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Full text of "Health Security Act--medical malpractice provisions : hearings before the Subcommittee on Economic and Commercial Law of the Committee on the Judiciary, House of Representatives, One Hundred Third Congress, second session on H.R. 3600 to ensure individual and family security through health care coverage for all Americans in a manner that contains the rate of growth in health care costs and promotes responsible health insurance practices, to promote choice in health care, and to ensure and protect the health care of all Americans, Jun2 22, 1994"

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HEALTH SECURITY ACT-MEDICAL MALPRACTICE 

PROVISIONS 



HEARING 

BEFORE THE 

SUBCOMMITTEE ON 
ECONOMIC AND COMMERCIAL LAW 

OF THE 

COMMITTEE ON THE JUDICIAKY 
HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRD CONGRESS 

SECOND SESSION 
ON 

H.R 3600 

TO ENSURE INDIVIDUAL AND FAMILY SECURITY THROUGH 
HEALTH CARE COVERAGE FOR ALL AMERICANS IN A MANNER 
THAT CONTAINS THE RATE OF GROWTH IN HEALTH CARE COSTS 
AND PROMOTES RESPONSIBLE HEALTH INSURANCE PRACTICES, 
TO PROMOTE CHOICE IN HEALTH CARE, AND TO ENSURE AND 
PROTECT THE HEALTH CARE OF ALL AMERICANS 



JUNE 22, 1994 




Printed fcr the use of the Committee on the Judici 



se 01 the committee on the J 

HAM PDEN LA W LIBRARY 



84-714 CC 



mn rfa^M /KaMMgN TT ppiYTjK Tr- OFFICE 
WASHINGTON : 1994 




For sale by the U.S. Government Printing Office 
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402 
ISBN 0-16-046380-7 



HEALTH SECURITY ACT-MEDICAL MALPRACTICE 

PROVISIONS 



HEAKING 



BEFORE THE 



SUBCOMMITTEE ON 
ECONOMIC AND COMMERCIAL LAW 

OF THE 

COMMITTEE ON THE JUDICIARY 
HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRD CONGRESS 

SECOND SESSION 
ON 

H.R, 3600 

TO ENSURE INDIVIDUAL AND FAMILY SECURITY THROUGH 
HEALTH CARE COVERAGE FOR ALL AMERICANS EN A MANNER 
THAT CONTAINS THE RATE OF GROWTH IN HEALTH CARE COSTS 
AND PROMOTES RESPONSIBLE HEALTH INSURANCE PRACTICES, 
TO PROMOTE CHOICE IN HEALTH CARE, AND TO ENSURE AND 
PROTECT THE HEALTH CARE OF ALL AMERICANS 




84-714 CC 



Printed mr the use of the Committee on the Judicii 



WASHINGTON : 1994 



For sale by the U.S. Government Printing Office 
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402 
ISBN 0-16-046380-7 



COMMITTEE ON THE JUDICIARY 



JACK BROOKS, 

DON EDWARDS, California 
JOHN CONYERS, JR., Michigan 
ROMANO L. MAZZOLI, Kentucky 
WILLIAM J. HUGHES, New Jersey 
MIKE SYNAR, Oklahoma 
PATRICIA SCHROEDER, Colorado 
DAN GLICKMAN, Kansas 
BARNEY FRANK, Massachusetts 
CHARLES E. SCHUMER, New York 
HOWARD L. BERMAN, California 
RICK BOUCHER, Virginia 
JOHN BRYANT, Texas 
GEORGE E. SANGMEISTER, Illinois 
CRAIG A. WASHINGTON, Texas 
JACK REED, Rhode Island 
JERROLD NADLER, New York 
ROBERT C. SCOTT, Virginia 
DAVID MANN, Ohio 
MELVEN L. WATT, North Carolina 
XAVIER BECERRA, California 



Texas, Chairman 

HAMILTON FISH, JR., New York 
CARLOS J. MOORHEAD, California 
HENRY J. HYDE, Illinois 
F. JAMES SENSENBRENT^R, JR., 

Wisconsin 
BILL McCOLLUM, Florida 
GEORGE W. GEKAS, Pennsylvania 
HOWARD COBLE, North Carolina 
LAMAR S. SMITH, Texas 
STEVEN SCHIFF, New Mexico 
JIM RAMSTAD, Minnesota 
ELTON GALLEGLY, California 
CHARLES T. CANADY, Florida 
BOB INGLIS, South Carohna 
BOB GOODLATTE, Virginia 



Jonathan R. Yarowsky, General Counsel 

Robert A. LEMBO, Counsel /Administrator 

Alan F. Coffey, Jr., Minority Chief Counsel 



Subcommittee on Economic and Commercial Law 



JACK BROOKS, 

JOHN CONYERS, JR., Michigan 
MIKE SYNAR, Oklahoma 
PATRICIA SCHROEDER, Colorado 
DAN GLICKMAN, Kansas 
HOWARD L. BERMAN, California 
RICK BOUCHER, Virginia 
ROBERT C. SCOTT, Virginia 
DAVID MANN, Ohio 
MELVIN L. WATT, North Carolina 



Texas, Chairman 

HAMILTON FISH, JR., New York 
ELTON GALLEGLY, California 
CHARLES T. CANADY, Florida 
BOB INGLIS, South Carolina 
BOB GOODLATTE, Virginia 
CARLOS J. MOORHEAD, California 



Cynthia W. Meadow, Counsel 
George P. Slover, Assistant Counsel'^ 
Perry APELBAUM, Assistant Counsel f 
Carrie Bedwell Mann, Assistant Counsel 
Roger T. Fleming, Minority Counsel ; 



I 



(ID 



CONTENTS 



HEARING DATE 



Page 
June 22, 1994 1 

SELECTED TEXT OF BILL 

H.R. 3600: Title I, Subtitle D, Part 2— General responsibilities and authorities 

of regional alliances, sec. 1321 and 1322 3 

OPENING STATEMENT 

Brooks, Hon. Jack, a Representative in Congress from the State of Texas, 

and chairman. Subcommittee on Economic and Commercial Law 1 

WITNESSES 

Corboy, Philip H., chairman. Committee on Medical Professional Liability, 
American Bar Association 25 

Falcon, Antonio, M.D., Rio Grande City, TX, on behalf of the Health Care 

Liability Alliance 89 

Hannan, David T., M.D., Medical Society of the State of New York 130 

Keener, Karl A., Baker, Silberberg & Keener, Santa Monica, CA, on behalf 
of the American Board of Trial Advocates 55 

Keller, Robert B., M.D., vice chairman. Physician Payment Review Commis- 
sion 114 

Wittkin, Laura, executive director. National Center for Patients' Rights 65 

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Baker, Robert C, as submitted by Karl A. Keener, Baker, Silberberg & 
Keener, Santa Monica, CA, on behalf of the American Board of Trial Advo- 
cates: Prepared statement 57 

Corboy, Philip H., chairman, Committee on Medical Professional Liability, 

American Bar Association: Prepared statement 29 

Falcon, Antonio, M.D., Rio Grande City, TX, on behalf of the Health Care 

Liability Alliance: Prepared statement 91 

Hannan, David T., M.D., Medical Society of the State of New York: Prepared 

statement 132 

Keller, Robert B., M.D., vice chairman. Physician Payment Review Commis- 
sion: Prepared statement 116 

Wittkin, Laura, executive director. National Center for Patients' Rights: 

Prepared statement 67 

"The Influence of Standard of Care of Severity of Injury on the Resolution 
of Medical Malpractice Claims," Annals of Internal Medicine, 1 Novem- 
ber 1992 166 

"The Medical Malpractice System," Annals of Internal Medicine, Annals 

of Internal Medicine, 1 June 1993 171 

APPENDIXES 

Appendix 1. — Material submitted with the prepared statement of Antonio 

Falcon, M.D 181 

Appendix 2. — Material submitted for the hearing record 289 

American Bar Association: July 15, 1994, statement 289 



(III) 



IV 

Page 

Appendix 2. — Material submitted for the hearing record — Continued 

Gekas, Hon. George W., a Representative in Congress from the State 
of Pennsylvania: June 21, 1994, letter to Chairman Brooks and state- 
ment 292 

National Bankruptcy Conference: June 29, 1994, statement 296 

Reid, Robert A., M.D., Cooperative of American Physicians, Inc/Mutual 

Protection Trust: June 22, 1994, statement 322 

Searle, G.D., & Co. and the Pharmaceutical Research and Manufacturers 
of America: July 21, 1994, letter and statement of Beiyamin R. 

Civilette 331 

Society for Human Resource Management: June 22, 1994, statement 
of Michael R. Losey, president & CEO 360 



HEALTH SECURITY ACT— MEDICAL 
MALPRACTICE ISSUES 



WEDNESDAY, JUNE 22, 1994 

House of Representatives, 
Subcommittee on Economic and Commercial Law, 

Committee on the Judiciary, 

Washington, DC. 

The subcommittee met, pursuant to notice, at 10:07 a.m., in room 
2141, Raybum House Office Building, Hon. Jack Brooks (chairman 
of the subcommittee) presiding. 

Present: Representatives Jack Brooks, John Conyers, Jr., Mike 
Synar, Patricia Schroeder, Dan GHckman, Howard L. Berman, Rob- 
ert C. Scott, David Mann, Hamilton Fish, Jr., Elton Gallegly, 
Charles T. Canady, Bob Inglis, and Carlos J. Moorhead. 

Subcommittee staff present: Cynthia W. Meadow, counsel; Perry 
Apelbaum, assistant counsel; Catherine S. Cash, research assist- 
ant; and Deloris L. Cole, office manager; full committee staff 
present: Jonathan R. Yarowsky, general counsel; Alan F. Coffey, 
minority chief counsel; and Roger T. Fleming, minority counsel; 
also present: Bryan Frazier and Michael McGown, Interns. 

OPENING STATEMENT OF CHAIRMAN BROOKS 

Mr. Brooks. The committee will come to order. Today the sub- 
committee holds its second hearing on the Health Security Act, fo- 
cusing on medical malpractice issues. 

Since President Clinton submitted his ambitious plan for reform- 
ing one-seventh of the American economy, three committees in the 
House and two in the Senate have been absorbed in comprehen- 
sively reviewing, rethinking, rewriting it. 

As I indicated during last week's hearing, the Judiciary Commit- 
tee's jurisdiction over the bill, while not as expansive, nevertheless 
holds crucial implications for the ultimate success of any health 
care reform initiative and the future well-being of the American 
people. 

Without question, the proper functioning of the medical mal- 
practice system is one of the most important safeguards against 
substandard medical care. The ability of victims to bring lawsuits 
in cases of medical malpractice achieves two important goals: It 
permits the victim to receive just and adequate compensation for 
harm suffered, and it serves as a deterrent against future sub- 
standard conduct. 

The State-governed tort system has evolved gradually over the 
centuries. In the past, when State laws were perceived as unfairly 
favoring one side over another, the laws tended to correct them- 

(1) 



selves, either through case law development or by statutory change 
within the States. 

As a result of this dynamic in the States, we in Congress must 
be extremely careful in reviewing so-called malpractice reform pro- 
posals that would unilaterally preempt State law. 

Nevertheless, it is essential that we approach these issues with 
an open mind to empirical information from either side that pro- 
vides hard and compelling evidence about the need and effect of 
proposed legislative changes. 

But, given the breadth of change proposed by some, I think we 
need to be careful about opting for radical surgery on the basis of 
anecdotal evidence. 

The subcommittee is fortunate to have a distinguished group of 
witnesses before us today to help us consider the medical mal- 
practice issues in health care. We welcome you all. The subcommit- 
tee looks forward to your testimony. 

This morning I am asking the private sector witnesses to appear 
at the witness table as a panel to testify on the medical mal- 
practice provisions in H.R. 3600. To save time, we will ask each 
witness to summarize his statement within about 5 minutes. 

After the witnesses have completed their statements, the sub- 
committee will address questions to all of the panel. All of your 
prepared statements, every pristine word, will be made part of the 
printed record. Without objection, the hearing record will remain 
open to receive written testimony from persons who have requested 
their statements be made a part of this printed record. 

Our first witness will be Mr. Corboy and we will go into a de- 
scription of the witnesses and welcome them after we have some 
opening statements by some of the members of the subcommittee. 
Mr. Carlos Moorhead had requested that he be given the first op- 
portunity, if that is all right. Carlos Moorhead, the gentleman from 
California. 

[Selected portions of the text of the bill, H.R. 3600, follow:] 



103d congress 
1st Session 



H. R. 3600 



To ensure indiNidual and family security through health care coverage for 
all Americans in a manner that contains the rate of grouth in health 
care costs and promotes responsible health insurance practices, to pro- 
mote choice in health care, and to ensure and protect the health care 
of all Americans. 



