the Administration’s proposal. Ignoring the central

truth of this crisis—that it is a problem in the insurance industry,

not the tort system—the Administration has proposed a plan that

would cap non-economic damages at $250,000 in medical malpractice cases. The notion that such a one-size-fits-all scheme is the

answer runs counter to the factual experience of the states.
58

Most importantly, the President’s proposal does nothing to pro- tect true victims of medical malpractice. A cap of $250,000 would

arbitrarily limit compensation that the most seriously injured patients are able to receive. The medical malpractice reform debate

too often ignores the men, women and children whose lives have

been dramatically—and often permanently—altered by medical errors.

The President’s proposal would prevent such individuals—even if

they have successfully made their case in a court of law—from receiving adequate compensation. We are fortunate in this nation to

have many highly qualified medical professionals, and this is especially true in my own home state of Vermont. Unfortunately, good

doctors sometimes make errors. It is also unfortunate that some

not-so-good doctors manage to make their way into the health care

system as well. While we must do all that we can to support the

men and women who commit their professional lives to caring for

others, we must also ensure that patients have access to adequate

remedies should they receive inadequate care.

High malpractice insurance premiums are not the result of malpractice lawsuit verdicts. They are the result of investment decisions by the insurance companies and of business models geared toward ever-increasing profits. But an insurer that has made a bad

investment, or that has experienced the same disappointments

from Wall Street that so many Americans have, should not be able

to recoup its losses from the doctors it insures. The insurance company should have to bear the burdens of its own business model,

just as the other businesses in the economy do.

But another fact of the insurance industry’s business model requires a legislative correction—its blanket exemption from federal

antitrust laws. Insurers have for years—too many years—enjoyed

a benefit that is novel in our marketplace. The McCarran-Ferguson

Act permits insurance companies to operate without being subject

to most of the federal antitrust laws, and our nation’s physicians

and their patients have been the worse off for it. Using their exemption, insurers can collude to set rates, resulting in higher premiums than true competition would achieve—and because of this

exemption, enforcement officials cannot investigate any such collusion. If Congress is serious about controlling rising premiums, we

must objectively limit this broad exemption in the McCarran-Ferguson Act.

That is why today I introduce the ‘‘Medical Malpractice Insurance Antitrust Act of 2003.’’ I want to thank Senators Kennedy,

Durbin, Edwards, Rockefeller, Reid, Boxer, Feingold, and Corzine

for cosponsoring this essential legislation. Our bill modifies the

McCarran-Ferguson Act with respect to medical malpractice insurance, and only for the most pernicious antitrust offenses: price fixing, bid rigging, and market allocations. Only those anticompetitive

practices that most certainly will affect premiums are addressed. I

am hard pressed to imagine that anyone could object to a prohibition on insurance carriers’ fixing prices or dividing territories. After

all, the rest of our nation’s industries manage either to abide by

these laws or pay the consequences.

Many state insurance commissioners police the industry well

within the power they are accorded in their own laws, and some
59

states have antitrust laws of their own that could cover some anticompetitive activities in the insurance industry. Our legislation is

a scalpel, not a saw. It would not affect regulation of insurance by

state insurance commissioners and other state regulators. But

there is no reason to continue a system in which the federal enforcers are precluded from prosecuting the most harmful antitrust violations just because they are committed by insurance companies.

Our legislation is a carefully tailored solution to one critical aspect of the problem of excessive medical malpractice insurance

rates. I hope that quick action by the Judiciary Committee and

then by the full Senate, will ensure that this important step on the

road to genuine reform is taken before too much more damage is

done to the physicians of this country and to the patients they care

for. Only professional baseball has enjoyed an antitrust exemption

comparable to that created for the insurance industry by the

McCarran-Ferguson Act. Senator Hatch and I have joined forces

several times in recent years to scale back that exemption for baseball, and in the Curt Flood Act of 1998 we successfully eliminated

the exemption as it applied to employment relations. I hope we can

work together again to create more competition in the insurance industry, just as we did with baseball.

If Congress is serious about controlling rising medical malpractice insurance premiums, then we must limit the broad exemption to federal antitrust law and promote real competition in the

insurance industry.

OPENING STATEMENT OF SENATOR HATCH

First I would like to thank everyone for being here today and especially Chairman Gregg of the HELP committee for agreeing to

hold this joint hearing. I know we both believe that this is a very

important issue, worthy of our attention and of every effort necessary to find a resolution to this crisis.

Chairman Gregg and I share a deep concern about how this has

affected patient care in our home states and across the country. Patient access to healthcare has diminished significantly because outof-control litigation and frivolous lawsuits have caused medical liability insurance premiums to skyrocket—forcing needed doctors

out of practice. During the last two years alone, premiums have increased by as much as 81% according to some insurers. Doctor unavailability is a crisis in 12 states and threatens to become one in

at least 30 others. One of our witnesses here today, Leanne Dyess,

will tell us how the unavailability of a neurosurgeon tragically impacted her family. We should all be concerned—each one of us runs

the risk that necessary care may be unavailable because the doctor

we need is no longer able to practice.

Do we really want our healthcare system to be nothing more

than a game of Russian roulette—leaving it to chance whether a

doctor will be available when we need one? Sadly, that is what is

happening. Doctors are leaving specialties in record numbers because they can no longer afford to practice. It is truly the most vulnerable patients, those who need emergency care, specialty surgery

or obstetric care who are most severely impacted

I am very concerned about the increasing shortage of doctors in

my home state of Utah. A study by the Utah Medical Association
60

underscores the alarming problem in my state: ‘‘50.5 percent of

Family Practitioners in Utah have already given up obstetrical

services or never practiced obstetrics.’’ One third of the remainder

say they plan to stop providing OB services within the next decade.

Most plan to stop within the next five years. According to this

study: ‘‘Professional liability concerns [were] given as the chief contributing factor in the decision to discontinue obstetrical services.

Such concerns include the cost of liability insurance premiums, the

hassles and costs involved in defending against obstetrical lawsuits

and a general fear of being sued in today’s litigious environment.’’ One resident of Salt Lake City, Lois Collins, had to wait six

months for a routine OB appointment. Kori Wilhelm related in a

recent Washington Post story how she is forced to make a three

hour roundtrip to Cheyenne, Wyoming to get specialized treatment

that is no longer available in her area, because her own doctor was

forced to give up delivering babies. Laurie Peel will testify today

about her difficulty in obtaining obstetric care in North Carolina.

These are just a few of the many examples of the personal costs

of the current situation.

As many of you know, before coming to Congress, I personally

litigated medical liability cases—in some cases I represented the

plaintiff in others I represented the defendant. I saw first-hand,

heart-wrenching cases in which mistakes were made, and I know

that we will hear more today about those cases which deserve access to appropriate remedies. But, more often, I witnessed heartwrenching cases in which mistakes were not made and doctors

were forced to expend valuable time and resources defending themselves against frivolous lawsuits.

Let me make one thing perfectly clear. No one believes more

than I that victims of real malpractice should be compensated

swiftly and appropriately for their losses. But that is not what is

going on today. Instead, patients are forced to meander through a

complicated and exhausting legal system and often are awarded

damages only after years of legal bickering. Moreover, our current

medical litigation system resembles a lottery more than it does a

system of justice. In some cases, juries award plaintiffs astounding

and unreasonable sums in damages. A sizable portion of those

awards does not even go to the plaintiff. It goes to the attorneys.

The result: to pay for these awards, insurance premiums go up for

all doctors, and in some cases insurance becomes completely unavailable. Consequently, doctors cannot practice and patients cannot obtain the care they desperately need.

Every American is impacted by frivolous litigation and the defensive medicine that results. It is not just the frivolous suits that

drive up healthcare costs. The unnecessary tests doctors feel compelled to perform increase health care costs also. A recent study by

the Department of Health and Human Services indicates that ‘‘Excessive liability... adds $30 billion to $60 billion annually to

Federal Government payments for Medicare, Medicaid . . . and

other government programs.’’

