[Senate Hearing 108-144]
[From the U.S. Government Publishing Office]
S. Hrg. 108-144
ADDRESSING THE NEW HEALTH CARE CRISIS: REFORMING THE MEDICAL LITIGATION
SYSTEM TO IMPROVE THE QUALITY OF HEALTH CARE
=======================================================================
HEARING
before a
SUBCOMMITTEE OF THE
COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
SPECIAL HEARING
MARCH 13, 2003--WASHINGTON, DC
__________
Printed for the use of the Committee on Appropriations
Available via the World Wide Web: http://www.access.gpo.gov/congress/
senate
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COMMITTEE ON APPROPRIATIONS
TED STEVENS, Alaska, Chairman
THAD COCHRAN, Mississippi ROBERT C. BYRD, West Virginia
ARLEN SPECTER, Pennsylvania DANIEL K. INOUYE, Hawaii
PETE V. DOMENICI, New Mexico ERNEST F. HOLLINGS, South Carolina
CHRISTOPHER S. BOND, Missouri PATRICK J. LEAHY, Vermont
MITCH McCONNELL, Kentucky TOM HARKIN, Iowa
CONRAD BURNS, Montana BARBARA A. MIKULSKI, Maryland
RICHARD C. SHELBY, Alabama HARRY REID, Nevada
JUDD GREGG, New Hampshire HERB KOHL, Wisconsin
ROBERT F. BENNETT, Utah PATTY MURRAY, Washington
BEN NIGHTHORSE CAMPBELL, Colorado BYRON L. DORGAN, North Dakota
LARRY CRAIG, Idaho DIANNE FEINSTEIN, California
KAY BAILEY HUTCHISON, Texas RICHARD J. DURBIN, Illinois
MIKE DeWINE, Ohio TIM JOHNSON, South Dakota
SAM BROWNBACK, Kansas MARY L. LANDRIEU, Louisiana
James W. Morhard, Staff Director
Lisa Sutherland, Deputy Staff Director
Terrence E. Sauvain, Minority Staff Director
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Subcommittee on Departments of Labor, Health and Human Services, and
Education, and Related Agencies
ARLEN SPECTER, Pennsylvania, Chairman
THAD COCHRAN, Mississippi TOM HARKIN, Iowa
JUDD GREGG, New Hampshire ERNEST F. HOLLINGS, South Carolina
LARRY CRAIG, Idaho DANIEL K. INOUYE, Hawaii
KAY BAILEY HUTCHISON, Texas HARRY REID, Nevada
TED STEVENS, Alaska HERB KOHL, Wisconsin
MIKE DeWINE, Ohio PATTY MURRAY, Washington
RICHARD C. SHELBY, Alabama MARY L. LANDRIEU, Louisiana
Professional Staff
Bettilou Taylor
Jim Sourwine
Mark Laisch
Sudip Shrikant Parikh
Candice Rogers
Ellen Murray (Minority)
Erik Fatemi (Minority)
Adrienne Hallett (Minority)
Administrative Support
Carole Geagley
C O N T E N T S
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Page
Opening statement of Senator Arlen Specter....................... 1
Statement of Claude A. Allen, Deputy Secretary, Department of
Health and Human Services...................................... 3
Prepared statement........................................... 5
Statement of Peter McCombs, M.D., Chair, Department of Surgery,
Pennsylvania Hospital.......................................... 22
Prepared statement........................................... 25
Statement of Donald M. Berwick, M.D., M.P.P., president and CEO,
Institute for Healthcare Improvement; member, Quality of Health
Care in America Committee, Institute of Medicine, National
Academy of Sciences............................................ 28
Prepared statement........................................... 31
Statement of Jay Angoff, counsel, Roger C. Brown & Associates.... 33
Prepared statement........................................... 34
Statement of James D. Hurley, Chair, Medical Malpractice
Subcommittee, American Academy of Actuaries.................... 42
Prepared statement........................................... 44
Statement of Brian Holmes, M.D................................... 50
Prepared statement........................................... 52
Statement of Linda McDougal, Woodville, WI....................... 54
Prepared statement........................................... 56
Statement of Leanne Dyess, Vicksburg, MS......................... 57
Prepared statement........................................... 59
Prepared statement of Senator Thad Cochran....................... 67
Letter from the American Bar Association......................... 67
Prepared statement of the Alliance of Specialty Medicine......... 69
Letter from the American College of Legal Medicine............... 76
ADDRESSING THE NEW HEALTH CARE CRISIS: REFORMING THE MEDICAL LITIGATION
SYSTEM TO IMPROVE THE QUALITY OF HEALTH CARE
----------
THURSDAY, MARCH 13, 2003
U.S. Senate,
Subcommittee on Labor, Health and Human
Services, and Education, and Related Agencies,
Committee on Appropriations,
Washington, DC.
The subcommittee met at 9:34 a.m., in room SD-192, Dirksen
Senate Office Building, Hon. Arlen Specter (chairman)
presiding.
Present: Senator Specter.
opening statement of senator arlen specter
Senator Specter. Good morning, ladies and gentlemen, the
Appropriations Subcommittee on Labor, Health and Human
Services, and Education will now proceed with this hearing to
consider issues on medical legal liability.
There are problems in many States, including my home State
of Pennsylvania. My travels around the State in covering
Pennsylvania's 67 counties have led me to situations where
there are areas where obstetricians are unavailable, requiring
women to travel long distances. I talked to one orthopedic
surgeon who told me that he was the last specialist in town,
and raised the issue as to what would happen if he broke his
leg, and there are problems in other States. Some States do not
have the intensity of the problems which the State of
Pennsylvania and some other States do.
There are a variety of factors which are cited, depending
on the source, as the cause or causes of the issue. One is the
litigation system, a second is the rising cost for delivery of
health care and declining income, a third factor is cited as
errors by the deliverers of health care, and a fourth factor is
cited as the insurance company investments, or insurance
company management.
With respect to the litigation issue, there is no doubt
that there is a significant problem caused by so-called
frivolous lawsuits. Last month, there was a joint hearing held
by the Judiciary Committee and the Committee on Health,
Employment, Labor, and Pensions, and that February 11 hearing
had a good bit of important testimony, one aspect of which was
the citation that while 70 percent of the claims are dismissed
or lost, that the litigation costs were an enormous factor in
driving up health care costs.
There have been a number of ideas advanced on that issue.
One is to require a statement by a certified doctor in advance
or near the start of a lawsuit specifying that there is a valid
claim. Another remedy has been cited as sanctions to be imposed
by the court for frivolous lawsuits. Federal courts have
substantial authority under Federal Rule 11 to impose such
sanctions.
There has been concern expressed about medical caps and a
counterconcern about limitation of the traditional role of the
jury, especially where there are what Senator Hatch described
in a quotation on the front page of the New York Times on
February 26. He said that any legislation to cap malpractice
awards would have to have an exception for egregious cases,
close quote.
Concern has been expressed as to what egregious means, and
there would have to be a definition which is based upon some
experience, and there are some State statutes which deal with
this problem generally. Pennsylvania has two statutes, 42 P.A.
section 8553(c), in the limited tort context, and 75 P.A.
1705(d), which deals with suits against governmental agencies.
Michigan has a statute which provides a definition for a
category of cases which Senator Hatch and others have referred
to as: ``a category of death, serious impairment of bodily
function, or permanent serious disfigurement.''
The rising costs of medical practice and declining
physician income have been a factor. Doctors have complained
that Medicare was about to put a 4.4 percent cut effective
March 1, and in light of some other reductions from the
Balanced Budget Act of 1997 there was a real problem there, and
in the omnibus bill which was signed into law last month,
Senator Stevens, Senator Cochran and I and others took the lead
in freezing that cut.
Doctors have also complained that Medicare has not kept up
in the allocation of costs of malpractice insurance. They are
several years behind, and malpractice rates have gone up very
considerably in the immediate past. We had the Administrator of
CMS, the Centers for Medicare and Medicaid Services in a
hearing here not too long ago. Mr. Scully said he had no
intention of making a modification, and the omnibus bill
directed Mr. Scully and CMS to make that modification. When he
was in here the day before yesterday for a hearing on outlier
payments he said they would be making that change, so we have
moved in a couple of directions to give relief to physicians on
that crunch between declining income and rising expenses.
The issue of the insurance investments is one which we will
take up. The New York Times ran an extensive article several
weeks ago about the inability of homeowners to get insurance in
Texas because there have been so many hurricanes, the insurance
companies have pegged their premiums low, and the investments
had gone down, so that there is an issue as to what extent
those factors on insurance premiums are in play.
Doctors' errors are another factor. This subcommittee has
done extensive work in this area, following a report by the
Institute of Medicine attributing almost 100,000 deaths a year
to those medical errors, and in fiscal year 2001, we started
off with a $50 million appropriation, and it has increased each
year, and this year the budget request is for $84 million to
find ways to reduce medical errors and trying to limit the
scope of lawsuits which are filed against doctors.
This specific hearing was prompted by a report which just
came out on March 3 from the Department of Health and Human
Services entitled, Addressing the New Health Care Crisis,
Reforming the Medical Litigation System to Improve the Quality
of Health Care.
STATEMENT OF CLAUDE A. ALLEN, DEPUTY SECRETARY,
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Senator Specter. Our first witness is the Deputy Secretary
for the Department of Health and Human Services, who also
serves as the Department's chief operating officer, Mr. Claude
A. Allen, who holds a jurisdoctorate and master of laws from
Duke University Law School, did his undergraduate education at
the University of North Carolina at Chapel Hill. Welcome, Mr.
Allen. The floor is yours, and we look forward to your
testimony.
Mr. Allen. Thank you, Mr. Chairman. It is a privilege to be
here with you today. We appreciate your inviting the Department
to appear before the committee today to strongly support
legislation that will increase access to quality health care
for Americans by fixing what we see as a broken medical
litigation system.
We are facing a threat to health care today, trapped in a
medical litigation system that does more to reward trial
lawyers than to help injured patients. The administration
believes strongly that medical professionals, not lawyers, are
the key to providing quality health care, and our reform
package demonstrates this belief.
When we talk about the medical litigation crisis today,
however, we should not focus on doctors or hospitals, or
insurance companies, or even lawyers. We need to be focused on
patients and what is best for them in terms of their care, and
that is why the President and Secretary Thompson are calling
upon the Senate to enact legislation this session that will
reform the medical litigation system and improve patient
quality of care.
The President likes to illustrate how destructive our
current system is by talking about a fellow named Kurt Kooyer
in Mississippi. Dr. Kooyer went to Rolling Fork, Mississippi to
serve as a pediatrician. Unfortunately, because of frivolous
lawsuits and his rising liability insurance premiums, Dr.
Kooyer left Mississippi, which means there will no longer be a
pediatrician in that county.
Dr. Kooyer's story is not unique. Mr. Chairman, you have
already pointed out some cases in Pennsylvania, even, and it is
being repeated all too frequently across the country. Three OB-
GYNs who staffed a practice responsible for delivering half of
the babies in Fayette County, Pennsylvania, stopped delivering
babies to reduce their malpractice premium expense. Without the
OB services, their premiums went down from $400,000 to under
$100,000 a year.
Pregnant women in States like Nevada, Mississippi,
Pennsylvania, West Virginia, and Florida now have to drive
hours to find an obstetrician who can care for them. Several
States like Vermont, Mississippi, Nevada, and Massachusetts
have witnessed an exodus of obstetricians who simply cannot
afford to practice in those States any longer.
Trauma centers in several States have had to close because
insurance carriers were not willing to offer malpractice
liability insurance to their doctors, or surgeons could no
longer afford malpractice insurance. Some doctors' premiums
have increased from $37,000 to $150,000 in 1 year, such as an
OB-GYN in Nevada who had to move her practice from that State
to California.
Six of the largest nursing home companies have filed for
bankruptcy in the past 2 years, largely because of the
uncontrollable costs of medical liability premiums and tort-
related expenses. One-third of hospitals saw an increase of 100
percent or more in liability premiums in 2002, and over one-
fourth of all hospitals have reported either curtailment or
complete discontinuation of services as a result of growing
liability premium expenses.
Physicians are reacting to the threat of litigation by
avoiding the specialties that present the greatest risk of a
lawsuit, such as general surgery and obstetrics. A recent
survey of physicians revealed that one-third shied away from
going into a particular specialty because they fear the
liability exposure.
This litigation system attacks the wallets of every
American, and we have calculated, the Department, that each
American household is taxed over $1,200 to pay the costs
associated in defensive--defending frivolous lawsuits,
exorbitant jury awards, and the costs associated with defensive
medicine.
The saddest part is that our medical liability system does
not serve the interests of the patients it is designed to. Up
to 70 percent of medical liability claims result in no payments
to the patient, but it costs an average of over $40,000 to
defend each claim, and less than 2 percent of the cases result
in trial victories for plaintiffs.
A plaintiff who wins a judgment must pay the lawyer 30 or
40 percent of that judgment, and sometimes even more.
Successful plaintiffs do not recover anything, on average,
until 5 years after the injury, and even longer if the case
goes to trial, and for most injured patients the litigation
process offers a remote chance of a large judgment or provides
very real, little benefit.
The President believes all of those who are truly injured
by negligent medical care should receive swift, certain
recovery of their economic injuries. They should be made whole
financially, but we need reasonable limits on noneconomic
damages, such as pain and suffering, and reasonable caps on
noneconomic damages to result in lower health care costs and
reductions in premium increases and, thus, greater access to
care.
Estimates show that if this reform were adopted nationally,
it would save at least $70 billion a year in health care costs,
of that amount, over $28 billion in taxpayer money that the
Federal Government spends through our programs.
Over the last 2 years, States with reasonable limits of
$250,000, or $350,000 on noneconomic damages have seen
increases in premium quotes for specialists, increases in terms
of their premium quotes increase only 18 percent, but States
without reasonable limits on economic damages, which represent
almost half of the entire U.S. population, have seen increases
of 45 percent, and this is why the President wants to ensure
that recoveries for noneconomic damages do not exceed a
reasonable amount.
The President has also called for reserving punitive
damages in health care cases that justify them, such as
instances where there is clear and convincing proof that the
defendant acted with malicious intent, or failed deliberately
to avoid unnecessary injury to the patient, and we are
encouraged that today the full House will vote on needed
malpractice reforms, and yesterday passed legislation to
improve patient safety. These reforms will not only bring the
cost of practicing and providing medical care down, but it will
also improve the quality of health care and access to health
care throughout the country.
Studies have established that one of the best ways to
improve health care quality is to provide better opportunities
for health care professionals to work together to identify
errors, or practices that may lead to errors, and then correct
them. Doctors, nurses, hospitals, all who participate in good
faith peer review efforts and research activities should not be
afraid that their quality efforts would get them caught up in a
lawsuit.
As well as increasing quality, our reform package helps
provide greater access to health care in areas where it is
needed desperately. Our rural areas pay the greatest price,
with no health care in their communities, and I have traveled
throughout some of the poorest counties in America, including
some with Senator Sessions in Alabama when I first came to the
Department, and as physicians and health care providers left
communities, patients were faced with long drives and long
waits for health care.
There are many doctors like Dr. Kooyer in Mississippi who
want to serve people in rural areas like this but cannot afford
to do so, and we have to make it easier for physicians and
health care professionals like them to do what they love to do
for the people who need their care the most.
prepared statement
I want to thank you for the opportunity to represent the
administration here today, Mr. Chairman, and I look forward to
working with you in this committee and Members of Congress to
help fix the medical liability system and improve access to
care for all Americans. I want to thank you again, members of
the committee, for your commitment to this issue, and look
forward to answering any questions you may have.
[The statement follows:]
Prepared Statement of Hon. Claude A. Allen
Thank you very much, Chairman Specter, Senator Harkin,
distinguished committee members, for calling this very important
hearing, and for inviting me here to discuss the Bush Administration
and Department of Health and Human Services' strong support for
legislation that increases access to care for Americans by fixing the
broken litigation system.
Before I begin, let me start out by thanking this committee for its
leadership and vision on this important issue. Last year, the House
passed its medical liability reform bill, however the Senate did not
act. Mr. Chairman, the Administration looks forward to working with
this Committee and other Senators to move a bill through the Senate
this year.
On behalf of our President, I must report that there is today a
threat to health care quality and access because of our badly broken
litigation system that does more to reward trial lawyers than to help
injured patients. This system is impairing access to care for all
Americans.
The medical liability crisis is not about doctors or hospitals or
insurance companies or even lawyers; it is about patients. This crisis
is threatening quality of care; it is threatening access to care for
all Americans. Last, week our Department issued a report entitled:
``Addressing the New Health Care Crisis: Reforming the Medical
Litigation System to Improve the Quality of Health Care,'' which shows
how problems associated with medical litigation have worsened
significantly in this past year. Premiums charged to specialists in 18
states without reasonable limits on non-economic damages increased by
39 percent between 2000 and 2001. Premiums in these states have since
gone up an additional 51 percent. In other words, they have almost
doubled in two years. The report documents the spiraling cost of
insurance for health care providers, which is impairing patients'
access to care, as well as the cost and quality of care.
In states without reforms, physicians are leaving their practices
for states with lower premiums, reducing their care for high-risk
patients, or leaving the practice of medicine altogether. Hospitals and
nursing homes also are finding it increasingly difficult to obtain
insurance against lawsuits. As a result, patients in more states are
facing greater difficulty in obtaining access to quality care and
physicians.
Pregnant women in states like Nevada, Mississippi, Pennsylvania,
West Virginia, and Florida have to drive hours to find an obstetrician
who can care for them. Several states, like Vermont, Mississippi,
Nevada, and Massachusetts have experienced an exodus of obstetricians
from their state.
Trauma centers in several states have had to close because
insurance carriers were not willing to offer malpractice liability
insurance to doctors staffing it, or surgeons who were called in for
cases could no longer afford to pay their malpractice insurance. Some
of these doctors' premiums have increased from $40,000 to $200,000.
In Mississippi, doctors have moved across the river to Louisiana to
serve the same Mississippi patients because they can no longer afford
to practice there. Washington State has reported a thirty-one percent
(31 percent) increase in the number of physicians moving out of state
since 1998. The Massachusetts Medical Society reported that rising
premiums in their state have forced many obstetricians to give up
delivering babies. The Florida Medical Directors Association has
reported that attending physicians have stopped seeing their patients
in nursing homes in the last 12 months because of difficulty obtaining
liability coverage.
Six of the largest nursing home companies have filed for bankruptcy
in the past two years, largely because of the uncontrolled costs of
medical liability premiums and tort related expenses. One-third of the
nation's hospitals saw an increase of 100 percent or more in liability
premiums in 2002, and over one-fourth of all hospitals have reported
either a curtailment or complete discontinuation of some services as a
result of growing liability premium expenses.
Physicians also are reacting to the threat of litigation by
avoiding the specialties that present the greatest risk of a lawsuit. A
recent survey of physicians revealed that one-third shied away from
going into a particular specialty because they feared the liability
exposure. Fear of liability forces physicians to engage in the practice
of defensive medicine. The practice of defensive medicine, performing
tests and providing treatments to protect themselves from the risk of
possible litigation, is astounding. Seventy-nine percent (79 percent)
of physicians admit that fear of litigation caused them to order more
tests; Seventy-four percent (74 percent) refer more patients to
specialists than they otherwise would. Fifty percent (50 percent) have
recommended what they consider to be not-medically necessary procedures
to confirm diagnoses because of litigation fears.
The litigation system attacks the wallets of every American. We
have calculated that each American household is taxed over $1,200 to
pay the costs of associated with defending frivolous lawsuits, jackpot
jury awards, and the costs associated with defensive medicine.
At the same time, this crisis is being caused by a medical
liability system that does not serve the interests of patients. Too
many lawsuits that have no merit are filed against doctors. The
unpredictability of our liability system encourages plaintiffs'
attorneys to file frivolous cases, in the hope of receiving a very
large verdict--a verdict that means a very large payday for the lawyer.
Mega-million dollar ``jackpot'' jury awards for non-economic damages
are a very real problem to our health care system. The health care
system suffers because the awards siphon money out of the system.
Future settlements are influenced because the ``jackpot'' awards create
a benchmark for them. Between 1991 and 2001, the maximum payment
reported to the National Practitioner Data Bank escalated from
$5,300,000 to $20,700,000. The number of payments of $1 million or more
reported to the National Practitioner Data Bank exploded in the past 7
years nationwide, from 298 in 1991 to 806 in 2002.
This crisis has also not been caused by losses from investment
income. In fact, investments by medical malpractice companies have been
conservative. Most states have laws that specifically limit the
percentage of assets an insurance company can put in stocks. Over the
last five years, the industry wide allocation of assets into equities
has been relatively constant. Medical malpractice insurers' investments
in equities as a percentage of total assets, as shown below, has been
11 percent or less. Neither asset allocation nor investment income
correlates to, much less causes, the current medical malpractice
crisis. Brown Brothers Harriman & Company analyzed the relationship
between premiums and the change in investment yields among malpractice
insurers. The results showed that the performance of the economy and
interest rates do not determine medical malpractice premiums.
There is another attempt to shift the blame to insurers by
asserting that they have engaged in anti-competitive practices. The
National Association of Insurance Commissioners has reviewed this
assertion and reported that ``insurance regulators have not seen
evidence that suggests medical malpractice insurers have engaged or are
engaging in price fixing, bid rigging, or market allocation.'' Rather,
the NAIC also says, ``the preliminary evidences points to rising loss
costs and defense costs associated with litigation as the principal
drivers of medical malpractice [insurance] prices.''
President Bush outlined a framework for addressing this national
crisis. First, the President believes all those who are truly injured
by medical care should receive swift, certain recovery of their full
economic injuries. But for the sake of affordability and access, we
need reasonable limits on non-economic damages, such as pain and
suffering. While we grieve for the individuals who were injured, we
also recognize that money obtained years later will do little or
nothing to relieve the pain. The House of Representatives passed these
reforms last September. We believe that was an important step in the
right direction--and are encouraged that the Judiciary and Energy and
Commerce Committees have forwarded H.R. 5 for a full vote in the House.
I understand that the House is scheduled to vote on this important
legislation this afternoon. We are committed to working with this
committee, and other members of the Senate to bring these common sense
reforms to all Americans.
Reasonable caps on non-economic damages result in lower medical
liability costs and lower insurance premiums--increasing doctors',
hospitals', and nursing homes' ability to stay in business, which leads
to greater access to care. Everyone wins, except trial lawyers. We have
estimated that if this reform were adopted nationally, it would save as
much as $126 billion in health care costs this year. Of that amount,
over $28 billion is taxpayers' money the Federal Government spends in
Federal health care programs. The research is compelling that this type
of reform works. Over the last two years, states with limits of
$250,000 or $350,000 on non-economic damages have seen increases in
premium quotes for specialists increase only 18 percent, but states
without reasonable limits on non-economic damages, in states
representing almost half of the entire United States population, have
seen average increases of 45 percent. Since California instituted a
reasonable cap on non-economic damages and other critical procedural
reforms 25 years ago, liability premiums have increased by less than
one-third as much as in the rest of the country.
The President has also called for reserving punitive damages in
health care cases where there has been egregious misconduct. And he has
called for several other key procedural reforms that would ensure that
defendants pay their fair share--ensuring that cases are brought before
they become stale and taking steps to make future payments are
available when patients need them.
We are also encouraging states to consider other innovative ways to
deal with the broken medical liability system. The Department of Health
and Human Services is implementing a demonstration program, an ``Early
Offer Program,'' for rapid and fair settlement of claims made against
the Department for claims of negligence by Indian Health Service and
Health Center patients.
Our judicial system must also address medical errors. If we truly
want a healthcare system where quality is valued, we should seek to
change health care systems to reduce or avoid real medical errors
before problems become injuries. Seminal studies have established that
one of the best ways to improve health care quality is to provide
better opportunities for health professionals to work together to
identify errors, or practices that may lead to errors, and correct
them. Many preventable errors and complications arise not from failures
by individual doctors, but from systemic problems in our increasingly
complex medical delivery system. In its report, To Err is Human, The
Institute of Medicine acknowledged, ``the common initial reaction when
an error occurs is to find and blame someone . . . Preventing errors
and improving safety for patients require a systems approach in order
to modify the conditions that contribute to errors. The problem is not
bad people; the problem is that the system needs to be made safer.''
Providers need to be able to study how mistakes occur and how to
prevent them. When they do, the results can be incredible. The doctors
and hospitals of the Pittsburgh Regional Healthcare Initiative reduced
blood infections in ICUs by 20 percent through collaborative work to
identify safer ways to treat ICU patients. Anesthesiologists reduced
dramatically the patient death rate from anesthesia administered during
surgery, from two deaths per 10,000 anesthetics in the mid-1980s to
about one death for every 200,000-300,000 anesthetics administered
today.
