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MEDICAL LIABILITY REFORM: STOPPING THE

SKYROCKETING PRICE OF HEALTH CARE

HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

WASHINGTON, DC, FEBRUARY 17, 2005

Serial No. 109–2

Printed for the use of the Committee on Small Business

(

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

COMMITTEE ON SMALL BUSINESS 

DONALD A. MANZULLO, Illinois, Chairman 

ROSCOE BARTLETT, Maryland, Vice 

Chairman 

SUE KELLY, New York 

STEVE CHABOT, Ohio 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

JEB BRADLEY, New Hampshire 

STEVE KING, Iowa 

THADDEUS MCCOTTER, Michigan 

RIC KELLER, Florida 

TED POE, Texas 

MICHAEL SODREL, Indiana 

JEFF FORTENBERRY, Nebraska 

MICHAEL FITZPATRICK, Pennsylvania 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

NYDIA VELA ́ ZQUEZ, New York 

JUANITA MILLENDER-MCDONALD, 

California 

TOM UDALL, New Mexico 

DANIEL LIPINSKI, Illinois 

ENI FALEOMAVAEGA, American Samoa 

DONNA CHRISTENSEN, Virgin Islands 

DANNY DAVIS, Illinois 

ED CASE, Hawaii 

MADELEINE BORDALLO, Guam 

RAU ́ L GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

LINDA SA ́ NCHEZ, California 

JOHN BARROW, Georgia 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin 

J. MATTHEW SZYMANSKI, Chief of Staff 

PHIL ESKELAND, Deputy Chief of Staff/Policy Director 

MICHAEL DAY, Minority Staff Director

(II) 

C O N T E N T S 

WITNESSES

Page 

Palmisano, Dr. Donald, American Medical Association ....................................... 5

Gleason, Dr. Thomas, Alliance of Specialty Medicine .......................................... 7

Rubin, Dr. Chad, American College of Surgeons .................................................. 9

Heady, Ms. Hilda, National Rural Health Association ......................................... 10

Smarr, Mr. Lawrence E., President, Physicians Insurers Association of America .......................................................................................................................... 13

Doroshow, Ms. Joanne, Executive Director, Center for Justice and Democracy 14

APPENDIX

Opening statements: 

Manzullo, Hon. Donald A. ................................................................................ 47

Kelly, Hon. Sue ................................................................................................. 50

Velazquez, Hon. Nydia ..................................................................................... 53

Prepared statements: 

Palmisano, Dr. Donald, American Medical Association ................................ 56

Gleason, Dr. Thomas, Alliance of Specialty Medicine ................................... 72

Rubin, Dr. Chad, American College of Surgeons ........................................... 110

Heady, Ms. Hilda, National Rural Health Association ................................. 116

Smarr, Mr. Lawrence E., President, Physicians Insurers Association of 

America .......................................................................................................... 121

Additional material: 

Evans, Mr. Robert D., American Bar Association .......................................... 142

(III) 

(1)

MEDICAL LIABILITY REFORM: STOPPING THE 

SKYROCKETING PRICE OF HEALTH CARE 

THURSDAY, FEBRUARY 17, 2005

HOUSE OF REPRESENTATIVES

COMMITTEE ON SMALL BUSINESS

Washington, DC 

The Committee met, pursuant to call, at 10:08 a.m. in Room 

2360, Rayburn House Office Building, Hon. Donald A. Manzullo, 

presiding. 

Present: Representatives Manzullo, Velazquez, Chabot, Lipinski, 

Graves, Akin, Christensen, Davis, Musgrave, Bordallo, Grijalva, 

Sanchez, Poe, Barrow, Sodrel, Fortenberry, Fitzpatrick, Westmoreland and Gohmert.

Chairman MANZULLO. Good morning. It is my pleasure to welcome you to today’s Small Business Committee hearing on the critical issue of skyrocketing medical liability insurance, and its impact on health care and access to health care. 

This is a hearing to highlight the problem that exists in health 

care. I am not that much interested in hearing about specific legislation, so I will counsel the witnesses to speak about your own personal experiences. This is an opportunity, a national opportunity to 

share your horror stories. Even though legislation is out there, I 

would much prefer to hear what has happened to you because it 

is very important that the American people understand, first of all, 

that there is a problem. There is no better way to demonstrate a 

problem than to have people who are in the medical profession 

themselves tell us what their firsthand stories are, or anecdotal 

stories of your colleagues that have been through something like 

that. 

Congress needs to explore ways to slow down the rising health 

care costs, and the reasons that the costs of health care continues 

to see increases, is the spiraling cost of doctor’s medical liability 

premiums and hospitals facing the same problem. 

Litigation has escalated and awards have skyrocketed. Multi-million dollar court decision and jury awards have left doctors with 

medical liability premiums increases of 40 to 50 percent each year. 

Doctors in certain high-risk fields of medicine can expect to be sued 

at least once in their career. 

Between 2000 and 2003, the number of medical liability claims 

has jumped 46 percent in Illinois, to more than 3,500 claims. The 

average indemnity per claim also has risen dramatically. In 1990, 

the average indemnity was about $310,000; in 2003, it was nearly 

2

$600,000 according to the Illinois State Medical Insurance Exchange. 

As a result, many doctors are retiring or leaving the practice of 

medicine. Emergency rooms in rural facilities have been particularly impacted. Many other doctors are moving to states that have 

taken action to cap jury awards which stabilizes medical malpractice costs. 

In my home state of Illinois, it is common practice for doctors to 

move a few miles to Wisconsin and set up shop there. I know of 

one OB-GYN in Illinois who left her practice to go back to being 

a pharmacist where she could earn more money and not worry 

about medical malpractice and premiums. She explained that after 

paying malpractice insurance, she and another physician made 

$50,000, a third doctor made $60,000, a forth doctor made $70,000. 

Their office manager made more than all of them, $75,000. These 

were four ladies practicing in suburban Chicago, and as of three 

years ago her medical liability insurance was $425,000 for the four 

of them. 

In my hometown of Rockford, we have lost several of our neurosurgeons to the Badger state. In southern Illinois, there are very 

few neurosurgeons, if any, left at all. 

This not only affects the cost of medical care, it affects access to 

medical care. There are numerous stories about women having to 

drive an hour or more to see their doctor to deliver their baby. If 

you are in a car accident, there may not be a neurosurgeon available to save your life. If you live in a rural area, a clinic or hospital 

may have been closed. 

Just in case you do not think this affects you and your pocketbook, doctors must practice defensive medicine by ordering extra 

tests to protect themselves against potential law suits. It is estimated that the federal government, through its funding of Medicare and Medicaid, paid an additional $28 billion to $48 billion per 

year for health care due to the cost of medical liability coverage in 

defensive medicine. 

Thirty years ago California passed comprehensive medical liability reform. Who would ever think California would lead in the reform? 

According to the Department of Health & Human Services, states 

that have limited non-economic damages have seen premium increases by less than 20 percent. States without limits on non-economic damages have seen premium increase on average of 45 percent. 

There is quantifiable evidence that medical liability reform 

works. According to the AMA, there are 20 states that are in crisis. 

None of those crisis states have passed a medical liability reform. 

Well, actually Illinois did, but several years ago the Illinois Supreme Court held it was unconstitutional according to the Illinois 

Constitution. 

The other problem we have had here, is that there has been an 

unnecessary war between physicians and attorneys, and that has 

got to come to an end. I practiced law for several years, and even 

though I did mostly defensive law, if your son gets hurt in a car 

accident, you want to get the best trial lawyer available. So the 

continuous pounding by some of the trial lawyers, I do not think 

3

that gets anywhere. There has to be a way where everybody in this 

country comes to a consensus; that there is a problem, and something has to be done with regard to it. 

Maryland just came up with a very interesting result. It imposed 

a two percent tax on HMOs with an indemnity fund that will help 

to stop the dramatic increases in medical liability premiums. The 

State of Wisconsin, met with Governor Doyle, also has an indemnity fund with a $500,000 cap. 

I am open to plans that will help the medical profession, and at 

the same time maintain at least a basic form and fairness for the 

truly injured plaintiff that needs redressing in the courts. There is 

a way to do it, and that is one of the reasons that we have you here 

to tell your side of the story on it, and try to come up with some 

possible solutions. 

I look forward to the testimony of the witnesses here this morning. We have a five-minute clock on there. When it goes red, it is 

time to sum it up, and I look forward to the opening statement of 

my ranking member, Congresswoman Velazquez. 

[Chairman Manzullo’s statement may be found in the appendix.]

Ms. VELAZQUEZ. Thank you, Mr. Chairman. 

Mr. Chairman, while I certainly recognize that it is your prerogative to delve into the issue you have a personal interest in, it is 

something we have witnessed for two Congresses now. My question 

is why—what are we doing here today? 

We are supposed to be discussing the Committee’s views on estimates for Fiscal Year 2006 budget request for the Small Business 

Administration, not holding a hearing on an issue that our Committee has no jurisdiction over. 

We are supposed to be discussing why the administration wants 

to terminate programs like the MICRA, that for every dollar we invest, generates $2 in revenue, not of a hearing that was held two 

weeks ago in the Judiciary Committee, and then last week in Energy and Commerce. 

We are supposed to look at how the agency’s budget, which has 

been cut in half in just four years, is failing this nation. Mr. Chairman, these informational-like hearings are fine. We could just start 

calling them info hearings. I suggest that next week we have a 

hearing on how the budget will impact small business. 

But this type of hearing should not come at the expense of our 

other duties, and that is what is happening today. It was an unacceptable deficiency that took place last Congress in this Committee, 

and was why Democrats raised this issue last week. We will continue to do so until the Committee starts to live up to its responsibility, all of its responsibility, not just a select few. 

I am sorry to the witnesses that have to be here today to witness 

this exchange on how this Committee is not working properly. Your 

issues are very important, and I look forward to your testimony. Its 

just that we should not be holding this hearing today of all days. 

We are facing a health crisis in this country. It is outstanding 

that in the United States, the country with the world’s largest 

GNP, there are 44 million Americans who cannot afford health 

care. We should be outraged. 

4

Nowhere is this health care gap more striking than in our nation’s small businesses. More than 60 percent of the 33 million 

adults and 11 million children without health insurance are small 

businesses owners, employees, or family members. That fact is the 

real tragedy we must focus on is this issue, and address it. 

Small businesses bear the brunt of the health insurance crisis 

because of lack of good choices for them and the high cost. An increasing health care cost is an important matter for small businesses. Unfortunately, in the past few years many have seen annual health insurance premium increases in double digits. One element of increasing costs is high medical practice premiums. That 

is the issue we will examine today. 

In the last Congress, we addressed this medical malpractice 

twice, and last week the same bill was introduced again. The stories of staggering malpractice insurance rates are well known to 

us, but it is important we get to the heart of the matter and find 

out what is really driving those increases. That is the information 

we need to provide a real solution to the problem, and reduce costs 

for these doctors, and ultimately help small businesses. 

After all, Congress has been asked to step in and change 150 

years of case law that allow states to control the way victims of 

medical malpractice were made whole. Major changes to our legal 

system must at least be based on the best independent data. We 

have solutions based on emotion which will not solve anything. 

Unfortunately, that is not an easy task. Each side has their compelling stories. While one side sees a courtroom crisis driving up 

premiums, driving out doctors and driving away small businesses, 

the other side sees an insurance industry jacking prices to make 

up for cyclical investment losses. 

If malpractice premiums ultimately are not reduced, then the insurance industry’s benefit from the protective barriers on recovery 

by patients or their families. In both cases, small businesses and 

their employees will get hurt. 

While we hear from health professionals today, there is also compelling data that malpractice costs and jury awards are a small 

fraction of overall medical costs. We also have some practical experience on which to base our decision since caps and restriction are 

already in place in 25 states. 

In some of those states, the same kinds of caps that we are being 

asked to consider have failed to hold down medical malpractice 

rates. Texas and Florida are two examples. Perhaps the correct answer lies somewhere in between. 

In our zeal to help our nation’s entrepreneurs we have seen several bills move through Congress that were represented as small 

business relief, but in reality provided the lion’s share of the benefits to large corporations. I hope that today’s hearing will be able 

to separate hard facts from perceptions and help us make choices 

that actually address the problem and reduce costs for small businesses. 

Thank you, Mr. Chairman 

[Ranking Member Velazquez’s statement may be found in the appendix.]

Chairman MANZULLO. Thank you, Congresswoman Velazquez. 

5

Our first witness is Dr. Don Palmisano from Metairie, Louisiana. 

My dad was born in Donaldsonville.

Dr. PALMISANO. Oh.

Chairman MANZULLO. Down there in swamp country.

Dr. PALMISANO. Yes, sir.

Chairman MANZULLO. And Dr. Palmisano, we look forward to 

your testimony. 

STATEMENT OF DR. DONALD PALMISANO, AMERICAN 

MEDICAL ASSOCIATION

Dr. PALMISANO. Good morning. Thank you. I want to thank 

Chairman Manzullo and Ranking Member Velazquez for holding 

this hearing to focus on how our broken medical liability system affects patient access to quality health care. 

My testimony is on behalf of the American Medical Association, 

which sets policy through a democratic process in its house of delegates composed of physicians representing every state, over 100 national medical specialty societies, federal service agencies as well as 

medical students. 

The AMA’s policy on how to fix the broken medical liability system is detailed in our written statement. My testimony today is not 

only from the perspective of a medical professional, but that of a 

small business. In fact, approximately 75 percent of practice-based 

physicians work in or own small practices of less than nine physicians. 