Some will try to point the finger at the insurance industry,

claiming that the crisis is false or due to intentional misconduct on

the part of insurers. That, in my opinion, is a red herring. There

is nothing to suggest that states have been remiss in regulating the
61

insurance industry, and there are no data to suggest that collusion

is the cause of rising malpractice insurance rates.

The National Association of Insurance Commissioners concurs,

stating in a February 7, 2003 letter that ‘‘[T]he evidence points to

high loss ratios, not price-fixing, as the primary driver of escalating

premiums.’’ They further state that:

‘‘Non-profit physician owned mutual insurers have developed in

response to market availability concerns... Careful inspection

will show that a mutual insurer is concerned with its policy holders’ interests. Since each policy holder is also an owner of the company and the company is a non-profit entity, the goal of the mutual

insurer is to deliver medical malpractice insurance to its policyholder/owners as inexpensively as possible. To do otherwise would

contradict the goals of the mutual and jeopardize its non-profit status.’’

I look forward to today’s hearing, and our panel of witnesses, in

the hope that they will shed some light on these issues. It is time

to address this crisis head on, and today’s hearing is a first step

in that direction.

PREPARED STATEMENT OF SENATOR FEINGOLD

Thank you Mr. Chairman. I want to welcome all of the witnesses

this afternoon. In particular, I want to welcome Linda McDougal

from my home state of Wisconsin, who has become in a short time

one of the best known and most articulate advocates for preserving

the rights of victims of medical malpractice to receive adequate

compensation through our legal system.

Ms. McDougal, none of us can ever truly imagine the horrible

suffering you have endured. All we can do is say that we are terribly, terribly sorry that this happened to you and that we will do

everything we can to prevent similar suffering for others who go to

their health care providers seeking aid and comfort, not pain or

disfigurement.

Mr. Chairman, I hope everyone on these two Senate committees,

whether they are here or not, will read or listen to Linda

McDougal’s testimony and learn about her experience. It is a powerful cautionary note for those of us who are charged with developing and voting on legislation concerning medical malpractice liability and insurance.

Can anyone in this room or on these committees look Linda

McDougal or any of the thousands of victims of catastrophic medical malpractice in the eye and say, ‘‘$250,000 is all your pain and

suffering are worth’’? Would any of us be able to tell our wives or

our daughters that their damages should be limited to $250,000 if

they were the victims of such unspeakable pain and lifelong sadness?

That is the challenge we face Mr. Chairman. There is no question that we have a problem in this country over the cost of malpractice insurance. But the solution cannot be to penalize innocent

victims like Linda McDougal, to prolong and extend their suffering

by denying them adequate compensation.

We have virtually no evidence that caps on economic damages

will actually lower insurance rates. More importantly, I have yet
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to hear an explanation of how this is fair to Linda McDougal and

others like her.

I regret that we are pursuing this kind of legislation, but I want

to sincerely thank you, Ms. McDougal, for the sacrifices you have

made to share your story with the committee and the public. I can

only hope that we learn the lessons you are trying to teach us.

Thank you Mr. Chairman.

PREPARED STATEMENT OF LAURIE PEEL

Since July, when I was asked to participate in a roundtable discussion with the

President on malpractice reform, I’ve heard a lot of tragic, really poignant stories

on both sides of the issue. My own experience may not be tragic, but I think it illustrates the difficulties patients across the nation—and especially women—are experiencing.

I live in a community, Raleigh, North Carolina, which enjoys healthcare probably

as good as, if not better than, any in the Country. I, and my family, all have excellent doctors. Yet even in Raleigh, when I first had a healthcare crisis, I had a very

hard time finding a doctor who would take me. And when I was lucky enough to

find a great one, Dr. John Schmitt, he ultimately was driven out of business by his

overwhelming frustrations with the crippling cost of malpractice insurance. (He now

is on faculty at UVA School of Medicine). As he explained in a letter to all of his

patients in July of 2002, he could no longer practice medicine the way he wanted

to, and always had. And that is frankly, what we should all want from our doctors

. . . and maybe even demand.

I first came to Dr. Schmitt under difficult circumstances. I was married less than

a year and had just moved to Raleigh, and had no Ob/Gyn there. I was 11 weeks

pregnant, experiencing complications—which turned out to be a miscarriage—and in

need of immediate medical attention. As a ‘‘high-risk patient’’, though, no Ob/Gyn

would take me in. When I got to Raleigh I called every practice I could find, and

was told again and again that the practice was full and wouldn’t be taking new patients. Fortunately, Dr. Schmitt learned of my plight, called me back and took me

in.

I soon discovered he was one of Raleigh’s leading Ob/Gyns, yet he had all the time

in the world for my husband and me. In the five years I saw Dr. Schmitt, he helped

me through the biggest disappointment in my life, my biggest health scare, and finally helped me realize the greatest joy of any life. In short, my relationship with

Dr. Schmitt was everything one could hope for from a doctor. It’s also a relationship

both he and all of his patients would very much like to continue. But we can’t because of the crippling cost of medical liability insurance. What he must pay to protect himself from the remote possibility of lawsuits (or at least legitimate ones) has

prevented Dr. Schmitt from continuing the outstanding practice he had made his

life’s work. And stories like his are, I believe, truly tragic for us all.

Now, I’ve seen both sides of this issue in a very real and personal way. My father

is a doctor, as are my brother and his wife. But my family has also suffered from

medical errors. I don’t want—and I don’t know any doctor who does—to deny victims of medical errors adequate redress for their injuries. And certainly my father,

brother and every doctor I know wants to hold the medical profession to the highest

possible standards.

But the way to address malpractice can’t be to destroy the possibility of good practice—or drive away those doctors, like Dr. Schmitt, who do practice to the very best

of their abilities. None of us can afford that. I don’t know the solution, but I do urge

you to find one. And Mr. Chairman, I very much appreciate that that’s what you’re

trying to do.

PREPARED STATEMENT OF LINDA MCDOUGAL

First, I want to thank Chairman Gregg, Chairman Hatch, and Senators Kennedy

and Leahy. I greatly appreciate the opportunity you have given me. My name is

Linda McDougal and I am a victim of medical malpractice.

I am 46 years old. I live with my husband and sons in Woodville, a small community in northwestern Wisconsin. My husband and I are both veterans of the United

States Navy. This is my story.

About 8 months ago, in preparation for my annual physical, I went to the hospital

for a routine mammogram. I was called back for additional testing and had a needle

biopsy. Within a day I was told that I had breast cancer.
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My world was shattered. My husband and I discussed the treatment options and

decided on the one that would give me the best chance of survival, and maximize

my time alive with my family. We made the difficult, life-changing decision to undergo what we believed was the safest, long-term treatment—a double mastectomy.

Forty-eight hours after my surgery, the surgeon walked in my room and said, ‘‘I

have bad news for you. You don’t have cancer.’’ I never had cancer. My breasts were needlessly removed. The pathologist switched

my biopsy slides and paperwork with someone else’s. Unbelievably, I was given another woman’s results.

I was in shock. My husband was with me in the room and we were reduced to

tears. Today, I am still in shock. To some extent, it was easier to hear from the

doctor that I supposedly had cancer, than to hear—after both my breasts were taken

from me—the fact that I never had cancer. How could the doctors have made this

awful mistake?

The medical profession betrayed the trust I had in them.

It’s been very difficult for me to deal with this. My scars are not only physical,

but emotional. After my breasts were removed, I developed raging infections requiring emergency surgery. Because of my ongoing infections, I am still unable to have

reconstructive surgery. I don’t know whether I will ever be able to have anything

that will ever resemble breasts.

After I came forward publicly with my story, I was told that one of the pathologists involved had a ten-year exemplary performance record, and that she would not

be reprimanded or punished in any way until a second ‘‘incident’’ occurred. Should

someone else have to suffer or even die before any kind of disciplinary action is

taken?

While there are no easy answers, apparently now the insurance industry is telling

Congress it knows exactly how to fix what it believes to be the ‘‘problem’’ caused

by malpractice—by limiting the rights of people, like me, who have suffered permanent, life-altering injuries.