How did the anesthesiologists do it? First, they acknowledged that
a problem existed, and they shared information. They standardized
anesthesia machines to ensure consistency in the delivery of drugs and
also addressed issues of fatigue and sleep deprivation and changes in
training. To give one example: an engineering researcher observed a
number of anesthesiologists in operating rooms. The researcher noted
that anesthesia machines were not standardized: Turning a dial
clockwise on one machine decreased the concentration of anesthesia in
some machines. In others, turning the dial clockwise increased the
concentration of anesthesia. The research was publicized and
manufacturers standardized anesthesia machines so that dials turned in
a uniform direction.
Unfortunately, our tort system has set up roadblocks that
discourage health care providers from participating in quality
improvement efforts. Providers are reluctant to report information
about adverse events or near misses out of fear that it will be used
against them in a tort action and are reluctant to collaborate on
solutions for fear of drawing up a road map for lawsuits.
Legislation in the last Congress would have given health
professionals the ability to engage in quality and safety evaluation
without fear of having the process or information used against them in
court. The Administration supported these efforts, and has encouraged
quick action this year. Just yesterday, the House passed H.R. 663, the
Patient Safety and Quality Improvement Act. I would like to take this
opportunity to applaud the House's quick action on this important
issue. We look forward to working with this Committee and members of
the Senate to secure passage of a similar bill and other proposals to
help fix the medical liability system and improve access to care for
all Americans.
Additionally, today Secretary Thompson is making a major patient
safety announcement. FDA is proposing a new regulation that would
require ``bar codes'' on all prescription and some over-the-counter
drugs. Bar codes are symbols consisting of horizontal lines and spaces
and are commonly seen on most consumer goods. In retail settings, bar
codes identify the specific product and allow software to link the
product to price and other sales- and inventory-related information.
FDA's bar code rule would use bar codes to address an important public
health concern--medication errors associated with drug products. FDA's
regulation proposes to require bar codes on prescription drugs, over-
the-counter drugs packaged for hospital use, and vaccines. The bar code
would, at a minimum, contain the drug's National Drug Code number,
which uniquely identifies the drug, its strength, and its dosage form.
The Institute of Medicine and other expert bodies have concluded
that medical errors have substantial costs in lives, injuries, and
wasted health care resources, and that misuse of drugs is a major
component of those errors. FDA estimates that the bar code rule, once
implemented, will result in a 50 percent increase in the interception
of medication errors at the dispensing and administration stages. This
will result in 413,000 fewer adverse events over the next 20 years.
Some hospitals that currently have bar code systems in place report a
substantially higher reduction in errors from bar code usage. This
initiative is another example of the Administration's commitment to
doing everything in our power to increase access to health care and
enhance patient safety, both of which are among the President's and the
Secretary's top priorities.
Thank you for giving me the opportunity to represent the
Administration here today. In closing, let me stress that the
Administration believes that doctors who practice bad medicine ought to
be held accountable for their actions. But, a system that puts good
doctors out of business is a broken system; a system that restricts
patient access to physicians is a broken system; a system that
encourages physicians to order excessive tests and procedures that
places patients at great risk is a broken system. Needless litigation
does incredible harm to our health care system. Our goal is to improve
the quality of care, increase access to care, and reduce the costs. The
litigation system is imperiling this effort. We should rely on doctors,
not lawyers to improve our health care system. We need to fix this
broken medical liability system now, and the reforms I just discussed
are the first step. With good ideas, strong leadership through this
committee, and much-needed reform, we can truly restore common sense to
medical liability in America.
Thank you, Mr. Chairman, and Members of the Committee, for your
commitment to this issue.
Senator Specter. Thank you, Mr. Allen. Let me begin with
the issue of doctors' compensation, which your Department has
some direct control over. What can HHS do to stop the periodic
reductions in payments of physicians under Medicare?
There is a terrible squeeze on the doctors. They were
supposed to have a 4.4 percent cut on March 1. There was a
national outcry about the matter, but we did not see the
Department of HHS doing anything about it, or coming forward
with any recommendations. It was left to the Appropriations
Committee to freeze that. What can HHS do to stop these
reductions in payments to doctors and hospitals which are just
so debilitating to the medical system?
Mr. Allen. Senator, first of all, I would suggest that it
is not just HHS's responsibility. It has to be in concert with
Congress, and Tom Scully was here the day before yesterday to
testify, and I think he has been on the Hill numerous times
working with Members of Congress to consider and try to address
this issue.
Senator Specter. But we look to HHS for leadership. The
executive branch has the expertise. We deal with all of the
problems that the Government has. We had to reach out to Mr.
Scully the day before yesterday on outlier costs which HHS
planned to put into effect without any notice to hospitals,
drastic curtailment, and it was only through action of this
subcommittee that they allowed a comment period--a little
unheard of, not to have a comment period--until April 4, and to
allow hospitals some opportunity to figure it out.
Why does that initiative have to come from this
subcommittee, as opposed to HHS taking that kind of step
without an opportunity for hospitals to be heard, or without
any transition period?
Mr. Allen. Certainly Senator, in terms of a comment period,
that certainly is something that is within our control, and we
were remiss if we did not allow for a comment period to occur
in that situation, but let me make it very clear that we are
limited by the legislation that Congress enacts, and our hands
are tied in terms of the formulas that we are allowed to use
when it comes to addressing physician payments, fee schedules,
so we have parameters that are set by Congress within which we
are required to work.
Senator Specter. I understand that Congress passes the
laws, but where you have the expertise at HHS it would be
enormously helpful to the Congress if you would come forward
and take the initiative and say what ought to be done.
Now, take the issue of malpractice rates. I have heard all
over my State about malpractice insurance rates going up. It is
a big point you were making, and yet HHS was using old
statistics. The rates have gone up enormously since HHS made an
allocation to doctors for malpractice insurance, and we issued
a directive, an order from the Congress, signed by the
President, that you had to update those statistics. Why doesn't
HHS take it upon itself to give relief to the doctors by doing
what the law mandates, and that is to use current statistics
for calculating malpractice insurance reimbursement?
Mr. Allen. Senator, that is a great question, and I think
we are doing a lot to try to address it, and I will give you a
good example of that. We have come to Congress and we are
requesting Medicare reform. We know that the Centers for
Medicare and Medicaid Services is using 40-year-old technology
to try to address this very issue.
Senator Specter. You are off the point, Mr. Allen. I do not
want to talk about the generalizations of Medicare reform. We
only have a few minutes here.
Mr. Allen. Sir, you asked me a very specific question. If I
am permitted to answer it, I will attempt to do so----
Senator Specter. Please do.
Mr. Allen [continuing]. But if I am not permitted to do so
I cannot help you with trying to get to the answer that you are
seeking.
Senator Specter. I would like an answer to the question as
to why HHS did not use up-to-date statistics on calculating
reimbursement to doctors for malpractice insurance payments.
Mr. Allen. Senator, we are using the most recent statistics
that we are able to get, and utilizing the systems that we have
at Medicare--Medicaid--the Centers for Medicare and Medicaid
Services. We attempt to do that. It is not something that
happens overnight.
Senator Specter. You are not right on the facts, Mr. Allen.
Mr. Allen. Sir, if you have additional facts that you would
like me to take into consideration I would be glad to do that,
but I sit and work with Mr. Scully regularly. We address these
issues, and try to address them, and we have tried to work with
Congress to bring reasonable solutions to look at how do we
resolve issues in terms of payments to physicians but at the
same time how do we do it consistent with the law that we are
required to operate within.
Senator Specter. Well, the narrow question which I am
pursuing is the one of calculating payments to physicians to
take into account their costs for malpractice insurance, and
the facts are that you are 3 years out of date, and Mr. Scully
testified here at a hearing last month that there was no
intention by HHS to update those statistics, and then there is
a specific requirement in the omnibus bill directing HHS to use
up-to-date statistics, and on Tuesday Mr. Scully said that HHS
would follow the mandate of the Congress which, of course, HHS
has to do.
But my question to you is, why was there a significant
delay period before this issue was taken up? Why does Congress
have to tell HHS to use up-to-date statistics?
Mr. Allen. Because the physician payment schedule, those
numbers are set in statute. That is not set by the Department.
We have formulas that we have to follow and we do that to the
best of our ability.
In the specific case that you are raising in terms of
outlier payments--physician payments, I am sorry, we were bound
by what was required in statute and the interpreting the
regulation that we were required to follow, and that is not
something that we can change overnight. That is something that
we try to exercise the amount of flexibility that we are
provided in statutes, and that is what the Department
consistently tries to do.
Senator Specter. Well, the statute says you compensate the
physicians in part based on their malpractice insurance rates,
and that up-to-date statistics be used. Will you go back to
those statutory provisions and review them? We have gone over
this with Mr. Scully in detail, and the response that HHS has
made is not really timely on using the statutory authority
which you have to compensate the doctors for that very
important part of their expenses.
Mr. Allen. Mr. Chairman, I will be glad to go back and look
at that and work with the Congress to address what we think is
limiting on our flexibility to do exactly what you are talking
about us doing.
Senator Specter. Moving to the subject of physicians'
errors, when the Institute of Medicine came out with its report
that almost 100,000--the figure was set at 98,000 deaths due to
physicians' errors, this subcommittee took the lead in
providing $50 million on a statute which was promulgated on May
12 of the year 2000, giving HHS 2 years to come up with
recommendations to deal with physicians' errors, and as yet we
have had no response. That provision was contained on a
directive to the Agency for Health Care Research and Quality
which, of course, is a part of Health and Human Services.
The report noted that the committee is troubled by these
statistics on the Institute of Medicine report. Responsible for
as many as 98,000 deaths per year, medical errors have a
substantial economic cost, with estimates ranking as high as
$29 billion annually, and we directed the Agency for Health
Care Research and Quality to devote $50 million to determine
the ways to reduce medical errors, with a report, but so far we
have had no response, and it is almost 3 years. What is
happening on that, Mr. Allen?
Mr. Allen. Mr. Chairman, if that is a report--I am assuming
you are referring to a report that the Agency for Health Care
Research Quality was asked to review on patient safety, and I
understand from the Department that we have provided the
subcommittee staff with an oral interim report of what the
findings have been. The final report will be completed in
September of this year, coming out of the Department. We will
move to get that out as soon as we can, but it looks like
September 2003 is when the report is due out.
Senator Specter. I am advised by my chief of staff here
that about a year ago--precisely what happened, Bettilou?
Ms. Taylor. You had met with us regarding what your plans
were for it, but I have not gotten anything back as far as what
the report will contain.
Mr. Allen. I would be more than happy, Mr. Chairman, to
schedule another interim review pending the final report coming
out, and will be glad to have our staff discuss that with you.
Senator Specter. Well, we would like to have the report,
Mr. Allen.
Mr. Allen. And I gave you the date for when the report is
supposed to be ready, as I understand it will be completed.
Senator Specter. Well, could you expedite that?
Mr. Allen. I will certainly see about----
Senator Specter. We are really working on legislation in
the field, and we would like to have a better handle on what
the medical errors are as a part of this problem. Your report
published on March 3, addressing the new health care crisis,
does not take up that issue at all, does it?
Mr. Allen. Of patient quality or patient safety?
Senator Specter. Medical errors.
Mr. Allen. As I recall, we do discuss the role of medical
errors in terms of solutions. We recognize that medical errors
are a tremendous part of the burden that we bear in terms of
health care expenses, and so we do address that. I will do all
that I can to try to expedite getting the patient safety report
out.
Senator Specter. Well, aside from recognizing that medical
errors are a factor, which you do not need a report to say, my
question is, when you have been working on this for almost 3
years, is there something from all that study that you could
have incorporated into this report to give us some
understanding as to how medical errors play into this equation
so that when we legislate we know what that factor involves?
Mr. Allen. Mr. Chairman, with regard to the specific of the
report, again, it is in process. The reason it was not
incorporated in the study is because it is not finished. But,
we did incorporate other reports that do have finished products
that address patient safety, medical errors, and that would
include the IOM study that you referenced earlier. We work very
closely with the Institute of Medicine.
Senator Specter. Well, Mr. Allen, could you supplement this
report, which you published on March 3, with at least a
synopsis of what your study on medical errors shows so that the
subcommittee and the Congress can have an idea as to how that
factor bears on legislation which we are considering right now?
Mr. Allen. We would be more than happy to go back and look
at it and provide additional information. In addition, I can
update you on what the Department is doing in terms of looking
at medical errors and the roles that they play, apart from the
report that is due, September 2003.
Senator Specter. My request to you is, if you are going to
have the report in September of this year, and it has been in
process for several years, would you review that as to whether
there is any information that you have already gleaned which
would bear upon the topic of this report, which is addressing
the health care crisis?
Mr. Allen. Well, certainly we will go back and review that
and we'll be glad to work with you to find out if there is
something that will be helpful. That is not a problem.
[The information follows:]
Question. (a) What has AHRQ discovered so far from patient safety
research (essentially a preview of substance of findings that will be
in the September Report to Senate Appropriations' Committee on Patient
Safety)?
(b) Can AHRQ commit to doing a briefing soon, and if so, when?
Answer. (a) The projects from which this information is being
gathered are still quite early in their life cycle. However, we have
gathered some preliminary information that you may find useful. Early
investigation suggests some common causes for medical errors
irrespective of condition or specific circumstances: communication;
health care professional staffing patterns or skill mix; devices and
equipment failure; inadequate patient education; incomplete assessment
of the patient; lack of adherence to protocols and poor or incomplete
documentation in medical records. Additional issues include improper
identification of patients, training or orientation deficiencies, staff
overload, lack of supervision, lack of coordination at transfer,
failure to get patient consent, poor specimen labeling, and inadequate
procedures as the source of medical errors.
AHRQ grantees confirm what we frequently hear from health care
leaders: the definition of medical errors is variable and often unclear
to those who report them. Trust, team building, and partnering is an
important factor in developing and implementing successful reporting
systems but presents a real challenge because of different
institutional cultures and perceived or real legal protections.
Furthermore, legal protection of reporters and reported data is
critical for success of a reporting system. Reporters must feel
comfortable that they will not be at increased risk of punitive or
malpractice actions. Grantees noted that organizational culture varies
considerably and directly impacts institutions' and leaders'
willingness to embrace changes necessary to improve patient safety.
Technology is both a solution for some medical errors and a direct
contributor to others. The latter point is that human factors (i.e.,
the machine/user interface) must be addressed for each technological
solution developed and implemented. Information on ``near misses''
(i.e., errors that occur but are intercepted before they reach the
patient) can contribute substantially to our understanding of errors
and the interventions necessary to prevent or mitigate their injurious
impact on patients. However, the sheer magnitude of medical errors may
be overwhelming making them both difficult to capture and analyze.
Reporting systems that provide easy-to-use, actionable information may
be more readily accepted compared to systems that are time consuming,
awkward to use, redundant, and lack adequate value-added factors and
feedback mechanisms to reporters. Furthermore, physicians and patients
have different perspectives on how they want medical errors disclosed.
Research that AHRQ supported showed that both patients and
physicians had unmet needs following errors. Patients wanted disclosure
of all harmful errors and sought information about what happened, why
the error happened, how the error's consequences will be mitigated, and
how recurrences will be prevented. Physicians agreed that harmful
errors should be disclosed but choose their words carefully when
telling patients about errors. Although physicians disclosed the
adverse event, they often avoided stating that an error occurred, why
the error happened, or how recurrences would be prevented. Patients
also desired emotional support from physicians following errors,
including an apology. However, physicians worried that an apology might
create legal liability. Physicians were also upset when errors happen
but were unsure where to seek emotional support. (Gallagher et al,
JAMA, Vol. 289 No. 8, Feb. 26, 2003)
(b) The AHRQ staff is available to do a briefing at the convenience
of the Committee.
The Agency's Interim Report to the Senate Appropriations'
Committee, which is coming in September 2003, will detail, to date, the
results of the Agency's efforts to reduce medical errors and will
provide information specifically about:
--How hospitals and other health care facilities are reducing medical
error
--How these strategies are being shared among health care
professionals
--How many hospitals and other health care facilities record and
track medical errors
--How medical error information is used to improve patient safety
--What types of incentives and/or disincentives have helped health
care professionals reduce medical error
--Most common root causes of medical errors
--Data showing the effectiveness of State requirements in reducing
medical errors
Senator Specter. We would appreciate it. I am going to have
to excuse myself for a few minutes. We are in the middle of a
vote, or at the end of a vote, and I will return very shortly.
Mr. Allen, there has been considerable criticism in the
past of the fact that the same doctors appear many times with
complaints against them, or litigation. Have your studies borne
that out, that there is a pattern with some doctors coming up
again and again with allegations of error?
Mr. Allen. Mr. Chairman, I am not familiar with any studies
that we have pointed to that problem with a small class of
doctors. We do have studies demonstrating that certain
specialties are much more prone to litigation, obstetrics-
gynecology, for example, and those that are involved with very
invasive procedures, like neurological surgery.
Senator Specter. I am on a different point. I am on the
point whether there is a recurrent pattern of the same doctor
having complaints filed against him.
Mr. Allen. Again, answering your question, I do not know
that we have studies that we have looked at that demonstrate
that. I do know that the Institute of Medicine's report looked
at some of these issues, and what they pointed out is that the
issue is not so much individual doctors.
For example, we know that in the area of obstetrics, that
the average OB-GYN has three malpractice cases filed against
him or her during the course of their career. While we have
statistics such as that, we do not have data that says that
there is small percentage or a large percentage of the same
doctors who are being sued over and over.
In fact, it is my belief, having just worked at the State
level and overseen physician activities in the Commonwealth of
Virginia, that we have systems in place that look at
disciplinary actions and focus on malfeasant physicians. We do
know that that happens, but I cannot tell you that we have
studies that show more detail on a certain percentage of
those----
Senator Specter. Well, the subcommittee would appreciate it
if you would take a look at that, as to what patterns, if any,
exist for the same doctors. You use the word, malfeasance. I
would not go quite that far.
[The information follows:]
Question. To what extent do the data on medical errors confirm that
the problem with medical errors is truly system-wide versus the problem
of repeat offenders?
Answer. Medical errors are the result of multiple human and system
failures stemming from the structure and process of health care.
Reporting systems that capture and record root cause analysis almost
universally find that events involve a combination of contributing
factors leading to the event. While virtually all near-miss, no-harm
(event occurred, reached the patient, but patient was not injured), and
adverse events contain some element of human failure or error, these
alone did not lead to the undesired outcome. Most often it is
underlying risks and hazards within the structure and process of care
that contributed the patient injury or harm. This finding has been
reported repeatedly in the patient safety literature. The data
supporting this observation comes from the United States, Australia,
the UK, Denmark, and the Netherlands. Additionally, in a study of
transfusion events, the researchers found that the greater the level of
the severity of the event, the greater the contribution of
organizational and technical failures that were involved. (Kaplan and
Battles, 1999) It is only at the lowest levels of actual or potential
errors where there were greater contributions of only human factors
involved. This mix of human, organizational, and technical distribution
of events seems to be matched outside of medicine as well. When events
from a transfusion service in the United States were compared to a
Dutch chemical process plan, the distribution of causes was virtually
identical. (Kaplan, Battles, van der Schaaf, 1998)
Senator Specter. There is a Public Citizen's report on the
situation in Pennsylvania which shows that repeat-offender
physicians are responsible for the bulk of medical malpractice
costs. I would appreciate it if your report, the Department's
report on physician errors would look into this issue of repeat
offender physicians and let the subcommittee know what is in
place in the States, taking at least, say, a half-a-dozen State
samples as to what action is taken on reviewing this matter by
licensure boards, and also by hospitals.
We have had a number of reports that there is very little
action taken by hospitals, disciplinary action, and that
doctors move from one hospital to another when they are quietly
let go, and no effort made to follow the doctors who do have
these repeat errors. That is an area which is bubbling right
below the surface, Mr. Allen, and the subcommittee would
appreciate it if your report would take into account that
factor.
Mr. Allen. Mr. Chairman, we will be glad to look at that,
but again I point your attention to the reports that are
already out that do talk about a lot of these issues, for
example, the IOM report. The title is: ``To Err is Human'', and
one of the things that they say in the report is that
preventing errors and improving safety for patients requires a
systems approach.
[The information follows:]
Question. To what extent do hospitals address problems of medical
errors and medical malpractice? To what extent do ``bad actors'' simply
move on to other institutions or jurisdictions?
Answer. Virtually every hospital in the country has in place some
type of an event reporting system. However the extent to which
hospitals actually use reporting systems to make patient safety
improvements is variable. Some institutions have done and continue to
do an outstanding job in using the data. Others do not fully utilize
the available data that they already collect as an optimal patient
safety management tool. What we do know is that hospitals which are
committed to patient safety improvement tend to encourage reporting of
patient safety events, and move to align their internal policies (and
thereby culture) to encourage reporting by adoption of a just culture.
When this happens, institutions may experience a large increase in
reporting. AHRQ has developed a survey to determine the extent to which
hospitals collect patient safety data and how those data are used, and
a pilot study of the instrument is currently being conducted.
For the most part, the type of information on problem physicians
moving to other institutions or jurisdictions is anecdotal, and without
strong linkages between state licensing boards, these issues cannot be
fully tracked. However, in a study completed a few years ago that
focused on risk-adjusted mortality for cardiac by-pass graft (CABG)
surgery in New York State, the researchers found that some of the
surgeons with high mortality rates left the state while some continued
to practice within New York State but ceased performing the CABG
surgery. (Chassin, Health Affairs, July/August, 2002, Vol. 21. No. 4,
pp. 40-51). Some information on migration of individual practitioners
may also be available through the Health Resources and Services
Administration's National Practitioner Databank. We would like to
emphasize, however, that the majority of injuries resulting from the
delivery of health care are not attributable to individuals, but rather
to systems-related issues.
Mr. Allen. We can spend a lot of attention focusing on the
doctors who are responsible for committing the errors. That is
only one aspect focused on the individual. What we at the
Department believe, and the reason we think it is so important
that we look at this broadly, we look at the medical liability
system. We look at the impact that it has on health care in
general. That impact is evident in several ways. We spend
between $70 and $126 billion a year in terms of what we call
defensive medical practices, where doctors are ordering more
tests, where doctors are prescribing more medication, where
doctors are taking steps because of the fear of litigation.
What we want to focus a lot of attention on, is how do we
work with medical systems. So, you can deal with the individual
physician whether there are many or few, but the key is to take
a system approach to catch those situations before a mistake is
made that damages a person's life.
Senator Specter. Well, Mr. Allen, that is very interesting,
but that does not respond to the specific point that I am
making. When you talk about defensive medicine, I understand
that. That is a factor. When you talk about before a mistake is
made, I understand that. I am having a very focused question
about doctors who make repeat mistakes, are sued, or are up for
disciplinary action.
Mr. Allen. And Mr. Chairman, I responded to that.
Senator Specter. And if I can finish my question, and we
are putting up $84 million, and the subcommittee would like to
have you take a look at that.
Mr. Allen. Mr. Chairman, I have already answered that and
said we would look at that. I said we would certainly be glad
to go back and look at it. The specific question you asked me
was whether we had studies that showed that, and I answered
that and said no, and you asked us to look at that, and I said
yes, we would go back and attempt to look at that.
Senator Specter. With respect to the insurance factor, Mr.
Allen, are you familiar with the situation in Texas where
people cannot buy homeowners' insurance because the insurance
companies have stopped writing it because the losses were so
extensive from hurricanes, and the reserves of the companies
have gone down so much?
Mr. Allen. I heard you reference that earlier, Mr.
Chairman. I am not personally familiar with it. I do not follow
the homeowner insurance areas, but I do follow what is
happening in the medical area.
Senator Specter. Well, I would appreciate it if you would
take a look at this extensive report in the New York Times on
December 1, and one extract, the price and availability of
homeowners' insurance has become a political issue in Texas.
Texans pay the highest premiums for homeowners insurance in the
Nation, while the insurance companies say they lost billions of
dollars because of the State's run of natural disasters like
tropical storm Alison, and then the study goes into the issue
of the insurance companies having lost a lot of money on their
investments.
What is the best statistical studies you know of which bear
upon the question as to how much of the increase in premiums
has been caused by the investments of the insurance companies?
[The information follows:]
HHS has not conducted such statistical studies and our
researchers have not conducted a literature search on this
topic.
Mr. Allen. The two areas I can point to are in the report
itself. There is a table, Table A, that talks about the 5-year
historical asset allocations for medical malpractice carriers,
and it lays out for the asset classes and lays out for the
years 1997 to 2001 information regarding their asset
allocations. It points out what we think is the case that this
crisis has not been caused by poor management practices by
insurers in terms of their investments.
In fact, there is a letter of February 7 that was sent to
Senator Gregg from the National Association of Insurance
Commissioners, and I will make sure you have a copy of it,
where they look at this issue. They are charged with overseeing
the insurance industry in terms of their portfolio investments.
Insurance carriers are very conservative in terms of their
portfolio investments. What they point out is that the issue is
not the investments of the portfolios, but rather they believe
the issue is the high loss ratios in many States. Regulator
concerns have been with rate inadequacy in those regards, and
so those would be the two areas that I would point you to that
address insurance company investments.
