[Senate Hearing 108-253]
[From the U.S. Government Publishing Office]
S. Hrg. 108-253
PATIENT ACCESS CRISIS: THE ROLE OF MEDICAL LITIGATION
=======================================================================
JOINT HEARING
BEFORE THE
COMMITTEE ON THE JUDICIARY
AND THE
COMMITTEE ON HEALTH, EDUCATION,
LABOR, AND PENSIONS
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
ON
EXAMINING THE STATUS OF PATIENT ACCESS TO QUALITY HEALTH CARE, FOCUSING
ON THE ROLE OF MEDICAL LITIGATION AND MALPRACTICE REFORM
__________
FEBRUARY 11, 2003
__________
Serial No. J-108-2
Printed for the use of the Committee on the Judiciary and the Committee
on Health, Education, Labor, and Pensions
85-062 U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2003
____________________________________________________________________________
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COMMITTEE ON THE JUDICIARY
ORRIN G. HATCH, Utah, Chairman
PATRICK J. LEAHY, Vermont CHARLES E. GRASSLEY, Iowa
EDWARD M. KENNEDY, Massachusetts ARLEN SPECTER, Pennsylvania
HERBERT KOHL, Wisconsin JON KYL, Arizona
DIANNE FEINSTEIN, California MIKE DeWINE, Ohio
RUSSELL D. FEINGOLD, Wisconsin JEFF SESSIONS, Alabama
CHARLES E. SCHUMER, New York LINDSEY O. GRAHAM, South Carolina
RICHARD J. DURBIN, Illnois LARRY E. CRAIG, Idaho
JOHN EDWARDS, North Carolina SAXBY CHAMBLISS, Georgia
JOHN CORNYN, Texas
Manus Cooney, Chief Counsel and
Staff Director
Bruce A. Cohen, Minority Chief
Counsel
------
COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS
JUDD GREGG, New Hampshire,
Chairman
EDWARD M. KENNEDY, Massachusetts BILL FRIST, Tennessee
CHRISTOPHER J. DODD, Connecticut MICHAEL B. ENZI, Wyoming
TOM HARKIN, Iowa LAMAR ALEXANDER, Tennessee
BARBARA A. MIKULSKI, Maryland CHRISTOPHER S. BOND, Missouri
JAMES M. JEFFORDS (I), Vermont MIKE DeWINE, Ohio
JEFF BINGAMAN, New Mexico PAT ROBERTS, Kansas
PATTY MURRAY, Washington JEFF SESSIONS, Alabama
JACK REED, Rhode Island JOHN ENSIGN, Nevada
JOHN EDWARDS, North Carolina LINDSEY O. GRAHAM, South Carolina
HILLARY RODHAM CLINTON, New York JOHN W. WARNER, Virginia
Sharon R. Soderstrom, Staff
Director
J. Michael Myers, Minority Staff
Director and Chief Counsel
(ii)
C O N T E N T S
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STATEMENTS
Tuesday, February 11, 2003
Page
Peel, Laurie, Releigh, NC; Linda McDougal, Woodville, WI; Leanne
Dyess, Vicksburg, MS; Shelby L. Wilbourn, M.D., on behalf of
the American College of Obstetrics and Gynecology, Belfast, ME;
Jay Angoff of Roger G. Brown and Associates, Jefferson City,
MO, and former Insurance Commissioner of Missouri; Jose
Montemayor, Commissioner of Insurance, State of Texas, Austin,
TX; and Lawrence I. Smarr, President, Physician Insurers
Association of America, Rockville, MD.......................... 11
ADDITIONAL MATERIAL
Statements, articles, publications, letters, etc.:
Senator Leahy................................................ 57
Senator Hatch................................................ 59
Senator Feingold............................................. 61
Laurie Peel.................................................. 62
Linda McDougal............................................... 62
Leanne Dyess................................................. 64
Shelby L. Wilbourn, M.D...................................... 65
Jay Angoff................................................... 73
Lawrence E. Smarr............................................ 90
Senator Gregg................................................ 119
Senator Frist................................................ 122
Senator Enzi................................................. 124
Senator Kennedy.............................................. 128
Senator Grassley............................................. 133
Senator Craig................................................ 136
Mr. Weldon................................................... 137
Mr. Greenwood................................................ 139
Mr. DeFazio.................................................. 142
Mr. Strauss.................................................. 145
Alliance of Specialty Medicine............................... 149
James Hurley................................................. 156
National Medical Liability Reform Coalition.................. 172
Christian Shalgian........................................... 175
Mary R. Grealy............................................... 184
J. Charles Rich.............................................. 188
Answers to questions of Senator Gregg from Mike Pickens...... 189
Sister Mary Roch Rocklage.................................... 193
The American College of Obstetricians and Gynecologists...... 197
American College of Physicians............................... 199
American Medical Association................................. 203
Business Round Table......................................... 217
Victor E. Schwartz........................................... 219
Coalition for Affordable and Reliable Health Care............ 234
Dartmouth-Hitchcock Medical Center........................... 239
Rodney C. Lester............................................. 244
(iii)
American Health Care Association............................. 251
Answers to questions of Senators Hatch and Gregg from Jose
Montmayer.................................................. 257
Answers to questions of Senators Hatch and Gregg from Jay
Angoff..................................................... 263
Answers to questions of Senators Hatch and Gregg from
Lawrence E. Smarr.......................................... 267
Answers to questions from Dr. Shelby Wilbourn................ 306
Jose Montemayor.............................................. 308
PATIENT ACCESS CRISIS: THE ROLE OF MEDICAL LITIGATION
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TUESDAY, FEBRUARY 11, 2003
U.S. Senate,
Committee on the Judiciary,
and the Committee on Health, Education, Labor, and
Pensions,
Washington, DC.
The committees met jointly, pursuant to notice, at 2:34
p.m., in Room 106, Dirksen Senate Office Building, Senator
Hatch, chairman of the Judiciary Committee, presiding.
Present: Senators Hatch, Specter, Sessions, Cornyn, Gregg,
Frist, Alexander, Enzi, Ensign, Leahy, Kennedy, Dodd, Kohl,
Feingold, Durbin, Edwards, Murray, Reed, and Clinton.
Senator Gregg. If I could get everybody's attention? There
are a lot of things going on today in the Senate, and a lot of
members are moving back and forth to the floor with the debate
involving Judge Estrada. And I know Senator Kennedy will be
arriving soon, as will Senator Hatch, who are both involved in
that debate, and Senator Leahy, who is also involved in that
debate. We have a number of other members, including the
Majority Leader, who are on the way. There are also a number of
members who have expressed an interest in participating in this
hearing who I am sure will be coming and going as we proceed
forward.
Let me outline what is going to happen procedurally in this
joint hearing, which we are excited about. We appreciate the
opportunity to be here with the Judiciary Committee.
We are going to begin with opening statements from Senator
Leahy, Senator Kennedy, Senator Hatch, myself, and should the
Majority Leader have time to come over, he will do an opening
statement. Then we will hear testimony from the witnesses who
are very qualified, and how we deal with patients' access to
health care, lawsuits and the costs of lawsuits as they affect
the medical industry, medical activities, and patients'
abilities to see doctors. We will rotate with 5-minute
questioning periods.
We all recognize, I think, just from watching the news,
that this issue of patient access to their physicians and the
fact that many physicians are finding it difficult to practice
because of the costs of their insurance premiums is a
significant public policy concern. We have seen the problems in
West Virginia where numerous people were unable to see their
doctor. One instance I'm aware of involved a janitor who was
unable to get adequate attention and had to travel to Kentucky
to be seen.
In New Hampshire ob/gyn practitioners have been especially
hard hit. It has also been a problem across the country. For
example, in northern New Hampshire, where we do not have a lot
of ob/gyn doctors, the doctor in that area has found her
premium going from $39,000 to $138,000 in 1 year, making it
extremely difficult for her to practice and could force her
into retirement.
Excessive litigation drives up the cost of health care.
Health insurance premiums are increasing at their highest rate
in over a decade. Small businesses are particularly hard hit.
In New Hampshire, small businesses have seen a 34-percent jump
in their premium costs, which limits their ability to expand
and create jobs.
The Congressional Budget Office has found that medical
litigation reforms would save the Federal Government
approximately $14 billion, and savings would be even greater,
of course, for private health insurers.
With health insurance being so costly and out of reach for
41 million Americans, it simply makes no sense to allow
excessive litigation to continue to eat up more resources in
our health care system. Today at least a dozen States are
facing urgent patient access crises. Insurance carriers have
exited these States at an alarming rate. Physicians, hospitals,
nursing homes, and other providers are also in trouble. All but
seven of the remaining States have reached ``near crisis''
status, and it is only a matter of time before the ``near
crisis States reach full crisis status.''
The data is clear about what is driving this crisis:
dramatic increases in the size of jury awards, the cost of
defending lawsuits, and the frequency of large claims.
Mega jury awards are on the increase. In 1999, the most
current year for which we have litigation data, the median
award was $800,000, up 34 percent in 3 years.
The number of million-dollar-plus jury awards is on the
rise. Now more than half of all awards are over $1 million.
The cost of defending lawsuits is extremely expensive, and
too many resources are devoted to defending frivolous lawsuits,
as nearly 70 percent of all medical liability claims result in
no payments to the plaintiff.
The trial lawyers are using the medical profession,
unfortunately, almost as their ATM machines. Left unchecked,
this pattern will continue to escalate and deplete the
resources of our medical system. Fear of excess litigation also
results in substantial indirect costs when physicians practice
defensive medicine by ordering additional and unnecessary tests
and procedures. And while difficult to measure, some experts
believe that the defensive medicine practiced as a result of
fear of lawsuits is somewhere between $60 and $108 billion.
Although billions of dollars are spent in our medical
liability system in direct and indirect costs, far too few of
those dollars actually flow to the patients. Almost 50 percent
of the damages awarded in court go to attorney's fees, not to
injured patient. And the current system leaves many injured
patients with legitimate cases out in the cold.
The solution is to restore balance to the health care
system, to ensure fair and timely compensation for patients who
are injured by medical negligence. Unlimited compensation for
current and future medical expenses and loss of wages should be
awarded. Quantifiable economic expenses should be awarded. And
reasonable compensation for pain and suffering should be
awarded. However, the system must also ensure that patients are
not denied access--and this is the issue--access on the front
end. In order to do that, we must address the acute problem of
the excessive litigation and we must address it now.
As the cry for help from patients and physicians grows
louder, so too do the excuses for not acting. We have heard it
all before. Liability rates aren't increasing significantly.
There is no problem. Rates are increasing but it is somebody
else's fault. Insurance companies are to blame. State
regulators are to blame, or State regulators could do a better
job if they would simply pass more regulations. It is bad stock
market investments, the business cycle, anti-competitive
behavior, so on and so on.
But the facts tell the truth. Insurance rates increase as
insurers pay out more in losses and litigation expenses than
they collect in premiums. According to an A.M. Best study, the
medical liability insurance industry paid out $1.54 in losses
for every $1 they collected in premium, and we have a recent
study that has been submitted to us, which I will put in the
record, from the National Association of Insurance
Commissioners which has a similar finding as to the cause of
the problem.
[The prepared study was not received by press time.]
Senator Gregg. We must have the courage to just say no to
the status quo and yes to the patients. We should act quickly
to address the problems that we know are leaving patients
without care. At a minimum we should address the litigation
lottery that has added to the unpredictability in liability
insurance. To ensure there is no gaming of the system, we
should ensure that reforms apply across the board to all
entities involved in the delivery of patient care. I believe we
should look to a model of success such as the California
Medical Injury Compensation Reform Act upon which the House
bill has been based. We should be open to any additional
reforms to the underlying medical liability system, such as
encouraging States to adopt patient safety best practices.
There is a lot that can be done to improve this system to
allow patients better access to their doctors and allow doctors
to actually practice medicine.
At this point, I will yield to the Senator from
Massachusetts for his opening statement, if he wishes to make
one. Before the Senator arrived, I stated that our procedure
was going to be to have an opening statement by yourself,
Senator Leahy, Senator Hatch, and the Majority Leader, should
he arrive, and then go to questions.
Senator Kennedy. That is fine. Thank you, Mr. Chairman.
Today we are beginning an investigation into the sudden very
substantial increases in the cost of medical malpractice
insurance which some doctors in a number of States have
experienced. And I hope the committee will conduct a thorough
and unbiased examination of this problem, one which seeks real
solutions.
We must reject the simplistic and ineffective response
proposed by those who contend that the only way to help doctors
is to further hurt seriously injured patients. Unfortunately,
as we saw in the Patients' Bill of Rights debate, the Bush
administration is again advocating a policy which will benefit
neither the doctors nor the patients, only the insurance
companies. Caps on compensatory damages and other extreme tort
reforms are not only unfair to the victims of malpractice, they
do not result in a reduction of malpractice insurance premiums.
Placing arbitrary on compensation for noneconomic loss only
serves to hurt those patients who have suffered the most severe
permanent injury. They are the paralyzed, the brain-injured,
and the blinded. They are the ones who have lost limbs, organs,
reproductive capacity, and in some cases even years of life.
The Bush administration talks about deterring frivolous cases,
but caps by their nature apply only to the most serious cases
which have been proven in court. A person with a severe injury
is not made whole merely by receiving reimbursement for their
medical bills and lost wages. Non-economic damages compensate
victims for the very real though not easily quantifiable loss
in quality of life that results from a serious permanent
injury. It is absurd to suggest that $250,000 is fair
compensation for a person confined to a wheelchair for life.
Less accountability for health care providers will never
lead to better health care. It will not even result in less
costly care. The total cost of medical malpractice premiums
constitutes less than two-thirds of 1 percent--two-thirds of 1
percent--of the Nation's health care expenditures each year.
Malpractice premiums are not the cause of the high rate of
medical inflation.
In the past year, there have been dramatic increases in the
cost of medical malpractice insurance in States that already
have damage caps and other restrictive tort reforms on the
statute books as well as in the States that do not. The reason
for sky-high premiums cannot be found in the courtroom.
Comprehensive national studies show that medical malpractice
premiums are not lower on average in States that have enacted
damage caps and other restrictions on patients' right than in
States without these restrictions. Insurance companies are
merely pocketing the dollars which patients no longer receive
when tort reform is enacted. Let's look at the facts.
Twenty-three States had a cap on damages in medical
malpractice cases in 2001; 27 States did not. The best evidence
of whether the cap affects the cost of malpractice insurance is
to compare the rates in the two groups of States. The average
liability premium in 2002 for doctors practicing in States
without caps on malpractice damages was virtually the same as
the average premium for doctors practicing in States with
caps--31,926 to 30,521.
An examination of the rates for range especially show
similar results. There are many reasons why insurance rates
vary substantially from State to State. This data demonstrates
that it is not States' tort reforms which make the difference.
Insurance industry practices are responsible for the sudden
steep premium increases which have occurred in some States in
the last year. The National Association of Insurance
Commissioners studies show that in 2000, the latest year for
which data is available, total insurance industry profits as a
percent of premium for medical malpractice insurance were
nearly twice as high, 13.6 percent, as overall casualty and
property insurance profits, 7.9 percent. In fact, malpractice
was a very lucrative line of insurance for the industry
throughout the 1990s. Recent premium increases have been an
attempt to maintain high profit margins despite sharply
declining investment earnings. The industry creates malpractice
crisis whenever its investments do poorly.
Doctors, especially those in high-risk specialties whose
malpractice premiums have increased dramatically over the past
year, do deserve premium relief. That relief will only come as
a result of tougher regulation of the insurance industry. When
insurance companies lose money on their investments, they
should not be able to recover those losses from the doctors
they insure. Unfortunately, that is what is happening now.
Doctors and patients are both victims of the insurance
industry. Only by recognizing the real problem can we begin to
structure an effective solution to end unreasonably high
medical malpractice premiums.
The Chairman. We will now turn to the distinguished
Majority Leader of the Senate. Senator, if we can have your
statement, and then if Senator Leahy gets here, we will go to
him next, and I will finally conclude.
Senator Frist. Thank you, Mr. Chairman. And I will be
brief. I want to thank all of the chairmen for holding this
timely joint hearing on a matter that is crucial to our
Nation's health care system.
Today's hearing in this Congress marks the first step in
which I pledge as Majority Leader in the U.S. Senate, to work
with my colleagues to develop legislation that is passed by
this body and ultimately signed by the President to address a
crisis that is just that--a crisis. It was a challenge a couple
of years ago, and a problem about 4 years ago. Today, it is a
crisis.
The crisis has come today not just in the increasing
premiums, but as a result of that we see diminished access for
patients. And we all either have been patients or will be
patients at some time in our lives. This crisis is a patient
access issue. No longer is it doctors that are paying too much
money, simply, or having to spend more and more to stay in
practice. Now doctors are leaving the profession entirely. They
are leaving their specialty. Trauma centers are closing doors.
We have seen what happens with slow-downs among physicians who
really have no choice. It is an access-to-quality-care issue,
and the situation is grave and is worsening daily.
We have all seen the headlines. We have seen the horror
stories. They are occurring with increasing frequency:
hospitals closing obstetric wards, trauma centers shutting
their doors, expectant mothers unable to find an obstetrician
because that obstetrician could no longer afford that extra
$1,300 per baby in a tax, in essence, to pay for frivolous
lawsuits.
Daily we hear about these new stories and new victims. They
used to be anecdotes, and now they are a frequent reality. The
AMA has listed 12 States now that are in crisis and another 30
States that are near crisis.
As all of you know, I am doctor. I have paid malpractice
premiums my entire adult lifetime, and I still pay malpractice
premiums even though malpractice has diminished as I am not
actively practicing today. It does give me the opportunity to
talk to a number of doctors who are living with this crisis
each and every day.
It will be a debate whether it is the insurance companies
or the frivolous lawsuits, or the personal injury lawyers who
are out looking for cases, creating cases because of the
incentives in the system, and that is a debate we will learn
from and hopefully have today. But at the end of the day, we
need to recognize that we at the Federal level must respond to
this crisis.
One of the things which affects me so directly is the fact
that highly qualified and committed doctors are leaving their
specialties--leaving neurosurgery, leaving obstetrics and the
delivery of babies, and going into gynecology or making that
the main part of their practice. Doctors are leaving certain
States and then moving to another State that already has
addressed to some extent some of the malpractice issues that
most other States have not yet addressed.
We see doctors dropping vital services today. We have some
of the very best doctors, the most highly motivated individuals
who go into the profession of medicine to help and to heal and
to sacrifice, being able to practice because of these frivolous
lawsuits and skyrocketing premiums.
Defensive medicine, we will talk a little bit about that, I
am sure. We look at the overall cost of medicine, the cost of
the frivolous lawsuits, the incentives that the current system
has to have these multi-million-dollar lawsuits today without
any sort of control. Skyrocketing premiums ultimately have to
be passed on to patients, driving up the cost of health care
and health care premiums; and ultimately, putting the overall
cost of health care out of reach of people who are right on the
border of being able to obtain insurance. Defensive medicine,
as a physician, means that if you are constantly worried about
a frivolous lawsuit, you end up getting more tests run on
patients than necessary.
Action is needed. It is needed now. It is needed in this
Congress. I am going to do everything within my power to make
sure that we develop a bipartisan bill, which pulls the very
best out of all of the ideas that we can pull together, to take
that bill to the floor of the U.S. Senate, and to have further
debate. At the end of day we must have a bill that will address
the issues of access and quality that we know are being
affected by these skyrocketing premiums.
The Chairman. Well, thank you, Senator.
We will go to Senator Leahy, and then I will conclude.
Senator Leahy. Thank you very much, Mr. Chairman.
I think all of us agree on the basic issue that our health
care system is in crisis. Unfortunately, we hear that comment
so many times that the force of it actually disappears.
But we do know, as has been stated by everybody here, that
dramatically rising medical malpractice insurance rates are
forcing some doctors to abandon their practices or to cross
Sate lines to find more affordable situations. Patients who
need care in high-risk specialties--like obstetrics--and
patients in areas already underserved by health care
providers--like a lot of rural communities--are often left
without any care at all.
Here we are, the United States, the richest, most powerful
Nation on earth. We ought to be able to at least ensure access
to quality health care to all our citizens. Other countries do.
We ought to be able to assure that the medical profession and
its members will not be driven from their calling by the
manipulations of the malpractice insurance industry.
The debate about the causes of this latest insurance crisis
and the possible cures grow very, very shrill. I hope this
hearing will be a lot calmer and more constructive.
My concerns are straightforward: one, that we ensure that
our Nation's physicians are able to provide the high quality of
medical care that our citizens deserve and for which the United
States is world-renowned; and also that in those instances
where a doctor does harm a patient, that patient ought to be
able to seek appropriate redress through our court system.
Now, different States have different experiences with
medical malpractice insurance. As we know, insurance remains
largely State-regulated industry, so each State ought to work
to develop its own solution to rising medical malpractice
insurance rates because each State has its own unique problems.
Some States, such as my State of Vermont, while we may have
problems, we do not begin to face the crisis that so many other
States do. One of the reasons is that Vermont's legislature is
at work to find the right answers for our State, and some other
States are doing the same thing.
But, in contrast, in States such as West Virginia and
Pennsylvania and Florida and New Jersey, doctors are walking
out of work in protest over the exorbitant rates being
extracted from them by their insurance carriers.
The distinguished Majority Leader has said that we should
try to find a bipartisan solution, and I agree. I worry,
however, that the administration's proposal that is the only
thing before us ignores that kind of an effort.
This is a problem in the insurance industry. This can't be
laid just on the rest of the tort system. The administration
has proposed a plan that would cap noneconomic damages at
$250,000 in medical malpractice cases. This is one-size-fits-
all. Well, that does not follow the experience in most States.
There is nothing to protect true victims of medical malpractice
to arbitrarily limit compensation. The medical malpractice
reform debate too often ignores the fact that there are people
involved--men, women, and children whose lives have been
dramatically and sometimes permanently, terribly permanently
altered by medical errors.
I look at Linda McDougal, one of our witnesses here today.
I will let her speak through her own testimony. But I would ask
anybody in this room, after you hear Ms. McDougal, to ask
yourself if you would be willing to go through what she did
because somebody gave you $250,000. I know that the answer on
this panel would be that nobody here would do anything
comparable for that, and I can guarantee you, Ms. McDougal,
nobody in this room would go through what you did for that.
Now, one problem is that the insurance industry's business
model does require legislative correction, and that is its
blanket exemption from Federal antitrust laws. They have
enjoyed a benefit novel in our marketplace. The McCarran-
Ferguson Act permits insurance companies to operate without
being subject to most of our Federal antitrust laws, and our
Nation's physicians and their patients have been worse off
because of it. Using this exemption, insurers can collude to
set rates that can result in higher premiums than true
competition would achieve. And because of this exemption,
enforcement officials can't even investigate that collusion. So
if we are going to really control rising premiums, then we have
to look at this broad exemption in the McCarran-Ferguson Act.
I have introduced the Medical Malpractice Insurance
Antitrust Act of 2003, and I want to thank Senator Kennedy and
Senator Durbin and Senator Edwards and Senator Feingold and
others for cosponsoring it. It modifies the McCarran-Ferguson
Act with respect to medical malpractice insurance when we think
of some the antitrust offenses--price-fixing, bid-ridding,
market allocations. Then you are going to go to the real
question of premiums. It wouldn't stop State regulators from
looking into this, but there is no reason to continue a system
in which the Federal enforcers are stopped from prosecuting the
most harmful antitrust violations just because they are
committed by an insurance company. They could prosecute anybody
else, but not an insurance company.
So I hope we can get together just as we did once before
when Senator Hatch and I joined forces in recent years to scale
back the antitrust exemption for baseball, and in the Curt
Flood Act we eliminated the exemption as it applied to
employment relations. If we do the same thing for the insurance
industry as we did for baseball, we are all going to be a lot
better off.
Thank you.
[The prepared statement of Senator Leahy may be found in
additional material.]
The Chairman. Thank you, Senator.
I have a long statement to make. As a former medical
liability defense lawyer, I recognized medical liability as a
tremendous problem years ago. In fact, 20 years ago, I
suggested that the cost of defensive medicine due to so many
frivolous medical liability suits would be at about $300
billion a year. Now, we need defensive medicine, there is no
question about it. But it goes way beyond that.
I remember good lawyering encouraged doctors to maintain
that historical record demonstrating that they tried everything
possible in treating their patients, not just the standard of
the community but way beyond the standard of the community.
Medicine is not an exact science. Something can go wrong with a
patient, so doctors must prepare to face lawsuits.
We will have people who will claim that the insurance
industry is what is at fault. Unfortunately, that argument
sometimes falls because a lot of doctors have gone to
nonprofit, physician-owned insurance companies or mutual
companies to be able to bring the prices down and still can't
get them down.
We are concerned about doctors who are leaving the
profession because they cannot afford to pay the medical
liability premiums, and I might add that many of them are
obstetricians who are critical in our society. Elaine and I had
six children. We have 20 grandchildren and the 21st is on the
way, and I sure as heck want my daughters, as I wanted Elaine,
to have the best obstetrician that I could find. But if they
are not there, what are women going to do? Are we going to go
back to midwives? Which is good, but I think it is probably
better to have obstetricians if you can have them.
We have cases where women just don't have access to
obstetricians. Some expectant mothers have to travel hundreds
of miles to be able to get pre-natalcare and treatment. What
are we going to do? Are we going to let this continue on, or
are we going to do something constructive about it?
Some States have gone to very rigid methodologies to solve
these problems, and they have concluded that it is better over
the long run to do it in a way that is very cost-saving and
cost-effective even though there will be an occasional
injustice.
I don't agree with that. While it is important to
reasonably limit a physicians's liability for noneconomic
damages. There are tough cases, really bad cases of gross
negligence by a doctor or hospital where $250,000 is
insufficient compensation for the patient's pain and suffering.
On the other hand, we all know that the vast majority of
these suits, and certainly in my experience, were frivolous in
nature, should never have been brought. Many of them were
brought just to get the defense costs, which are considerable
in these kinds of cases. That is what we want to avoid. This is
a serious set of problems. We can blame one side or the other.
We can blame the doctors. We can blame the insurers. We can
blame the patients if you want to. But the fact is we have got
to solve this problem. We need physicians to be able to
practice. We need them in this modern day, with more and more
Federal Government intrusion into the health care industry, to
have some degree of independence whereby they can enjoy being
in this profession, or some of the best and the brightest are
not going to become doctors to begin with. They will go into
some other less-intruded-upon professions.
This is a very important hearing because we are going to
try and come up with a way of resolving these problems that
will keep incentives alive for the best and the brightest to go
into the medical profession and, of course, to provide the
services that all of us need from time to time when we are in
trouble, when we need health care. I hope we can resolve these
issues in a bipartisan way. In fact, it must be done in a
bipartisan way. I hope we can call upon both sides to work
together to get these problems solved.
We are very fortunate to have a physician, a heart surgeon,
to be exact, as the Majority Leader in the Senate. I think he
understands these matters as well if not better than anybody. I
intend to help him. I intend to help my colleagues on the other
side to see if we can arrive at a resolution to these problems
that will allow great medicine to go forward, allow patients
with difficulties to have the best access to medicine, and will
take care of the truly bad cases that do arise from time to
time where there is no excuse for them arising.
[The prepared statement of Senator Hatch may be found in
additional material.]
The Chairman. Having said all of that, let us introduce our
witnesses. Senator, would you care to do that or----
Our first witness will be Laurie Peel. Ms. Peel and her
husband Chris are residents of Raleigh, North Carolina.
Together, they are the co-owners of the Carolina Wine Company.