Arbitrarily limiting victims’ compensation is wrong. Malpractice victims that may

never be able to work again and may need help for the rest of their lives should

be fairly compensated for their suffering. Without fair compensation, a terrible financial burden is imposed on their families.

Those who would limit compensation for life-altering injuries say that malpractice

victims still would be compensated for not being able to work, meaning, they would

be compensated for their economic loss. Well, I didn’t have any significant economic loss. My lost wages were approximately $8,000, and my hospital expenses of approximately $48,000 were paid for by my health insurer. My disfigurement from

medical negligence is almost entirely non-economic.

As you discuss and debate this issue, I urge you to remember that no two people,

no two injuries, and no two personal situations are identical. It is unfair to suggest

that all victims should be limited to the same one-size-fits-all, arbitrary cap that

benefits the insurance industry at the expense of patients. Victims deserve to have

their cases decided by a jury that listens to the facts of a specific case and makes

a determination of what is fair compensation based on the facts of that case.

Recently, I heard a politician on the news argue in favor of limiting patients’ compensation. He said insurance companies need the predictability of knowing, in advance, the maximum amount they might have to pay to injured patients. He said

lack of predictability makes it hard for insurance companies to run their businesses

profitably. We’d all like to be able to count on the predictability that this politician

wants for insurers. But life doesn’t work that way. My case is a perfect example.

I could never have predicted or imagined in my worst nightmare that I would end

up having both my breasts removed needlessly because of a medical error. No one

plans on being a victim of medical malpractice. But it happened, and now, proposals

are being discussed that would further hurt people like me . . . all for the sake of

helping the insurance industry.

I’m not asking for sympathy. What happened to me may happen to you or someone you love. When it does, maybe you will understand why I am sharing my story.

The rights of every injured patient in America are at stake. Limiting victims’ compensation in malpractice cases puts the interests of the insurance industry ahead

of patients who have been hurt, who have suffered life-altering injuries like loss of

limbs, blindness, brain damage, infertility or sexual dysfunction, or the loss of a

child, spouse or parent.

Instead of taking compensation away from people who have been hurt and putting

it in the pockets of the insurance industry, we should look for ways to improve the

quality of health care services in our country to reduce preventable medical errors

like the one that cost me my breasts; part of my sexuality; and part of who I am

as a woman.
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Medical malpractice kills as many as 98,000 Americans each year and it permanently injures hundreds of thousands of others. We must make hospitals, doctors,

HMOs, drug companies and health insurers more accountable to patients. A good

start would be to discipline health care providers who repeatedly commit malpractice. We should make the track records of individual health care providers available to the general public, instead of protecting bad doctors at the expense of unknowing patients.

Limiting victims’ compensation will not make health care safer or more affordable. All it will do is add to the burden of people whose lives have already been

shattered by medical errors. Every patient should say no to any legislation that does

not put patients first. I urge you to do the same.

Thank you for your time and consideration.

PREPARED STATEMENT OF LEANNE DYESS

Chairman Hatch, Chairman Gregg, Senators Leahy and Kennedy, distinguished

members of the Senate Judiciary and HELP committees, 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, 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

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 shunt into his brain to drain the swelling—six unforgettable

hours that changed our life.

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

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

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

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

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

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

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

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

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

Senator Hatch, 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 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.
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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 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, Senator Hatch, 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.

Senator Hatch, 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 and many in the Senate are placing upon doing something . . . and

doing it now. Today, I pledge to you my complete support. It is my prayer that no

woman—or anyone else—anywhere will ever have to go through what I’ve gone

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

PREPARED STATEMENT SHELBY L. WILBOURN, MD.

WHO WILL DELIVER AMERICA’S BABIES?

The Impact of Excessive Litigation

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, I thank Chairman Hatch and Chairman Gregg for holding

this important hearing to examine the medical liability crisis facing this nation.

Women across America are asking, ‘‘Who will deliver my baby?’’ ACOG deeply appreciates your leadership and commitment to ending this crisis.

We urge Congress to pass meaningful medical liability reform, patterned on California’s MICRA law, and bring an end to the excessive litigation restricting women’s

access to health care.

I. Doctors Help Every Day

My name is Dr. Shelby L. Wilbourn and I am an Ob/Gyn who recently relocated

to Belfast, Maine after 12 years of practice in Las Vegas, Nevada.

Every day in America, doctors help millions of mothers, children, grandfathers,

and sisters live another day, see another birthday, play another game. Every day,

beautiful newborns go home with their mother. Every day, there is another breast

cancer survivor or a life saved by a highly trained physician.

Doctors help make miracles happen every day in America. This is what makes

our American health care system the envy of the entire world. And this is what’s

at stake in this debate about medical liability reform.
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II. Personal Effects of The Medical Liability Crisis on My Practice

Liability isn’t about fault or bad practice anymore. It’s about hitting a jackpot.

Even the very best Ob/Gyns have been sued, many more than once. Even doctors

who have never been sued are seeing their liability premiums double and triple— not because they’re bad doctor, but because they practice in a litigation-happy field

where everyone is fair game.

Let me cite a perfect example, which demonstrates the imbalance of the current

tort system. I just recently relocated to Maine after 12 years of practice in Nevada

because of the skyrocketing liability insurance premiums in that State. I had a vibrant Ob/Gyn practice, taught at the University of Nevada, and served as a member

of the board of the directors of the Clark County Ob/Gyn Society. The Society

worked in conjunction with Governor’s Task Force on the medical liability crisis.

I left Nevada because the litigation climate had driven the medical liability premiums to astronomical heights. In 2002, Las Vegas Ob/Gyns paid as much as

$141,760, a 49.5 percent increase from 2001. In Clark County, there are only 106

Ob/Gyns, private, public, and resident practitioners, left to deliver an estimated

23,000 babies in 2003—an average of 216 babies per Ob/Gyn. Of these, 80 percent

no longer accept Medicaid patients because of the threat of litigation coupled with

low reimbursement.

Last July, I was privileged to meet with President Bush in North Carolina to discuss the medical liability crisis on a national level. At that time, I had never been

named in a lawsuit, a fact that was made known during the roundtable discussion.

Within days of my meeting with President Bush, a lawsuit was filed against me.

In addition, all but one of the doctors Governor Guinn named to the Task Force in

Nevada had lawsuits filed against them within a short period, as well.

When I left Nevada, my patients, many of whom were with me for 12 years, were

forced to find another Ob/Gyn amongst a dwindling populaiton of Ob/Gyns in Las

Vegas. This is the real issue. Patients around the country are losing access to good

doctors and quality health care. The end game of the current system is a society

without enough doctors to care for its citizens. We just cannot let this happen.

Today, we have heard, or will hear, anecdotes from both sides of this debate, all

of which support each side’s position. However, the fact remains clear—there is a

medical liability crisis in this nation. Who loses in this environment? Women, good

doctors, patients, communities, businesses, and America.

III. Effects of Excessive Litigation on Women’s Health Care: An Overview

The number of lawsuits against all physicians has been rising over the past 30

years in an increasingly litigious climate, and obstetrics/gynecology—considered a ‘‘high risk’’ specialty by insurers—remains at the top of the list of specialties affected by this trend.

An ailing civil justice system is severely jeopardizing patient care for women and

their newborns. Across the country, liability insurance for obstetrician/gynecologists

has become prohibitively expensive. Premiums have tripled and quadrupled practically overnight. In some areas, Ob/Gyns can no longer obtain liability insurance

at all, as insurance companies fold or abruptly stop insuring doctors.

When Ob/Gyns cannot find or afford liability insurance, they are forced to stop

delivering babies, curtail surgical services, or close their doors. The shortage of care

affects hospitals, public health clinics, and medical facilities in rural areas, inner

cities, and communities across the country.

Now, women’s health care is in jeopardy for the third time in three decades. This

crisis will only end if Congress acts. The recurring liability crisis involves more than

the decisions of individual insurance companies. The manner in which our antiquated tort system resolves medical liability claims is at the root of the problem.