Senator Specter. Well, we are going to have other witnesses
testify to this. I am sorry that you will not be here to listen
to their testimony, because what the subcommittee customarily
does is to have witnesses interact, and we have put you on a
separate panel out of deference to your standing as Deputy to
the Department, but I wish you would convey to Secretary
Thompson the subcommittee's request that when witnesses come
here they are prepared to spend the time of the hearing. If the
Senators can spend the time, we would ask the Department to
spend the time, and you have told me in advance that you have
other commitments, so would you please convey to the Secretary
my request that when he or witnesses from your Department come,
you are prepared to stay for the hearing?
Mr. Allen. Mr. Chairman, I will be glad to do that, and as
I shared with you, because of the situation that we are dealing
with in terms of homeland security, I am required to be back at
the Department to deal with some issues there. Otherwise, I
would have intended to stay here. That was my intention, but
unfortunately, because of the press of other business, I do
need to return.
Senator Specter. I am doing a lot of work on homeland
security myself----
Mr. Allen. And we greatly appreciate that.
Senator Specter [continuing]. On the Appropriations
subcommittee and on the Government Affairs Committee, and on
the terrorism issue with Judiciary. We are all very, very busy,
but when the subcommittee schedules a hearing--just tell the
Secretary we would like his witnesses to stay, okay.
Mr. Allen. We will pass that on for you.
Senator Specter. Thank you.
Mr. Allen. Thank you.
Senator Specter. I am not finished, Mr. Allen.
Mr. Allen. Okay.
Senator Specter. Going on to the issue of the lawyers, the
frivolous lawsuits are a real problem, beyond any question, and
on the hearing we had last month with the Judiciary Committee
and the Committee on Health, Education, Labor, and Pensions,
the testimony was given that although 70 percent of the
lawsuits are won, the litigation costs are very high.
A couple of ideas which have been advanced are to require,
as Pennsylvania has done, a certificate be filed at the time
the lawsuit is instituted, or within 60 days, from a recognized
expert that there is a bona fide claim, and another line has
been the imposition of sanctions on the lawyers who bring
frivolous lawsuits, giving the judge discretion to identify a
frivolous lawsuit, and to have that as a deterrent effect.
Do you think that those measures would be effective in
eliminating frivolous lawsuits?
Mr. Allen. I think Rule 11 has been in place for a long
time as a deterrent on attorneys bringing frivolous claims, and
so the States enforce that in terms of lawyers bringing
frivolous claims.
Our concern is the patients, and in many of these
situations very few patients file claims. In those cases where
they do, it is usually 5 or more years before they see anything
in terms of recovery. We think the approach that we are
recommending in terms of malpractice litigation reform is an
important step overall, in terms of the principle, but the
examples that you cite certainly are tools that can be
utilized.
We are focusing on how to get a quicker judgment, or
quicker decision that serves the patient who has been injured,
but at the same time how do we focus on the system changes that
can contribute to improving the quality of health. That is what
we are going to focus on, and that is what we think is a very
key piece of the puzzle.
Senator Specter. Well, there is no doubt that we want to
take care of the patients and have the matter resolved as
promptly as we can, but when your report deals with reform of
the system, my question to you is, how big a part of the
problem is the frivolous lawsuit, and how effective will these
two measures be on that point? I do not think your last answer
was responsive at all to that question, Mr. Allen.
Mr. Allen. Let me try again, Mr. Chairman.
Senator Specter. Thank you.
Mr. Allen. With respect to frivolous lawsuits, we already
have laws on the books that address frivolous lawsuits.
Senator Specter. You cite Rule 11. That is the Federal
court. Relatively small numbers of malpractice cases are
brought in Federal courts. You do not have sanctions imposed in
the State courts to any substantial extent, or is your
information different?
Mr. Allen. I think you can qualify the issue by saying to a
substantial extent, there are States that do have sanctions,
and that have attempted to impose sanctions.
Senator Specter. Are the States imposing sanctions on
frivolous suits, Mr. Allen?
Mr. Allen. Some States do.
Senator Specter. Do you have any evidence to back that
statement up?
Mr. Allen. I can certainly provide those for you for the
record to give you what we have looked at in terms of efforts
States have undertaken to try to address that issue.
Senator Specter. The complaints that I have heard from the
medical profession is that frivolous lawsuits are filed and the
insurance companies complain they eat up a lot of time and
cost, and there is no remedy at all in existing State court
practices.
Mr. Allen. Mr. Chairman, you are not getting an argument
from me saying that is not the case. We would agree that
frivolous lawsuits are taking place. Steps, as you suggest, can
go a long way to addressing those issues in terms of slowing
the litigation process, those that are frivolous.
Senator Specter. Mr. Allen, what I want to focus on, I want
to focus on the issue of frivolous lawsuits, and your judgment
as to how they would be affected by these two remedies. That is
what I want to focus on.
We are trying to get a handle on what we ought to do
legislatively, and your Department has published this report on
addressing the health care crisis, and we want to make a
determination as to whether we ought to legislate on this
subject. That is the thrust of the question. We would like to
know if your Department has any evidence as to whether States
are now adequately handling frivolous lawsuits, or the Federal
Government adequately handling frivolous lawsuits, and what
ought to be done about it.
Mr. Allen. Mr. Chairman, I think again the goal seems to be
moving. I think I addressed your concern in saying that we
agree that frivolous lawsuits are taking place, that they are
casting a chill on the practice of medicine, and we should do
something to address frivolous lawsuits. So, I am not sure
where the argument is--I said I agreed with you in what you are
saying.
Senator Specter. There is no argument. You have not yet
addressed the question as to whether these two reforms would
take care of frivolous lawsuits.
Mr. Allen. Mr. Chairman, I am not in a position, nor do I
think the Department is in a position to say across the board
whether these will take care of all the issues. In fact, what I
would say is, given what we have looked at in terms of the
impact that it has on health care in general, they would be two
steps that could be addressed, but they are not the only
issues. It is not just the cases that are frivolous that are
impacting the system.
They have a major impact. As I cited already, we find that
defensive--defending claims cost on average about $40,000 per
claim. The numbers would suggest that the more claims that we
could deal with, whether they were frivolous or not, they
should be dealt with on the front end of the system.
So I am saying that we agree with what you are suggesting
as a potential one step in the situation, but that does not
cover the vast majority of issues which we are talking about in
terms of the cost that huge awards for noneconomic damages are
having on the medical industry. That is what we are talking
about in terms of patient care.
Senator Specter. Mr. Allen, I am about to come to the
noneconomic issues, but the questions which I have addressed to
you are these: To what extent is your Department in a position
to comment about the seriousness of frivolous lawsuits, number
1. Number 2, what is your evaluation of the two reforms which I
have suggested?
What I would like you to do is get the transcript and see
if your answers have been responsive, and if you think they
have been responsive, forget it. If they have not been
responsive, give me responsive answers.
Mr. Allen. I will be glad to.
Senator Specter. On the issue of caps, do you agree with
Senator Hatch's statement that there ought to be an exception
for what he classified as egregious cases?
Mr. Allen. The President's proposal does consider what we
call the egregious cases, those cases where it has been
demonstrated clearly and convincingly that there has been a
malicious intent, or willful knowledge of the wrong that has
been done. There should be reasonable caps on it, but certainly
exceptions exist for egregious cases within a reasonable cap
limitation. The President's proposal does envision allowing for
those situations where there has been an egregious case to
allow for increased recovery through punitive damages.
Senator Specter. Well, Mr. Allen, there are two concepts
involved here. One is the point of the nature of the
wrongdoing, if it is negligence or if it is willful or
malicious. There is another issue, which is totally separate,
and that is the question of damages.
Now, if you leave out the punitive damage question for just
a minute, because we will come to that, the issue is whether
there should be a category--let me back up just a minute. Are
you saying that the President's plan allows for more than a
$250,000 cap on noneconomic damages, aside from punitive
damages?
Mr. Allen. We would separate out punitive damages from
noneconomic damages.
Senator Specter. Just focus on noneconomic damages. Are you
saying that there is some category of cases in the President's
plan where the cap of $250,000 would not apply?
Mr. Allen. We would say that the President's plan calls for
ensuring that for noneconomic damages, that they would not
exceed a reasonable amount, and we have stated $250,000 based
upon what we have seen in States where the cap is between
$250,000 and $350,000. I do not want to settle on a hard and
fast number, because it is that range between $250,000 and
$350,000 where we have seen States' experience has demonstrated
a benefit from that, and putting a cap on.
Senator Specter. All right. Whether the figure is $250,000
or $350,000, are you saying that the President's plan would
allow an exception above whatever figure is set for egregious
cases?
Mr. Allen. We would say that again, in this situation that
we are looking at for noneconomic damages, egregious cases in
terms of--you are focused on noneconomic, not punitive damages,
is that--am I understanding you correctly?
Senator Specter. I am focused again--to repeat for the
fourth time, I am talking about noneconomic damages, not
punitive damages, and not where the quality of the act is
involved, like malicious or gross, to warrant punitive damages.
I am talking about the injuries, the damages. Are you saying
that the President would allow more than whatever figure is
set, $250,000 or $350,000, for egregious cases?
Mr. Allen. No, that is not what I am saying. What I am
saying is that the President's proposal would put a reasonable
limit of between $250,000 to $350,000 on noneconomic damages.
Senator Specter. Well, take a look at your earlier
testimony. I think you have shifted a bit here, but so be it.
So essentially you disagree with Senator Hatch on having a
category of egregious cases which would not be limited by
whatever cap is set?
Mr. Allen. I would--again, not knowing specifically Senator
Hatch's statement, whether he was referring to noneconomic
damages. We would suggest that in the area of punitive
damages--not noneconomic damages--that is where you deal with
egregious cases--if there is an egregious case, we believe
punitive damages are appropriate in those circumstances, but
not in the area of noneconomic damages.
Senator Specter. Mr. Allen, if you had a situation like the
young woman in North Carolina, where they made the wrong
transplant, would you say that the noneconomic damages ought to
be limited to $250,000 or $350,000, whatever the cap is set?
Mr. Allen. In the case of the North Carolina case which was
cited--I am assuming it is the one at Duke Hospital you are
talking about, the double transplant case--we would say, again,
first and foremost, the loss that that family experienced is
tragic, and we recognize the tragedy, and we believe in those
circumstances that, compensatory damages, those are the
economic damages should be recovered, and we believe a
reasonable recovery for noneconomic damages should take place.
The issue there that we focus on, however--and if there is
evidence that the physician involved, or those involved had
malpracticed, then there would be an appropriate place for
punitive damages that would be consistent with the injury.
However, we would also say in that case, and this is what the
Department feels very strongly about, that this is the classic
example where system reforms would minimize the risk associated
with that practice. In this case, it would have helped if there
were duplicate checks in place that would look at the blood
type, look at the errors where errors are made, and that is
where we focus much of our attention.
Because even awarding those individuals large awards, if
that is what they recover, does nothing to mitigate the problem
in the vast majority of the system where access is an issue,
where physicians are leaving practices. So we think that yes,
you can deal with that individually in that regard. That would
be consistent with reasonable recovery, but we believe there is
a broader concern, and that is why the President stepped in to
suggest system reforms.
Senator Specter. Mr. Allen, I would invite you to take a
look at the transcript and your response to my last question,
and if you think it is responsive, just forget it. If you do
not, I am interested to know the position of your Department on
whether noneconomic damages for the transplant victim should be
capped at $250,000 or $350,000. You take a look at your answer,
and if you think it is responsive, then forget it, and if you
do not, I would be very much interested in an answer to my
question.
Let me move on to another example of the wrongful
mastectomy on the wrong woman, where there are hardly any
economic damages. Is the position of your Department, the
administration, that the noneconomic damages ought to be
limited to $250,000 or $350,000?
Mr. Allen. Once again, in terms of the recovery for
noneconomic damages, the President's proposal is focused on
noneconomic damages that would be reasonable between $250,000
and $350,000. In that situation, if there was evidence, again,
that demonstrated that there was clear and convincing evidence
of wrongdoing----
Senator Specter. No, we are not talking about punitive
damages. I am just talking about ordinary negligence.
Mr. Allen. The answer would be yes, we believe that in the
proposal, in the circumstances where that is happening, we
believe that a reasonable noneconomic recovery would be
appropriate because (1) you cannot replace what has been taken
from someone. You cannot replace a child that has been lost to
a family, or someone who has been injured in that regard, but
what we can do is, we can ensure that we have systems in place
and processes in place that try to minimize the error.
Senator Specter. Mr. Allen, no one would deny that you
cannot make people whole and put them back in the position they
would have been had the act not occurred. The whole purpose of
damages is to compensate as best you can, so that presentation
is really aside from the point, but if you think that wrongful
mastectomy should be limited on noneconomic damages, I
understand your position.
Mr. Allen. Mr. Chairman, my position is, and the
administration's position focuses not just on individuals. We
believe that there are systems in place to address individual
wrong and harm, but we need to look at the impact on the system
of an award to an individual. As we have seen in many States,
Mississippi being a good example, where they have had nine
awards in excess of $9 million, where we see large awards there
is an impact on health care throughout the system. That is what
we focus on.
We do not seek to minimize the harm that has been done to
individuals, nor do I suggest that you or Congress or anyone is
suggesting to do that. But, we do believe that we need to look
at what is happening to a system that is driving doctors out of
the system, and a system that is not contributing to patient
safety and quality improvements. We are looking at that the
medical liability situation in this country today is doing just
that, in order to stimulate such system changes.
Senator Specter. Mr. Allen, it is a given that there is
concern by the legislative as well as the executive branch on
the delivery of health care to Americans. It is something I
have been working on now for 23 years on this subcommittee in
many, many directions, and it is a given that there are
problems in many States. It is a legislative job to analyze and
see where the sources of the problems are, and it is a complex
matter on many, many lines which I have already identified, and
we are trying to figure out where an appropriate line for
compensation is.
Thank you very much, Mr. Allen.
I would like to call our second panel now, Dr. Peter
McCombs, Dr. Donald Berwick, Mr. Jay Angoff, Mr. James Hurley,
Dr. Brian Holmes, Ms. Linda McDougal, and Ms. Leanne Dyess.
STATEMENT OF PETER McCOMBS, M.D., CHAIR, DEPARTMENT OF
SURGERY, PENNSYLVANIA HOSPITAL
Senator Specter. Our first witness, Dr. McCombs, is the
chair of the Department of Surgery at Pennsylvania Hospital. He
is also the clinical associate professor of surgery at the
University of Pennsylvania School of Medicine, received his
bachelor of science degree in American studies from Yale and
his medical degree from Tufts.
Dr. McCombs, thank you very much for joining us, and we
look forward to your testimony. Our subcommittee rule, which is
general in the Congress, is to limit testimony to 5 minutes.
You have been advised of that.
I more recently have been adding an addendum to the time
limit. We had a memorial service for Ambassador Annenberg and
the limit was 3 minutes for speeches, and that applied to
former President Ford and Secretary of State Powell and me, and
many, many others, so I want you to know that by those
standards 5 minutes is generous. It does not sound like it when
you have the kind of expertise and study you experts have put
into this subject, but if you can limit your testimony to 5
minutes, it gives us the maximum time for discussion.
Thank you for joining us, Dr. McCombs, and we look forward
to your testimony.
Dr. McCombs. Thank you, Mr. Chairman. It is a privilege for
me to be here.
Senator Specter. There is a button on your microphone.
Dr. McCombs. Okay, I have it now.
Mr. Chairman, Pennsylvania Hospital is a teaching hospital
located in the center of the City of Philadelphia. It happens
to be the Nation's first hospital, and it has a long tradition
of medical education dating back to 1773. It is one of four
institutions that comprise the University of Pennsylvania
Health System.
Senator, you are well aware of the gravity of this problem,
and I do not intend to reiterate any inflammatory rhetoric. I
will simply state that we need Federal action now to address a
serious problem jeopardizing health care both nationally and in
our Commonwealth. H.R. 5, the HEALTH act, sponsored by
Congressman Jim Greenwood of Pennsylvania, provides the
critical elements of such an initiative.
As chairman of an academic department of surgery, I have
ultimate responsibility for the quality of care across the
entire array of surgical services. I take pride in our many
surgical triumphs. Regrettably, I also know about our
complications and deaths, our mistakes and near misses, and the
occasional cases that suffer potentially preventable
disabilities. I live with surgeons every day, and I am actively
engaged in training the young surgeons who will become their
successors. It is my job to adjudicate, to teach, and to
listen, to perpetuate an environment that is founded on ethical
standards and open inquiry that effectively balances risk and
benefit, and that above all never loses its focus on the needs
of patients.
The majority of our staff is engaged in private practice.
Management of overhead is a way of life, and overhead includes
payment of malpractice premiums. These have recently become so
expensive that many surgeons have reconsidered their options in
order to remain even marginally profitable. A significant
number have been faced with the drastic decision to change the
scope of their practice, to retire early, to temporarily
suspend performing surgery, or to leave Pennsylvania in search
of a better environment.
I am personally familiar with three vascular surgeons,
three neurosurgeons, one orthopedic surgeon, two plastic and
reconstructive surgeons, three general surgeons, and one
interventional radiologist who have retired prematurely or
relocated their practices and their families outside of
Pennsylvania.
We have the busiest obstetric service in Philadelphia, but
our department of obstetrics has been reduced from 50 to 29
obstetricians over the past 3 years on account of this problem.
In addition, 11 orthopedists, 2 neurosurgeons, 7 general
surgeons, 8 urologists, and 3 surgical oncologists suspended
their surgical practices for a period of days to weeks late
last year and early this year.
Finally, I have five general surgeons on my staff whose
malpractice policies expire on June 30. They face the future
with great uncertainty. These surgeons have placed their faith
in Governor Rendell's commitment to deliver relief for this
crisis in Pennsylvania. All are considering relocation of their
practices if no significant relief is forthcoming.
In addition, according to the Pennsylvania Hospital
Association the total cost of medical liability insurance
coverage for Pennsylvania's hospitals has increased by 86
percent over the past 12 months, and 23 percent of hospitals
reported premium increases that exceeded 200 percent.
One has to look carefully at the implications of this
crisis on patient care. While very few individuals have been
denied needed surgical treatment in the Philadelphia area, this
is not the case in other parts of Pennsylvania. The departure
of high risk specialties from Berks, Fayette, and Lackawanna
Counties has forced patients to travel to find replacement
specialists.
In the Philadelphia area, many patients have voiced
complaints to me about excessive delays in obtaining surgical
consultation, and about receiving treatment from younger and
less experienced surgeons than they had expected or preferred,
or from surgeons who are clearly overworked and overstressed,
and going forward, it appears that a significant number of our
most respected surgeons are destined to be replaced in the
prime of their careers.
One additional byproduct of this crisis in Pennsylvania has
been that recruitment of new surgeons has been very difficult.
Philadelphia is fortunate enough to have five medical schools
and a much larger number of excellent training programs in all
of the surgical disciplines, yet the number of graduates
remaining in the Philadelphia area to practice is almost
negligible. Groups attempting to recruit a young surgeon almost
invariably need to go to the Joint Underwriters Association,
the last available resort, in order to obtain coverage.
In fact, many doubt that the private practice model, as our
patients and we have known it over the years, is sustainable.
As damage to our system continues, the feasibility and costs
associated with rebuilding it are virtually impossible to
fathom.
Quality assurance is an integral part of the surgical
culture. We have an active safety initiative that is built on
the foundation of a systems-oriented, nonaccusatory, root cause
analysis process. Our weekly morbidity and mortality conference
is the backbone of our educational program. Discussions are
structured and explicit, and sometimes are emotional and
brutally candid, but it is through these dialogues that we all
learn and grow. They remind us about our standards. They help
us to make the right choices. They establish role models for
younger surgeons to follow.
Senator, there are warning signs that our system is
collapsing. We are not only failing to attract the best
candidates into surgery, but are also losing some of our bright
young residents to fields outside of medicine altogether. A
shocking number of graduating medical school seniors is
choosing to pursue a second degree, or to enter industry rather
than to begin a residency. I have serious concerns about who
may be doing your, and when I say your, I am referring
collectively to everyone in this room----
Senator Specter. Dr. McCombs, you are over time. Could you
summarize, please?
Dr. McCombs. Yes, sir--or mine when the time comes, or who
may be delivering your grandchildren or mine in the years
ahead.
prepared statement
It is not appropriate for individual States to compete for
surgeons and obstetricians based on the cost of liability
insurance. In order to preserve access to good health care for
everyone, the playing field must be leveled.
Thank you, Mr. Chairman.
[The statement follows:]
Prepared Statement of Dr. Peter R. McCombs
Chairman Specter and members of the Committee, good morning. I am
Dr. Peter McCombs, Chairman of the Surgery Department at Pennsylvania
Hospital, a teaching hospital located in Center City Philadelphia. It
happens to be the nation's first hospital and has a long tradition for
medical education, dating back to 1773. It is one of four hospitals
that comprise the University of Pennsylvania Health System. The Penn
Health System is an integrated, academic health system that also
comprises associated medical staffs, three multi-specialty out-patient
facilities, a faculty practice plan, a primary care physician network,
a significant number of clinicians in private practice, and numerous
other sub-acute providers.
I am a practicing surgeon, board certified in general surgery and
vascular surgery. I came into my present position following a twenty-
three year career as a community-based clinician and dedicated
educator. From this perspective, I would like to present my views on
the medical liability crisis as it currently impacts patients,
physicians and the health care institutions on which we all depend in
Pennsylvania. I am very grateful for this opportunity.
Senators, I know that you are well aware of the gravity of this
problem in Pennsylvania and elsewhere around the nation. I am confidant
that many of the hardships experienced by patients and physicians are
well known to you. I know that you understand and have sensitivity for
the impact that the changing climate has had on such vital and
customary services as prenatal and obstetrical care, trauma care,
surgical care across a wide spectrum, and now even primary care. I do
not intent to take your time by reiterating the inflammatory rhetoric
that has become so ubiquitous in the media as well as throughout our
hospital cafeterias, hallways and waiting rooms.
I will simply state that we need federal action now to address a
serious problem that jeopardizes the way we provide health care both
nationally and in our Commonwealth. We need your leadership to move a
comprehensive medical liability reform initiative forward, and I
propose that H.R. 5, the HEALTH Act sponsored by Congressman Jim
Greenwood of Pennsylvania, provides the critical elements of such an
initiative.
Let me now take a moment to set before you a representation of the
issues as I see them. As Chairman of an academic department of surgery,
I have ultimate responsibility for the quality of care rendered to our
patients across the entire array of surgical services at Pennsylvania
Hospital. In addition to general surgery, these include vascular and
thoracic surgery, cardiac surgery, urology, ophthalmology,
otolaryngology, orthopedics and neurosurgery. I know about our many
surgical triumphs and, like my colleagues, I take a lot of pride in
those cases. Regrettably I also know about our complications and
deaths, our mistakes and near misses, and the occasional cases that
suffer potentially preventable disabilities. I live with surgeons every
day, and I am actively engaged in training the young surgeons who will
one day become their partners and their successors. It is my job to
adjudicate, to teach and to listen, to perpetuate an environment that
is founded on proper ethical standards and open inquiry, effectively
balances risk and benefit, and above all never loses its focus as a
resource for the needs of patients. For many years, Pennsylvania
Hospital has been a wonderful place to practice surgery.
As in many community-based hospitals, the majority of our staff is
engaged in private practice. These physicians are fully responsible for
managing the business aspects of their practices. Recruitment and
retention of staff, billing and collection of revenue, management of
pension and retirement plans for partners and employees, and management
of overhead are all a way of life for physicians in private practice,
and overhead includes payment of malpractice premiums. Always a major
line item in the practice overhead, these premiums have recently become
so expensive that many surgeons have had to reconsider their options in
order to remain even marginally profitable. A significant number have
been faced with the drastic and unexpected decision to change the scope
of their practice, to retire early, to temporarily suspend performing
surgery, or to leave the state of Pennsylvania in search of an
environment in which they can practice and raise their families with
greater stability and less uncertainty.
As examples, I am personally familiar with three vascular surgeons,
three neurosurgeons, one orthopedic surgeon, two plastic and
reconstructive surgeons, three general surgeons and one interventional
radiologist who have retired prematurely or relocated their practices
and their families outside of Pennsylvania. In addition, I personally
know eleven orthopedists, two neurosurgeons, seven general surgeons,
eight urologists and three surgical oncologists who were forced to
suspend their surgical practices for a period of days to weeks during
lapses in coverage brought about by skyrocketing premiums late last
year and early this year. I know two neurosurgeons and three general
surgeons who have changed their employment model, becoming full-time
health system employees as an alternative to leaving the state.
Finally, I have five general surgeons on my staff whose malpractice
policies expire on June 30. They face the future with great
uncertainty. These surgeons have placed their faith in Governor
Rendell's stated commitment to deliver short and long-term relief for
this crisis in Pennsylvania this year. All are considering relocation
of their practices if no relief is forthcoming.
In addition, according to the Pennsylvania Hospital Association,
the total cost of medical liability insurance coverage for
Pennsylvania's hospitals has increased 86 percent over the past 12
months, and 23 percent of hospitals reported premium increases exceeded
200 percent. These premium increases have occurred even as coverage has
decreased, either in the form of deductibles or higher retention
levels.