In addition, they recently opened a restaurant, Vin Laurie, the
restaurant ``Vin.'' Laurie is a graduate of UNC, Greensboro.
She and her husband have been married since 1998 and have a
two-year-old daughter named Grace. We welcome you here, Ms.
Peel.
We will then go to Linda McDougal. Linda and her husband
Jerry are residents of Woodville, Wisconsin, and both are
veterans of the United States Navy. They have three sons, John,
Jared and Jacob. Linda is an accountant, and is recovering from
a double mastectomy. We welcome you here as well, and we look
forward to your testimony, all of you.
Leanne Dyess and her husband Tony own a small business in
Vicksburg, Mississippi. Due to a disability suffered in a car
accident, Tony Dyess currently lives with his parents who
assist in providing for his health care needs. They have two
teenage children, a sophomore in high school and a freshman in
junior college. We are really pleased to have you here as well.
We appreciate you taking time.
Dr. Wilbourn. Dr. Wilbourn attended the University of
Mississippi as an undergraduate and received his medical school
training at Tulane University School of Medicine. He performed
his residency at the University of Tennessee and then returned
to Tulane University for specialty training in obstetrics and
gynecology. After completing his training, Dr. Wilbourn settled
in Las Vegas, Nevada, where he practiced for 12 years, and
served as an assistant professor at the University of Nevada
School of Medicine. He recently relocated to Belfast, Maine.
Jay Angoff joined the law firm of Roger G. Brown and
Associates as ``of counsel'' in December 2001. He was Missouri
Insurance director between 1993 and 1998, director of the U.S.
Health Care Financing Administration's Private Health Insurance
Group during 1999 and a vice president at quotesmith.com, an
Internet insurance broker in 2000 to 2001.
Before moving to Missouri in 1993, he served as deputy
insurance commissioner and special assistant to New Jersey
Governor Jim Florio as counsel to the National Insurance
Consumer Organization as an attorney for Public Citizen and as
an antitrust lawyer with the Free Trade Commission.
As Missouri's Insurance director, Mr. Angoff was--am I
pronouncing that right, Angoff?
Mr. Angoff. Yes, sir.
The Chairman. Was chairman of the Commission on State
Health Insurance and vice chairman of the Missouri Consolidated
Health Care Plan. He was also chairman of the National
Association of Insurance Commissioners' Committee on Credit
Insurance and vice chairman of its Committee on Insurance
Availability and Affordability. We are grateful to have you
here.
Jose Montemayor currently serves as commissioner of
Insurance for the State of Texas. He was first appointed to
this position in 1999 by then Governor George W. Bush and is in
the process of being confirmed for his third term.
Commissioner Montemayor currently chairs the National
Association of Insurance Commissioners' Market Conditions
Working Group, which was established to look at issues
surrounding medical malpractice insurance and make
recommendations to State regulators.
Commissioner Montemayor has been with the Texas Department
of Insurance since 1993, where he held the positions of
director of Insurer Services and associate commissioner for the
Financial Program.
He served in the United States Air Force for 24 years,
completing his military career as director for Air Force
Security Assistance Program in Latin America. He holds numerous
advance degrees, including an MBA in finance and banking, and
an MS in logistics and an MA in accounting.
That is pretty impressive. We are glad to have you here.
Lawrence ``Larry'' Smarr is the chief executive of the
Physician Insurers Association of America, a position he has
held since 1992. He has led the trade association which has 50
insurance company members, insuring over 700,000 physicians and
dentists. During his 10-year tenure as CEO, membership has
increased by more than 40 percent, and the association has
become the recognized voice of the industry.
From 1979 to 1992, Mr. Smarr served as senior vice
president of Government Relations and Research with the
Pennsylvania Medical Society Liability Insurance Company. So we
are pleased to welcome all of you here. We appreciate the
testimony in advance that you are going to give, and we look
forward to hearing from you, and hopefully we can gain enough
from your testimony to be able to move on and do something
constructive about these very serious problems.
Ms. Peel, we will turn to you first.
STATEMENTS OF A PANEL CONSISTING OF LAURIE PEEL, RALEIGH, NORTH
CAROLINA; LINDA McDOUGAL, WOODVILLE, WISCONSIN; LEANNE DYESS,
VICKSBURG, MISSISSIPPI; SHELBY L. WILBOURN, M.D., ON BEHALF OF
THE AMERICAN COLLEGE OF OBSTETRICS AND GYNECOLOGY, BELFAST,
MAINE; JAY ANGOFF OF ROGER G. BROWN AND ASSOCIATES, JEFFERSON
CITY, MISSOURI, AND FORMER INSURANCE COMMISSIONER OF MISSOURI;
JOSE MONTEMAYOR, COMMISSIONER OF INSURANCE, STATE OF TEXAS,
AUSTIN TEXAS; AND LAWRENCE E. SMARR, PRESIDENT, PHYSICIAN
INSURERS ASSOCIATION OF AMERICA, ROCKVILLE, MARYLAND
Ms. Peel. Thank you, Chairman Gregg and Chairman Hatch, for
inviting me to testify here today. I am honored to be here.
Since July, when I was asked to participate in a round-
table discussion with the President on malpractice reform, I
have heard a lot of tragic, really poignant stories on both
sides of the issue. My own experience may not be tragic, but I
do think it illustrates the difficulties patients across the
Nation--and especially women--are experiencing.
I live in a community, Raleigh, North Carolina, which
enjoys health care probably as good as, if not better, than any
in the country. I, and my family, all have excellent doctors.
Yet, even in Raleigh, when I first had a health care crisis, I
had a very hard time finding a doctor who would take me. And
when I was lucky enough to find a great one, Dr. John Schmitt,
who is here today, he was ultimately driven out of business by
overwhelming frustrations with the crippling cost of
malpractice insurance. He is now on faculty at UVA School of
Medicine.
As he explained in a letter to all of his patients in July
of 2002, he could no longer practice medicine the way he wanted
to and always had. And that is, frankly, what we should all
want from our doctors and maybe even demand.
I first came to Dr. Schmitt under difficult circumstances.
I was married less than a year and had just moved to Raleigh
and had no Ob/Gyn there. I was 11 weeks pregnant, experiencing
complications, which turned out to be a miscarriage, and in
need of immediate medical attention. As a high-risk patient,
though no Ob/Gyn would take me in. When I got to Raleigh, I
called every practice I could find and was told again and again
that the practice was full and would not be taking new
patients. Fortunately, Dr. Schmitt learned of my plight, called
me back and took me in.
I soon discovered he was one of Raleigh's leading Ob/Gyns,
yet he had all of the time in the world for my husband and me.
In the 5 years that I saw Dr. Schmitt, he helped me through the
biggest disappointment in my life, my biggest health scare, and
finally helped me realize the greatest joy of any life. In
short, my relationship with Dr. Schmitt was everything one
could hope for from a doctor. It is also a relationship both
he, and all of his patients, would very much like to continue,
but we cannot because of the crippling cost of medical
liability insurance.
What he must pay to protect himself from the remote
possibility of lawsuits--or at least legitimate ones--has
prevented Dr. Schmitt from continuing the outstanding practice
he had made his life's work, and stories like his are, I
believe, truly tragic for us all.
Now, I have seen both sides of the issue in a very real and
personal way. My father is a doctor, as are my brother and his
wife, but my family has also suffered from medical errors. I do
not want, and I do not know any doctor who does, to deny
victims of medical errors adequate redress for their injuries.
And, certainly, my father, brother and every doctor I know
wants to hold the medical profession to the highest possible
standards.
But the way to address malpractice cannot be to destroy the
possibility of good practice or drive away those doctors, like
Dr. Schmitt, who do practice to the very best of their
abilities. None of us can afford that. I do not know the
solution, but I do urge you to find one. And, Mr. Chairman, I
very much appreciate that that is what you are trying to do.
Thank you.
[The prepared statement of Ms. Peel may be found in
additional material.]
The Chairman. Thank you, Ms. Peel.
We will go to Ms. McDougal.
Ms. McDougal. First, I want to thank Chairman Gregg,
Chairman Hatch, and Senators Kennedy and Leahy. I greatly
appreciate the opportunity you have given me.
My name is Linda McDougal, and I am a victim of medical
malpractice. I am 46 years old. I live with my husband and sons
in Woodville, Wisconsin. It is a small Norwegian community in
Northwestern Wisconsin. My husband and I are both veterans of
the United States Navy. This is my story.
About 8 months ago, in preparation for an annual physical,
I went to the hospital for a routine mammogram. I was called
back for additional testing and had a needle biopsy. Within a
day, I was told I had breast cancer. My world was shattered. My
husband and I discussed the treatment options and decided on
one that would give me the best chance of living and maximize
my time alive with my family. We made the difficult life-
changing decision to undergo what we believed was the safest
long-term treatment, a double mastectomy, the complete removal
of both of my breasts.
Forty-eight hours after the surgery, the surgeon walked in
my room and said, ``I have bad news for you. You do not have
cancer.'' I never had cancer. My breasts were needlessly
removed. The pathologist switched my biopsy slides and
paperwork with someone else's. Unbelievably, I was given
another woman's results.
The medical profession has betrayed the trust that I had in
them. How could the doctors have made this awful mistake? It
has been very difficult for me to deal with this. My scars are
not only physical, but emotional. After my breasts were
removed, I developed raging infections, and I required
emergency surgery. Because of my ongoing infections, I am still
unable to have reconstructive surgery, and I am nearly 8 months
past surgery. I do not know whether I will ever be able to have
anything that ever resembles breasts again.
After I came forward publicly with my story, I was told
that one of the pathologists involved had a 10-year exemplary
performance record and that she would not be reprimanded or
disciplined in any way until a second incident occurred. Should
someone else have to suffer or perhaps even die before some
kind of disciplinary action is taken?
Now there is a proposal to limit the rights of people like
me who have suffered permanent, life-altering injuries.
Arbitrarily limiting victims' compensation is wrong.
Malpractice victims may never be able to work again and may
need help for the rest of their lives, and they should be
fairly compensated for their suffering. Without fair
compensation, a terrible financial burden is imposed on the
entire family.
Those who would limit compensation for life-altering
injuries say that malpractice victims still would be
compensated for not being able to work, meaning they would be
compensated for their economic loss. Well, I live in a small
town. I did not have any significant economic loss. My lost
wages were approximately $8,000, and my hospital expenses of
approximately $48,000 were paid for by health insurer. My
disfigurement from medical negligence is almost entirely
noneconomic.
As you discuss and debate this issue, I urge you to
remember that no two people, no two injuries, no two personal
situations are identical. It is unfair to suggest that all
victims should be limited to the same one-size-fits-all
arbitrary cap that benefits the insurance industry at the
expense of patients.
Victims deserve to have their cases decided by a jury that
listens to the facts of a specific case and makes a
determination of what is fair compensation based on the facts
of that case. One size does not fit all.
I could never have predicted or imagined in my worst
nightmare that I would end up having both my breasts needlessly
removed because of a medical error. No one plans on being a
victim of medical malpractice, but it happened, and now
proposals are being discussed that would further hurt people
like me, all for the sake of helping the insurance industry.
I am not asking for sympathy. What happened to me may
happen to you or to someone you love. When it does, maybe you
will understand why I am telling this story. The rights of ever
injured patient in America are at stake. Limiting victims'
compensation in malpractice cases puts the interests of the
insurance industry ahead of patients who have been hurt, who
have suffered life-altering injuries, like loss of limbs,
blindness, brain damage, infertility, sexual dysfunction or
loss of a child, spouse or parent. Instead of taking
compensation away from people who have been hurt and putting it
in the pockets of the insurance industry, we should look for
ways to improve the quality of health care services in our
country, to reduce preventable medical errors, like the one
that cost me my breasts, part of my sexuality, part of who I am
as a woman.
Medical malpractice kills as many as 98,000 Americans each
year, and it permanently injures hundreds of thousands of
others. We must make hospitals, doctors, HMOs, drug companies
and health insurers more accountable to patients. A good start
would be to discipline health care providers who repeatedly
commit malpractice. We should make the track records of
individual health care providers available to the general
public, instead of protecting bad doctors at the expense of
unknowing patients.
Limiting victims' compensation will not make health care
safer or more affordable. All it will do is add to the burden
of people whose lives have already been shattered by medical
error. Every patient should say no to any legislation that does
not put patients first. I urge you to do the same.
Thank you for your time and consideration.
[The prepared statement of Ms. McDougal may be found in
additional material.]
The Chairman. Thank you so much.
Ms. Dyess, we will turn to you.
Ms. Dyess. Chairman Hatch, Chairman Gregg, Senator Kennedy,
distinguished members of the Senate Judiciary and HELP
Committees, it is an honor for me to sit here before you this
afternoon to open up my life, and the life of my family, in an
attempt to demonstrate how medical liability costs are hurting
people across the country. While others may talk in terms of
economics and policy, I want to speak to you from the heart.
I want to share with you the life of my two children, that
my two children and I are now forced to live because of a
crisis in health care that I believe can be fixed. And when I
leave, and the lights are turned off, and the television
cameras go away, I want you and all America to know one thing,
and that is that this crisis is not about insurance, it is not
about doctors or hospitals or even personal injury lawyers; it
is a crisis about individuals and their access to what I
believe is otherwise the greatest health care in the world.
Our story began on July 5th of last year, when my husband
Tony was returning from work in Gulfport, Mississippi. We had
started a new business. Tony was working hard, as I was. We
were doing our best to build a life for our children, and their
futures were filled with promise. Everything looked bright.
Then, in an instant, everything changed. Tony was involved in a
single-car accident. They suspect he may have fallen asleep,
though we will never know.
What we do know is that after removing him from the car,
they rushed Tony to Garden Park Hospital. He had head injuries
and required immediate attention. Shortly thereafter, I
received a phone call that I pray no other wife has to ever
receive. I was informed of the accident and told that the
injuries were serious, but I cannot describe to you the panic
that gave way to hopelessness when they told me, ``We do not
have the specialist necessary to take care of him. We will have
to airlift him to another hospital.''
I could not understand this. Gulfport is one of the
fastest-growing and most prosperous regions in Mississippi.
Garden Park is a good hospital. Where, I wondered, was the
specialist who could have taken care of my husband?
Almost six hours passed before Tony was airlifted to the
University Medical Center, six hours for the damage to his
brain to continue before they had a specialist capable of
putting a shunt into his head to reduce the pressure on his
brain--six unforgettable hours that changed our life.
Today, Tony is permanently brain damaged. He is mentally
incompetent, unable to care for himself, unable to provide for
his children, unable to live the vibrant, active and loving
life he was living only moments before the accident.
I could share with you the panic of a woman suddenly forced
into the role of both mother and father to her teenage
children, of a woman whose life is suddenly caught in limbo. I
could tell you about a woman now who had to worry about the
constant care of her husband, who had to make concessions she
never thought she would have to make in order to be able to pay
for his therapy and care. But to describe this, would be to
take away from us the most important point in the value of what
I learned.
Senator Hatch, I have learned that there was no specialist
on staff that night in Gulfport because of rising medical
liability costs had forced physicians in that community to
abandon their practices. In that area, in that time, there was
only one doctor who had the expertise to care for Tony, and he
was forced to cover multiple hospitals, stretching him thin and
unable to care for everyone.
Another doctor had recently quit his practice because his
insurance company terminated all of the medical liability
policies nationwide. That doctor could not obtain affordable
coverage. He could not practice, and on that hot night in July,
my husband, and our family, drew the short straw.
I have also learned that Mississippi is not unique; that
this crisis rages in States all across America. It rages in
Nevada, where young, expectant mothers cannot find Ob/Gyns; it
rages in Florida, where children cannot find pediatric
neurosurgeons; and it rages in Pennsylvania, where the elderly,
who have come to depend on their orthopedic surgeons, are being
told that those trusted doctors are moving to States where
practicing medicine is affordable and less risky.
The real danger of this crisis is that it is not readily
seen. It is like termites in the structure of a house. They get
into the woodwork, but you cannot see the damage. The walls of
the house remain beautiful. You do not know what is going on
beneath the surface, at least not for a season. Then, 1 day,
you go to hang a picture or a shelf and the whole wall comes
down. Everything is destroyed.
Before July 5th, I was like most Americans, completely
unaware that just below the surface of our Nation's health care
delivery system, serious damage was being done by excessive and
frivolous litigation, litigation that was forcing liability
costs beyond the ability of doctors to pay.
I had heard about some of the frivolous cases, and of
course the awards that climbed into the hundreds of millions of
dollars, and like most Americans, I shook my head and said,
``Someone has hit the lottery.'' But never, I never asked, ``At
what cost?'' I never asked, ``Who has to pay for those
incredible awards?'' It is a tragedy when a medical mistake
results in a serious injury. But when that injury, often an
accident or an oversight by an otherwise skilled physician is
compounded by the lottery-like award, and that award, along
with others, make it too expensive to practice medicine, there
is a cost, and believe me it is a terrible cost to have to pay.
Like most Americans, I did not know the cost. I did not
know the damage. You see, Senator Hatch, it is not until it is
your spouse that needs a specialist or you are the expectant
mother who needs an Ob/Gyn or it is your child who needs a
pediatric surgeon, that you realize the damage that is beneath
the surface.
From my perspective sitting here today, this problem far
exceeds other challenges facing America's health care, even the
challenge of the uninsured. My family had insurance when Tony
was injured. We had good insurance. What we did not have was a
doctor, and now no amount of money can relieve our pain and
suffering, but knowing that others may not have to go through
what we have gone through could go a long way toward helping us
heal.
Senator Hatch, I know of your efforts to see America
through this crisis. I know it is important to you, and it is
important to the President. I know the priority Congress and
many in the Senate are placing upon doing something and doing
something now. Today, I pledge to you my complete support. It
is my prayer that no woman or anyone else anywhere will ever
have to go through what I have gone through and what I continue
to go through every day with my two children and a husband I
dearly love.
Thank you.
[The prepared statement of Ms. Dyess may be found in
additional material.]
The Chairman. Thank you, Ms. Dyess. We appreciate your
testimony.
Dr. Wilbourn, we will turn to you.
Dr. Wilbourn. On behalf of the American College of
Obstetricians and Gynecologists, an organization representing
more than 45,000 physicians dedicated to improving the health
care of women, I would like to thank Chairman Hatch and
Chairman Gregg for holding this important hearing to examine
the medical malpractice liability crisis facing this Nation.
Women across America are asking, ``Who will deliver my
baby?'' ACOG deeply appreciates your leadership and commitment
to ending this crisis.
We urge Congress to pass meaningful medical liability
reform, patterned on California's MICRA law, and bring an end
to the excessive litigation restricting women's access to
health care.
My name is Dr. Shelby Wilbourn, and I am an Ob/Gyn, who
recently relocated to Belfast, Maine, after 12 years of
practice in Las Vegas.
Liability is not about fault or bad practice any more. It
is about hitting the jackpot. Even the very best Ob/Gyns have
been sued, many more than once. Even doctors who have never
been sued are seeing their liability premiums double and
triple, not because they are bad docs, but because they
practice in a litigation-happy field where everyone is fair
game.
Let me cite a perfect example which demonstrates the
imbalance of the current tort reform system. That is my story.
I finished my residence at Tulane and moved to Las Vegas, one
of the first people in my family to go into medicine. My father
is a retired master sergeant in the U.S. Air Force, my mother
retired from Sears and Roebuck. I was not raised as a
physician's son or a wealthy family. I worked very hard and
came out of medical school with $186,000 in debt that I was
going to have to pay off.
I worked hard in Las Vegas, teaching at the University of
Nevada, private practice, seeing 40 patients a day, 20 to 25
deliveries a month, operating and was very happy. For 12 years,
I had no lawsuits. I had no claims and no disciplinary actions.
Last year, in March, I was informed by my medical
malpractice carrier that my insurance was going to increase
from $33,000 to $108,000 a year. This was in a year that I had
already had trouble making ends meet and paying the bills of my
office at $33,000. On top of that, I was told that the $108,000
would apply if I limited my number of deliveries to less than
125 a year because they considered it risky to do more than
that. I was already doing 205 deliveries.
How do I choose which half of my patients to tell them, ``I
am sorry. I can no longer take care of you. I have hit my limit
for the year''?
I was forced into one of three options. I could either get
out of medicine, retire, and find something else to do,
relocate, I could stop practicing obstetrics, but that is one-
half of my job--that is what I trained to do, and that is what
I love--or I could start to pick and choose which of my
patients got to stay with me and which ones got turned out on
the street. I could also have the option to go borrow over
$100,000 a year, take the gamble that 1 day the crisis would
wear away, and I would be over half a million dollars in debt.
None of those options were acceptable, so I chose to
relocate. I looked at positions in the United States where it
was less litigious, malpractice was more affordable, and I felt
more physician friendly; thus, my relocation to Maine.
When I got ready to leave Las Vegas, I left over 8,000
active patients. Women were in the office crying, bringing
dishes to say goodbye. I am still getting phone calls in Maine
from these women asking for advice, and I can no longer treat
them long distance.
I had a practice of 12 years that was very successful that
I could not sell. There were no new Ob/Gyns coming to Las
Vegas. They were living faster than you could get one in. There
were no residents coming out that wanted to stay in Las Vegas
and practice. I took a 12-year business and donated it to the
University of Nevada School of Medicine.
I left Nevada because the litigation climate has driven the
medical liability premiums to astronomical heights. In 2002,
Las Vegas Ob/Gyns paid as much as $141,760 a year, a 49.5-
percent increase from 2001. In Clark County, Las Vegas, there
are only 160 Ob/Gyns left, that is private, public and resident
practitioners, left to deliver an estimated 23,000 babies in
2003. That is an average of 216 babies per Ob/Gyn, which is
already over their 125 limit.
Of those Ob/Gyns in Las Vegas who responded to an American
College of Ob/Gyns survey last number, 86 percent have changed
their practice, such as retired, stopped doing high-risk
deliveries, and 30 percent of the Ob/Gyns have stopped doing
obstetrics altogether.
Last July, I was privileged to meet with President Bush in
North Carolina to discuss the medical liability crisis on a
national level. At that time, I had never been named in a
lawsuit, a fact that was made known during that round-table
discussion.
Within 6 days of my return from meeting the President, I
was delivered my first lawsuit. All but one of the physicians
who served on the task force to the governor of Nevada received
lawsuits within six to 7 days, some multiple. I find that
coincidental.
When I left Nevada, my patients, many of whom were with me
for 12 years, were forced to find another Ob/Gyn, among a
dwindling population of Ob/Gyns in Las Vegas. This is the real
issue. Patients around this country are losing access to good
doctors and quality health care. The end game of the current
system is a society without enough doctors to take care of its
citizens. We just cannot let this happen.
Today, we have heard or will hear anecdotes from both sides
of this debate, all of which support each side's position.
However, the fact remains clear there is a medical liability
crisis in this Nation. Who loses in this environment? Women,
good doctors, patients, communities, businesses and Americans.
On February 5th, 2003, the House of Representatives took an
important first step in ending this crisis when Representatives
Greenwood, Cox, DeLay and Sensenbrenner introduced H.R. 5, the
Health Act of 2003, with ACOG's full support. H.R. 5 is fair
for everyone. H.R. 5 will restore the balance in the health
care system that has been hijacked by trial lawyers and
meritless lawsuits.
Thank you, Senators Hatch and Gregg, for your leadership on
this important issue and for the committee's attention to this
crisis. The College looks forward to working with you as we
push for Federal liability reform.
[The prepared statement of Dr. Wilbourn may be found in
additional material.]
The Chairman. Thank you, Doctor.
Mr. Angoff, we will take your testimony now.
Mr. Angoff. Thank you, Mr. Chairman and members of the
committee. My name is Jay Angoff. I am a lawyer from Jefferson
City, Missouri. I was the insurance commissioner of Missouri
between 1993 and 1998.
When I was commissioner, Mr. Chairman, we had a great
medical malpractice insurance market. Profits were high, rates
were low, every year rates either stayed the same or went down.
The apparent explanation is that we have very good experience
in Missouri. We collect data each year from the insurance
companies--I think we have the best data in the country--and
that data showed, during the 6 years I was commissioner, new
claims filed every year were generally down, the number of paid
claims generally went down every year, and the average payment
per claim, after accounting for inflation, generally went down.
After I left the Department, the same trends accelerated,
particularly between 2000 and 2001, there was a dramatic drop
in reported claims, a drop in paid claims, and a drop in
payment per claim. This is based on the data the companies
submit to us. Yet, despite those drops, malpractice premiums
skyrocketed in Missouri, just as they are throughout the
country.
That does not seem to make sense, but it does make sense
once you understand the underlying characteristics of the
insurance business that are responsible for those sudden and
dramatic drops. By the way, this is not to blame the insurance
industry, this is just the underlying characteristics of the
industry that cause it.
No. 1, the investment climate, it is no secret that both
the stock market and the bond market are performing terribly.
We can quibble about how much insurers invest in stocks and how
much they invest in bonds, but the fact is there is no place
insurance companies can put their money today where they are
going to earn any money. That is reason number one.
No. 2, the cost of reinsurance. The cost of reinsurance was
already going up. Reinsurance was the insurance that insurance
companies buy themselves for their real high claims. The cost
of reinsurance was already going up before the terrorist
attacks. After the terrorist attacks, it went up even more for
reasons obviously that have to do with international events.
Nothing to do with the medical malpractice business.
Reason number three--and this is probably the most
important, but it is also the most technical, so I will try to
make it simple--when insurance companies say they have a loss,
what they mean is they estimate they will pay out a certain
amount in the future, not that they have actually paid out that
amount.
Mr. Chairman, in your opening statement, you talked about
insurance companies paying out $1.54 for each premium they take
in, and that is a figure that the insurance industry puts out,
and that is accurate based on insurance accounting principles,
under which what they call their incurred losses, which seems
to the average person to mean the amount they actually pay out,
but under their accounting principles, what it means is the
amount that they will project they will ultimately pay out on
premiums that they take in, in a given year.
During the last insurance crisis in the mid 1980s,
insurance companies projected that they would pay out a whole
lot. They had very high loss ratios, numbers similar to the
$1.54 that you projected, Mr. Chairman. What they found out
when these claims, when it came time to pay these claims, they
actually paid out a heck of a lot less, so they had a lot of
money left over with which to reduce rates in the nineties.
That is one reason rates were slow and profits were so high in
the nineties.
The same thing is happening now. Insurers are overinflating
the amount that they project they will pay out. In a few years,
and I know it is no comfort to doctors now, but in a few years,
just as happened after the last insurance crises, it will turn
out that these estimates are inflated, they will be able to
reduce their rates.
A fourth factor that is responsible, and I do not want to
overstate this, but it does have some responsibility, and that
is the antitrust exemption for the insurance industry. When
times are good, when insurance companies are making lots of
money on their investments, the antitrust exemption is
irrelevant. Insurance companies do not fix prices then, they
cut prices. They are competing like crazy, so the insurance
antitrust exemption then is irrelevant.
On the other hand, in times like this, when times are bad,
the antitrust exemption allows insurance companies to price
without fear. They do not have to worry about being able, they
do not have to worry about being prosecuted for pricing
collectively. That is not a violation of the law under
McCarron-Ferguson, and I will be glad to answer any questions
about that after my testimony concludes.
Finally, Mr. Chairman, there are things that can be done,
although not all at the Federal level. At the Federal level,
the antitrust exemption can be repealed or modified. At the
State level, it can be made easier for insurance regulators to
roll back and refund excessive rate increases, and, finally,
Mr. Chairman, there is the California solution which is a very
extreme solution, but in California it worked.