IN THE HOUSE OP REPRESENTATIVES 

No\'EJreER20, 1993 

Mr. Gephardt (for himself, Mr. Bokior, Mr. Ho-i-ER, Mr. Fazio, Mrs. Kek- 
KELLY, Mr. Lewis of Georgia, Mr. Richardsok, Mr. Dikgell, Mr. 
ROSTEKKOWSKI, Mr. FORD of Michigan, Mr. Waxman, Mrs. COLLINS of 
Illinois, Mr. Stark, Mr. W1LLIA.MS, Mr. Clay, Mr. BROOKS, Mr. MOAK- 
LEY, Mr. ABERCROMBre, Mr. ACKERMAK, Mr. A^nDRE^vs of Maine, Mr. 
Barrett of Wsconsin, Mr. Ber.max, Mr. Bilbray, Mr. Blacio\'ell, 
Mr. Borski, Mr. Brow'N of California, Ms. Browtc of Florida, Mr. 
Cardi\, Mr. Cm-burk, Mr. Co-j-xe, Mr. DE LuGO, Ms. DeLauro, Mr. 
Deutsch, Mr. Dicks, Mr. Ddcok, Mr. Durbik, Mr. Edwards of Cali- 
fornia, Mr. Ekgel, Ms. E.vglish of Arizona, Ms. ESHOO Mr. 
FALE05UVAEGA, Mr. Felker, Mr. FL-OOE, Mr. FOGLIETTA, Mr. FRAXK 

of Massachusetts, Mr. Gejdeksok, Mr. Gibbons, Mr. Hastings, Mr. 
HiLLiARD, Mr. HiNCHEY, Ms. Eddie Bermce Johxson of Texas, Mr. 
JoHKSTOK of Florida, Mr. Kaxjorski, Mr. Kreidler, ^Ir. LaFalce, 
Mr. LantoS, Mr. Lemk, Ms. LOKO, Mr. >tARTi.vEZ, Mr. Matsui, Ms. 
McKiKNEY, Mrs. Meek, Mr. Minge, Mrs. Mintc, Mr. Mubphy, Mr. 
MuRTHA, Ms. Norton, Mr. Oberstar, Mr. Obey, Mr. Owxns, Mr. 
Pastor, Mr. Payxe of New Jersey, Mr. Rahall, Mr. Raxgel, Mr. 
Re\'nolds, Mr. Romero-Barcelo, Mr. Rush, Mr. Sabo, Mr. Saw^-er, 
Mr. Scott, Mr. Serraxo, Ms. SifEPHERD, Mr. Skaggs, Ms. Slaugh- 
ter, Mr. Smith of Iowa, Mr. Stokes, Mr. Stricklakd, Mr. Studds, 
Mr. Swtft, Mr. S^'XAR, Mr. Thorktok, Mrs. Thurmax, Mr. Trafi- 
CANT, Mr. Ukderwood, Mrs. Uksoeld, Mr. Vento, Mr. Watt, Mr. 
Wheat, Mr. Wise, and Mr. Yates) introduced the following bill; which 
was referred jointly to the Committee on Energy and Commerce, to the 
Committee on Waj-s and ^^eans, and to the Committee on Education and 
Labor for consideration of such prorisions in titles I, III, VI, VIII, X, 
and XI as fall mthin its jurisdiction pursuant to clause 1(g) of rule X; 
and concurrently, for a period ending not later than two weeks after all 
three committees of joint referral report to the House (or a later time 



if Ihc Speaker so designates), to the Committee on Armed Scniccs for 
consideration of subtitle A of title Vm and such proxisions of title I as 
fall within its jurisdiction pursuant to clause 1(c) of rule X, to the Com- 
mittee on Veterans' Affairs for consideration of subtitle B of title Vm 
and such provisions of title I as fall within its jurisdiction pursuant to 
clause l(u) of rule X, to the Committee on Post Office and Cixnl Service 
for consideration of subtitle C of title VIII and such pronsions of title 
I as fall Axilhin its jurisdiction pursuant to clause l(o) of rule X, to the 
Committee on Natural Resources for eonsidcraUon of subtitle D of title 
VIU and such provisions of title I as fall wthin its jurisdiction pursuant 
to clause l(n) of rule X, to the Committee on the Judiciary for consider- 
ation of subtitles C through F of title V and such other provisions as 
fall \\')thin its jurisdiction pursuant to clause 1(1) of rule X, to the Com- 
mittee on Rules for consideration of sections 1432(d), 6006(f), and 
9102(c)(5), and to the 0)mmittee on Government Operations for consid- 
eration of subtitle B of title V and section 5401 



A BILL 

To ensure individual and family security through health care 
coverage for all Ajnericans in a manner that contains 
the rate of gro^vth in health care costs and promotes 
responsible health insurance practices, to promote choice 
in health care, and to ensure and protect the health 
care of all Americans. 

1 Be it enacted by the Senate and House of Representa- 

2 lives of the United States of America in Congress assembled, 



TahU 

3 

1 SECTION 1. 'short TTTLK; TABLE OP TITLES AND SUB- 

2 TITLES. 

3 (a) Short Title. — This Act may be cited as the 

4 "Health Security Act". 



4 Subtitle D — ^Medical Malpractice 

5 PART 1— LIABILITY REFOKM 

6 SEC. 6301. FEDERAL TORT REFORM. 

7 (a) Applicability. — 

8 (1) In general. — Except as provided in sec- 

9 tion 5302, this part shall apply with respect to any 

10 medical malpractice liability action brought in any 

11 State or Federal court, except that this part shall 

12 not apply to a claim or action for damages arising 

13 from a vaccine-related injury or death to the extent 

14 that title XXI of the Public Health Service Act ap- 

15 plies to the claim or action. 

16 (2) Preemption. — The provisions of this part 

17 shall preempt any State law to the extent such law 

18 is inconsistent with the limitations contained in such 

19 provisions. The provisions of this part shall not pre- 

20 empt any State law that provides for defenses or 

21 places limitations on a person's liability in addition 

22 to those contained in this subtitle, places greater 

23 limitations on the amount of attorneys' fees that can 

24 be collected, or otherwise imposes greater restric- 

25 tions than those provided in this part. \ 



Title V, SubtiOe D 
934 

1 (3) Effect on so^^REIGN immunity and 

2 CHOICE OF LAW OR VENUE. — Nothing in this part 

3 shall be construed to — 

4 (A) waive or affect any defense of sov- 

5 ereign immunity asserted by any State under 

6 any provision of law; 

7 (B) waive or affect any defense of sov- 

8 ereign immunity asserted by the United States; 

9 (C) affect the applicability of any provision 

10 of the Foreign Sovereign Immunities Act of 

11 1976; 

12 (D) preempt State choice-of-law rules with 

13 respect to claims brought by a foreign nation or 

14 a citizen of a foreign nation; or 

15 (E) affect the right of any court to trans- 

16 fer venue or to apply the law of a foreign nation 

17 or to dismiss a claim of a foreign nation or of 

18 a citizen of a foreign nation on the ground of 

19 inconvenient forum. 

20 (4) Federal court jurisdiction not es- 

21 tablished on federal question grounds. — 

22 Nothing in this part shall be construed to establish 

23 any jurisdiction in the district courts of the United 

24 States over medical malpractice liability actions on 



8 

TitU V, SubtitU D 

935 

1 the basis of section 1331 or 1337 of title 28, United 

2 States Code. 

3 (b) Definitions. — In this subtitle, the following 

4 definitions apply: 

5 (1) Alternative dispute resolution sys- 

6 tem; ADR. — The term "alternative dispute resolu- 

7 tion system" or "ADR" means a system that pro- 

8 vides for the resolution of medical malpractice claims 

9 in a manner other than through medical malpractice 

10 hability actions. 

11 (2) Claimant. — The term "claimant" means 

12 any person who alleges a medical malpractice claim, 

13 and any person on whose behalf such a claim is al- 

14 leged, including the decedent in the case of an action 

15 brought through or on behalf of an estate. 

16 (3) Health care professional. — The term 

17 "health care professional" means any individual who 

18 provides health care services in a State and who is 

19 required by the laws or regulations of the State to 

20 be licensed or certified by the State to provide such 

21 services in the State. 

22 (4) Health care provider. — The term 

23 "health care provider" means any organization or 

24 institution that is engaged in the dehveiy of health 

25 care services in a State and that is required by the 



TitU V, SubtitU D 

936 

1 laws or regulations of the State to be licensed or eer- 

2 tified by the State to engage in the delivery of such 

3 services in the State. 

4 (5) Injury.— The term "iryuiy" means any ill- 

5 ness, disease, or other harm that is the subject of 

6 a medical malpractice liability action or a medical 

7 malpractice claim. 

8 (6) Medical malpractice liability ac- 

9 TION. — The term "medical malpractice liability ac- 

10 tion" means a civil action brought in a State or Fed- 

11 eral court against a health care provider or health 

12 care professional (regardless of the theory of liability 

13 on which the claim is based) in which the plaintiff 

14 alleges a medical malpractice claim. 

15 (7) Medical ^LVLPRACTICE claim. — The term 

16 "medical malpractice claim" means a claim brought 

17 against a health care provider or health care profes- 

18 sional in which a claimant alleges that injury- was 

19 caused by the pro\ision of (or the failure to provide) 

20 health care services, except that such term does not 

21 include — 

22 (A) any claim based on an allegation of an 

23 intentional tort; or 

24 (B) any claim based on an allegation that 

25 a product is defective that is brought against 



10 



TitU V, StibtitU D 

937 

1 any individual or entity that is not a health 

2 care professional or health care provider. 

3 SEC. 6302. PLAN-BASED ALTERNATIVE DISPUTE RESOLU- 

4 TION MECHANISMS. 

5 (a) Application to Malpractice Claims Under 

6 Plans. — ^In the case of any medical malpractice claim 

7 arising from the provision of (or failure to provide) health 

8 care services to an individual enrolled in a regional alliance 

9 health plan or a corporate alliance health plan, no medical 

10 malpractice liability action may be brought with respect 

11 to such claim until the final resolution of the claim under 

12 the alternative dispute resolution system adopted by the 

13 plan under subsection (b). 

14 (b) Adoption of Mechanism by Plans. — Each re- 

15 gional alliance health plan and corporate alliance health 

16 plan shall — 

17 (1) adopt at least one of the alternative dispute 

18 resolution methods specified under subsection (c) for 

19 the resolution of medical malpractice claims arising 

20 from the provision of (or failure to provide) health 

21 care services to individuals enrolled in the plan; and 

22 (2) disclose to enrollees (and potential enroll- 

23 ees), in a manner specified by the regional alliance 

24 or the corporate alliance, the availability and proce- 

25 dures for consumer grievances under the plan, in- 



11 

Title V. SubtitU D 

938 

1 eluding the alternative dispute resolution method or 

2 methods adopted under this s\ibsection. 

3 (c) Specification of PERinssmLE Alternative 

4 Dispute Resolution Methods. — 

5 (1) In general. — The Board shall, by regula- 

6 tion, develop alternative dispute resolution methods 

7 for the use by regional alliance and corporate alli- 

8 ance health plans in resolving medical malpractice 

9 claims under subsection (a). Such methods shall in- 

10 elude at least the following: 

11 (A) Arbitration. — The use of arbitra- 

12 tion. 

13 (B) Mediation. — The use of required me- 

14 diation. 

15 (C) Early offers of settlement. — 

16 The use of a process under which parties are 

17 required to make early offers of settlement. 

18 (2) Standards for establishing meth- 

19 ODS. — In developing alternative dispute resolution 

20 methods under paragraph (1), the Board shall as- 

21 sure that the methods promote the resolution of 

22 medical malpractice claims in a manner that — 

23 (A) is affordable for the parties involved; 

24 (B) provides for timely resolution of 

25 claims; 



12 

TiiU V, SubtiOe D 

939 

1 (C) provides for the consistent and fair 

2 resolution of claims; and 

3 (D) provides for reasonably convenient ac- 

4 cess to dispute resolution for individuals en- 

5 rolled in plans. 

6 (d) Further Redress. — A plan enrollee dissatisfied 

7 with the determination reached as a result cf an alter- 

8 native dispute resolution method applied under this sec- 

9 tion may, after the final resolution of the enrollee's claim 

10 under the method, bring a cause of action to seek damages 

11 or other redress with respect to the claim to the extent 

12 otherwise permitted under State law. 

13 SEC. 8303. REQUIREMENT FOR CERTIFICATE OF MERIT. 

14 (a) Requiring Submission With Ck)MPLAiNT. — No 

15 medical malpractice liability action may be brought by any 

16 individual unless, at the time the individual brings the ac- 

17 tion (except as provided in subsection (b)(1)), the individ- 

18 ual submits an affidavit — 

19 (1) declaring that the individual (or the individ- 

20 uaVs attorney) has consulted and reviewed the facts 

21 of the action with a qualified specialist (as defined 

22 in subsection (c)); 

23 (2) including a written report by a qualified 

24 specialist that clearly identifies the individual and 

25 that includes the specialist's determination that. 



13 

TUU V, Subtitte D 

940 

1 after a review of the medical record and other rel- 

2 evant material, there is a reasonable and meritorious 

3 cause for the filing of the action against the defend- 

4 ant; and 

5 (3) on the basis of the qualified specialist's re- 

6 view and consultation, that the individual (or the in- 

7 dividual's attorney) has concluded that there is a 

8 reasonable and meritorious cause for the filing of the 

9 action. 

10 (b) Extension in Certain Instances. — 

11 (1) In general. — Subject to paragraph (2), 

12 subsection (a) shall not apply with respect to an in- 

13 dividual who brings a medical malpractice liability 

14 action without submitting an affidavit described in 

15 such subsection if — 

16 (A) the individual is unable to obtain the 

17 affidavit before the expiration of the applicable 

18 statute of limitations; or 

19 (B) at the time the individual brings the 

20 action, the individual has been unable to obtain 

21 medical records or other information necessary 

22 to prepare the affidavit requested pursuant to 

23 any applicable law. 