A liability system—encompassing both the insurance industry and our courts—

should equitably spread the insurance risk of providing affordable health care for

our society. It should fairly compensate patients harmed by negligent medical care.

It should provide humane, no-fault compensation to patients with devastating medical outcomes unrelated to negligence—as in the case of newborns born with conditions such as cerebral palsy. Our current system fails on all counts. It’s punitive,

expensive, and inequitable for all, jeopardizing the availability of care.

Jury awards, which now soar to astronomical levels, are at the heart of the problem. The average liability award increased 97 percent between 1996 and 2000,

fueled by States with no upper limits on jury awards. This ‘‘liability lottery’’ is enormously expensive, and patients who need, but can’t get, health care, pay the price.

The current liability system encourages attorneys to focus on a few claims with

exorbitant award potential, ignoring other claims with merit. Even then, much of

a jury award goes straight into the lawyers’ pockets; typically, less than half of a

medical liability award reaches the patient.
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Liability isn’t about fault or bad practice anymore. It’s about hitting a jackpot.

Even the very best Ob/Gyns have been sued, many more than once. Even doctors

who have never been sued are seeing their liability premiums double and triple—

not because they’re bad docs, but because they practice in a litigation-happy field

where everyone is fair game.

The liability crisis compromises the delivery of health care today. A recent Harris

survey showed that three-fourths of physicians feel their ability to provide quality

care has been hurt by concerns over liability cases. And, patients understand the

problem, too. An April 2002 survey by the Health Care Liability Alliance found that

78 percent of Americans are concerned about the impact of rising liability costs on

access to care.

IV. Women’s Health Consequences of Excessive Litigation

The medical liability crisis affects every aspect of our nation’s ability to deliver

health care services. As partners in women’s health care, we urge Congress to end

the medical liability insurance crisis. Without legislative intervention at the Federal

level, women’s access to health care will continue to suffer.

Expectant mothers can’t find obstetricians to deliver their babies. When confronted with substantially higher costs for liability coverage, Ob/Gyns and other

women’s health care professionals stop delivering babies, reduce the number they

do deliver, and further cut back—or eliminate—care for high-risk mothers. With

fewer women’s health care professionals, access to early prenatal care is reduced,

depriving women of the proven benefits of early intervention.

Excessive litigation 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, 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.

Medical liability is causing a 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.

Community clinics must cutback services, jeopardizing the millions of this nation’s

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.

More women are becoming uninsured. Health care costs continue to increase overall, including the cost of private health care coverage. As costs escalate, employers

will be discouraged from offering benefits. Many women who would lose their coverage, including a large number of single working mothers, would not be eligible for

Medicaid or SCHIP because their incomes are above the eligibility levels. In 2001,

11.7 million women of childbearing age were uninsured. Without reform, even more

women ages 19 to 44 will move into the ranks of the uninsured. If fewer doctors

are available to deliver babies, the crisis becomes even more acute.

V. How Excessive Litigation Compromises the Delivery of Obstetric Care

Obstetrics-gynecology is among the top three specialties in the cost of professional

liability insurance premiums. Nationally, insurance premiums for Ob/Gyns have increased dramatically: the median premium increased 167 percent between 1982 and

1998. The median rate rose 7 percent in 2000, 12.5 percent in 2001, and 15.3 percent in 2002 with increases as high as 69 percent, 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 percent 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. Ob/

gyns 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 percent). They were second, after neurologists, in the

average claim payment made during that period ($235,059).
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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 percent) 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 percent of the cases resolved by

court verdict, arbitration, or mediation, meaning only 10 percent of all cases filed

against Ob/Gyns were found in favor of the plaintiff. Enormous resources are spent

to deal with these claims, only 10 percent 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 percent from 1993 awards, according to Jury Verdict Research of

Horsham, Pennsylvania. The median medical liability award jumped 43 percent 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 percent of the claims against

obstetricians, is nearly $1 million, but can soar much higher. One recent award in

a Philadelphia case reached $100 million. This in spite of the fact that fewer than

10 percent of these cases are found to result from intrapartum hypoxia.

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 percent) of ACOG Fellows have even been sued for

care provided during their residency. In 1999, 76.5 percent 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.

VI. There Is a Solution

On February 5, 2003, the House of Representatives took an important first step

in ending this crisis when Representative Greenwood, Majority Whip Delay, and Judiciary Committee Chairman Sensenbrenner introduced H.R. 5, the HEALTH Act

of 2003. ACOG resoundingly supports H.R. 5, important legislation protecting women’s access to health care. This legislation is supported by a broad coalition of physicians, health insurers, and businesses.

H.R. 5 caps non-economic damages at $250,000, while still allowing patients full

and complete access to the courts. The HEALTH Act safeguards patients’ access to

health care with common sense measures:

• Allows Complete Recovery of All Economic Damages, Including Current and Future Lost Wages

• Promotes Speedy Resolution of Claims

• Fairly Allocates Responsibility

• Compensates Patient Injury

• Maximizes Patient Recovery

• Ensures Payment of Medical Expenses

• Allows State Flexibility on Non-Economic Damages Caps

H.R. 5 allows for the complete recovery of a person’s economic damages, including

compensation for medical and rehabilitation costs, current and future ‘‘lost’’ wages,

and other economic loss. H.R. 5 is fair for everyone. H.R. 5 will restore the balance

in the health care system that has been hijacked by trial lawyers and merit-less

lawsuits.

VII. Women’s Health Suffers Nationwide

As Ob/Gyns, our primary concern is ensuring women access to affordable, quality

health care. It is critical that we maintain the highest standard of care for America’s

women and mothers. In 2002, ACOG has identified a medical liability crisis in the

following nine ‘‘Red Alert States′′: Florida, Mississippi, Nevada, New Jersey, New

York, Pennsylvania, Texas, Washington, and West Virginia. In three other States—

Ohio, Oregon, and Virginia—a crisis is brewing, while four other States—Connecticut, Illinois, Kentucky and Missouri—should be watched for mounting problems.

In identifying these States, the College considered a number of factors in the escalating medical liability insurance crisis for Ob/Gyns. The relative weight of each fac-
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tor could vary by State. Factors included: the lack of available professional liability

coverage for Ob/Gyns in the State; the number of carriers currently writing policies

in the State, as well as the number leaving the medical liability insurance market;

the cost, and rate of increase, of annual premiums based on reports from industry

monitors; a combination of geographical, economic, and other conditions exacerbating an already existing shortage of Ob/Gyns and other physicians; the State’s tort

reform history, and whether tort reforms have been passed by the State legislature—or are likely to be in the future—and subsequently upheld by the State high

court.

A. Florida

• According to First Professionals Insurance Company, Inc., Florida’s largest medical liability insurer, one out of every six doctors is sued in the State as compared

to one out of every 12 doctors nationwide.

• In Dade and Broward counties in South Florida, where insurers say litigation

is the heaviest, annual premiums for Ob/Gyns soared to $210,576—the highest rates

in the country, according to Medical Liability Monitor.

• In a recent ACOG survey, 76.3 percent of the Florida Ob/Gyns who responded

to the survey indicated that they had made some change to their practice such as

retire, relocate, decrease gynecologic surgical procedures, no longer perform major

gynecologic surgery, decrease the number of deliveries and amount of high-risk obstetric care. 21.69 percent of Florida respondents indicated that they have stopped

practicing obstetrics due to the unavailability and unaffordability of liability insurance.

• The liability situation is so severe the State allows doctors to ‘‘go bare’’ (not

have liability coverage), as long as they can post bond or prove ability to pay a judgment of up to $250,000.

• Double- and triple-digit premium increases have forced some doctors to cut back

on staff, while others have left the State or have stopped performing high-risk procedures. Ob/gyns in this State are more likely to no longer practice obstetrics.

• Florida already has some tort-reform laws aimed at protecting doctors. But

more recent Florida Supreme Court rulings have weakened such laws, causing the

number of lawsuits to climb again. Now Florida is one of at least a dozen States

contemplating another round of legislation.