In 1988, the citizens of California enacted a ballot
initiative called Proposition 103, which rolled back all
property casualty rates by 20 percent, repealed the State
antitrust exemption, established prior approval rate
regulation. That has had a very positive effect on rates in
California. It is an extreme solution, but if nothing else
works, it is a solution that can be implemented.
That concludes my statement. I will be glad to answer any
questions the committee may have.
[The prepared statement of Mr. Angoff may be found in
additional material.]
The Chairman. Thank you so much.
Mr. Montemayor?
Mr. Montemayor. Thank you, Mr. Chairman, and good
afternoon, members. I am Jose Montemayor. I have the honor of
being the commissioner of Insurance for the great State of
Texas.
As a member of the National Association of Insurance
Commissioners, I also chair that group's Property and Casualty
Committee, and separately a subcommittee or working group
looking into the medical malpractice insurance coverage for
physicians and other health care providers on a national basis.
To that end, we will be having a hearing in March to collect
additional data and continue that study.
Today, however, I am presenting for the record a report
first provided to the Texas legislature in late 2001 and again
updated in 2002 regarding the availability and the
affordability of medical professional liability insurance in
Texas.
There are a number of theories, Mr. Chairman, regarding the
current situation in medical malpractice coverage. However, the
sum of our report clearly indicates the loss trends, and what I
mean by that is increasing amounts paid for claims or the
primary costs or rising costs of medical malpractice insurance.
Really, all other costs are a distant second.
This first chart would clearly, it is a 10-year average on
a study that we had been conducting just with 15 States. The
chart is on the left. It basically shows what happens for every
dollar of premium taken in compared to losses in defense
expenses associated with claims for that company and their
policyholders. And in a State like Texas, you can see--it is
the one in the red bar--that we have been paying out
approximately $1.60 for every single dollar of premium
collected.
What that does, it does affect our profitability, which is
the chart on the right, which is basically the net worth of the
company after all profits and investment incomes are declared.
You can see that on a purely underwriting basis, just dollars
in per dollars out, California and Michigan managed to stay
profitable over a 10-year period. Once you add investment
income back in and compare it to their net worth, almost all
States came back to positive, except for Texas, who experienced
a negative 2 percent over a 10-year period.
Over a four-year period, those claim costs per doctor--this
is all of the claims paid divided by all of the doctors
insured--have risen approximately 50 percent, and this is
driven by two things; the number of claims called the claim
frequency and the amount per claim called the claim severity.
In my own State, we found the problem to be fairly complex,
and in some areas we have a high number of frequency, such as
in the Lower Rio Grande Valley area--my area of the world--and
the reversals in other parts of the State, where the amount per
claim is much higher, although the number of claims is lower.
Those loss trends indicate the presence of liabilities
which, due to their unpredictability, it has led a number of
insurers, first of all, to either discontinue writing the line
or go insolvent, and it has cost them, if you go back to the
end of 1998 and see what they have had to do with their
premiums, basically, to escalate somewhere between 80 and 140
percent over the last 4 years for the major writers in Texas.
With the stock market losses in the last few years and
investment income and hard markets, it seemed like reasonable
culprits initially. So we undertook an investigation to see
exactly what was going on with that. And what we found that
nationally all property and casualty companies that specialize
in medical malpractice, primarily bonds, into the high 90
percent. The area in blue represents each of the investment
years from 1991 to 2001. The area in yellow, it is the area
they held in equities or common stocks, and then there are some
holdings in cash and so forth, and this is a natural allocation
that has always existed there because of their cash needs and
their predictability and ability to get cash.
So, from our perspective, what we found again was losses
drove the environment, much more so than any other fundamental
reason. It has a much more dramatic effect to have an
adjustment in reserves for anticipated claims than it would to
lose badly on their equity holdings, and that is the whole
purpose of this chart.
What is not in any of these charts, Mr. Chairman and
members, can never be conveyed fully through the statistics or
the accounts from people who suffer from lack of access to
patient care. There are stories from the Rio Grande Valley to
the Texas panhandle of how people do not have access to health
care.
I have visited with a number of doctor groups who have come
to me for help, saying what can we do about our premiums. They
are escalating to the point where I can no longer hang in
business, where I can no longer do certain procedures, and I am
going to have to either withdraw or change my practice to only
do less-risky procedures.
So I hope that the attached report that I presented, and
the summary charts presented, to the committee today would
speak volumes on a simple premise that we do need a balance and
reasonable limits on losses to stabilize the medical liability
insurance market, and I believe that that will go a long way to
alleviate the looming crisis of access to health care.
I would be very pleased to answer any of your questions.
[The prepared statement of Mr. Montemayor may be found in
additional material.]
The Chairman. Thank you so much.
Mr. Smarr, we will turn to you.
Mr. Smarr. Chairman Hatch, Chairman Gregg, and committee
members, I am Larry Smarr, president of the Physician Insurers
Association of America. The PIAA is an association comprised of
professional liability insurance companies owned and/or
operated by physicians, dentists and other health care
providers.
The 43 PIAA insurance company members can be characterized
as health care professionals caring for the professional
liability risks of their colleagues, doctors insuring doctors,
hospitals insuring hospitals.
Sitting behind me here today is Dr. Warren McPherson, a
practicing neurosurgeon from Murfreesboro, Tennessee. Dr.
McPherson is the chairman of the PIAA board of directors and
also chairman of the State Volunteer Mutual Insurance Company,
the largest insurer in Tennessee and Arkansas, and a mutual
company owned and operated by the doctors it insures.
We believe that the physician-owned and operated insurance
company members of the PIAA currently insure over 60 percent of
America's physicians. Let me get right to the issue. Over the
past 3 years, medical liability insurers have seen their
financial performance deteriorate substantially due to the
rapidly rising cost in medical liability claims.
According to A.M. Best, the leading insurance industry
rating agency, the medical liability insurance industry
incurred a $1.53 in losses and expenses, as we have heard here
today, for every dollar of premium they collected in 2001. Best
estimates that this number will be $1.41 in 2002 and decline to
$1.34 in 2003, primarily due to the rising premiums that the
insurance carriers are collecting, and Best also has told us
that this statistic would have to go down to $1.14 in order for
the industry to break even.
The primary driver of the deterioration in the medical
malpractice insurance industry performance has been paid claim
severity or the average cost of a paid claim. Exhibit A shows
the average dollar amounts paid in indemnity to plaintiffs on
behalf of individual physicians since 1988. The mean payment
amount has risen by a compound annual growth of 6.9 percent
over the past 10 years, as compared to 2.6 percent in the
consumer price index.
The data from this exhibit comes from the PIAA data-sharing
project, a medical cause-of-loss database which was created in
1985 for the purpose of identifying common trends among
malpractice claims which are used for patient safety purposes
by the PIAA member companies. To date, over 180,000 claims and
suits have been reported to our database.
One very troubling aspect is the proportion of those claims
and suits filed which are ultimately determined to be without
merit, as shown on Exhibit B. Sixty-one percent of all claims
closed in 2001 were dropped or dismissed by the court. An
additional 5.7 percent were won by the doctor at trial. Only
33.2 percent of all claims closed were found to be meritorious,
with most of these being paid through settlement. Of all claims
closed, more than two-thirds had no indemnity payment to the
plaintiff. When the claim was concluded at verdict, the
defendant prevailed an astonishing 80 percent of the time.
As shown on Exhibit C, the mean settlement amount on behalf
of an individual defendant was just over $299,000. Most medical
malpractice cases have multiple defendants, and thus these
values are below those which may be reported on a case basis.
The mean verdict amount last year was almost $497,000 per
defendant, and these are dollars that are actually paid. These
are not verdicts that juries render and then get reduced at
some point in the future. These are the sum of checks written.
Exhibit D shows the mean expense payment for claims by
category of disposition. As can be seen, the cost of taking a
claim for each doctor named in a case all the way through trial
is fast approaching $100,000.
Exhibit E shows the distribution of claim payments at
various payment thresholds. It can be readily seen that the
number of larger payments are growing as a percentage of the
total number of payments. You can see that the red band at the
top is getting larger. Those are claims that are a million
dollars or more. Whereas, the green band at the bottom claims,
at a far lesser level, are getting smaller in proportion to
their number.
This is especially true for payments at or exceeding $1
million, which comprised almost 8 percent of all claims paid on
behalf of individual practitioners in 2001, as shown on Exhibit
F. This percentage has doubled in the past 4 years.
Unfortunately, I must spend the rest of my time debunking a
false premise being propagated by the trial lawyers and a few
of their supporters who oppose effective Federal health care
liability reform. Contrary to the unfounded allegations of
those who oppose effective tort reform, medical malpractice
insurers are primarily invested in high-grade bonds and have
not lost large sums in the stock market, as Commissioner
Montemayor has just explained.
Brown Brothers Harriman, a leading investment and asset
management firm, in a recent investment research report states
that ``Over the last 5 years, the amount medical malpractice
companies have invested in equities has remained fairly
constant. In 2001, the equity allocation was 9.03 percent.''
As Exhibit G shows, medical liability insurance companies,
shown in green, invested significantly less in equities than
did all property casualty insurers.
Brown Brothers states that the equity investments of
medical liability companies had returns similar to the market
as a whole. This indicates that they maintained a diversified
equity investment strategy. Specifically, the report states
that ``Since medical malpractice companies did not have an
unusual amount invested in equities, and what they did was
invest it in a reasonable market-like fashion, we conclude that
the decline in equity evaluations is not the cause of rising
medical malpractice premiums.''
While insurer interest income has declined due to falling
market interest rates, when interest rates decline, I think as
we all know, bond values increase. This has had a beneficial
effect in keeping total investment income level when measured
as a percentage of total invested assets.
This is shown on Exhibit H. As you can see, the top line,
which is the net investment yield on assets, has remained
rather level throughout the last five or 6 years. Thus, the
assertion that insurers have been forced to raise their rates
because of bad investments is simply not true.
The PIAA firmly believes that the adoption of effective
Federal health care liability reform, similar to the California
MICRA reforms enacted in 1975, will have a demonstrable effect
on professional liability costs. The keystone of the MICRO
reforms is a $250,000 cap on noneconomic damages, largely pain
and suffering.
These reforms are similar to the provisions of H.R. 4600
passed by the House last year, and scored by the CBO, as
providing over $14 billion to the Federal Government and
additional savings of $7 billion to the States because tort
reform works.
Using annual data published by the National Association of
Insurance Commissioners, Exhibit I documents the savings
California practitioners and health care consumers have enjoyed
since the enactment of MICRA over 25 years ago. As shown, total
malpractice premiums reported to the NAIC since 1976 have grown
in California by 167 percent, while premiums for the rest of
the Nation have grown by 505 percent.
These savings are clearly demonstrated in the rates charged
to California doctors, as shown on Exhibit J. Successful
experience in California and other States, such as Colorado,
make it clear that MICRA-style tort reforms do work without
lowering health care quality or limiting access to care.
And as you can see, an Ob-Gyn in California pays almost
$55,000 for coverage in Los Angeles. That is a lot of money,
but it is not nearly the same amount of money as that same
doctor in Miami who pays four times as much.
Legislators are now challenged with finding a solution to
the medical malpractice affordability and availability dilemma,
a problem long in coming which has truly reached the crisis
stage. The increased cost being experienced by insurers who are
largely owned or operated by health care providers are real and
documented. It is time for Congress to put an and to the
wastefulness and inequities of our tort legal system, where
only 50 percent of the moneys available to pay claims are paid
to indemnify the only 30 percent of claims filed with merit,
and the expenses of the remainder.
The system works fine for the legal profession, which is
why the trial lawyers and others fight so hard to maintain the
status quo.
The PIAA strongly urges members of the Senate to support
and pass legislation which will assure full payment of a truly
injured patient's economic losses, as well as up to a quarter
of a million in noneconomic damages, thereby assuring fair
compensation for patients and also assuring Americans that they
will be able to receive necessary health care services.
Thank you.
[The prepared statement of Mr. Smarr may be found in
additional material.]
The Chairman. Thank you very, very much, Mr. Smarr.
We are going to go to Senator Gregg first, then Senator
Kennedy and then back to me.
Senator Gregg. Mr. Smarr, those statistics which you just
presented were rather startling, especially the California
experience. Just to clarify, your organization, which insures
60 percent of doctors is a not-for-profit organization; is that
correct?
Mr. Smarr. Senator, they are not really not-for-profit
because there is no such thing as a not-for-profit insurance
company, but there are companies, mostly mutual companies and
reciprocals, that are owned and/or operated by the doctors they
insure, and they started over two decades ago with the
philosophy of----
Senator Gregg. Well, their purpose is not to gouge doctors.
Mr. Smarr. Their purpose is not to what, sir?
Senator Gregg. Is not to gouge doctors, correct?
Mr. Smarr. Absolutely, it is not.
Senator Gregg. In fact, the doctors own----
Mr. Smarr. It is not to gouge doctors.
Senator Gregg. So I am interested in this--can you go back
to your chart there, the MICRA chart.
Now, we heard testimony that said that the reason
California's rates dropped was because of Proposition 103. As I
understand proposition 103, it did not directly impact the
malpractice insurance industry. Instead it was MICRA that has
driven the drop in the cost of malpractice insurance, and
therefore the affordability of doctors to practice in
California.
Is that your assessment, also?
Mr. Smarr. It is. Prop 103 was aimed primarily at the auto
insurance industry. Malpractice carriers were required to
rollback, to provide premium refunds to their insureds, and
this was at a 20-percent level. However, in the consent orders
that were made with the Department of Insurance, these refunds
of premium were considered as dividends, and at the time the
insurers were paying in excess of 20-percent dividends, in any
event, and there was no rollback of insurance rates required in
these consent agreements.
Senator Gregg. So it is reasonable to presume that the real
driver of the affordability of malpractice insurance, and
therefore the accessibility of, for example, Ob/Gyns in Los
Angeles versus Las Vegas, is the MICRA law.
Mr. Smarr. That is my belief.
Senator Gregg. Commissioner, we received a letter from the
National Association of Insurance Commissioners, which was
cited as a source by Senator Kennedy in his opening statement,
and I believe it is the bench-mark group for the purpose of
insurance commissioners, and it addressed this issue of price
fixing. I just wondered if you agreed with their assessment
from your experience as an insurance commissioner in Texas.
The first question was whether or not the legislation, this
would be the legislation introduced by Senator Leahy, presumes
that medical malpractice insurance carriers are engaging in
price-fixing, bid-rigging and market allocation. And the
response of the Association of Insurance Commissioners was
``No. To date, insurance regulators have not seen evidence that
suggests that medical malpractice insurers have engaged or are
engaging in price-fixing, bid-rigging or market allocation,''
and I emphasize the next sentence. ``The preliminary evidence
points to the rising costs and defense costs associated with
litigation as the principal drivers of medical malpractice
prices.''
Then, they go on in another answer to say, ``Again, the
evidence points to high loss ratios, not price-fixing, as the
primary drivers of escalating premium costs.''
Do you agree with those conclusions?
Mr. Montemayor. I do, Senator. The bulk of our research
points to losses, the checks written to, as a result of claims,
as well as defense costs, as being the primary driver of
premiums universally across the country. I would agree with
that assessment.
Senator Gregg. Is it your experience in Texas that 70
percent of medical malpractice suits are won by doctors?
Mr. Montemayor. Our experience in Texas is, in fact, even a
little higher than that. It is in the mid eighties. Most
lawsuits end up with zero payment to the plaintiff, but they do
result in additional costs due to the defense costs.
Senator Gregg. That was going to be my question. A previous
chart noted that even cases that doctors win still cost $91,000
to litigate. To what extent, are those costs frivolous?
Mr. Montemayor. I would not be prepared to speak to which
percentage of those were frivolous. I mean, I can tell you that
of those that did go to trial, the doctor won them 85 percent
of the time or so, and the plaintiffs won some 15 percent of
the time.
Senator Gregg. Is it reasonable to presume that some
percentage of those cases are brought because the plaintiff's
attorney believes that, even though they are not going to win
the case, they are going to win the costs?
Mr. Montemayor. That certainly is one of the conclusions
that we have reached in looking into this issue.
Senator Gregg. How do we address that, from the standpoint
of legislation? Should we make it a ``loser pay'' situation
like the English have?
Mr. Montemayor. That is a policy matter, Senator. I do not
have a good answer for that.
Senator Gregg. To the extent that there has been gross
negligence, again, Commissioner, should there be a cap on
damages if there is gross negligence or willful negligence,
willful misconduct?
Mr. Montemayor. I will tell you that in speaking to all of
our leaders at the State level and all of the other insurance
commissioners, I do not think anybody is interested in denying
those people that have been, in fact, the recipients of a
medical error access to have their grievance redressed. I think
the real issue is striking that right balance, in terms of
keeping insurance affordable, and available, to all physicians
vis-a-vis the cost of the losses associated with it.
One of the methods that was tried in the State of
California was, in fact, through caps, and our research shows
that they consistently, no matter what specialty we are talking
about, they consistently get far better rates in that State
than anywhere else. But there or anywhere else, it is all
driven by the cost of actually the claims themselves.
Senator Gregg. It seems reasonable to me that if there has
been conduct which goes outside the bounds of typical error
that you should have a different recovery system.
Mr. Montemayor. It would seem reasonable, Senator.
Senator Gregg. Is it not also intuitively obvious that if
the number of claims that are over a million dollars is
increasing faster than any other percentage of the group, that
it is really the claims that are driving this problem, not
collusion of the insurance companies or loss of revenue from
bad investments?
Mr. Montemayor. Without doubt. All other costs are a
distant second. The primary driver of premium levels is, in
fact, claims made in defense costs.
The Chairman. Senator Kennedy?
Senator Kennedy. Thank you very much.
Mr. Montemayor, you State that investment income is not the
real culprit of medical malpractice rate hikes of 80 percent to
140 percent for the major companies in Texas because a
preponderance of the investments in bonds. Are you not
overlooking the fact that with the interest rates at a nearly
40-year low, the bonds have not been doing very well in recent
years?
In fact, I have the document from the Texas Department of
Insurance, dated August 15, 2002, which shows that the net
investment income is way down for medical malpractice
insurance. It steadily dropped from $1.347 billion in 1997 to
$1.228 billion in 2000. This is a decline of $120 million. In
2000, they also sustained $441 million in unrealized capital
losses. The total yield on their investments has fallen from
8.1 percent in 1997 and 5 percent in 2000.
The reduction in earnings these companies have sustained
sounds pretty substantial. Is that not what your department
data shows, and how can you discount it as a cause of the
substantial premium increase which Texas doctors are seeing?
Mr. Montemayor. Without doubt, Senator, the level of
investment income has in fact decreased, as you pointed out,
due to a lower prevailing interest rate on the bond market.
However, the old rates were set on a prospective basis, and
what that really, really means is that the level of help you
will normally get, in other words, your ability to price it at
117 percent, now means that you have to price it at 110 percent
of expected losses in order to break even. The Medical
Liability Trust, which is the primary driver or writer in
Texas--they write some 10,000 doctors out of the approximately
30,000 doctors that are in practice in Texas--projects that
they will need about 10 percent return on income, and it is a
Medical Liability Trust. In other words, the level of help is
just not there.
Senator Kennedy. The point about it is you have had a
decline of $120 million, $441 million in unrealized capital
losses. No one is questioning you have the losses. Someone has
to make it up, and it appears to me it is the doctors that are
being asked to make it up.
Mr. Smarr, you State in your testimony that the net income
for the PIAA companies was only 4 percent in 2000. It fell to
minus 10 percent in 2001. By comparison, on page 6, on graph 6
of your testimony, shows that the net income was over 20
percent per year, 1995, 1996, 1997, and was 17 percent in 1998
and 12 percent in 1999. Those are all very good rates. Net
income was so strong in those years, because as the graph on
page 8 shows, investment income as a percent of premiums, was
between 43 and 46 percent. Then in 1999 it dropped to 33
percent. In 2001 it dropped to 31 percent. That is a
substantial decline. Companies were taking in one quarter less
in investment profits. Is this substantial decline of
investment income not the largest factor in the timing and the
amount of premium increase we have seen in the last 2 years?
Mr. Smarr. No, Senator Kennedy, I do not believe that it
is. Our companies did earn more investment income in prior
years because prevailing market interest rates were higher, and
that is a fact of life that we have to live with.
Senator Kennedy. That is just what I am saying. Then you
have less. So you have the losses, and you are increasing the
premiums on the doctors.
Mr. Smarr. It is not losses, Senator. It is the amount of
interest we make.
Senator Kennedy. Well, whatever way you want to describe
it, counting, it is not there. I mean we got the charts just
reflect that in terms of it--we do not want to spend the time--
whatever way you want to show it, it was not getting the kind
of income that you were getting in the previous years.
Mr. Smarr. Yes, sir. I think none of us are getting the
kind of investment income.
Senator Kennedy. We just admitted, this is what the charts
show, you had 23 percent, 20 percent in 1996, 1997, 21 percent,
17 percent in 1998, and minus 10 percent in 2001. That is what
your charts show.
Let me go to the issue about California, the MICRA. I would
like to ask Mr. Angoff if he would interpret the figures on
California. I have them here. They are part of your testimony,
Exhibit 3. We have heard a great deal about MICRA, about
starting in 1976 and how it basically stabilized. Then we see
MICRA is upheld by the California U.S. Supreme Court, and we
get the largest increases. And then we have Proposition 103,
which is the Insurance Reform in 1988, where from 1988 the
premiums were in I guess in hundreds of thousands, 663,155,
hundreds of thousands, to in 2000, 609, so there is virtually
no actually decline.
Can you explain, since we have heard a great deal about
from 1976 to 2000 there are really three sets of figures, one
where you have stability in premiums earned for the first
years. Then a very dramatic, 2 or 3 percent bubble up, and then
the stable figures afterwards. What should we know? What do
those figures tell us? What were the factors that influenced
that, and what should we--how should we take those figures in
trying to understand the medical malpractice question?
Mr. Angoff. Mr. Smarr is correct that the aggregate
increase between 1976 and the present in California is much
less than the aggregate increase country wide, but the facts
show that that relatively good experience in California is due
to Prop 103 for the following reason.
MICRA was tied up in litigation for the first couple of
years. The California U.S. Supreme Court finally upheld the two
most significant parts of MICRA, the limit on noneconomic
damages and the limit on attorneys fees in 1985. A year after
the California U.S. Supreme Court upheld those two provisions.
Medical malpractice premiums in California rose by 35 percent.
Now, does this mean that MICRA caused malpractice premiums to
rise? No, that would be pure demagoguery to take that position,
and that is not the position that I am taking.
On the other hand, MICRA clearly did not cause malpractice
premiums to fall. Malpractice premiums only started falling
after Prop 103 was enacted in 1988. In 1988 medical malpractice
premiums were 663 million. They went down to 633 million the
next year. They kept going down. And even in 2000, 12 years
after Prop 103 was enacted, malpractice premiums in California
are 609 million, about 10 percent less than they were in the
year before Prop 103 was enacted.
Now, Prop 103 did roll back rates by 20 percent, and as I
said in my testimony, that is a very extreme measure. It might
sound even a little wacky. You cannot just mandate companies to
roll back their rates by 20 percent. But the California U.S.
Supreme Court upheld that rollback as long as insurers had an
opportunity to avoid the rollback if they can show that they
cannot earn a fair rate of return with the rollback. So that
was upheld by the California U.S. Supreme Court, and in
addition, very importantly, Prop 103 did not only roll back
rates by 20 percent, which was very important, but it also
repealed the State Antitrust Exemption so that in California
insurers can share data that will allow them to make prices,
set prices more accurately. They can share their past cost
data, which is permitted under the antitrust laws, but they
cannot get together and agree on future prices which is not
permitted.
And then finally, Senator, MICRA also gave doctors and
consumers automatic standing to intervene in rate cases before
the insurance department. That is, if an insurance company
files for a rate increase, under Prop 103 any consumer, any
policyholder, including a doctor, can intervene and can try to
show why that increase is excessive. So, yes, I think the
evidence shows that Prop 103 is what is responsible for the
relatively good experience in California.
Senator Kennedy. Thank you.
The Chairman. Mr. Smarr, as I understand it, California did
stabilize rates while other States were continually going up.
Am I wrong about that?
Mr. Smarr. No, Senator, you are correct.
The Chairman. So that did happen. Let me ask you this. On
page 6 of his written testimony, Mr. Angoff suggests that
doctors who own and operate the companies that you represent
are taking advantage of their colleagues, increasing prices for
the wrong reasons to increase profit.
Now help me out with this. Sixty percent of America's
doctors are insured by these companies. I have not heard from
one doctor that he or she feels that we need legislation to
prevent their own doctor-owned insurer from taking advantage of
them. Now, who is right here? Are doctors being ripped off?
Mr. Smarr. Senator Hatch, I have not heard from one doctor
either that they feel like they are being ripped off by their
physician owned or run insurance company. The companies are run
very conservatively. They pay dividends to their policy
holders, and their core purpose in being, their only purpose in
being, is to provide a fair and equitable market for their
insurers.
The Chairman. Well, we all know that the stock market has
declined during the last 2 years, but is that what is driving
the current medical liability crisis?
Mr. Smarr. No, not at all. The malpractice companies are
not largely invested in equities, and there is no way that that
could even be considered a prime driver of this crisis.
The Chairman. Commissioner Montemayor, there are some who
suggest that one of the principal reasons for the rise in
medical liability rates is the McCarran-Ferguson Act, the
antitrust exemption for the insurance industry. Yet on page 5
of his written testimony, Mr. Angoff candidly admits, quote,
``The extent to which insurers today are acting in concert to
raise prices has not yet been determined,'' unquote. Now, I am
personally not aware of any evidence to suggest that medical
liability insurers have reached specific agreements to raise
prices. Are you aware of any specific evidence demonstrating
that any of the increase in medical liability insurance rates
is the result of an agreement or agreements among insurers to
fix prices, allocate territories among themselves, or engage in
bid rigging? In other words, is there any evidence to suggest
that members of the industry are colluding to raise prices?
Mr. Montemayor. Mr. Chairman, we have come across no such
evidence in Texas. To my knowledge, none of my fellow
commissioners have come across any such evidence in their State
either, and in fact, as my own chart here demonstrated, there
is enough variability in terms of what the individual insurance
companies operating were doing to sort of lead the indication
the other way. In fact, there is ample evidence that they are
not getting together to set those prices.
The primary reason--I cannot overemphasize that enough--for
the dramatic increase in premiums is in fact losses, and that,
our losses would include not only indemnity payments, but also
the duty to defend and defense costs, bar none.
The Chairman. Mr. Angoff, in your written Statement you
write, quote, ``Whether or not a State enacted such
limitations,'' unquote, meaning tort reform I take it, quote,
``malpractice rates rose during the mid 1980s, fell during the
1990s and are sharply rising today,'' unquote. Yet the evidence
that we have seen today suggests that this is not the case in
California. The evidence indicates that the reforms in
California stabilized medical liability premiums, and that
those premiums have remained substantially lower than the
remainder of the country in aggregate since they were enacted.
Now, I would like you to explain, if you will, the dramatic
differences between California and the rest of the United
States, between 1985 and 1988?
Mr. Angoff. I would be glad to, Mr. Chairman. The
difference between California and the rest of the country is
that California enacted Prop 103 in 1988, which had the effect
of immediately rolling back rates and keeping them at moderate
levels since 1988. Missouri, it is demonstrable that MICRA, the
cap did not have any effect on limiting malpractice insurance
rates, because for example, in my own State of Missouri, Mr.