24 (2) Deadline for suBmssiON \miere ex- 

25 TENSION applies. — In the case of an individual who 



14 

TitU V. SubtUU D 

941 

1 brings an action for which paragraph (1) applies, 

2 the action shall be dismissed unless the individual 

3 submits the affidavit described in subsection (a) not 

4 later than — 

5 (A) in the case of an action for which sub- 

6 paragraph (A) of paragraph (1) apphes, 90 

7 days after bringing the action; or 

8 (B) in the case of an action for which sub- 

9 paragraph (B) of paragraph (1) applies, 90 

10 days after obtaining the information described 

11 in such subparagraph. 

12 (c) Qualified Specialist Defined. — In sub- 

13 section (a), a "qualified speciaUst" means, with respect 

14 to a medical malpractice liability action, a health care pro- 

15 fessional who— 

16 (1) is knowledgeable of, and has expertise in, 

17 the same specialty area of practice that is the sub- 

18 ject of the action; and 

19 (2) is reasonably believed by the individual 

20 bringing the action (or the individual's attorney) — 

21 (A) to be knowledgeable in the relevant is- 

22 sues involved in the particular action, 

23 (B) to practice (or to have practiced within 

24 the preceding 6 years) or to teach (or to have 

25 taught within the preceding 6 years) in the 



15 

TiOe V, SubtitU D 
942 

1 same area of health care or medicine that is at 

2 issue in the action, and 

3 (C) to be qualified by experience or dem- 

4 onstrated competence in the subject matter of 

5 the case. 

6 (d) Sanctions for Submitting False Allega- 

7 TIONS. — Upon the motion of any party or its own initia- 

8 tive, the court in a medical malpractice liability action may 

9 impose a sanction on a party or the party's attorney (or 

10 both), including a requirement that the party reimburse 

1 1 the other party to the action for costs and reasonable at- 

12 tomey's fees, if any information contained in an affidavit 

13 described in subsection (a) is submitted without reason- 

14 able cause and is found to be untrue. 

15 SEC. 6304. LIMITATION ON AMOUNT OF ATTORNETTS CON- 

16 TINGENCY FEES. 

17 (a) In General. — ^An attorney who represents, on 

18 a contingency fee basis, a plaintiff in a medical mal- 

19 practice liability action may not charge, demand, receive, 

20 or collect for services rendered in connection with such ac- 

21 tion (including the resolution of the claim that is the sub- 

22 ject of the action under any alternative dispute resolution 

23 system) in excess of 33 Va percent of the total amount re- 

24 covered by judgment or settlement in such action. 



16 

TitU V, SubtitU D 

943 

1 (b) Calculation of periodic payments. — In the 

2 event that a judgment or settlement includes periodic or 

3 future payments of damages, the amount recovered for 

4 purposes of computing the limitation on the contingency^ 

5 fee under subsection (a) shall be based on the cost of the 

6 annuity or trast established to make the payments. In any 

7 case in which an annuity or trust is not established to 

8 make such payments, such amount shall be based on the 

9 present value of the payments. 

10 (c) Contingency Fee Defined. — As used in this 

1 1 section, the term "contingency fee" means any fee for pro- 

12 fessional legal services which is, in whole or in part, con- 

13 tingent upon the recovery of any amount of damages, 

14 whether through judgment or settlement. 

15 sec. 6306. REDUCTION OF AWARDS FOR RECOVERY FROM 

16 COLLATERAL SOURCES. 

17 The total amount of damages recovered by a plaintiff 

18 in a medical malpractice liabihty action shall be reduced 

19 by the amoimt of any past or future payment which the 

20 plaintiff has received or for which the plaintiff is eligible 

21 on account of the same injury for which the damages are 

22 awarded, including payment under — 

23 (1) Federal or State disability or sickness pro- 

24 grams; 



17 

TitU V, SubtitU D 
944 

1 (2) Federal, State, or private health insurance 

2 programs; 

3 (3) private disability insurance programs; 

4 (4) employer wage continuation programs; and 

5 (5) any other program, if the payment is in- 

6 tended to compensate the plaintiff for the same in- 

7 jury for which damages are awarded. 

8 SEC. 6306. PERIODIC PAYMENT OF AWARDS. 

9 At the request of any party to a medical malpractice 

10 liability action, the defendant shall not be required to pay 

1 1 damages in a single, lump-sum payment, but shall be per- 

12 mitted to make such payments periodically based on such 

13 schedule as the court considers appropriate, taking into 

14 account the periods for which the injured party will need 

15 medical and other services. 

16 PART 2— OTHER PROVISIONS RELATING TO 

17 MEDICAL MALPRACTICE LIABILITY 

18 SEC. 6311. ENTERPRISE LIABILITY DEMONSTRATION 

19 PROJECT. 

20 (a) ESTABLISHI^IENT. — Not later than January 1, 

21 1996, the Secretary shall establish a demonstration 

22 project under which the Secretary shall provide funds (In 

23 such amount as the Secretary considers appropriate) to 

24 one or more eligible States to demonstrate whether sub- 

25 stituting liability for medical malpractice on the part of 



18 

TitU V, Subtitle D 

945 

1 the health plan in which a physician participates for the 

2 personal liability of the physician will result in improve- 

3 ments in the quality of care provided under the plan, re- 

4 ductions in defensive medical practices, and better risk 

5 management. 

6 (b) Eligibility of State. — ^A State is eligible to 

7 participate in the demonstration project established under 

8 subsection (a) if the State submits an application to the 

9 Secretary (at such time and in such form as the Secretary 

10 may require) containing such information and assurances 

11 as the Secretary may require, including assurances that 

12 the State — 

13 (1) has entered into an agreement with a health 

14 plan (other than a fee-for-service plan) operating in 

15 the State under which the plan assumes legal liabil- 

16 ity with respect to any medical malpractice claim 

17 arising from the provision of (or failure to provide) 

18 services under the plan by any physician participat- 

19 ing in the plan; 

20 (2) has provided that, imder the law of the 

21 State, a physician participating in a plan that has 

22 entered into an agreement with the State under 

23 paragraph (1) may not be liable m damages or oth- 

24 erwise for such a claim and the plan may not require 



19 

TitU V, SubtitU D 

946 

1 such physician to indemnify the plan for any such li- 

2 abiHty; and 

3 (3) will provide the Secretary with such reports 

4 on the operation of the project as the Secretary may 

5 require. 

6 (c) Authorization of Appropriations. — There 

7 are authorized to be appropriated such sums as may be 

8 necessary to carry out demonstration projects under this 

9 section. 

10 SEC. 6312. PILOT PROGRAM APPLYING PRACTICE GUIDE- 

1 1 LINES TO MEDICAL MALPRACTICE LIABIUTY 

12 ACTIONS. 

13 (a) Establishment. — Not later than 1 year after 

14 the Secretary determines that appropriate practice guide- 

15 lines are available, the Secretary shall establish a pilot 

16 program under which the Secretary shall provide funds (in 

17 such amount as the Secretary considers appropriate) to 

18 one or more eligible States to determine the effect of ap- 

19 plying practice guidelines in the resolution of medical mal- 

20 practice liability actions. 

21 (b) Eligibility of State. — ^A State is eligible to 

22 participate in the pilot program established under sub- 

23 section (a) if the State submits an application to the Sec- 

24 retary (at such time and in such form as the Secretaiy 

25 may require) containing — 



20 

Tilk V, Subtitk D 

947 

1 (1) assurances that, under the law of the State, 

2 in the resolution of any medical malpractice liability 

3 action, it shall be a complete defense to any allega- 

4 tion that a party against whom the action is filed 

5 was negligent that, in the provision of (or the failure 

6 to provide) the services that are the subject of the 

7 action, the party followed the appropriate practice 

8 guideline established by the National Quality Man- 

9 agement Program under subtitle A; and 

10 (2) such other information and assurances as 

1 1 the Secretaiy may require. 

12 (c) Reports to Congress. — Not later than 3 

13 months after the last day of each year for which the pilot 

14 program established under subsection (a) is in effect, the 

15 Secretary shall submit a report to Congress describing the 

16 operation of the program during the previous year and 

17 containing such recommendations as the Secretary consid- 

18 ers appropriate, including recommendations relating to re- 

19 visions to the laws governing medical malpractice liability. 



21 

TitU V, SublUU A 

845 



SEC. 5005. 

5 (d) Public Availabiuty op Information in Na- 

6 TiONAL Practitioner Data. Bank on Defendants, 

7 Awards, AND Settlements. — 

8 (1) In general. — Section 427(a) of the Health 

9 Care Quality Improvement Act (42 U.S.C. 

10 11137(a)) is amended by adding at the end the fol- 

11 lowing new sentence: "Not later than Januaiy 1, 

12 1996, the Secretary shall promulgate regulations 

13 under which individuals seeking to enroll in health 

14 plans under the Health Security Act may obtain in- 

15 formation reported under this part with respect to 

16 physicians and other licensed health practitioners 

17 participating in such plans for whom information 

18 has been reported under this part on repeated occa- 

19 sions.". 

20 (2) Access to data bank for point-op- 

21 service contractors under medicare. — Section 

22 427(a) of such Act (42 U.S.C. 11137(a)) is 

23 amended — 

24 (A) by inserting "to sponsors of point-of- 

25 service networks under section 1890 of the So- 



22 

TitU V, SubUiU A 

846 

1 cial Security Act," after "State licensing 

2 boards,", and 

3 (B) in the heading, by inserting "Relat- 

4 ED" after "Care". 



23 

Mr. MooRHEAD. Thank you very much, Mr. Chairman. I am es- 
pecially pleased that we are focusing today on medical liability is- 
sues. For some time, this has been an issue of great interest to my 
constituents and to me. 

Meaningful, bold medical malpractice reform must be a part of 
any future health care reform bill because malpractice costs are in- 
tegrally tied to the rising cost of health care. They are linked 
through increased utilization of services, or "defensive medicine" 
through increased insurance and legal costs, and, finally, through 
increased costs for services to the patient. We are wasting precious 
resources on cases with no merit and we should resolve those cases 
which are legitimate in more cost effective ways. 

Studies estimate the wasted expenses to be conservatively at $20 
to $25 billion a year. The malpractice system is certainly not the 
only cause of rising health care costs, but it is a major contributor. 
I believe that we can make changes that will reduce these costs 
without jeopardizing protections for true victims. 

In my own State of^ California, we have seen how successful med- 
ical malpractice reform efforts can be. In 1975, after tremendous 
cooperation between all the parties, the State legislature passed 
"MICRA, the Medical Injury Compensation Reform Act." For 18 
years it has successfully confronted serious excesses in the mal- 
practice system while simultaneously providing fair redress for 
those who have truly suffered from suDstandard care. 

I can tell you that I have talked to many lawyers in California 
and many people who have been the plaintins in malpractice cases. 
I have received virtually no complaints about the system as it is 
working there in our State. What the law does is limit the 
noncompensatory damages to $250,000, but everyone can collect 
every penny that they can show in actual damages. 

If Congress wanted to implement a system like MICRA, there is 
already legislation pending to do iust tnat. H.R. 3080, the "Afford- 
able Healtn Care Now Act," whicn has about 140 Members of the 
House cosponsoring, contains the kind of strong malpractice reform 
provisions I want to see enacted. 

I wish that the President's health bill contained stringent mal- 
practice reform like those in H.R. 3080, but it really does not go 
far enough. However, I am increasingly hopeful that Congress will 
not miss this opportunity to make real progress in the area. Early 
last year, members of the Energy and Commerce Committee had 
an opportunity to talk to the leaders of health care in England, 
France, and Gfermany, All of them stated very clearly that a system 
like they have or like the one that Mr. Clinton is proposing in this 
country will not work unless you can do something about medical 
malpractice. It just cannot be put together without doing something 
very serious in that area. 

I look forward to hearing from our witnesses today and I want 
to thank you, Mr. Chairman, for the courtesy you have shown me. 
I do have to go to another hearing and I will not be here through- 
out the entire performance today. 

Thank you. 

Mr. Brooks. Mrs. Schroeder, any? 

Mr. Bobby Scott. 

Mr. Scott. No thank you. 



24 

Mr. Brooks. Mr. Fish, the gentleman from New York. 

Mr. Fish. Thank you, Mr. Chairman. This morning's hearing will 
focus the subcommittee's attention on the important and complex 
problem of medical malpractice. 

Our health system is under the microscope both in Congress and 
in the media. It is a system that clearly is being burdened by a 
number of cost-driven pressures. One of these "costs" is the threat 
of liability suits facing medical practitioners and the amounts they 
are forced to spend to protect themselves against these suits. 

The estimate is that medical malpractice premiums now total 
$10 billion annually and malpractice insurance premiums for doc- 
tors in my own State of New York are among the highest in the 
Nation. For a doctor specializing in obstetrics in New York State, 
the average annual medical malpractice premium exceeds $100,000 
per year. New York is losing doctors, in part because of this liabil- 
ity threat, and therefore the quality of health care in our State is 
threatened. 

But malpractice premiums represent only part of this overall 
medical legal system problem. The estimates are that the costs of 
"defensive medicine" run from $20 billion to $25 billion a year. Fur- 
thermore, medical product-related liability costs affecting pharma- 
ceutical manufacturers and those who make medical devices or pro- 
vide blood or tissue services are likewise impacted by the same li- 
ability concerns. And finally, as we move more and more into man- 
aged care, the issue of the scope of a third-party payor's liability 
is a matter of concern. 