One has to look carefully at the implications of this crisis on
patient care. While I am aware of very few, if any, individuals who
have been denied needed surgical treatment in the Philadelphia area,
this is not the case in other parts of Pennsylvania. When high-risk
specialists leave Berks, Fayette, or Lackawanna Counties, Pennsylvania
residents in those areas have to travel to find replacement providers.
In the Philadelphia area, many patients have voiced complaints to me
and to others like me about excessive delays in obtaining surgical
consultation, and about eventually receiving treatment from younger and
less experienced surgeons than they had expected or preferred, or from
surgeons who were clearly overworked or overstressed. And going
forward, it appears that a significant number of our most respected
surgeons are destined to be replaced in the prime of their careers by
less experienced colleagues.
One additional byproduct of this crisis in Pennsylvania has been
that many surgical practices have found it very difficult to recruit
new surgeons. Philadelphia is fortunate enough to have five schools of
medicine or osteopathy and a much larger number of excellent training
programs in all of the surgical disciplines. And yet, the number of
graduates of those programs who have demonstrated an interest in
entering the practice of surgery or a surgical subspecialty,
particularly in the private practice arena in the Philadelphia area, is
almost negligible. Practices interested in attempting to recruit a
talented young surgeon almost invariably need to go to the Joint
Underwriters Association, the last available resort, to obtain coverage
for new surgeons entering the area. In fact, a number of my colleagues
are seriously wondering if the private practice model as we and our
patients have known it over the years is sustainable on account of the
malpractice crisis. Also, as the damage to the system continues, it is
unclear if we will ever be able to return to that system as we knew it,
and what the costs incurred will be to try to rebuild it.
Quality assurance is an integral part of the surgical culture. We
participate actively with numerous advocacy groups and task forces. We
have an active safety initiative that is built on the foundation of a
systems-oriented, non-accusatory root cause analysis process. We are
doing our best to police ourselves and to create a safer environment
for our patients. The morbidity and mortality conference that I
moderate weekly is the backbone of our educational program for medical
students, residents, fellows, and surgical faculty. Our discussions are
structured and explicit, and are sometimes emotional and brutally
candid. But it is through these dialogues that we all learn and grow.
They remind us about our standards. They help us to make the right
choices. They establish role models for younger surgeons to follow.
From a broader statewide perspective, according to the American
Medical Association, Pennsylvania is one of 12 states nationwide in the
midst of a liability crisis. Only six states are considered stable, one
of which is California, which passed significant liability reforms in
1975. The additional 32 states and the District of Columbia are
considered states that are beginning to show problem signs. In 2000,
Pennsylvania's medical liability payments per capita--the amount of
money spent per resident--was the highest state in the nation. The
amount for Pennsylvania was $40.23 per person compared to California's
$5.98 per person in 2000.
Only a few short years ago there were more than 30 insurance
companies active in the Pennsylvania market. Today, there are only two
major insurance companies left. The Pennsylvania Insurance Department
has approved several new medical liability insurance companies during
the past year, but the market still lacks sufficient capacity and
competition.
The Secretary of the Pennsylvania Insurance Department recently
testified before a State senate committee on the status of the
Pennsylvania medical liability insurance market. Among the key points
that she shared:
--Total medical liability coverage payments (primary and the state
Mcare Fund) have doubled in the last decade from $363 million
in 1991 to $730 million in 2001. Actuarial estimates for 2002
and 2003 are $893 million and $1.2 billion, respectively;
--Pennsylvania healthcare providers have had to seek alternative risk
arrangements, such as self- insurance or risk retention groups,
or turn to the Pennsylvania Joint Underwriting Association
(JUA), the insurer of last resort;
--Loss experience data from the Pennsylvania Insurance Department
indicates a tenuous financial situation for medical liability
insurers. Direct losses incurred exceeded direct premiums
written in 2001 by $102 million. The loss ratio for all
Pennsylvania medical liability insurance companies has
increased from 67 percent in 1996 to 127 percent in 2001;
--Investment asset distribution of medical liability insurance
companies demonstrates that medical liability insurance
companies have less than 9 percent of their investment
portfolio in common stocks and they have not lost significant
investments as a result of the downturn in the financial
markets;
--Mcare Fund payments have doubled since 1994. About $175 million was
paid in 1994 and about $350 million was paid in 2002: and
--Medical liability insurers indicate that the two most important
barriers for entry and expansion in Pennsylvania are no caps on
non-economic damages and the existence of the Mcare Fund.
It is significant that insurers are not leaving other property/
casualty markets. If the crisis were solely caused by lower investment
income, as some groups have asserted, these companies would be leaving
other insurance markets. But they are not. They are leaving the medical
liability market because of the instability and lack of predictability
of the risk. According to the Pennsylvania Insurance Department,
liability insurance carriers had combined underwriting losses of $102
million in 2001.
Until insurers feel that they can make money writing medical
liability policies in Pennsylvania, they will either dramatically
increase their rates to ensure that they are more than adequately
covered or discontinue writing any policies in Pennsylvania.
As the medical liability insurance market continues to deteriorate,
some commercial carriers have had to exit markets and others have had
to dramatically increase premiums to stabilize their financial
conditions. As a result, many companies have seen their ratings
downgraded and the number of plans in rehabilitation or liquidation has
grown, which increases the coverage gaps.
With the crisis only growing worse, Pennsylvania enacted three
liability reform bills in 2002: the ``Medical Care Availability and
Reduction of Error (Mcare) Act,'' the ``Fair Share Act'' that changes
the joint and several liability rule, and a new law to end venue
shopping. In addition, the Supreme Court has issued new rules designed
to alleviate the problem. Combined, these new laws and rules should
result in long-term premium savings.
It will take several years to realize the full benefit of these
reforms since they apply only to incidents on or after the effective
date of the acts and are spread over a multi-year period before the
full financial benefits are realized. In addition, insurers are likely
to wait for actual claims experience and the results of anticipated
court challenges before modifying premiums.
Meanwhile, hospitals and physicians continue to feel the effects of
a shrinking income base and dramatic expense increase, and patients pay
the ultimate price.
To help address this crisis, hospitals and physicians need
reasonable limits on non-economic damages. To help lower settlements
and awards and for insurance companies to be able to better predict
awards for liability cases, we must address non-economic damages.
Today's system for assessing non-economic damages in medical liability
cases is lacking in standards and thus is prone to variable results in
similar cases. The resulting unpredictability encourages divergences in
valuation of cases, thus undercutting the ability of parties to reach
voluntary settlement without expensive trials. It also adversely
affects the availability and cost of medical liability insurance.
Non-economic damages are separate from, and do not include,
compensation for medical costs, lost wages, or other out-of-pocket
expenses, and they do not include punitive damages.
Two principles must guide our debate on this issue. Injured
patients are entitled to full compensation for all economic losses.
Every person is entitled to receive health care services from a
physician or other provider that are at least equal to the ``community
standard of care.'' If the patient is injured by substandard care and
suffers economic losses, the patient is entitled to recover those
losses completely.
Second, non-economic damages should be fair, equitable, stable and
predictable. Almost everyone in society--physicians, patients, lawyers,
and judges--agrees that losses due to substandard care should be
compensated, but not excessively. Medical liability claims are complex.
Seventy percent of such claims are won by the defendant, dismissed or
dropped because they have no merit, but when juries do award damages
they give health care injury claimants significantly more for their
``pain and suffering'' than persons who have incurred the same kinds of
injuries in car accidents or other settings. The median jury award has
increased to $1 million a doubling of the amount since 1995.
In closing, I would stress that the medical liability crisis is
very real. Each day that passes without additional reform further
batters a health care system already under siege. Policymakers must be
prepared for the consequences of non-action--continued erosion of
access to care, the unraveling of an exceptional system of care that
may never be truly salvaged, and the clear cut costs that will come
with rebuilding that system.
Senators, there are warning signs that our system is collapsing. We
are not only failing to attract the best candidates into surgery, but
are also losing some of our bright young residents to fields outside of
medicine altogether. A shocking number of graduating medical school
seniors is choosing to pursue a second degree or to enter industry
rather than to begin a residency. I have serious concerns about who may
be doing your surgery or mine when the time comes, or who may be
delivering your grandchildren or mine in the years ahead. It is not
appropriate for individual states to compete for surgeons and
obstetricians based on the cost of liability insurance. In order to
preserve access to good care for everyone, the playing field must be
level. For those reasons I respectfully urge you to urge you to support
H.R. 5, the HEALTH Act, and to move as expeditiously as possible to
deliver it to President's Bush's desk for signature.
I thank the Chairman and this subcommittee for this opportunity and
welcome questions at the appropriate time.
Senator Specter. Thank you very much, Dr. McCombs.
STATEMENT OF DONALD M. BERWICK, M.D., M.P.P., PRESIDENT
AND CEO, INSTITUTE FOR HEALTHCARE
IMPROVEMENT; MEMBER, QUALITY OF HEALTH CARE
IN AMERICA COMMITTEE, INSTITUTE OF
MEDICINE, NATIONAL ACADEMY OF SCIENCES
Senator Specter. We turn now to Dr. Donald Berwick,
president and CEO of the Institute for Healthcare Improvement,
a member of the Institute of Medicine of the National Academy
of Sciences, a graduate of Harvard, master's in public policy
from the JFK School of Government, and an M.D. from the Harvard
Medical School. Thank you for joining us, Dr. Berwick, and we
look forward to your testimony.
Dr. Berwick. Thank you, Mr. Chairman. My full remarks are
here for the record.
Senator Specter. Your full statement will be made a part of
the record, without objection.
Dr. Berwick. Thank you so much.
I am here as a representative of the IOM. I served on the
committees that wrote the reports that you have referenced, and
I serve on their governing council. Their reports are familiar
to you.
The To Err is Human report on which I focus says that tens
of thousands of Americans are injured by their care, and many
die as a result of their care instead of their diseases. Only a
tiny fraction of these injuries are due to incompetence, or
carelessness, or sabotage, or even gross negligence on the part
of individuals. Most are wired into the system. Any human being
in a similar situation runs the same risk of causing that
injury, so in some sense they are due to errors, but that is a
misleading idea, because they are caused by the design of the
system.
A way to think about that is, if today we fired every
doctor and nurse that made a mistake in care, even multiple
mistakes, tomorrow the injury rate would remain the same,
because new human beings would be subject to the same frail
systems in which they are embedded.
The third finding, though is, that is not a prescription
for hopelessness. Other industries have gotten safe. They have
done it by engineering safety into the design of the system of
work. We can do the same in health care, but we have not yet.
In order to get safer, health care has to change. If it is to
get much safer, it is going to have to change a lot.
The two changes that our committee has recommended are in
the arena of technology and in the arena of culture.
Technologically, we are a backward industry. We lack modern
information systems, we lack an electronic medical record, we
have complex procedures and steps that vary senselessly from
place to place, we build complexity into systems, and
complexity invites failure.
Culturally, we are even in worse shape at the moment. There
are safe cultures and there are unsafe cultures. We are an
unsafe culture in health care, despite the best intentions of
the professionals who are in that system. A safe culture has
four attributes. Safety is a priority. People can be open and
talk about hazards and injuries in their own areas, in the
areas of others. It can be discussed. Communication and
coordination are high priorities, and innovation is constant.
Today, health care organizations do not exhibit a culture
of safety. Safety is not a top priority for top leaders. Their
attention is focused on other imperatives for their
organizations, and safety does not really pay off now in the
health care system, and we do not talk about it very much. As
the prior witness said, physicians and others are frightened to
talk about injuries to patients and things that they are
involved in, despite their wish to do well.
I am an optimist. Today, I am speaking at noon to 1,000
people at the National Patient Safety Foundation meeting here
in Washington, which is making tremendous progress, as are many
Federal agencies, including the Veterans Health Administration,
DOD, Bureau of Primary Care, and HRSA. We have progress
underway, but it is nowhere near enough.
Congress has helped a lot. I have five recommendations for
more help from Congress. The first is, I would like to suggest
that you continue to review and support and encourage the
really path-finding work going on in Federal agencies that give
and fund care, the Veterans Health Administration, the Military
Health Command, the Indian Health Service--these are gems, and
they are making progress which could become national
benchmarks.
Second, please keep the spotlight on safety. Keep the heat
on with hearings like this. We need to grow will in the public
and the professions and in the leadership to make safety a
priority.
Third, the attention of your particular subcommittee on
malpractice reform is important. The malpractice system impedes
work on safety today. It enforces a culture of secrecy and fear
which no successful safety agenda can really tolerate.
I do not have a simple answer. The Institute of Medicine
has recommended tort reform demonstration trials. I think the
recommendation is correct. I see recently a report in the State
of Florida just a few weeks ago for a statewide change that I
think would be great.
My personal recommendation--I am departing a bit from the
Institute of Medicine here, because I am getting into details
that are not in our report, but it would be for demonstrations
that have five properties at the State level.
The first property is that at the demonstration there
should be immediate disclosure of any injury to any injured
patient and family. It must be a requirement that disclosure
occurs.
Second, there should be apology. Injured patients want
someone to say they are sorry. Our current system does not do
that.
Third, there should be fair and reasonable compensation to
injured families and patients. I think the analogy to a
workers' compensation system is correct.
Fourth, there must be learning from these injuries so the
rates go down.
And fifth, the proper locus of responsibility is with the
executives, boards, and leaders of health care systems, not
with individual physicians. In general, when there is egregious
misconduct or bad intention, that person should be rapidly
disciplined, but that will only cover 2 or 3 percent of the
injuries that patients get subjected to.
I recommend that such tests be time-limited, and that the
health care system be mandated to deliver. If the system does
not get safer under the conditions of such a test, the test
should end and we should return to the status quo.
My fourth recommendation is that Congress should mandate
the development of a national patient electronic medical record
that should be available to any physician, office, practice in
the United States at no cost or low cost. It should become a
Federal standard, and should be used throughout the country,
compatible with legacy systems.
prepared statement
My final recommendation is that you continue to support, as
you have, Senator, ambitious, path-finding research on patient
safety through ARC and others. We are making progress
intellectually. It needs to continue. Please be the voice of
the American people on this. We need you to speak out about
your concern about safety levels and demand that the system
become safer.
Thank you.
[The statement follows:]
Prepared Statement of Dr. Donald M. Berwick
Thank you for the opportunity to testify here. I am President and
CEO of a non-profit organization, the Institute for Healthcare
Improvement, whose mission is to accelerate improvement of health care
systems. I am also Clinical Professor of Pediatrics and Health Care
Policy at Harvard Medical School.
I am here today as a representative of the Institute of Medicine of
The National Academies. I serve on the IOM's governing Council, and I
was a member of the IOM's Committee on Quality of Healthcare in
America, which wrote the two landmark reports on quality, To Err Is
Human and Crossing the Quality Chasm. I believe that these and
subsequent IOM reports on quality offer this nation, and this Congress,
a superb blueprint for the redesign and improvement of our American
health care system.
I am going to focus on the To Err Is Human report mainly: What does
it say? What should we do? And, how can Congress help?
That report has three major findings:
--First.--Many Americans are injured by the health care that is
supposed to help them. Tens of thousands, in fact, die from
injuries caused by their care and treatment, rather than from
their diseases. The IOM's estimate is between 44,000 and 98,000
such deaths per year in hospitals, alone.
--Second.--Only a tiny fraction--perhaps two or three percent--of
these injuries are due to incompetence, carelessness, sabotage,
or gross negligence on the part of individuals. They tend,
instead, to come from latent hazards built right into the
systems of care. The more complex the systems, the bigger the
hazards. Put otherwise, the IOM finds that most patient
injuries, if they are due to human errors, are due to those
kinds of errors that are part of daily life--human factors--and
therefore those errors are in some sense, inevitable. If we
fired every single doctor and nurse who made a mistake today,
the error rate in America health care would be the same
tomorrow. Mostly, the people are good, but they work in flawed
systems.
--Third.--Errors can be reduced, but not eliminated. Injuries are
different; they can be eliminated, or nearly so. From other
industries and from good theories, we know that it is possible
for very complicated systems to be very safe--much safer than
health care--by providing technological and cultural supports
that make human error less likely to do harm. The problem is
that health care has not yet invested anywhere near enough
time, talent, and money in trying to become much safer. We lack
both the technologies and the culture that could make us safe.
To get safer, health care has to change. To get much safer, it has
to change a lot.
On the technology front, we must modernize our information systems,
make the electronic medical record a routine feature of all health
care, and simplify our procedures and practices by removing unnecessary
steps, unnecessarily complicated equipment, and senseless variations in
practice from place to place. We need to integrate information across
boundaries, so that we do not drop the ball when the patient moves from
one hospital to another, or from the office to the hospital to the
nursing home and back home. We need to develop registries and systems
for remembering patients' drugs, diagnoses, and preferences. We--both
the care providers and the public--need to understand that in health
care, more is not always better--in fact, it is very often worse. And
that even in this wonderful age of biomedicine, simpler care is often
safer care.
As tough as the technologic challenges are, the cultural changes we
need may be even tougher. There are safe cultures, and there are unsafe
cultures. The properties of a safe culture include the following:
--Safety is a top priority, from the top, all the time; no injury--
none--is regarded as inevitable;
--People talk openly about hazards, errors, injuries, and other
threats to safety. A fearful organization--where people feel
that they have to hide their own mistakes--cannot be a safe
organization;
--Communication and coordination are high priorities; people value
teamwork above all;
--Innovation is constant, and new ways to make things safer are
rapidly incorporated into practice.
From this cultural viewpoint, most health care organizations do not
exhibit a culture of safety. Becoming much safer is not yet a top
priority for clinical leaders, executives, and Boards. Other,
apparently more pressing, issues of organizational finance and survival
occupy their attention. Few seem to believe that major improvements in
patient safety will help them become more vital, resilient players in
their markets. Financially, safety in health care does not yet pay off.
In fact, we still do not even talk about it much. People in health
care are fearful about discussing injuries to patients, near misses,
and errors. They are afraid of lawsuits, embarrassment, and mistrust
from colleagues. Most injured patients never know that it happened to
them. Communication and coordination are not taught as skills in
professional training, nor are they well-supported by proper
investments of time and leadership attention. Nor have we yet invested
enough in innovations to modernize our safety systems, especially
innovations related to electronic patient records and prescribing
systems. Health care systems are complaining about the costs of
modernizing their patient record and drug order systems. In short, with
respect to the needed cultural changes, we are stuck in ``neutral'' too
often and in too many places.
Since the IOM reports, awareness has grown that health care safety
ought to be a top priority. But, actions have lagged well behind
awareness.
And yet, I am an optimist. People are waking up. Today and
tomorrow, the National Patient Safety Foundation is holding a
conference here in Washington with hundreds of clinicians and health
care leaders attending to learn about how to improve from some of the
greatest experts in the world. Federal systems, like the Veterans
Health Administration, the Department of Defense's medical care system,
and the Bureau of Primary Care in the Health Resources and Services
Administration, are making widespread progress in improvement. My
organization--the IHI--is announcing this afternoon the launch of a
free, open, web-based support system--``QualityHealthCare.org''--to
help anyone, anywhere, who wants to improve care, and we are beginning
with patient safety as the prime focus.
Congress has helped, but you can help even more. Here is how.
--Continue your review, support, and encouragement of leading work on
patient safety in Federal agencies that give or fund care,
including the Veterans Health Administration, the Military
Health Care System, HRSA, the Indian Health Service, and CMS.
Urge--insist--that these systems become benchmarks of safety
for the nation.
--Keep the spotlight on safety with hearings such as this, and in
your own individual work, so that the public will for change
grows.
--Help us reduce the toxicity of our current unfair, inefficient, and
illogical malpractice liability system, which today produces
too much fear and waste, and which fails to compensate most
injured patients at all. The IOM has called for one or more
statewide demonstration projects on medical tort reform, and
Congress should do what it can to make sure these actually take
shape. (A recent report from the Florida Governor's Select Task
Force on Health Professional Liability Insurance includes some
creative ideas for one such demonstration.) A tort reform
demonstration trial should have, in my personal opinion, the
following five elements: (a) immediate disclosure of injuries
to patients and families; (b) apology; (c) fair and reliable
compensation to injured patients and families (analogous to a
workers' compensation system); (d) learning from injuries and
near misses so that hazards are continually reduced; and (e)
fixing the locus of responsibility for all of this at the
enterprise level--holding executives, Boards, and leaders
accountable for improving safety, rather than generally blaming
individual clinicians. (Of course, in the very rare instances
when the injury is the result of bad intention or clear and
gross individual incompetence or negligence, action to correct
individuals should be prompt and precise. We must keep in mind,
however, that the vast majority of injuries do not have this
property.) Finally, tort reform experiments should be time-
limited tests--at first perhaps three or four years long. The
changes should become permanent only if the new system achieves
measurably higher levels of fairness, compensation, and safety
than the current one.
--To help bring health care into the modern electronic era, please
establish a national program to produce, within the next two
years, a simple, public-domain electronic medical record that
any hospital or physician's office in the nation can get and
use. Such a record should have a problem list, a medication
list, registry functions, and the ability to interface and
exchange information helpful to individual patient care.
--Continue to fund ambitious, path-finding patient safety research
through the Agency for Healthcare Research and Quality and
other related research programs.
Above all, please continue to be the voice of the American people,
expressing our shared concern about the current, unacceptable levels of
injuries to patients. Insist that the health care system become safer,
and create rewards for those systems that invest authentically in that
goal, and consequences for those that do not.
Senator Specter. Thank you very much, Dr. Berwick. We will
be coming back with questions a little later.
STATEMENT OF JAY ANGOFF, COUNSEL, ROGER C. BROWN &
ASSOCIATES
Senator Specter. I would like now to call on Mr. Jay
Angoff, Of Counsel to Roger Brown & Associates, Jefferson City,
Missouri. He has served as Missouri's Insurance Director and as
New Jersey's Deputy Insurance Commissioner, and is a graduate
of Oberlin and Vanderbilt Law School. Thank you for joining us.
Mr. Angoff. Thank you very much, Mr. Chairman.
In Missouri, Mr. Chairman, we have got a law which requires
the Insurance Department to collect data directly from the
medical malpractice insurers on claims filed each year, claims
closed each year, both paid and unpaid, and payment per claim.
We actually collect data on each payment, each medical
malpractice payment that occurs.
What we have found is that there is a general downward
trend. In the 6 years I was a commissioner, between 1993 and
1998, the number of malpractice claims filed went down, the
number of malpractice claims paid went down, and not
surprisingly, medical malpractice rates went down.
After I left the Department, claims filed continued to go
down, claims paid continued to go down, and in particular the
average payment per claim, particularly between 2000 and 2001,
went down substantially, so what happened to medical
malpractice insurance rates in Missouri? They went up. They
went way up. That does not seem to make sense, but it really
does make sense when you understand the underlying
characteristics of the medical malpractice insurance industry,
and I would like to talk about four.
First, malpractice carriers make their money on investment
income, not on paying out less than they take in. The reason is
that malpractice carriers hold their premium income for an
average of about 6 years before they pay out the claim
associated with that premium, so when investment income is
high, malpractice carriers do great. When investment income is
low, they do not do very well and obviously, Mr. Chairman, they
are not doing very well now. Regardless of whether they have
their money in stocks or in bonds, they are not making very
much money.
Today, they have an unprecedented amount in cash, because
there is no place today malpractice insurers can put their
money where they are going to make any money, so that is number
1, the first explanation of the underlying cause of the
insurance cycle which causes rates to go up even though claims
might be going down.
A second reason is the cost of reinsurance. Just as we buy
insurance to pay claims we cannot afford, insurers by insurance
called reinsurance to pay the very high claims they cannot
afford to pay. The cost of reinsurance, Mr. Chairman, was going
up before September 11. After September 11, obviously, as you
know, it went up even more, for reasons that have nothing to do
with malpractice or the medical system.
Cause number 3, and this is fairly technical but it is very
important, when insurance companies say they have a loss, what
they mean is, not--when they talk about their losses, they do
not mean the amount they actually pay out in a given year. They
talk about the amount that they project that they ultimately
will pay out on premiums collected in that year.
So for example, let us go back to the last insurance
crisis, which you remember, in the mideighties, the same thing
was happening then as is happening now, and there was the same
rhetoric on both sides, as we hear today. At that time,
insurance companies said they had a very high loss ratio, that
they were paying out more than a dollar in losses for each
dollar they took in in premiums, but what they meant was--and
there is nothing insidious about this--this is just the way
that insurance accounting is done.
What they meant was, they projected that they were going to
pay out more than a dollar ultimately on the premiums that they
took in, let us say in 1986. Well, what it turned out was, when
it came time to pay those premiums they actually paid out a lot
less than they projected that they would pay out. That is why
insurers were able to cut their rates in the nineties. The same
thing is happening now. Insurers are projecting that they are
going to pay out a great deal. In fact, ultimately they will
not pay out that much.