Medical liability insurance premiums are part of our overhead 

expenses, and when expenses increase, physicians must either 

raise revenue by increasing fees or cut other expenses to sustain 

their practices. Increasing fees are becoming more challenging as 

Medicare, Medicaid and managed health care plans limit payments 

for services rendered to patients. 

Alternatively, to trim expenses, physicians face the difficult 

choice of cutting staff, foregoing new medical equipment, or limiting certain aspects of their practice. The litigious climate in our 

country also is taking its toll, such as decreasing the availability 

of physicians who provide obstetrical care. 

When I took part in a physician rally in Fort Lauderdale, Florida, with more than 500 physicians and patients demanding action 

on the liability crisis, I met a young obstetrician, Dr. Chandra 

Azman. She stood hand in hand with her pregnant patient and told 

the crowd that helping a woman deliver her baby is the most extraordinary experience a doctor can have, and I will not be doing 

that anymore. 

Her liability premiums had tripled. She had no choice but to give 

up her part of the practice she treasured most. It is a loss beyond 

calculation for her and her patients. 

Anytime vital health care services are limited, patients’ access to 

care is jeopardized, especially emergency care. In 2003, 17-year-old 

John Lucas from Greenwood, Mississippi was in an auto accident. 

6

John suffered a serious head injury, and was taken to Delta Regional Medical Center in Greenville, which has a Level II trauma 

center. 

Tragically, that day Greenville’s only remaining neurosurgeon 

was not available. John had to be air-lifted to University Medical 

Center in Jacksonville, but by the time he arrived it was too late. 

He never regained consciousness and died six weeks later. 

For 25 years, Greenville had 24-hour neurosurgical coverage, but 

the medical liability crisis in Mississippi ended that. One of the two 

neurosurgeons in Greenville no longer practices neurosurgery because of the legal climate and costs of liability insurance. 

John’s father, himself a trauma surgeon, said his son picked the 

wrong day to have his accident. The bleed inside his head had doubled by the time he received care. 

There is also the story of LeeAnn Dyce from Vicksburg, Mississippi, who testified before the House Judiciary Committee about 

a very personal, very tragic consequence of the liability crisis. Her 

husband Tony was in an auto accident and suffered a head injury 

that resulted in permanent brain damage because there no longer 

was a neurosurgeon at the hospital, as he had left the state because of the liability crisis. 

These are just a few of the hundreds of stories I have heard as 

I have talked to physicians and patients across the country. They 

represent the symptoms that tell us our nation is facing a crisis because of a broken medical liability system. Escalating jury awards 

and the high cost of defending against lawsuits, even meritless 

claims, are the primary drivers of increasing medical liability insurance premiums. 

This crisis exacts a steep cost in terms of access to care for patients, stress on physicians, and strain on the entire health care 

system. 

Mr. Chairman, the AMA looks forward to working with Congress 

to pass common sense medical liability reforms this year so that 

patients can have greater access to medical care. The health of the 

nation depends on it. 

Thank you. 

[Dr. Palmisano’s statement may be found in the appendix.]

Chairman MANZULLO. Doctor, your complete statement along 

with those of all the other witnesses will be made part of the record 

without objection. 

I also noticed that you are attorney.

Dr. PALMISANO. Yes, sir.

Chairman MANZULLO. And a doctor.

Dr. PALMISANO. Yes, sir.

Chairman MANZULLO. Our next witness is Dr. Tom Gleason with the Alliance of Specialty Medicine in Morton Grove, Illinois. 

Dr. Gleason, we look forward to your testimony. You might want 

to pull the microphone up a little bit closer. Thank you. 

7

TESTIMONY OF DR. THOMAS GLEASON, ALLIANCE OF 

SPECIALTY MEDICINE

Dr. GLEASON. Yes, sir. Thank you. 

Chairman Manzullo, Ranking Member Velazquez, and members 

of the Committee, my name is Thomas F. Gleason, M.D.

Chairman MANZULLO. A little bit closer. We are having problems 

with the microphone.

Dr. GLEASON. Yes, sir. How is that? Is that better?

Chairman MANZULLO. Proceed, please.

Dr. GLEASON. Okay, thank you. 

I am a practicing orthopedic surgeon in Illinois, and managing 

partner at the Illinois Bone and Joint Institute, a partnership of 

approximately 70 orthopedic surgeons. On behalf of the Alliance for 

Specialty Medicine, we appreciate the interest this Committee has 

taken over the past several years to assess the status and cost of 

health care in this country. 

The Alliance believes that health care—the health care infrastructure of this country is in critical need of an overhaul, that we 

have lost sight of what is important for ensuring that our patients 

receive the very best care that they deserve. The escalating costs 

of medical liability insurance is threatening to change the structure 

of health care in this country, leaving lasting consequences both in 

terms of how health care will be delivered, and who will be available to deliver their care. 

My partners and I see examples of this day after day in our practice. Americans in need of emergency services are most at risk of 

losing access to the necessary specialty care. As the risks and cost 

to care for these patients rise, so does the risk of losing orthopedic 

surgeons in our practice who currently cover two-thirds of the 

nights on call in one of the busiest trauma centers in Chicago. This 

is particularly alarming knowing that this trauma center is already 

inundated with transfers from more and more community hospitals 

in Illinois that no longer have physicians available for emergencies. 

Pediatric coverage at emergency rooms continues to worsen. Children are being transferred without even being examined and even 

for basic orthopedic cases where some of these transfers have taken 

hours to process. 

Recently, because no orthopedic surgeon was available, a 25-

year-old male was recently transferred 80 miles from Rockford to 

Lutheran General Hospital, a Level I trauma center in Parkridge, 

after sustaining an unstable pelvic fracture. The patient was not 

volume resuscitated adequately in the initial hospital, and the 

transfer delayed emergency care by seven hours. 

By the time he arrived he was grossly volume depleted. The fluid 

administration consisted of rapid volume replacement, including 

blood, leading to delusional coagulopathy and ARDS, or Adult Respiratory Distress Syndrome—known complications from volume replacement in massive quantities after blood loss. The patient died. 

8

Timely care at the initial institution could have prevented this 

tragic outcome. 

Public aid and HMO patients also lose a medical environment of 

diminishing resources and high operating expenses as a result of 

the increasing litigious environment. Average reimbursements are 

considerably lower for these patients. Physicians cannot afford to 

pay operating expenses serving these patients alone. A high number of these patients are pediatric orthopedic cases. 

Since July 2002, our medical liability premiums have increased 

250 percent to $5.6 million, an additional $4 million in premium 

costs. Current base premiums for a orthopedic surgeon in Cook 

County are now $212,000 a year for $2 million in coverage, which 

includes spine coverage. 

We are concerned with the increasing number of physician retirements at early ages. The chief of orthopedics at one hospital I staff 

belongs to a small orthopedic practice that switched insurance companies in order to lower their premium rates. Because the insurance company required him to practice at least five more years in 

order to receive a discount and sizeable tail cost, he is retiring now, 

and I have had to assume his administrative duties, taking me further away from patient care while we are also now short one additional orthopedic surgeon. 

More and more physicians are also restricting how they address 

non-emergency high-risk cases or eliminating these cases altogether from their practice. Our total joint positions have already 

set limits on patients they operate on and treat. 

Due to the increased risk of infection and thrombosis, one of the 

most experienced and productive joint surgeons in Illinois, and arguably the country, has reservations about operating on individuals 

with a body mass index over 40; in other words, for example, a person who is five foot, 204 pounds, or six foot, 294 pounds. 

We believe that is a result of the medical liability crisis patients 

face a patchwork of care across the states where access to specialists is decreasing, and assurances of timely emergency care is no 

longer possible. 

As a nation, we have a duty and an obligation to my patients and 

to your constituents. We believe that Congress must act now or the 

landscape will be forever changed. The need for reform has now escalated to a national problem that requires a national solution. 

Thank you for considering our comments and recommendations. 

The alliance looks forward to working with the members of this 

Committee and Congress to address this important health care policy issue. 

[Dr. Gleason’s statement may be found in the appendix.]

Chairman MANZULLO. Thank you, Doctor. 

Our next witness is Dr. Chad Rubin with the American College 

of Surgeons, and Dr. Rubin comes from Columbia, South Carolina. 

We look forward to your testimony.

Dr. RUBIN. Originally from Illinois.

Chairman MANZULLO. Where in Illinois?

9

Dr. RUBIN. Carbondale.

Chairman MANZULLO. Wrong end of the state.

Dr. RUBIN. Yes. 

[Laughter.]

Chairman MANZULLO. But Congressman Tim Johnson would not 

say that. Go ahead, please. 

TESTIMONY OF DR. CHAD RUBIN, AMERICAN COLLEGE OF 

SURGEONS

Dr. RUBIN. Mr. Chairman, Representative Velazquez, and Members of the Committee. Thank you for allowing me to present my 

story. 

I am a general surgeon in Columbia, South Carolina, and I am 

here representing myself and the 65,000 members in the American 

College of Surgeons. 

In a growing number of states, surgeons are having a very difficult time trying to even find medical liability insurance, and the 

ones that they find are so expensive that some of them cannot afford it. We are experiencing double and sometimes triple digit increases per year in malpractice insurance. 

In South Carolina, we have a Joint Underwriters Association. It 

is state-run, this is not for profit. It is state-run. Myself, I have 

seen an 816 percent increases in my malpractice premiums over 

the course of the last nine years. I have never been sued. Last year 

alone, 117 percent increase. The increases, along with my nine 

other partners, were in a single general surgery group. We are the 

largest private practice in town. Every year we are finding that we 

have to borrow the money to pay our malpractice premiums. We 

are a small business. That is exactly what we do. We have to borrow just to keep going. 

Essentially, with the actual increases year after year after year, 

we are feeling the squeeze. Basically, Medicare sets the rates now. 

The insurance companies set the rates. Other small businesses can 

pass these expenses on to the consumer. We cannot. We just have 

to suck it up and try to figure out how we are going to pay for it 

every year. 

In addition, because of the increasing premiums, three of my 

partners have stopped practicing vascular surgery, to try to reduce 

their costs. Two of my partners do beriatric surgery, or weight reduction surgery. We received day before a yesterday a notice from 

the Joint Underwriters Associations that their malpractice premiums are going to increase $26,000 alone this year because they 

do beriatric surgery. I suspect they are going to stop doing that. 

This crisis is having a very detrimental effect through South 

Carolina. Last month one of the prominent OB-GYNs in town announced that he is going to stop delivering babies. There is only 

spotty neurosurgical coverage in Myrtle Beach. This is an issue 

that affects both people inside of South Carolina, and also the people that come and visit our state. If you have an accident in Myrtle 

10

Beach, you better be lucky and be on one of those days when there 

is a neurosurgeon that is there. 

My own personal story. This crisis has reached epidemic proportion in Illinois. My mom lives in Illinois. She has had two strokes. 

She has pulmonary fibrosis. She has round-the-clock care. She has 

round-the-clock oxygen. Her primary care doctor of several years 

left a couple of years ago, and she had to find another doctor. The 

only pulmonolist, lung specialist in southern Illinois left the state, 

and ironically, the only neurosurgeon that I know of in southern 

Illinois moved to Columbia, South Carolina, and there is no coverage. 

Her physiatrist, who is a rehab specialist, who is trying to help 

rehabilitate her nonfunctioning arm, moved from Carbondale to St. 

Louis, and now she has to travel two and a half hours to go see 

him. This is all a direct effect of what the malpractice premiums 

have done. Physicians are leaving the state. There is ample evidence in my mind that the skyrocketing costs of liability is having 

an effect on health care, it is having an effect on the health care 

of my own mother. 

I ask you to please consider some of the reforms that you mentioned, Mr. Chairman, particularly the MICRA-type caps. When I 

first got involved and really began having problems as far as in the 

increase in premiums, I had a conversation with my mom, and she 

said, I really do not think I support that because if people are injured, they deserve to be compensated. And I said, you do not understand. What we are talking about is non-economic. We are talking about pain and suffering. We are talking about punitive damages. 

She was not convinced. Now she is. She is very much in support 

as is the rest of my family except for my sister who is an attorney, 

who works in Madison County.

Chairman MANZULLO. Worked in Madison County. That bills 

comes before the House today.

Dr. RUBIN. Very good. But I ask you to please consider this. This 

is a patient access issue. It is a small business issue. I am in a 

small business and I do not know how I am going to afford to keep 

paying these premiums. 

I thank you very much for giving me this opportunity. 

[Dr. Rubin’s statement may be found in the appendix.]

Chairman MANZULLO. Thank you, Doctor. 

Our next witness is Hilda Heady. She is with the National Rural 

Health Association out of Morgantown, West Virginia. She brings 

us a unique perspective in terms of her expertise, and we look forward to your testimony. 

TESTIMONY OF MS. HILDA HEADY, NATIONAL RURAL HEALTH 

ASSOCIATION

Ms. HEADY. Thank you, Chairman Manzullo and Ranking Member Velazquez, Committee Members. 

11

I really appreciate the opportunity to address you on behalf of 

the National Rural Health Association. I am currently the elected 

president. 

The NRHA is a 7,000-member national nonprofit organization 

that provides leadership on rural health issues. Our mission is to 

try and improve the health and well being of rural Americans 

across the board and we do this through grass roots advocacy, communication, education, and research. I want to make three points 

with you today. 

One, rising medical liability costs impact and hurt rural patients 

and rural health care providers. Two, medical liability rising costs 

also impact small businesses in rural communities; and three, we 

all need to do something about it because we all are responsible 

and we all have a part in the solution. 