Chairman, we enacted a cap in 1986. it was held constitutional
immediately thereafter. Yet we are still having the same
problems in Missouri. Doctors are still having 100 percent
increases in Missouri, even though we enacted a cap. Other
States----
The Chairman. Now, wait. Is not that cap currently over
500,000, about $550,000?
Mr. Angoff. Yes, that is true.
The Chairman. In other words, it is going up all the time.
Mr. Angoff. It is indexed to inflation as most are. But you
will, Mr. Chairman, that today, regardless of whether or not a
State has a cap, malpractice rates are going way up. It happens
to be the case that in my State, based on the data the
insurance companies submit to us, litigation is decreasing, not
increasing. The average payment per claim is decreasing, not
increasing. And despite that, rates have gone up by over 100
percent in a little over a year according to the State Medical
Association. So despite the fact that we have good experience,
despite the fact that we already enacted a cap, malpractice
rates are still dramatically increasing in Missouri. That is
why it seems obvious to me, Mr. Chairman, that the cause cannot
be the litigation system.
The Chairman. Let me just ask one more question. I have to
head over to the floor. But let me put it this way. Mr. Smarr,
we have heard from you that in California the Medical Injury
Compensation Reform Act, or MICRA, stabilized medical liability
insurance costs. We have heard from Mr. Angoff that Proposition
103, not MICRA, is what worked in California. Now, who is
correct? Is it MICRA or Proposition 103 or both?
Mr. Smarr. Chairman Hatch, the Prop 103 argument I think is
just totally false. I have here consent agreements which were
signed by physician-owned insurance companies in California,
and paragraph 4 of the consent agreement for the NORCAL Mutual
Insurance Company, for example, States: A rate rollback
obligation is a return of premium, and as such is treated as a
policy holder dividend in accordance with customary industry
practice.
Now, this rollback as a return of premium was to be paid in
1992. And with respect to the NORCAL Mutual Insurance Company,
which I believe is typical, in 1990, NORCAL paid dividends back
to its policy holders of 27 percent of premium. In 1991 it paid
26 percent. In 1992, the year the 20 percent as to go back, it
paid 31 percent of premium. In 1993 it paid 37 percent of
premium back to its policy holders. In 1994, 34 percent and so
on. But I have to tell you that NORCAL currently is paying
something like 4 percent back to its policy holders because of
the deterioration in this loss experience. Prop 103 was not an
issue.
The Chairman. Just one last thing. The Harris poll stated
that the fear of being sued has led 79 percent of doctors to
order more tests than are medically necessary. In other words,
doctors are practicing unnecessary defensive medicine. The same
poll stated that 76 percent of the physicians are concerned
that malpractice litigation has hurt their ability to provide
quality care to patients. Now, I personally believe that that
is putting a lot of pressure on insurance rates as well,
because of the high cost of defensive medicine.
I remember when we were advising doctors in these matters--
it was a long time ago, when I had any type of practice in this
area--we just told them: You are just going to have to fill up
your history. You cannot afford to just tell a patient with a
common cold, take 2 aspirins every 6 hours, drink all the
liquids you can, in 6 days, 7 days you will be better, or do
not do anything, in 7 days you are going to be better. You are
going to have to order respiratory exams, cardiovascular exams,
etc., which certainly had the effect of driving up the cost. Is
that what you are experiencing?
Mr. Smarr. Well, defensive medicine drives up health care
costs, and one estimate issued by the National Bureau of
Economic Research is that up to $50 billion a year is spent in
the health care system to pay for defensive medicine, and
doctors who fear being sued, in case they do not do a test.
Every sprained ankle now apparently gets x-rayed because
somewhere in a group of 100 sprained ankles there is going to
be a fracture that will wait 2 weeks to be diagnosed. And so
this fear of being litigated against is forcing doctors to
order tests that would otherwise not be necessary.
The Chairman. Thank you. Mr. Chairman.
Senator Gregg [presiding]. As is our tradition, we will
recognize members in order of arrival. Senator Dodd,
alternating back and forth, Senator Dodd.
Senator Dodd. Thank you very much, Mr. Chairman. I commend
both the chairmen for holding this joint hearing. Obviously it
is a matter that requires the attention, as I understand it, of
both committees. So I appreciate the opportunity to listen to
our witnesses.
I want to begin by thanking Laurie Peel and Linda McDougal
and Leanne Dyess for being here. It is not easy to come and
talk about personal stories, and it takes a lot of courage to
do so, and we are very grateful to all three of you for being
here to share your stories with us this afternoon, and you have
our deepest sympathies for the difficulties you have been
through personally.
Just a couple of questions if I could. One is I would like
to ask our two insurance commissioners if I could. People get
somewhat confused. If you have an automobile accident, your
premiums on your insurance for your automobiles is going to go
up. But my neighbors' generally will not. There is not the
sense that because people live in the same neighborhood, one
has an accident, the other does not, everybody gets a higher
premium cost. Why cannot that work here? It seems to what you
have got are doctors paying this thing, but our physician from
Nevada went through here, had a good record over 12 years, no
incidents at all as I understand you, doctor, and yet your
premiums went up. Now, I presume there were doctors in Nevada
that were subjected to malpractice loss, legitimate ones. You
acknowledge that, I presume, there were various cases?
Dr. Wilbourn. Yes. There were.
Senator Dodd. Let me just finish the question.
Dr. Wilbourn. I am sorry.
Senator Dodd. My point being here, why do we not apply the
same standard we do on automobile insurance to medical
malpractice insurance?
Mr. Angoff. Senator, we could do that. That is something
that would have to be done at the State level. But it would
make--it has frequently been suggested that the categories of
doctors should be broadened so that there are more doctors in a
category, thus spreading the risk more broadly, but that within
the category doctors' rates should be based on experience. That
is, a doctor who had to pay--who was found negligent would be
surcharged. A doctor who was found negligent twice would be
surcharged even more, and then real high risk doctors would be
put into a residual market, which exists in auto insurance for
the really bad drivers. The same concept is in place in certain
States and it could be put in place in other States, so that
there would be what is called a joint underwriting association
for doctors who have been found negligent several times, and
they would pay higher premiums, but in addition their premiums
would be subsidized.
Senator Dodd. So in effect, Dr. Wilbourn was driven out of
the State of Nevada, not because of anything he did wrong, but
because of what some of his colleagues did, and that is why his
premiums went up.
Mr. Angoff. That can happen. I mean that is happening.
Senator Dodd. Want to answer that, Commissioner?
Mr. Montemayor. Senator, you are on the right trail. I mean
everything in property and casualty, which this is, it is
frequency and severity, and so the different classes of doctors
are somewhat similar to different kinds of vehicles, Ob/Gyn's,
family practice, neurosurgeons, etc. And so you look at the
probability of them being involved in a claim, and then on
average how much the claims have been, and in the most
rudimentary of ways you look at both frequency and severity for
this period and this period and this period, and you draw a
line, and in estimating the future period, just extend it one
more. And that is essentially what they do. And they do have a
methodology for surcharging based on individual claims to try
to manage that, but it is basically a spreading of risk by like
class and kind to some manageable level.
Most of the insurance companies will determine how they set
up their territories for rating purposes and so forth, but it
is essentially the same type of exercise, Senator.
Senator Dodd. In the full disclosure, I represent the State
of Connecticut, and we have a small cottage industry called
insurance in my State, but I am curious on how these issues
work. I will also tell you that my State of Connecticut, we
have roughly 13,500 doctors, about 30,000, I think the number
is, nurses--in fact we have a shortage of about 11,000 in my
State. We have 31 hospitals in the State of Connecticut. And I
went back and checked with my insurance companies and my
physician groups in Connecticut. We average somewhere around
350 medical malpractice suits each year in the State of
Connecticut. And one of the reasons I am told we do is because
they have a number of rules in Connecticut. One is that before
a claim can be filed, you must have a signature or a document
signed by a physician saying that the claim, if proven to be
true, would be a legitimate malpractice allegation, and you
have got to get that certification before you can go forward.
And it seems to have had the positive effect of reducing the
number of lawsuits being filed.
I wonder if you might share with us, just from your own
experience, what other countries may be doing, what others are
doing. I, for one, will tell you, I always wrote the Private
Securities Litigation Reform Bill for the U.S. Senate a number
of years ago to limit frivolous lawsuits in the securities
field. And I wrote along with Bob Bennett the restrictions on
tort reform, if you will, of some tort reform, and the Y2K
legislation, along with Mike Enzi and others who were involved
in that. So I have certainly been supportive in the past of
tort reform issues. But I for one believe--and I will tell you
very strongly--the idea of putting caps on what people can
receive for their pain and suffering is just a nonstarter. I do
not know what will happen here, but I guarantee a lot of us
will fight that tooth and nail. [Applause.]
Senator Dodd. I did not mean to get that--but I think there
are other things that can be done.
Senator Gregg. Excuse me, Senator. Actually, demonstrations
are not appropriate to hearings. We appreciate that this is an
emotional issue and that people like to express themselves, but
it is better if we maintain a decorum within the hearing
process.
Senator Dodd. I would like to just ask if I could what the
Connecticut experience, which does not have caps but has
instituted these other reforms, it seems to be producing the
desired results that people are looking for here. What is being
done elsewhere along those lines short of a cap approach that
you think may be constructive and positive.
Mr. Angoff. Yes. Senator, Missouri has what sounds similar
to Connecticut. It has a requirement that there be an affidavit
of merit, and lawyers on both sides seem to live fairly well
with that.
Senator Dodd. What is the effect of that in terms of the
number of malpractice claims that are being filed?
Mr. Angoff. Well, it is tough proving cause and effect, but
as I outlined, the number of claims in Missouri has gone down,
both paid and reported. Whether it can be attributed to that,
who knows? But the experience of Missouri is good.
Senator Dodd. Commissioner from Texas?
Mr. Montemayor. We have got a similar requirement in Texas,
Senator, where an affidavit is required. The number of claims
has gone up roughly at the 5 percent level. The severity of the
claims has gone roughly at the, I believe 7 or 8 percent level.
Combined frequency and severity have made costs go up
approximately 11 percent each and every year looking back. But
that has been the trend there. But there is a similar
requirement in Texas to date.
Senator Dodd. And last, Ms. Dyess, could you just tell me--
--
Senator Gregg. Senator, I think your time has expired. Can
you just ask during the second round.
Senator Dodd. Just ask one last question if I could.
Just out of curiosity, they are obviously a different set
of circumstances, but do you support a cap on pain and
suffering? Would you support that?
Ms. Dyess. It really does not matter what I think.
Senator Dodd. Well, it does. You are here as a witness.
Ms. Dyess. I would support a reasonable cap, a reasonable
cap.
Senator Dodd. Thank you.
Ms. Dyess. But you have to understand that I get nothing. I
am not suing anybody.
Senator Dodd. No, I understand that. I am just curious,
knowing what you have been through, whether or not a cap of
some $250,000 would be acceptable to you.
Senator Gregg. Senator Alexander.
Senator Alexander. Thank you, Mr. Chairman, and thanks to
the witnesses for being here. I had to step outside the hearing
room for a few minutes to see someone else, but I have enjoyed
the discussion.
Let me focus on one aspect of this crisis and use some
facts from our State. The issue that concerns me the most about
this crisis is the effect it has had on prenatal health care
for expecting mothers. I remember a few years ago when I was
serving as Governor. Tennessee had the most prenatal health
care problems in the country. One of the things that we wanted
to do to change that was to make sure that every expectant
mother had a medical home for her child. This meant connecting
expectant mothers with doctors who deliver babies. We worked in
a voluntary way with doctors, and especially in Memphis and
other parts of our State, we were successful. So, it concerns
me greatly when I hear from doctors and from communities that
many doctors are leaving family practice. It must be very
difficult for expectant mothers, especially poor expectant
mothers, to have a medical home for their child before the
child is born. This problem can have a tremendous effect on our
future. I was a Governor who very strongly defended States'
rights in this case, and I am a lawyer who respects our
profession, but I am now convinced that we have a real problem
with runaway lawsuits.
We have talked a good bit about rural areas and how mothers
may have to drive a distance to have their baby, but just this
morning I was visiting with a delegation from Memphis--the
Baptist Memorial Health Care Corporation. They operate 17
hospitals in Tennessee, Arkansas and Mississippi, with 52
affiliated physicians. Their liability insurance bill last year
was $2.6 million, and for similar coverage this year is $8.2
million. And I was listening to the discussion about California
and the debate back and forth as to what seems to have caused
it. At least we have identified the fact that California is
different from other States. Tennessee is not a crisis State
among those States that were listed today, so we are not as bad
as other States, but here are the figures.
In 2002, the medical liability insurance premium for
general surgeons in Tennessee was $35,000; 2003, $62,000. For
an Ob/Gyn in Tennessee, the medical liability insurance premium
was $62,000 in 2002; in 2003, it increased to $160,000. In
California medical liability insurance for Ob/Gyns is only
$57,000.
I am seeing that at least we have identified something
right is happening in California. The issue seems to be what
the cause of it can be. I am very skeptical about the idea that
the caps on limits and the caps on fees have not been the
greater cause of the lower costs in California.
For example, the comment was made that litigation is going
down. In our State, Volunteer Mutual Insurance Company insures
about 10,000 doctors. There are 2,000 pending medical
malpractice lawsuits against these 10,000 doctors.
Mr. Smarr, is it reasonable to you that for every five
doctors there should be one medical malpractice lawsuit? Are
doctors that negligent? Is this a reasonable circumstance? It
seems to me that this represents a condition of runaway
lawsuits that require some sort of corrective action.
Mr. Smarr. Senator Alexander, that is not an unexpected
statistic, but I the it is unreasonable that there are that
many lawsuits, especially since 70 percent of those on average
will be found to have no merit.
Senator Alexander. I talked with the chief medical officer
at Vanderbilt Medical Center. Dr. John Sergent says that for
the first time Ob/Gyn doctors in Tennessee are saying they may
be forced out of practice, and we are not a crisis State in
Tennessee, according to this list. At the University of
Tennessee, Dr. Jim Gibb Johnson says that one third of all
residents in training since 1990 have been served with a
malpractice suit. That sounds like runaway lawsuits to me. So I
welcome the opportunity to have this hearing, and appreciate
the emotional feelings on all sides. I am glad to have the
California experience, and I hope that as time goes on we can
isolate which of the causes made the most difference. It sounds
to me like, Mr. Smarr, that you have the better side of the
argument, but I will keep listening.
Senator Gregg. I believe Senator Clinton is yielding to
Senator Edwards. Senator Edwards.
Senator Edwards. Thank you, Mr. Chairman.
Ms. Peel, welcome. We are glad to have my neighbor from
Raleigh here testifying today. Appreciate you being here.
Let me go to the question just raised by Senator Alexander,
because I think we have to be very careful not to have a
complete disconnect about what we are talking about. The
President likes to use the term ``frivolous lawsuits.'' I think
it is important to distinguish between frivolous lawsuits and
the remedy that is being proposed here. The remedy, frivolous
lawsuits are lawsuits that never should have been brought, that
have no merit, where the contentions of the person bringing the
case should never have been in the court system. What the
President is proposing is that we put a limit on the most
serious cases, because what he is suggesting is the way to curb
frivolous lawsuits is to limit the rights of the most seriously
injured, because they are the only people affected by
noneconomic damage caps, which is what we are talking about.
And let me just say to begin with, I think that talking
about the lawsuit lottery is not productive. We have people,
including some people in this audience, kids that have been
paralyzed for life, children who are blinded, who I represented
for 20 years. And those families, I promise you, do not think
they have won any lottery. They are faced with very, very
difficult circumstances, not for a year, not for 5 years, but
for 60, 70, 75 years. So I think that is not a good way for us
to talk about this issue.
I do believe that the doctors have a serious complaint. I
think the question is, what is it that is causing this problem?
And there is a difference between cases that should never have
been brought and cases where people are very--in many cases,
kids, women, senior citizens, have been very seriously injured.
Because the cap on noneconomic damages for people who earn a
good living, the senators at this table and others, economic
damages are not being capped. So if you make a good living, and
you have had a huge economic loss as a result, you are going to
have a--your recovery will be just fine. It is people like Ms.
McDougal, children. These caps on noneconomic damages hit
children and seniors and women like a laser, particularly for
example a stay-at-home mom who is not working, and as a result
has no lost wages or what is commonly talked about as economic
damages. So I think we have to be very careful about
distinguishing between frivolous lawsuits on the one hand,
cases that should never have been brought--and I was interested
in Senator Dodd's idea about dealing with doctors on an
individual loss basis--and second, cases of people who are very
badly hurt, in many cases kids, and putting a limit on their
rights. Those two things have nothing to do with one another.
Mr. Smarr, I wanted to ask you a couple of questions if I
can. You were testifying about MICRA and whether MICRA has had
an effect or whether it is Prop 103 that had an effect in
California. I mean I have got from the State insurance
commissioner the actual numbers in California as opposed to
your chart.
In 1976 the insurance premiums paid in California, the year
that MICRA was passed, $228 million. In 1988, $663 million, or
an average increase of 24 percent. So over the first 12 years
that MICRA was in place, there was an average increase of 24
percent. In 1988 Prop 103 was passed. Between 1988 and 2001, in
other words, for the 13 years after passing of Prop 103,
insurance premiums went from 663 million to 647 million. They
actually went down. So for the first 12 years that MICRA was
the law of California, insurance premiums went up 24 percent a
year. I doubt that the doctors think that is okay. And after
Prop 103 was passed, the insurance premiums actually came down
over the course of the next 13 years.
Mr. Angoff, is that your understanding of roughly what
happened?
Mr. Angoff. Yes, it is, Senator.
Senator Edwards. On the issue of cases that should not be
brought, so-called frivolous lawsuits, in my State as in your
State, Mr. Angoff, we have a requirement, what is called an
affidavit of merit. And the idea is that before a case comes to
court and gets involved in the court system, we make the
lawyers involved thoroughly investigate the case, have the case
in fact reviewed by an independent expert in the field to make
sure that cases that are actually getting into the court system
are cases that have merit. Now, I know that is not a nationwide
law. That law only exists in selected places around the
country. It exists in North Carolina, and apparently exists in
Missouri. I think actually it is a very good idea because we
want cases that are going to be in the court system, taking up
the court's time, taking up cost.
Commissioner, you talked about some of the costs associated
with defensive cases, and those costs are legitimate and
acceptable so long as they are cases that are serious, that
ought to be in the court system and should have been brought.
On the other hand, if there are cases that should not be in the
court system--I mean, we would like to find a mechanism to make
sure that the cases that get into the court system are actually
meritorious and are serious cases like the cases that I
described earlier. And whether this is the specific mechanism,
I think it is actually a good one, but if there is another
better way to do that, we should talk about that because--I can
only speak for myself. I did this kind of work for 20 years,
almost 20 years, and I did this myself anyway, but it seems to
me that we want to make sure that people who are bringing cases
have serious legitimate cases that belong in the court system,
and some screening mechanism to make sure that that is true I
think is reasonable. I do not think it is reasonable--and I
agree with Senator Dodd about this--to say to women and kids
and senior citizens, who have been paralyzed for life or
blinded, we are going to take away your rights. First of all, I
do not think there is any cause and effect. I think this
testimony today shows absolutely no cause and effect between
those two. And I do, I might add, have a little trouble--and
Senator Kennedy asked questions about this--accepting the
argument which I hear being made, that the fact that the
malpractice crisis in the 1980s and this malpractice crisis,
which is very real for the doctors, no question in my mind
about that, that has no relation to the fact--it is just a pure
coincidence that those happen to be times that the market was
doing poorly. You know it is difficult for me--I mean I hear
all of your use of numbers, but it is just difficult for me to
accept that those things have nothing to do with one another.
Senator Gregg. If the senator would not mind concluding his
remarks, because we do have others.
Senator Edwards. I will conclude there. Let me just say one
last thing. I do think that we need to do something about the
problems that the doctors are facing. I think these insurance
premium increases are serious. I think the place that I differ
with some of the witnesses at least is about addressing what
the cause of those problems are. And if we can keep cases that
should not be in the system out of the system, I think that is
a very good thing and we should figure out a way to do that.
At the same time I still believe that there is a
relationship between what is happening in the markets and
investment income, which Senator Kennedy asked about, and these
premium increases, which clearly are much more than even what
you are contending are the increases in payouts.
Thank you, Mr. Chairman.
Senator Gregg. Thank you, Senator.
Senator Enzi.
Senator Enzi. Thank you, Mr. Chairman. I appreciate having
this hearing. I have learned a great deal today. I would ask
that a Statement that I have be made a part of the record.
[The prepared statement of Senator Enzi may be found in
additional material.]
Senator Enzi. I want to bring a different dimension to some
of the discussion here. I am from Wyoming. Wyoming is the least
populated State in the Nation. We are one of those two square
States out there in the West--we could not exist if the square
had not been invented. We are about 300 plus miles on a side,
and we have a little over 493,000 people in the State. Our
biggest city is 50,000 people. It goes downhill pretty quick
from there, so we have a little problem with the number of
doctors that we have, and we are considered a risk pool all by
ourselves.
I do not have a way to check and see how drastically that
affects the insurance rates, but I know that it does. Not only
are our obstetricians leaving, a few days ago in the Washington
Post, page 2, there was almost a full page article about a
doctor in Wheatland, Wyoming, whose insurance premiums just
went up above $150,000. He is going to quit his practice.
Now, in Wheatland he delivered all of the kids. He was
interviewed at a basketball game in Douglas--that is 60 miles
away. He delivered a third of the kids there. In Casper,
Wyoming, we have a doctor who is also leaving his practice
there. He delivered a third of the kids in that town. That city
is just under 50,000. In Torrington, they are losing their only
doctor, which means all medicine, not just obstetrics.
So we have got this huge problem. I am willing to consider
any kind of a solution. Actually, what I would like to do at
the moment I think is join California as part of their risk
pool. I guess that is not an option.
We have two insurance companies for doctors. I remember
when we had our first child. It was a difficult delivery, came
about 3 months early, and consequently, when we were having our
second child, there was no doctor in our town. There was only
one to begin with, but he was not willing to take on a second
child with those kinds of difficulties.
I hope when we are looking for the solutions on this, we
will take into consideration those areas of the country that
are extremely remote and extremely rural. Dr. Wilbourn comes
from a State that is considerably more populated than Wyoming,
but is still down on the bottom of the chart. And you described
some of the medical liability and patient access problems that
are in your part of the country. Do you think that the crisis
you described is less severe in States that have enacted
medical litigation reforms?
Dr. Wilbourn. I am sorry. Could you repeat that one more
time?
Senator Enzi. Yes. Do you think that the problems you
described, the crisis you described, the thing that is getting
you out of the field, is less severe in States that have
enacted medical litigation reform?
Dr. Wilbourn. I think it is to a great degree. There is a
lot of reform that can be done. But when we see these lawsuits
go forth and there is no limit to what you might get from a
jury, then there is nothing to deter someone from saying, ``Let
us sue 100 people this week, and maybe one of them will--or
maybe they will settle just because they do not want to spend
$91,000 defending this case, and we will get something, and I
really do not even have to go to the courtroom. I do not have
to try this case. I will just get enough in this settlement and
that settlement because the insurance companies will do that.''
So there is no deterrent to keep the number of suits down.
So we get into this situation where more and more suits are
filed, the premiums keep, in my opinion, keep going up. Yes,
there is a lot of different answers here today as to who thinks
it is whose fault. The problem that we have is the doctors are
sitting here saying, I do not know who you are going to say
whose fault it is, but I cannot practice medicine under these
conditions. I cannot pay my malpractice insurance premium. I am
left to either go out of business or move somewhere else.
I chose a State that does not seem to be litigious. I
jokingly said the other day that in Maine if there is a
problem, instead of suing you they just run the snowplow past
your driveway so you cannot get out in the morning. [Laughter.]
Dr. Wilbourn. But it does not seem to be as a litigious
environment in that State. Perhaps that is why the rates are
still affordable. I am greatly concerned. There was just an
article in yesterday's Bangor Daily, editorial that was written
by the chairman of NEH, New England Health Care Systems that
has Pen Bay Hospital in Camden, citing this concern, the
increase in insurance that the hospital was having to pay this
year for the hospitals that are in Camden, and that he was
concerned that the problems that were in New Jersey and
Pennsylvania were going to start to move northward into our
States, and that perhaps our senators should look at that now
before we get to a crisis in Maine.
Senator Enzi. Thank you. And since my time has expired, I
will be giving you written questions, including a couple others
of you, particularly Mr. Montemayor on his feelings among
insurance commissioners for expanding beyond their borders to
have bigger risk pools for the liability. So I will send that
to you in writing though since I have run out of time.
Dr. Wilbourn. Senator, I will look forward to it.
Senator Gregg. Senator Specter has to leave, so he would
like to make a comment for the comment in a couple seconds.
Senator Specter. I compliment, Mr. Chairman, on scheduling
the hearing, and I have a commitment at 5 o'clock, and I will
try to get back to ask questions, but if I do not I will submit
them for the record. Thank you very much.
Senator Gregg. Senator Clinton.
Senator Clinton. Thank you, Mr. Chairman.
And I want to thank all of our witnesses today. I think
that the testimony we have heard, particularly from Ms. Peel,
Ms. McDougal and Ms. Dyess, put into very stark terms what it
is we are here about. And underneath the current of conflicting
charts and information and ideas about what should be done, I
think there actually is some common interest, or at least I
hope so, because as we evaluate the options that are before us,
it will not do us or anyone any good if we merely fight
ourselves to a draw and point fingers at each other and then
nothing changes. And the kind of poignant and painful stories
that we hear, not just from the witnesses on the panel, but
from the people in the audience and literally around our
country will be in vain.
I think, Mr. Chairman, that we have actually made some
progress in elucidating these issues today, and for me, we
ought to be looking at five different factors as we move
forward. Each of them are equally valid, it strikes me.
First. Does any plan that we propose or that anyone were to
propose in a State or in the private sector reduce liability
insurance premiums for physicians? I think there is unanimity
on this panel that we have a problem, and even if it is a
problem that ebbs and flows with the economic conditions in the
marketplace, it still is a problem, and it is a problem that
discourages and deters people from practicing in certain places
and from being available.
No. 2. Does any plan that we would consider provide for
adequate access to high-risk specialists or the availability of
high-risk procedures? I mean it is heartbreaking that Ms. Peel
would move to a major city in our country and not be able to
find easily a Ob/Gyn to care for his high-risk pregnancy, or
that Ms. Dyess's husband would not be taken care of. That we
should deal with regardless of the context in which we are
concerned, because that is just absolutely unacceptable.
Third. Does any plan reduce the current rates of
preventable injuries and damage? You cannot, as a woman, sit
and listen to Ms. McDougal's story without just being
horrified, and I really thank you for your courage in coming
forward. I know that it cannot be easy for you and your family.
And we have to ask ourselves what is it we need to do? Because
there is a lot of evidence from GAO reports in 1999, from the
Institute of Medicine report, that there are problems, there
are preventable problems. There is ordinary, if you can call
negligence ordinary, and then there are the very rare instances
of intentional harm that can be traced to a history of drug or
alcohol abuse or other very unfortunate circumstances.
Fourth. In conjunction with reducing the current rates of
preventable injury for individual patients, we do not want to
do anything, it strikes me, that closes the door on raising
larger problems within the medical and health care community.