And then finally, Mr. Chairman, the final cause which I
think is very important in these periodic insurance crises, is
the antitrust exemption for the insurance industry, the
McCarran-Ferguson Act. That was an act enacted in 1945 which
exempts insurers from the antitrust laws except for boycotts.
Very importantly, though, even the boycott exception to
McCarran has been narrowed.
After the last insurance crisis, the attorneys general of
19 States sued several insurers and reinsurers alleging that
they had gotten together and restricted coverage. The Supreme
Court ultimately said that the AGs could proceed with their
case, and it was ultimately settled. It was ultimately settled
because rates were going down by the time they got around to
settling it, but very importantly, Justice Scalia wrote an
opinion very narrowly construing the boycott exception.
prepared statement
So, Mr. Chairman, those four reasons are the underlying
causes, the antitrust exemption, the high cost of reinsurance,
the change in investment income, and the fact that insurers
make rates based on incurred losses, not paid losses. These
things occur regardless of the litigation system.
Thank you very much, Mr. Chairman.
[The statement follows:]
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
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 during the insurance crises of the mid-1970's and mid
1980's. 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, may collectively refuse to deal except on specified
terms, and may engage in other anticompetitive activities. 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.
There is a long and unfortunate history of classic boycotts
collective refusals to deal in the property/casualty insurance
industry. See, e.g., U.S. v. South-Eaastern Underwriters Assn., 322
U.S. 533 (1944) (agreement by insurers not to deal with customers or
agents of competitors who refused to join price-fixing conspiracy); St.
Paul Fire & Marine Ins. Co. v. Barry, 438 U.S. 531 (1978) (agreement
among St. Paul and three other malpractice insurers not to write
medical malpractice insurance for doctors insured by St. Paul);
Hartford Fire Ins. Co. v. California, 509 U.S. 764 (1993) (agreement
among insurers and reinsurers to refuse to do business using the
traditional ``occurrence'' commercial general liability policy). At the
same time, the Court has been careful to distinguish between classic
collective refusals to deal, which under the boycott exception to the
McCarran exemption are unlawful in the insurance industry as well as
other industries, and other types of anti-competitive activities which
are unlawful in general but lawful in the insurance industry. In
Hartford Fire, for example, the Court emphasized that ``concerted
agreements on contract terms are as unlawful as boycotts'' outside the
insurance industry, 509 U.S. at 803, but that among insurers such
agreements are lawful.
Under current law, therefore, anti-competitive activity among
insurers is only actionable if it can reasonably be characterized as a
complete refusal deal: McCarran-Ferguson immunizes not only price-
fixing but also ``concerted agreement[s] to terms,'' which the Court in
Hartford Fire characterized as ``cartelization.'' Id. at 802.
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 Exhibit 3.
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 that concluded that none of those limitations would
reduce insurance rates. See Exhibit 4. 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. 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.''
See Exhibit 5. 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 noneconomic cap of $450,000, joint and several
liability on the nonecomic 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. 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.
I would be happy to answer any questions the committee may have.
Senator Specter. Thank you, Mr. Angoff.
STATEMENT OF JAMES D. HURLEY, CHAIR, MEDICAL
MALPRACTICE SUBCOMMITTEE, AMERICAN ACADEMY
OF ACTUARIES
Senator Specter. Our next witness is Mr. James Hurley,
chairperson of the Casualty Practice Council Medical
Malpractice Subcommittee of the American Academy of Actuaries,
consulting actuary at Tillinghast-Towers Perrin, based in
Atlanta, a B.S. from the College of Insurance in New York.
Thank you for joining us, Mr. Hurley, and we look forward to
your testimony.
Mr. Hurley. Mr. Chairman, members of the subcommittee,
thank you for inviting me to testify today on behalf of the
American Academy of Actuaries.
The academy is the public policy and professionalism
organization for actuaries practicing in all specialties within
the United States. It is nonpartisan, and assists the public
policy process through the presentation of clear and objective
actuarial analysis. The academy also develops and upholds
actuarial standards of conduct, qualification, and practice.
For those not familiar with actuaries, actuaries collect
and evaluate loss and exposure data to advise about rates to be
charged for prospective coverage and reserve liability to be
carried related to the coverage already provided. The academy
appreciates this opportunity to comment on issues related to
the availability and pricing of malpractice insurance.
In the time available, I would like to highlight a few key
points in my written statement. I will start by discussing
recent experience in the malpractice line of business. During
the 1990s, the medical malpractice line experienced favorable
operating results. It was contributed to by favorable reserve
development on prior coverage years, and healthy investment
returns. Insurers competed aggressively. Health care providers
shared in the benefit of improved loss experience and higher
levels in investment income through stable or decreasing
premiums.
Recently, however, the cost of malpractice insurance has
been rising. Rate increases have been precipitated in part by
the growing size of claims, more frequent claims in some areas,
and higher defense costs. The decline in expected future bond
yields exacerbates the need for rate increases.
From a financial standpoint, medical malpractice results
deteriorated for the 3 years ending 2001. 2002 data is not yet
available, but it is projected to reflect similar results. Two
indicators of the financial results are the combined ratio and
the operating ratio. We can obtain these indicators for
reporting companies from A. M. Best data. A. M. Best is a
company that offers comprehensive data to insurance
professionals and tracks these results. The combined ratio is
an indication of how the company is doing in its insurance
underwriting.
For all companies reporting to A. M. Best, the combined
ratio of 130 percent and 134 percent for 1999 and 2000
respectively deteriorated to 153 percent in 2001. For
underwriting, this represents an expected loss of 53 cents on
each dollar of premium written in 2001. Preliminary projections
for 2002 are for a combined ratio just under 140 percent.
A measure of the overall profitability of companies is the
operating ratio. The A. M. Best operating ratio adjusts for the
combined ratio for other expense items and primarily investment
income as well. It does not include Federal income tax.
The operating ratio for 1999 and 2000 was approximately 106
percent, indicating a net loss of 6 cents on every dollar of
premium. This deteriorated to 134 percent in 2001, indicating a
loss of 34 cents per dollar of premium. Given lower investment
income, the 2002 operating ratio will probably not improve as
much as the projected improvement in the combined ratio. At
these levels, 2001 and 2002 results are the worst they have
been in 15 years or more, certainly approximating levels of the
1980s.
The data is clear. Today, the loss and operating
environment has deteriorated. Benefits of favorable reserve
development appear to be gone, and the available investment
income offset has declined. In fact, some say that reserve
liabilities may require increases to cover current ultimate
loss obligations. As a result, rates for both insurers and
reinsurers need to increase to properly align with current loss
and investment income levels. Companies failing to do this
jeopardize their surplus base and their financial health.
My written statement summarizes the two key drivers of
financial results and their effects on operating results and
surplus for some 30 companies that specialize in this coverage.
These companies represent about one-third of the companies
reporting to Best. The results for these companies are more
favorable than the industry, but reflect similar deterioration.
In chart B at page 6 of my testimony, the total after tax
operating income for these companies is shown. The favorable
operating income of the earlier years in the 20 percent
neighborhood has declined to a slight profit in 2000 and a 10
percent loss in 2001.
Likewise, on chart E on page 8 of my testimony, the surplus
declines in the most recent couple of years. This is important,
because surplus represents the capital base for these insurers.
Its decline reduces capacity to write new or renewing business
prospectively, and lessens insurers' ability to absorb any
adverse development on business written in prior years.
This, coupled with voluntary and involuntary withdrawals--
for example, St. Paul, MIIX, Reciprocal of America--contributed
to availability problems, in addition to affordability
problems.
Companies continuing to write malpractice insurance must
interpret current experience and determine what rates to charge
for prospective coverage. The term ratemaking is used to
describe this process. In ratemaking, the company must estimate
the cost of the coverage, set a price for it, and assume the
risk that the cost may differ, perhaps substantially, from
those estimates.
The ratemaking process is forward-looking. It does not
reflect loadings for past pricing inadequacy or past investment
losses. In short, ratemaking reflects future costs and
expectations.
prepared statement
My written testimony provides a bit more detailed
discussion of this process. However, three additional
observations. It should be noted that rates are generally
subject to regulatory oversight in most jurisdictions. Second,
investment portfolios are subject to regulatory constraints, so
companies are limited in how much they can invest in equities,
and third, because rates are generally reduced based on
prospective bond yields, when yields decrease, rates need to
increase.
The academy appreciates the opportunity to provide an
actuarial perspective for these important issues, and will be
glad to answer any questions the subcommittee has. Thank you.
[The statement follows:]
Prepared Statement of James D. Hurley
introduction
The American Academy of Actuaries appreciates the opportunity to
provide comments on issues related to patient access to health care
and, in particular, the availability and pricing of medical malpractice
insurance. The Academy hopes these comments will be helpful as Congress
considers related proposals. This testimony discusses what has happened
to medical malpractice financial results and likely effect on rates,
the ratemaking process, and some discussion of frequent misconceptions.
medical malpractice--what has happened?
The medical malpractice insurance marketplace is in serious turmoil
after an extended period of reported high profitability and
competitiveness during the 1990s. This turmoil began with serious
deterioration in financial results, continued with some consequences of
these results and, at least at this point, gives rise to an uncertain
future. Industry-wide financial results reflect a 2001 combined ratio
(the measure of how much of a premium dollar is dedicated to paying
insurance costs of the company in a calendar year) that reached 153
percent and an operating ratio (reducing the combined ratio for
investment income) of about 135 percent; the worst results since
separate tracking of this line of business began in 1976. Projections
for 2002 are for a lower combined ratio of approximately 140 percent
and probable lesser improvement in the operating ratio. This follows
1999 and 2000 operating ratios of 106 percent.
The consequences of these poor financial results are several.
Insurers have voluntarily withdrawn from medical malpractice insurance
(e.g., St. Paul Companies, Inc., writer of approximately nine percent
of total medical malpractice insurance premium in 2000) or have
selectively withdrawn from certain marketplaces or segments of medical
malpractice insurance. In addition, several insurers have entirely
withdrawn due to poor financial results (e.g., Phico, MIIX, Frontier,
Reciprocal of America, some of which are under regulatory supervision).
Overall, premium capacity has been reduced by more than 15 percent.
These withdrawals fall unevenly across the states and generally affect
those identified as jurisdictions with serious problems more severely
than others.
Capacity to write business would have decreased even more if not
for the fact that much medical malpractice coverage is written by
companies specializing in this coverage, some of whom were formed for
this specific purpose.
The future outlook is not positive, at least in the short term.
Claim costs are increasing more rapidly now than they were previously.
Further, the lower interest rate environment would require higher
premium rates, even if losses were not increasing. The combined effect
is that there are likely to be more poor financial results and
additional rate increases.
Background
Today's premium increases are hard to understand without
considering the experiences of the last decade. Rates during this time
period often stayed the same or decreased relative to the beginning of
the period due to several of the following factors:
--Favorable Reserve Development.--Ultimate losses for coverage years
in the late 1980s and early 1990s have developed more favorably
than originally projected. Evidence of this emerged gradually
over a period of years as claims settled. When loss reserves
for prior years were reduced, income was contributed to the
current calendar years, improving financial results (i.e., the
combined and operating ratios). That was the pattern during the
middle to late 1990s for 30 provider-owned medical malpractice
insurers whose results are shown in Chart A. What is evident
from that chart is that favorable reserve development (shown as
a percentage of premium) was no longer a significant factor in
2001 for these insurers as the effect approached zero. In
contrast to the experience of these provider-owned insurers,
the prior-year reserves for the total medical malpractice line
of business actually deteriorated in 2000 and in 2001.
--Low Level of Loss Trend.--The annual change in the cost of claims
(frequency and severity) through most of the 1990s was lower
than expected by insurers, varying from state to state and by
provider type. This coincided with historically low medical
inflation and may have benefited from the effect of tort
reforms of the 1980s. Rates established earlier anticipated
higher loss trends and were able to cover these lower loss
trends to a point. As a result, rate increases were uncommon
and there were reductions in several states. This was justified
in part because the rates established at the beginning of the
last decade proved too high, inasmuch as carriers had assumed
higher loss trends.
Insurers responded to the emerging favorable loss trend in
different ways. Some held rates stable and paid policyholder dividends
or gave premium discounts. Some reduced filed rates. Others increased
rates modestly and tried to refine pricing models to improve overall
program equity. In general, however, premium adequacy declined in this
period. Collected rates came into line with insurers' costs, but
competitive actions pushed rates even lower, particularly in some
jurisdictions.
--High Investment Yields.--During the 1990s, investment returns
produced a real spread between fixed income rates of return and
economic inflation. Counter to what some may believe, medical
malpractice investment results are based on a portfolio that is
dominated by bonds with stock investments representing a
minority of the portfolio. Although medical malpractice
insurers had only a modest holding of stocks, capital gains on
stocks also helped improve overall financial results. These
gains improved both the investment income ratio and the
operating ratio.
--Reinsurers Helped.--Many medical malpractice insurers are not large
enough to take on the risks inherent in this line of insurance
on their own. The additional capacity provided by reinsurers
allows for greater availability of medical malpractice. Similar
to what was happening in the primary market, reinsurers reduced
rates and covered more exposure, making the net results even
better.
--Insurers Expanded Into New Markets.--Given the financial results of
the early-to-mid-1990s, some insurers expanded into new markets
(often with limited information to develop rates). They also
became more competitive in existing markets, offering more
generous premium discounts. Both actions tended to push rates
down.
What Has Changed?
Although these factors contributed to the profitability of medical
malpractice insurance in the 1990s, they also paved the way for the
changes that began at the end of the decade.
--Loss Trend Began to Worsen.--Loss cost trends, particularly claim
severity, started to increase toward the latter part of the
1990s. The number of large claims increased, but even losses
adjusted to eliminate the distortions of very large claims
began to deteriorate. This contributed to indicated rate
increases in many states.
--Loss Reserves Became Suspect.--As of year-end 2001, aggregate loss
reserve levels for the industry are considered suspect. Reserve
reductions seem to have run their course. As mentioned earlier,
the total medical malpractice insurance industry increased
reserves for prior coverage year losses in 2000 and 2001,
although results vary on a company-by-company basis. Some
observers suggest that aggregate reserves will require further
increases, particularly if severity trends continue or
intensify.
--Investment Results Have Worsened.--Bond yields have declined and
stock values are down from 1990s highs. The lower bond yields
reduce the amount of expected investment earnings on a future
policy that can be used to reduce prospective rates. A one
percent drop in interest rates can be translated to a premium
rate increase of two to four percent (assuming no changes in
other rate components) due to the several year delay in paying
losses on average. A 2.5 percent drop in interest rates, which
has occurred since 2000, can translate into rate increases of
between 5 percent and 10 percent. Note that this factor may
discourage an insurer from maintaining market presence and also
may discourage new entrants.
--The Reinsurance Market Has Hardened.--Reinsurers' experience
deteriorated as their results were affected by increased claim
severity and pricing changes earlier in the decade. Because
reinsurers generally cover the higher layers of losses, their
results are disproportionately influenced by increases in claim
severity. This, coupled with the broadly tightened reinsurance
market after Sept. 11, has caused reinsurers to raise rates
substantially and tighten reinsurance terms for medical
malpractice.
The bottom line is that these changes require insurers to increase
rates if they are to preserve their financial health and honor future
claim payments.
The Results
To obtain a better understanding of the effect of these changing
conditions, we focus on the results of 30 specialty insurers that are
primarily physician owned or operated and that write primarily medical
malpractice business. Their results reflect the dynamics of the medical
malpractice line. This sample represents about one-third of the insured
exposures in the United States.
These insurers, achieving more favorable financial results than
those of the total industry, showed a slight operating profit (four
percent of premiums) in 2000. This deteriorated to a 10-percent
operating loss in 2001 (see Chart B).
There are two key drivers of these financial results:
--Insurance Underwriting.--For these companies, a simplified combined
ratio was calculated by dividing calendar year loss and loss
adjustment and underwriting expenses by premium. The combined
ratios were 124 percent and 138 percent in 2000 and 2001,
respectively. That means in 2001, these insurers incurred $1.38
in losses and expenses for each $1.00 of premium. The preceding
five years were fairly stable, from 110 percent to 115 percent.
Deterioration of the loss and loss adjustment expense ratio
drove these results; the underwriting expense ratio remained
relatively constant (see Chart C).
--Investment Income.--Pre-tax investment income (including realized
capital gains and losses) derives from policyholder-supplied
funds invested until losses are paid as well as from the
company capital (``surplus''). The ability of investment income
to offset some of the underwriting loss is measured as a
percentage of earned premiums. This statistic declined during
the measurement period from the mid-40 percent to the mid-30
percent level and, in 2001, to 31 percent (see Chart D).
This offset will continue to decline because (i) most insurer-
invested assets are bonds, many of which were purchased before recent
lower yields, and interest earnings do not yet fully reflect these
lower yields; and (ii) the premium base is growing due to increased
rates and growth in exposure. Invested assets are not increasing as
rapidly as premium and, therefore, investment income as a percentage of
premium will decline.
The effect of these results on surplus is reflected in Chart E,
which shows the percent change in surplus from one year to the next.
Surplus defines an insurer's capacity to write business prospectively
and to absorb potential adverse loss development on business written in
prior years (see Chart E).
the ratemaking process
Ratemaking is the term used to describe the process by which
companies determine what premium is indicated for a coverage. In the
insurance transaction, the company assumes the financial risk
associated with a future, contingent event in exchange for a fixed
premium before it knows what the true cost of the event is, if any. The
company must estimate those costs, determine a price for it and be
willing to assume the risk that the costs may differ, perhaps
substantially, from those estimates. A general principle of ratemaking
is that the rate charged reflects the costs resulting from the policy
and the income resulting from the anticipated policy covered losses,
not what is actually paid or is going to be paid on past policies. It
does not reflect money lost on old investments. In short, a rate is a
reflection of future costs.
In general, the actuarial process used in making these estimations
for medical malpractice insurance starts with historical loss
experience for the specific coverage and, usually, for a specific
jurisdiction. Rates are determined for this coverage, jurisdiction, and
a fixed time period. To the appropriately projected loss experience, a
company must incorporate consideration of all expenses, the time value
of money and an appropriate provision for risk and profit associated
with the insurance transaction.
For a company already writing a credible volume of the coverage in
a state, the indications of the adjusted ultimate loss experience can
be compared to its current premiums to determine a change. For a
company entering the line or state for the first time, obtaining
credible data to determine a proper premium is often difficult and,
sometimes, not possible. In the latter situation, the risk of being
wrong is increased significantly.
Additionally, some lines of insurance coverage are more predictable
than other lines. The unpredictability of coverage reflects its
inherent risk characteristics. Most companies would agree that costs
and, therefore, rates for automobile physical damage coverage, for
example, are more predictable than for medical malpractice insurance
because automobile insurance is relatively high frequency/low severity
coverage compared to medical malpractice insurance. In the case of auto
physical damage, one has a large number of similar claims for
relatively small amounts that fall in a fairly narrow range. In medical
malpractice insurance, one has a small number of unique claims that
have a much higher average value and a significantly wider range of
possible outcomes. There also is significantly longer delay for medical
malpractice insurance between the occurrence of an event giving rise to
a claim, the reporting of the claim, and the final disposition of the
claim. This longer delay adds to the uncertainty inherent in projecting
the ultimate value of losses, and consequently premiums.
The following guidelines explain the ratemaking process:
1. Historical loss experience is collected in coverage year detail
for the last several years. This usually will include paid and
outstanding losses and counts. The data is reviewed for reasonableness
and consistency, and estimates of the ultimate value of the coverage-
year loss are developed using actuarial techniques.
2. Ultimate losses are adjusted to the prospective level (i.e., the
period for which rates are being made). This involves an appropriate
adjustment for changes in average costs and claim frequencies (called
trend). Adjustments also would be made for any changes in circumstances
that may affect costs (e.g., if a coverage provision has been altered).
3. Adjusted ultimate losses are compared to premium (or doctor
counts) to determine a loss ratio (or loss cost per doctor) for the
prospective period.
4. Expenses associated with the business must be included. These
are underwriting and general expenses (review of application, policy
issuance, accounting, agent commission, premium tax, etc.) Other items
to consider are the profit and contingency provision, reinsurance
impact, and federal income tax.
5. A final major component of the ratemaking process is
consideration of investment income. Typically for medical malpractice
insurance, a payment pattern and anticipated prospective rate of return
are used to estimate a credit against the otherwise indicated rate.
These five steps, applied in a detailed manner and supplemented by
experienced judgment, are the standard roadmap followed in developing
indicated rates. There are a number of other issues to address in
establishing the final rates to charge. These include recognizing
differences among territories within a state, limits of coverage,
physician specialty, and others. The final rates will reflect
supplemental studies of these various other aspects of the rate
structure.
Many states have laws and regulations that govern how premium rates
can be set and what elements can or must be included. The state
regulators usually have the authority to regulate that insurance
premium rates are not excessive, inadequate, or unfairly
discriminatory. It is not uncommon for state insurance regulators to
review the justification for premium rates in great detail and, if
deemed necessary, to hold public hearings with expert testimony to
examine the basis for the premium rates. In many states, the insurance
regulator has some authority to restrict the premium rates that
insurance companies can charge.
frequent misconceptions
In closing, it might be helpful to address some frequent
misconceptions about the insurance industry and medical malpractice
insurance coverage.
Misconception 1: ``Insurers are increasing rates because of investment
losses, particularly their losses in the stock market.''
As we have pointed out, investment income plays an important role
in the overall financial results of insurers, particularly for insurers
of medical professional liability, because of the long delay between
payment of premium and payment of losses. The vast majority of invested
assets are fixed-income instruments. Generally, these are purchased in
maturities that are reasonably consistent with the anticipated future
payment of claims. Losses from this portion of the invested asset base
have been minimal, although the rate of return available has declined.
Stocks are a much smaller portion of the portfolio for this Group,
representing about 15 percent of invested assets. After favorable
performance up through the latter 1990s, there has been a decline in
the last few years, contributing to less favorable investment results
and overall operating results. Investment returns are still positive,
but the rates of return have been adversely affected by stock declines
and more so by lower fixed income investment yields.
In establishing rates, insurers do not recoup investment losses.
Rather, the general practice is to choose an expected prospective
investment yield and calculate a discount factor based on historical
payout patterns. In many cases, the insurer expects to have an
underwriting loss that will be offset by investment income. Since
interest yields drive this process, when interest yields decrease,
rates must increase.
Misconception 2: ``Companies operated irresponsibly and caused the
current problems.''
Financial results for medical liability insurers have deteriorated.
Some portion of these adverse results might be attributed to inadequate
knowledge about rates in newly entered markets and to being very
competitive in offering premium discounts on existing business.
However, decisions related to these actions were based on expectations
that recent loss and investment markets would follow the same
relatively stable patterns reflected in the mid-1990s. As noted
earlier, these results also benefited from favorable reserve
development from prior coverage years. Unfortunately, the environment
changed on several fronts--loss cost levels increased, in several
states significantly; the favorable reserve development ceased;
investment yields declined; and reinsurance costs jumped.
While one can debate whether companies were prudent in their
actions, today's rate increases reflect a reconciliation of rates and
current loss levels, given available interest yields. There is no added
cost for past mispricing. Thus, although there was some delay in
reconciling rates and loss levels, the current problem reflects current
data.
Misconception 3: ``Companies are reporting losses to justify increasing
rates.''
This is a false observation. Companies are reporting losses
primarily because claim experience is worse than anticipated when
prices were set. Several companies have suffered serious adverse
consequences given these financial results, including liquidation or
near liquidation. Phico, MIIX, Frontier and, most recently, the
Reciprocal of America, are all companies forced out of the business and
in run-off due to underwriting losses. Further, the St. Paul Companies,
Inc, formerly the largest writer of medical malpractice insurance, are
now in the process of withdrawing from this market. One reason for this
decision is an expressed belief that the losses are too unpredictable
to continue to write the business.
The Academy appreciates the opportunity to provide an actuarial
perspective on these important issues and would be glad to provide the
subcommittee with any additional information that might be helpful.
Senator Specter. Thank you very much, Mr. Hurley.
STATEMENT OF BRIAN HOLMES, M.D.
Senator Specter. Our next witness is Dr. Brian Holmes,
neurosurgeon, who recently moved from Pennsylvania to join a
physician's group based in Hagerstown, Maryland. He has an
undergraduate degree from the University of Pennsylvania and
medical degree from Pennsylvania State University College of
Medicine.
Dr. Holmes, thank you for joining us. We look forward to
your testimony.
Dr. Holmes. Good morning, Mr. Chairman. My physician
colleagues and I are grateful for this hearing and the
opportunity to testify.
You began to outline my professional training and
experience, and I just wanted to reiterate that after 4 years
of college, 4 years of medical schools, and then 7 years of
postgraduate training in neurological surgery, I accepted the
position of assistant professor at the Penn State University
College of Medicine, where I remained for 4 years. I then moved
on to Scranton, Pennsylvania, where I continued in private
practice for 4 years.