First, the quality of health care for rural patients is being put 

in jeopardy and I can use a personal story to demonstrate this. One 

of my colleagues, a fellow by the name of Dennis McCutcheon, who 

lives in a hill-top farm in a very, very rural area of West Virginia, 

with his wife Anne, have taken care of 15 elderly friends and family members in either their own person home or in Dennis and 

Anne’s home. 

Three years ago his mother fell, and they suspected a broken hip. 

By the time that the ambulance got to her the EMTs were on the 

radio, and they were told not to go to the hospital that they had 

planned to go to because all of the orthopedic surgeons that were 

in practice in that hospital had left. They had left the state and 

they were not there that day. 

They were also told that the only remaining orthopedic surgeon 

in practice in this town of over 25,000 was at another hospital. So 

they took her to that particular hospital. 

When they arrived there they discovered that the only surgeon 

that was there to help her was currently in surgery and there were 

15 hospitalized patients waiting to see him, and they were all waiting for surgery. Most of them were elderly. 

His mother finally went into surgery with a very tired surgeon 

after more than a 36-hour wait with a totally separated hip joint. 

I am also privileged in my work to work with aspiring physicians, nurse practitioners, pharmacists, and so forth that we try to 

recruit in our state to go into rural communities. 

Last year at the height of our malpractice crisis, which is the 

third one in my professional life, at least in West Virginia, I was 

counseling with a young man about going into rural practice, and 

he just looked at me and he said, ‘‘Hilda, I want to go into rural 

medicine, but I am afraid I can’t make it because I am afraid I cannot afford it.’’ 

Physicians are seeking work at academic health centers and community health centers in our state just for—to just try and reduce 

the overhead that they see in their practices. 

As I said, this is the third crisis that I have been through since 

I have been in health care in our state. I recruited the first OBGYN ever to practice in a very rural county in north-central West 

Virginia. He was an exciting, bright, young physician just right out 

of residency. We recruited him out of Pennsylvania, which was a 

12

coup, at least for us. He was in practice with us, and of course we 

gave him his package and offered him and paid his malpractice. 

When he began working with us, his malpractice premium was 

$6,700. In three years, he had to close his practice and leave, and 

if he had remained there when his premium was next due, it was 

$65,000, and that was in three years. 

Now, that was some years ago. Right now in our state if an OBGYN could find a malpractice premium for $65,000, they would 

jump at the chance. 

The second point I want to make is that rising costs of malpractice hurts small businesses. Certainly small businesses have to 

pay for and contribute to the health care of their employees. That 

is one of the places that they are first hurt. And while we continue 

with the debate, and point fingers at each other about the rising 

costs of liability and what causes it and what does not cause it, the 

patients and their providers are the ones that are hurt by our debate. 

We also know that many in most of our rural communities across 

the country that the health care industry is either the first, second, 

or third largest employer in that community. Most rural providers 

are still small businesses such as mom and pop pharmacies, private doctors’ offices, physicians’ offices, private dentists’ offices, and 

so on. 

Rising medical liability costs severely impacts these small businesses so that when a doctor or dentists closes their practices the 

losses are not only to the health care and the access and the quality of health care in that community, it is also a loss of jobs. 

In our own state in rural communities, for every one physician 

that we have in practice, we also have another 4.3 full-time jobs. 

The third point is that we all are—

Chairman MANZULLO. You have got a red light.

Ms. HEADY. Oh, I am sorry.

Chairman MANZULLO. Can you summarize that in 30 second?

Ms. HEADY. I certainly will. 

I would like to draw your attention to the recommendations in 

our program that we submitted to you from the National Rural 

Health Association, and for Congress to take up this issue. I hope 

that they bring everybody to table, lawyers, doctors, insurance industry, and consumers. 

Thank you. 

[Ms. Heady’s statement may be found in the appendix.]

Chairman MANZULLO. Thank you very much. 

Our next witness is Lawrence E. Smarr, I guess that is correct, 

S-M-A-R-R, President of the Physician Insurers Association of 

America out of Rockville, Maryland. And Mr. Smarr, we look forward—are you a physician?

Mr. SMARR. No, I am not.

13

Chairman MANZULLO. Okay, Mr. Smarr, we look forward to your 

testimony. Thank you. 

TESTIMONY OF LAWRENCE E. SMARR, PHYSICIAN INSURERS 

ASSOCIATION OF AMERICA

Mr. SMARR. Chairman Manzullo, Ranking Member Velazquez, 

and Members of the Committee. 

I am the president of the Physician Insurers Association of 

America, an association comprised of professional liability insurance companies owned and/or operated by physicians, dentists and 

other health care providers. Our 48 domestic insurance companies 

members insure over 300,000 doctors and 1,300 hospitals in the 

United States. 

The PI members can be characterized as doctors insuring doctors, or hospitals insuring hospitals. We cover over 60 percent of 

America’s private practicing physicians. 

I will be referring to this set of charts which you should have before you. 

Over the past five years, insurers have seen their financial performance deteriorate substantially due to rapidly rising claim costs. 

These costs translate into higher health care costs that must be 

borne by small businesses. 

According to AM Best, the medical liability insurance line of business incurred $1.55 in losses and expenses for every dollar of 

premium it collected in the year 2001. This statistic rose to $1.55 

and has gradually declined to an estimated $1.33 for 2004, and 

Best estimates this statistic will be $1.31 this year, in 2005. 

The impact of insurer rate increases accounts for the gradual improvement. However, Best also calculates that the industry can 

only incur $1.14 in losses in order to break even, and so we are still 

in the hole in 2005. 

The primary driver of this crisis, as conformed by both the GAO 

and the National Association of Insurance Commissioners, has 

been paid claim severity, or the average cost of a paid claim. 

Your first exhibit shows the average dollar amounts paid to 

claimants on behalf of individual physicians since 1988. The mean 

payment amount has risen by 6.6 percent per year during this period as compared to 2.9 percent for the Consumer Price Index. The 

data for this exhibit comes from the PIAA data sharing project 

which is a patient safety database created in 1985 to identify common trends in malpractice claims, and to date over 199,000 claims 

and suits have been reported. 

One very troubling aspect of the medical malpractice claims is 

the proportion of those filed which are without merit as show on 

the next exhibit. Almost 70 percent of all claims filed against individual practitioners reported in 2003 were dropped or dismissed by 

the court. 5.1 percent were won by the doctor at trial, and only 

eight-tenths of one percent were won by the plaintiff. The remainder, 24 percent, resulted in a settlement payment. 

A review of the average claim payment values for 2003 is revealing. As show on the next exhibit, the mean indemnity payment 

amount on behalf of an in defendant was over $328,000, average 

verdicts cost $431,000, and settlements only $233,000. 

14

Most medical malpractice cases have multiple defendants and 

thus these values are below those which may be reported on a case 

basis. 

The next exhibit 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 a total number 

of payments. 

And the next few charts show this difference between California 

and the rest of the country, and if you look at the top line on the 

right-hand side where it is heading, you can see that the gap has 

grown dramatically through 2003, and this proves that the California MICRA law works. 

These savings are clearly demonstrated and the rates charged to 

California doctors, as show on the next exhibit, successful experience in California and other states, such as Colorado, make it clear 

that these tort reforms do work without lowering health care quality or limiting access to care. 

For example, an OB-GYN in Los Angeles pay $66,000 compared 

to his or her Miami counterpart who pays $277,000. 

Increasing medical malpractice claim costs on the rise for over 

three decades have finally reached the level where the rates that 

insurers must—

Chairman MANZULLO. You have got a red light there.

Mr. SMARR. I am going to conclude right now, sir.

Chairman MANZULLO. All right, thank you.

Mr. SMARR. They have reached the point where doctors can no 

longer afford to pay these premiums, and as has been pointed out, 

they cannot pass them along, and so we urge you to pass effective 

health care liability reform in the House as you have done nine 

times in the past. 

Thank you. 

[Mr. Smarr’s statement may be found in the appendix.]

Chairman MANZULLO. Thank you very much. 

Our next and final witness is Joanne Doroshow, is that correct?

Ms. DOROSHOW. That is correct.

Chairman MANZULLO. Okay. Executive Director of the Center for 

Justice and Democracy from New York City, and we look forward 

to your testimony. 

TESTIMONY OF JOANNE DOROSHOW, CENTER FOR JUSTICE 

AND DEMOCRACY

Ms. DOROSHOW. Thank you, Mr. Chairman, Representative 

Velazquez, and the members of the Committee.

Chairman MANZULLO. Go ahead.

15

Ms. DOROSHOW. Okay. Mr. Chairman, you asked us at the beginning of your statement to have us share our horror stories with the 

Committee today, and you should have been with us last week because we brought down to Washington 50 families, all of whom had 

suffered life-altering consequences of medical negligence, some unbelievably horrible stories. 

A family from Louisiana brought their baby who had some trouble with their stomach. They took him in for an acid reflux test. 

The physician punctured his esophagus. He went into cardiac arrest, was brain damaged severely. Another woman who had unnecessarily both her breasts removed because the lab had mixed up 

her results, and they told her she had cancer when she did not. I 

mean, it was story after story like that, and I would hope at some 

point if this Committee is going to further explore this issue, that 

you make sure that you hear from these families because these are 

really the forgotten voices in this debate over medical malpractice 

and how to solve doctors’ insurance premiums. 

I know you do not want to get into specifics of legislation. I will 

only say that all of the solutions that so far have been proposed 

by Congress, the bills that have passed recently, all of them take 

away patients’ rights, whether cases are frivolous or not, no matter 

how severe an injury is, no matter how meritorious a claim, and 

the insurance industry’s major role in creating this crisis for doctors is completely ignored in all of these bills as is the role of the 

epidemic amount of medical malpractice that exists very sadly in 

this country today. 

Now, the hearing is about costs, and just very briefly let me tell 

you about the costs of medical malpractice. The cost of premiums, 

the cost of claims are each below one percent of total health care 

costs in this country. The Congressional Budget Office has said the 

legislation that Congress is considering would reduce health care 

costs by about .4 to .5 percent. Defensive medicine costs, according 

to the Congressional Budget Office, are very, very small. But the 

cost of malpractice is huge, 17 to 29 billion dollars a year that injuries are causing victims of malpractice in this country according to 

the Institute of Medicine. If you are going to reduce costs, that is 

where you have to look. 

Now, in terms of insurance rates for doctors, yes, there are many 

doctors that are being price-gouged by their insurance companies. 

There is no question. In fact, this is the third time in 30 years that 

we have seen this kind of crisis in this country. It happened in the 

mid-seventies, which is when California responded by passing their 

cap. It happened again in the mid-eighties, when a number of 

states succumbed to pressure by the insurance industry, and were 

told this is how you reduce rates, pass caps, and a number of them 

did. 

Well, now we are in the third crisis, and you will find in states 

like Maryland and Missouri that have had a cap on damages since 

the mid-eighties, both of them are having severe increases in insurance rates. 

The Missouri Department of Insurance put out two studies last 

year. Claims are down in Missouri. Medical malpractice payouts 

are down. They have a cap. But rates for doctors went up 121 percent. 

16

Then you look at Illinois. Illinois, yes, rates are going up pretty 

dramatically there. Illinois happens to have the weakest insurance 

regulation of any state in the country, and today our organization 

in Illinois is having a new conference announcing a new patient 

safety network. Victims that have come forward to oppose the efforts by legislators in Springfield to try to cap damages there, and 

they have asked the insurance department to force the companies 

to open up their books, to release the actuarial tables that they are 

using to justify these astronomical rate hikes because so far these 

companies have refused to do so. 

And like Illinois, and in many states, according to the National 

Center for State Courts, filings are down in malpractice cases, payouts have been stable for years, but now we see record-breaking 

profits by the insurance industry. Last year broke all records, and 

in Washington state the physicians’ insurance, the mutual company that insures 70 percent of the doctors we are seeing now—

they have now asked for a 7.7 percent decrease. 

I see my time is up.

Chairman MANZULLO. You have got a red light there.

Ms. DOROSHOW. Just to sum up, you have got to look at the insurance industry’s role in this, and you have got to look at patient 

safety measure. There are many, many, other ways of dealing with 

this problem, solving this problem for doctors, but do not do it on 

the backs of patients. 

Thank you.

Chairman MANZULLO. Thank you very much. 

I am going to hold the members to the five-minute clock too because of the numbers that are here. Being the Chairman, I will 

take the first five minutes of questions. 

I would like to see a dialogue between—Ms. Doroshow, are you 

an attorney?

Ms. DOROSHOW. Yes, I am.

Chairman MANZULLO. Okay, between you and Mr. Smarr, and 

the rest of you. First of all, we recognize that there are horrible 

cases out there, where malpractice does exist, and tremendous 

losses have occurred. And as Ms. Velazquez mentioned in her opening statement, there has to be a balance somewhere in between. 

Is there a myth that—my number one question—are insurance 

companies out of control? Are they making record profits? And if 

so, why are so many going out of business? Who wants to tackle 

that?

Ms. DOROSHOW. Well, they are. I mean, I will—

Chairman MANZULLO. Go ahead.

Ms. DOROSHOW. They are making record profits. They—

Chairman MANZULLO. Okay, get specific. Which ones?

17

Ms. DOROSHOW. Well, the property casualty industry has made 

$28 billion last year—

Chairman MANZULLO. Well, no, that is—

Ms. DOROSHOW. —the first nine months. 

Now, medical malpractice—

Chairman MANZULLO. Medical malpractice?