And by that I mean that it was malpractice cases brought on
behalf of individual patients that brought to attention issues
like IUDs that caused injuries and infertility, or DES which we
know was used for trying to prevent problems, but created
miscarriages but created birth defects and cancers. And there
are many other instances of that. Unfortunately, in our system,
given the way our economy and our system works, lots of times
you do not get the attention you need on these medical
procedures and devises in the absence of somebody bringing a
lawsuit, and sometimes more than one lawsuit. So as we go
forward we have to think to ourselves, Wait a minute. We do not
want to do something that inadvertently causes harm and where
perhaps a lot of doctors are not aware in one part of the
country what is happening in another part of the country until
the lawsuits reach a critical mass.
And finally, I am concerned about the kind of catastrophic
injuries and the level of compensation that is available, and
it does particularly fall on families whose children were
injured at birth or had some other kind of difficulty, and
therefore you have lifelong care requirements, women who have
no income or at least not a very high amount of it, so the
economic damages are not significant. And there are those cases
where as a society we have to figure out how to deal with them.
So I think, Mr. Chairman, there are many people of good
faith on all sides of this issue. This is not, in my view
anyway, a either/or, black or white, good guys/bad guys kind of
routine, depending upon where you are. But if we can work
together to try to figure out what are the questions that we
want to have answers for to deal with the legitimate concerns,
not the exaggerated ones, not the sky is falling, but really
just honestly, what are the problems? How do we sort them out?
How do we move forward? Then I think that we actually might be
able to make some progress.
I really appreciate the Chairman and his counterpart
holding this extraordinary joint meeting to try to air all of
these issues.
Senator Gregg. I thank the Senator. Your points are very
cogent and right on as far as I am concerned.
Senator Cornyn? You were here first?
Senator Ensign. Yes.
Senator Cornyn. I defer to my senior.
Senator Gregg. I was given an incorrect list. I apologize.
Senator Ensign.
Senator Ensign. Thank you, Mr. Chairman.
First of all, Senator Clinton, I appreciate the spirit in
which you offer your comments. I want to start by addressing
one of the things that you said. Being a health care
professional myself, it is very difficult to legislate better
outcomes. It is one of the most difficult things that there is.
Each one of the colleges--the American College of Surgeons, the
American College of Obstetrics and Gynecology--they all try to
police themselves somewhat.
But, Dr. Wilbourn, I think that my profession and your
profession, all of them need to do a much better job. However,
one of the problems that we also see is that they are afraid at
the State board level that they are going to get sued. There is
a huge problem that if you police one of your own peers, then
you can be sued because you are potentially taking away their
livelihood. That is one of the big problems that people are
afraid to clamp down on.
Ms. McDougal, you mentioned disciplinary actions of
physicians. Again, this is what I am talking about at the State
board level. That is something that needs to be addressed,
maybe even some tort reform as far as State boards are
concerned. You do not want them to be all powerful, but it is
very difficult the State boards to enforce penalties. I am a
veterinarian by profession. I see this first-hand. Sometimes I
cannot believe some of these people are still practicing.
However, after talking to some members on the boards, they are
afraid that their livelihood is going to be taken away because
of their disciplinary actions. Obviously, there is a serious
problem there.
The second thing I want to make a comment on is the point
you made about high-risk procedures. This is a very, very
serious problem.
In Las Vegas--Dr. Wilbourn, you know this--a lot of the
physicians have changed their practice--and you have talked
about this--to not take the high-risk pregnancies any more.
And, Ms. McDougal, your story broke my heart as well. You
hate to hear these horrible cases where neglect happened. But,
I also do not want to hear that because somebody had a child
that needed a certain type of care--a high-risk pregnancy--and
now there is not a doctor that will take care of them because
they cannot afford to risk everything that they had worked
their whole life to attain.
Dr. Wilbourn, would you like to address the problem as far
as the high-risk procedures?
Dr. Wilbourn. Well, it is just in obstetrics I think
anything can be high risk. We were taught in residency the
first thing, never trust a pregnant woman. Just when you think
everything is going well, something will happen.
There are some factors that we can identify in patients who
are pregnant that we know are going to be risk factors. One of
the biggest risk factors in a woman's obstetrical care is lack
of prenatal care. When that patient has not had access to
health care. Therefore, she has not gone to the Ob/Gyn because
he was unavailable or she did not have health insurance, and
that physician has chosen no longer to take Medicaid. She goes
for weeks and weeks and months and months. We do not know if
she is anemic so we can correct that. We do not know if there
are abnormal testing for genetic abnormalities. We do not have
an opportunity to get in early and even avert a possible
problem. So now some physicians, when we talk about limiting
high-risk obstetrics, a lot of people think that just means I
am not going to take care of triplets any more. No. Physicians
are saying if you have a due date after this point, in other
words, if you are more than 14 weeks or 16 weeks pregnant, I
will not see you because I have already missed opportunities
early in your pregnancy to avert a potential bad outcome,
hence, I will be sued.
So that is another way we have. A limit of access to care
has nothing to do with that patient's high risk. We perceive
her to be high risk because she has not had care.
Senator Ensign. Is it not also true that if you happen to
be in an emergency room, such as a physician on call there, and
somebody asks you to take a quick look at a patient, once you
care for that patient, you cannot fire that patient. Is that
not correct?
Dr. Wilbourn. Absolutely. There is a very long process you
have to go through in firing a patient. The patient has to be
notified verbally, in writing for 30 days. It varies from State
to State. I am more familiar with Nevada since I just came from
there. But in Nevada you have to send out a letter, return
receipt. You have to provide any care that they need for 30
days until they have adequate time to find another physician.
If they happen to be pregnant and show up in labor, you still
have to take care of them. It does not matter if they were
abusive.
Senator Ensign. I hate to interrupt you, but I just want to
make one final point. I wish we had more time. Perhaps there is
a second round of questioning.
The issue was brought up about investment, and everybody is
going back and forth on this issue. What I have not heard
addressed is if it is investment income that is now causing the
problem. Was it in fact the good returns that allowed the
medical liability rates not to increase during the 1990s?
Well, let us say it is the stock market. I am just saying
give them their argument--give them their argument that it is
investment income. It still does not take away the fact that we
are paying out a lot more based on the things that you
presented, Mr. Smarr. There are still increased jury award
amounts, such as, we are seeing in Nevada. The statistics are
very clear in Nevada on the number of huge payment awards, and
I imagine around the country they are going up as well. That
seems to be certainly a large contributing factor, if not the
most important contributing factor.
Mr. Smarr. Yes, Senator, Ensign, I agree with you, and to
put it in perspective, actuaries tell us that a 1-percent drop
in market interest rates on bonds equates to a 3- to 4-percent
increase in premiums. At their height in recent years, long-
term bonds are paying 7-8 percent, and they are now down in the
4- to 5-percent range, and so the math is fairly simple to tell
that the increase in premiums we are seeing is due not largely
to the drop in bond rates, but due to the increase in the cost
of the claim.
Senator Ensign. Thank you, Mr. Chairman. My time is up.
Senator Gregg. Senator Cornyn?
Senator Cornyn. Thank you, Mr. Chairman.
I want to do as Senator Clinton and Senator Dodd did, and I
know really all of us feel the same way in expressing our
appreciation to Ms. Peel, Ms. McDougal and Ms. Dyess for coming
forward and the courage you have shown talking about your
story.
I know Senator Dodd was candid to talk about the fact that
a number of insurance companies do business or call their home
office in Connecticut, and Senator Edwards, I noticed, talked
about the fact that for 20 years he made a living suing doctors
and hospitals, and perhaps I need to be candid as well and say
I used to be, back when I was a young lawyer, on the other side
of that, defending doctors and hospitals. That was a long time
ago.
But as much as I have high regard for doctors and
hospitals, I have even a greater concern for patients because
that includes, of course, all of us.
I wanted to just ask Commissioner Montemayor, since I know
him best, being the Insurance commissioner from Texas, who does
this crisis of access affect most profoundly? I know, in my
travels around the State during the last year, in Corpus
Christi, and McAllen, and the Rio Grande Valley, in terms of
the socioeconomic stratum that this affects most profoundly,
who would that be, Commissioner?
Mr. Montemayor. Senator, you just put your finger on it.
First of all, medical malpractice carriers provide coverage not
only for physicians, but also for clinics, also for hospitals
and also for nursing homes. In fact, this is where the vast
majority of the disruptions began at, but it is pretty much
spread throughout the system, and without fail, with the
research we have done, some of the very best physician cities,
regardless of the specialty, seem to be in places like
Sacramento, California. At the worst end of the scale, at four
or five times those rates, regardless of the specialty, are
places like Miami and Fort Lauderdale. Not very far behind that
were places like McAllen, Texas, and Brownsville, Texas.
Senator Cornyn. Would those be the poorest really regions
of our State and the most medically underserved?
Mr. Montemayor. That is correct, Senator. That, in fact,
just exacerbates the issue of trying to recruit new physicians
and replace retiring ones or those that simply give up the
practice.
Senator Cornyn. I know, I think Senator Clinton said it
very eloquently, none of us are interested at all in denying
people who are injured as a result of the fault of some
physician or some person employed by a hospital access to or
without a remedy.
I wonder, Ms. McDougal, would you mind, for example, have
you filed a lawsuit as a result of your terrible incident that
occurred to you?
Ms. McDougal. At this time, no. I am still experiencing
infection, and they cannot continue with my reconstruction
until the infections are taken care of. It could be several
years.
Senator Cornyn. And without asking you to tell me who the
lawyer is and that sort of thing, have you talked to lawyers
about the possibility of representing you in a lawsuit?
Ms. McDougal. Yes, I have.
Senator Cornyn. Can you give us, the committee, an idea of
the range of attorney's fee that that lawyer would require in
order to represent you, I presume, on a contingent-fee basis.
Ms. McDougal. That is correct.
Senator Cornyn. What would that percentage be that you have
been told would be pretty much what the market does in that
area?
Ms. McDougal. It is 30 percent.
Senator Cornyn. Thirty percent in your part of the country.
Well, actually, that is relatively low, compared to some parts
of the country. I know, in San Antonio, Texas, my hometown,
many lawyers who file these kinds of lawsuits demand 50 percent
of the recovery. And, in fact, after the attorney is paid and
after the expenses are paid to expert witnesses, court costs
and the like, the patient actually gets just pennies on the
dollar and is not literally made whole, which is sort of the
legal theory that I know sometimes is applied here. The idea is
you get full compensation for your injury, but the fact is,
under the current system, that does not happen. Is that your
understanding?
Ms. McDougal. Yes. I am a layperson, though.
Senator Cornyn. Sure, I am not asking you to----
Ms. McDougal. I have no remedy without an attorney.
Senator Cornyn. I am not asking you to explain it. Is that
your understanding, though, that basically you would receive
what is left over after your lawyer gets paid and after the
court costs?
Ms. McDougal. Yes, it is.
Senator Cornyn. I guess, Mr. Angoff, you testified, I know,
in your capacity as a former insurance commissioner, but
actually you are a personal injury lawyer, are you not, sir?
Mr. Angoff. No, I am not a personal injury lawyer. I am a
lawyer specializing in insurance issues. I represent more
plaintiffs than defendants, but I do represent defendants and
also State insurance departments.
Senator Cornyn. And your firm website lists medical
negligence cases as one of the things that you and your firm do
for a living?
Mr. Angoff. I do not. Some other people in my firm do.
Senator Cornyn. And you typically represent, people in your
firm who do those kinds of cases, represent people on a
contingent-fee basis; would that be correct?
Mr. Angoff. Yes, sir.
Senator Cornyn. Mr. Chairman, I just wonder, just sort of
in closing, whether a system that I think as we all want, which
leaves no injured person without a remedy, but at the same time
as having devastating impact on people who want to give their
life to help heal others, physicians and health care providers,
and leaves them in such dire straits, but at the same time
seems to provide a very healthy rate of return for lawyers,
whether the transaction costs associated with getting the money
to people who really need it and deserve it are far too high,
and perhaps as part of this committee's and this Congress's
consideration over what would be the best way to address this,
would figure some way that perhaps let doctors and health care
providers practice their chosen profession, gave patients
access to good-quality health care, provided a full remedy to
people who actually were hurt as the result of the fault of
others, but at the same time did not result in such huge
transaction costs, for which lawyers profit.
Thank you.
Senator Gregg. Thank you, Senator.
Senator Durbin?
Senator Durbin. Thank you very much, Mr. Chairman, and
thank you to the panel. I apologize for having stepped out to
go to an Intelligence Committee hearing, but I did read your
testimony before I left, and I am sorry I could not be here as
you presented it, but I am familiar with what you said to the
committee.
Unlike some of my colleagues here who have said that in the
past they have defended doctors and others have sued doctors, I
have done both. Before I was elected to Congress, I spent 5
years defending doctors in medical malpractice cases and 2
years on the other side, on the plaintiffs' side. So I have
seen, at least in my time a few years back, both sides of the
equation.
Let me disabuse you from the notion immediately about
frivolous lawsuits. If someone walked in my office and said
they had a medical malpractice claim, I quickly calculated that
I would be spending out of pocket thousands of dollars in
preparation of that claim. I was not about to take a flier and
run the possibility of contempt for filing a case that made no
sense at all and lose money in the process.
In my State, and many others, you are going to file an
affidavit with your complaint from another doctor saying you
could have a claim, you could have a cause of action. There is
a lot of work that goes into these cases, and people who file
frivolous lawsuits should be dismissed, and I doubt that that
is the source of the problem here today.
Let me also tell you that I listened to this debate here
about contingency fees, and without fail, the people that came
into my office when I was an attorney could not have had an
attorney any other way. They could not afford to put up $10-,
$20-, $30 thousand of their own money after they had gone
through a devastating medical injury. They only could operate
under a contingency fee, and different lawyers charge different
percentages, but many of them run the risk of ending up with
nothing when it is all over.
People have argued that this issue is all about doctors,
and trial lawyers, and Americans who cannot find medical care
because medical malpractice premiums are driving doctors out of
business. I think it is about all three of those, but I think
it is about three other groups, too. It is about doctors guilty
of negligence and reckless misconduct; it is about Americans
who are innocent victims of medical malpractice and face a
lifetime of pain suffering and death; and it is about insurance
companies who have somehow escaped the scrutiny of the White
House and many Members of Congress when it comes to this
medical malpractice crisis.
These same groups that now argue we should not look at
insurance companies as part of the problem also said we should
absolve HMOs from liability when they make the wrong decisions
as to whether or not you can even qualify for medical care. I
do not think that that is consistent with this theory of
accountability, which we hear so often in Washington, DC. All
of us are held accountable. We should be held accountable in a
reasonable way.
I would like to ask Dr. Wilbourn, if I could, you had a
personal life experience that was clearly, I mean, demonstrates
the problem, where you had to pick up and move from a practice
in Nevada to Maine under these circumstances.
Now, you know that since you left, probably, maybe--I do
not know how long you left--but since you left Nevada, but they
passed a medical malpractice law. Are you aware of the fact
that the malpractice insurance companies have said they are not
going to reduce premiums even with the caps?
Dr. Wilbourn. Yes, sir, I am aware of that. That special
session was called while I was actually meeting with President
Bush in High Point. The special session went into effect and
the law was passed after I had closed my practice July 31st,
but prior to me physically leaving town, as I was trying to put
my house on the market.
I was aware that those rates would not go down. We had been
told by our liability writers that, number one, do not expect a
decrease in rates until a case test has gone through and U.S.
Supreme Court has upheld it and, number two, enough exceptions
were put into the bill that was passed in Nevada that left
enough legal loopholes that they really did not find that it
was going to help them at all, as far as costs.
Senator Durbin. If you look at the States that have imposed
caps--I know you have probably gone over this ground, and I
will not repeat it--the States that have imposed caps on
recovery and lawsuits for people who are injured and die, those
caps really have not resulted in significant differences in
malpractice premiums in these States. So what we are doing is
limiting the day in court for the person who is a victim and
not achieving the goal that we are seeking, affordable medical
malpractice insurance so doctors can practice medicine.
I just cannot understand why this administration will not
consider looking at insurance companies. Why is it that they
cannot be part of the solution here?
Let me ask this of the people on the panel here, you have
probably heard of cases, and there have probably been some
described here today, do you feel that $250,000 is fair
compensation for some of these cases you have heard of? A case
that I had of a little baby brought in for baby shots, which
every parent does without a second thought, who within days was
a quadriplegic, unresponsive because the doctor failed to note
that this baby was suffering from a fever and a problem that
made a reaction to pertussis, the whooping cough vaccine at the
time? Think about that child living 5 years/10 years in that
State. Two hundred and fifty thousand dollars, is that enough
compensation for the pain and suffering of that child and the
family associated with them?
Do you all feel that $250,000 is adequate or generous under
those circumstances or the circumstances described by Ms.
McDougal? I ask my friends in the insurance industry.
Mr. Smarr. Senator, I do not know if there is any amount
that could make a severely injured patient whole, and whether
the amount is $250,000 or some other reasonable number, we have
reached the point in time where the excessive awards of
noneconomic damages have driven malpractice insurance rates to
the point where doctors simply cannot practice medicine any
more, and if we are going to draw the line at some point, we
know that $250,000, which is in effect in California today, and
Colorado today, and Kansas today, and a few other States,
works, and has kept their premiums down and their doctors
practicing in those States.
Senator Durbin. I know Senator Dodd suggested this, that
you start looking at individuals, rating them. People with a
bad driving record pay more for auto insurance. We know that 54
percent of the claims are filed against 5 percent of the
doctors, and it seems to me that those are the target doctors
who should be paying higher medical malpractice premiums,
unlike Dr. Wilbourn, who I guess had no experience with medical
malpractice liability before his premiums went through the
roof.
I also have heard suggestions in other States of kind of a
cross-subsidy, where they would say that there would be a
certain small amount taken from all specialties to provide some
subsidy to those that are higher-risk specialties, but a
necessary part of medical practice.
It seems to me that, unless we are willing to honestly talk
about the insurance industry and your practices, this is really
an exercise in bashing away at trial lawyers, rather than
getting to the heart of the problem.
Mr. Smarr. I am glad you brought up the topic of experience
rating for doctors, and such does exist. In my own experience
in working in the market in Pennsylvania, the market leader
carrier in Pennsylvania has an experience rating program, and
yesterday in House testimony in Bucks County, Pennsylvania, the
president of that company explained what they were doing.
Essentially, they have a 15-percent discounted premium for
physicians that are claim free for a certain period of time.
They also have a 5-percent risk management discount for doctors
that participate in their risk management programs, and they
have the Consent to Rate Program, which is a special mechanism
for insureds that have very adverse loss experience, where they
asked to consent to a rate that is very much higher-than-normal
filed annual rate, and that is filed with the State insurance
department.
I think that programs like this are in effect with
insurance carriers, the doctor-owned carriers I represent, at
least, in States across the Nation.
Senator Durbin. I think it is a reasonable alternative.
Thank you, Mr. Chairman.
Senator Gregg. Senator Sessions?
Senator Sessions. Thank you, Mr. Chairman. I do believe
there is a problem. We did some checking in Alabama and the
circumstances there. I notice that the chart up there rated
Alabama as okay, but it does not appear that all things are
going well.
On the question of access, I have two notes. Atmore
Community Hospital in Atmore, Alabama, was forced to close its
obstetrics program because it could not afford a 282-percent
increase in malpractice insurance from $23,000 to $88,000. That
is a small hospital, with a $50,000/$60,000-hit. I visited that
hospital, and I know the things they are doing to try to deal
with a wage index that are hurting smaller hospitals. But I now
expect that mothers in that area have to go long distances to
hospitals.
One that touched me particularly was an article in the
paper, on the 7th of February, in Huntsville, Alabama, about
Dr. Sumter Blackman. He thought he had seen everything in his
31 years as a family physician in rural Wilcox County. Nothing
prepared him, though, for the epidemic sweeping Alabama's
malpractice insurance business. Two of the State's five
malpractice insurers, Reciprocal of America and a sister
company, Doctors Insurance for Reciprocal Risk Retention Group,
are in disarray because of money woes. Another, St. Paul Fire
and Marine, has stopped writing premiums in Alabama.
I will not go into the details, but it says Blackman, the
Wilcox County doctor, may have to put down his stethoscope this
summer. Dr. Blackman is my mother's doctor. He organizes and
leads one of the smaller hospitals in the State. He is, if you
took a poll of who is the most respected man in that county, it
would be Dr. Sumter Blackman. And to think that he is at the
point of losing his career over this is not an insignificant
matter to me. I do not know what the county would do without
him.
The hospital was named J. Paul Jones Hospital, for Dr. Paul
Jones, who is one of the finest family practitioners ever, I
guess, and they named the hospital for him. This was not a
problem he had to deal with in his career, I am sure.
One of the oldest nursing homes, the oldest nursing home in
Alabama, has reported to me that their premiums for liability
insurance has gone up 865 percent over the last 4 years.
Premium costs per bed, according to Bill Roberts, the fine
leader of that nursing home, have gone up from $370 in 1979,
Mr. Chairman, to $3,204. In other words, he is paying $3,000
per nursing home bed just for liability insurance.
And Jackson Hospital in Montgomery has seen an increase in
liability insurance from $591,000 in 1999 to $1 million in
2003. There was a 28-percent increase between 2002 and 2003,
and the chart up there says we are doing okay.
So I do not know what the answer is. I sometimes I thought
it might be the insurance companies, but, Mr. Smarr, you make a
pretty strong case that investments and those matters are
really small compared to the hits you are taking on the
difference between your premium and what you are paying out.
Are you confident your numbers can withstand scrutiny? As I
understood your testimony, there is no doubt in your mind that
all of these other problems that have been raised about
insurance payments, there is no doubt in your mind that any
analysis of your companies will show that they are paying out
more than they are taking in, and that is what is causing the
crisis?
Mr. Smarr. Senator Sessions, there is no doubt in my mind
that at the present time malpractice insurers are incurring
losses that are far in excess of the premiums and the
investment income they are collecting, and every independent
organization that has looked at this, such as the Congressional
Budget Office, such as the Department of Health and Human
Services, such as the National Association of Insurance
Commissioners in its February 7th letter to Chairman Gregg,
confirmed this.
The industry is in crisis. A.M. Best, the leading rating
agency in this area, confirms this as well. There is no doubt
it is being driven by losses.
Senator Sessions. Mr. Chairman, that is something we ought
to be able to determine pretty conclusively as the time goes
by.
I will tell you one thing, it offends me a little bit
people say, ``Well, you are doing up there to protect the
insurance company, you sorry politicians. You talk about reform
of the litigation, and it is to protect insurance companies.''
I do not know about the other Senators, but they do not call me
about these issues. They do not really care, I think. The more
they pay out, the more people have to have insurance.
But who are calling me are employers who pay insurance for
their employees, hospitals and doctors. That is who are calling
me, and I am not getting any pressure from any insurance
company about this matter, so far as I know. It certainly is
not anything like the concern I am hearing from people out
there.
I would just say this. There are some concerns about how we
do this, what the role of the Federal Government should have in
this matter. One thing that is pretty significant to me, Mr.
Chairman, is that probably 60 percent or more of health care in
this country is paid for by the Federal Government. Would any
of you doctors or panelists, Dr. Wilbourn, do you have an
opinion of how much of health care is actually funded by the
Federal Government, directly or indirectly?
Dr. Wilbourn. No, I would not know that. I think I have
heard it mentioned a couple of times today about whether States
should handle this problem themselves or whether the Federal
Government should be involved, and I would like it if States
could handle this problem. It would be nice if all of the
States had already handled the problem. We would not even be
meeting today. But, obviously, some States can handle the
problems and some cannot.
What we have to ask ourselves, as Americans, as patients,
just because I am lucky enough to live in California, I cannot
take my children to Las Vegas or my wife to Vegas for the
weekend for fear that something will happen to her and there is
not available care. I can no longer vacation in Florida because
there is not a neurosurgeon or Gulfport, Mississippi.
You are restricting my movement around America if I have
got certain areas of this country that I do not want to go.
There are not enough doctors there, and if we are in a car
wreck, the Trauma Center is closed.
So it is a Federal issue when you get down to that.
Senator Sessions. Well, you do have, I am told, and I
visited 20 or more hospitals/30 or more hospitals in Alabama,
they tell me well over 50 percent is Medicare, then you have
Medicaid, and then you have veterans and other things that are
paid for by the Federal Government. So that is causing me to
think that there is, indeed, a Federal interest here that is
significant, but certainly an individual tort inside a State,
we have traditionally seen as a State matter.
Thank you, Mr. Chairman.
Senator Gregg. Thank you, Senator.
I am going to have to depart, but before I do, I would like
to ask unanimous consent that the statement of Senator Grassley
be inserted in the record and note that the record will be kept
open for 2 weeks for submission.
[The prepared statement of Senator Grassley may be found in
additional material.]
Senator Gregg. I especially want to thank the panel.
I am going to turn it over to Dr. Ensign because he had a
couple of other questions.
I especially want to thank the panel. It has been an
extraordinarily strong panel, in my opinion, and I especially
want to thank the folks who have had individual experiences
which are extremely moving--Ms. Peel, Ms. McDougal, and Ms.
Dyess, and Dr. Wilbourn, who chose Maine, instead of New
Hampshire, which I take is a personal----
Dr. Wilbourn. You had no availability in New Hampshire. I
checked there. [Laughter.]
Senator Gregg. As a number of Senators said, to come
forward and share your story with us is courageous, and it is
important, and we thank you for that, and we thank you for the
expert testimony we have received from the other members of the
panel.
Unfortunately, I have to move on, but I am going to turn
the hearing over to Senator Ensign.
Senator Ensign [presiding]. Thank you, Mr. Chairman.
Mr. Angoff, I want to start with you on talking about Prop
103 in California, where you credited that that was controlling
medical malpractice premium increases. The 20-percent refund
that you talked about, the rollback, was that a one-time
rollback or was that year-to-year?
Mr. Angoff. No, the 20 percent is a one-time rollback.
Senator Ensign. So is a one-time rollback going to be
responsible for all of the years of stabilizing the rates?
Mr. Angoff. It is not. What is responsible for all of the
years of stabilizing rates are the other provisions of Prop
103, particularly two. No. 1, the most significant, Prop 103
repealed the State antitrust exemption for the insurance
industry. So that in California, unlike other States, insurance
companies can get together, and they can share their past cost
data in order to be able to project more accurate rates for the
future, but what they cannot do is to agree on rates. In most
States, they can. So that I think is the most significant thing
in Prop 103 that has kept rates moderate.
The second provision of Prop 103, in addition to the
rollback and the antitrust exemption, that has kept rates at
moderate levels over the long run is it gave doctors and
consumers automatic standing to challenge any proposed rate
increase by any property casualty insurer, and because of that
automatic standing consumers do intervene and do prevent
insurers from raising rates to excessive levels, which would
not be the case in other States.
Senator Ensign. When you talk about your experience in
Missouri, with all of the data that you provided from Missouri,
you said there was no increase in the number of claims. In
fact, you said it was going down. However, we are hearing from
other people that all across the country claims is going up. Do
you have different numbers?
Mr. Angoff. Yes, I do not doubt that there are differences
among States in litigiousness. In Missouri, we are just not a
very litigious State.
Senator Ensign. Correct, but the rest of the country is
experiencing dramatic increases in especially the severity of
claims. You saw the chart--do you have that chart that shows
the $1 million? It was the top red line, I think, was it not?
That one is good enough. Those are the percentages of
million-dollar-plus claims. You can see it, year-to-year, is
obviously going to up, and it is almost going up
logarithmically.
Mr. Angoff. Well, Senator, if you look at Mr. Montemayor's
chart of about 15 States, which shows the rate of return of the
malpractice industry in each State, it shows a dramatic
difference by State. Traditionally--I was a member of the
National Association of Insurance Commissioners--traditionally,
the NAIC has been very, very strong in insisting that each
State has its own market. There are different issues in each
State, and that right-hand chart there, Senator, shows that.