Naturally, negligent or reckless actions on the part of medical 
professionals or the manufacturers of medical devices must not be 
condoned nor ignored. I believe in the traditional standard for legal 
tort responsibility, i.e., negligence. If a practitioner is shown to act 
in an unreasonable, unprofessional, negligent manner in a given 
fact situation, then liability should attach. 

But, the fact of the matter is that very few of these cases ever 
go to trial or are ever really resolved in a definitive "true or false" 
sense. Most claims are settled out of court irrespective of any find- 
ing of fault, so the vast majority of the costs are really the trans- 
actional costs. 

Mr. Chairman, Congress should seriously look at a number of the 
reform proposals that have been put forth. These include the use 
of the alternative dispute resolution mechanism, but these 
nonjudicial forums should resolve disputes and not merely delay 
the inevitable court action which would only add further costs. 
Similarly, we need to adopt a fair and sensible collateral source 
rule and the modification of joint and several Hability with respect 
to noneconomic damages is another option that Congress should 
carefully examine. Punitive damages should only be awarded in 
those cases where it can be proven that the behavior was "wanton, 
willful, or reckless" in nature. Punitive damages are fi-equently 
awarded in these cases when not justified. I am not an advocate 
of flat dollar "caps" on attorneys' fees, but I do believe that a slid- 
ing scale similar to that adopted in California makes sense. Such 
a scale should be structured so as to encourage lawyers to rep- 
resent low and medium-income persons. Finally, I believe that peri- 



25 

odic pajrments for damage awards rather than lump sum payments 
also makes sense. 

What government should do is provide a fair legal structure to 
resolve these disputes — but it should be a legal structure that en- 
courages good medical judgment, not defensive tactics. Government 
policies should encourage excellence in the practice of medicine and 
support quality medical research that will continue to better our 
country and the entire world. 

Mr. Chairman, as we proceed this morning, I welcome the com- 
ments of any of our witnesses on these suggested changes in our 
tort system. Of course, I want to welcome all of our witnesses to 
this hearing this morning, and I greatly appreciate their taking 
time to share their expertise with us. In particular, I welcome Dr. 
David Hannan of New York in Wajme County, NY, who is here this 
morning representing the Medical Society of the State of New York. 
Dr. Hannan practices in a rural area in upstate New York and is 
one of the few general practitioners in the State who continues to 
provide obstetrical services. I am sure his insights will be helpful. 

Again, Mr. Chairman, thank you for scheduling these hearings 
and I look forward to the testimony. 

Mr. Brooks. Thank you very much. Our first witness will be Mr. 
Philip H. Corboy, chairman of the Committee on Medical Profes- 
sional Liability for the American Bar Association. He is an attorney 
in Chicago, wnere he is a partner with the Corboy & Dimitrio firm. 
Next we have Mr. Carl Keener, testifying on behalf of the Amer- 
ican Board of Trial Advocates. He is with Baker, Silberberg & 
Keener in Santa Monica, CA. 

Our next witness will be Laura Wittkin, executive director of the 
National Center for Patients' Rights, New York City. Our fourth 
witness will be Dr. Antonio Falcon — how do you pronounce that? 

Dr. Falcon. Falcon, yes, sir. 

Mr. Brooks. He is a family practitioner in Rio Grande City, TX, 
way down in the valley, and he is here to testify on behalf of the 
Health Care Liability Alliance, a coalition of health providers. Next 
will be Dr. Robert B. Keller, orthopedic surgeon and executive di- 
rector of the Maine Medical Assessment Foundation, a health serv- 
ices research organization in Maine. Today he represents the Phy- 
sician Payment Review Commission on which he serves as vice 
chairman. Our final witness will be Dr. David T. Hannan of New- 
ark, NY, affiliated with the Medical Society of the State of New 
York. 

Gentlemen and Ms. Wittkin, we thank you very much for being 
with us and I will first start with Mr. Corboy. You are recognized, 
sir. 

STATEMENT OF PHILIP H. CORBOY, CHAIRMAN, COMMITTEE 
ON MEDICAL PROFESSIONAL LIABILITY, AMERICAN BAR 
ASSOCIATION 

Mr. Corboy. Thank you, Mr. Chairman, and gentlemen. Thanks 
for the opportunity to present these views of the American Bar As- 
sociation on professional medical liability. 

Surprisingly, let me say on the surface that much of what Mr. 
Fish has just stated we are in accord with; however, we are not in 
accord with the manifestation as suggested. We are in favor of 



26 

ADR. We are in favor of various aspects of those things which are 
euphemistically referred to as reform. 

I might point out that the American Bar Association, which is a 
voluntary organization of 350,000 lawyers, is not a Johnny-come- 
lately to health care. Since 1972, the ABA has been on record in 
support of legislation that would provide for every American access 
to quality health care regardless of a person's income. 

However, access to the American legal system has also been a 
fundamental right tracing back to the beginnings of our country, 
which is well over 200 years old now. 

We imderstand the concerns being expressed about the issue of 
medical professional liability. The ABA is deeply committed to hav- 
ing a legal system in America that is effective and just and one 
that protects the rights of plaintiffs and defendants. 

Now, in October of 1992, the Congressional Budget Office sup- 
plied a study that reported that medical malpractice premiums ac- 
count for less than 1 percent of the dollars that are spent annually 
on the Nation's health care. 

I am not so sure it is $10 bilhon, but I think it is close to $10 
billion, Mr. Fish. I think it is somewhere in the neighborhood of $9 
billion plus. One percent of that is spent on premiums or some- 
where in the neighborhood of $9 bilHon. Of those $9 billion, some- 
thing less than $2.5 billion is actually spent on the satisfaction and 
settlement of claims which do not go to the jury, some of which do 
go to the jury. 

This report also concluded that much of the care that is com- 
monly dubbed defensive medicine would probably still be provided 
for reasons other than concerns about medical malpractice. 

Now, I am going to say something that is going to irritate many 
listeners. I believe that defensive medicine is malpractice. I am not 
talking about it being malpractice which is a proximate cause for 
injuries, but I think it is malpractice. If a doctor comes to me and 
says, I would like to treat you and I think you should have an MRI 
because you are going to sue me, I am going to change doctors. If 
a doctor does not have enough security to satisfy his patienf doctor 
relationship and instead goes out of his way to charge dollars that 
should not be charged, I respectfully suggest that is not defensive 
medicine, that is malpractice. 

Now, most doctors in this country, thank God, have been very, 
very capable of supplying the very best of medical care to their pa- 
tients. They don't call that defensive medicine. They call it good 
medicine, and I respectfully suggest that the term defensive medi- 
cine is a shibboleth. 

I don't believe there are anv figures anywhere in the world which 
can verify that some $15 or $20 bilHon is spent on defensive medi- 
cine. I think it is a myth. 

And there are other reasons for what they call defensive medi- 
cine. Some of them have to do with defending themselves in law- 
suits. The answer to defending themselves in lawsuits is twofold. 

Number one, first of all, don't be negligent, and number two, 
have malpractice insurance. Malpractice insurance is a deductible 
item. It is deductible as a business expense. It is rent, and I re- 
spectfully suggest that premiums are a part of practicing medicine, 
just as they are a part of practicing law. 



27 

We have supplied a chart to you today which is Appendix C of 
my written statement which indicates and shows very specifically 
that those States in this country that have supplied a form of tort 
reform to the country have not been those States which have had 
reduced medical care, specifically the top two supplied by a govern- 
ment office, Massachusetts and California, have stringent medical 
malpractice laws, however, the cost of medical care has not gone 
down in those States. 

With reference to that which is called a cap on damages, a cap 
on damages really hurts the person who can least afford it. If a 
housewife or a child who has no loss of earnings loses his or her 
sight which requires no further medical expenses, loses his or her 
ability to practice with his or her mind and goes through life with 
a mind that can do things with no future medical expenses needed, 
if that person is restricted to some $250 or any amount of money, 
obviously they are under compensated. 

Yes, the person that is a large wage earner may very well receive 
part of his compensation, but a housewife that is seriously dam- 
aged, to have a restriction is obviously discriminated against if 
there is a cap. So I respectfully suggest that a cap again is a myth 
when it comes to proper compensation. 

With reference to ADR, the American Bar Association is on 
record as being in favor of ADR, however, I offer a caution to you. 
I believe that to have an ADR as a condition precedent to filing a 
lawsuit is nothing more than an invitation to file a lawsuit. 

You cannot get discovery under ADR. You cannot go all the way 
and get all the information so that a valid claim can be evaluated 
and have it properly litigated. So if there is to be ADR, I suggest 
that you place it subsequent to filing the lawsuit. 

With reference to periodic payments, the Uniform Periodic Pay- 
ment Act has specifically included in it no reduction to present 
cash value either of noneconomic damages or economic damages by 
way of loss — damages by way of medical expenses or by way of loss 
of future earnings. 

So if the loss of future earnings is $10 million and it is not to 
be reduced to present cash value, then there is no objection to hav- 
ing that $10 million judgment paid out in a periodic fashion be- 
cause then the person receiving it is getting the true amount of his 
or her dollars. 

However, if the jury is entitled to reduce future damages, wheth- 
er by medical expenses or by future damages, they have already re- 
duced it to present cash value, which is the law in most States. It 
is not the law in Alaska and two others, but it is the law in most 
States. 

If you have already reduced those future damages to present 
cash value and then reduce the judgment to a periodic payment, 
you have taken two slices of it. You have reduced it twice, which 
I suggest is not entirely fair. 

As far as the collateral source rule is concerned, of course the col- 
lateral source rule will cut verdicts and will cut potential settle- 
ments, but all you are doing is transferring the responsibility to 
pay those costs from one insurance company to another. 



28 

Many of the people in this countiy have insurance that pays for 
their medical bills. If the medical bills are paid, ordinarily, not al- 
ways, but ordinarily, there is a subrogation right. 

If you reduce the judgment or reduce settlement by those amount 
of dollars which are paid by a rich uncle, i.e., an insurance com- 
pany, you are cutting out tne right of that insurance company to 
collect the damages that they paid for. 

So all you are doing is transferring the right to collect damages 
or repayment from one insurance company to another. 

I might also say that insurance, medical insurance, is oftentimes 
a result of labor relations. It becomes a part of the compensation 
paid to many people who work in this country. It is a negotiated 
right. Now, to have that negotiated right then cut because the pre- 
miums paid by a company and not allow recovery of the collat- 
eral — of the dollars that are paid by an insurance company, we re- 
spectfully suggest is unfair. 

With reference to joint and several liability, my experience quite 
frankly with joint and several liability, and I have it directly from 
having done the exact same thing in Illinois that I am doing before 
you this morning is, doctors don't want it. Doctors do not want it. 
Why? Because doctors, when they get sued, would like to have the 
defendant along as a potential tortfeasor paying entity and if there 
is joint and several liability, oftentimes the doctor will be held re- 
sponsible more than the hospital, and, if that is true, the doctor is 
going to pay the most serious part of a judgment. 

I have talked to doctors all over the country. When you explain 
to them what joint and several liability is, they don't want it be- 
cause they might end up paying the full judgment and letting the 
hospital off the hook. 

Now, does it always happen? No, of course not. Also the hospital 
administrators I have talked to in Illinois — now, maybe they are 
different in other parts of the world — the hospital administrators 
are split on this subject. Some would like the doctor along for the 
litigation ride, some would prefer that some type of mitigation exist 
in the realm of legislation which would in one way or another mod- 
ify the present Joint and Several Liability Act. 

I think I have discussed most of the matters that — that are in 
House bill 3600, and I await hearing the other testimony and I 
await any questions that might be available. 

Mr. Brooks. Thank you very much. 

[The prepared statement of Mr. Corboy follows:] 



29 




statement of 

PHILIP H. CORBOY, CHAIR of the 

SPECIAL COMMITTEE ON MEDICAL PROFESSIONAL LIABILITY 

on behalf of the 

AMERICAN BAR ASSOCIATION 

before the 

SUBCOMMITTEE ON ECONOMIC AND COMMERCIAL LAW 

COMMITTEE ON THE JUDICIARY 

Of the 

UNITED STATES HOUSE OF REPRESENTATIVES 

on the subject of 

MEDICAL PROFESSIONAL LIABILITY ISSUES AND HEALTH CARE REFORM 

June 22, 1994 

Mr. Chairman and Members of the Subcommittee: 

I appreciate the opportunity to present the views of the 
American Bar Association on medical professional liability in 
the context of proposals to increase access to health care. 
I am Philip H. Corboy, Chair of the ABA's Special Committee on 
Medical Professional Liability. 

Since 1972, the ABA has been on record in support of legis- 
lation that would provide for every American to have access to 
quality health care regardless of a person's income. In 
February 1992, and again in February 1994, the ABA's House of 
Delegates reaffirmed its support of legislation calling for 
universal coverage for all through a common public or public/ 
private mechanism through which all contribute. 

The American Bar Association is concerned about the ability 
of Americans, including its own members, to obtain affordable 
health insurance. Health care at a reasonable cost has been an 
American expectation, and a concept the American Bar Association 
supports. Likewise, access to the American legal system has 
been a fundamental right tracing back to the origins of this 
country. 

The ABA understands the concerns being expressed about the 
issue of medical professional liability and is deeply committed 
to having a legal system in America that is effective and just, 
one that protects the rights of plaintiffs and defendants. Two 
ABA entities worked towards this end by developing recommenda- 
tions for the ABA'S House of Delegates. They are the Special 
Committee on Medical Professional Liability and the Action 
Commission to Improve the Tort Liability System. 