Ms. DOROSHOW. Well, you look at, for example, the reference I 

just made to the company in Washington State. Record-breaking 

net income last year, which is why they have now asked for a 7.5—

Chairman MANZULLO. Is that profit or net income?

Ms. DOROSHOW. That is what it is.

Chairman MANZULLO. All right.

Ms. DOROSHOW. It is basically the same thing.

Chairman MANZULLO. Anybody want to—do you know the name 

of the company? Somebody want to tackle that?

Ms. DOROSHOW. Physicians Insurance.

Dr. RUBIN. Well, I guess the two arguments I would have. First 

of all, going back to South Carolina, the Joint Underwriters Association is state run. They are not for profit, and if this is so profitable for the insurance companies, why have they all left our state? 

I only have two private carriers that I can turn to. St. Paul got 

out of the business completely. So if this is profitable, why are they 

getting out?

Chairman MANZULLO. Mr. Smarr, your association represents the 

insurance companies?

Mr. SMARR. Yes, we do.

Chairman MANZULLO. Go ahead.

Mr. SMARR. Well, as I testified, the combined ratio for the industry is about 1.33 for 2004, meaning we are incurring $1.33 in losses 

and expenses for every dollar of premium we collect; $1.14 is break 

even. The difference is investment income. That is how we can 

have a $1.14 and still break even. 

The industry is losing money. My members, which are owned 

and operated by doctors, are losing money. They have lost money 

three years in a row. We are hoping that perhaps we will break 

even when the 2004 numbers are published, but it is just false to 

confuse this with the property and casualty industry.

18

Chairman MANZULLO. Switch the microphone over to Ms. 

Doroshow. Go ahead.

Ms. DOROSHOW. Okay. Now, when he is talking about incurred 

losses, let me tell you what that is. That is as a result of severely 

overstating reserves. That is what they do during the hard market 

when they are trying to raise the rates. That is not actual payouts. 

And what I would ask the Committee to do is ask Mr. Smarr for 

the actual cash flow from—

Chairman MANZULLO. You can ask him.

Ms. DOROSHOW. Well, I will ask him to release the actual cash 

flow, what you actually took in and paid out last year, because that 

is not what you use to base your combined ratio figures on. 

And by the way, they are also making investment and come off 

their surplus, which is not included in those figures either.

Chairman MANZULLO. Mr. Smarr.

Mr. SMARR. I do not even know what you are talking about the 

surplus issue, but it is improper to compare what an insurer pays 

out this year with what it takes in this year. There is a 22-month 

lag between the time a claim happens and it is reported to the insurer. Just think of auto insurance. It is reported the same day. 

And then there is another 33-month lag between the time the insurer knows about it and the claim closes. So it is four and a half 

years of trend that must be calculated into premiums that insurers 

are collecting today. 

The claims we are paying today are for premiums that were collected four and a half years ago, and it can take as long as 10 or 

12 years to pay out that money.

Chairman MANZULLO. Ms. Doroshow?

Ms. DOROSHOW. Well, I think it is pretty well recognized that 

during these hard market periods the insurers will tend to overstate their reserves. They pad them. And that is what those loss 

figures are. 

I would ask for that information for the last five years, what they 

paid in and what they paid out.

Chairman MANZULLO. All right, I will do this. You send me a letter, and you tell me what you want from the insurance companies, 

all right? And let me bounce that around, okay? 

But let me go back here to Dr. Rubin. You come from the state 

where it is not for profit.

Dr. RUBIN. That is correct.

Chairman MANZULLO. Okay. And quickly, your experience again?

19

Dr. RUBIN. Again, I have seen an 816 percent increase in the last 

nine years, 117 percent last year. They are not making a profit 

there, and again, all the other private carriers are pulling out.

Chairman MANZULLO. A good point. Dr. Gleason quickly.

Dr. GLEASON. Yes. In Illinois, there is a Department of Insurance 

that requires yearly figures, also that requires audits every three 

years. 

Furthermore, I have to ask myself if this is so profitable, why in 

Chicago and Illinois has the number of insurers gone from 17 in 

2001 down to five this year? And of those five, one, Medical Protective, only take people with no previous lawsuits. AD Capital has 

been downgraded twice in the last 12 months. ISME, the largest 

insurance of 16,000 individuals, currently is taking on no new individuals other than those joining current practices. And finally, PIC 

Wisconsin has retreated to Wisconsin and Iowa, and are no longer 

writing in Cook County.

Chairman MANZULLO. Ms. Velazquez.

Ms. VELAZQUEZ. Well, I guess that if we hold another hearing, 

I will have also—I will ask the Chairman to bring another witness 

that might provide some more balance responses between the two 

sides that are here represented, and that would be Attorney General Eliot Spitzer from New York. 

Dr. Palmisano, in your testimony you commend California for 

their law, the MICRA law which contains reforms similar to those 

you are asking Congress to support in federal law. California also 

has a rather extensive insurance reform law. We have heard that 

it was not until insurance reform was enacted in 1988 that premium stabilized. 

You have been a malpractice insurance executive and advisor, 

have you not?

Dr. PALMISANO. Well, I was on the board of a company for eight 

years in the eighties, one of the mutual companies form by Louisiana State. I am on the board of the doctors company in California.

Ms. VELAZQUEZ. Okay.

Dr. PALMISANO. And I have a company called Intrepid Resources 

which is a risk-management company, that is correct. But I am 

here today on behalf of the—

Ms. VELAZQUEZ. No, it is okay. I just wanted for you to be on the 

record.

Dr. PALMISANO. Yes, and this testimony would be given by Dr. 

Nelson or anyone else. This is AMA testimony.

20

Ms. VELAZQUEZ. That is okay. Given the California experience 

you cite, do you see insurance reform as a necessary partner to the 

health field?

Dr. PALMISANO. Well, the example given about Proposition 103, 

we have a document from AMA on the AMA website called ‘‘Medical Liability Reform Now,’’ which goes into that. 

Whenever a law is passed in the state, to get the benefit of the 

reforms one has to make sure that it is constitutional. It is presumed to be constitution but if the insurers drop their rates immediately what happens is if it is declared unconstitutional, like 

Texas on two occasions, Oregon, then they have not collected 

enough money.

Ms. VELAZQUEZ. Sir, I do not have much time.

Dr. PALMISANO. We do not believe that—

Ms. VELAZQUEZ. My question to—

Dr. PALMISANO. —Proposition 103—

Ms. VELAZQUEZ. So you do not—

Dr. PALMISANO. No, we think the insurance—

Ms. VELAZQUEZ. —insurance malpractice should be part of any 

health reform bill?

Dr. PALMISANO. We think the insurance commissions have the 

authority now.

Ms. VELAZQUEZ. Okay, just say yes or no. Yes?

Dr. PALMISANO. Yes.

Ms. VELAZQUEZ. Ms. Joanne Doroshow.

Ms. DOROSHOW. Yes.

Ms. VELAZQUEZ. What is your comment on that?

Ms. DOROSHOW. Well, I think there is no question Proposition 

103 is the reason rates have dropped in California. Proposition 103 

came in 13 years after MICRA passed. As a result of Proposition 

103, you also saw probably three of the most critical parts of it is 

there is an automatic hearing for any rate hike about 15 percent, 

and the public can intervene. And as a result of Proposition 103, 

in the last years three companies went in for rate hikes higher 

than that. There was a hearing. The consumers did intervene, and 

the insurance commission knocked those rate hikes down, saving 

doctors in California millions and millions of dollars. That is how 

it works.

21

Ms. VELAZQUEZ. Thank you. 

Dr. Palmisano, I looked at your map of crisis states, and I must 

agree it is frightening to see all those states, including New York, 

as red states. I was interested to— 

[Laughter.]

Ms. VELAZQUEZ. I was interested to see that New York was listed 

as a crisis state for medical malpractice. So I looked at your bullet 

points on the problems in New York. 

Are you rating this on those four newspaper articles you cite?

Dr. PALMISANO. I am sorry, ma’am? Am I what?

Ms. VELAZQUEZ. The rating that you gave New York, is it based 

on the four newspaper articles that you cited?

Dr. PALMISANO. It is based on a number of things: loss of access 

of care. It is based on the number of insurers. It is based on the 

escalation in the rates. It is based on the number of suits that have 

high awards. It is based on a combination of factors that make it 

a crisis state.

Ms. VELAZQUEZ. Are you aware that the General Accounting Office noted that your survey on physicians cutting back services had 

a response rate of only 10 percent, and did not specify cutbacks in 

specific services?

Dr. PALMISANO. Well, we are aware that the surveys that are 

done have to ask additional questions. It is like the statement 

made in Illinois that there is the same number of doctors as last 

year. You have got find out if the doctor actually practices in the 

state. Sixty percent of the doctors have licenses in more than one 

state. You have to find out if an obstetricians still deliver babies.

Ms. VELAZQUEZ. Okay.

Dr. PALMISANO. Or if the neurosurgeon does head trauma.

Ms. VELAZQUEZ. Sure.

Dr. PALMISANO. Those are questions that need to be asked in addition.

Chairman MANZULLO. Joanne, what is your comments or reaction on the red states?

Ms. DOROSHOW. On the—

Ms. VELAZQUEZ. Crisis?

Ms. DOROSHOW. On the crisis in red?

Ms. VELAZQUEZ. Yes.

22

Ms. DOROSHOW. Well, I mean, I think that there is a crisis in red 

and blue states, depending on the insurance situation in the states. 

It certainly does not depend on whether there is a cap in the state 

because we know that there are many states with caps that have 

seen rates skyrocket. 

The way to solve that—I mean, what we are seeing is a state like 

California that has more moderate rates is due to the insurance 

regulatory law in the state.

Ms. VELAZQUEZ. Okay, thank you. 

Dr. Gleason, on page 13 of your testimony you report that applications to medical schools are down by 22 percent. Is it your contention that this is due to the medical liability crisis?

Dr. GLEASON. Yes, ma’am, that is part of it. That is down 22 percent since 1997.

Ms. VELAZQUEZ. Okay.

Dr. GLEASON. And in addition to that you can also look at, for 

example, pediatric orthopedic fellows.

Ms. VELAZQUEZ. Okay.

Dr. GLEASON. Currently there are only six whereas six years ago 

there were 50, and we go on with in terms of positions—

Ms. VELAZQUEZ. Okay.

Dr. GLEASON. —for residencies filled as far as neurosurgery, 

emergency room trauma, and OB-GYN as well.

Chairman MANZULLO. Ms. Musgrave. Go ahead.

Ms. VELAZQUEZ. It seems that the General Accounting Office 

does not agree with you. It says in their report that the U.S. physician population increased 26 percent which was twice the rate of 

total population growth between 1991 and 2001, and during this 

period the average number of physicians per 100,000 people were 

increased from 214 to 239. 

Thank you, Mr. Chairman.

Chairman MANZULLO. Thank you. Ms. Musgrave.

Ms. MUSGRAVE. I have a question for Mr. Smarr, please. There 

is almost an innuendo that you are withholding information that 

distorts whether or not you are making a profit. 

Could you respond to that, please?

Mr. SMARR. Well, the insurance industry, including medical malpractice insurance, is perhaps the most regulated industry of all. 

Each year and on a quarterly basis as well, insurers file very detailed financial statements with their state insurance departments, 

and all this data is then aggregated by the National Association of 

23

Insurance Commissioners, and the books are essentially open, because the basic elements that one needs to know are in those documents, and as well, rate filings made with state insurance departments are public documents. All the actuarial support for those 

rate increases or decreases are available to the public.

Ms. MUSGRAVE. Thank you very much. 

Could you go over the four-year period that you emphasized before? You know, there is a very simplistic way of looking at things, 

how much money was paid in premiums in a year, and what your 

claims were. But could you go over the lag time aspect of that 

again?

Mr. SMARR. Well, the key element is that when a year closes the 

insurer does not know how many claims it is going to have for that 

year and/or the value of those claims when they are ultimately 

paid. There is a distinction between claims made and the current 

coverage, which I will not get into but there is some difference 

there. 

And so the insurer must estimate its future payments it is going 

to make as far as 10 years down the road, and so monies are set 

aside in what are called incurred but not reported losses, and it is 

indeed an estimate of what the ultimate liabilities are going to be. 

In the latter part of the 1990s, it has been proven that these reserves were woefully inadequate, and that is why the industry has 

booked a loss for the past five years.

Ms. MUSGRAVE. Thank you very much. 

Ms. Heady, much of my district is rural, and when you start 

talking about the difficulty that rural physicians face, it really 

strikes a cord with me. 

Could you emphasize, please, the other things that affect attracting rural physicians, and then complicated by these incredible premium increases? What do you predict for rural America in regard 

to health care?

Ms. HEADY. I appreciate very much, Ms. Musgrave, the question. 

The other issues that impact the recruitment and retention of rural 

physicians, of course, in a business climate have to do with their 

ability to generate revenues to cover their salaries, the salaries of 

their employees, and so on and so forth. 

The primary issue is the disparity in reimbursement for rural 

providers and rural physicians versus urban. We all, at least if we 

do not know, we should know that there is a myth operating in this 

country that it is cheaper to do business in rural America, certainly 

in health care, than it is in urban areas. And that is absolutely 

false. 

The Medicare wage index system that they use to differentiate 

payments is also based on myth; that you can pay the people less 

to do the same kind of job in rural America than you can in urban 

America, and absolutely converse is true. In order for rural communities to attract specialists and highly qualified individuals in the 

health care industry, they many times have to pay more than their 

urban counterparts. 