It is true that for some reason--I do not know the Texas
market well enough to say what it is--for some reason, yes,
there is a problem in Texas, but look at all of the other
States. Many of those States are not just making adequate rates
of return, they are making excessive rates of return. So it
just does not make sense for Congress to pass a law which would
prohibit injured people from recovering in States where the
insurance companies are already making excessive rates of
return.
Senator Ensign. Could you put up the chart comparing
California and Colorado and their rates.
These are the rates. And, Mr. Smarr, maybe you can address
this since your company does business all across the country.
Los Angeles, $54,000, as far as for an OB, but if you go up
and down the chart, it seems to me that Colorado does not do
too badly there, compared to these other rates. As a matter of
fact, if you put Nevada in there, and especially Southern
Nevada, where some of the bigger claims have been, although
Northern Nevada just got their rate increases and from what I
have been hearing their rates just took a huge increase, that
$54,000 would be a small rate.
Dr. Wilbourn, your experience of the $108,000, I think that
that was on the low end of a lot of them. I think a lot of
people I have heard from have been up to the $130- $140
thousand range in Nevada.
Dr. Wilbourn. That was quoted to me because I would have
discounts; the 5-percent discount for attending educational----
Senator Ensign. Right.
Dr. Wilbourn. --and discounts for having no lawsuits, but
also the $108- was quoted if I reduced the number of
deliveries.
Senator Ensign. Right. And, by the way, these numbers are
not cheap. I do not think anybody is looking at that. Those
numbers are not cheap in the first place. I mean, the Los
Angeles and the Denver numbers, those are fairly significant
numbers in the first place, let alone when we start getting to
the right side of these charts.
But the thing that is most evident to me is that Colorado
did not have a Prop 103, and they have had very, very good
success.
Dr. Wilbourn, I want to ask you about the part of
Colorado's legislation that requires somebody to be an expert
in their field to testify. Now, I do not have any statistics on
this, but I have heard time and time again from physicians that
a common practice has become in fact it is becoming almost an
industry, for some physicians out there that only go around and
testify. They are not an expert in that field, but trial
lawyers know that they can pick them off, bring them in, and
they are very convincing. They are becoming professional
witnesses, and they are able to convince those juries that they
are an expert in areas they are not, so this seems to be a big
problem with our legal system today.
Can you comment on that?
Dr. Wilbourn. I sure can. I do not know if you are aware,
Senator Ensign, that when I was in Nevada, I sat on the
medical-dental screening panel for the State before it was
abolished with our last legislative act. For those not aware,
many of the Senators today talked about having an affidavit or
someone to verify this is an adequate lawsuit, in Nevada, the
way it used to work when I was there, if someone sued you, it
went to the medical-dental screening panel. At that panel, was
three physicians and three attorneys who reviewed the chart for
probability of malpractice.
If the panel felt that there was a probability of
malpractice, that was the ruling that went out and could be
presented in court. If they felt there was no reasonable
probability of malpractice, that was the ruling that went out
and could be presented in court. And from what I understand, if
the panel could not agree, which oftentimes happen when you
have three attorneys and three physicians in a room together,
it went out as no report. This did not keep a case from going
to trial. They could still take it.
In that capacity, in reviewing those cases, first of all,
it was very rare to have one of the physicians on that panel be
someone who was a specialist in that field. We often had to
exempt ourself because we knew that person from medical
meetings.
But then even when we got into reviewing, their expert
witness, the plaintiff's expert witnesses, most, and I will
point out that most of the attorneys who served on that panel
were plaintiff trial lawyers, they would even make comment
about, you know, it must be really bad if this is the only
expert witness they could find. They, themselves, recognized
that there were very bad expert witnesses that were more or
less hired guns--if we give this person enough money, they will
raise their hand and swear an oath.
So I agree with you that I think a lot of times there is no
legitimacy to who is an expert witness. Many times the expert
witness does not even practice in the same field of medicine.
Senator Ensign. Thank you. I need to excuse myself. We are
going to turn the gavel over to Senator Sessions.
Mr. Montemayor, if you have to excuse yourself for a
flight, go ahead and feel free to do that.
Thank you very much for the rest of the panel. I will turn
it over to Senator Sessions.
Senator Sessions [presiding]. Thank you, Mr. Chairman.
Mr. Angoff. May I excuse myself for a flight, too, Mr.
Chairman?
Senator Sessions. Certainly.
Mr. Angoff. Thank you very much.
Senator Sessions. At this moment I am the chairman, I
guess.
Thank you very much, both of you, for your insightful
testimony. It is something that we are going to have to wrestle
with. We are going to have to get the facts, and then make some
decision about what action, if any, we should take.
Mr. Smarr, you have heard the argument over the Proposition
103. Do you have anything further to add or to raise about
that? That was the question that Dr. Ensign asked me to ask
you.
Mr. Smarr. Senator Sessions, only to reiterate that Prop
103 was a one-time 20-percent rollback in rates that was to be
refunded to California physicians, and it was the only thing
that was required of the medical malpractice insurers in
California. They did not lower their premiums.
I read from one of the consent agreements, paragraph 2,
``The amount specified in paragraph 1 above . . .'' which is
the 20 percent ``. . . including the interest specified therein
shall constitute respondent's entire rollback refund obligation
pursuant to Insurance Code Section 186101.''
Now, the California carriers did not decrease their rates,
and they returned the 20 percent as part of their normal
dividend process. But one other thing, I mentioned the NORCAL
Mutual Insurance Company, during the legal contest of Prop 103,
NORCAL actually had two independent rate decreases filed and
which were held up by the legal mechanisms of considering
whether or not Prop 103 was constitutional.
And so the doctors in California actually did not benefit
from the two filings, a reduction of 12 percent and the other
was, I believe, a reduction of 2 percent, and so they paid
higher premiums because of Prop 103 for a period of a couple
years, until this mess could be sorted out.
Senator Sessions. I know someone well in a law firm, and
they defend hospital and nursing home lawsuits, and Mississippi
has passed some reform, and I understand hundreds of lawsuits
have been filed in advance of that law becoming effective. So
that would indicate to me that there is some impact on
litigation.
But, you know, I tend to believe that it is difficult under
current circumstances to do away with a contingent fee, in
general. Sometimes that is just a necessary part of the system
under the way we operate today. But when you have circumstances
like asbestos, where we had testimony that only 40 percent of
the money paid out by the asbestos companies actually got to
the victims, and what we also know is that many, many people
are being paid substantial sums of money who were exposed but
have never gotten sick. We know there are 200,000-some-odd
cases pending. We know that the cost of litigation, and there
are great delays in it.
It seems to me that since the asbestos companies have
ceased to contend they did not know that asbestos was dangerous
and are willing to compensate ill patients, somehow we ought to
have a system so if you mesothelioma, cancer or that sort of
thing as a result of asbestos, then somebody ought to write you
a check, and you should hardly even need a lawyer at all.
Certainly, these large fees could be reduced, and then the
asbestos company would have less money to expend on defense,
the plaintiffs would have less litigation expense, there would
be less delay, and the ill person could be paid.
Does that make sense to you, Mr. Smarr?
Mr. Smarr. Oh, it does, Senator Sessions. And I agree that
it is hard to understand how a contingency fee applies to a
case where there really is no contingency, where it is a
question not of causation, but of damages and how much.
The legislation that the PIAA supports in the House is H.R.
5, which was passed as H.R. 4600 last year in the House. I
think Senator Ensign introduced a similar bill in the Senate
last year. That has a sliding scale for plaintiff attorney
contingency fees, and for example under that provision, and
that is similar to the California MICRA provisions, that the
contingency fee is 40 percent of the first $50,000, and it
slides up until it is 15 percent of amounts over $600,000.
In the case of a million-dollar payment, the plaintiff
attorney has to be satisfied with only $220,000 in a
contingency fee, but that is better than 40 percent or 50
percent of a million dollars. That provision, we feel, actually
tempers the effects of the contingency-fee arrangement and puts
more money into the pocket of the patient.
Senator Sessions. Well, we need to wrestle with that issue
of compensation, and certainly we need to deal with the
question of when the defendant knows they did wrong, they know
there was an error occurred, they are willing to compensate.
There should be a better way of getting prompt compensation
under those circumstances.
The question of, as Ms. McDougal raised, pain and
suffering, disfigurement, those are matters that are very
important, and how we control or limit that I am not sure at
this time. I am not sure precisely what role that this Congress
should carry out at this time. I would just say this: I have no
doubt we do have a crisis because we are trying to wrestle with
how to give more health care to more Americans and not have the
costs go through the roof. Every year we are dealing with
Medicare and Medicaid costs that seem to be going up. More and
more people are aging, and they need more health care. We need
the absolute most efficient system that this country can
provide to get good, quality health care.
And when you see these huge premiums being paid out by
hospitals and doctors, those are not expenditures reasonably
likely to produce much direct health benefit.
So I think if we could come up with a way to compensate
those who truly need it, keep the overall costs down, speed up
perhaps that system and at the same time reduce this heavy
insurance burden would be good.
I would also ask Dr. Wilbourn if a series of--you know, the
theory is that the punitive damages punish, but if you have 10
OBs in a community, and two of them get sued and get hit with
big verdicts, what happens to the premiums for all 10 doctors
in the community?
Dr. Wilbourn. They all go up.
Senator Sessions. They all go up.
Dr. Wilbourn. They all go up.
Senator Sessions. So, in effect, if one doctor fails, the
way our system works, the punitive damages is not just
punishing that doctor, it is punishing innocent doctors, also.
Dr. Wilbourn. Correct.
Senator Sessions. So we need to wrestle with our legal
system. It has been great for us. The rule of law has preserved
our freedoms and provided our strong economy, and I believe we
can make some progress on this, and I look forward to working
on it.
I thank all of you for your attendance. Is there anything
else you would like to add for the record? We will give you
some time to do that in writing if you would like.
Dr. Wilbourn. Thank you for having us.
Senator Sessions. Thank you very much. It has been a very
interesting panel. We are adjourned.
[Additional material follows.]
ADDITIONAL MATERIAL
Opening Statement of Senator Leahy
Today I am pleased to introduce the ``Medical Malpractice
Insurance Antitrust Act of 2003'' along with Senators Kennedy,
Durbin, Edwards, Rockefeller, Reid, Boxer, Feingold, and
Corzine. In the deafening debate about medical malpractice, I
believe this legislation is a clear and calm statement about
fixing one significant part of the system that is broken--
skyrocketing insurance premiums for medical malpractice. Our
health care system is in crisis. We have heard that statement
so often that it has begun to lose the force of its truth, but
that truth is one we must confront and the crisis is one we
must abate.
Unfortunately, dramatically rising medical malpractice
insurance rates are forcing some doctors to abandon their
practices or to cross state lines to find more affordable
situations. Patients who need care in high-risk specialties--
like obstetrics--and patients in areas already under-served by
health care providers--like many rural communities--are too
often left without adequate care.
We are the richest and most powerful nation on earth. We
should be able to ensure access to quality health care to all
our citizens and to assure the medical profession that its
members will not be driven from their calling by the
manipulations of the malpractice insurance industry.
The debate about the causes of this latest insurance crisis
and the possible cures grows shrill. I hope today's hearing
will be a calmer and more constructive discussion. My principal
concerns are straightforward: That we ensure that our nation's
physicians are able to provide the high quality of medical care
that our citizens deserve and for which the United States is
world-renowned, and that in those instances where a doctor does
harm a patient, that patient should be able to seek appropriate
redress through our court system.
To be sure, different states have different experiences
with medical malpractice insurance, and insurance remains a
largely state-regulated industry. Each state should endeavor to
develop its own solution to rising medical malpractice
insurance rates because each state has its own unique problems.
Some states--such as my own, Vermont--while experiencing
problems, do not face as great a crisis as others. Vermont's
legislature is at work to find the right answers for our state,
and the same process is underway now in other states. To
contrast, in states such as West Virginia, Pennsylvania,
Florida, and New Jersey, doctors are walking out of work in
protest over the exorbitant rates being extracted from them by
their insurance carriers.
Thoughtful solutions to the situation will require creative
thinking, a genuine effort to rectify the problem, and
bipartisan consensus to achieve real reform. Unfortunately,
these are not the characteristics of the Administration's
proposal. Ignoring the central truth of this crisis--that it is
a problem in the insurance industry, not the tort system--the
Administration has proposed a plan that would cap non-economic
damages at $250,000 in medical malpractice cases. The notion
that such a one-size-fits-all scheme is the answer runs counter
to the factual experience of the states.
Most importantly, the President's proposal does nothing to
protect true victims of medical malpractice. A cap of $250,000
would arbitrarily limit compensation that the most seriously
injured patients are able to receive. The medical malpractice
reform debate too often ignores the men, women and children
whose lives have been dramatically--and often permanently--
altered by medical errors.
The President's proposal would prevent such individuals--
even if they have successfully made their case in a court of
law--from receiving adequate compensation. We are fortunate in
this nation to have many highly qualified medical
professionals, and this is especially true in my own home state
of Vermont. Unfortunately, good doctors sometimes make errors.
It is also unfortunate that some not-so-good doctors manage to
make their way into the health care system as well. While we
must do all that we can to support the men and women who commit
their professional lives to caring for others, we must also
ensure that patients have access to adequate remedies should
they receive inadequate care.
High malpractice insurance premiums are not the result of
malpractice lawsuit verdicts. They are the result of investment
decisions by the insurance companies and of business models
geared toward ever-increasing profits. But an insurer that has
made a bad investment, or that has experienced the same
disappointments from Wall Street that so many Americans have,
should not be able to recoup its losses from the doctors it
insures. The insurance company should have to bear the burdens
of its own business model, just as the other businesses in the
economy do.
But another fact of the insurance industry's business model
requires a legislative correction--its blanket exemption from
federal antitrust laws. Insurers have for years--too many
years--enjoyed a benefit that is novel in our marketplace. The
McCarran-Ferguson Act permits insurance companies to operate
without being subject to most of the federal antitrust laws,
and our nation's physicians and their patients have been the
worse off for it. Using their exemption, insurers can collude
to set rates, resulting in higher premiums than true
competition would achieve--and because of this exemption,
enforcement officials cannot investigate any such collusion. If
Congress is serious about controlling rising premiums, we must
objectively limit this broad exemption in the McCarran-Ferguson
Act.
That is why today I introduce the ``Medical Malpractice
Insurance Antitrust Act of 2003.'' I want to thank Senators
Kennedy, Durbin, Edwards, Rockefeller, Reid, Boxer, Feingold,
and Corzine for cosponsoring this essential legislation. Our
bill modifies the McCarran-Ferguson Act with respect to medical
malpractice insurance, and only for the most pernicious
antitrust offenses: price fixing, bid rigging, and market
allocations. Only those anticompetitive practices that most
certainly will affect premiums are addressed. I am hard pressed
to imagine that anyone could object to a prohibition on
insurance carriers' fixing prices or dividing territories.
After all, the rest of our nation's industries manage either to
abide by these laws or pay the consequences.
Many state insurance commissioners police the industry well
within the power they are accorded in their own laws, and some
states have antitrust laws of their own that could cover some
anticompetitive activities in the insurance industry. Our
legislation is a scalpel, not a saw. It would not affect
regulation of insurance by state insurance commissioners and
other state regulators. But there is no reason to continue a
system in which the federal enforcers are precluded from
prosecuting the most harmful antitrust violations just because
they are committed by insurance companies.
Our legislation is a carefully tailored solution to one
critical aspect of the problem of excessive medical malpractice
insurance rates. I hope that quick action by the Judiciary
Committee and then by the full Senate, will ensure that this
important step on the road to genuine reform is taken before
too much more damage is done to the physicians of this country
and to the patients they care for. Only professional baseball
has enjoyed an antitrust exemption comparable to that created
for the insurance industry by the McCarran-Ferguson Act.
Senator Hatch and I have joined forces several times in recent
years to scale back that exemption for baseball, and in the
Curt Flood Act of 1998 we successfully eliminated the exemption
as it applied to employment relations. I hope we can work
together again to create more competition in the insurance
industry, just as we did with baseball.
If Congress is serious about controlling rising medical
malpractice insurance premiums, then we must limit the broad
exemption to federal antitrust law and promote real competition
in the insurance industry.
Opening Statement of Senator Hatch
First I would like to thank everyone for being here today
and especially Chairman Gregg of the HELP committee for
agreeing to hold this joint hearing. I know we both believe
that this is a very important issue, worthy of our attention
and of every effort necessary to find a resolution to this
crisis.
Chairman Gregg and I share a deep concern about how this
has affected patient care in our home states and across the
country. Patient access to healthcare has diminished
significantly because out-of-control litigation and frivolous
lawsuits have caused medical liability insurance premiums to
skyrocket--forcing needed doctors out of practice. During the
last two years alone, premiums have increased by as much as 81%
according to some insurers. Doctor unavailability is a crisis
in 12 states and threatens to become one in at least 30 others.
One of our witnesses here today, Leanne Dyess, will tell us how
the unavailability of a neurosurgeon tragically impacted her
family. We should all be concerned--each one of us runs the
risk that necessary care may be unavailable because the doctor
we need is no longer able to practice.
Do we really want our healthcare system to be nothing more
than a game of Russian roulette--leaving it to chance whether a
doctor will be available when we need one? Sadly, that is what
is happening. Doctors are leaving specialties in record numbers
because they can no longer afford to practice. It is truly the
most vulnerable patients, those who need emergency care,
specialty surgery or obstetric care who are most severely
impacted
I am very concerned about the increasing shortage of
doctors in my home state of Utah. A study by the Utah Medical
Association underscores the alarming problem in my state:
``50.5 percent of Family Practitioners in Utah have already
given up obstetrical services or never practiced obstetrics.''
One third of the remainder say they plan to stop providing OB
services within the next decade. Most plan to stop within the
next five years. According to this study: ``Professional
liability concerns [were] given as the chief contributing
factor in the decision to discontinue obstetrical services.
Such concerns include the cost of liability insurance premiums,
the hassles and costs involved in defending against obstetrical
lawsuits and a general fear of being sued in today's litigious
environment.''
One resident of Salt Lake City, Lois Collins, had to wait
six months for a routine OB appointment. Kori Wilhelm related
in a recent Washington Post story how she is forced to make a
three hour roundtrip to Cheyenne, Wyoming to get specialized
treatment that is no longer available in her area, because her
own doctor was forced to give up delivering babies. Laurie Peel
will testify today about her difficulty in obtaining obstetric
care in North Carolina. These are just a few of the many
examples of the personal costs of the current situation.
As many of you know, before coming to Congress, I
personally litigated medical liability cases--in some cases I
represented the plaintiff in others I represented the
defendant. I saw first-hand, heart-wrenching cases in which
mistakes were made, and I know that we will hear more today
about those cases which deserve access to appropriate remedies.
But, more often, I witnessed heart-wrenching cases in which
mistakes were not made and doctors were forced to expend
valuable time and resources defending themselves against
frivolous lawsuits.
Let me make one thing perfectly clear. No one believes more
than I that victims of real malpractice should be compensated
swiftly and appropriately for their losses. But that is not
what is going on today. Instead, patients are forced to meander
through a complicated and exhausting legal system and often are
awarded damages only after years of legal bickering. Moreover,
our current medical litigation system resembles a lottery more
than it does a system of justice. In some cases, juries award
plaintiffs astounding and unreasonable sums in damages. A
sizable portion of those awards does not even go to the
plaintiff. It goes to the attorneys. The result: to pay for
these awards, insurance premiums go up for all doctors, and in
some cases insurance becomes completely unavailable.
Consequently, doctors cannot practice and patients cannot
obtain the care they desperately need.
Every American is impacted by frivolous litigation and the
defensive medicine that results. It is not just the frivolous
suits that drive up healthcare costs. The unnecessary tests
doctors feel compelled to perform increase health care costs
also. A recent study by the Department of Health and Human
Services indicates that ``Excessive liability . . . adds $30
billion to $60 billion annually to Federal Government payments
for Medicare, Medicaid . . . and other government programs.''
Some will try to point the finger at the insurance
industry, claiming that the crisis is false or due to
intentional misconduct on the part of insurers. That, in my
opinion, is a red herring. There is nothing to suggest that
states have been remiss in regulating the insurance industry,
and there are no data to suggest that collusion is the cause of
rising malpractice insurance rates.
The National Association of Insurance Commissioners
concurs, stating in a February 7, 2003 letter that ``[T]he
evidence points to high loss ratios, not price-fixing, as the
primary driver of escalating premiums.'' They further state
that:
``Non-profit physician owned mutual insurers have developed
in response to market availability concerns . . . Careful
inspection will show that a mutual insurer is concerned with
its policy holders' interests. Since each policy holder is also
an owner of the company and the company is a non-profit entity,
the goal of the mutual insurer is to deliver medical
malpractice insurance to its policyholder/owners as
inexpensively as possible. To do otherwise would contradict the
goals of the mutual and jeopardize its non-profit status.''
I look forward to today's hearing, and our panel of
witnesses, in the hope that they will shed some light on these
issues. It is time to address this crisis head on, and today's
hearing is a first step in that direction.
Prepared Statement of Senator Feingold
Thank you Mr. Chairman. I want to welcome all of the
witnesses this afternoon. In particular, I want to welcome
Linda McDougal from my home state of Wisconsin, who has become
in a short time one of the best known and most articulate
advocates for preserving the rights of victims of medical
malpractice to receive adequate compensation through our legal
system.
Ms. McDougal, none of us can ever truly imagine the
horrible suffering you have endured. All we can do is say that
we are terribly, terribly sorry that this happened to you and
that we will do everything we can to prevent similar suffering
for others who go to their health care providers seeking aid
and comfort, not pain or disfigurement.
Mr. Chairman, I hope everyone on these two Senate
committees, whether they are here or not, will read or listen
to Linda McDougal's testimony and learn about her experience.
It is a powerful cautionary note for those of us who are
charged with developing and voting on legislation concerning
medical malpractice liability and insurance.
Can anyone in this room or on these committees look Linda
McDougal or any of the thousands of victims of catastrophic
medical malpractice in the eye and say, ``$250,000 is all your
pain and suffering are worth''? Would any of us be able to tell
our wives or our daughters that their damages should be limited
to $250,000 if they were the victims of such unspeakable pain
and lifelong sadness?
That is the challenge we face Mr. Chairman. There is no
question that we have a problem in this country over the cost
of malpractice insurance. But the solution cannot be to
penalize innocent victims like Linda McDougal, to prolong and
extend their suffering by denying them adequate compensation.
We have virtually no evidence that caps on economic damages
will actually lower insurance rates. More importantly, I have
yet to hear an explanation of how this is fair to Linda
McDougal and others like her.
I regret that we are pursuing this kind of legislation, but
I want to sincerely thank you, Ms. McDougal, for the sacrifices
you have made to share your story with the committee and the
public. I can only hope that we learn the lessons you are
trying to teach us.
Thank you Mr. Chairman.
Prepared Statement of Laurie Peel
Since July, when I was asked to participate in a roundtable
discussion with the President on malpractice reform, I've heard a lot
of tragic, really poignant stories on both sides of the issue. My own
experience may not be tragic, but I think it illustrates the
difficulties patients across the nation--and especially women--are
experiencing.
I live in a community, Raleigh, North Carolina, which enjoys
healthcare probably as good as, if not better than, any in the Country.
I, and my family, all have excellent doctors. Yet even in Raleigh, when
I first had a healthcare crisis, I had a very hard time finding a
doctor who would take me. And when I was lucky enough to find a great
one, Dr. John Schmitt, he ultimately was driven out of business by his
overwhelming frustrations with the crippling cost of malpractice
insurance. (He now is on faculty at UVA School of Medicine). As he
explained in a letter to all of his patients in July of 2002, he could
no longer practice medicine the way he wanted to, and always had. And
that is frankly, what we should all want from our doctors . . . and
maybe even demand.
I first came to Dr. Schmitt under difficult circumstances. I was
married less than a year and had just moved to Raleigh, and had no Ob/
Gyn there. I was 11 weeks pregnant, experiencing complications--which
turned out to be a miscarriage--and in need of immediate medical
attention. As a ``high-risk patient'', though, no Ob/Gyn would take me
in. When I got to Raleigh I called every practice I could find, and was
told again and again that the practice was full and wouldn't be taking
new patients. Fortunately, Dr. Schmitt learned of my plight, called me
back and took me in.
I soon discovered he was one of Raleigh's leading Ob/Gyns, yet he
had all the time in the world for my husband and me. In the five years
I saw Dr. Schmitt, he helped me through the biggest disappointment in
my life, my biggest health scare, and finally helped me realize the
greatest joy of any life. In short, my relationship with Dr. Schmitt
was everything one could hope for from a doctor. It's also a
relationship both he and all of his patients would very much like to
continue. But we can't because of the crippling cost of medical
liability insurance. What he must pay to protect himself from the
remote possibility of lawsuits (or at least legitimate ones) has
prevented Dr. Schmitt from continuing the outstanding practice he had
made his life's work. And stories like his are, I believe, truly tragic
for us all.
Now, I've seen both sides of this issue in a very real and personal
way. My father is a doctor, as are my brother and his wife. But my
family has also suffered from medical errors. I don't want--and I don't
know any doctor who does--to deny victims of medical errors adequate
redress for their injuries. And certainly my father, brother and every
doctor I know wants to hold the medical profession to the highest
possible standards.
But the way to address malpractice can't be to destroy the
possibility of good practice--or drive away those doctors, like Dr.
Schmitt, who do practice to the very best of their abilities. None of
us can afford that. I don't know the solution, but I do urge you to
find one. And Mr. Chairman, I very much appreciate that that's what
you're trying to do.
Prepared Statement of Linda McDougal
First, I want to thank Chairman Gregg, Chairman Hatch, and Senators
Kennedy and Leahy. I greatly appreciate the opportunity you have given
me. My name is Linda McDougal and I am a victim of medical malpractice.
I am 46 years old. I live with my husband and sons in Woodville, a
small community in northwestern Wisconsin. My husband and I are both
veterans of the United States Navy. This is my story.
About 8 months ago, in preparation for my annual physical, I went
to the hospital for a routine mammogram. I was called back for
additional testing and had a needle biopsy. Within a day I was told
that I had breast cancer.
My world was shattered. My husband and I discussed the treatment
options and decided on the one that would give me the best chance of
survival, and maximize my time alive with my family. We made the
difficult, life-changing decision to undergo what we believed was the
safest, long-term treatment--a double mastectomy.
Forty-eight hours after my surgery, the surgeon walked in my room
and said, ``I have bad news for you. You don't have cancer.''
I never had cancer. My breasts were needlessly removed. The
pathologist switched my biopsy slides and paperwork with someone
else's. Unbelievably, I was given another woman's results.
I was in shock. My husband was with me in the room and we were
reduced to tears. Today, I am still in shock. To some extent, it was
easier to hear from the doctor that I supposedly had cancer, than to
hear--after both my breasts were taken from me--the fact that I never
had cancer. How could the doctors have made this awful mistake?
The medical profession betrayed the trust I had in them.
It's been very difficult for me to deal with this. My scars are not
only physical, but emotional. After my breasts were removed, I
developed raging infections requiring emergency surgery. Because of my
ongoing infections, I am still unable to have reconstructive surgery. I
don't know whether I will ever be able to have anything that will ever
resemble breasts.