B. Mississippi

• According to the Mississippi State Medical Association, medical liability insurance rates for doctors who deliver babies rose 20 percent to 400 percent in 2002,

for various carriers. Annual premiums range from $40,000 to $110,000.

• The Delta Democrat Times reported that from 1999 to 2000, the number of liability lawsuits faced by Mississippi physicians increased 24 percent, with an additional 23 percent increase in the first five months of 2001.

• According to the Delta Democrat Times, 324 Mississippi physicians have

stopped delivering babies in the last decade. Only 10 percent of family physicians

deliver babies.

• In a recent ACOG survey, 66.7 percent of the Mississippi Ob/Gyns who responded to the survey indicated that they had made some change to their practice

such as retire, relocate, decrease gynecologic surgical procedures, no longer perform

major gynecologic surgery, decrease the number of deliveries and amount of highrisk obstetric care. 12.82 percent of Mississippi respondents have stopped practicing

obstetrics.

• In Cleveland, Mississippi, three of the six doctors who deliver babies dropped

obstetrics in October 2001 because of the increase in premiums.

• In Greenwood, Mississippi, where approximately 1,000 babies are born every

year, the number of obstetricians has dropped from four to two. The two remaining

obstetricians are each limited by their insurance carriers to delivering 250 babies

per year, leaving approximately 500 pregnant women searching for maternity care,

reports the Mississippi Business Journal.

• Yazoo City, Mississippi, with 14,550 residents, has no obstetrician.

• A Grenada, Mississippi Ob/Gyn will not take any obstetric patients with a due

date after June 15, 2003, leaving two Ob/Gyns to deliver approximately 700 babies

a year.

• Natchez, Mississippi, which serves a 6-county population of over 100,000, has

only three physicians practicing obstetrics.

• Days before HB2 (legislation aimed at reducing liability insurance costs and improving access to health care) took effect, there was a rush of medical liability lawsuits filed in Mississippi. State Insurance Commissioner George Dale said these
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claims will be in the system for a long time and the market for medical liability

insurance is not likely to get better any time soon.

• The State’s major insurer of hospitals, Reciprocal of America, is facing financial

difficulties and recently asked participants to pay $30 million to help keep it afloat,

according to the State insurance commissioner’s office.

C. Nevada

• In December 2001, The St. Paul Companies, Inc., the nation’s second largest

medical liability insurer, announced it would no longer renew policies for 42,000

doctors nationwide—including the 60 percent of Las Vegas doctors who were insured

by St. Paul. Replacement policies are costing some Nevada doctors four or five times

as much as before: $200,000 or higher annually, more than most doctors’ take-home

pay, the Los Angeles Times reports.

• In Las Vegas, Ob/Gyns paid premiums as high as $141,760, a 49.5 percent increase from 2001.

• In the ACOG survey, 86.2 percent of the Nevada Ob/Gyns who responded to the

survey indicated that they had made some change to their practice such as retire,

relocate, decrease gynecologic surgical procedures, no longer perform major

gynecologic surgery, decrease the number of deliveries and amount of high-risk obstetric care. 27.59 percent of Nevada respondents stopped practicing obstetrics.

• As of October 2002, according to Clark County OB/GYN Society, only 80 private

practice physicians, 14 HMO physicians, and 12 residents are doing deliveries, totaling 106 doctors. With an estimated 23,000 deliveries expected in Nevada in 2003,

each physician will have to deliver 216 babies.

• According to a March article in the Las Vegas Review-Journal, many Las Vegas

Valley doctors say they will be forced to quit their practices, relocate, retire early

or limit their services if they cannot find more affordable rates of professional liability insurance by early summer.

• According to the Nevada State Medical Association, between 200 and 250 physicians will face bankruptcy, close their offices, or leave Nevada this year.

• In February 2002, the Las Vegas Sun reported that medical liability cases in

Clark County had more than doubled in the past six years. In that period, plaintiffs’

awards in the county totaled more than $21 million.

• USA Today reports that in the past two years, Nevada juries have awarded

more than $1.5 million each in six different medical liability trials.

• Recruiting doctors to Las Vegas is extremely difficult because of escalating medical liability premiums and litigiousness. Nevada currently ranks 47th in the nation

for its ratio of 196 doctors per 100,000 population. The State’s medical school produces just 50 physicians a year.

• In August 2002, the Nevada Legislature met in Special Session and passed tort

reform—AB 1. AB 1 included a partial cap on awards for non-economic damages and

a total cap on trauma liability. There has been no significant improvement in the

availability of affordable medical liability coverage, according to a September 2002

statement by the Nevada State Medical Association. Most carriers have continued

to request and receive approval to raise rates.

• The Nevada tort reform legislation went into effect in January 2003. In December 2002, the frequency of lawsuits filed against health care providers skyrocketed

with 170 suits filed in December 2002 (as compared to 8 suits field in 2001).

D. New Jersey

• In the ACOG survey, 75.6 percent of the New Jersey Ob/Gyns who responded

to the survey indicated that they had made some change to their practice such as

retire, relocate, decrease gynecologic surgical procedures, no longer perform major

gynecologic surgery, decrease the number of deliveries and amount of high-risk obstetric care. 19 percent of New Jersey respondents have stopped practicing obstetrics.

• In February 2002, the Newark Star-Ledger reported that three medical liability

insurance companies went bankrupt or announced they would stop insuring New

Jersey physicians in 2002 for financial reasons. The State’s two largest remaining

are rejecting doctors they deem high risk.

• MBS Insurance Services of Denville, one of New Jersey’s largest medical liability insurance brokers, estimates that approximately 300 to 400 of the State’s doctors

cannot get insurance at any price.

• According to the Medical Society of New Jersey, premiums have risen 50 percent to 200 percent over last year.

• According to the Star-Ledger, ‘‘An obstetrician with a good history—maybe just

one dismissed lawsuit—can expect to pay about $45,000 for $1 million in coverage.
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Rates rise if the physician faces several lawsuits, regardless of whether the physician has been found liable in those cases.’’

• The president of the New Jersey Hospital Association says that rising medical

liability premiums are a ‘‘wake-up call’’ that the State may lose doctors. Hospital

premiums have risen 250 percent over the last three years, and 65 percent of facilities report that they are losing physicians due to liability insurance costs.

E. New York

• New York State faces a shortage of obstetric care in many rural regions. Increasing liability insurance costs will only exacerbate these access problems.

• In the ACOG survey, 67 percent of the New York Ob/Gyns who responded to

the survey indicated that they had made some change to their practice such as retire, relocate, decrease gynecologic surgical procedures, no longer perform major

gynecologic surgery, decrease the number of deliveries and amount of high-risk obstetric care. 19.28 percent of New York respondents have stopped practicing obstetrics.

• In 2002, an Ob/Gyn practicing in New York could pay as much as $115,500 for

medical liability insurance, according to Medical Liability Monitor.

• In 2000, there was a total of $633 million in medical liability payouts in New

York State, far and away the highest in the country, and 80 percent more than the

State with the second highest total.

• Increased insurance rates have forced some physicians in New York to ‘‘quit

practicing or to practice medicine defensively, by ordering extra tests or procedures

that limit their risk,’’ according to a recent New York Times report.

• Physician medical liability insurance costs have historically been a problem in

New York State. The legislature and governor had to take significant action in the

mid-1970s and again in the mid-1980s to avert a liability insurance crisis that

would have jeopardized access to care for patients.

F. Pennsylvania

• In the ACOG survey, 77.4 percent of the Pennsylvania Ob/Gyns who responded

to the survey indicated that they had made some change to their practice such as

retire, relocate, decrease gynecologic surgical procedures, no longer perform major

gynecologic surgery, decrease the number of deliveries and amount of high-risk obstetric care. 21.61 percent of Pennsylvania respondents have stopped practicing obstetrics.

• Pennsylvania is the second-highest State in the country for total payouts for

medical liability. During the fiscal year 2000, combined judgments and settlements

in Pennsylvania amounted to $352 million—or nearly 10 percent of the national

total.