24

If you put the rising malpractice premiums for rural providers on 

top of that, then you have a tremendous falling house of cards. We 

do—we absolutely do know that the average incomes for physicians, nurse practitioners, PAs, so on and so forth in rural areas 

are much lower than they are for their urban counterparts, and 

that is primarily because of the differences, the disparities in reimbursements around for the same kind of service. 

Other issues have to do with the strength of the economic community, the payer mix in that community, and in most of our rural 

areas we do have larger pockets of low-income individuals or individuals that are on third-party payment kinds of systems, where 

we see a lot of states actually supporting a lot of the health care 

industry in those rural areas, and I hope that answers your question.

Ms. MUSGRAVE. It did very well. Thank you. 

Thank you, Mr. Chairman.

Chairman MANZULLO. Thank you. Congressman Barrow.

Mr. BARROW. Thank you, Mr. Chairman. 

Well, I do not think there is any question that the practice of 

medicine is not what it used to be, and speaking for myself, I can 

say that the practice of law is not what it used to be either, but 

I would not trade places. There is no question there is a crisis in 

the health care community as a result of skyrocketing costs in medical malpractice insurance. 

What I want to do is just focus for a couple of questions on the 

effectiveness of the prime suggested remedy for all of this. And that 

is caps on what folks can recover is sort of the cure for what ails 

us here. 

There have been a least a couple of objections, I think, that are 

important to the notion that limiting the rights of recovery of those 

people who are truly deserving. Victims who have seriously been 

injured in excess of the amount of any arbitrary caps, are the only 

effective way to curb abuses on the part of other folks; that limiting 

the rights of the truly needy is the only way to deter bad behavior 

on the part of the truly greedy. 

Now, one of the groups of objections to that has been that it is 

just unfair, that it is just unfair to take away rights of recovery 

from folks who are genuinely deserving of some means, some social 

engineering, we are trying to manipulate or manage the behavior 

of other folks. 

So, Dr. Gleason, I want to ask you a question. What do you say 

to folks who argue that it is just plain unfair to place an arbitrary 

cap that limits the right of recovery of someone who is genuinely 

deserving of compensation in excess of the cap as sort of the way 

in which we—the price you have got to pay in order to be able to 

deter bad behavior on the part of other folks? 

Do we just say that is just tough? That is the way the cookie 

crumbles?

Dr. GLEASON. Well, first of all, I think that you have to keep in 

mind that what is being proposed is not the right for recovery. 

25

These injured individuals do get recovery in terms of all economic 

costs in terms of their rehabilitation, care, future earnings, past 

earnings, things of that nature. 

Also, what we are proposing is that they get it in a more speedy 

fashion. In California, we know that they get it within three years, 

whereas in New York it takes six years. 

Furthermore, we are asking that they get more of what they deserve by limiting attorney’s fees, for example. So that is one part 

if.

Mr. BARROW. Your answer, assumes, Doctor, that there are no 

cases that a cap would adversely affect; that there are no cases in 

which folks can agree on different sides of the issue; that just and 

fair compensation is in excess of the cap. 

When you answer back to me and say that ultimately the economic losses, you are kind of gliding over a lot of cases, but you 

are basically avoiding the issue that there are some folks who are 

not going to be allowed to recover what all agree they should recover in an ideal award in cases, in their case, as the things we 

have to do in order to be able to get at folks someplace else.

Dr. GLEASON. The bottom line here is how do we provide the best 

care to our patients.

Mr. BARROW. No, I am asking about the fairness issue. I am asking about the fairness issue right now. I understand the point you 

are making, and I want to focus on that.

Dr. GLEASON. Right.

Mr. BARROW. But right now, what do you say to folks who think 

this is just an unfair way to go about doing it?

Dr. GLEASON. It is a fair way to go about doing it. It is what is 

best for our country. It is what is best for delivering care. We know 

that in states with caps, for example, before there were any caps 

there was an even distribution of doctors throughout the country. 

Since the caps have been instituted, we look at states with caps 

and states without caps. Those with caps have 135 doctors per 

100,000 patients. States without caps have 120 doctors. 

And you might say 15 doctors, what is the difference? But you 

talk to the patients that are in my practice that are waiting two 

to three weeks to see me, and if we had an extra one or two doctors, that would make a big difference.

Mr. BARROW. Dr. Gleason, it still does not give me something I 

can tell the victim who deserves to be compensated in excess of the 

amount of the cap. Why it is they should accept that as the price 

they have to pay in order to achieve the kind of result you are talking about? 

On the subject you raised though, on the subject of whether or 

not they work, I want to compare and contrast the experience that 

California had after Proposition 103 with the experience that California had after they adopted caps back in the seventies. 

26

Ms. Doroshow, can you help us understand what role, if any, 

Proposition 103 had in the stabilization—we heard a lot of talk 

about the stabilization it achieved in California. Can you help us 

understand whether or not Proposition 103 had something to do 

with that, or whether or not that is attributable to the caps that 

were adopted a decade before?

Ms. DOROSHOW. Well, certainly the Insurance Commissioner of 

California would agree that it had an impact. They just—he just 

recently wrote a letter to the Energy and Commerce Committee for 

a hearing they had last week. 

According to the data we have seen, rates went up about 450 percent during the 13 years that MICRA was in effect, the cap before 

Proposition 103 came into effect. And since then rates have been 

down about eight percent whereas they have gone up nationally 

about 25 percent. 

I would also note that there is also, as I mentioned earlier, a 

very important provision of Proposition 103, so that if there is a 

rate request higher than 15 percent, there is an automatic hearing. 

There had been medical malpractice insurers that have gone in 

for rate hikes in California in the last two years. No question about 

it. But as a result of Proposition 103, they have been knocked 

down, and that is a very practical impact without even looking at 

the years of data where you see that it has had an impact. 

I should also say that the RAND Corporation did a study about 

what victims are most severely impacted by MICRA, and what they 

found was that it falls on patients and families who were severely 

injured or killed as a result of medical negligence, so we know that 

that is really the kind of families that are most hurt by that cap.

Mr. BARROW. Mr. Smarr, you pointed out that medical malpractice insurers are among the most heavily regulated businesses, 

but you can argue they are not the most effectively regulated at the 

state level. 

Why should health care providers, doctors and hospitals in California have protections under Proposition 103 in California that 

folks back in Georgia do not have? Do you not all support Proposition 103-type reforms all across the country?

Mr. SMARR. The elements of Proposition 103, such as an elected 

insurance commissioner, the prior approval of rates exist, and 

hearings, exist in states throughout the country. My experience is 

in Pennsylvania where I was responsible for filing rates with the 

state insurance department and defending them, and I can assure 

you that our rate filings were intensely scrutinized, but the insurance commissioner approved the rates because the filings were just. 

We do not think Proposition 103 has had any effect in California. 

Proposition 103 required the rollback of rates by 20 percent. In 

fact, what happened is medical malpractice insurers at the time 

when it became effective in 1992 paid back a 20 percent one-time—

I will use the word rebate—to policyholders of an annual premium, 

and were allowed to do that as part of their normal dividend practice, and at that time they were paying dividends to policyholders 

in excess of 30 percent. 

27

We have looked at figures for all these years. We have looked at 

the figures in California. Since it was enacted there have been 

three hearings. Now, it was enacted in 1988 or 1989. There have 

been three hearings, and it can be argued that those are politically 

motivated as well, and the reductions that the carriers were given 

by the department were minor in nature.

Chairman MANZULLO. Thank you. Congressman Westmoreland.

Mr. WESTMORELAND. Thank you, Mr. Chairman, and first of all, 

let me thank you for continuing to have these hearings because I 

know that the House has passed this legislation, medical reform, 

for the last three Congresses, but I am sure that the situation has 

changed every year, and I am sure it is getting worse rather than 

better. So I think it is important that we continue to have these 

hearings. 

Can I call you Joanne, because I have heard the Chairman pronounce your last name, and the Ranking Member, and I am afraid 

I would give it a Georgia dialect so if I can call you Joanne.

Ms. DOROSHOW. Whatever you like is fine.

Mr. WESTMORELAND. You mentioned the terrible story about the 

baby that—the reflux and his esophagus was torn, and that is a 

terrible situation, but my children, I have three. My baby daughter 

is 28 now. We used to give our children Paraguart. I mean, we did 

not know if they had reflux or acid indigestion or whatever. In fact, 

it was not until one of my grandchildren was born that I even 

knew that babies had reflux. 

And so is it not true that now medicine has come so far and doctors out of fear of not going through the whole diagnostic test cause 

patients to have more tests? Or identify more things that are 

wrong, and just under the law of averages the more treatment you 

get the more room there is for a mistake? 

And in this particular case, were these mistakes or was it malpractice? Because there is a difference to me between the two.

Ms. DOROSHOW. Well, we did only invite families down who had 

either settled or somehow resolved their case, so there was medical 

negligence, or at least if not an admission of it, at least a settlement of some sort. I mean, that is the only basis that we had to 

go on. But we were not bringing down just anybody that had a 

medical error in a hospital. These are real, real cases of negligence. 

And you know, there have been many agencies that have looked 

at this issue of defensive medicine, and really what has been happening, and all I can tell you is what other agencies have found. 

Basically what, for example, the Office of Technology Assessment 

found when they looked at this in 1995 was that less than eight 

percent of all diagnostic procedures are likely to be caused primarily by liability concerns, and that most physicians who order 

aggressive diagnostic procedures do so primarily because they believe such procedures are medically indicated, not primarily because of concerns about liability. 

28

The Congressional Budget Office and the National Bureau of 

Economic Research, which just recently put out a report, made 

similar findings. I am not a physician, but I can only report on 

what the agencies that I read have found.

Mr. WESTMORELAND. Well, you know, when I found out about 

this hearing, I called some of my doctors back home because, you 

know, I believe in doing to that end user kind of guy that these 

things effect, and the one thing—one of the comments that they all 

made was the fact that they now feel pressed into doing more diagnostic tests than what they have been in the past out of fear of a 

malpractice lawsuit.

Ms. DOROSHOW. Well, I do hear that anecdotally from physicians. 

That is not what the agencies have found. And you know, we meet 

many victims all the time who are dying as a result of the failure 

of a physician to do the proper diagnostic procedure. 

My own father died of colon cancer after his family physician refused for a period of five years after he went in with the symptoms 

to do all basic testing necessary to save his life. 

We run into families like this all the time. So I think that you 

could probably find many anecdotal stories on the other end of this 

as well.

Mr. WESTMORELAND. Yes, ma’am. You know, and we were talking about a fairness issue because with medical liability reform it 

always—you know, the lawyers always want to throw insurance 

companies in it, and the doctors want to blame somebody. It kind 

of comes down to doctors versus lawyers really and truly. 

And being in the building business, I have had to deal with lawyers before, and of course, I deal with doctors, and you know, if I 

go to the doctor, I have to sign a paper that I understand everything that could go wrong. I mean, from getting a sore throat to 

dying. I mean if you are going to take a medicine or if you are 

going to have a procedure, whether you are having hang nail removed or whatever it is. I have never had an attorney—I have 

never had them disclose to me what could happen to me, I guess. 

There is just a certain verdict.

Chairman MANZULLO. Well, it is a good thing because at this 

point you are out of time.

Mr. WESTMORELAND. Okay. Well, let me close by saying this. I 

just think the reality of it is that doctors are called upon many 

times, many times woke up in the middle of the night to go, and 

as your neurosurgeon, you may get called to make a decision, a 

five-minute decision, somebody’s life is in the balance. And I think 

we need doctors that are willing to do that, and that we need to 

help them and really gird them up.

Chairman MANZULLO. Okay, thank you very much.

Mr. WESTMORELAND. Thank you.

29

Chairman MANZULLO. Thank you. Dr. Christian-Christensen.

Ms. CHRISTENSEN. Thank you, Mr. Chairman. 

As most of my colleagues know, and I guess the panelists also 

know, I am a physician, and I am still a member of some—of the 

professional organizations, so this issue is very important to me as 

is the issue of the skyrocketing costs of health care. 

But to me, it is very important that we get it right, and that this 

issue does not become a political pawn; that the issue does not become a political pawn. We have to get it right. 

So no one would disagree that we have to reduce the rising costs 

of health care, but I think I would be negligent up here, especially 

because there are people on the Committee that do not know the 

full picture of health care, if I did not point out that malpractice 

premiums is only one cause. Health care disparities, lack of insurance for the 45 million people in this country, the costs of medication, our failure to use an ounce of prevention are all contributing 

factors to the skyrocketing price of health care, and we need to address all of them. 

That being said, clearly we need a remedy to the problem of malpractice costs. They are placing a heavy burden on doctors. Regardless of what other conflicting information we have on many, many 

of the issues, it is placing a heavy burden on doctors, and I know—

physicians that I know that some are moving from one jurisdiction 

to another, or are—if not closing their offices at some of the younger ages, some are retiring early just because they just cannot bear 

that burden anymore. 

So I think it is very important, Mr. Chairman, that we have—

that all of the issues are put on the table, and that we work towards developing a solution that is based on what works best and 

not what is political. 

So I am willing to work with you and others to examine every 

approach clearly, and also to look at what other factors are involved. Certainly caps are not the only cause, and I guess that 

would lead me to my first question on the caps. 

I, like my colleague Mr. Barrow here, very, very troubled about 

the cap issue because that is where all of the focus is being placed, 

and I personally feel it is a political issue more than a real issue. 

But the caps on the economic damages, even the cost of the lost 

wages, and the future earnings, because how do you determine 

what a person’s future earnings might be at any given point in 

their life? 