I recently moved to Hagerstown, Maryland and joined a group
there, and I have a limited practice in Chambersburg,
Pennsylvania. I am certified by the American Board of
Neurological Surgeons, and I currently hold the office of
president of the Pennsylvania Neurosurgical Society.
In October of 2001, I received a letter from my liability
insurance carrier stating that my insurance was being
terminated effective December 31. When I inquired about that
notification, I was told that that company was no longer
writing policies for neurosurgeons in Pennsylvania. I found out
at that time there was no option for liability insurance
outside of the Joint Underwriters Association, a State-mandated
organization.
Unfortunately, I could not get a precise quote for my
premium at that time, but neurosurgeons in Philadelphia were
paying JUA rates in excess of $200,000. Therefore, I made
arrangements to close my practice due to the potential of
unaffordable insurance coverage. I canceled operations and
appointments that had been scheduled, and made arrangements for
the transfer of care for some patients. That transfer of care
was difficult, because other neurosurgeons had left the State,
and the delay for some patient appointments was up to 6 months.
On December 31, 2001, I was notified that my insurance
would not be canceled. This notification came 9 hours before my
practice was scheduled to close. I was never able to find a
satisfactory explanation as to why this occurred. Nevertheless,
I made arrangements to reopen my practice and attempt to
minimize the interruption in medical care which fell upon some
patients.
As the year 2002 unfolded, I saw other neurosurgeons in the
State being assessed with very high premiums, premiums that
literally exceeded their incomes. A gifted neurosurgeon
specializing in spinal surgery at the Thomas Jefferson
University was asked to pay a premium to the Joint Underwriters
Association and CAT fund of over $300,000. He moved to Indiana.
Other neurosurgeons retired, or contemplated moving out of the
State. I became very outspoken about the liability crisis in an
attempt to bring it to the attention of my State legislators
and the public.
Although I had a liability insurance policy in effect
through the end of 2002, I was not confident that affordable
insurance would be available for 2003. Therefore, I made the
difficult decision to close my practice and move to Maryland.
Unwillingly, I left the region in which I was born and raised,
and expected to practice for many years. The professional
liability insurance premium for a neurosurgeon in Hagerstown,
Maryland, is approximately $30,000 per year.
I was asked today to speak to give my story, but I believe
this is really more a story about patients. I personally
perform approximately 300 operations per year. Many are
literally life-saving emergency procedures performed in
circumstances where delay in treatment may determine the
difference between recovery to productive existence versus
disability or death.
I evaluate and treat by nonsurgical means maybe 2,000
patients per year. I had intended to practice neurosurgery in
Scranton, Pennsylvania, for another 20 years. My subtraction
from that medical community has real consequences for thousands
of patients.
The specialty of neurosurgery is numerically small. There
are fewer than 3,500 neurosurgeons in the United States.
Residency training programs graduate only about 130
neurosurgeons per year nationwide. It is therefore very
difficult to recruit neurosurgeons to States where others have
left. I had tried to recruit neurosurgeons to Scranton, and was
told by potential candidates that other States were preferred
due to a more stable liability insurance climate.
The implications for patients are profound. Trauma centers
have strict criteria for on-call coverage by board-certified
neurosurgeons and are being threatened. Each week now, I
evaluate or perform surgery on patients who drive 200 miles
from northeastern Pennsylvania to my practice based in
Maryland.
I would like to say a few words about neurosurgery and
claims of malpractice. Neurosurgeons treat many patients with
critical or life-threatening illness such as brain tumors,
brain hemorrhage and spinal cord injury. The natural history of
many of these disease processes results in some unfavorable
outcomes such as disability, chronic pain, or death. That is
why neurosurgery is classified as a high risk specialty.
An unfavorable outcome may be due to the natural history of
the disease, but patients often hold their physician
accountable. The best data that I can derive from my peers in
organized neurosurgery is that a neurosurgeon may expect to
have a claim filed against him every 1\1/2\ years. The result
is that most neurosurgeons have some outstanding claims. The
majority are decided in favor of the physician. Unfortunately,
the process of bringing a claim to closure takes several years.
A claims history, which is almost inevitable in my specialty,
amplifies the difficulty of obtaining affordable professional
liability insurance in some States.
prepared statement
In summary, I would say that as a surgeon and as a
physician I am motivated by a sincere concern for patients, and
physicians overall are troubled that our ability to promptly
deliver high quality medical care to patients is threatened.
Thank you.
[The statement follows:]
Prepared Statement of Dr. Brian Holmes
I am Brian Holmes. I am a neurosurgeon that recently moved from
Pennsylvania to join a physician group based in Hagerstown, Maryland. I
had been in practice in Scranton, Pennsylvania for four years.
I will briefly outline my professional training and experience. I
received an undergraduate degree from the University of Pennsylvania. I
received my medical degree from the Pennsylvania State University
College of Medicine in Hershey. I completed a six-year residency
training program in neurosurgery at the Dartmouth-Hitchcock Medical
Center in New Hampshire and a one year post-graduate fellowship in
Cranial Base and Cerebrovascular Surgery at the George Washington
University Medical Center. I accepted the position of Assistant
Professor at the Penn State University College of Medicine where I
remained for four years. I then moved on to Scranton, Pennsylvania
where I continued in private practice for four years. I now practice
primarily in Hagerstown, Maryland with a limited practice in
Chambersburg, Pennsylvania. I am certified by the American Board of
Neurological Surgeons and I currently hold the office of President of
the Pennsylvania Neurosurgical Society.
In October of 2001, I received a letter from my liability insurance
carrier that my insurance was being terminated effective December 31,
2001. When I inquired about the notfication, I was told that the
company was no longer insuring neurosurgeons in Pennsylvania. I found
out that at that time, there was no option for insurance outside of the
Joint Underwriters Association, a state mandated organization.
Unfortunately, I could not get a precise quote for my premium.
Neurosurgeons in Philadelphia at that time were paying JUA rates in
excess of $200,000. Therefore, I made arrangements to close my practice
due to the potential of unaffordable insurance coverage. I cancelled
operations and appointments that had been scheduled and made
arrangements for the transfer of care for some patients. That transfer
of care was difficult because other neurosurgeons had left the state
and the delay for patient appointments was up to six months.
On December 31, 2001 I was notified that my insurance would not be
cancelled. This notification came nine hours before my practice was
scheduled to close. I was never able to find a satisfactory explanation
as to why this occurred. Nevertheless, I made arrangements to reopen my
practice and attempt to minimize the interruption in medical care which
fell upon some of my patients.
As the year 2002 unfolded, I saw other neurosurgeons in the state
being assessed with very high premiums--premiums that literally
exceeded their incomes. A gifted neurosurgeon specializing in spinal
surgery at the Thomas Jefferson University was asked to pay a premium
to the Joint Underwriters Association and CAT fund of over $300,000. He
moved to Indiana. Other neurosurgeons retired or contemplated moving
out of the state. I became very outspoken about the liability crisis in
an attempt to bring it to the attention of my legislators and the
public.
Although I had a liability insurance policy in effect through the
end of 2002, I was not confident that affordable insurance would be
available for 2003. Therefore, I made the difficult decision to close
my practice and move to Maryland. Unwillingly, I left the region in
which I was born and raised and expected to practice for many years.
The professional liability insurance premium for a neurosurgeon in
Hagerstown, Maryland is approximately $30,000 per year.
I was asked to speak today to give ``my story.'' However, I believe
that this is really a story about patients.
I perform about three hundred operations per year. Many are
literally life-saving emergency procedures performed in circumstances
where a delay in treatment may determine the difference between
recovery to a productive existence versus disability or death. I
evaluate and treat by nonsurgical means about two thousand patients per
year. I had intended to practice neurosurgery in Scranton for another
twenty years. My subtraction from that medical community has real
consequences for thousands of patients.
The specialty of neurosurgery is numerically small. There are fewer
than 3,500 neurosurgeons in the United States. Residency training
programs graduate only about 130 neurosurgeons per year. It is
therefore very difficult to recruit neurosurgeons to states where
others have left. I had tried to recruit neurosurgeons to Scranton and
was told by many potential candidates that other states were preferred
due to a more stable liability insurance climate. The implications for
patients are profound. Trauma centers have strict criteria for on-call
coverage by Board Certified neurosurgeons and are being threatened. The
thousands of patients of the neurosurgeons that are leaving
Pennsylvania are experiencing dramatic interruptions and delays in
care. Each week, I evaluate or perform surgery on patients who drive
almost 200 miles from Northeastern Pennsylvania to my practice based in
Maryland.
I would like to say a few words about neurosurgery and claims of
malpractice.
Neurosurgeons treat many patients with critical or life-threatening
illness such as brain tumors, brain hemorrhage, and spinal cord injury.
The natural history of many of these disease processes results in some
unfavorable outcomes such as disability, chronic pain, or death. This
is why neurosurgery is classified as a ``high risk specialty.'' An
unfavorable outcome may be due to the natural history of the disease,
but patients often hold their physician accountable. The best data that
I can derive from my peers and organized neurosurgery is that a
neurosurgeon may expect to have a claim filed against him or her every
one and one half years. The result is that most neurosurgeons have some
outstanding claims. The majority of claims are decided in favor of the
physician. Unfortunately, the process of bringing a claim to closure
takes several years. A ``claims history,'' which is almost inevitable
in my specialty, amplifies the difficulty of obtaining affordable
professional liability insurance in some states.
After almost nine years of practice and seven years of residency
and fellowship training in neurosurgery, I am named as a primary
defendant in one claim. Two other claims were filed but dropped before
a written complaint was ever generated. I believe that the legal term
for this process is ``non pros.'' I use the term, ``frivolous.''
Because I was a treating physician in two other cases, I am named on a
list of co-defendants. I have never settled a claim or had a jury award
decided against me. As a participant in the current discussion I feel
that it is important to bring these facts forward.
I would like to close by describing to you what is really second
nature to me.
I am motivated as a physician by my deep respect for patients. I
have studied and worked intensively through over a decade of formal
medical and neurosurgical training. I spend countless hours reading and
participating in continuing medical education to maintain and improve
my skills as a neurosurgeon. I spend many hours of personal time
contemplating patients and nuances of their care. Physicians labor to
make patients' lives longer and better because we care deeply about
them. We are troubled that our ability to promptly deliver high-quality
medical care to patients is threatened.
I am grateful to you for giving me the opportunity to participate
in this discussion today.
Thank you.
Senator Specter. Thank you very much, Dr. Holmes.
STATEMENT OF LINDA MCDOUGAL, WOODVILLE, WI
Senator Specter. We now turn to Ms. Linda McDougal, a U.S.
Navy veteran, an accountant, married, family in Woodville, WI,
three sons, and Ms. McDougal had a medical procedure that she
will testify about.
Thank you for joining us, Ms. McDougal. The floor is yours.
Ms. McDougal. Thank you, Chairman Specter. I greatly
appreciate the opportunity you have given me.
I am a victim of medical malpractice. I am 46 years old. I
live with my husband and three sons in Woodville, a small
community in Wisconsin. My husband and I are both veterans.
This is my story.
About 9 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 that I had breast cancer. We made the
difficult, life-changing decision to undergo what we believed
was the safest long-term treatment, a double mastectomy, the
total removal of both of my breasts.
Forty-eight hours after surgery, the surgeon walked into 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.
How could the doctors have made this awful mistake? The
hospital called my case an isolated incident. Since then, other
cases within the same pathology lab in the same hospital have
been found. On February 4, the Minnesota Department of Health
made an unannounced visit to the hospital and found that my
case had not even been documented and reported, a violation of
State statutes. I think that doctors do a bad job of governing
themselves.
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, requiring
emergency surgery. Because of my ongoing infections, I am still
unable to have reconstructive 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 had a 10-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?
Well, 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. Why, even doctors have
collectively refused to serve clients in order to gain leverage
with the legislature.
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 placed 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 economic loss. Well, I did not have any
significant economic loss. My lost wages were approximately
$8,000, and my medical expenses to date are $48,000. 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, and no two
personal situations are identical. It is unfair to suggest that
all victims should be limited to this one-size-fits-all
arbitrary cap that benefits the insurance industry at the
expense of patients.
I am a veteran, and I see that patriotism requires an
honest recognition of our rights as defined in the
Constitution, a foundation that our forefathers fought for, and
what I thought we today continue to defend. Victims have a
right 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.
I could never have predicted or imagined in my worst
nightmare that I would end up having both of 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. It
would place negligent or incompetent physicians outside the
reach of judicial accountability.
I am not asking for sympathy. What happened to me may
happen to you or someone you love, and when it does, maybe you
will understand why I am telling my story. The rights of every
injured patient in America are at stake, limiting victims'
compensation in malpractice cases who have been hurt, who have
suffered life-altering injuries like loss of limbs, blindness,
brain damage, or even affected with the loss of a child or
spouse.
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 service in our country to prevent medical errors
like the one that cost me my breasts, part of my sexuality and
part of who I am as a woman.
prepared statement
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 their track records
available to the general public. 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. We should say no to this legislation.
Thank you.
[The statement follows:]
Prepared Statement of Linda McDougal
First, I want to thank Chairman Specter and Senator Harkin. 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 paper work 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 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, 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, 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 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.
Senator Specter. Thank you very much, Ms. McDougal, for
sharing your situation with us.
STATEMENT OF LEANNE DYESS, VICKSBURG, MS
Senator Specter. Our next and final witness is Leanne Dyess
from Vicksburg, MS, a wife, mother of two, teacher for 20
years. Her husband was involved in a car accident last year and
sustained a massive head injury, and because of medical
liability costs no neurosurgeon was immediately available to
treat her husband.
Thank you for joining us, Mrs. Dyess, and we look forward
to your testimony.
Ms. Dyess. Thank you, Chairman Specter. It is an honor for
me to sit here before you this morning to open up the life of
my family in an attempt to demonstrate how medical liability
costs are hurting people across America. While others may talk
in terms of economics and policy today, I want to speak to you
from the heart.
I want to share with you the life my two children and I are
forced to live because of the crisis in health care that I
believe can be fixed. This crisis is not about insurance, or
doctors, or hospitals, or even personal injury lawyers. It is a
crisis about individuals like you and I, and their access to
what I believe is otherwise the greatest health care in the
world.
Our story began on July 5, when my husband, Tony, was
returning from work in Gulfport, MS. 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 fell asleep, though we
will never know. What we do know is that after removing him
from the car, they rushed him to Garden Park Hospital in
Gulfport. He had head injuries and required immediate
attention. Shortly thereafter, I received a telephone call I
pray no other wife will ever have to receive. I was informed of
the accident and told the injuries were serious, but I cannot
describe to you the panic that gave way to hopelessness when
they told me, we 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, most prosperous regions in Mississippi. Garden
Park is a good hospital. Where were the specialists that could
have taken care of my husband?
Almost 6 hours passed before Tony was airlifted to
University Medical Center, 6 hours for the damage to his brain
to continue before they had a specialist capable of putting a
shunt into the back of his head to relieve the pressure on the
brain, 6 unforgettable hours that changed our life. Today, Tony
is permanently brain-damaged. He is mentally incompetent,
unable to care for himself, unable to provide for his children,
unable to live the vibrant, active, and loving life he was
living just moments before the accident.
I could share with you the panic of a 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 never thought she
would have to make in order to pay for his care and therapy,
but to describe this would be to take us away from the most
important point and value of what I have learned.
Mr. Chairman, I have learned that there was no specialist
on staff that night in Gulfport because a rising medical
liability cost 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 quit his
practice just days before Tony was admitted because his
insurance company terminated all of the medical liability
policies nationwide. That doctor could not obtain affordable
coverage. He could not practice. And that hot night in July, my
husband and our family drew the short straw.
I have also learned that Mississippi is not unique to this
crisis. It rages all across America, in Nevada, where young
expectant mothers cannot find OB-GYNs, 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 not readily seen. It is
like termites in the structure of a home. They get into the
woodwork, but you cannot see the damage. The walls of the house
remain beautiful. You do not know what is going on just beneath
the surface, at least not for a season, and then one day you go
to hang a picture or a shelf and the whole wall comes down.
Before July 5 I was, like most Americans, completely
unaware that just below the surface of our Nation's health care
delivery system serious damage was being done through excessive
and frivolous litigation, litigation that was forcing liability
costs beyond the ability of doctors to pay. I heard about some
of these frivolous cases and, of course, the awards that
climbed into the hundreds of millions of dollars and, like most
Americans, I shook my head. Someone has hit the lottery. But I
never asked, at what cost? 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 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 is a terrible cost.
Like most Americans, I did not know the cost. I did not
know the damage. You see, Mr. Chairman, it is not until it is
your spouse that you need a specialist, or you are the
expectant mother who needs the OB-GYN, or it is 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 today, 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 money
can relieve our pain and suffering, but knowing that others may
not have to go through this, and what we have gone through,
goes a long way in helping us heal.
prepared statement
Mr. Chairman, I know of your efforts to see America through
this crisis, and I know it is important to you and important to
the President. I know the priority Congress is placing on doing
something, and doing something now. Today, I pledge to you my
complete support. It is my prayer that no woman or anyone
anywhere else 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 statement follows:]
Prepared Statement of Leanne Dyess
Chairman Specter, Ranking Member Harkin, distinguished members of
the Senate Appropriations Committee: It's an honor for me to sit before
you this afternoon--to open up my life, and the life of my family, in
an attempt to demonstrate how medical liability costs are hurting
people all across America. While others may talk in terms of economics
and policy today, I want to speak from the heart.
I want to share with you the life my two children and I are now
forced to live because of a crisis in health care that I believe can be
fixed. And when I leave and the lights turn off and the television
cameras go away, I want you--and all America--to know one thing, and
that is that this crisis is not about insurance. It's not about
doctors, or hospitals, or even personal injury lawyers. It's a crisis
about individuals and their access to what I believe is, otherwise, the
greatest health care in the world.
Our story began on July 5 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 drain into his head
to relieve the pressure on his brain--six unforgettable hours that
changed our life.
Today Tony is permanently brain damaged. He is mentally
incompetent, unable to care for himself--unable to provide for his
children--unable to live the vibrant, active and loving life he was
living only moments before his accident.
I could share with you the panic of a woman suddenly forced into
the role of both mother and father to her teenage children--of a woman
whose life is suddenly caught in limbo, unable to move forward or
backward. I could tell you about a woman who now had to worry about the
constant care of her husband, who had to make concessions she thought
she'd never have to make to be able to pay for his therapy and care.
But to describe this would be to take us away from the most important
point and the value of what I learned.
Chairman Specter, 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 quit his practice
just days before Tony was admitted because his insurance company
terminated all of the medical liability policies nationwide. That
doctor could not obtain affordable coverage. He could not practice. And
on that hot night in July, my husband and our family drew the short
straw.
I have also learned that Mississippi is not unique, that this
crisis rages in states all across America. It rages in Nevada, where
young expectant mothers cannot find ob/gyns. It rages in Florida, where
children cannot find pediatric neurosurgeons. And it rages in
Pennsylvania, where the elderly who have come to depend on their
orthopedic surgeons are being told that those trusted doctors are
moving to states where practicing medicine is affordable and less
risky.
The real danger of this crisis is that it is not readily seen. It's
insidious, like termites in the structure of a home. They get into the
woodwork, but you cannot see the damage. The walls of the house remain
beautiful. You don't know what's going on just beneath the surface. At
least not for a season. Then, one day you go to hang a picture or shelf
and the whole wall comes down; everything is destroyed. Before July 5,
I was like most Americans, completely unaware that just below the
surface of our nation's health care delivery system, serious damage was
being done by excessive and frivolous litigation--litigation that was
forcing liability costs beyond the ability of doctors to pay. I had
heard about some of the frivolous cases and, of course, the awards that
climbed into the hundreds of millions of dollars. And like most
Americans I shook my head and said, ``Someone hit the lottery.''
But I never asked, ``At what cost?'' I never asked, ``Who has to
pay for those incredible awards?'' It is a tragedy when a medical
mistake results in serious injury. But when that injury--often an
accident or oversight by an otherwise skilled physician--is compounded
by a lottery-like award, and that award along with others make it too
expensive to practice medicine, there is a cost. And believe me, it's a
terrible cost to pay.
Like most Americans, I did not know the cost. I did not know the
damage. You see, Mr. Chairman, it's not until your spouse needs a
specialist, or you're the expectant mother who needs an ob/gyn, or it's
your child who needs a pediatric neurosurgeon, that you realize the
damage beneath the surface.
From my perspective, sitting here today, this problem far exceeds
any other challenge facing America's health care--even the challenge of
the uninsured. My family had insurance when Tony was injured. We had
good insurance. What we didn't have was a doctor. And now, no amount of
money can relieve our pain and suffering. But knowing that others may
not have to go through what we've gone through could go a long way
toward helping us heal.
Chairman Specter, I know of your efforts to see America through
this crisis. I know this is important to you, and that it's important
to the President. I know of the priority Congress is placing upon doing
something . . . and doing it now. Today, I pledge to you my complete
support. It is my prayer that no woman--or anyone else--anywhere will
ever have to go through what I've gone through, and what I continue to
go through every day with my two beautiful children and a husband I
dearly love.
Senator Specter. Thank you very much, Mrs. Dyess. The
situation that you characterize is obviously a very tragic one.
I note that in the last year Mississippi did enact legislation
capping noneconomic damages, and limiting the issue on venue,
but of course that reform came much too late in your husband's
case.
Dr. McCombs, you started off with a comment about what is
going on in Pennsylvania by way of changes in legislation,
referring to what Governor Rendell has said in your testimony.
There have been a number of changes on joint and several
liability and on venues so that cases cannot all be brought in
Philadelphia County. They have to be brought in the county
where the incident occurred.
The issue of the caps is a very critical one, and the
suggestion has been made, as I had mentioned earlier, of a
certain category of cases like the one that Mrs. McDougal
testified to about the double mastectomy. There is a concern
about large verdicts in cases which do not warrant that, and I
would be interested in your view as to having caps imposed at
the national level.
Of course, Pennsylvania has a constitutional amendment
prohibiting caps, which is the reason Pennsylvania cannot
handle it as Mississippi handled it, by imposing caps on the
State level, but what would you think if a precedent was
followed like the one in Michigan, where damages are limited
very sharply, except in a category of three matters, where
there is death, serious impairment of bodily function, or
permanent serious disfigurement, like Mrs. McDougal's case?
What would your thinking on that be?
Dr. McCombs. Mr. Chairman, first of all, let me
congratulate your subcommittee on assembling such a powerful,
moving, and representative collection of witnesses today.
Senator Specter. We tried to make it balanced so that every
point of view would be heard. We face a very difficult
legislative question here, and we are really trying to not only
dig into the facts and find and analyze the complexities at
many levels, but see really what we have to do to try to
improve the situation.
Dr. McCombs. We are very grateful for that.
Senator, I am not a lawyer, I am not an insurance expert, I
am a surgeon. My colleagues and I support very strongly the
provisions that are included in the Greenwood legislation, H.R.
5, which does include caps, as I understand it. There is a lot
of controversy as to just how that should be applied, and
whether or not some provision for catastrophic, I think was the
term, or--I cannot remember exactly, but exceptions to that.
The surgical community in Pennsylvania feels very strongly
that the provisions that have already passed the legislature in
Pennsylvania will help, although it will take a considerable
amount of time for the effects of these to be seen, and
ultimately we feel that caps will provide the balance that is
going to be necessary to level the playing field, as I referred
to earlier.
Senator Specter. Mr. Hurley, from the insurance point of
view, I would be interested in your views as to the impact on
limiting claims which are frivolous, where you would require a
certification in advance and could hold the lawyers personally
accountable if the suit had no basis, in the context that I
referred to earlier, where the hearing last month said that
while 70 percent of the cases were won, the insurance companies
had tremendous costs. How far do you think the limitations on
frivolous suits would go in providing some realistic relief to
insurance costs?
Mr. Hurley. Mr. Specter, I think that the changes that you
are discussing, or the proposed changes that you are discussing
to find some way--for example, certificates of merit and those
types of things, we probably have some examples of those in
various States. The individual States have put some provisions
in place from time to time that may be similar. Maybe we can
get some guidance from that.
But I think the insurance, the loss costs and the defense
costs that insurance companies are dealing with would be
obviously reduced by the fact that, if there was a provision in
place that would stop claims from being filed and stop the
expenditures that companies make, so that would be a savings
that companies would reflect in their losses, and if losses go
down, premiums go down, so there would be some savings if you
could actually implement a provision that you would be assured
would eliminate claims on which companies are spending moneys
right now, yes.
Senator Specter. Mr. Angoff, as an insurance regulator, you
testified that even though the number of cases and the payments
went down, the insurance premiums went up, and you described
the anomalous result. Do you know why that was, or have a view
on it?
Mr. Angoff. Yes, I do, and this data is just from obviously
Missouri. We only collect Missouri data. I do not know what the
data is from other States, but in Missouri, claims went down,
but because there was such a change in investment income, and
because the cost of reinsurance went up so much, the overall
costs of the insurers went up.