84-714 O -94 -2 



30 



- 2 - 



The ABA Special Committee on Medical Professional Liability 
was composed of a balanced group of plaintiffs' lawyers, defense 
lawyers and representatives of academia, and the judiciary. The 
Committee was chaired by ABA Past-President Talbot S. 
D'Alemberte, then Dean of the Florida State University College 
of Law. The Committee was charged with studying legislative 
initiatives in the medical malpractice area and developing ABA 
policy proposals for the Association's policymakers to consider. 
In February 1986, the ABA House of Delegates adopted a resolu- 
tion upon recommendation of the Committee. (A copy of that 
resolution is appended to this statement as Appendix A.) The 
Committee was then disbanded. However, it was reactivated in 
August 1991. 

Near the end of 1985 the ABA, through its President, 
appointed an Action Commission to Improve the Tort Liability 
System. The 14-member Commission was asked to develop specific 
proposals to improve the tort liability system. The members of 
the Commission were federal trial and appellate court judges; a 
state Supreme Court justice; corporate counsel, including those 
with insurance experience; consumer and civil rights advocates; 
academicians; and practicing plaintiffs' and defense lawyers. 

In February 1987, the ABA House of Delegates considered the 
Cosanission's recommendations and adopted the resolution appended 
to this statement as Appendix B. The ABA takes the position 
that these proposals to improve the tort system can and should 
be implemented by the courts and legislatures at the state, and 
not the federal level. The tort system has shown considerable 
resilience in the face of dramatic social and economic develop- 
ments. State courts and legislatures are constantly working to 
improve the tort laws and should be permitted to continue to do 
so. Thus, federal intrusion into the field, with some discrete 
exceptions, is inappropriate. 

The ABA believes that federal pre-emption of the state 
medical professional liability laws would constitute an unwise 
and unnecessary intrusion of major proportions on the long- 
standing authority of the states to promulgate tort law. Such 
pre-emption would cause the whole body of state tort law to be- 
come unsettled and create new complexities for the federal 
system. Unequal results would occur when medical professional 
liability litigation is combined with other fields of law with 
differing rules of law. An example of this would be a situation 
where a medical malpractice claim is joined with an automobile 
liability claim. If state tort laws differ from the federal law 
in areas such as caps on damages, the collateral source rule or 
joint and several liability, conflicts and uncertainty would 
likely result; and one defendant in an action could well be 
treated entirely differently than another. Having one set of 



31 



- 3 - 

rules to try medical professional liability cases and another 
set of rules to try other tort cases is not consistent with the 
sound and equitable administration of justice. 

Our ABA policies reflect the ABA's recognition that the 
issue of medical professional liability is of vital importance 
not only to the legal profession but to the medical profession, 
the insurance industry and, most of all, to che public. 

The public has the most at stake in this issue. When a 
person suffers injury as a result of negligence by a provider of 
health care services, he or she must have the right to seek 
recovery for the full measure of those damages. We believe that 
right is severely threatened by those who call for major changes 
in this country's tort law system, and particularly by those who 
propose that limits be placed on the amount of damages persons 
may seek in compensation for their injuries caused by the negli- 
gence, or carelessness of health care providers. 

We are especially concerned with proposals to alter the 
system of medical malpractice to carve out exceptions in the 
tort law system for one group of potential defendants — in this 
case, the medical profession. It is the ABA's belief that the 
rights of injured persons to recover fully for injuries caused 
by the wrongful acts of others must be protected. We are 
concerned that those who seek major changes in the way the tort 
law system deals with cases of medical malpractice are willing 
to trade away the rights of all individuals in the hope of 
easing a perceived burden on some or reducing the overall costs 
of health care. Since medical malpractice insurance costs make 
up only a small fraction of the dollars spent on health care in 
the United States, the changes in the tort laws would have no 
real impact on costs of health care. 

In addressing access to health care proposals, that contain 
provisions on medical professional liability, three questions 
need to be asked. First, what is the cost savings that can be 
achieved? Second, have such provisions, when enacted, lowered 
health care costs in states which have adopted their essential 
elements? Third, what are the consequences to the traditional 
American legal system and to the rights of the injured persons? 
In other words, does a cost shifting from the medical profes- 
sional who caused the injuries to the person who was injured or 
to a governmental agency achieve anything more than an illusory 
savings? 



32 



- 4 - 



What is the Cost of the Medical-Leaal System? 

The American Bar Association does not purport to possess 
the expertise to analyze all of the reasons for escalating 
medical costs. We do, however, have the ability to analyze the 
interrelationship of the legal system and those costs. 
Moreover, we are able to determine the consequences of proposed 
legislation upon the American legal system and those seeking 
compensation for injuries. 

The major components that have been cited as contributing 
to the rising cost of that care are: 

* Reliance on modern, sophisticated and 
expensive treatment. 

* Innovative treatment of illnesses, such as 
heart disease, AIDS and cancer; 

* An aging population, which adds to Medicare 
and Medicaid expenditures; 

* High administrative costs of the health 
care system; and 

* The medical-legal system. 

Studies concerning the medical-legal system show that its 
impact on the national expenditures is not only questionable but 
also insignificant. The Congressional Budget Office stated in 
1992 that medical-legal costs, as measured by medical mal- 
practice insurance premiums, account for 0.74 percent of the 
national health expenditures. I understand that these 
insurance premiums account for a lower percentage of national 
health expenditures at this point in time. The other component 
of cost attributed to the legal system is that of so-called 
"defensive medicine." Varying figures for the cost of 
"defensive medicine" have been estimated. However, no one has 
reliably measured what, if anything, defensive medicine costs. 

An October 1992 study of the Congressional Budget Office 
concluded that health care spending is propelled upward by 
high-cost technological and medical breakthroughs. The study 
finds that rising incomes, demographic changes, and medical 
malpractice costs do not appear to account for much of the 
increase in the nation's health care bill. The report states 
that malpractice insurance premiums account for less than one 
percent of the dollars spent annually on the nation's health 
care. 



33 



- 5 - 



The report also concluded that "much of the care that is 
commonly dubbed 'defensive medicine' would probably still be 
provided for reasons other than concerns about medical malprac- 
tice. Physicians have always sought to provide patients with 
the best possible medical care at the lowest risks and would 
continue to do so even without the threat of lawsuits. Because 
much of this 'defensive care' helps to reduce the uncertainty of 
medical diagnosis, it seems unlikely that physicians would 
change their practice patterns dramatically in response to 
malpractice reform." 

To address the subject of "defensive medicine," there must 
be agreement upon the meaning of the phrase. However, there is 
no agreement upon the definition. That uncertainty has re- 
sulted in the inability to statistically measure the cost. In 
published studies, "defensive medicine" has included erroneously 
the cost of the consequence of physicians' financial incentive 
to direct patients for tests and examinations^in facilities in 
which physicians have a proprietary interest. Some have con- 
sidered the cost of new technology and advancements in medical 
knowledge, care and treatment. In that regard, patients expect 
the use of very modern, sophisticated and expensive technology 
to refine diagnosis and eliminate uncertainties. 

Therefore, to examine the impact of the medical-legal 
system, the necessary inquiry is to what extent physicians 
direct medical expenses that are unwarranted for the treatment 
or diagnosis of patients, and are not motivated by personal 
financial interests. In other words, an expense is only 
attributable to the medical-legal system when the sole reason 
for that expense is concern by the physician about a medical 
malpractice claim. There has been no study to measure that 
cost, and there appears to be no basis for assuming that 
competent and reputable physicians impose such expenses upon 
their patients without a justifiable medical reason. 

To the extent that physicians' concern about liability 
results in more conscientious medical care, then "defensive 
medicine" is certainly desirable. When the fear of tort 
liability deters medical injuries, then health care costs are^ 
lowered by avoiding the costs associated with medical injury. 
Thus, if liability concerns are a deterrent, provisions that 
relieve physicians of concern regarding negligent practices can 
actually result in an increase of health care costs. 

Because no reliable studies have been done to estimate the 
cost of so-called defensive medicine, the Office of Technology 
Assessment has been asked to study the issue and is expected to 
complete its study in 1994. 



34 



- 6 - 



HAVE TORT PROPOSALS, WHEN 

ENACTED, LOWERED OVERALL HEALTH CARE COSTS? 

It is often asserted that caps on noneconomic damages and 
elimination of the collateral source rule result in lower health 
care costs for everyone. In general, these types of proposals 
have been enacted only within the last ten years. Insufficient 
time has elapsed, and insufficient data has been gathered t.) 
enable us to be certain of the impact on costs of these propos- 
als. However, from our research and study it appears that these 
proposals have not had any measurable impact on overall health 
costs. In looking into the issue we found that personal health 
care spending per capita approximately doubled throughout the 
United States from 1982 to 1990 regardless of whether a state 
had enacted "tort reforms" and regardless of the type of 
"reforms" enacted. We developed a chart (attached as Appendix 
C) showing the percentage of increase from 1982 to 1990 in 
personal health care spending per capita by state. It is de- 
rived from a February 1992 report entitled "Health Care Spending 
- Nonpolicy Factors Account for Most State Differences," pub- 
lished by the General Accounting Office (GAG) . The GAO report 
utilized 1982 data compiled by the Health Care Financing Admin- 
istration (HCFA) and 1990 estimates from Lewin/ICF. 

As the chart demonstrates, personal health care costs 
approximately doubled from 1982 to 1990 regardless of whether a 
state had enacted tort "reforms" and regardless of the type of 
"reforms" enacted. 

For example, based on the figures utilized in the GAO 
report, the three states with percentage increases estimated to 
be slightly lower than average — Arkansas, Kentucky and 
Mississippi — had no caps on damages in medical malpractice 
cases. Alabama, with a slightly higher than average estimated 
percentage increase, had a cap on damages. Massachusetts and 
California, the two states with the highest estimated personal 
health care costs per capita, had in place a cap on damages. 

Our findings are consistent with other studies. For ex- 
ample, in March 1993, the Coalition for Consumer Rights pub- 
lished False Claims: The Relationship Between Medical 
Malpractice "Reforms" and Health Care Costs . This study found 
there to be "no indication that enacting major tort 'reforms' is 
positively correlated with lower health care costs." In fact, 
the study found that "states with the lowest per capita expendi- 
tures are more likely to have enacted fewer tort 'reforms' 
overall than the average." Regarding caps on damages, the 
Coalition's study concluded as follows: 



35 



- 7 - 



Since the medical establishment has made caps on 
damages its single highest priority, we would ex- 
pect to see some correlation between states which 
have limits on recovery and inexpensive health 
care. However, only 30% of the ten states spending 
the least in health care have enacted limits on 
recovery of damages; 55% of the remaining 40 states 
have such a statute. A closer exaiuination of the 
states ranked by spending shows that there is no 
correlation between the least expensive states and 
limits on damages. 

Our findings are consistent with previous research 
we have conducted on the "health care savings" of 
caps. Indiana has one of the most restrictive caps 
laws in the nation, and yet a 1992 survey of hospi- 
tal bed costs and delivery charges in comparable 
cities in Illinois and Indiana revealed that the 
small variance in fees could not be attributed to 
lower medical malpractice costs coming from caps on 
awards . 

A 1992 study funded by the Texas Medical Association, the 
Texas Trial Lawyers Association and the Texas Hospital Associa- 
tion reported that its findings indicated that "changing the 
medical professional liability system will have minimal cost 
savings impact on the overall health care delivery system in 
Texas. 

The cost of medical malpractice insurance, for the most 
part, reflects the cost of the medical-legal system. In 
contrast to the increase in health care costs, medical malprac- 
tice costs have been relatively stable in recent years. The 
number of medical malpractice claims peaked in 1985, and has 
continued to decline according to the most current figures 
available. From 1985 to 1990, the overall rate declined at an 
average annual rate of 8.9 per cent. 

WHAT ARE THE CONSEQUENCES TO THE PUBLIC OF 

PROPOSALS TO CAP NONECONOMZC DAMAGES OR ELIMINATE 

THE COLLATERAL SOURCE RULE IN MEDICAL MALPRACTICE CASES? 

Proposals of this type are ill-advised. Elimination of the 
collateral source rule solely favors medical professionals by 
passing on the cost of the medical injury to another health care 
provider. Often, an insured person has the benefit of health or 
disability insurance which pays for a portion of the additional 
medical costs attributable to the injuries caused by a 
physician's negligence. Typically, the insurer will assert a 



36 



- 8 - 

lien against its insured's recovery or pursue a subrogation 
claim. Under proposals to eliminate the collateral source rule, 
the negligent physician would get a credit for the insurer's 
payment, and the insurer could not recover from the person who 
injured its insured. An obvious consequence of the loss of lien 
and subrogation rights by a health or disability insurer will be 
an increase in those premiums. Where government proposals pro- 
vide such insurance, government health care costs would 
increase. The net result is no reduction in health care costs 
but a windfall benefit to the defendant medical professional and 
his or her insurer at the expense of the injured person. 

Proposals to limit noneconomic damages deprive individuals 
of compensation for the consequences of medical malpractice 
injuries. No one has stated that such injuries are not real or 
severe. In fact, noneconomic injuries may far exceed the eco- 
nomic damages. These proposals, if enacted, would make 
seriously injured persons who are the least able to afford it 
receive less than full compensation while less seriously injured 
persons would be fully compensated. This would be grossly 
unjust. 