After I came forward publicly with my story, I was told that one of
the pathologists involved had a ten-year exemplary performance record,
and that she would not be reprimanded or punished in any way until a
second ``incident'' occurred. Should someone else have to suffer or
even die before any kind of disciplinary action is taken?
While there are no easy answers, apparently now the insurance
industry is telling Congress it knows exactly how to fix what it
believes to be the ``problem'' caused by malpractice--by limiting the
rights of people, like me, who have suffered permanent, life-altering
injuries.
Arbitrarily limiting victims' compensation is wrong. Malpractice
victims that may never be able to work again and may need help for the
rest of their lives should be fairly compensated for their suffering.
Without fair compensation, a terrible financial burden is imposed on
their families.
Those who would limit compensation for life-altering injuries say
that malpractice victims still would be compensated for not being able
to work, meaning, they would be compensated for their economic loss.
Well, I didn't have any significant economic loss. My lost wages were
approximately $8,000, and my hospital expenses of approximately $48,000
were paid for by my health insurer. My disfigurement from medical
negligence is almost entirely non-economic.
As you discuss and debate this issue, I urge you to remember that
no two people, no two injuries, and no two personal situations are
identical. It is unfair to suggest that all victims should be limited
to the same one-size-fits-all, arbitrary cap that benefits the
insurance industry at the expense of patients. Victims deserve to have
their cases decided by a jury that listens to the facts of a specific
case and makes a determination of what is fair compensation based on
the facts of that case.
Recently, I heard a politician on the news argue in favor of
limiting patients' compensation. He said insurance companies need the
predictability of knowing, in advance, the maximum amount they might
have to pay to injured patients. He said lack of predictability makes
it hard for insurance companies to run their businesses profitably.
We'd all like to be able to count on the predictability that this
politician wants for insurers. But life doesn't work that way. My case
is a perfect example.
I could never have predicted or imagined in my worst nightmare that
I would end up having both my breasts removed needlessly because of a
medical error. No one plans on being a victim of medical malpractice.
But it happened, and now, proposals are being discussed that would
further hurt people like me . . . all for the sake of helping the
insurance industry.
I'm not asking for sympathy. What happened to me may happen to you
or someone you love. When it does, maybe you will understand why I am
sharing my story. The rights of every injured patient in America are at
stake. Limiting victims' compensation in malpractice cases puts the
interests of the insurance industry ahead of patients who have been
hurt, who have suffered life-altering injuries like loss of limbs,
blindness, brain damage, infertility or sexual dysfunction, or the loss
of a child, spouse or parent.
Instead of taking compensation away from people who have been hurt
and putting it in the pockets of the insurance industry, we should look
for ways to improve the quality of health care services in our country
to reduce preventable medical errors like the one that cost me my
breasts; part of my sexuality; and part of who I am as a woman.
Medical malpractice kills as many as 98,000 Americans each year and
it permanently injures hundreds of thousands of others. We must make
hospitals, doctors, HMOs, drug companies and health insurers more
accountable to patients. A good start would be to discipline health
care providers who repeatedly commit malpractice. We should make the
track records of individual health care providers available to the
general public, instead of protecting bad doctors at the expense of
unknowing patients.
Limiting victims' compensation will not make health care safer or
more affordable. All it will do is add to the burden of people whose
lives have already been shattered by medical errors. Every patient
should say no to any legislation that does not put patients first. I
urge you to do the same.
Thank you for your time and consideration.
Prepared Statement of Leanne Dyess
Chairman Hatch, Chairman Gregg, Senators Leahy and Kennedy,
distinguished members of the Senate Judiciary and HELP committees, it's
an honor for me to sit before you this afternoon--to open up my life,
and the life of my family, in an attempt to demonstrate how medical
liability costs are hurting people all across America. While others may
talk in terms of economics and policy, I want to speak from the heart.
I want to share with you the life my two children and I are now
forced to live because of a crisis in health care that I believe can be
fixed. And when I leave and the lights turn off and the television
cameras go away, I want you--and all America--to know one thing, and
that is that this crisis is not about insurance. It's not about
doctors, or hospitals, or even personal injury lawyers. It's a crisis
about individuals and their access to what I believe is, otherwise, the
greatest health care in the world.
Our story began on July 5th of last year, when my husband Tony was
returning from work in Gulfport, Mississippi. We had started a new
business. Tony was working hard, as was I. We were doing our best to
build a life for our children, and their futures were filled with
promise. Everything looked bright. Then, in an instant, it changed.
Tony was involved in a single car accident. They suspect he may have
fallen asleep, though we'll never know.
What we do know is that after removing him from the car, they
rushed Tony to Garden Park hospital in Gulfport. He had head injuries
and required immediate attention. Shortly thereafter, I received the
telephone call that I pray no other wife will ever have to receive. I
was informed of the accident and told that the injuries were serious.
But I cannot describe to you the panic that gave way to hopelessness
when they somberly said, ``We don't have the specialist necessary to
take care of him. We need to airlift him to another hospital.''
I couldn't understand this. Gulfport is one of the fastest growing
and most prosperous regions of Mississippi. Garden Park is a good
hospital. Where, I wondered, was the specialist--the specialist who
could have taken care of my husband?
Almost six hours passed before Tony was airlifted to the University
Medical Center--six hours for the damage to his brain to continue
before they had a specialist capable of putting a shunt into his brain
to drain the swelling--six unforgettable hours that changed our life.
Today Tony is permanently brain damaged. He is mentally
incompetent, unable to care for himself--unable to provide for his
children--unable to live the vibrant, active and loving life he was
living only moments before his accident.
I could share with you the panic of a woman suddenly forced into
the role of both mother and father to her teenage children--of a woman
whose life is suddenly caught in limbo, unable to move forward or
backward. I could tell you about a woman who now had to worry about the
constant care of her husband, who had to make concessions she thought
she'd never have to make to be able to pay for his therapy and care.
But to describe this would be to take us away from the most important
point and the value of what I learned.
Senator Hatch, I learned that there was no specialist on staff that
night in Gulfport because rising medical liability costs had forced
physicians in that community to abandon their practices. In that area,
at that time, there was only one doctor who had the expertise to care
for Tony and he was forced to cover multiple hospitals--stretched thin
and unable to care for everyone. Another doctor had recently quit his
practice because his insurance company terminated all of the medical
liability policies nationwide. That doctor could not obtain affordable
coverage. He could not practice. And on that hot night in July, my
husband and our family drew the short straw.
I have also learned that Mississippi is not unique, that this
crisis rages in States all across America. It rages in Nevada, where
young expectant mothers cannot find ob/gyns. It rages in Florida, where
children cannot find pediatric neurosurgeons. And it rages in
Pennsylvania, where the elderly who have come to depend on their
orthopedic surgeons are being told that those trusted doctors are
moving to States where practicing medicine is affordable and less
risky.
The real danger of this crisis is that it is not readily seen. It's
insidious, like termites in the structure of a home. They get into the
woodwork, but you cannot see the damage. The walls of the house remain
beautiful. You don't know what's going on just beneath the surface. At
least not for a season. Then, one day you go to hang a shelf and the
whole wall comes down; everything is destroyed. Before July 5th, I was
like most Americans, completely unaware that just below the surface of
our nation's health care delivery system, serious damage was being done
by excessive and frivolous litigation--litigation that was forcing
liability costs beyond the ability of doctors to pay. I had heard about
some of the frivolous cases and, of course, the awards that climbed
into the hundreds of millions of dollars. And like most Americans I
shook my head and said, ``Someone hit the lottery.''
But I never asked, ``At what cost?'' I never asked, ``Who has to
pay for those incredible awards?'' It is a tragedy when a medical
mistake results in serious injury. But when that injury--often an
accident or oversight by an otherwise skilled physician--is compounded
by a lottery-like award, and that award along with others make it too
expensive to practice medicine, there is a cost. And believe me, it's a
terrible cost to pay.
Like most Americans, I did not know the cost. I did not know the
damage. You see, Senator Hatch, it's not until your spouse needs a
specialist, or you're the expectant mother who needs an ob/gyn, or it's
your child who needs a pediatric neurosurgeon, that you realize the
damage beneath the surface.
From my perspective, sitting here today, this problem far exceeds
any other challenge facing America's health care--even the challenge of
the uninsured. My family had insurance when Tony was injured. We had
good insurance. What we didn't have was a doctor. And now, no amount of
money can relieve our pain and suffering. But knowing that others may
not have to go through what we've gone through, could go a long way
toward helping us heal.
Senator Hatch, I know of your efforts to see America through this
crisis. I know this is important to you, and that it's important to the
President. I know of the priority Congress and many in the Senate are
placing upon doing something . . . and doing it now. Today, I pledge to
you my complete support. It is my prayer that no woman--or anyone
else--anywhere will ever have to go through what I've gone through, and
what I continue to go through every day with my two beautiful children
and a husband I dearly love.
Prepared Statement Shelby L. Wilbourn, MD.
WHO WILL DELIVER AMERICA'S BABIES?
The Impact of Excessive Litigation
On behalf of the American College of Obstetricians and
Gynecologists (ACOG), an organization representing more than 45,000
physicians dedicated to improving the health care of women, I thank
Chairman Hatch and Chairman Gregg for holding this important hearing to
examine the medical liability crisis facing this nation. Women across
America are asking, ``Who will deliver my baby?'' ACOG deeply
appreciates your leadership and commitment to ending this crisis.
We urge Congress to pass meaningful medical liability reform,
patterned on California's MICRA law, and bring an end to the excessive
litigation restricting women's access to health care.
I. Doctors Help Every Day
My name is Dr. Shelby L. Wilbourn and I am an Ob/Gyn who recently
relocated to Belfast, Maine after 12 years of practice in Las Vegas,
Nevada.
Every day in America, doctors help millions of mothers, children,
grandfathers, and sisters live another day, see another birthday, play
another game. Every day, beautiful newborns go home with their mother.
Every day, there is another breast cancer survivor or a life saved by a
highly trained physician.
Doctors help make miracles happen every day in America. This is
what makes our American health care system the envy of the entire
world. And this is what's at stake in this debate about medical
liability reform.
II. Personal Effects of The Medical Liability Crisis on My Practice
Liability isn't about fault or bad practice anymore. It's about
hitting a jackpot. Even the very best Ob/Gyns have been sued, many more
than once. Even doctors who have never been sued are seeing their
liability premiums double and triple--not because they're bad doctor,
but because they practice in a litigation-happy field where everyone is
fair game.
Let me cite a perfect example, which demonstrates the imbalance of
the current tort system. I just recently relocated to Maine after 12
years of practice in Nevada because of the skyrocketing liability
insurance premiums in that State. I had a vibrant Ob/Gyn practice,
taught at the University of Nevada, and served as a member of the board
of the directors of the Clark County Ob/Gyn Society. The Society worked
in conjunction with Governor's Task Force on the medical liability
crisis.
I left Nevada because the litigation climate had driven the medical
liability premiums to astronomical heights. In 2002, Las Vegas Ob/Gyns
paid as much as $141,760, a 49.5 percent increase from 2001. In Clark
County, there are only 106 Ob/Gyns, private, public, and resident
practitioners, left to deliver an estimated 23,000 babies in 2003--an
average of 216 babies per Ob/Gyn. Of these, 80 percent no longer accept
Medicaid patients because of the threat of litigation coupled with low
reimbursement.
Last July, I was privileged to meet with President Bush in North
Carolina to discuss the medical liability crisis on a national level.
At that time, I had never been named in a lawsuit, a fact that was made
known during the roundtable discussion. Within days of my meeting with
President Bush, a lawsuit was filed against me. In addition, all but
one of the doctors Governor Guinn named to the Task Force in Nevada had
lawsuits filed against them within a short period, as well.
When I left Nevada, my patients, many of whom were with me for 12
years, were forced to find another Ob/Gyn amongst a dwindling
populaiton of Ob/Gyns in Las Vegas. This is the real issue. Patients
around the country are losing access to good doctors and quality health
care. The end game of the current system is a society without enough
doctors to care for its citizens. We just cannot let this happen.
Today, we have heard, or will hear, anecdotes from both sides of
this debate, all of which support each side's position. However, the
fact remains clear--there is a medical liability crisis in this nation.
Who loses in this environment? Women, good doctors, patients,
communities, businesses, and America.
III. Effects of Excessive Litigation on Women's Health Care: An
Overview
The number of lawsuits against all physicians has been rising over
the past 30 years in an increasingly litigious climate, and obstetrics/
gynecology--considered a ``high risk'' specialty by insurers--remains
at the top of the list of specialties affected by this trend.
An ailing civil justice system is severely jeopardizing patient
care for women and their newborns. Across the country, liability
insurance for obstetrician/gynecologists has become prohibitively
expensive. Premiums have tripled and quadrupled practically overnight.
In some areas, Ob/Gyns can no longer obtain liability insurance at all,
as insurance companies fold or abruptly stop insuring doctors.
When Ob/Gyns cannot find or afford liability insurance, they are
forced to stop delivering babies, curtail surgical services, or close
their doors. The shortage of care affects hospitals, public health
clinics, and medical facilities in rural areas, inner cities, and
communities across the country.
Now, women's health care is in jeopardy for the third time in three
decades. This crisis will only end if Congress acts. The recurring
liability crisis involves more than the decisions of individual
insurance companies. The manner in which our antiquated tort system
resolves medical liability claims is at the root of the problem.
A liability system--encompassing both the insurance industry and
our courts--should equitably spread the insurance risk of providing
affordable health care for our society. It should fairly compensate
patients harmed by negligent medical care. It should provide humane,
no-fault compensation to patients with devastating medical outcomes
unrelated to negligence--as in the case of newborns born with
conditions such as cerebral palsy. Our current system fails on all
counts. It's punitive, expensive, and inequitable for all, jeopardizing
the availability of care.
Jury awards, which now soar to astronomical levels, are at the
heart of the problem. The average liability award increased 97 percent
between 1996 and 2000, fueled by States with no upper limits on jury
awards. This ``liability lottery'' is enormously expensive, and
patients who need, but can't get, health care, pay the price.
The current liability system encourages attorneys to focus on a few
claims with exorbitant award potential, ignoring other claims with
merit. Even then, much of a jury award goes straight into the lawyers'
pockets; typically, less than half of a medical liability award reaches
the patient.
Liability isn't about fault or bad practice anymore. It's about
hitting a jackpot. Even the very best Ob/Gyns have been sued, many more
than once. Even doctors who have never been sued are seeing their
liability premiums double and triple--not because they're bad docs, but
because they practice in a litigation-happy field where everyone is
fair game.
The liability crisis compromises the delivery of health care today.
A recent Harris survey showed that three-fourths of physicians feel
their ability to provide quality care has been hurt by concerns over
liability cases. And, patients understand the problem, too. An April
2002 survey by the Health Care Liability Alliance found that 78 percent
of Americans are concerned about the impact of rising liability costs
on access to care.
IV. Women's Health Consequences of Excessive Litigation
The medical liability crisis affects every aspect of our nation's
ability to deliver health care services. As partners in women's health
care, we urge Congress to end the medical liability insurance crisis.
Without legislative intervention at the Federal level, women's access
to health care will continue to suffer.
Expectant mothers can't find obstetricians to deliver their babies.
When confronted with substantially higher costs for liability coverage,
Ob/Gyns and other women's health care professionals stop delivering
babies, reduce the number they do deliver, and further cut back--or
eliminate--care for high-risk mothers. With fewer women's health care
professionals, access to early prenatal care is reduced, depriving
women of the proven benefits of early intervention.
Excessive litigation threatens women's access to gynecologic care.
Ob/Gyns have, until recently, routinely met women's general health care
needs--including regular screenings for gynecologic cancers,
hypertension, high cholesterol, diabetes, osteoporosis, and other
serious health problems. Staggering premiums continue to burden women's
health care professionals and will further diminish the availability of
women's care.
Medical liability is causing a rural health crisis. Women in
underserved rural areas have historically been particularly hard hit by
the loss of physicians and other women's health care professionals.
With the economic viability of delivering babies already marginal due
to sparse population and low insurance reimbursement for pregnancy
services, increases in liability insurance costs are forcing rural
providers to stop delivering babies.
Community clinics must cutback services, jeopardizing the millions
of this nation's uninsured patients--the majority of them women and
children--who rely on community clinics for health care. Unable to
shift higher insurance costs to their patients, these clinics have no
alternative but to care for fewer people.
More women are becoming uninsured. Health care costs continue to
increase overall, including the cost of private health care coverage.
As costs escalate, employers will be discouraged from offering
benefits. Many women who would lose their coverage, including a large
number of single working mothers, would not be eligible for Medicaid or
SCHIP because their incomes are above the eligibility levels. In 2001,
11.7 million women of childbearing age were uninsured. Without reform,
even more women ages 19 to 44 will move into the ranks of the
uninsured. If fewer doctors are available to deliver babies, the crisis
becomes even more acute.
V. How Excessive Litigation Compromises the Delivery of Obstetric Care
Obstetrics-gynecology is among the top three specialties in the
cost of professional liability insurance premiums. Nationally,
insurance premiums for Ob/Gyns have increased dramatically: the median
premium increased 167 percent between 1982 and 1998. The median rate
rose 7 percent in 2000, 12.5 percent in 2001, and 15.3 percent in 2002
with increases as high as 69 percent, according to a survey by Medical
Liability Monitor, a newsletter covering the liability insurance
industry.
A number of insurers are abandoning coverage of doctors altogether.
The St. Paul Companies, Inc., which handled 10 percent of the physician
liability market, withdrew from that market last year. One insurance
ratings firm reported that five medical liability insurers failed in
2001. One-fourth of the remaining insurers were rated D+ or lower, an
indicator of serious financial problems.
According to Physicians Insurance Association of America, Ob/Gyns
were first among 28 specialty groups in the number of claims filed
against them in 2000. Ob/gyns were the highest of all specialty groups
in the average cost of defending against a claim in 2000, at a cost of
$34,308. In the 1990s, they were first--along with family physicians-
general practitioners--in the percentage of claims against them closed
with a payout (36 percent). They were second, after neurologists, in
the average claim payment made during that period ($235,059).
Although the number of claims filed against all physicians climbed
in recent decades, the phenomenon does not reflect an increased rate of
medical negligence. In fact, Ob/Gyns win most of the claims filed
against them. A 1999 ACOG survey of our membership found that over one-
half (53.9 percent) of claims against Ob/Gyns were dropped by
plaintiff's attorneys, dismissed or settled without a payment. Of cases
that did proceed, Ob/Gyns won more than 65 percent of the cases
resolved by court verdict, arbitration, or mediation, meaning only 10
percent of all cases filed against Ob/Gyns were found in favor of the
plaintiff. Enormous resources are spent to deal with these claims, only
10 percent of which are found to have merit. The costs to defend these
claims can be staggering and often mean that physicians invest less in
new technologies that help patients.
When a jury does grant an award, it can be exorbitant, particularly
in States with no upper limit on awards. Jury awards in all civil cases
averaged $3.49 million in 1999, up 79 percent from 1993 awards,
according to Jury Verdict Research of Horsham, Pennsylvania. The median
medical liability award jumped 43 percent in one year, from $700,000 in
1999, to $1 million in 2000: it has doubled since 1995.
Ob/gyns are particularly vulnerable to this trend, because of jury
awards in birth-related cases involving poor medical outcomes. The
average jury award in cases of neurologically impaired infants, which
account for 30 percent of the claims against obstetricians, is nearly
$1 million, but can soar much higher. One recent award in a
Philadelphia case reached $100 million. This in spite of the fact that
fewer than 10 percent of these cases are found to result from
intrapartum hypoxia.
We survey our members regularly on the issue of medical
professional liability. According to our most recent survey, the
typical Ob/Gyn is 47 years old, has been in practice for over 15
years--and can expect to be sued 2.53 times over his or her career.
Over one-fourth (27.8 percent) of ACOG Fellows have even been sued for
care provided during their residency. In 1999, 76.5 percent of ACOG
Fellows reported they had been sued at least once so far in their
career. The average claim takes over four years to resolve.
This high rate of suits does not equate malpractice. Rather, it
demonstrates a lawsuit culture where doctors are held responsible for
less than perfect outcome. And in obstetrics/gynecology, there is no
guarantee of a perfect outcome, no matter how perfect the prenatal care
and delivery.
VI. There Is a Solution
On February 5, 2003, the House of Representatives took an important
first step in ending this crisis when Representative Greenwood,
Majority Whip Delay, and Judiciary Committee Chairman Sensenbrenner
introduced H.R. 5, the HEALTH Act of 2003. ACOG resoundingly supports
H.R. 5, important legislation protecting women's access to health care.
This legislation is supported by a broad coalition of physicians,
health insurers, and businesses.
H.R. 5 caps non-economic damages at $250,000, while still allowing
patients full and complete access to the courts. The HEALTH Act
safeguards patients' access to health care with common sense measures:
Allows Complete Recovery of All Economic Damages,
Including Current and Future Lost Wages
Promotes Speedy Resolution of Claims
Fairly Allocates Responsibility
Compensates Patient Injury
Maximizes Patient Recovery
Ensures Payment of Medical Expenses
Allows State Flexibility on Non-Economic Damages Caps
H.R. 5 allows for the complete recovery of a person's economic
damages, including compensation for medical and rehabilitation costs,
current and future ``lost'' wages, and other economic loss. H.R. 5 is
fair for everyone. H.R. 5 will restore the balance in the health care
system that has been hijacked by trial lawyers and merit-less lawsuits.
VII. Women's Health Suffers Nationwide
As Ob/Gyns, our primary concern is ensuring women access to
affordable, quality health care. It is critical that we maintain the
highest standard of care for America's women and mothers. In 2002, ACOG
has identified a medical liability crisis in the following nine ``Red
Alert States": Florida, Mississippi, Nevada, New Jersey, New York,
Pennsylvania, Texas, Washington, and West Virginia. In three other
States--Ohio, Oregon, and Virginia--a crisis is brewing, while four
other States--Connecticut, Illinois, Kentucky and Missouri--should be
watched for mounting problems.
In identifying these States, the College considered a number of
factors in the escalating medical liability insurance crisis for Ob/
Gyns. The relative weight of each factor could vary by State. Factors
included: the lack of available professional liability coverage for Ob/
Gyns in the State; the number of carriers currently writing policies in
the State, as well as the number leaving the medical liability
insurance market; the cost, and rate of increase, of annual premiums
based on reports from industry monitors; a combination of geographical,
economic, and other conditions exacerbating an already existing
shortage of Ob/Gyns and other physicians; the State's tort reform
history, and whether tort reforms have been passed by the State
legislature--or are likely to be in the future--and subsequently upheld
by the State high court.
A. Florida
According to First Professionals Insurance Company, Inc.,
Florida's largest medical liability insurer, one out of every six
doctors is sued in the State as compared to one out of every 12 doctors
nationwide.
In Dade and Broward counties in South Florida, where
insurers say litigation is the heaviest, annual premiums for Ob/Gyns
soared to $210,576--the highest rates in the country, according to
Medical Liability Monitor.
In a recent ACOG survey, 76.3 percent of the Florida Ob/
Gyns who responded to the survey indicated that they had made some
change to their practice such as retire, relocate, decrease gynecologic
surgical procedures, no longer perform major gynecologic surgery,
decrease the number of deliveries and amount of high-risk obstetric
care. 21.69 percent of Florida respondents indicated that they have
stopped practicing obstetrics due to the unavailability and
unaffordability of liability insurance.
The liability situation is so severe the State allows
doctors to ``go bare'' (not have liability coverage), as long as they
can post bond or prove ability to pay a judgment of up to $250,000.
Double- and triple-digit premium increases have forced
some doctors to cut back on staff, while others have left the State or
have stopped performing high-risk procedures. Ob/gyns in this State are
more likely to no longer practice obstetrics.
Florida already has some tort-reform laws aimed at
protecting doctors. But more recent Florida Supreme Court rulings have
weakened such laws, causing the number of lawsuits to climb again. Now
Florida is one of at least a dozen States contemplating another round
of legislation.
B. Mississippi
According to the Mississippi State Medical Association,
medical liability insurance rates for doctors who deliver babies rose
20 percent to 400 percent in 2002, for various carriers. Annual
premiums range from $40,000 to $110,000.
The Delta Democrat Times reported that from 1999 to 2000,
the number of liability lawsuits faced by Mississippi physicians
increased 24 percent, with an additional 23 percent increase in the
first five months of 2001.
According to the Delta Democrat Times, 324 Mississippi
physicians have stopped delivering babies in the last decade. Only 10
percent of family physicians deliver babies.
In a recent ACOG survey, 66.7 percent of the Mississippi
Ob/Gyns who responded to the survey indicated that they had made some
change to their practice such as retire, relocate, decrease gynecologic
surgical procedures, no longer perform major gynecologic surgery,
decrease the number of deliveries and amount of high-risk obstetric
care. 12.82 percent of Mississippi respondents have stopped practicing
obstetrics.
In Cleveland, Mississippi, three of the six doctors who
deliver babies dropped obstetrics in October 2001 because of the
increase in premiums.
In Greenwood, Mississippi, where approximately 1,000
babies are born every year, the number of obstetricians has dropped
from four to two. The two remaining obstetricians are each limited by
their insurance carriers to delivering 250 babies per year, leaving
approximately 500 pregnant women searching for maternity care, reports
the Mississippi Business Journal.
Yazoo City, Mississippi, with 14,550 residents, has no
obstetrician.
A Grenada, Mississippi Ob/Gyn will not take any obstetric
patients with a due date after June 15, 2003, leaving two Ob/Gyns to
deliver approximately 700 babies a year.
Natchez, Mississippi, which serves a 6-county population
of over 100,000, has only three physicians practicing obstetrics.
Days before HB2 (legislation aimed at reducing liability
insurance costs and improving access to health care) took effect, there
was a rush of medical liability lawsuits filed in Mississippi. State
Insurance Commissioner George Dale said these claims will be in the
system for a long time and the market for medical liability insurance
is not likely to get better any time soon.
The State's major insurer of hospitals, Reciprocal of
America, is facing financial difficulties and recently asked
participants to pay $30 million to help keep it afloat, according to
the State insurance commissioner's office.
C. Nevada
In December 2001, The St. Paul Companies, Inc., the
nation's second largest medical liability insurer, announced it would
no longer renew policies for 42,000 doctors nationwide--including the
60 percent of Las Vegas doctors who were insured by St. Paul.
Replacement policies are costing some Nevada doctors four or five times
as much as before: $200,000 or higher annually, more than most doctors'
take-home pay, the Los Angeles Times reports.
In Las Vegas, Ob/Gyns paid premiums as high as $141,760, a
49.5 percent increase from 2001.
In the ACOG survey, 86.2 percent of the Nevada Ob/Gyns who
responded to the survey indicated that they had made some change to
their practice such as retire, relocate, decrease gynecologic surgical
procedures, no longer perform major gynecologic surgery, decrease the
number of deliveries and amount of high-risk obstetric care. 27.59
percent of Nevada respondents stopped practicing obstetrics.
As of October 2002, according to Clark County OB/GYN
Society, only 80 private practice physicians, 14 HMO physicians, and 12
residents are doing deliveries, totaling 106 doctors. With an estimated
23,000 deliveries expected in Nevada in 2003, each physician will have
to deliver 216 babies.
According to a March article in the Las Vegas Review-
Journal, many Las Vegas Valley doctors say they will be forced to quit
their practices, relocate, retire early or limit their services if they
cannot find more affordable rates of professional liability insurance
by early summer.
According to the Nevada State Medical Association, between
200 and 250 physicians will face bankruptcy, close their offices, or
leave Nevada this year.