And to me, we are limiting—putting limits on where people’s 

lives are at any given particular time. I am working on an issue 

at home with someone who today is a billionaire, but probably 15 

years ago they were a teacher, and so how do you decide where you 

cap? and I guess I would like to—I am not going to ask that as a 

question, but I just want to say the caps are very, very troubling, 

and they are very troubling particularly to to minority populations 

because we generally are seen as persons that do not have the ability to rise above a certain point at any given time in our life, and 

I do not want the people that I represent to be kept where they 

are at any given time because of caps if they are damaged by negligence. 

30

I want to ask, I guess I would start by asking this because I 

know time is going to be limited, Dr. Palmisano, Rubin and Gleason, what do you think should be done on the side of the insurance 

and the role that insurance plays on this? Because I note that the 

Weiss ratings say that despite caps on economic damages enacted 

in 19 states, most insurers continue to increase premiums. Caps 

did not reduce awards; that the median annual premium actually 

increased more in states with caps; and doctors in states with caps 

with caps actually suffered a significantly larger increase in insurance costs than doctors in states without caps. 

So why are we focusing on caps and not taking a more comprehensive approach, and what do you recommend we do about the 

insurance side of this issue?

Dr. PALMISANO. Thank you, Doctor. The American Medical Association took all of the arguments against the recommendations that 

were being debated in Congress, and we tried to do scientific research, and we put that in a document, ‘‘Medical Liability Performed Now.’’ It is available on the AMA website. We can make 

copies available to everyone on the Committee certainly. 

When people say caps do not work, we have read those reports, 

and when you look at them scientifically, they are comparing apples to oranges. Missouri is constantly brought up as a state with 

caps. It is a cap per doctor per claimant. You could have multiple 

caps in a given case. 

The California cap is a fixed cap, 250,000 on the non-economic, 

so you cannot have multiple caps in a case. California is not the 

only state, and they do not have Proposition 103 in effect. Louisiana, Indiana, New Mexico, Colorado, and Wisconsin, those are 

states that are stable that have caps that affect the non-economic 

damages among other things. 

West Virginia had a cap of a million dollars for many years. It 

was ineffective. It is one of the crisis states. You have states with 

caps that have exceptions. The state with an exception, there is always a way to get through to the exception. Massachusetts is the 

state I was trying to think of. They had a cap for many years, but 

they have exceptions to the cap. 

So we have to compare apples to apples. Caps do work, and in 

the bottom line the equation has to be that what is best for all of 

the citizens of America. It is—when you say why did this patient 

not get all of their non-economic damages, which is subjectively determined by a jury, you cannot quantify it objectively, but what 

about Dr. Lucas’s son who dies, who could have been saved? What 

about LeeAnn Dyce’s husband who could have been spared brain 

damage? What about the people who do not have a doctor, who 

have to try to make it to the next town, and the nurse who is pregnant who passes her own hospital up, delivers in a corner on the 

side of the road in America in 2002? 

That is your responsibility to balance, and so our responsibility 

is to try to bring you as much information—

Chairman MANZULLO. My responsibility is to say we are out of 

time on this particular—

31

Ms. CHRISTENSEN. Already?

Chairman MANZULLO. Congressman Sodrel.

Mr. SODREL. Thank you, Mr. Chairman. 

Just for the record, I am not an attorney nor a doctor. And in 

fact, I have seldom used the health care system, but I have paid 

for hundreds of working class folks, their health care premiums 

which have gone up double digit every year. 

I would just like to ask—is it Doroshow? Is that the way you pronounce it?

Ms. DOROSHOW. That is correct, yes.

Mr. SODREL. Ms. Doroshow. Is it your testimony that there is 

nothing wrong with the current system?

Ms. DOROSHOW. No.

Mr. SODREL. I mean, that it works the way it should work and 

produces the desired result?

Ms. DOROSHOW. I think there is a very serious problem with regard to the insurance industry, their responsibility and their role 

in creating this crisis for doctors. I think the causes lie with them. 

I think the solutions lie with them. I also believe that there is a 

serious problem with the amount of malpractice in this country, 

and that—you know, the day the President went to Madison County in early January, the very day he went there to give a speech 

advocating capping damages, the White House released a report 

which it had commissioned done by the University of Iowa, and the 

Urban Institute, which found that there was a small number of 

doctors responsible for most malpractice, and if state disciplinary 

boards did a better job of simply weeding those doctors out of the 

system, both incidents of malpractice and lawsuits would be reduced. 

Now, you do not hear the President talking very often about that 

study, and you do not hear either the insurance industry or the 

medical societies talking about it either, but it is something that 

the consumer goods have been pushing, particularly Public Citizen 

and their health research group have been pushing for it for years. 

This would save this country billions in terms of, you know, lost 

wages and health care costs and so forth due to medical injuries. 

There are many other ways of addressing this issue of medical 

errors that either Congress or the states could look at. In terms of 

what Congress could do with regard to the insurance industry, 

there is not that much because the federal government is not allowed to regulate it, but they could repair the antitrust exemption 

under the McCarron-Ferguson Act, which basically allows insurance to price fix during these hard market periods when there is 

a lack of competition in the market. 

I would hope that the Congress would take a look at that again 

because those proposals have been around for awhile.

32

Mr. SODREL. So your testimony is there is something wrong but 

it is not—it does not lie with the medical—or lie with the legal system, it lies with the medical system, and the insurers of the medical system?

Ms. DOROSHOW. Right.

Mr. SODREL. Mr. Rubin, would you like to follow up on that?

Dr. RUBIN. I would very much, because in support of the medical 

system.

Mr. SODREL. Dr. Rubin, excuse me.

Dr. RUBIN. That is okay. I am on the medical executive Committee at the teaching hospital. We actually have dealt over the 

last couple of years with two issues trying to remove physicians 

who the physicians themselves feel may not be up to standard. 

Both have filed lawsuits and have prevented us from taking them 

off the staff. So I do not think that argument files.

Mr. SODREL. So I guess the bottom question here is how we prevent all the best and brightest from aspiring to be attorneys in the 

United States.

Dr. RUBIN. That is right. Well, just keep doing what we are doing 

and none of them will become doctors.

Mr. SODREL. Thank you, Mr. Chairman.

Chairman MANZULLO. Thank you. Congress Lipinski from the 

great state of Illinois.

Mr. LIPINSKI. Thank you, Mr. Chairman. I have to—following on 

Mr. Sodrel, I have to start off by saying I am not an attorney. I 

nearly escaped that about 17 years ago. I am a doctor, but not the 

kind that you want to go to with medical problems, not a medical 

doctor. 

A couple of questions. I made these—many of the question I had 

have been asked already. I have a couple of things. One quick question: Ms. Doroshow, do you believe that states—you seem to be suggesting perhaps that states are not regulating the insurance companies as they could be or as they should be? 

We see with Eliot Spitzer in New York, the latest thing on the—

with the health insurance brokers. You know, I have had people 

who are in the health insurance industry saying, well, yes, we have 

known this has been going on, and I sort of wonder, well, why did 

it take so long? 

Do you think that states should be doing more and they are not? 

Do you think—or do you think that more states need to have, you 

know, different laws?

Ms. DOROSHOW. Well, states do not do a very good job of regulating rates, that is for sure. Sometimes the laws do not even allow 

33

them to, like in Illinois, where the insurance department is prohibited from even denying an excessive rate if they see it. But most 

states do not have prior approval. Basically the insurers file the 

rate, and they use it. It is called file and use. 

In addition, I think state insurance departments tend to be pretty understaffed and underfunded, and they are hit with lots of actuarial data, and lots of information from rate filings from their insurers, and they cannot always do a proper examination of what 

the insurers are filing. 

So we have also advocated at the state level more funding for 

state insurance departments so that they can do a better job. But 

even—

Mr. LIPINSKI. It can have a significant impact on this crisis or 

do you think that is just a small part?

Ms. DOROSHOW. No. I mean, if the regulation—laws were stronger, it could have a significant impact. What we have advocated is, 

what you need to do, is there are sharp ups and downs in this insurance cycle. We are in the third one in 30 years of a very, you 

know sharp up. What you need to do is kind of modulate that cycle, 

get better control so there aren’t those sharp ups and downs, and 

that is what a stronger insurance department could do with better 

regulatory laws.

Mr. LIPINSKI. We have heard from—and I also have to say I am 

new here. I have not been dealing with this issue as many of my 

colleagues have. I have been dealing with it for a few years. Are 

these insurance companies, are they really hurt? 

I mean, I have heard you say—suggest that they are not, but it 

seems from what other witnesses have said that they are, the insurance companies themselves are hurting now.

Ms. DOROSHOW. Well, if you read the trade journals where they 

actually report on the successes and the profits of the insurance industry, you will find them quoting, you know, their results as outstanding, and record breaking, and the best they have ever seen. 

So I think you have got to look beyond—

Mr. LIPINSKI. Okay, I will have to look at that myself and see 

some more on that. 

On more question, I will pick out Dr. Palmisano, but anyone else 

who wants to address this, I have heard that the estimates, the 

medical malpractice, about how much they add on to the cost of 

health care is under one percent. It is pretty small. Do you believe 

that? Do you agree that that is the case, that it is not a problem 

that is affecting the cost of health insurance? It is just affecting the 

doctors, where the doctors are?

Dr. PALMISANO. Well, we believe that is not a correct way to 

frame the question. What they say is it is one percent to two percent of the total health care costs, so why should we worry about 

it? 

34

Well, you should worry about it because it is 100 percent for the 

neurosurgeon who no longer practices in a community. It is 100 

percent for the patient who needs a neurosurgeon.

Mr. LIPINSKI. You think it really is a doctor—the problem is for 

a doctor, what you have all been addressing here. I was just wondering about if anyone thinks that it is also a bigger problem in 

terms of health care, of the cost itself. I understand what you are 

saying about the doctors. Does anyone—Ms. Heady?

Ms. HEADY. Well, it is 100 percent of the cost if the doctor closes 

their practice, and I think that the more vulnerable parts of our 

population, the low income, minorities and rural areas see this significantly impacting the quality of their health care services.

Mr. LIPINSKI. Thank you.

Chairman MANZULLO. Okay. Congressman Fitzpatrick.

Mr. FITZPATRICK. Thank you, Mr. Chairman.

Chairman MANZULLO. No, I am sorry. Congressman Gohmert. He 

was here before you. Go ahead.

Mr. GOHMERT. Thank you, Mr. Chairman, and I appreciate everyone’s time here today. I am an attorney, and I have a lot of doctor friends, and was a judge for a decade, been on chief justice to 

finish a term as appellate judge as well, and I have wrestled with 

these issues. I appreciated, Mr. Barrow, your insightful comments 

and questions, and acknowledge there is a problem, and also Dr. 

Christensen acknowledging that there is a problem. We have got 

to deal with it. 

I noticed, Mr. Smarr, in your Exhibit 9 you pointed out a glaring 

problem that I am not sure the caps address, and that is this problem of 75 percent of doctors coming out without any kind of finding 

of fault. And as a judge, I saw it over and over again. The plaintiffs’ attorneys, you know, sue everybody that touches a file, and 

as one doctor said after a year, she got dismissed right before trial, 

‘‘That is it?’’ She stood in my court saying, ‘‘That is it? What about 

my year of pain and suffering? What about my lost wages? What 

about my costs? What about my insurance going up? I knew I had 

no fault but this has just ripped me up.’’ 

And she had good questions all. I am sure you would acknowledge that, right, Ms. Doroshow. I mean, that is a problem, right?

Ms. DOROSHOW. Well, I think it is true that most plaintiffs are 

not successful in their medical malpractice cases. I would not say 

that is because they are without merit. I would say that these 

cases are extremely difficult to prove, and expensive to fund, and 

they do not always—they are not always able to do that. These are 

usually not smoking gun cases. It takes a lot of investigative work, 

and a lot of expense to do that. 

On the other hand, if the cases are being dismissed, and verdicts 

are not happening, then where is the crisis?

35

Mr. GOHMERT. Well, we see the crisis by the health care insurance cost, and when you see 75 percent of all doctors have no finding of fault, then there is a problem, and that would appear to be 

one area that needs to be addressed. 

Mr. Smarr indicates that that clearly shows personal injury attorneys trying these woefully deficient and recognized meritorious 

actions. What I repeatedly heard is they are practicing defensive 

law by suing everybody so that they do not get beyond the statute 

of limitations and find everybody turn and point to one person that 

they did not include. 

So I see that as a problem, whether you will acknowledge it or 

not, and I hear that from plaintiffs. But what I am wondering 

about is how we deal with that issue, and I like a carrot as well 

as a stick, and I am wondering if you have incentive—a disincentive to sue people without—who may not have any fault, so that 

the physicians could be awarded attorney’s fees if they are dismissed without some finding of fault or agreement between the 

parties. 

Or on the other hand, if they are into the lawsuit and a party 

after limitations identifies somebody outside the lawsuit as having 

responsibility, then extend limitations for 30 days to allow him to 

bring that party in so that we do not keep bringing in 70 percent 

of doctors who are ultimately dropped or dismissed without a finding of fault. That is one thought I have, and if I have got time, I 

will ask for comments. 

But another thought I also had is beyond the cap issue, allowing 

the loser pay system to level the playing field, and one other issue 

would be, in Texas, as I understand, neurosurgeons have started 

trying to police doctors for hire and examining the testimony of everybody in depositions or at trials who has their board certification, 

to see if it meets the standards of that certification so that, you 

know, doctors are more careful about hiring themselves out. 