In malpractice insurance particularly, investment income is
very, very important, because in malpractice insurance, unlike,
let us say, homeowners insurance, insurers hold onto their
premium income for a long time, 6 years in malpractice
insurance, less than a year in homeowners, so investment income
is very, very important.
So during the nineties, when the stock market was great,
when interest rates were higher, the insurers made a lot on
their investment income, they could cut rates. Today, when they
are making nothing on their investment income, it is exactly
the opposite situation, so they have got to raise rates even if
their payments decrease. If their payments decrease a little,
but their investment income decreases a lot, they have got to
raise their rates.
Senator Specter. Mr. Hurley, from an actuarial point of
view, as you have analyzed what goes on with the insurance
rates, to what extent is Mr. Angoff right, or is he totally
wrong that the shifts in the investment markets have accounted
for at least some, or if you can quantify, to what extent is
the insurance company problem on raising rates?
Mr. Hurley. I think, Mr. Specter, that Mr. Angoff is right
to some point. Medical malpractice companies generally invest
in bonds, fixed income instruments. They are not allowed to
make up for past mistakes in investments. The ratemaking
process, as mentioned in my testimony, is a forward-looking
process.
When we evaluate what rates to charge, or when companies
evaluate what rates to charge, they consider the time value of
money, as was described, how long they are going to hold that
money until such time as they make payments. They estimate what
a reasonable rate of return is that they can make
prospectively, and they will set rates accordingly.
When interest rates go down, as they have, that will put
upward pressure on those rates in the absence of any other
changes, so what Mr. Angoff has said to some degree is correct,
but we cannot make up for past mistakes in investments, and the
ratemaking process is a forward-looking process, but when
interest rates go down, insurance rates will go up, because
rates are made in contemplation of what investment income is
going to be made prospectively.
Senator Specter. From a legislative point of view, we are
trying to assess how to cure the problem, and we are trying to
apportion how much of it is due to a variety of factors. It
would be very difficult for the Federal Government to get
involved in insurance regulation. I think that is the last
thing you want to have come out of Washington, is more
regulation and picking up another line.
This is sort of like the joint liability problem.
Pennsylvania has eliminated joint and several liability, Dr.
McCombs, so that it cannot all go to the deep pocket any more.
It is a matter of proportional error, and now we are trying to
find out what proportion of responsibility there is. Any ideas
as to how we might deal, Mr. Hurley, with the insurance
industry to deal with at least the portion of the problem
attributed there?
Mr. Hurley. Mr. Specter, I am not sure I understand what
you are saying the problem is, as far as the insurance
industry----
Senator Specter. Well, part of the difficulty as Mr. Angoff
described it, and you agree, comes because of insurance
investments. If we are going to create a new system, if we are
going to legislate at the Federal level, how can we deal with
that aspect of the problem, or can we deal with it?
Mr. Hurley. I would like to clarify what I hear you
interpreting, your interpretation of my prior answer. I did not
imply that there is a problem in that reaction of the insurance
industry to changes in interest rates.
The insurance industry is subject to regulation when it
makes rates. They are reviewed at the State level in most
jurisdictions, and those regulations require that the industry,
when it sets rates, reflect investment income, so it must
consider the time value of money when it sets rates, even in
some States where the formula by which they do that is
mandated, so they do consider that. When interest rates go
down, then the rates must go up just to respond to that.
I am not sure whether I think there is a problem that needs
intervention from the Federal level as far as the insurance
industry is concerned. I am not suggesting that would happen or
be necessary as far as interest income is concerned, so I do
not know that I agree with the premise.
Senator Specter. Okay. Mr. Angoff, do you have any
suggestion as to what might be done at the Federal level on the
problem you identified?
Mr. Angoff. Yes, and I agree, Mr. Chairman, insurance is
State-regulated. In general the Federal Government does not
have much to do with it, but I do think that if Congress either
repealed or narrowed the McCarran-Ferguson antitrust exemption,
that could have an effect.
Senator Specter. How?
Mr. Angoff. Okay, particularly in view of--McCarran-
Ferguson says, insurers are not subject to the antitrust laws
except for boycott, coercion, and intimidation. What that means
is, insurers are permitted to engage in anticompetitive
activities, including agreeing on price, as long as it does not
rise to the level of a boycott, of a total collective refusal
to deal.
Now, when investment income is high, the antitrust
exemption is irrelevant. Insurers compete like crazy to cut
price, so the antitrust exemption is irrelevant, but when
investment income is low and insurers need to raise their
prices, the antitrust exemption allows them to raise their
prices without fear.
Does that mean that they sit down in a smoke-filled room
and agree on price? Not necessarily, but it does allow them to
raise their prices collectively without the fear that companies
in other industries have, so I think that that is one thing
that Congress could do, and even if Congress did not want to go
as far as repealing the exemption, I think it is very important
for Congress to at least carve out a real boycott exception.
The Scalia opinion in the Hartford Fire case, which was the
Supreme Court case growing out of the last insurance crisis,
very, very narrowly interprets the boycott exception so there
is almost now a blanket exemption from the antitrust laws for
insurers, so I do think that there is something in the area of
narrowing the McCarran-Ferguson antitrust exemption that would
be productive for Congress to pursue.
Senator Specter. Dr. Holmes, this is a legal issue. It may
be outside of your purview, but I would like to get your
thinking on it. If we were to put caps on at the Federal level
that would exclude this category of cases which has been
excluded under somewhat analogous State law to exclude death,
serious impairment of bodily function, or permanent serious
disfigurement, how would you respond to that?
Dr. Holmes. I would respond by saying that that definition
may be so broad that the exception may become the rule, and I
think that there may be cases where so-called egregious cases
could fall outside of that standard cap, but I think the
definition would have to be very narrow and very clearly
defined.
Senator Specter. Well, what would you say to Mrs.
McDougal's case? She has a classical case where there are no
real economic damages, that the economic damages are a very
small part of what is involved here, so if you say noneconomic
to a double mastectomy, would you agree that that kind of a
case ought to be outside of the cap?
Dr. Holmes. Well, I would like to say to Mrs. McDougal
thank you for coming, and I found your story very powerful.
Senator Specter. Dr. Holmes, I do not want to press you to
answer that if you do not want to.
Dr. Holmes. Oh, I am just trying to be kind.
I think we are just looking at a system with limited
resources. If that were not the case, I would be happy to see a
great deal of compensation to a patient such as Mrs. McDougal,
but I am troubled by the fact, for example, in Pennsylvania we
have 30,000 physicians, and these premiums are spread among
those 30,000 physicians in order to pay out these awards, and
it just reaches the point where those 30,000 premiums cannot
cover a certain dollar amount.
The answer to your question is, within reason I think it is
possible for certain cases to be deemed outside of that cap,
but again, clearly defined.
Senator Specter. Ms. Dyess, you had a personal experience
and tragedy here. The Mississippi law was changed, much too
late to affect your situation. Do you think there ought to be
exceptions to the $250,000 or $350,000 cap on noneconomic
damages?
Ms. Dyess. In my particular case, what was passed in
Mississippi would not have made us any difference, because I am
not suing anybody. I do not have anybody to sue.
Senator Specter. Well, there might have been a doctor
available had things been different in Mississippi.
Ms. Dyess. Say that last part again.
Senator Specter. Doctors might not have moved away, a
neurosurgeon might have been available at the hospital where
your husband was taken. That is the contention here, that if
the system had been structured differently, doctors would not
have moved away, as Dr. Holmes moved from Scranton to
Hagerstown. He did not move too far from Pennsylvania. He can
come back. He is pretty close to the border.
Ms. Dyess. Well, what we have to do is to work together. In
your case, if something happened to you, I would want a doctor
to be there. If Ms. McDougal needs further care for her
injuries, I want there to be a doctor there. I want there to be
medical assistance there for all of us, whatever it takes.
Instead of taking care of a few, let us do what we can to take
care of everybody.
Senator Specter. Well, that is certainly the goal. I agree
with you on that, Ms. Dyess.
Dr. Berwick, you talked about a fair and reasonable
compensation system, as you have testified. Do you have any
suggestion as to what that would be?
Dr. Berwick. I know its properties. At the moment, most
injured patients never get compensated at all, and quite a
proportion of the patients that do get compensated were not
injured by negligence in a technical way, we have a
maldistribution problem, not to mention the transactional costs
of the system which bleed a tremendous amount of the money that
changes hands away from the hands of the people like Mrs.
McDougal who ought to get the money.
Fair and reasonable to me means that most of the money that
changes hands goes to injured parties and that it is reliable,
that a patient who is injured in the United States knows that
they will be compensated. That is what fair would mean. Today,
by that standard it is quite unfair.
Senator Specter. Dr. Berwick, this subcommittee has taken
the lead, as you probably know, on increasing NIH funding from
$12 billion to $27 billion, and when you talk about research,
could we task NIH to do something here?
Dr. Berwick. Absolutely, yes.
Senator Specter. I would be interested in your suggestions,
if you would provide them in writing. In the Institute of
Medicine you are right in the heart of that approach. If you
would give us an idea, we intend to press for additional funds.
Dr. Berwick. Mr. Chairman, may I make a comment in addition
to the written answer to your question? The investment in
research we are making in biotechnology, knowing what drug to
give or what operation to do, is extraordinary. It is world-
leading. We are way underinvested in understanding how to
design systems to provide excellent system research that would
make no more cases like Mrs. McDougal's occur. It is a
scientific challenge with which we are not grappling. How can
you make the pathology sequence 100 percent reliable? What is
the design of that system? We know some of its properties, but
we have not designed that system as a country.
Senator Specter. Well, if you give us some ideas on systems
research, I would be really interested to know.
Dr. Berwick. Thank you for the invitation.
Senator Specter. Because we have some sway, with all the
money we are putting up there, if we have some good ideas.
Ms. McDougal, what is your thinking on all of these
efforts? In light of what you hear with Ms. Dyess, Dr. Holmes
moved away, all of the difficulties, do you think that if we
excluded these egregious cases or catastrophic cases, death,
double mastectomy, or serious impairment of bodily function,
that there ought to be caps on other matters?
I am asking you for your feel of it, although this is not
your area of expertise, obviously, but you have been very close
to the system, and I would be interested in your thinking.
Ms. McDougal. I believe in the Constitution and my right to
trial with a jury by my peers. I believe they need to hear the
individual facts of a case and make a decision. We trust them
to make decisions about death sentences or murder convictions,
but yet we do not trust them to determine what a specific case
is worth.
I know there are great costs associated with taking a case
like mine, and I would have no recourse without an attorney. I
do not think there is accountability for doctors. There are
several components to it, but I do not believe to assign a
cap--basically it takes away my rights that are awarded by the
Constitution, that has been in effect over 215 years.
Senator Specter. Well, thank you very much, ladies and
gentlemen. We are wrestling with the problem with lots of
hearings, lots of studies. A lot of Senators are working on it.
This is one of the most intensely studied questions that we
have in Washington today, and I think the testimony which has
been given here is very, very helpful, so thank you.
PREPARED STATEMENTS RECEIVED
We have received prepared statements from Senator Thad
Cochran, the American Bar Association, the Alliance of
Specialty Medicine, and the American College of Legal Medicine
that will be placed in the hearing record.
[The statements follow:]
Prepared Statement of Senator Thad Cochran
Mr. Chairman, thank you for holding this hearing on an issue that
has seriously affected my state of Mississippi. Deputy Secretary Allen,
thank you for joining us today to discuss this important issue. I also
appreciated your visit to Mississippi last fall. I know you saw first
hand some of the health care challenges we are facing. Your testimony
today on behalf of the Department of Health and Human Services and the
millions of Medicare and Medicaid beneficiaries you serve will be
important for us to hear.
The issues of medical liability, affordability and access to health
care, and insurance coverage are serious challenges in my state and
across the country. We have had numerous examples in Mississippi of
physicians who have retired, left the state, or simply could not
practice for some period of time due to an inability to attain
liability insurance.
Just last month, in my state over 530 physicians and 53 hospitals
lost their malpractice coverage, and many could not find any
replacement coverage. In Oxford, no internal medicine physician could
find replacement coverage for weeks. They are now practicing again, but
only with temporary coverage.
Another situation that I know the Deputy Secretary is familiar with
is in Natchez, where a group of physicians have moved across the river
to Louisiana. On the Mississippi Gulf Coast, a group of physicians
walked out because of the increases in their liability premiums. My
state faces some of the most dramatic health challenges in our nation
and cannot afford a decrease in access to physicians and hospitals.
We realize the risk faced by insurers is spread across all states,
and it affects physicians everywhere. If one state is in crisis, it has
the potential to negatively affect many others. It is for these reasons
that this issue has received national attention and requires serious
consideration by the Congress.
______
Letter From the American Bar Association
Washington, DC, March 14, 2003.
Re March 13, 2003, hearing on Medical Liability Insurance
Hon. Arlen Specter,
Chairman, Subcommittee on Labor, Health and Human Services, and
Education, Committee on Appropriations, U.S. Senate,
Washington, DC.
Dear Senator Specter: On behalf of the American Bar Association
(``ABA''), I would like to thank you for the opportunity to submit the
ABA's views regarding medical professional liability, and we request
that this letter be included in the record of the Subcommittee's March
13, 2003, hearing entitled, ``Causes of the Medical Liability Insurance
Crisis.''
Insurance premiums in a number of areas are up significantly. A
threshold question is ``why?'' The U.S. insurance market is intensely
competitive, which has caused both dramatic increases and dramatic
decreases in insurance rates over time. For example, competition caused
insurance rates to be comparatively lower in the United States from
1979 through 1983 than in other countries. When increases occurred in
the United States between 1984 and 1986, they appeared more dramatic
because they occurred against the background of the prior artificially
low rates.\1\ That same cycle seems to be operating today.\2\ The
General Accounting Office is currently examining the reasons for--and
the role insurance companies have played in--rate increases.
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\1\ See Werner Pfennigstorf & Donald G. Gifford, A Comparative
Study of Liability Law and Compensation Schemes in Ten Countries and
the United States, 159 (Donald G. Gifford & William M. Richman, eds.,
commissioned by the Insurance Research Council) (1991).
\2\ See Edward Wasserman, ``Blaming the Victim: Why are Liability
Insurance Rates Soaring Again?'', Miami Herald, December 30, 2002;
Zimmerman, Rachel and Oster, Christopher, ``Insurers'' Price Wars
Contributed to Doctors Facing Soaring Costs,'' Wall Street Journal,
June 24, 2002.
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For over 200 years, the authority to promulgate medical liability
laws has rested with the states. This system, which allows each state
autonomy to regulate the resolution of medical liability actions within
its borders, is a hallmark of our American justice system. Because of
the role they have played, the states are the repositories of
experience and expertise in these matters. Legislation such as S. 607
would pre-empt portions of the state medical and product liability
laws, and, therefore, the ABA opposes enactment of S. 607.
In addition to the policy reasons why this long- and effectively-
functioning liability system should not be altered by the U.S.
Congress, it should be noted that the constitutionality of the
amendment will surely be challenged based on constitutional separation-
of-powers grounds. The Supreme Court, in the recent decisions of Pegram
et al v. Herdrich, 120 S.Ct. 2143 (2000), and Rush Prudential HMO, Inc.
v. Moran, 122 S.Ct. 2151 (2002), continued to recognize that it is
appropriate for the states to handle health accountability matters
because health care is an area traditionally left to the states to
regulate.
Currently, states have the opportunity to enact and amend their
tort laws, and the system functions well. Congress should not
substitute its judgement for the systems which have thoughtfully
evolved in each state over time. To do so would limit the ability of a
patient who has been injured by medical malpractice to receive the
compensation he or she deserves. This is especially problematic since
such a patient already is in a very difficult position.
When a car is hit by another car that has run a red light, it is
relatively easy to know what caused the accident. But when, by way of
example, a surgery patient wakes up to an unexpected bad outcome, he or
she cannot possibly comprehend the cause. Those in the position to know
what caused the bad outcome are the medical professionals. Because
patients lack the necessary information, they often must file a claim
to determine what happened. If it is without merit, it is in the
patient's own interest to drop the claim, and thus many claims are
dropped once the patient finds out the facts. And contrary to what some
believe, juries do not favor plaintiffs over doctors in medical
malpractice cases. Duke University School of Law Professor Neil
Vidmar's extensive study of juries found that:
``[o]n balance, there is no empirical support for the propositions that
juries are biased against doctors or that they are prone to ignore
legal and medical standards in order to decide in favor of plaintiffs
with severe injuries. This evidence in fact indicates that there is
reasonable concordance between jury verdicts and doctors' ratings of
negligence. On balance, juries may have a slight bias in favor of
doctors.''
See Medical Malpractice and the American Jury: Confronting the
Myths about Jury Incompetence, Deep Pockets, and Outrageous Damage
Awards, University of Michigan Press at page 182 (1995).
In addition, he concludes at page 259 of his book that research
``does not support the widely made claims that jury damage awards are
based on the depth of the defendants' pockets, sympathies for
plaintiffs, caprice, or excessive generosity.'' A survey of studies in
the area by University of Missouri-Columbia Law Professor, Philip
Peters, Jr. published in March 2002 likewise found that:
``[t]here is simply no evidence that juries are prejudiced against
physician defendants or that their verdicts are distorted by their
sympathy for injured plaintiffs. Instead, the existing evidence
strongly indicates that jurors begin their task harboring sympathy for
the defendant physician and skepticism about the plaintiff.''
See Philip G. Peters, Jr., The Role of the Jury in Modern
Malpractice Law, 87 Iowa L. Rev. 934 (2002).
The ABA also opposes caps on pain and suffering awards. Those
affected by caps on damages are the patients who have been most
severely injured by the negligence of others. No one has stated that
their pain and suffering injuries are not real or severe. These
patients should not be told that, due to an arbitrary limit, they will
be deprived of the compensation they need to carry on.
Thank you for the opportunity to present our views on this issue.
Sincerely,
Robert D. Evans.
______
Prepared Statement of the Alliance of Specialty Medicine
causes of the medical liability insurance crisis
Chairman Specter, and Members of the Subcommittee, the Alliance of
Specialty Medicine, a coalition of 13 medical organizations
representing over 160,000 specialty care physicians in the United
States, thanks you for holding this hearing and appreciates the
opportunity to comment on the causes of the medical liability insurance
system and the impact that our current medical litigation system is
having on patient access to medical care, which necessitates the
immediate need to enact federal medical liability reform legislation.
While our nation is facing myriad problems with various other elements
of our health care system, none is as pressing and immediate as the
current medical liability crisis.
And it is a crisis. The media now report on a daily basis that the
situation has become so critical that many physicians are forced to
limit services, move to other states where the medical liability system
is more stable, or retire altogether. Much of the ``face'' of this
crisis has centered around the great difficulties that pregnant women
are having in finding obstetricians to deliver their babies, but the
simple truth is that this is a problem that potentially affects all of
our citizens: the mother whose little boy has fallen off of the jungle
gym and needs an orthopaedic surgeon to fix his broken arm; the
teenager who has been in a serious car accident and needs a
neurosurgeon to treat his severe head injury; the woman who needs a
pathologist to evaluate her Pap smear to screen for cervical cancer;
the elderly man who has a poor heart and needs a cardiologist or
cardio-thoracic surgeon to unblock a clogged artery or replace a
failing valve; the woman who has a family history of breast cancer and
needs a radiologist to perform a mammography to make sure she is cancer
free; the business man who needs a gastroenterologist to treat his
ulcer; the man who needs a urologist to screen for prostate cancer; and
the list goes on and on.
cause of the crisis: the current medical litigation system is out of
control
The root cause of this problem is quite simple: the unrestrained
escalation of jury awards and settlements, in even a small number of
medical liability cases, is driving up doctors' liability insurance
premiums and is forcing some insurance companies out of business
altogether. This problem is making it difficult, and sometimes
impossible, for doctors to obtain affordable liability insurance so
they can remain in practice. Adding to this is the fact that doctors
distrust and fear the medical litigation system, causing them to alter
the way they deliver medical care to their patients, and in some cases
this fear is causing doctors to cease practicing altogether. There is a
wide body of evidence to substantiate these conclusions:
Medical Liability Awards are On the Rise
Medical liability awards have been growing steadily, and according
to Jury Verdict Research data, from 1994 to 2000 the median jury award
rose by 176 percent. The number of mega-verdicts is also on the rise,
with the proportion of million dollar plus awards increasing
dramatically over this same time period. In 1996, 34 percent of all
jury awards exceeded $1 million. Four years later, the number of
million dollar awards increased to 52 percent, and the average jury
award in 2000 was nearly $3.5 million.
Medical Liability Insurance Premiums are Skyrocketing
It is clear that the increasing number of multi-million dollar jury
awards is driving up the costs of medical liability insurance and
insurance companies are now paying out approximately $1.40 for every
premium dollar collected. Obviously, this is not sustainable, and this
trend is therefore forcing insurance companies, which must set their
rates based on anticipated future losses, to steeply increase doctors'
medical liability premiums to ensure adequate reserves to pay future
judgments. As a result, over the past several years, physicians across
the country have faced double, and sometimes triple, digit rate
increases. Alliance members, including high-risk specialists like
neurosurgeons, orthopaedic surgeons and emergency physicians, have been
disproportionately affected by these premium increases. For example:
--According to a national survey of neurosurgeons, between 2000 and
2002 the national average premium increase was 63 percent, from
$44,493 to $72,682. In some states, neurosurgeons are now
paying medical liability insurance premiums in excess of
$300,000 per year.
--Utah orthopaedic surgeons have seen medical liability rate
increases of 60 percent since last year and in Texas they are
rising by more than 50 percent. In Pennsylvania, a survey
conducted in June 2002 revealed rate increases as high as 59
percent. In other areas of the country, orthopaedic surgeons
are finding that their premiums have risen by over 100 percent,
even if they have never had a claim filed against them.
--Over the past several years, over 95 percent of emergency medicine
physicians have experienced medical liability premium
increases, with approximately 69 percent facing increases
between 60 to 500 percent. This is attributed to the fact that
emergency medicine physicians are almost always named in any
litigation that arises from a patient encounter that begins in
the emergency department. Since most hospital admissions now
come through the emergency department, these doctors are
experiencing steep premium rises even though the lawsuits
against them may have no merit and result in either dismissal
or a defendant's verdict.
--Even those specialists who are not in high-risk categories are
affected by this upward trend in premium costs. For example, 80
percent of recently surveyed dermatologists reported that their
premiums increased last year and those dermatologists who were
insured by a state plan were paying nearly double what their
colleagues were paying in the private market.
Medical Liability Insurance is Unavailable
Not only are medical liability insurance premiums rising at
astronomical rates, but many doctors are also finding it increasingly
difficult to obtain medical liability insurance at any price. Citing
the increases in liability losses, several companies, including, St.
Paul, MIXX, PHICO, Frontier Insurance Group and Doctors Insurance
Reciprocal, have recently stopped selling medical liability insurance
or have gone out of business, leaving thousands of doctors scrambling
to find replacement coverage. Of the companies that have remained in
the market, many are no longer renewing insurance coverage for existing
policyholders and/or they are not issuing new insurance policies to new
customers. This is particularly true in states that have no effective
medical liability reform laws in place, where, for instance, in
Mississippi fifteen insurers have left the market in the past five
years. Alliance members have witnessed the impact of this problem first
hand. For example:
--In 2002, nearly 40 percent of orthopaedic surgeons in Pennsylvania
were not able to renew their medical liability coverage with
the same carrier and 31 percent did not find new coverage.
Close to 50 percent of Pennsylvania orthopaedic surgeons have
reported that their liability policies will not be renewed for
2003.
--In 2002, 15 percent of dermatologists experienced difficulties
securing their liability insurance. In some cases,
dermatologists in solo practice who have never even been sued
were forced to turn to the state for coverage because the
remaining insurers in their area made a blanket decision to no
longer insure solo practice physicians, regardless of
specialty.
--Today in Mississippi, the only way a neurosurgeon can even be
considered for coverage is if he or she joins an existing group
that already is covered by the state medical society's
insurance company. The other two companies providing insurance
coverage in Mississippi will not issue new policies for
neurosurgeons at all. In addition, neurosurgeons in Florida
have been unable to obtain medical liability insurance at any
cost, forcing them to ``go bare'' or self-insure.
--Recently one internationally-recognized pathologist, who has never
had a claim filed against him, was turned down by three
insurers and a fourth offered him a policy that was simply too
expensive.
--Three of four insurance carriers with the largest market share in
Missouri have stopped writing policies in that state. This
means that physicians can often obtain a quote from only one
company. For example, one group of 12 cardiologists could get
only one quote with an 80 percent increase for 2003.