In February 2002, the Las Vegas Sun reported that medical
liability cases in Clark County had more than doubled in the past six
years. In that period, plaintiffs' awards in the county totaled more
than $21 million.
USA Today reports that in the past two years, Nevada
juries have awarded more than $1.5 million each in six different
medical liability trials.
Recruiting doctors to Las Vegas is extremely difficult
because of escalating medical liability premiums and litigiousness.
Nevada currently ranks 47th in the nation for its ratio of 196 doctors
per 100,000 population. The State's medical school produces just 50
physicians a year.
In August 2002, the Nevada Legislature met in Special
Session and passed tort reform--AB 1. AB 1 included a partial cap on
awards for non-economic damages and a total cap on trauma liability.
There has been no significant improvement in the availability of
affordable medical liability coverage, according to a September 2002
statement by the Nevada State Medical Association. Most carriers have
continued to request and receive approval to raise rates.
The Nevada tort reform legislation went into effect in
January 2003. In December 2002, the frequency of lawsuits filed against
health care providers skyrocketed with 170 suits filed in December 2002
(as compared to 8 suits field in 2001).
D. New Jersey
In the ACOG survey, 75.6 percent of the New Jersey Ob/Gyns
who responded to the survey indicated that they had made some change to
their practice such as retire, relocate, decrease gynecologic surgical
procedures, no longer perform major gynecologic surgery, decrease the
number of deliveries and amount of high-risk obstetric care. 19 percent
of New Jersey respondents have stopped practicing obstetrics.
In February 2002, the Newark Star-Ledger reported that
three medical liability insurance companies went bankrupt or announced
they would stop insuring New Jersey physicians in 2002 for financial
reasons. The State's two largest remaining are rejecting doctors they
deem high risk.
MBS Insurance Services of Denville, one of New Jersey's
largest medical liability insurance brokers, estimates that
approximately 300 to 400 of the State's doctors cannot get insurance at
any price.
According to the Medical Society of New Jersey, premiums
have risen 50 percent to 200 percent over last year.
According to the Star-Ledger, ``An obstetrician with a
good history--maybe just one dismissed lawsuit--can expect to pay about
$45,000 for $1 million in coverage. Rates rise if the physician faces
several lawsuits, regardless of whether the physician has been found
liable in those cases.''
The president of the New Jersey Hospital Association says
that rising medical liability premiums are a ``wake-up call'' that the
State may lose doctors. Hospital premiums have risen 250 percent over
the last three years, and 65 percent of facilities report that they are
losing physicians due to liability insurance costs.
E. New York
New York State faces a shortage of obstetric care in many
rural regions. Increasing liability insurance costs will only
exacerbate these access problems.
In the ACOG survey, 67 percent of the New York Ob/Gyns who
responded to the survey indicated that they had made some change to
their practice such as retire, relocate, decrease gynecologic surgical
procedures, no longer perform major gynecologic surgery, decrease the
number of deliveries and amount of high-risk obstetric care. 19.28
percent of New York respondents have stopped practicing obstetrics.
In 2002, an Ob/Gyn practicing in New York could pay as
much as $115,500 for medical liability insurance, according to Medical
Liability Monitor.
In 2000, there was a total of $633 million in medical
liability payouts in New York State, far and away the highest in the
country, and 80 percent more than the State with the second highest
total.
Increased insurance rates have forced some physicians in
New York to ``quit practicing or to practice medicine defensively, by
ordering extra tests or procedures that limit their risk,'' according
to a recent New York Times report.
Physician medical liability insurance costs have
historically been a problem in New York State. The legislature and
governor had to take significant action in the mid-1970s and again in
the mid-1980s to avert a liability insurance crisis that would have
jeopardized access to care for patients.
F. Pennsylvania
In the ACOG survey, 77.4 percent of the Pennsylvania Ob/
Gyns who responded to the survey indicated that they had made some
change to their practice such as retire, relocate, decrease gynecologic
surgical procedures, no longer perform major gynecologic surgery,
decrease the number of deliveries and amount of high-risk obstetric
care. 21.61 percent of Pennsylvania respondents have stopped practicing
obstetrics.
Pennsylvania is the second-highest State in the country
for total payouts for medical liability. During the fiscal year 2000,
combined judgments and settlements in Pennsylvania amounted to $352
million--or nearly 10 percent of the national total.
From the beginning of 1997 through September 2001, major
liability insurance carriers writing in Pennsylvania increased their
overall rates 80.7 percent to 147.8 percent, according to a January
2002 York Daily Record article.
Philadelphia and the counties surrounding it are hardest
hit by the liability crisis. From January 1994 through August 2001, the
median jury award in Philadelphia for a medical liability case was
$972,900. For the rest of the State, including Pittsburgh, the median
was $410,000.
One-quarter of respondents to an informal ACOG poll of
Pennsylvania Ob/Gyns say they have stopped or are planning to stop the
practice of obstetrics. 80 percent of medical students who come to the
State for a world-class education choose to practice elsewhere,
according to the Pennsylvania State Medical Society.
On April 24, 2002, Methodist Hospital in South
Philadelphia announced that it would stop delivering babies due to the
rising costs of medical liability insurance. The labor and delivery
ward closed on June 30, leaving that area of the city without a
maternity ward. Methodist Hospital has been delivering babies since its
founding in 1892.
Some tort reform measures passed the State legislature
(House Bill 1802) in 2002. However, the law did not include: caps on
jury awards; sanctions on frivolous suits; changes in joint and several
liability; limits on lawyers' fees; or a guarantee that a larger share
of jury awards will go to injured plaintiffs.
The rules for venue of court cases in Pennsylvania are
very liberal. Recently approved measures only appoint a committee to
study venue shopping, but do not limit the practice.
Since HB 1802 passed, experts predict a 15 percent to 20
percent overall reduction in doctors' liability premiums. But with the
50 percent to 100 percent premium increases of the last two years,
medical officials believe the bill is not enough to stop physicians
from leaving practice or to attract new physicians. Nor do they believe
new insurers will begin writing policies in Pennsylvania.
G. Texas
In the ACOG survey, 67.5 percent of the Texas Ob/Gyns who
responded to the survey indicated that they had made some change to
their practice such as retire, relocate, decrease gynecologic surgical
procedures, no longer perform major gynecologic surgery, decrease the
number of deliveries and amount of high-risk obstetric care. 13.79
percent of Texas respondents have stopped practicing obstetrics.
Preliminary results of a recent Texas Medical Association
physician survey indicate that:
More than half of all Texas physicians responding,
including those in the prime of their careers, are considering early
retirement because of the State's medical liability insurance crisis.
Nearly a third of the responding physicians said they are
considering reducing the types of services they provide.
Medical liability insurance premiums for 2002 were
expected to increase from 30 percent to 200 percent, according to the
Texas Medical Association. In 2001, Ob/Gyns in Dallas, Houston, and
Galveston paid medical liability insurance premiums in the range of
$70,00 to $160,000.
The Abilene Reporter News reported on October 13, 2002,
that the obstetrics unit at Spring Branch Medical Center is set to
close December 20, 2002. The hospital's $600,000 premium for labor and
delivery liability was set to increase by 67 percent next year. In
2001, 1,003 babies were born at Spring Branch Medical Center.
According to Governor Rick Perry's office, between 1996
and 2000 one in four Texas physicians had a medical liability claim
filed against them. In the Lower Rio Grande Valley, the situation is
even worse. In 2002, Valley Ob/Gyns paid liability insurance premiums
up to $97,830, a 34.5 percent increase from 2001.
According to a February 2001 Texas Medical Association
survey, one in three Valley doctors say their insurance providers have
stopped writing liability insurance.
In 2000, 51.7 percent of all Texas physicians had claims
filed against them, according to the Texas Medical Examiners Board.
Patients filed 4,501 claims, up 51 percent from 1990.
As many as 86 percent of medical liability claims filed in
Texas are dismissed or dropped without payment to the patient. Yet
providers and insurance companies must still spend millions of dollars
in defense, even against baseless claims.
According to a Texas Medical Association study, the amount
paid per claim in 2000 was $189,849 (average for all physicians), a 6
percent increase in one year.
Texas has no limits on non-economic damages in medical
liability cases, although the legislature enacted such limits in the
1970s as part of a comprehensive set of reforms. The Texas Supreme
Court later rejected them in the 1980s.
Texas has procedures in place to screen lawsuits for merit
and to sanction lawyers who file frivolous suits, but these are not
enforced uniformly across the State, according to an April 2002 news
release issued by Governor Rick Perry.
Only about 30 percent of the medical liability insurance
market is served by insurance companies that are regulated by the Texas
State Department of Insurance and subject to rate review laws,
according to Governor Perry's office.
H. Washington
According to Medical Liability Monitor, in late 2001 the
second largest carrier in Washington State announced that it was
withdrawing from providing medical liability insurance for Washington
physicians. This decision by Washington Casualty Company impacted
approximately 1,500 physicians.
In 2001, State Ob/Gyns paid medical liability insurance
premiums in the range of $34,000 to $59,000. For many physicians, this
meant an increase of 55 percent or higher from the year 2000.
In the ACOG survey, 57.2 percent of the Washington Ob/Gyns
who responded to the survey indicated that they had made some change to
their practice such as retire, relocate, decrease gynecologic surgical
procedures, no longer perform major gynecologic surgery, decrease the
number of deliveries and amount of high-risk obstetric care. 15.06
percent of Washington respondents have stopped practicing obstetrics.
According to the Pierce County Medical Society, some
Tacoma specialists reported 300 percent increases.
Unlike California, Washington has no cap on non-economic
damages in medical liability cases. The State Supreme Court found a
previous cap unconstitutional in 1989.
In April, The Olympian reported that Washington State
Insurance Commissioner's office heard from physicians throughout the
State that they may be forced out of Washington because of high medical
liability rates or the lack of available insurance.
I. West Virginia
There are only three carriers in the State--including the
State-run West Virginia Board of Risk and Insurance Management--
currently writing medical liability policies for doctors. Annual
premiums range from $90,700 to $99,800.
In the ACOG survey, 82.2 percent of the West Virginia Ob/
Gyns who responded to the survey indicated that they had made some
change to their practice such as retire, relocate, decrease gynecologic
surgical procedures, no longer perform major gynecologic surgery,
decrease the number of deliveries and amount of high-risk obstetric
care. 23.66 percent of West Virginia respondents stopped practicing
obstetrics.
In 2000, many physicians had problems affording or finding
insurance. This urgency prompted Governor Bob Wise to issue a request
for proposals to commercial insurance carriers asking them to provide
terms under which they would be willing to come to the State. The
governor's office received no response at all. To date, some carriers
previously active in West Virginia are under an indefinite, self-
imposed moratorium for new business in the State, according to the West
Virginia State Medical Society.
Legislation eked out during a grueling special session in
the fall of 2001 reestablished a State-run insurer of last resort.
However, with rates 10 percent higher than the highest commercial rate,
and an additional 50 percent higher for physicians considered high
risk, the State-run insurer does not solve the affordability problem,
according to Ob/Gyns in the State.
According to an informal survey of ACOG's West Virginia
section, more than half of all Ob/Gyn residents plan to leave the State
once they have completed training because of the State's medical
liability insurance climate. A majority of private practitioners who
provide obstetric care plan to leave the State if there is not
improvement in the insurance crisis.
West Virginia cannot afford to lose more doctors. The West
Virginia State Medical Society reports that a majority of the State is
officially designated by the Federal government as a health
professional shortage area and medically underserved.
VIII. Conclusion
Thank you Senator Hatch, Senator Gregg for your leadership on this
important issue and for the Committees' attention to this crisis. ACOG
appreciates the opportunity to present our concerns for the Committees'
consideration. The College looks forward to working with you as we push
for Federal liability reform.
Prepared Statement of Jay Angoff
Mr. Chairman and Members of the Committee: My name is Jay Angoff
and I am a lawyer from Jefferson City, Missouri, and a former insurance
commissioner of Missouri and deputy insurance commissioner of New
Jersey. I appreciate the opportunity to testify here today.
BACKGROUND
Today's medical malpractice insurance crisis is the third such
crisis in the last thirty years. The first was in the mid 1970's, and
the second was in the mid 1980's. Some States enacted limits on
liability--so-called ``tort reform''--in response to one or both of
those previous crises. But whether or not a State enacted such
limitations, malpractice rates rose during the mid-80's, fell during
the 90's, and are rising sharply today. The tort system therefore can
not be the cause of these periodic insurance crises, and thus enacting
tort reform can not reasonably be expected to avert future insurance
crises.
For example, during my 1993-98 tenure as insurance commissioner of
Missouri, both the number of medical malpractice claims filed and the
number of medical malpractice claims paid out decreased: according to
the data the medical malpractice insurance companies filed with our
department, the number of new medical malpractice claims reported
decreased from 2,037 in 1993 to 1,679 in 1998, and the number of
medical malpractice claims paid out decreased from 559 in 1993 to 496
in 1998. (See Exhibits 1 and 2.) As might reasonably be expected,
medical malpractice insurance rates in Missouri decreased during that
time.
After I left the insurance department, the number of malpractice
claims paid continued to decrease: from 496 in 1998 to 439 in 2001. And
the number of malpractice claims filed decreased even more
dramatically: from 1,679 in 1998 to 1,226 in 2001. Moreover, the
average payment per claim rose by less than 5 percent--from $161,038 to
$168,859--far less than either general or medical inflation.
Unexpectedly, however, malpractice insurance rates rose sharply
last year in Missouri--by an average of almost 100 percent in little
over a year, according to a Missouri State Medical Society survey--just
as they did in the rest of the country, and just as they did in 1986
and 1975. Insurance rates going up while insurance claims are going
down--and Missouri is just one of many States where this phenomenon is
occurring--doesn't seem to make sense. But it does make sense, for four
reasons.
CAUSES OF INSURANCE CRISES
First, malpractice insurers make money not by taking in more in
premiums than they pay out in claims, but by investing the premiums
they take in until they pay the claims covered by those premiums.
Investment income is particularly important for malpractice insurers
because they invest their premiums for about six years, since they
don't pay malpractice claims until about six years after they have
occurred; insurers pay other types of insurance claims much more
quickly. When either interest rates are high or the stock market is
rising, a malpractice insurer's investment income more than makes up
for any difference between its premiums and its payouts. Today, on the
other hand, stocks have crashed and interest rates are near 40-year
lows. The drop in insurers' investment income today can therefore dwarf
the decrease in their claims payments, and thus create pressure to
raise rates even though claims are going down.
Second, just as people buy insurance to insure themselves against
risks that they can't afford to pay for or choose not to pay for
themselves, insurance companies buy insurance--called re-insurance--for
the same reason. For example, an insurer might buy reinsurance to pay
an individual claim to the extent it exceeds a certain amount, or to
pay all the insurer's claims after its total claims exceed a certain
amount. The re-insurance market is an international market, affected by
international events, and the cost of re-insurance for commercial lines
was already increasing prior to the terrorist attacks. After those
attacks, not surprisingly, it increased far more, due to fears related
to terrorism (and completely unrelated to medical malpractice).
Third, insurance companies use a unique accounting system--called
statutory accounting principals, or SAP--rather than the generally
accepted accounting principles (GAAP) used by most other companies.
Under this system, insurers increase their rates based on what their
``incurred losses'' are. ``Incurred losses'' for a given year, however,
are not the amount insurance companies have paid out in that year--
although that would be its non-insurance, common-sense meaning--but
rather are the amount the insurer projects it will pay out in the
future on policies in effect in that year. These projections are, by
definition, a guess, under the best of circumstances, i.e., under the
assumption that an insurer has no business reason to either overstate
or understate them.
Insurers do, however, have reasons for inflating or understating
their estimates of ``incurred losses.'' Insurance companies who are
thinly capitalized--who have very little cushion, called ``surplus'' in
the insurance industry, beyond the amount they estimate they must pay
out in claims--will often understate their ``incurred losses'' on the
reports they file with insurance departments so that they can show a
higher surplus on those reports. (It's the job of insurance department
auditors to ferret out insurers who are doing this.)
At other times, however--like today--insurers overstate their
incurred losses to justify a rate increase. In addition, because
increasing their ``incurred losses'' lowers their income, they also
have tax reasons for inflating those estimates. Today, insurers'
incurred loss estimates have increased dramatically because they are
seeking to recoup the money they have lost on investments--not because
the amount they have actually paid out in the past has risen
substantially (to the contrary, in Missouri it has actually decreased).
When it becomes apparent that the insurers' current loss estimates are
too high, insurers will be able to use the amount they estimated they
would pay out but did not in fact pay out to reduce premiums or
increase profits, or both. This is one reason premiums fell during the
1990's: the ``incurred loss'' estimates insurers made in the mid-1980's
to justify their rate increases during the 1985-86 insurance crisis
turned out to be wildly inflated, enabling insurers to use the
difference between what they estimated they would pay out and what they
actually ended up paying out to both reduce premiums and increase their
profits in the 1990's. These same phenomena will inevitably occur after
this insurance crisis.
The final factor contributing to periodic spikes in insurance rates
is the insurance industry's exemption from the antitrust laws under the
McCarran-Ferguson Act. Unlike virtually all other major industries,
insurance companies may agree among themselves to raise prices or
restrict coverage, as well as to engage in other anti-competitive
activities, with the exception of boycotts, that would otherwise
violate the antitrust laws. When times are good--i.e., when investment
income is high--the industry's antitrust exemption would seem to be
irrelevant. Far from raising prices in concert, insurance companies
compete for market share by cutting price. When times are bad,
however--and they could hardly be worse than they are today, when both
the stock market and the bond market are producing low or negative
returns--the antitrust exemption for the insurance industry allows
insurers to collectively raise their prices without fear of
prosecution. In other industries, fear of such prosecution prevents
such collective increases.
The extent to which insurers today are acting in concert to raise
price has not yet been determined. Evidence from the mid-1980's
insurance crisis, however, supports the conclusion that insurance
companies both have collectively raised prices and have used such
collective increases to pressure legislators to enact tort reform. For
example:
In December 1984 the Insurance Information launched an
advertising campaign which it characterized as an ``effort to market
the idea that there is something wrong with the civil justice system in
the United States.'' Maher, I.I.I. Launches New Ad Campaign, National
Underwriter, Dec. 21, 1984, at 2.
In June 1985 former GEICO Chairman John Byrne told the
Casualty Actuaries of New York that they should quit covering doctors,
chemical manufacturers, and corporate officers and directors since ``it
is right for the industry to withdraw and let the pressure for reform
build in the courts and in the State legislatures.'' Journal of
Commerce, June 18, 1985, at 10A.
In November 1985, the Insurance Information Institute sent
a kit on the ``civil justice crisis'' to insurance executives and
agents urging them to tell their policyholders and the media that
``insurers have no recourse but to cut back on liability insurance
until improvements in the civil justice system will create a fairer
distribution of liability, reduce the number of lawsuits, and create a
climate in which insurance can operate more predictably.''
The famous Time Magazine cover story announcing the
arrival of the insurance crisis appeared in January 1986.
Because of McCarran-Ferguson courts have also consistently been
forced to dismiss cases involving either price-fixing among insurers or
any other type of collusion falling short of a complete refusal to deal
on any terms. See, e.g., Ohio AFL-CIO v. Insurance Rating Board, 451
F.2d 1178 (6th Cir. 1971); Fleming v. Travelers Indem. Co., 324 F.Supp.
(D. Mass. 1971). And while the attorneys general of 19 States
challenged certain insurer activity under the boycott exception to
McCarran in the aftermath of the last insurance crisis, they did not
challenge the recommending of rates by the Insurance Services Office
(ISO), an insurance industry consortium. The attorneys general
explained that ``the rate-recommendation function of ISO, although
anticompetitive and illegal in any other industry, is not a part of the
Attorneys Generals' cases because the insurance industry has a special
exemption from the antitrust laws that covers this conduct.'' Office of
the Attorney General of West Virginia, Fact Sheet on the Multi-State
Prosecution of Antitrust Violations in the Insurance Industry, March
22, 1988, at 7. Whether any anti-competitive activity that insurers may
currently be engaging in is immune from prosecution under McCarran or
actionable under the boycott exception to McCarran will likely be
determined in the aftermath of the current crisis.
HOW TO PREVENT FUTURE INSURANCE CRISES
What, then, can be done to reduce medical malpractice insurance
rates in the short run, and to prevent periodic medical malpractice
insurance crises from occurring in the future just as they have
occurred in the past? First, Congress should repeal the McCarran
antitrust exemption, so that insurers could no longer act in concert to
raise prices without fear. A second solution is to give doctors
automatic standing to challenge rate increase proposals filed by
medical malpractice insurers with State insurance departments. Some
malpractice insurers are today owned by doctors, and many doctors have
the quaint idea that those doctor-owned insurers are somehow different
than other insurers. When doctors own insurance companies, however,
they act like insurance executives, not doctors; and they are just as
affected by poor investment performance and high reinsurance costs as
are other insurers, and just as likely to inflate their incurred loss
estimates and take advantage of their antitrust exemption as are other
insurers. By hiring an independent actuary at a cost of a few thousand
dollars to point out the unreasonableness or irrationality of an
insurer's ``incurred loss'' estimate on which its rate increase request
is based, a State medical association could save its members hundreds
of thousands or even millions of dollars in the aggregate.
Third, the States could change their laws to make it easier for
insurance commissioners to prevent excessive rate increases. In many
States, for example, medical malpractice insurers can raise their rates
at will, without getting approval of the insurance commissioner. In
other States the insurance commissioner may disapprove a rate only if
he first finds that the market is not competitive; by the time the
commissioner makes such a finding, however, the damage has already been
done.
Fourth, States can authorize and provide start-up loans for new
malpractice insurers which would compete with the established insurers.
In Missouri, the legislature created such a company to write workers
compensation insurance in 1993, when workers comp rates were increasing
dramatically even though workers comp claims were not, and that company
has been a success: it charged rates that were based on experience
rather than inflated ``incurred loss'' estimates, which forced the
other insurers to do the same; it paid back its loan from the State
well ahead of schedule; and it now is a significant player in the
workers comp market. The key to its success is the fact that it
competed with the established insurers for all risks, including the
most profitable; the established carriers had sought to limit its
mission to insuring only the worst risks. If a State establishes a new
medical malpractice carrier and authorizes it to compete with the
established carriers for all doctors' business then that insurer should
help drive medical malpractice rates down just as the Missouri State-
authorized workers comp insurer has helped drive workers comp rates
down.
Finally, there is the California 20 percent solution. In 1988,
California voters narrowly approved a ballot initiative, Proposition
103, which not only repealed California's antitrust exemption for
insurance companies and gave both doctors and consumers automatic
standing to challenge insurers' proposed rate increases, but also
mandated that insurance companies roll back their rates. The California
Supreme Court upheld substantially all of Proposition 103, including
the rollback, modifying it only to the extent necessary to permit
insurers to avoid the rollback if they could demonstrate that they
would be unable to earn a fair rate of return if their rates were
rolled back. Few insurers could prove this, and as a result medical
malpractice premiums in California fell sharply in the years
immediately after Prop 103 was enacted, and even today are lower than
they were in the year before Prop 103 was enacted. While a mandatory
rollback sounds--and is--extreme, what California tells us is both that
it is constitutional and that it works. Some doctors argue that what
has caused rates to fall in California is a law limiting the non-
economic damages that injured people can recover that the California
Supreme Court held constitutional in 1984. But in the first full year
after the law was upheld, premiums rose by 35 percent. Premiums did not
begin to fall until Prop 103 was enacted in 1988 and declared
constitutional a year later. (See Exhibits 3 and 4.)
WHAT INSURERS THEMSELVES SAY ABOUT INSURANCE CRISES
To be sure, the current sharp and apparently irrational increases
in insurance rates have created pressure to enact limitations on
liability, based on the understandable rationale that if the amount
injured people can recover from insurance companies is limited,
insurance companies will pay out less money to such people, and they
will pass at least some of those savings on to policyholders. I have
explained that such limitations do not make sense because the other
factors which cause insurance rates to fluctuate, such as investment
income and the cost of reinsurance, have a much greater impact on the
premium dollar than could any plausible limitation on the amount
injured people could recover.
In addition, Missouri and many other States did enact such
limitations after the insurance crisis of the mid-1980's, or the
insurance crisis of the mid-1970's, yet rates are rising today in those
States just as they are rising in States that did not enact such
limitations--even if, as in Missouri, litigation is decreasing, not
increasing.
But perhaps the best evidence that litigation does not cause
insurance rates to rise--and conversely, that limiting litigation will
not cause insurance rates to drop--is what two of the biggest medical
malpractice insurance companies said themselves after the last
insurance crisis. Florida reacted to that crisis by limiting non-
economic damages for all injuries to $450,000, and limiting liability
in four other respects. After the law was passed, the insurance
commissioner required all medical malpractice insurers to refile their
rates to reflect the effect of the five major limitations on liability
the State had just enacted. In response, Aetna Casualty and Surety
conducted a study, attached as Exhibit 5, that concluded that none of
those limitations would reduce insurance rates. In particular, Aetna
concluded that the $450,000 cap on non-economic damages would have no
impact on Aetna's claims costs ``due to the impact of degree of
liability on future losses, the impact of policy limits, and the actual
settlement reached with the plaintiff.''
The St. Paul Fire and Marine Insurance Company--which at the time
was the largest malpractice insurer in the nation--conducted a similar
study, attached as Exhibit 6. That study analyzed 313 claims it had
recently closed and found that 4 of those 313 claims would have been
affected by the limitations enacted in Florida, ``for a total effect of
about 1 percent savings.'' The St. Paul further explained that the 1
percent savings estimate probably overstates the savings resulting from
the new restrictions. And it specifically emphasized that ``the
conclusion of the study is that the non-economic cap of $450,000, joint
and several liability on the non-economic damages, and mandatory
structured settlements on losses above $250,000 will produce little or
no savings to the tort system as it pertains to medical malpractice.''
What the Aetna and St. Paul studies may really be telling us--since
they prepared those studies to justify their refusal to reduce their
rates after limitations on liability were enacted--is that even if such
limitations might reduce the amount insurers pay out, insurers don't
pass on any savings to policyholders. More important, however, even if
they did pass on any such savings, they would be insignificant compared
to the other factors affecting malpractice rates. Perhaps that is why
after the last insurance crisis the chairman of the Great American West
Insurance Company told an audience of insurance executives that tort
reform ``will not eliminate the market dynamics that lead to insurance
cycles,'' and warned them that ``we must not over-promise--or even
imply--that insurance cycles will end when civil justice reform
begins.'' See ``Don't Link Rates to Tort Reform, Insurance Executive
Warns Peers,'' Liability Week, Jan. 19, 1988, at 1.
CONCLUSION
In conclusion, over the long run the medical malpractice insurance
industry is substantially more profitable than the insurance industry
as a whole: during the 10-year period 1991-2000, according to the
National Association of Insurance Commissioners, its return on net
worth has been more than 40 percent greater than the industry average,
and its loss ratio has been 6 percentage points lower than the industry
average, i.e., it has paid out in losses six cents less on the premium
dollar than have all property/casualty insurers. (See Exhibit 7.)
Despite this long-run above-average profitability, however, medical
malpractice insurance rates, for the reasons I have described,
fluctuate substantially--both up and down. The reforms I have outlined
can both reduce those fluctuations and, particularly if the insurance
industry's antitrust exemption is repealed, reduce the level of
malpractice rates over the long run. In contrast, limitations on
liability have been demonstrated to do neither.
I would be happy to answer any questions the committee may have.
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[Whereupon, at 5:48 p.m., the committee was adjourned.]