People talk about frivolous lawsuits, but most lawsuits do have 

some doctor somewhere who has been paid to say this doctor 

screwed up, and here is an affidavit supporting that. Then they get 

into the suit, find out more information, and then 70 percent of 

them get dropped. So that seems like that may be a potential area 

to help police things as well. 

So anyway, I am interested in your comments in my remaining 

time.

Chairman MANZULLO. Well, we have got seven seconds here.

Mr. GOHMERT. Did not know how much yellow meant.

Chairman MANZULLO. Yes, let me go onto Congressman Bordallo. 

We may have time for a second round here.

Ms. BORDALLO. Thank you very much, Mr. Chairman, and ladies 

and gentlemen. I want to thank the health care professionals nationwide for the hard work and commitment to the communities in 

which we live, and we definitely, as evidenced here by all of the 

witnesses and my colleagues, we definitely have a crisis. 

36

I come from the territory of Guam, and we have a reasonably effective system of preventing frivolous lawsuits. Petitioner cases 

must be heard by an arbiter, and may only be appealed in court. 

But despite these controls, malpractice insurance continues to go 

out of control. I just wanted to make that comment. 

Another comment is in June 2003, Families USA report the average compensation of CEOs in the health insurance industry’s 11 

leading companies was $15.1 million without even including stock 

options. So this does not sound like an industry that is struggling 

to make ends meet. I just want to make that comment. 

Now, my question, and I think this is to you, Mr. Smarr. I believe that market solutions are the most efficient way to solve 

many problems, but I also understand that they require effective 

regulations, and I have also heard today that medical malpractice 

is driving insurers out of the market. 

Could it be that the lack of competition among insurers is in fact 

the causes of higher premiums?

Mr. SMARR. We actually saw intense competition in the marketplace in the early 1990s, when this line of business was profitable, 

and in fact rates were going down. I know I was making rate filings that were going down at that time. But when the market 

hardened, when the cost of claims rose so high, and when investment income, which we use to offset claims, declined, we knew the 

bond rates were at an all-time low, companies not only got the 

marketplace, they went broke. There are a number of them across 

the nation who no longer exist. Or like St. Paul, a very large insurance company, who made a strategic decision to drop out of this 

line of business worldwide because it was not the most efficient 

way to use its capital. 

It is a question now of rates not yet being adequate, not that the 

companies are making money, because they are not. And so I cannot see how the fewer number of carriers in the marketplace can 

contribute to higher prices because of lack of competition.

Ms. BORDALLO. Would anyone else like to comment? Yes.

Ms. DOROSHOW. Yes. I mean, it is very true there is a lot of competition when there is a soft market, and it falls away when we are 

in a hard market period. I do want to address this St. Paul issue 

and some of these companies that pulled out. 

In June 2002, the Wall Street Journal had a front-page article 

about St. Paul and what had happened to that company, why it 

was pulling out, and it was due to basically mismanaged reserves 

by this company. Other companies had followed along and they 

should not have been in medical malpractice in the first place, and 

they pulled out when the market turned hard. 

St. Paul is a company that has long mismanaged its finances and 

reserves. In fact, in the late nineties, the Attorney General, then 

Insurance Commissioner of Minnesota, went on Night Line. There 

was an entire show devoted to this, St. Paul and Mike Hatch. Mike 

Hatch had done a whole study about St. Paul, and was a closedclaim study, and basically found that St. Paul had grossly misled 

the public as to the situation with its own claims and so forth. 

37

Night Line had its own actuaries and investigators double check 

his work. They went on, they supported it with a whole show devoted to that. I think it was 1988-1989, something like that, but 

this is a company that has had a lot of problems, and it is not because of lawsuits going up.

Ms. BORDALLO. Thank you for that information. Thank you, Mr. 

Chairman.

Chairman MANZULLO. Mr. Fortenberry, you had just remarked, 

and Mr. Fitzpatrick, you can be right after him.

Mr. FORTENBERRY. Thank you, Mr. Chairman. I apologize for 

leaving the room, so if this ground was already covered, please accept my apologies.

Chairman MANZULLO. In fact, we are going to stick around here 

for a second round because—if it is okay with the witnesses. Does 

anybody have to catch an airplane?

Dr. PALMISANO. At four.

Chairman MANZULLO. Four. We will not be that long. 

Mr. Fortenberry.

Mr. FORTENBERRY. I will try to hold the remarks to allow you to 

catch your plane.

Dr. PALMISANO. Thank you.

Mr. FORTENBERRY. Dr. Palmisano, I noticed in your testimony a 

statistic that I am familiar with, which is that the government 

spends—the government’s own health care obligations are impacted 

by this very question, and I think it is a very important to point 

this out, particularly in these very difficult fiscal times that we are 

living with. 

According to the Health and Human Services, I believe, and unfortunately I have already sent your testimony off with my staff to 

be filed because I thought it was important, the cost of medical liability is between 70 billion and 125 billion or so—

Dr. PALMISANO. One hundred and twenty-six billion, yes.

Mr. FORTENBERRY. —every year? The cost savings in the framework in which we are discussing of excessive medical liability, in 

some way trimming excessive medical liability, and that is the key 

adjective here, excessive, would be about $50 billion to the government’s program. 

You might want to elaborate a little bit on that if you can. I 

know you are lifting those statistics from Health and Human Services, but I think it is an important component of this discussion, 

and let me leave you with a final comment as well. 

I think there are outstanding points being made throughout this 

discussion. I think what the key is here is balance, and some of 

38

these reforms, I think, are getting at allowing the health care industry to continue to deliver basic health care services in a reasonable fashion, allowing those who are injured from negligence to 

have redress in the court system, but in a way that does not undermine the very ability of the health care industry to deliver its services in the first place. 

And so I think fundamentally that is what we are wrestling here 

with, if you want to comment on the savings potentially to the government, that would be helpful.

Dr. PALMISANO. Yes, sir. That is on the written testimony handed 

in on page 11. Seventy billion to 126 billion determined by the U.S. 

Department of Health & Human Services attributed to the cost of 

defensive medicine. And if you had reasonable limits on non-economic damages, it would reduce the amount of taxpayers’ money 

the federal government spends by up to 50.6 billion per year. 

And as you talk to physicians around the country, there is no 

question that they do test because someone says, you know, if you 

do not have this, you better document it, because if you do not have 

this, someone was knocked unconscious, that is one indication to 

get perhaps a CT scan. 

On the other hand, if someone was hit on the head and they 

were not unconscious and they have no neurological loss, and someone says but if they bleed later on, and someone will say that you 

should have gotten this test, and they said, well, we better get the 

test to so we can document it if litigation comes. 

If I might just add one thing about—I am a surgeon. I have been 

practicing for about 40 years. One of the things I do is make the 

diagnosis of appendicitis. I get informed consent, and I recommend 

an operation. If I had, and I get instant peer review, the pathologist looks at the specimen and he says, she says appendicitis, no 

appendicitis, normal appendix, if I had a 70 percent normal return 

rate, they would not let me operate at my hospital, and that is one 

of the problems with this system. 

There are so many that you brought up, Judge, there are so 

many cases being filed. The Institute of Medicine report, they said 

these are not bad doctors. These are bad systems that we need to 

fix. And you all passed a good bill last year, and the Senate passed 

a good bill, and it did not get out of conference Committee, the Patients Safety and Quality Improvement Act of last year. 

And it is the aviation safety reporting system applied to medicine. You can voluntarily report, experts review it, give you feedback on changing the system, and you disseminate in a unidentified fashion. That works for commercial aviation, it will work for 

medicine. 

So we think patient safety is very critical in this too, but something has to be done. You mentioned early about the responsibility. 

This country is built on a free enterprise system. Small businesses 

make up a big part of the free enterprise system. And there is accountability in business. If you don’t meet your expenses, you go 

out of business. 

And so we need to have some accountability for attorneys who 

file suits that do not have any merit, and if you want to have a 

loser pays, AMA has a policy on that. We will be glad to give it 

39

to you. It is on the AMA website in policy finder. If you lose in a 

case, and it is shown that there was—you have to pay the other 

side’s defense costs on an hourly basis, approved by the judge, both 

plaintiff and defense. So that is one thing we have looked at over 

the years. We have that in our policy. 

So a lot of things can be done, but just to say, you know, we have 

got to stop malpractice. The Troy Brennan that you all have heard 

in the past in Congress had Harvard show that there is no correlation between the monies paid by these insurance companies and 

negligence. The only correlation is with disability. So we have a 

very expensive system that does not accurately measure negligence, and you have people who get 33.3 to 50 percent, including 

the money that the patient, the injured patient needs for the rest 

of their life for medical treatment, and that is the big incentive for 

these cases.

Chairman MANZULLO. Congressman Fitzpatrick.

Mr. FITZPATRICK. Thank you, Mr. Chairman. Just following up 

on that, I would like to hear Ms. Doroshow’s response to—I guess 

it is an AMA officially adopted policy of a loser pay system?

Dr. PALMISANO. Yes, sir, and the only thing I did not mention is 

that if the patient or the client is not able to pay, then the attorney 

is responsible.

Ms. DOROSHOW. Well, look, loser pays for someone who is injured, in need of medical care, unable to work is a horrible system. 

It will have a devastating chilling effect on the pursuit of any legitimate claim because of the prospect that that person is going to 

have to pay the insurance companies’ defense fees if they were to 

lose the case, and given statistics, you know, it is very difficult to 

win these cases, it would have a horrible chilling effect on the pursuit of legitimate malpractice cases. 

And you know, there are only one in eight people who are victims 

of medical malpractice that sue in this country. That is it. There 

is an awful lot of malpractice going on that no one is being accountable for already, so that is about the last direction you want to go.

Mr. FITZPATRICK. How about with respect to frivolous cases that 

are filed? I think we—you know, just as there are legitimate cases 

that are filed, there are frivolous cases that are filed. With respect 

to the frivolous cases.

Ms. DOROSHOW. No question that attorneys who file frivolous 

cases should be sanctioned, and there is Rule 11, there are other 

rules already on the books that do that. I have no problem with 

that.

Mr. FITZPATRICK. There are many states that do not have Rule 

11 type sanctions, and it reason it becomes a crisis in some 

states—

40

Chairman MANZULLO. Could you talk into the microphones, Congressman? Thank you.

Mr. FITZPATRICK. I am sorry, Mr. Chairman.

Chairman MANZULLO. That is okay. Go ahead.

Mr. FITZPATRICK. And the reason it becomes a crisis in some 

states, some states have not been able to deal with it. I come from 

the Commonwealth of Pennsylvania. I came after your testimony, 

I apologize, due to a conflict, but I have your testimony here, and 

I am going to read it on the way back to my district today not only 

because of your expertise. I have seen your resumes and I appreciate your time here today, but this is a serious issue for my district, my state, and I believe for the nation. 

But when I came into the room I was listening to the Ranking 

Member, I think, make an inference that this is a crisis only in red 

states. As I said, I come from the Commonwealth of Pennsylvania.

Ms. VELAZQUEZ. I did not say that. I am here.

Mr. FITZPATRICK. Okay.

Ms. VELAZQUEZ. I was referring to his map.

Mr. FITZPATRICK. Sorry. I apologize and stand correct. I come 

from the Commonwealth of Pennsylvania, southeastern Pennsylvania, Box County specifically. There are seven community hospitals in Box County, and I sit on the board of directors of one of 

those hospitals, and the directors of all the hospitals have watched 

in Pennsylvania as doctor after doctor have left the practice, and 

we ask them why all the time, and it is always the same reason. 

They cannot afford to practice in the Commonwealth of Pennsylvania anymore. 

The highest risk specialty, I am sure is not just Pennsylvania, it 

is delivering babies, OB-GYN. I have a wife, three daughters, five 

sisters and a mother. Specifically, and anybody that might want to 

care to address this, I mean I see this as—if it is a crisis, it is a 

crisis first on the delivery of women’s health care, and if you addressed that, again I apologize, but if anybody just cares to address 

how this issue is affecting specifically the delivery of health care 

to women.

Dr. PALMISANO. If I might briefly. It is a very serious problem 

for women, and obstetrics. They pay, and you know, it is over 

$260,000 in south Florida, and patients are having trouble finding 

obstetricians, and people who have complications, they are having 

problems finding someone to deal with those complications, so it is 

a serious problem. 

In your state of Pennsylvania, of those states that are painted 

red on our map that we declare the crisis states, Pennsylvania is 

probably in the worst shape of all the states. In Pennsylvania, no 

one will sell you insurance. The law requires you to carry a million 

dollars of insurance. Nobody will sell you the insurance above 

41

$500,000, so the state, in your state, has to do what is called the 

M-Care Fund, and the state passes it, and then in 2003-2004, the 

state with their own actuaries, they raised the rates 30 percent.

Ms. DOROSHOW. But the solutions to this problem, again, they lie 

with the insurance industry. We do not dispute at all that doctors 

and some specialists are being price gouged, absolutely true. Capping damages is not going to do anything to help those doctors. 

There are specific reforms that our organization and other consumer groups have laid out over the years, not just regulation of 

rates, but collapsing categories, experience rating, other kinds of 

reforms that could really help those physicians. Having been born 

and raised in Philly, I am very sympathetic with the situation in 

Pennsylvania myself. 

But again, you cannot solve this problem on the backs of patients. It is not the legal system that is responsible here. It is the 

insurance industry’s own business and accounting practices.

Chairman MANZULLO. I think Hilda had a response, Congressman.

Ms. HEADY. Yes. Mr. Fitzpatrick, I appreciate your question. I do 

have very personal experience in the area of women’s health, and 

the impact that this has had particularly in rural areas. Primarily 

because—you know, this particular malpractice crisis right now hit 

subspecialties. Before that, it was in primary care. And this is the 

third series of crises that we have had without fixing the problem. 