• From the beginning of 1997 through September 2001, major liability insurance

carriers writing in Pennsylvania increased their overall rates 80.7 percent to 147.8

percent, according to a January 2002 York Daily Record article.

• Philadelphia and the counties surrounding it are hardest hit by the liability crisis. From January 1994 through August 2001, the median jury award in Philadelphia for a medical liability case was $972,900. For the rest of the State, including

Pittsburgh, the median was $410,000.

• One-quarter of respondents to an informal ACOG poll of Pennsylvania Ob/Gyns

say they have stopped or are planning to stop the practice of obstetrics. 80 percent

of medical students who come to the State for a world-class education choose to

practice elsewhere, according to the Pennsylvania State Medical Society.

• On April 24, 2002, Methodist Hospital in South Philadelphia announced that

it would stop delivering babies due to the rising costs of medical liability insurance.

The labor and delivery ward closed on June 30, leaving that area of the city without

a maternity ward. Methodist Hospital has been delivering babies since its founding

in 1892.

• Some tort reform measures passed the State legislature (House Bill 1802) in

2002. However, the law did not include: caps on jury awards; sanctions on frivolous

suits; changes in joint and several liability; limits on lawyers’ fees; or a guarantee

that a larger share of jury awards will go to injured plaintiffs.

• The rules for venue of court cases in Pennsylvania are very liberal. Recently

approved measures only appoint a committee to study venue shopping, but do not

limit the practice.

• Since HB 1802 passed, experts predict a 15 percent to 20 percent overall reduction in doctors’ liability premiums. But with the 50 percent to 100 percent premium

increases of the last two years, medical officials believe the bill is not enough to stop

physicians from leaving practice or to attract new physicians. Nor do they believe

new insurers will begin writing policies in Pennsylvania.
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G. Texas

• In the ACOG survey, 67.5 percent of the Texas Ob/Gyns who responded to the

survey indicated that they had made some change to their practice such as retire,

relocate, decrease gynecologic surgical procedures, no longer perform major

gynecologic surgery, decrease the number of deliveries and amount of high-risk obstetric care. 13.79 percent of Texas respondents have stopped practicing obstetrics. • Preliminary results of a recent Texas Medical Association physician survey indicate that: • More than half of all Texas physicians responding, including those in the prime

of their careers, are considering early retirement because of the State’s medical liability insurance crisis. • Nearly a third of the responding physicians said they are considering reducing

the types of services they provide. • Medical liability insurance premiums for 2002 were expected to increase from

30 percent to 200 percent, according to the Texas Medical Association. In 2001, Ob/

Gyns in Dallas, Houston, and Galveston paid medical liability insurance premiums

in the range of $70,00 to $160,000. • The Abilene Reporter News reported on October 13, 2002, that the obstetrics

unit at Spring Branch Medical Center is set to close December 20, 2002. The hospital’s $600,000 premium for labor and delivery liability was set to increase by 67

percent next year. In 2001, 1,003 babies were born at Spring Branch Medical Center.• According to Governor Rick Perry’s office, between 1996 and 2000 one in four

Texas physicians had a medical liability claim filed against them. In the Lower Rio

Grande Valley, the situation is even worse. In 2002, Valley Ob/Gyns paid liability

insurance premiums up to $97,830, a 34.5 percent increase from 2001. • According to a February 2001 Texas Medical Association survey, one in three

Valley doctors say their insurance providers have stopped writing liability insurance. • In 2000, 51.7 percent of all Texas physicians had claims filed against them, according to the Texas Medical Examiners Board. Patients filed 4,501 claims, up 51

percent from 1990. • As many as 86 percent of medical liability claims filed in Texas are dismissed

or dropped without payment to the patient. Yet providers and insurance companies

must still spend millions of dollars in defense, even against baseless claims. • According to a Texas Medical Association study, the amount paid per claim in 2000 was $189,849 (average for all physicians), a 6 percent increase in one year. • Texas has no limits on non-economic damages in medical liability cases, although the legislature enacted such limits in the 1970s as part of a comprehensive

set of reforms. The Texas Supreme Court later rejected them in the 1980s. • Texas has procedures in place to screen lawsuits for merit and to sanction lawyers who file frivolous suits, but these are not enforced uniformly across the State,

according to an April 2002 news release issued by Governor Rick Perry.

• Only about 30 percent of the medical liability insurance market is served by insurance companies that are regulated by the Texas State Department of Insurance

and subject to rate review laws, according to Governor Perry’s office.

H. Washington

• According to Medical Liability Monitor, in late 2001 the second largest carrier

in Washington State announced that it was withdrawing from providing medical liability insurance for Washington physicians. This decision by Washington Casualty

Company impacted approximately 1,500 physicians.

• In 2001, State Ob/Gyns paid medical liability insurance premiums in the range

of $34,000 to $59,000. For many physicians, this meant an increase of 55 percent

or higher from the year 2000.

• In the ACOG survey, 57.2 percent of the Washington Ob/Gyns who responded

to the survey indicated that they had made some change to their practice such as

retire, relocate, decrease gynecologic surgical procedures, no longer perform major

gynecologic surgery, decrease the number of deliveries and amount of high-risk obstetric care. 15.06 percent of Washington respondents have stopped practicing obstetrics.

• According to the Pierce County Medical Society, some Tacoma specialists reported 300 percent increases.

• Unlike California, Washington has no cap on non-economic damages in medical

liability cases. The State Supreme Court found a previous cap unconstitutional in

1989.

• In April, The Olympian reported that Washington State Insurance Commissioner’s office heard from physicians throughout the State that they may be forced
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out of Washington because of high medical liability rates or the lack of available

insurance.

I. West Virginia

• There are only three carriers in the State—including the State-run West Virginia Board of Risk and Insurance Management—currently writing medical liability

policies for doctors. Annual premiums range from $90,700 to $99,800.

• In the ACOG survey, 82.2 percent of the West Virginia Ob/Gyns who responded

to the survey indicated that they had made some change to their practice such as

retire, relocate, decrease gynecologic surgical procedures, no longer perform major

gynecologic surgery, decrease the number of deliveries and amount of high-risk obstetric care. 23.66 percent of West Virginia respondents stopped practicing obstetrics.

• In 2000, many physicians had problems affording or finding insurance. This urgency prompted Governor Bob Wise to issue a request for proposals to commercial

insurance carriers asking them to provide terms under which they would be willing

to come to the State. The governor’s office received no response at all. To date, some

carriers previously active in West Virginia are under an indefinite, self-imposed

moratorium for new business in the State, according to the West Virginia State

Medical Society.

• Legislation eked out during a grueling special session in the fall of 2001 reestablished a State-run insurer of last resort. However, with rates 10 percent higher

than the highest commercial rate, and an additional 50 percent higher for physicians considered high risk, the State-run insurer does not solve the affordability

problem, according to Ob/Gyns in the State.

• According to an informal survey of ACOG’s West Virginia section, more than

half of all Ob/Gyn residents plan to leave the State once they have completed training because of the State’s medical liability insurance climate. A majority of private

practitioners who provide obstetric care plan to leave the State if there is not improvement in the insurance crisis.

• West Virginia cannot afford to lose more doctors. The West Virginia State Medical Society reports that a majority of the State is officially designated by the Federal

government as a health professional shortage area and medically underserved.

VIII. Conclusion

Thank you Senator Hatch, Senator Gregg for your leadership on this important

issue and for the Committees’ attention to this crisis. ACOG appreciates the opportunity to present our concerns for the Committees’ consideration. The College looks

forward to working with you as we push for Federal liability reform.

PREPARED STATEMENT OF JAY ANGOFF

Mr. Chairman and Members of the Committee: My name is Jay Angoff and I am

a lawyer from Jefferson City, Missouri, and a former insurance commissioner of

Missouri and deputy insurance commissioner of New Jersey. I appreciate the opportunity to testify here today.