A bottom line is whether the economic benefits to the 
public in reducing health care cost is significant enough to 
warrant depriving other members of the public — injured persons 
— of full and adequate compensation from those responsible for 
their injuries. With the cost of the entire medical-legal 
system constituting less than one percent of health care costs, 
a pertinent inquiry is whether such proposals would have any 
noticeable impact except upon injured persons. 

Such proposals would not eliminate the less than one 
percent of health care costs attributable to medical profes- 
sional liability since no one seriously urges that the medical 
profession should be immune from liability. Rather, such pro- 
posals are directed at those injured persons who are ultimately 
compensated. These victims of medical negligence are the 
subject of such proposals. Any savings in the cost of health 
care would be a small fraction of a percent. Thus, even on an 
economic analysis, such proposals, if implemented, will not have 
a measurable impact upon the cost of health care. Such 
proposals, however, would impact severely and dramatically upon 
the persons who are victims of medical malpractice. 



37 



- 9 - 



SHOULD ALTERKATIVE DISPUTE RESOLUTION 

BE INCLUDED IN A NATIONAL HEALTH ACCESS PROPOSAL? 

The ABA has long supported the use of various methods of 
alternative dispute resolution (ADR) and was an early leader in 
advocating for its use. We encourage providing appropriate ADR 
options in a national health access proposal as an efficient 
means of expediting medical malpracvice claims. 

In 1976, the ABA co-sponsored a conference in St. Paul, 
Minnesota. The conference sought to address two principal top- 
ics: "What types of disputes are best resolved by judicial 
action and what kinds are better assigned to another more 
appropriate forum?," and "Can the interest of justice be better 
served with processes less time-consuming and less expensive?" 
The conference discussions led to the appointment of a "Pound 
Conference Follow-up Task Force," under the chairm.anship of 
Judge Griffin Bell. The Task Force published a report with 
numerous recommendations for justice reform in August, 197 6. 

A principal recommendation of the report is that a variety 
of innovative dispute resolution techniques be explored: 
arbitration, mediation, revitalized and expanded small claims 
courts, and the concept of a "neighborhood justice center." 

In 1977, when the ABA established its Standing Committee on 
Dispute Resolution, that subject was relatively obscure; how- 
ever, during the past 16 years, the ABA through its Standing 
Committee and its newly established Section on Dispute Resolu- 
tion, has chartered the nation's dispute resolution agenda. The 
Multi-Door Courthouse, school mediation and police dispute reso- 
lution programs were unknown concepts until after the ABA's 1976 
Conference on Improvements in the Administration of Justice. 

Today, the dispute resolution world is dramatically differ- 
ent. Much has happened, in part because of ABA leadership. The 
extensive work of the ABA is described in a document entitled 
the ABA Blueprint for Improving the Civil Justice System . 
Copies of the "Blueprint" are available upon request. 

The ABA'S House of Delegates has adopted four resolutions 
relevant to ADR and medical malpractice. The resolutions call 
for the following: 

1. To promote continued use of and experimentation 
with ADR, both before and after suit is filed, as 
welcome components of the justice system. 
(Adopted August 1989.) 



38 



- 10 - 

2. Consistent with the attached ABA policy 
(Appendix D) , to support the increased use of ADR 
by federal agencies, which included support for 
the recently passed Administrative Dispute 
Resolution Act of 1990. (Adopted August 1988.) 

3. To support the use of arbitration for resolution 
of medical malpractice disputes under circum- 
stances whereby the agreement to arbitrate is 
entered into only after a dispute has arisen. 
(Adopted August 1977.) 

4. To support the voluntary use of arbitration so 
long as the parties have full knowledge that once 
entered into, the arbitration panel's decision is 
final and binding; and that arbitration panels 
should consist of one impartial arbitrator in 
"small" claims cases and three arbitrators - an 
attorney, a physician, and a layman in larger 
claims cases. (Adopted August 1976.) 

The ABA is concerned about achieving a more expeditious and 
economical resolution of medical malpractice litigation. 
Voluntary alternative dispute resolution, for example, has 
gained acceptance as an alternative to litigation. The ABA rec- 
ognizes the importance of the development and use of ADR methods 
other than full judicial trials for resolving legal disputes. 
ABA policy supports the "continued use of and experimentation 
with alternative dispute resolution techniques both before and 
after suit is filed," so long as they assure that every 
disputant's constitutional and other legal rights and remedies 
are protected. Of course, such concepts have equal validity in 
litigation against any defendant, and no special justification 
exists for being applied only in cases involving medical 
professionals. 

The use of voluntary alternative dispute resolution 
techniques is consistent with the relevant policy considerations 
of attracting to an overburdened judicial system the independent 
and impartial services and expertise upon which that system 
necessarily depends. Besides relieving court congestion and 
speeding up the conclusion of cases, these alternative dispute 
resolution procedures are often less expensive and less 
stressful than seeing a case through its normal trial path. 

Thank you for giving us this opportunity to present our 
views to you. 



39 



- 11 - 



ENDNOTES 

Testimony, Robert D. Reischauer, Director, Congressional 
Budget Office, Statement before the Committee on Ways and 
Means, U.S. House of Representatives, March 4, 1992. 

Congressional Budget Office, Economic Implications of Rising 
Health Care Costs (October 1992) page 27. 

The American Medical Association has estimated the cost of 
defensive medicine based upon a survey of physicians who 
were asked, for example, whether they ordered more tests 
because of the perceived risk of a medical malpractice 
claim. The AMA, moreover, recognized other .reasons con- 
tributed to an affirmative response, stating, "like other 
defensive measures, all defensive medicine cannot be 
characterized necessarily as overuse but can reflect 
necessary improvements in patient care." Statement on behalf 
of the American Medical Association to the Senate Finance 
Subcommittee on Medicare and Long Term Care Regarding 
Medical Liability Reform, October 16, 1991, page 4. 

The Physician Payment Review Commission (PPRC) has 
questioned such figures, noting that "Studies that use 
physicians' estimates of the amount of defensive medicine 
they practice are not sufficiently reliable to make 
quantitative estimates." Phvsician Payment Review Commission 
1991 Annu al Report to Congress, 
page 374. 

Naurk N. Cooper, "Physician Self -Dealing for Diagnostic Tests 
in the 1980s: Defensive Medicine vs. Offensive Profits," 
Consumer Federation of America, October 3, 1991, reported 
that the rapid spread of physician ownership of diagnostic 
testing facilities is a much more likely cause of rising 
diagnostic costs than fear of malpractice liability. 

A January 1991 study by the State of Florida's Health Care 
Cost Containment Boeurd looked into physician ownership of 
health care facilities. It found that joint ventures among 
health ciure providers resulted in higher health care costs 
due primarily to the over-utilization of services. 

A study of radiation centers in Florida found that 
doctor-owned centers appeared to result in a substantial 
increase in use and cost of the services. See Mitchell, 
Jean N. ; Sunshine, Jonathan H.; "Consequences of Physicians' 
Owiership of Health Care Facilities - Joint Ventures in 
Radiation Therapy, The New England Journal of Medicine. 
Vol.327, No. 21, Nov. 19, 1992, 
pages 1497-1501. 



40 



- 12 - 

Another study examined workers' coinpensation claims in Cali- 
fornia and found that self-referral increases the cost of 
medical care covered by workers' coinpensation for physical 
therapy, psychiatric evaluation services and MRI Scans. 
Swedlow, Alex; Johnson, Gregory; Smithline, Neil; and 
Milstein, Arnold, "Increased Costs and Rates of Use in the 
California Workers' Compensation System as a Result of 
Self -Referral by Physicians," The New England Journal of 
Medicine . Vol.327, No. 21 Nov. 19, 1992, pages 1502-1506. 

^ Patricia M. Danzon, "Liability for Medical Malpractice," 

Journal of Economic Perspectives . Vol.5, No. 3, Summer 1991, 
pages 51-69. Ms. Danzon concludes that liability concerns 
have brought about some efficient changes in practice. 

The Physician Payment Review Commission Annual 1991 Report 
also discusses other possible causes of inefficient and in- 
appropriate defensive medicine. 

* Physicians and hospitals often benefit financially by 
delivering more care. 

* Insurance does not deter physicians from ordering 
additional tests because insurance provides funding for 
that which a patient could not otherwise afford. 

* So-called defensive medicine practices often have become 
the standard of care adopted by the medical community, and 
reflect an advancement in technology or care. 

^ Testimony, Robert D. Reischauer, Director, Congressional Budget 
Office, Statement before the Committee on Ways and Means, U.S. 
House of Representatives, March 4, 1992, Appendix F, page 32. 

^ Andrea Dubin . False Claims: The Relationship between Medical 
Malpractice "Reforms" and Health Care Costs, prepared for the 
Coalition for Consumer Rights. March 1993. at Page 2 . 

^ Medical and Hospital Professional Liability," a report prepared 
for the Texas Health Policy Task Force by Tomm and Associates, 
July 1992. 

^° 1989 Profitability Study (By Line By State) 1990 Profitability 
Study (By Line Bv State) . 1991. Profitability Stud v (Bv Line By 
Stated . 1992 Profitability Study. fBv Line Bv State) . National 
Association of Insurance Commissioners, 1990, 1991, 1992 and 
1993. 

^^ Martin L. Gonzalez "Medical Professional Claims and Premiums 
1985-1990," Socioeconomic Characteristics of Medica l Practice 
1992 . page 23. 



41 



RESOLUTION APPROVED BY THE 

AMERICAN BAR ASSOCIATION 

HOUSE OF DELEGATES 

February 11, 1986 



APPENDIX A. 



Be It Resolved, That 

(1) The American Bar Association urges appropriate ABA entities, such as 
the Action Commission to Improve the Tort Liability System and the Com- 
mission on Professionalism, to continue to consult, where appropriate, with 
representatives of the American Medical Association and others in the health 
care industry, the insurance industry, state and federal governments and ap- 
propriate segments of the public with the goal of seeking a broader consensus 
on how more equitably to compensate persons injured in our society. The 
problems associated with medical professional liability are common to all 
areas of tort law and should be evaluated in the context of their broader im- 
plications for the tort system as a whole. The legal and medical professions 
should cooperate in seeking common solutions to these problems and should 
avoid any efforts to polarize the discussion of these problems, which would 
serve neither the public interest nor the interests of either profession. 

(2) Consistent with these goals, the American Bar Association adopts the 
following principles: 

a. The regulation of medical professional liability is a matter for state con- 
sideration: and federal involvement in that area is inappropriate. 

b. There should be rigorous enforcement of professional disciplinary code 
provisions which proscribe lawyers from filing frivolous suits and defenses: 
and sanctions should be imposed when those provisions are violated. 

c. There should be more effective procedures and increased funding to 
strengthen medical licensing and disciplinary boards at the state level: and ef- 
forts should be increased to establish effective risk management programs in 
the delivery of health care services. 

d. No justification exists for exempting medical malpractice actions from 
the rules of punitive damages applied in tort litigation to deter gross miscon- 
duct 

e. No disclosure of financial worth by a defendant in a tort action should 
be required unless there is a showing by evidence in the record or proffered by 
the plaintiff that would provide a legal basis for recovery of punitive damages. 



42 



- 2 - 



f. Notices of intent to sue, screening panels and affidavits of non-involve- 
ment are unnecessary in medical malpractice actions. 

g. No justification exists for a special rule governing malicious prosecution 
actions brought by health care providers against persons who sued them for 
malpractice. 

h. Trial courts should scrutinize carefully the qualifications of persons 
presented as experts to assure that only those persons are permitted to testify 
who, by knowledge, skill, experience, training or education, qualify as 
experts. 

i. The collateral source rule should be retained; and third parties who have 
furnished monetary benefits to plaintiffs should be permitted to seek reim- 
bursement out of the recovery. 

j. Contingent fees provide access to the courts; and no justification exists 
for imposing special restrictions on contingent fees in medical malpractice 
actions. 

k. The use of structured settlements should be encouraged. 

1. Collection and study of data on the cost and causes of professional liabil- 
ity claims should be undertaken to evaluate and develop effective loss preven- 
tion programs. 



43 



X 
M 

" MLSOLirrioN ArriavED •! thc 

ph amoiidui iar assocuTioh 

<: House or oEiccATes 



February U'lJ, 1987 
(Kaporc No. 121) 



If |c Mio l ¥f4 » That th« A 
ch« I8II5wlB|~fIe3aji«a4«clooc: 



Afl«rlc«o lar Aaaoclcdoa adopct 



A. I niurancf 

1. Tb« Aaaricao lac Aaaociation ahould aacabltab a 
coaalaaion Co atudy aod racoaaaod vaya to ioycova eho lUblllcy 
tnauranea ajracaa aa Ic aCfacCa tha tore ayataa. 

B. Pain and Suffartnf Daa ai aa 

2. Thara ahould b« no colltoga oo polo and auf faring 
daaaiaa, buc loataad trial aod appallato courlt ihould oaka 
fraatar uaa of tha powar of raalttltur or addltur ultb 
rafaraoea to vardlcta ableb aro altbar ao aicaaalva or 
Inada^uata aa to ba elaarlv dlaproportlooata co coaauoUy 
aBpoctatlooo bf aactlog aaldo aucb vardlcta uolaaa tha alfactad 
partlaa agraa to tha aodlflcaeloo. 

3. Goo or aora tort award ceaalaalooa ahould ba 
aacabllahod, whleh aould bo oapoiforod Co rotlow tort awarda 
durlog tba aracadlna ft, publlata loforaatlao ea traada, and 
auifaac guldallnaa lor futuro trial court raforooca. 