We do see those practitioners who are primary care practioners 

who have experience and training that goes on for fellowship in 

OB-GYN. That is the first provider that stops that kind of service 

in rural areas. And when we are lucky enough to have OB-GYNs 

in rural areas, then they just simply cannot afford to do that. 

Now, I might make a lot of enemies or a lot of friends with this 

next comment, but I am tired of the finger pointing, and it is not 

just an issue of doctors and lawyers or lawyers and doctors and the 

insurance companies and so forth. There are four segments of our 

society that have both responsibility and I believe that there is a 

solution in there. It is the legal profession. It is the medical profession. It is the insurance industry, but it is also consumers. 

And one of the things that we have done in our society over the 

last 50 years is we have abdicated a lot of our own personal responsibility into a field of medical science looking for solutions to problems that we ourselves need to take care of. And as long as we may 

lose our doctor in our rural area, but if we smoke when we are 

pregnant, you know, and we know that we should not, then that 

is shame on us. 

And I do agree with Dr. Christensen’s observation that the cost 

of health care—I mean, this is just one little piece of it, but until 

we get at this table, all four of those groups of society, we are not 

going to find a solution, and we are going to continue to point fingers at each other, and while we do that we have got people, real 

consumers out there that are the ones that are hurting. Thank you.

Chairman MANZULLO. Mr. Smarr, go ahead.

42

Mr. SMARR. Thank you.

Chairman MANZULLO. We are still on your time. I extended it, 

Congressman Fitzpatrick, because we are at the end of the questioning. Then we will have a second round. 

But go ahead and answer the question.

Mr. SMARR. I would like to respond regarding the insurance industry in Pennsylvania. The major carriers, the Pennsylvania Medical Society Liability Insurance Company I helped found that company in 1977, and at the time I worked for the medical society, and 

we thought, well, the commercial carriers are gouging us. They are 

ripping us off. A company called Argonott came in with a 200 percent rate increase, and we had a hearing. And the result was the 

doctors of Pennsylvania raised $9 million in capital to found that 

company, which is the leading writer in the state today, and we 

now know the truth. 

We know that the claims are real, that the costs are high, and 

the medical society has the data. It has the experience to know 

that the issue is the rising cost of tort claims, and this happened 

all across the country where doctors raised their own capital because they did not believe the commercial insurance industry, and 

the truth is there, the data is available to the public, and we know 

that contrary to what Joanne said, if you look at page 5 of my written testimony, you will see a chart that talks about the profitability 

of the lines of insurance in the United States, and you will see 

medical malpractice being the least profitable line of insurance. It 

has been this way many years running. And while the P&C industry maybe profitable as a whole, that now is not. 

Thank you, Mr. Chairman, Mr. Fitzpatrick.

Chairman MANZULLO. Okay, let us take a second round. I am 

going to do something unusual, Donna, I am going to trade time 

with you. You are a physician, and I want you to go ahead. You 

are recognized for five minutes, and then I will take your time 

when your time will normally be up.

Ms. CHRISTENSEN. I appreciate that, Mr. Chairman. 

I was reading some testimony from another hearing back in last 

year where a survey from Medical Economics was quoted, and I 

was quite surprised at where they found the malpractice premiums 

accounting for between 1.3 percent and 5.5 percent of doctors’ gross 

receipts. 

I wanted to ask, well, maybe I will ask Dr. Gleason since Dr. 

Palmisano had a chance to answer my last question. That seemed 

very low to me.

Dr. GLEASON. That is low. Currently, in Cook County the premiums for 2 million - 4 million coverage are $212,000 per year. 

That constitutes approximately 15 percent at least of our receipts 

and over 10 percent of my overhead.

Ms. CHRISTENSEN. But what do you—I think Ms. Doroshow 

talked about some of the ways that the cost of insurance could be 

43

addressed, for instance, compressing rating categories. What would 

the physician groups think about that? 

Apparently the malpractice insurance charges specialties paying 

the highest premiums, between 800 percent and 1300 percent of 

what they charge specialties, paying the lowest premiums, and that 

they charge doctors with incidents no more than 200 or 300 percent 

of what they charge doctors with clean records. 

Would the physician groups that you represent support that?

Dr. GLEASON. I am sorry. Could you say that again? I got a little 

bit lost.

Ms. CHRISTENSEN. Compressing rating categories so that it 

would reduce the differential in rates between the categories, possibly combine certain categories so that the costs would be spread 

out instead of concentrating a lot of the costs on one group of physicians versus the other.

Dr. GLEASON. Well, I think that costs are spread out because we 

are in different categories in terms of severity. But the fact remains that in Illinois, if I go to Iowa, if I go to Wisconsin, if I go 

over to Indiana, that my rates will—and incidently, these are three 

states with caps—that my rates will be anywhere from one-quarter 

to one-sixth of what they are in those states. 

The fact remains that 160 physicians from down in Madison, St. 

Clair County have left in the last year; that the transfers, for example, out of state to St. Louis University have increased—doubled 

over the last two years almost to three a day, and to Berns Hospital having increased 400 percent.

Ms. CHRISTENSEN. I just thought it was rather low and I just 

wanted to get some feedback on whether you know that was a figure that most people agreed to. 

I agree that, you know, people are leaving, people are moving, 

and that it has impacted health in some areas. 

Dr. Palmisano, I know and I guess to some extent I practiced 

some defensive medicine in my time, but I am interested in the 

portion of your testimony where you talk about efforts to improve 

patient safety and quality being stifled because of lawsuit fears. 

Can you explain that or give us an example?

Dr. PALMISANO. Yes, Doctor. The American Medical Association 

believes that efforts in patient safety are stifled; that people are 

afraid to come forward when they almost make a mistake because 

they are afraid that someone will think, well, we need to use punitive measures here. 

The Aviation Safety Reporting System is the model that we recommend, and you all passed it with only six dissenting votes, and 

the Senate passed it last year with unanimous consent. We think 

it is a good model. It has worked well for commercial aviation. 

It would encourage people if they make a mistake to call up, report that, and learn how to fix the system. Most of these are system problems. The nurse trying to resuscitate a patient told by the 

doctor to give a medication to get rid of excess fluid. She draws up 

44

the medication, gives it to the patient, the patient gets worse, the 

patient dies. She calls a code. They try to resuscitate the patient 

to no avail, and they find when they have looked at the broken 

medication vials, they say why is that concentrated potassium chloride there? The reason story, real person in a movie called ‘‘Beyond 

Blame, Nine Minutes,’’ a very powerful movie. And she says, oh, 

my goodness, I must have killed the patient by giving the wrong 

medication. 

A good nurse, outstanding record, and she get punished for that 

because of this bad system, and it is a tragedy for the patient, and 

the system fix is not to have concentrated potassium chloride at the 

nursing station. You keep those types of medications for the pharmacist to mix in the pharmacy.

Ms. CHRISTENSEN. Are not hospitals still responsible for dealing 

with some of those through their case—through a process of rounds 

and case studies?

Dr. PALMISANO. Well, they are, but more and more it is becoming 

difficult to discuss this for fear of someone being dragged into a 

lawsuit, and it is just like defensive medicine, a study that was 

done that showed 79 percent of physicians practice defense medicine. Fear of being sued causes 79 percent of physicians to order 

more tests because of concerns about potential medical liability 

lawsuits. That was the study done by Common Good. 

So yes, there are safety systems set up in hospitals, and we encourage that. The AMA encourages that, the JCHO, the AMA with 

the National Patient Safety Foundation in 1996. We have given 

over $7.3 million to it. We have encouraged the trial board to 

match our donations. To date, they have not. But we think organizations like that, they have only one mission, to measurably improve patient safety, get human factors experts, nurses, physicians, 

attorneys, everybody together to try to figure out how to make the 

system safer, and one of the problems is this fear of reporting an 

error that one made. 

We believe everyone has an ethical obligation. If you make an 

error and hurt the patient, you have to tell the patient about that, 

and do the best, and that is what patients want. They want to be 

told when an error was made, but they also want to know what 

happened, what are you going to do prevent this from happening 

to someone else, and ideally they would like to have someone say 

they are sorry.

Ms. CHRISTENSEN. Is that clock set at five minutes? But that is 

okay.

Chairman MANZULLO. I have got to go to another meeting. I am 

going to ask Congressman Sodrel to conclude the hearing. I want 

to thank all of you for some really excellent testimony, and I have 

got an idea about the next hearing. I think we should bring in the 

insurance companies. I want to see them go head to head, Joanne, 

you are coming. 

This has got to be resolved because, Hilda, you are right. Everybody is pointing their fingers, and you have got two groups of peoVerDate 0ct 09 2002 16:33 Oct 26, 2005 Jkt 000000 PO 00000 Frm 00048 Fmt 6633 Sfmt 6633 G:\HEARINGS\21229.TXT MIKE
45

ple being heard here. You have got innocent plaintiffs that are entitled to reasonable access to the court and to a fair verdict. Then 

you have got physicians who unquestionably are leaving the practice because they cannot afford to pay the high cost of medical malpractice insurance. Those are two extremely serious questions. I believe that they are not mutually compatible; that you can resolve 

both of those things. That is, I think, the direction we are going 

to go. I want to know if someone is making $15 million a year and he 

says his insurance company is in crisis, let him testify as to why 

it is in crisis, and why he is making that kind of money. I think 

these are fair questions because the entire insurance industry is on 

the line here. 

But I have to leave and thank you very much. Congressman, if 

you could come, and then recognize Congresswoman Velazquez.

Ms. VELAZQUEZ. I do not have any more.

Chairman MANZULLO. You have no more questions then?

Ms. VELAZQUEZ. Well, then come have a seat. Then you are up 

next on the round of questions. Thank you. 

[Pause.]

Ms. VELAZQUEZ. Yes, I changed my mind, Mr. Doroshow. I just 

would like to give you, Ms. Doroshow, an opportunity to react to 

any of the comments that have been made if you feel that you 

needed to respond and you did not have the time.

Ms. DOROSHOW. I just would love to talk about a recent survey 

which was just reported a couple of weeks ago that we saw in Reuters, and let me just quote it. 

‘‘Eighty percent of U.S. doctors and half of nurses surveyed said 

they had seen colleagues make mistakes but only 10 percent ever 

spoke up. Fifty percent of nurses said that they have colleagues 

who appear incompetent, and 84 percent of physicians and 62 percent of nurses and other clinical care workers have seen co-workers 

taking shortcuts that could be dangerous to patients. Doctors and 

nurses do not talk about these problems because ‘‘People fear confrontation, lag time, or feel it is not their job.’’ 

Nowhere in here do you see any mention of fear of lawsuits. I 

think there are problems in terms of errors being reported. I think 

we would agree that there is a tremendous amount that could be 

done in this area, but imagining that it is fear of liability that is 

the principal or even the only reason for this is just simply wrong.

Ms. VELAZQUEZ. Thank you.

Mr. SODREL. [Presiding] I was next up before I took the chair, 

and I guess I would first like to say, Dr. Rubin, I am in the transportation business, and I have replaced employees that I thought 

were guilty of malpractice or about to commit malpractice, and 

found myself sued for replacing them. So it is like you are sued if 

you do, and you are sued if you do not. 

46

But when I look at the chart back here on the principal lines of 

business on insurance companies, and I think it was brought up 

earlier by Mr. Smarr that the medical malpractice line of insurance 

has been subsidized basically by commercial auto, personal auto, 

fire or inland marine, and other insurance lines. I do not think that 

is the best thing for us to be doing in the insurance business, you 

know, as—they have a saying in the country, turn on its own bottom. 

But I would like to ask Dr. Gleason. You say you have a practice 

of several physicians. Do you self-insure? Do you self-insure any 

part of that?

Dr. GLEASON. No, we do not. We did take some time a couple of 

years ago to explore the captive option, and we sent our figures off 

to the actuarials, and at the time and even today we still find it 

more economical, if you call it economical, to stay with Illinois 

State Medical Insurance Society.

Mr. SODREL. So business did not look quite as lucrative whenever 

you went in. I mean, we keep hearing that the insurance companies are making profits, but then we have one person here that is 

involved in the malpractice insurance business where it is not making money, and you have investigated taking on some of your own 

liability, and that did not look to be very lucrative.

Dr. GLEASON. Yes, sir, that is correct, and that at both a 70 percent competency level as well as a 90 percent competency level. 

I would just like to raise another point, and that regards Proposition 103. It is my impression, and correct me if I am wrong, but 

when MICRA was enacted in 1975, it took another 11 years to ratify that, and beginning at that time the costs of premiums and the 

costs of health care reimbursements to injured people began to 

come down, and by the time that Proposition 103 was enacted and 

ratified two years later, the awards and costs had already diminished 71 percent by that time, and then subsequently continued to 

fall. That is just something that I felt in terms of my preparation 

was notable to me. 

Furthermore, we also have states like Oregon, a model that we 

can look to in terms of what has happened over that 11 years that 

caps were in effect there, and then were judged to be unconstitutional, and see the rise in premiums and cases, and then also we 

have Texas, of course, which shows some promising signs.

Mr. SODREL. Thank you, Doctor. Did you have any further questions? No. 

Well, seeing none, in the absence of objections, we stand—I 

would like to thank all the witnesses for being here, and appreciate 

you spending the extra time to answer the extra questions, and we 

stand adjourned. 

[Whereupon, at 12:16 p.m., the Committee was adjourned.]

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Æ


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