BACKGROUND

Today’s medical malpractice insurance crisis is the third such crisis in the last

thirty years. The first was in the mid 1970’s, and the second was in the mid 1980’s.

Some States enacted limits on liability—so-called ‘‘tort reform’’—in response to one

or both of those previous crises. But whether or not a State enacted such limitations, malpractice rates rose during the mid-80’s, fell during the 90’s, and are rising

sharply today. The tort system therefore can not be the cause of these periodic insurance crises, and thus enacting tort reform can not reasonably be expected to

avert future insurance crises.

For example, during my 1993–98 tenure as insurance commissioner of Missouri,

both the number of medical malpractice claims filed and the number of medical malpractice claims paid out decreased: according to the data the medical malpractice

insurance companies filed with our department, the number of new medical malpractice claims reported decreased from 2,037 in 1993 to 1,679 in 1998, and the

number of medical malpractice claims paid out decreased from 559 in 1993 to 496

in 1998. (See Exhibits 1 and 2.) As might reasonably be expected, medical malpractice insurance rates in Missouri decreased during that time.

After I left the insurance department, the number of malpractice claims paid continued to decrease: from 496 in 1998 to 439 in 2001. And the number of malpractice

claims filed decreased even more dramatically: from 1,679 in 1998 to 1,226 in 2001.
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Moreover, the average payment per claim rose by less than 5 percent—from

$161,038 to $168,859—far less than either general or medical inflation.

Unexpectedly, however, malpractice insurance rates rose sharply last year in Missouri—by an average of almost 100 percent in little over a year, according to a Missouri State Medical Society survey—just as they did in the rest of the country, and

just as they did in 1986 and 1975. Insurance rates going up while insurance claims

are going down—and Missouri is just one of many States where this phenomenon

is occurring—doesn’t seem to make sense. But it does make sense, for four reasons.

CAUSES OF INSURANCE CRISES

First, malpractice insurers make money not by taking in more in premiums than

they pay out in claims, but by investing the premiums they take in until they pay

the claims covered by those premiums. Investment income is particularly important

for malpractice insurers because they invest their premiums for about six years,

since they don’t pay malpractice claims until about six years after they have occurred; insurers pay other types of insurance claims much more quickly. When either interest rates are high or the stock market is rising, a malpractice insurer’s

investment income more than makes up for any difference between its premiums

and its payouts. Today, on the other hand, stocks have crashed and interest rates

are near 40-year lows. The drop in insurers’ investment income today can therefore

dwarf the decrease in their claims payments, and thus create pressure to raise rates

even though claims are going down.

Second, just as people buy insurance to insure themselves against risks that they

can’t afford to pay for or choose not to pay for themselves, insurance companies buy

insurance—called re-insurance—for the same reason. For example, an insurer might

buy reinsurance to pay an individual claim to the extent it exceeds a certain

amount, or to pay all the insurer’s claims after its total claims exceed a certain

amount. The re-insurance market is an international market, affected by international events, and the cost of re-insurance for commercial lines was already increasing prior to the terrorist attacks. After those attacks, not surprisingly, it increased far more, due to fears related to terrorism (and completely unrelated to

medical malpractice).

Third, insurance companies use a unique accounting system—called statutory accounting principals, or SAP—rather than the generally accepted accounting principles (GAAP) used by most other companies. Under this system, insurers increase

their rates based on what their ‘‘incurred losses’’ are. ‘‘Incurred losses’’ for a given

year, however, are not the amount insurance companies have paid out in that

year—although that would be its non-insurance, common-sense meaning—but rather are the amount the insurer projects it will pay out in the future on policies in

effect in that year. These projections are, by definition, a guess, under the best of

circumstances, i.e., under the assumption that an insurer has no business reason

to either overstate or understate them.

Insurers do, however, have reasons for inflating or understating their estimates

of ‘‘incurred losses.’’ Insurance companies who are thinly capitalized—who have very

little cushion, called ‘‘surplus’’ in the insurance industry, beyond the amount they

estimate they must pay out in claims—will often understate their ‘‘incurred losses’’

on the reports they file with insurance departments so that they can show a higher

surplus on those reports. (It’s the job of insurance department auditors to ferret out

insurers who are doing this.)

At other times, however—like today—insurers overstate their incurred losses to

justify a rate increase. In addition, because increasing their ‘‘incurred losses’’ lowers

their income, they also have tax reasons for inflating those estimates. Today, insurers’ incurred loss estimates have increased dramatically because they are seeking

to recoup the money they have lost on investments—not because the amount they

have actually paid out in the past has risen substantially (to the contrary, in Missouri it has actually decreased). When it becomes apparent that the insurers’ current loss estimates are too high, insurers will be able to use the amount they estimated they would pay out but did not in fact pay out to reduce premiums or increase profits, or both. This is one reason premiums fell during the 1990’s: the ‘‘incurred loss’’ estimates insurers made in the mid-1980’s to justify their rate increases

during the 1985–86 insurance crisis turned out to be wildly inflated, enabling insurers to use the difference between what they estimated they would pay out and what

they actually ended up paying out to both reduce premiums and increase their profits in the 1990’s. These same phenomena will inevitably occur after this insurance

crisis.

The final factor contributing to periodic spikes in insurance rates is the insurance

industry’s exemption from the antitrust laws under the McCarran-Ferguson Act.
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Unlike virtually all other major industries, insurance companies may agree among

themselves to raise prices or restrict coverage, as well as to engage in other anticompetitive activities, with the exception of boycotts, that would otherwise violate

the antitrust laws. When times are good—i.e., when investment income is high—

the industry’s antitrust exemption would seem to be irrelevant. Far from raising

prices in concert, insurance companies compete for market share by cutting price.

When times are bad, however—and they could hardly be worse than they are today,

when both the stock market and the bond market are producing low or negative returns—the antitrust exemption for the insurance industry allows insurers to collectively raise their prices without fear of prosecution. In other industries, fear of such

prosecution prevents such collective increases.

The extent to which insurers today are acting in concert to raise price has not

yet been determined. Evidence from the mid-1980’s insurance crisis, however, supports the conclusion that insurance companies both have collectively raised prices

and have used such collective increases to pressure legislators to enact tort reform.

For example:

• In December 1984 the Insurance Information launched an advertising campaign

which it characterized as an ‘‘effort to market the idea that there is something

wrong with the civil justice system in the United States.’’ Maher, I.I.I. Launches

New Ad Campaign, National Underwriter, Dec. 21, 1984, at 2.

• In June 1985 former GEICO Chairman John Byrne told the Casualty Actuaries

of New York that they should quit covering doctors, chemical manufacturers, and

corporate officers and directors since ‘‘it is right for the industry to withdraw and

let the pressure for reform build in the courts and in the State legislatures.’’ Journal

of Commerce, June 18, 1985, at 10A.

• In November 1985, the Insurance Information Institute sent a kit on the ‘‘civil

justice crisis’’ to insurance executives and agents urging them to tell their policyholders and the media that ‘‘insurers have no recourse but to cut back on liability

insurance until improvements in the civil justice system will create a fairer distribution of liability, reduce the number of lawsuits, and create a climate in which insurance can operate more predictably.’’

• The famous Time Magazine cover story announcing the arrival of the insurance

crisis appeared in January 1986.

Because of McCarran-Ferguson courts have also consistently been forced to dismiss cases involving either price-fixing among insurers or any other type of collusion

falling short of a complete refusal to deal on any terms. See, e.g., Ohio AFL–CIO

v. Insurance Rating Board, 451 F.2d 1178 (6th Cir. 1971); Fleming v. Travelers

Indem. Co., 324 F.Supp. (D. Mass. 1971). And while the attorneys general of 19

States challenged certain insurer activity under the boycott exception to McCarran

in the aftermath of the last insurance crisis, they did not challenge the recommending of rates by the Insurance Services Office (ISO), an insurance industry consortium. The attorneys general explained that ‘‘the rate-recommendation function of

ISO, although anticompetitive and illegal in any other industry, is not a part of the

Attorneys Generals’ cases because the insurance industry has a special exemption

from the antitrust laws that covers this conduct.’’ Office of the Attorney General of

West Virginia, Fact Sheet on the Multi-State Prosecution of Antitrust Violations in

the Insurance Industry, March 22, 1988, at 7. Whether any anti-competitive activity

that insurers may currently be engaging in is immune from prosecution under

McCarran or actionable under the boycott exception to McCarran will likely be determined in the aftermath of the current crisis.