4. Opdooa ahould bo osplorod by approprlata AbA 
antUlaa nhathor addltloool gutdOMO ••■ aid ihould bo glvoo to 
tho Jury oo tho raoto of daaagoo to bo awardad for pain and 
•uffarlng In a particular caaa. 

C. Punltl v <^ paaaioa 

5. funltlvo daaagoo Imvo a plooa In opproprlato 
€•••» aod thoroforo ahould sot bo abollibod* Hoooaor, tho 
aeopo of puatclvo daaagoa ahould bo oarrowod through tho 
foilowlog aoaauroa: 

•• Staodard a of Conduct and froo| 

Fuoltlvo daaogoo ahould bo llaltod to caaaa 
warranting apoclol aaocclooo aod abauld oat ba coaaooplaco. A 
tbroabold rooulroaaot for tho auboiaaloo of o puoitlvo daaagao 
caaa ta tha flndac of fact ahould bo chat tho dofoedaot 
daaanitratad a eooaeloua or dollborato diarogard uitb raapacc 
to tha plalotlff. Aa a furthar aafaguacd, too ataodard of 
proof CO ba appllad ahould bo "cloar and coovloclog" ovldaoco 

aa eepoaad to oov loaaar acandard auch aa "by a prapoodaranca 
of tho ovldoaco. f r r 



44 



Th« Procasa of Daclalon 



(*) tiSlIllil ' Apsroorlac* pr«>Crlal procaduraa 
•hould b« roudoaly utilliio to •llsia«t« Iriveleua claias (or 
pualtiv* daM|«« prior Co trial, with • ••vio|0 ■•ehaetaa 
•valUbl* for lata dlacovary of alacontfuee aaaeioi tha aeandsrd 
of llabllley. 

(^) Ilili ~ Cvldaoca of ooc worth aod othar 
avldaoca ralavaot oolv to tho «u«ttioa of punlttv* daaaiat 
ordioarlly abould bo iotrodueoJ calf aCtar tha dafaadaat'a 
llabltttv for ceapooaatorx daaa|oa and tha aaouot of ehoca 
daaafaa hava baao dacaraioad. 

(1) Poat- Xr| al - Aa a chack at«in«C aacaaalva 

tuntciva daaaaa awarBa, varllcca locludla| auch awarda ahould 
a aubjactad to eleaa acruttay by tha eaurca. Tha trial courc 
ahould ordar raalttltur wharovar Juatlflad. Cacaaalvaoaaa 
•hould ba avaluaead la llfbt ol tha dagraa of raprahaaalbllUy 
of tha dalaedint'a «et«, tha rlali uodactakaa by tha plaintiff, 
tha actual iojury cauaad, tha aat warth of tha dafandant, 
ithathat tha dafaodant haf raloraad Ita coaducC aad tha dacraa 
of dapartura frea typical rattaa (•• raflaetad lo tha baat 
avallabia aaplrlcal data) batvaan caapaaaatarr and puoltlva 
daaaiaa. If oaeaaaarjr to aaaura auch Judicial ravlaw, 
aptraprlata laalalatlon ahould ba aaaclad. Oplalaaa laauad by 
trial ar appallata coucta althar uphaldlai or aodlfylat an 
aaard ahould apaclfy tha (actora which vara cooaldarad and 
rallad upon. 

e. Multi pla Judiaant Torta 

Vhlla tha total aaouot of any puoltlva daaafaa 
awardad should ba ada^uata to aeaaMliil> »• furaaaaa of 
puQielvo daaaiaa, approprlatt aafaguarda ahould ba put lo forca 
to pravaet any dafaadaot froa halB| tuhJacKad to auoltlva 
daaagaa that ara aacaaalva la tha a||ra|ata for tha aaaa 
wranpful act. 

d. ytcarloua Liability 

Vlth raapacC to vicarlaua liability for puoltlva 
daaaaaa, tha pravlalaaa of laccloa lOf of tha laatataaaot 
(•aaaod) of Tatta (lf7f) abould apply. ta|lalaturaa and courca 
ahould ba aaaaltlva to adeptlaa approprlota ••f;f«f5^« «'»^ 
pratact tha oaatar or prlnelpal fraa vlaarloua liability for 
tha unauthorlaad acta of nooaanagarlal aarvanta or a|aata. 

a. To Whoa Awar da Should la Paid 

In carta In puoltlva dasagaa caaaa» auch •» corca 
involvloa peaalblo aultlplo JudMoata a|alaat tha ••mm 
dafaadaat. a caurt could bo autiorlaad ta dataralaa what la a 
raaaooabla portiao of tha auoltlva daaapaa award ta coapaoaac* 
tha plalatilf aod cauoaal far hrloglai Kha actlao and 
praaacutlag tha pualtlva dasaga clala* vlth tba balaoca of cha 



45 



•ward Co ba allocacad Co public purpoaac* wtiftcn couto lovoiva 
■achodt o( daailog «lch ■ultlpla tore cl«iaa iucb m* 
conaolldatloo of claiaa or ferat of data aeclooa. Tba oovaley 
of aucb propoaalfl aod tha abaaoca of aaj adaquacaly Caacad 

{rograaa for iaplaaaaclng raquira furChar aCudy bafora ae 
oforaad judaaaoc eao ba sada aa co whatbar, or Co «hac accanc, 
•ueh propoaala vlll Mork la praeclea. Vm urga aueh acudlaa. 
Tba coocapt of public allocatloo of porCioaa of pualciva daaaga 
awardc in slaila Jud|aaoe aetlonc !• alao iforthy of 
coaiidaratloo to Cho aicaoc workabla aachodo of iaplaaaacacion 
aay haraafcar ba davalopad. 

D. JolnC-aod-Savaral Ll a bl liCy 

6. Tha deccrioa af joiac-aod*aavaral llabillcy 
ahould ba aodlClad co racoaatsa chac dafaadaoCi abaca 
raapeaalbillty la aubaccaclally dicpraparclaaaka Co llabillcy 
for cba aacira laai cuffarad by tba platatiff ara co ba bald 
liabla for ooly chair aquieabla chara of cba plaiociff'i 
noaaconoaic lota, whila raaaloiof liabla for Iba plaioclffc 
full acaaoale loaa. A dafaodaot'c ratpootibility tbould ba 
rafordad ac "aubacaocially dicpraportiaaata** ahao ic ic 
•l|oificaocly lace chao any of Cho ocbor dofoodaoec; far 
aaaapU. whao ooa of Cwo dafaadaata If dataraioad Co ba laaa 
chao lit raaponalbla for Cba plalaclff'a lajury. 

E. Accoraaya* Tmmt 

7. Faa arraogaaaaca alcb aacb party la core cfa 
should ba sac farcb la a inrittao aaraaaaal Chac claarly 
idaaclfiaa cha baaia ao wbleb tha iaa ia Co ba calculatad. lo 
addlclan, bacauaa aaoy plaiaciffa aay aac ba faailiat aicb cha 
varleua waya chac caaciagaacy faaa aay ba caleulacad* Cbara 
ahould ba a raqulraaaac cbat cba cootiagaaey faa iaforaaclaa 
fara ba glvaa Co each plalatiff bafara a eaaciogaaey faa 
agraaaant ia algoad. iba coataac of Cha iafomatiao fora 
abeuld ba apatifiad ia aacb Juriadiecioa aod ahould locluda ac 
laaac cha aaiiaua faa oareaacaaa, if any, ia Cha JuciadleCioOt 
cha epciao af uaiog diffaraac Iaa parcaacagaa dapaadiag aa cha 
aaauat of tfork Cba arcaraay haa daaa ia abtaiaiag a racevary, 
aad cba apCioa of uaiag faa parcaaCagaa that daaraaaa •• cba 
alaa of a racavary iacraaaaa. Tha fara ahould ha ariccao la 
plain Eogliab, aad, whara appropriaca, oChar laaguagaa. 

g. Courca ahould diacouraga tha praccica of caklog a 
parcancaga faa ouc Of Cha graaa aaauat af any judgaaac or 

sacclaaaac. CooClagaoC faaa ahould aoraally ba baaad ooly oo 
cba aac aaeunc racovarad aftar liciaatioB dlahuraaoaaca auch •§ 
filleg faaa, dapoaitloa coaca, trial traoacripta, traval, 
aapart aitoaaa faaa, and othar •nfn§»§ oacaaaary Co conduce 
cha liclgaCloa. 

9. Upea coaplaiac of a paraaa aha haa rocaiaad 
couaaal, ar wha ia ra^uirad to pay cauaaal faaa* tha faa 
arraagaaaat aad cba faa aaauat hilla4 aay ba aabaittad ta cha 
caurt or othar aparopriata public hady, which ahould hava tha 
aucharlcy Co diaallaa, aftar a haariag, aay portioa af a faa 
found Co ba "plainly aseaaaiva" ia light af pravaillag racaa 
aod praecicaa. 



iiy 



46 



Sycr«cy and CotcIv Air«#fot» 

10. Uhar* loCociMeioo obtaload undar ••cracy 
iraaaaoK* (•) lodlccta* riak o< baaarda to otbar paraoaa, or 
») ravaala avldaoca ralavaat to clataa baaad oa aueb bagarda, 

court* flhould ordloartlf paralt diacloaura of aucb ioloraatloa, 
afear hear log , to otbar plaiotlfCt or to govoroaaoc agaociaa 
vbo agraa to ba boued by approprloto agraoaoott or court ordara 
to protaet tbo coofidaotiallty of trado aaerata aod aaoaltlva 
proprlatatj iaforaatioo. 

11. No protactiva ordar abould coatalo aoj provlaloo 
tbat raqulraa ao attoroay for a ploiatlff ia a tort action to 
daatroy loforaatloc or rocorda furoltbod purauaoc to tueh 
ordar, locludiog tha atteroay'a oocat aod otbar vork product, 
uolaaa tha attoroay for a plalotlff rofuaaa to agraa to ba 
bouod by tha ordar aftar tna caaa baa baao coacludad. Ao 
attornay for plalatitf ahould oaly ba roquirad to rocura coplaa 
of docuaaott obtaioad froa tbo dtfaatfaot oa eoodttloa that 
dafandant atraaa not to daatroy Mf aucb docuaoata ao that thay 
will ba availabla, undar approprlata eircuaitaacaa, to 
govarnaant aganclaa or to othar litlgaota ia futura caaaa. 

12. Aoy provlaloo in a aattlaaaat or othor agraaaant 
Chat prohibita ao attorooy froa rapraaaatiag any otbar claiaant 
in a aiailar actioa againat tba dafaadaat aaould ba void aad of 
no of fact. Aa attornay abauld not ba paralttad to aigo auch ao 
agraaaaat or raquaat aaothor attoroof to do ao. 

G. Straaalininn tha Lltiaatioo frocaaa: Frivoloua Claiaa 



lla-Dglacaaaa'"*Pa{a^'*' 



13. A "faat track" ayataa ahould ba adoptad for tha 
trial of tort ctf»» la racoaaaadiaf auch a ajataa, «a andoraa 
a policy of active judicial aaaagaaaat of tbo pra*trial pbaaaa 
of tort lltlgatioa. Ha aaticipata a ayataa that aata up a 
rlgoroua pra*trial achadula vith a aoriaa of doadlinaa intandad 
to anaura that tort caaaa ara raadv to ba placed oa tba trial 
calaodar within a apaciCiad tiaa altar flllag aad triad 
preaptly tharaaftar. Tha eourta ahould aaforca a fira policy 
againat continuaoeaa. 

14. Stapa ahould ba takao by tha eourta of tha 
varioua atataa to adopt proeaduraa far tha caatrol and 
liaitatioa of tho aeopo and duration of diacavorv in tort 
c»»9». Tha eourta ahould conaidar, aaoog othar Inltlatlvaa: 

(a) Ac ao aarly achaduling coofaraoca, ILaldng 
cha nuabar of tocarrogatoriaa any party aay aarva, aad 
aatabliabing cha nuabar aad tiaa of dapoaitiooa aecordiog co a 
fira achadula. Additloaal diacovary could ba allovad upon a 
ahowlng of good cauaa. 

(b) Whan apprepriata* aanctioning accoraaya and 
othar paraona tor abuaa of diacovary proeaduraa. 



47 



13. Scand«rd« thoutd b« fldopcad •ub«ccocl«lly aiailar 
to chosa ft forth lo lut« 11 of th* todoral Rul«« of Civil 
frocoduro •» • •••oa of diaeourtflnf dilatory aotioaa praetlca 
and frlvoloua claiaa aad dafanaoa. 

16. Trial Judfoa ahould carafully asaaioot oo a 
caaa-bycaaa baaia, whathar liability aod daaaga iaauaa can or 
ahould ba triad aaparataly. 

17. Nonuoaniaoua Jury vardicta ahould b« paraittad In 
tort caaaa, auch aa vardieta by fiva of bIm or taa of tvalva 
Jurora. 

18. Uaa of tha varioua altaroativa diaputa raaoludon 
aachaoiaaa ahould b« aaeouraitd by fadaral aod atata 
lagialaturaa. by fadaral aad acata eourta. aad by all partiaa 
who ara llkaly to, or do baeoaa iovolvad in tort diaputaa uith 
othara. 