Medical Litigation System Breeds Fear in Doctors
Given the litigious nature of our society, every physician faces
the reality that he or she may at some time be named in a medical
liability lawsuit, whether meritorious or not, and the current medical
litigation system breeds fear in all doctors. This fear of litigation,
particularly among high-risk specialists, is a contributing factor in
doctors' decisions to change the way in which they are practicing
medicine. Data from a 2002 Harris Interactive study conducted for the
Common Good, a bipartisan legal reform organization, validates this
point. According to the data, nearly all physicians feel that
unnecessary care is provided because of fear about litigation. To
protect themselves in the event that they might be sued:
--91 percent of doctors are ordering more tests than are medically
needed;
--85 percent of doctors refer patients to specialists more often than
is necessary; and
--73 percent of doctors suggest that patients have invasive
procedures to confirm medical diagnoses
The report aptly concludes: ``From the increased ordering of tests,
medications, referrals, and procedures to increased paperwork and
reluctance to offer off-duty medical assistance, the impact of the fear
of litigation is far-reaching and profound.''
result of the crisis: patient access to medical care is in jeopardy
There are many casualties of the current medical liability crisis--
but those affected the most are patients. Because the medical
litigation system is broken, across the nation patients are finding it
harder and harder to get access to the care they need, when they need
it. As medical liability insurance becomes unaffordable or unavailable,
more and more doctors, especially specialists, are no longer performing
high-risk procedures, or they are being forced to move their practices
to states with stable medical liability systems, or they are simply
retiring from medical practice--all of which seriously impede patient
access to care. Once gone, these doctors are hard to replace, and those
states currently facing a medical liability crisis are having a
difficult time recruiting new physicians to their communities adding to
the shortage of doctors in many parts of the country. The combination
of these factors is also now severely straining our nation's already
stressed emergency medical system, as patients who have no access to
doctors inevitably end up on the emergency department's doorsteps,
further exacerbating the hospital emergency department overcrowding
problem. A growing list of examples demonstrates just how serious this
crisis is becoming:
Doctors are No Longer Performing Complex and High-Risk Medical
Procedures
According to a nationwide survey conducted last year, 43 percent of
neurosurgeons reported that they are no longer performing high-risk
surgery such as treating brain aneurysms, removing brain and spinal
tumors, or complex spinal surgery. In addition, many neurosurgeons are
no longer serving on-call to hospital emergency departments or
operating on children.
A recent survey found that 55 percent of orthopaedic surgeons
nationwide have reduced the type of operational procedures they
perform, with 39 percent avoiding performing spine surgery and 48
percent altering their practice in other ways, including eliminating
emergency room call or trauma call.
The elderly are particularly affected, as decreases in
reimbursements for complex medical procedures have declined to the
point where Medicare no longer even covers the cost of medical
liability insurance. Specialists with a high volume of Medicare
patients, such as cardiologists and cardio-thoracic surgeons, and their
patients who need high-tech, lifesaving heart therapy, will feel the
effects the most.
Doctors, Trauma Centers and Other Medical Providers are Closing their
Doors
In the case of neurosurgery, in 2001 alone, 327 board certified
neurosurgeons retired, representing an alarming 10 percent of the
neurosurgical workforce in the United States. Recently, the only
neurosurgeon practicing at Cottonwood Hospital in Salt Lake City, Utah
quit practicing following a steep insurance premium increase.
Recent press accounts are replete with stories about the closure of
trauma centers in Pennsylvania, West Virginia, Nevada, Mississippi,
Missouri and Florida because of a shortage of orthopaedic surgeons,
neurosurgeons and other specialists available to provide emergency
medical care. Chicago's trauma centers are also now vulnerable to
closing or downgrading their status.
--In the last 18 months, nearly 700 mammography facilities have
closed nationwide. The continued and steady closing of
mammography facilities throughout the country has led to
increased waiting times for women seeking both screening
mammograms and diagnostic mammograms. The longer waiting times
are now on the brink of affecting clinical outcomes for those
women who must wait for a possible diagnosis of breast cancer.
Doctors are Moving to States with a More Favorable Medical Liability
Climate
Every state that is experiencing a medical liability crisis reports
that doctors are leaving in droves in search of another location in
which to practice where the medical litigation climate is more
favorable. The list of states experiencing the exodus of doctors
continues to grow, and as with other elements of this crisis,
specialists are most likely to ``hit the road'' in search of a safe
haven state. For instance:
--Pennsylvania has been especially hard hit, and some counties no
longer have any practicing orthopaedic surgeons. For example,
Bedford County's only orthopaedic surgeon left the state in
October 2001, and Pike and Monroe Counties are down from nine
to five orthopaedic surgeons. Huntingdon County has just one
orthopaedic surgeon remaining to take trauma call at two
hospitals. The situation is the same in West Virginia, and a
number of orthopaedic surgeons either have left the state or
are scaling back their practices. At the end of 2002, five
orthopaedic surgeons in Parkersburg moved their practice to
Ohio.
--Neurosurgery's survey data show that nearly 19 percent of
practicing neurosurgeons either plan to, or are considering,
moving their practice to another state where the medical
liability costs are relatively stable. Mississippi, for
instance, has lost 35 percent of its neurosurgeons in the past
two years, and the flight of neurosurgeons from Pennsylvania
and West Virginia mirrors the Mississippi experience.
The State of America's Health Now and in the Future is at Risk
The combination of all the above factors is clearly placing the
health of our nation's citizens at considerable risk. Because of the
medical liability crisis, more and more people are finding it difficult
to get the specialized medical attention they need, when they need it.
This is causing a national health care emergency. Thus:
--When patients can't find a specialist close to home, they must
sometimes travel great distances, often going out of state, to
get their medical care.
--When fewer specialists are available, hospital emergency
departments and trauma centers must shut their doors, and
patients with emergency medical conditions lose critical life-
saving time searching for an available emergency room.
--When specialists stop performing high-risk medical services,
patients are often referred to academic medical centers, and
these medical facilities are already overburdened and are ill
equipped to handle the increase in patient volume.
--When specialists retire at an early age, the looming shortage of
doctors is accelerated, which, if left unchecked will place
additional burdens on the health care system as the population
ages and requires more medical care from an increasingly
shrinking pool of practicing doctors.
--When the practice of medicine becomes so uninviting, fewer and
fewer of our nation's best and brightest will want to become
doctors, thus jeopardizing our country's status as one of the
finest health care systems in the world.
scope of the crisis: a national problem that requires a federal
solution
Those who oppose federal legislation to address this crisis cite
various reasons to support their contention that this is not a national
problem that merits a federal solution. In particular, they note that
the regulation of insurance and health care are generally state issues,
and therefore principles of Federalism preclude federal legislation to
address this problem. They are, however, wrong. The undisputed truth is
that this problem now touches nearly every American and a federal
solution is therefore a national imperative. As the following
demonstrate:
Nearly All States are Facing a Medical Liability Crisis
The AMA has identified 12 states that are in a medical liability
crisis for all physicians. These include: Florida, Georgia,
Mississippi, Nevada, New Jersey, New York, Ohio, Oregon, Pennsylvania,
Texas, Washington and West Virginia. However, for many high-risk
specialties, like neurosurgery and orthopaedic surgery, the situation
is even more widespread than the AMA reports. A 2002 national survey of
neurosurgeons identified 25 states that are in a severe medical
liability crisis, with an additional 12 states in potential crisis. In
addition to those identified by the AMA, the crisis states for
neurosurgery include: Alabama, Arkansas, District of Columbia,
Illinois, Kentucky, Missouri, New Hampshire, North Carolina, South
Carolina, Rhode Island, Tennessee, Utah and Virginia.
Every American Pays for the Costs of the Current Medical Litigation
System
According to the U.S. Department of Health and Human Services
(HHS), in its report entitled, ``Confronting the New Health Care
Crisis: Improving Health Care Quality and Lowering Costs by Fixing our
Medical Liability System,'' the current medical litigation system
imposes enormous direct and indirect costs on the health care system.
These costs are passed on to all Americans in the form of increased
health insurance premiums, higher out-of-pocket medical expenses and
higher taxes. The report estimates that enacting federal medical
liability legislation could save between $60-108 billion in health care
costs each year. These savings would in turn lower the cost of health
insurance and make health care more affordable and available to many
more Americans.
Federal Medical Liability Reform Will Save the Federal Government Money
Each year, the Federal Government pays for the increased costs
associated with the current medical litigation system through various
health care programs, including Medicare, Medicaid, Community Health
Centers and other health care programs for veterans and members of the
armed forces. The Department of Health and Human Services estimates
that the direct cost of medical liability insurance coverage and the
indirect cost of defensive medicine, increases the Federal Government's
costs of these health programs by $28.6 to $47.5 billion each year. In
the above referenced report, HHS estimates that if reasonable limits
were placed on non-economic damages, it would reduce Federal Government
spending by $25.3 to $44.3 billion per year. The Congressional Budget
Office (CBO), in its cost estimate of H.R. 4600, the HEALTH Act of
2002, confirms that passage of federal medical liability reform
legislation that includes a cap on non-economic damages will increase
federal tax revenues, and at the same time reduce the costs of federal
health care programs.
States Face Significant Barriers to Implementing Medical Liability
Reforms
Many states face barriers--some legal and some political--to
enacting effective medical liability reform laws. Some states,
including Texas, Florida, Ohio and Pennsylvania, have enacted medical
liability reform laws, only to have their state Supreme Courts strike
them down as unconstitutional. New laws passed by Mississippi and
Nevada face certain court challenge, and it will be years before it is
determined whether these laws pass state constitutional muster.
Finally, in some other states, the issue has become a political one,
effectively killing any chances for passage. As a consequence, despite
the increasing medical liability crisis in many of these states, they
are effectively powerless to act to effectively solve the problem.
solution to the crisis: medical liability reform legislation patterned
after california's micra
Fortunately, Congress does not need to start from scratch and
identify and implement a solution that is untested. Faced with a
similar crisis in the early 1970's, the state of California, with
bipartisan support, enacted the Medical Injury Compensation Reform Act
or MICRA. The key elements of MICRA include:
--Providing full compensation for all economic damages, including
medical bills, lost wages, future earnings, custodial care and
rehabilitation;
--Placing a fair and reasonable limit of $250,000 on non-economic
damages, such as pain and suffering;
--Establishing a reasonable statute of limitations for filing a
lawsuit;
--Allowing for periodic payments of damages rather than lump sum
awards; and
--Ensuring that the bulk of any award goes to the plaintiffs, not
attorneys
The clear and simple truth is that MICRA works. For nearly three
decades, this law has ensured that legitimately injured patients get
unfettered access to the courts and receive full compensation for their
injuries, while at the same time providing stability to the medical
liability insurance market to ensure that doctors can remain available
to care for their patients.
Consider the following points about the effectiveness of MICRA:
MICRA Fully Compensates Injured Patients
First and foremost, under MICRA, patients receive full compensation
for legitimate injuries resulting from medical negligence. Detractors
of federal reform legislation are attempting to obfuscate the facts by
scaring the public and policymakers into believing that injured
patients will only receive a maximum of $250,000 to compensate them for
their injuries. This is simply not the case. Patients receive full
compensation for all of their quantifiable needs, with up to an
additional $250,000 for non-economic damages, such as pain and
suffering. To demonstrate this fact, the Californians Allied for
Patient Protection recently compiled a sample of total awards
(including both economic and non-economic damages) provided to injured
patients. For example:
--December 2002.--$84,250,000 total award Alameda County 5 year-old
boy with cerebral palsy and quadriplegia because of delayed
treatment of jaundice after birth.
--July 2002.--$12,558,852 total award Los Angeles County 30 year-old
homemaker with brain damage because of lack of oxygen during
recovery from surgery.
--October 2002.--$59,317,500 total award Contra Costa County 3 year-
old girl with cerebral palsy as a result of birth injury.
--November 2000.--$27,573,922 total award San Bernardino County 25
year-old woman with quadriplegia because of failure to diagnose
a spinal injury.
MICRA Significantly Minimizes Premium Increases
Opponents of reform cite statistics that over the past several
years, premiums for doctors in California have also been rising; thus
proving that MICRA does not have any impact in holding down the costs
of medical liability insurance. While it is true that premiums are on
the rise in nearly all states, including California, the rate of
increase of premiums for California doctors is significantly lower than
in other states, and over time, MICRA has, in fact, stabilized medical
liability insurance premiums as compared to the rate of increase in the
rest of the country. As the following chart demonstrates, from 1976 to
2000, premiums for physicians in California have risen only 167 percent
as compared to an increase of 505 percent for the entire United States.
Data collected from high-risk medical specialties from 2000 to 2002
also validate these trends. For example, according to a nationwide
survey of neurosurgeons, the national average premium increase for
California neurosurgeons was 39 percent as compared to 63 percent for
neurosurgeons in the entire country. In addition, the same survey
clearly demonstrated that the rate of increase for an individual
neurosurgeon in Los Angeles, California, as compared to other
neurosurgeons who practice medicine in crisis states where there are no
reforms in place, is significantly lower. The average rate of increase
for the neurosurgeons in these non-reform states was 143 percent as
compared to just 8 percent in Los Angeles, CA.
----------------------------------------------------------------------------------------------------------------
Percentage
State/City 2000 2002 Increase
----------------------------------------------------------------------------------------------------------------
Los Angeles, CA................................................. $48,000 $52,000 8
West Palm, FL................................................... 58,000 210,000 262
Cleveland, OH................................................... 75,675 167,941 122
Oaklawn, IL..................................................... 110,000 282,720 157
Philadelphia, PA................................................ 90,000 190,000 111
New York, NY.................................................... 154,890 251,126 62
----------------------------------------------------------------------------------------------------------------
Source.--American Association of Neurological Surgeons/Congress of Neurological Surgeons Nationwide Survey
April 2002.
The Alliance does acknowledge that despite the successful reforms
contained in MICRA, the average medical liability claim in California
has outpaced the rate of inflation. This is in large part due to the
fact that economic damages are not limited under MICRA and have grown
as a component of medical liability claims. Notwithstanding this,
however, the undisputed fact remains that MICRA prevents runaway juries
from awarding outrageous awards for subjective, arbitrary and often
unquantifiable non-economic damages, which allows insurance companies
to adequately predict future lawsuit awards, bring stability the health
care delivery system.
Federal Government Validates that MICRA Works
U.S. Government experts agree that MICRA does in fact hold down the
costs of medical liability insurance, and over the years there have
been a number of studies that have identified MICRA's $250,000 cap on
non-economic damages as a critical element in stabilizing premium
costs. For example, dating back to September 1993, the former U.S.
Office of Technology Assessment (OTA), in a report entitled, ``Impact
of Legal Reforms on Medical Malpractice Costs,'' concluded that caps on
damages were consistently found to be an effective mechanism for
lowering medical liability insurance premiums. Most recently, the
previously referenced HHS report, ``Confronting the New Health Care
Crisis''and the CBO cost estimate report of the HEALTH Act, came to the
same conclusion.
justification for federal reform legislation: americans overwhelmingly
support a micra-style solution
Americans are becoming acutely aware of the impact that this crisis
is having on our nation's health care system, and overwhelmingly favor
having Congress pass legislation to reform the current medical
liability system and create one that balances the rights of patients to
seek and obtain appropriate compensation for injuries caused by medical
negligence against the right of all our citizens to have continued
access to medical care. Two recent polls clearly demonstrate this
support. In January 2003, Gallup conducted a poll on this issue and
found the following:
--Americans believe that the medical liability insurance issue is
either a major problem (56 percent) or a health care crisis (18
percent);
--72 percent favor passing a law that would limit the amount that
patients can be awarded for their emotional pain and suffering;
and
--57 percent responded that they think patients bring too many
lawsuits against doctors
These findings were confirmed most recently by a February 2003
study conducted by Wirthlin Worldwide for the Health Coalition on
Liability and Access, which found that:
--84 percent of Americans are concerned that skyrocketing medical
liability costs could limit their access to care;
--76 percent favor a federal law that guarantees injured patients
full payment for lost wages and medical costs and reasonable
limits on awards for ``pain and suffering'' in medical
liability cases; and
--61 percent believe the number of medical liability lawsuits against
doctors is higher than justified.
conclusion
We have reached a very important juncture in the evolution of the
U.S. health care system. At a time when lifesaving scientific advances
are being made in nearly every area of health care, patients across the
country are facing a situation in which access to health care is in
serious jeopardy. Thus, as the Congress deliberates the many facets of
this issue, the Alliance urges you to continue to keep in mind that
this issue is not about doctors, lawyers and insurance companies.
Rather, it is about patients and their ability to continue to receive
timely and consistent access to quality medical care. By reforming the
medical litigation system, the crisis will ultimately be abated.
Patients are calling for reform. Doctors are calling for reform.
President Bush is calling for reform. The House of Representatives is
calling for reform. And the Alliance now urges the Senate to heed these
calls and, at a minimum, pass MICRA-style medical liability reform
legislation so all Americans are able to find a doctor when they most
need one. Ultimately, when the question ``Will your doctor be there?''
is asked, the answer must be an unqualified yes.
Thank you for considering our comments and recommendations. The
Alliance of Specialty Medicine, whose mission is to improve access to
quality medical care for all Americans through the unified voice of
specialty physicians promoting sound federal policy, stands ready to
assist you on this and other important health care policy issues facing
our nation.
______
Letter From the American College of Legal Medicine
Kamensky & Rubinstein,
7250 N. Cicero Ave., Suite 200,
Lincolnwood, IL, March 17, 2003.
Re Solutions to Medical Liability/Insurance ``Crisis''
Hon. Arlen Specter,
Chairman, Subcommittee on Labor, Health and Human Services, and
Education, Committee on Appropriations, U.S. Senate,
Washington, DC.
Dear Senator Specter: On behalf of the American College of Legal
Medicine (``ACLM''), I would like to thank you for the opportunity to
submit the ACLM's views regarding medical professional liability, and
we request that this letter be included in the record of the
Subcommittee's March 13, 2003 hearing entitled, ``Causes of the Medical
Liability Insurance Crisis.''
Much occurred late last week regarding medical liability, for
example, passage by the House of H.R. 5 on March 13, 2003, hearings
conducted by the Senate Appropriations Labor Subcommittee on Health,
chaired by you on March 13, 2003, (looking into a compromise proposal
on medical liability), and introduction, also on March 13, 2003, of S.
607 by Senator Ensign and others of the Help Efficient, Accessible,
Low-Cost, Timely Healthcare Act of 2003, or the HEALTH Act of 2003. The
ACLM wishes to add to these developments and, thus, would like to add
to the discussions put forth during your committee hearings (see
below).
First, the ACLM is in its 43rd year and is unique among medical
legal and health care organizations in our country. The majority of its
membership (1,200) is composed of individuals who possess both the
medical and law degrees. Our membership also consists of physicians,
attorneys, healthcare practitioners, those in government and those in
academia. Our mission is to educate and train through our meetings,
publications and advocacy, such as we are doing here, on issues
affecting the country which are at the crossroads of medicine, law and
health care.
We understand that items put forth for consideration in the
subcommittee hearings on March 13 included the following topics:
``Affidavits of meritoriousness and attorney sanctions for filing
frivolous lawsuits; caps on non-economic damages with exceptions for
serious cases; legislation to curb medical errors, and legislation to
address instability within the insurance industry, including, perhaps,
revisiting the McCarran Ferguson Act exemption.''
Let us respond.
Affidavits of meritoriousness or attorney sanctions for frivolously
filed suits are already part of states' laws governing medical
professional liability and civil litigation. Such legislation, if
enacted on the federal level, would invade an area of states' rights
that has never been an area intended for federal intervention. A
reading of United States Supreme Court decisions, highlighted by the
Pegram and Rush Prudential cases, clearly and unmistakenly show that
health care is an area traditional left to the states to regulate.
Affidavits of meritoriousness and attorney sanctions for filing
frivolous cases surely fall within this area of state regulation.
Federal legislation to curb medical errors is fraught with
skepticism as well. We are not saying that there must not be a
continued effort to stem the tide of medical errors in our nation's
healthcare institutions, such as to prevent, for example, what occurred
with that transplant patient at the Duke Medical Center recently, but
the emphasis has to be on prevention of systems errors, not on errors
committed individually by physicians leading to malpractice lawsuits.
We question whether there can ever be any effective legislation on the
federal level to stem the tide of systems' errors. This, we feel, is
best left to states, their licensing boards and those regulatory
entities governing hospitals and healthcare providers, like the Joint
Commission on Accreditation of Healthcare Organizations (``JCAHO''), to
regulate. If anything, if the subcommittee you chair wishes to consider
and promote legislation in this area at all, perhaps it should be to
strengthen the ability of licensing organizations, like the JCAHO, to
conduct their affairs without the fear of having their work-product
discovered by attorneys who would use same in cases of professional
medical negligence. In other words, we feel that an effective peer
review statute on the federal level to protect from discoverability
records of entities that can ensure better quality of care and, thus,
reduce system errors in our country's healthcare institutions would be
in order.
Further, there is, and well there should be, concern regarding the
insurance industry. Surely, it serves a purpose in our country; we all
need insurance and we are all insured for losses, be they from
automobile collisions, for miscues as directors and officers sitting on
corporate boards, or, as is quite prominent now, for professionals,
like doctors, rendering professional services. But the insurance
industry should not make up for losses incurred in financial
instruments in which it invests by gouging professionals, notably
doctors, for purposes here, in the form of skyrocketing insurance
premiums.
There is a hue and cry afoot mandating caps on damages, and that
with caps, premiums will become more reasonable. Caps on non-economic
damages do not lower malpractice premiums. They really never have. Our
research has found so-called crises, such as in which we now find
ourselves, have occurred cyclically over the last 40 years, and are
driven by the inability of insurers to perform well in the markets in
which insurance premiums are invested. Moreover, where caps have been
imposed, research and empirical data have shown that premiums have not
gone down; premiums still increase, and so have health care costs in
considerable measure. Concomitantly, you and some of your colleagues in
the Senate may be impressed by California's experience with their MICRA
law, originally enacted in 1975. What you haven't been told, we
suspect, is that also put in place legislatively by the California
assembly in the 1980s was a law to roll back insurance premiums in that
state; another state law there was enacted that provided for insurance
premium increases only with prior approval of the insurance
commissioner. And, yet, even with this legislation, malpractice
premiums and health care costs have risen quite a bit.
Further, we feel that to preclude serious injury from a cap raises
constitutional problems based in large measure on equal protection
standards. For example, is loss of sight in one eye a serious injury?
How about a permanent limp? Or what about the death of a newborn--is
that a serious enough injury to be precluded from caps? Also, we think
ill-advised any federal government attempt to immerse itself in the
business of defining what a serious injury' will be nationwide for
purposes of exempting certain injuries from a cap.
If caps on non-economic damages are not the reason for a spike now
in malpractice insurance premiums, then what is the cause? To put the
answer another way, the lower the return (due to down markets) on
investments by insurers, the higher the cost of malpractice insurance.
Ok, if this is what we opine as the cause for the malpractice crisis
today, what is the solution?
The solution is twofold. First, the exemption provided by the
McCarran-Ferguson Act for the insurance industry should be taken away.
This will allow for proper regulation of insurance rates. Second, and a
proposal we have yet to see floated legislatively, is the following. We
know physicians (nee, any one of us) do not wish to be at the receiving
end of a lawsuit. It isn't being the defendant in a lawsuit that has
prompted physicians to carry on marches or participate in work
stoppages that have given rise to public scrutiny and have been the
subject of media attention all over the country; it is physicians
inability to pass on in some fashion the cost of malpractice insurance
premiums. As we are sure of which you are well aware [certainly at
least through your son's expertise as a lawyer representing injured
persons], physicians are locked into the reimbursement rates they
receive for patient care, either from health plans under which they are
under contract in order to be provided a base of patients to care and
treat, or through government programs, such as Medicare. Why can't,
therefore, there be considered federal legislation that will provide
that physicians and health care practitioners be allowed to pass along
a certain portion of malpractice insurance rate increases (let's say,
if malpractice insurance premiums exceed a certain, defined cap over a
designated period), to the government and health care plans? In this
way, the government and the current era of health care delivery, i.e.,
managed care, will take part in ensuring that insuring entities are
brought under control and that we avoid the cyclical trends of every
decade or so we are seeing now, viz, insuring the nation's doctors and
their ability to treat and care for patients unimpaired by astronomical
malpractice premiums. Again, nonetheless, we suspect that the McCarran-
Ferguson Act and its exemption will have to be revisited to order to
consider the proposal we are putting forth here. But this proposal is a
worthy alternative to anything suggested so far. Other alternatives in
the form of tort reform have been shown to be a failure at lowering
malpractice insurance premiums.
To conclude, we feel to continue to blame states' legal justice
systems for the ills we now see today involving physicians and medical
liability is ill-founded and not based on other than emotion and a
``the sky is falling'' mentality. It has always been easy to declare
lawyers as a class of scapegoat for causing the malady seen once more,
but that is created by insuring entities not making their profit
margins in the financial markets. Now, though, is finally the time to
separate fact from fiction. S. 607 should be voted down in the Senate
by you and your colleagues.
Thank you for the opportunity to consider our views on this issue.
Sincerely,
Miles J. Zaremski,
Immediate Past President.
CONCLUSION OF HEARING
Senator Specter. Thank you all very much for being here.
That concludes our hearing.
[Whereupon, at 11:54 a.m., Thursday, March 13, the hearing
was concluded, and the subcommittee was recessed, to reconvene
subject to the call of the Chair.]