HOW TO PREVENT FUTURE INSURANCE CRISES

What, then, can be done to reduce medical malpractice insurance rates in the

short run, and to prevent periodic medical malpractice insurance crises from occurring in the future just as they have occurred in the past? First, Congress should

repeal the McCarran antitrust exemption, so that insurers could no longer act in

concert to raise prices without fear. A second solution is to give doctors automatic

standing to challenge rate increase proposals filed by medical malpractice insurers

with State insurance departments. Some malpractice insurers are today owned by

doctors, and many doctors have the quaint idea that those doctor-owned insurers

are somehow different than other insurers. When doctors own insurance companies,

however, they act like insurance executives, not doctors; and they are just as affected by poor investment performance and high reinsurance costs as are other insurers, and just as likely to inflate their incurred loss estimates and take advantage

of their antitrust exemption as are other insurers. By hiring an independent actuary

at a cost of a few thousand dollars to point out the unreasonableness or irrationality

of an insurer’s ‘‘incurred loss’’ estimate on which its rate increase request is based,
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a State medical association could save its members hundreds of thousands or even

millions of dollars in the aggregate.

Third, the States could change their laws to make it easier for insurance commissioners to prevent excessive rate increases. In many States, for example, medical

malpractice insurers can raise their rates at will, without getting approval of the

insurance commissioner. In other States the insurance commissioner may disapprove a rate only if he first finds that the market is not competitive; by the time

the commissioner makes such a finding, however, the damage has already been

done.

Fourth, States can authorize and provide start-up loans for new malpractice insurers which would compete with the established insurers. In Missouri, the legislature created such a company to write workers compensation insurance in 1993,

when workers comp rates were increasing dramatically even though workers comp

claims were not, and that company has been a success: it charged rates that were

based on experience rather than inflated ‘‘incurred loss’’ estimates, which forced the

other insurers to do the same; it paid back its loan from the State well ahead of

schedule; and it now is a significant player in the workers comp market. The key

to its success is the fact that it competed with the established insurers for all risks,

including the most profitable; the established carriers had sought to limit its mission to insuring only the worst risks. If a State establishes a new medical malpractice carrier and authorizes it to compete with the established carriers for all

doctors’ business then that insurer should help drive medical malpractice rates

down just as the Missouri State-authorized workers comp insurer has helped drive

workers comp rates down.

Finally, there is the California 20 percent solution. In 1988, California voters narrowly approved a ballot initiative, Proposition 103, which not only repealed California’s antitrust exemption for insurance companies and gave both doctors and consumers automatic standing to challenge insurers’ proposed rate increases, but also

mandated that insurance companies roll back their rates. The California Supreme

Court upheld substantially all of Proposition 103, including the rollback, modifying

it only to the extent necessary to permit insurers to avoid the rollback if they could

demonstrate that they would be unable to earn a fair rate of return if their rates

were rolled back. Few insurers could prove this, and as a result medical malpractice

premiums in California fell sharply in the years immediately after Prop 103 was enacted, and even today are lower than they were in the year before Prop 103 was

enacted. While a mandatory rollback sounds—and is—extreme, what California tells

us is both that it is constitutional and that it works. Some doctors argue that what

has caused rates to fall in California is a law limiting the non-economic damages

that injured people can recover that the California Supreme Court held constitutional in 1984. But in the first full year after the law was upheld, premiums rose

by 35 percent. Premiums did not begin to fall until Prop 103 was enacted in 1988

and declared constitutional a year later. (See Exhibits 3 and 4.)

WHAT INSURERS THEMSELVES SAY ABOUT INSURANCE CRISES

To be sure, the current sharp and apparently irrational increases in insurance

rates have created pressure to enact limitations on liability, based on the understandable rationale that if the amount injured people can recover from insurance

companies is limited, insurance companies will pay out less money to such people,

and they will pass at least some of those savings on to policyholders. I have explained that such limitations do not make sense because the other factors which

cause insurance rates to fluctuate, such as investment income and the cost of reinsurance, have a much greater impact on the premium dollar than could any plausible limitation on the amount injured people could recover.

In addition, Missouri and many other States did enact such limitations after the

insurance crisis of the mid-1980’s, or the insurance crisis of the mid-1970’s, yet rates

are rising today in those States just as they are rising in States that did not enact

such limitations—even if, as in Missouri, litigation is decreasing, not increasing.

But perhaps the best evidence that litigation does not cause insurance rates to

rise—and conversely, that limiting litigation will not cause insurance rates to

drop—is what two of the biggest medical malpractice insurance companies said

themselves after the last insurance crisis. Florida reacted to that crisis by limiting

non-economic damages for all injuries to $450,000, and limiting liability in four

other respects. After the law was passed, the insurance commissioner required all

medical malpractice insurers to refile their rates to reflect the effect of the five

major limitations on liability the State had just enacted. In response, Aetna Casualty and Surety conducted a study, attached as Exhibit 5, that concluded that none

of those limitations would reduce insurance rates. In particular, Aetna concluded
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that the $450,000 cap on non-economic damages would have no impact on Aetna’s

claims costs ‘‘due to the impact of degree of liability on future losses, the impact

of policy limits, and the actual settlement reached with the plaintiff.’’

The St. Paul Fire and Marine Insurance Company—which at the time was the

largest malpractice insurer in the nation—conducted a similar study, attached as

Exhibit 6. That study analyzed 313 claims it had recently closed and found that 4

of those 313 claims would have been affected by the limitations enacted in Florida,

‘‘for a total effect of about 1 percent savings.’’ The St. Paul further explained that

the 1 percent savings estimate probably overstates the savings resulting from the

new restrictions. And it specifically emphasized that ‘‘the conclusion of the study is

that the non-economic cap of $450,000, joint and several liability on the non-economic damages, and mandatory structured settlements on losses above $250,000

will produce little or no savings to the tort system as it pertains to medical malpractice.’’

What the Aetna and St. Paul studies may really be telling us—since they prepared those studies to justify their refusal to reduce their rates after limitations on

liability were enacted—is that even if such limitations might reduce the amount insurers pay out, insurers don’t pass on any savings to policyholders. More important,

however, even if they did pass on any such savings, they would be insignificant compared to the other factors affecting malpractice rates. Perhaps that is why after the

last insurance crisis the chairman of the Great American West Insurance Company

told an audience of insurance executives that tort reform ‘‘will not eliminate the

market dynamics that lead to insurance cycles,’’ and warned them that ‘‘we must

not over-promise—or even imply—that insurance cycles will end when civil justice

reform begins.’’ See ‘‘Don’t Link Rates to Tort Reform, Insurance Executive Warns

Peers,’’ Liability Week, Jan. 19, 1988, at 1.

CONCLUSION

In conclusion, over the long run the medical malpractice insurance industry is

substantially more profitable than the insurance industry as a whole: during the 10-

year period 1991–2000, according to the National Association of Insurance Commissioners, its return on net worth has been more than 40 percent greater than the

industry average, and its loss ratio has been 6 percentage points lower than the industry average, i.e., it has paid out in losses six cents less on the premium dollar

than have all property/casualty insurers. (See Exhibit 7.) Despite this long-run

above-average profitability, however, medical malpractice insurance rates, for the

reasons I have described, fluctuate substantially—both up and down. The reforms

I have outlined can both reduce those fluctuations and, particularly if the insurance

industry’s antitrust exemption is repealed, reduce the level of malpractice rates over

the long run. In contrast, limitations on liability have been demonstrated to do neither.

I would be happy to answer any questions the committee may have.
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[Whereupon, at 5:48 p.m., the committee was adjourned.]

Æ