H. Injury Pravaatioo/Kaductioo 

19. Aetaatioo ahould ba paid to tha dftacipliaiaf of 
all licaoaad profaaaionala through tha followiag aaaauraa: 

(a) A coaaitaaat to iapeaa diacioiiaa. whara 
warrantad, and fuadiaf of full-tlM ataff for dladplioacy 
auchorleiaa* Olaeipllat of lawyort tboald eaaelaua to ba tha 
raapoaalblllty af tba highaat judicial autharlty In aach atata 
io ordar to aafaguard tha righta of all citiiaoa. 

Jbl to avarr caaa io uhich a claia of oagligaoco 
ul caaduet la oada agalaac a licaoaad 
profaaaioaalf^ralatlof Ko bla or hoc profaaaiooi aod a Judgaaot 
for tha plaiattff ia aotorod or a aattlaaaac paid to an iaiurad 

Earaea, tha iacuraaeo oarrlor» or io tba abaaoca of a carriar, 
ba pUiottff'c accotooy. ihould report tbo face aad tho aoouot 
of payaant to tho licooaiog outboclty* Any agraaoaat to 
withhold auch ioforaoCloo ond/or to eloao tho filoa froo tha 
diacipltoary authortttaa ahould ba uaaatorcaabia ma eoatrary co 
public policy. 

I. Maaa Tort 

20. Tha Aaarlcao lar Aaaaciatioo ahould oatabliah a 
coaaiaaioo •• aooo oa faaaibia, iaeludlag aaabara vltb 
aapartiaa ia tort la«» loauraoco, aaviroaoaatal policy, civil 
procadura, aod ragulatory daatgo. to uodartako a cooprahaoaiva 
atudy of tha aaaa tort probloo with cho goal of offarlag a aat 
of concrata propoaalc for daaliog io a fair aad afficiaot 
■aooar with thoaa caaaa. 

J. Concludlna Kacoaaondatioo 

21. Aftar publicatlan of tba raoort, tha ABA Actioa 
Ceaaiaaioa to laprova tho Tort Liabilicy Byataa ahould ba 
diaehargod of ita aaaignaMOt. 



48 



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52 



RESOLUTION APPROVED BY THE 
AMERICAN BAR ASSOCIATION 
HOUSE OF DELEGATES 
AUCUST 1988 



o 

X! Bt It Rtiolvid. Thai (he American Bar Auociaiion tiipporii ihc 

Q increatrd uie of alicmaiive mean* of ditptiie rrM>liiiioii ht Frdcral 

g jdininisirjiivc jgciiriet consiMeni with ihe folli>Hmn 

% A. General 

I Adminitiraiive agencies ihoiild adopt aliemaiive meiliii<l> ul 
diipiiie resoliiiinn lor resolnng a broad range of itiiict. The^e 
lechniqiiet include arbiiraiion. lacifinding. miniirijlj. Jnd 
mcdiaiioii The issue* for which ihev mav he emploved in- 
clude mailer* ih.ii ari*e in formal or informal ad)udic.iiioii. in 
nilemaking. in issuing or reraking permit*, and in irithng 
dispute*, including luigaiion brought hv or againii ihe govern- 
ment. 

2. Congre** and the court* *hniild not inhibit agency use* of ihe 
ADR technique* bv requiring formality where it i* 
iitappropriaie. 

B. VnluMMy Aibimilan 

3. Congre** *hould act to permit eaecuthw branch olTicials lo 
agree to binding arbitration to retolve coniroversie* This 
legislation ihould auihoriie any executive ofTicial who ha* 
auihoriiv to *ettle a matter on behaif of the government lo 
agree to arbitnuon, either prior lo the lime ■ dispute may arise 
or a/tcr a conuovcrsy hu maitired. lubfcci to whatever may be 
the *uiuioiy auihoniy of the CompiroUcr General to determine 
whether payment of public funds i* warranted by applicable law 
and available appropriations. 



A. CongrcM should auihoriie agencies to adopt arbitration pro- 
cedure! to rcsohre matiers thai ««ould oihciwisc be decided by the 
agency pursuant lo the Administrative Procedure Act ("APA") or 
other formal procedure*. These procedures should provide that: 

(a) All parties to the di*pute must knowingly consent lo use ihe 
arbitrauon procedures, either before or after a dispute ha* 
ari*cn. 

(b) The parue* have tome role in the selection of arhiiraiors. 
whether by actual selection, by ranking those on a list of 
qualified arbitrator*, or by *iriking individual* from such a 
li*l. 



53 



(c) Arbiiraiori need not be permanent govemmeni emploveet. 
but may be mdividualt retained by the pariiet or (he govern- 
nieiii (or (lie purpoie of arbitrating the matter. 

(d) Agencv review of the arbnral award be pursuant to the ttan- 
dardt (or vacaung awardi under the L.S. Arbitraiion Act. 9 
U S.C $10. unlcu the award does not become an agencv 
order or (he agency doei noi have any right of review. 

(e) The award includei a brief, informal diicuuion of in factual 
and legal basis, but neither formal Hndings of fact nor con- 
clusions of law. 

(D Any judicial review is pursuant to the limited scope-of-review 
provisions of the U.S. Arbitration Act. rather than the broad- 
er standards of the APA. 

(g) The arbitral award is enforced pursuant to the U.S. .Aibiira- 
lion Act but it without precedential effect for any purpose. 

5 Factors bearing on agency use of arbitration are: 

(a) Arbitration is likely to be appropriate where — 



(1) The benefiu thai are hkely to be gained from such a 
proceeding ouiwcigh (he probable delay or cosu re- 
quired by a full irial-iype hearing. 

(2) The norms which will be used to resolve the issues raised 
have already been established by suiuie. precedent, or 
rule, or the parties CKpliciily desire (he arbiirator to 
make a decision based on some general sundard. such as 
"jut(ice under the circumstancci." withou( regard lo a 
prevailing norm. 

(3) Having a decisionmaker with technical experiise would 
faciluaic the resolution of the matter. 

(4) The panics desire privacy, and agency records subject to 
disclosure under the Freedom of Information Act are 
not involved. 



54 



(b> Afbiiration i> likely lo be inappropriate where — 

(1) A deriniiive or luihoriiaiive retoluiion of ihe maticr ii 
required or deiired for iit precedential value. 

(2) Maintaining e»iabli»hed norms or policiei i» o( ipecial 
imporunce. 

(3) The caie iignincanily afTecu persons who are not patties 
to the proceeding. 

(4) A full public record of the proceeding is impoiiani. 

(5) The case involve* significant decisions as to govemmeni 
policy. 

C. Mandaioiy Arbimiion 
Arbitration is not in all iniiancci an adequate substitute for a 
trial-ivpe hearing pursuant to the APA or for civil litigation. 
Hence. Congress should consider mandatory arbitration onlv 
where the advantages of such a proceeding are clearly out- 
weighed bv the need to (a) save the time or transaction costs 
involved or (b) have a lechnical e«pert resolve the issues. 



Mandatory arbitration it likely to be appropriate onlv where the 
matieri lo b« resolved — 

(a| Are not intended to have precedential effect other than the 
resolution of the specific dispute, except that the awards may 
be published or indexed as informal guidance: 

(b) May be resolved through reference to an aKertainable norm 
such as statute, rule or custom; 

(c) Involve disputes between private parties; and 

(d) Do not involve the establishment or implementation of ma- 
jor new policies or precedenu. 

Where Congress mandates arbitration as the exclusive means to 
resolve a dispute, ii should provide the same procedures as in 
Paragraph 4. (b) • (g) above, except that judicial review should be 
pursuant to the Administrative Procedure Act. but with the 
couru' bearing in mind the purposes to be gained by arbitration. 



55 

Mr. Brooks. Mr. Keener. 

STATEMENT OF ROBERT C. BAKER, PRESffiENT, AMERICAN 
BOARD OF TRIAL ADVOCATES, PRESENTED BY KARL A. 
KEENER, BAKER, SILBERBERG & KEENER 

Mr. KEEhfER. Thank you, Mr. Chairman, members of the commit- 
tee. 

Mr. Brooks. I know lawyers can't stay within 5 minutes, but 
let's make a better effort- 
Mr. CoRBOY. I was waiting for a red light. I apologize. 

Mr. Brooks. Gro ahead, Mr. Keener. 

Mr. Keener. Five minutes, Mr. Chairman. My law partner, Rob- 
ert Baker, national president of ABOTA, the American Board of 
Trial Advocates, has submitted to this subcommittee his written 
testimony. 

At the time that Mr. Baker requested the opportunity to testify 
before this subcommittee, the hearing date had not as yet been set. 
Unfortunately, he had a longstanding business commitment outside 
of the country that could not be canceled. 

He therefore asked me as a member of ABOTA and as his law 
partner to appear in his stead. ABOTA is a national association of 
more than 4,000 prominent trial lawyers and legal scholars 
throughout the United States. Our membership is almost evenly di- 
vided between lawyers representing plaintiffs and defendants. 

In order to be considered for ABOTA membership, one must have 
tried at least 20 civil jury trials, to verdict and be approved for 
membership by the local chapter and the national board. My part- 
ner, Robert Baker, brought to the presidency of ABOTA over 20 
years of practice specializing in the defense of physicians in south- 
ern California. 

It is from this perspective that Mr. Baker has presented his opin- 
ions concerning the California experiment with its provisions — 
most of which or many of which now appear in proposed Federal 
legislation. I should note that in my firm, which consists of 35 law- 
yers, the vast majority of our practice is devoted to defending phy- 
sicians. 

In our view, while California's malpractice reforms may have 
aided insurance companies and to a lesser extent some physicians, 
it has been harmful for the victims of medical negligence. As a re- 
sult of caps placed on noneconomic damages, and limitations on at- 
torneys' fees, most exceptionally competent plaintiffs' attorneys in 
California simply will no longer handle medical malpractice cases. 

Medical malpractice cases can take years to resolve and literally 
thousands of an attorney's hours and dollars. They are notoriously 
risky for a plaintiffs attorney to handle, because approximately 80 
percent of all medical malpractice cases that go to trial are won by 
the defendants. 

They are exceedingly expensive to prepare and try. A physician's 
consent to any settlement is required under their insurance policy, 
and thus the physician controls whether or not a case is settled or 
tried. And physicians frequently refuse to consent to settlements 
because of their fear of the reporting requirements of the medical 
board of California and the National Practitioner Data Bank. 



56 

As a result, those attorneys who choose to handle malpractice 
cases concentrate only on those cases that have high economic 
damages associated with them, such as the brain damaged baby, 
or the wrongful death of a significant wage earner. 

The end result is that patients who suffer noncatastrophic inju- 
ries are effectively left without representation. This is particularly 
true of homemakers, low-wage earners, and senior citizens. 

If by settling, a physician is going to be reported to the National 
Practitioner Data Bank and/or the medical board, he or she has 
very little to lose by proceeding to trial where there is an 80 per- 
cent chance of winning. 

In H.R. 3600 there is the reporting requirement that allows the 
public to obtain access to information contained in the National 
Practitioner Data Bank. In addition, there are provisions for ADR 
process through which consumers are required to first attempt to 
resolve the claim. 

Similar to the situation in California under MICRA, these two 
provisions work at cross-purposes. First, mandatory ADR is veiy 
expensive for both sides, and either side can opt to go forward with 
the litigation. If the patient wins, the physician has little to lose 
by seeking the jury trial to which he or she is entitled. 

If the Congress is intent on enacting malpractice reforms, and we 
hope you are not, which include mandatory reporting to the Na- 
tional Practitioner Data Bank, then we submit tnat this committee 
should consider incorporating a provision requiring that only settle- 
ments or verdicts in excess of $50,000 need be reported. 

This would result in far more physicians consenting to settle- 
ments of the more minor cases and thereby removing a large num- 
ber of lawsuits from an already overextended judicial system. 

With health care costs in the United States running in excess of 
$800 million annually and malpractice insurance premiums rep- 
resenting less than 1 percent of that, alleged malpractice reform is 
not the answer to reducing health care costs in the United States. 

It is our view, based upon a significant amount of experience in 
California with the MICRA experiment, that the proposed medical 
malpractice reforms now under consideration by Congress will, in 
fact, result in more medical malpractice cases going to trial at sub- 
stantially increased cost. It will also result in more victims of medi- 
cal negligence being denied access to our justice system. 

If time permits later, I would be happy to give you a number of 
examples of why I believe these opinions have been proven through 
15 years of experience in California. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Baker follows:] 



57 



TESTIMONY OF 

ROBERT C BAJCER 

PK£SIDEKT, AMERICAN BOARD OF TRIAL ADVOCATES 

PRESENTED BY 

KARL KEEKER 

MEMBER, AMERICAN BOARD OF TRIAL ADVOCATES 

BEFORE THE 

SUBCOMMITTEE ON ECONOMIC AND COMMERCIAL LAW 

COMMITTEE ON THE JUDICIARY 

U.S. HOUSE OF REPRESENTATIVE 

JUNE 22, 1994 



I am Robert C. Baker, National President of the American Board of 
Trial Advocates. I am a Senior Partner in the firm of Baker, Silberberg & 
Keener, located in Santa Monica, California. 

The American Board of Trial Advocates (ABOTA) is an organization of 
over 4000 distinguished litigators from all 50 states. We are unique in 
that our membership is almost evenly divided between lawyers representing 
plaintiffs and lavryers representing defendants. The composition of ABOTA 's 
membership insures that its position on such Issues as medical malpractice 
reform is balanced. ABOTA members have a distinctive understanding of the 
civil justice system, since a lawyer must have tried 20 civil jury trials 
to verdict, in order to be even considered for membership in our 
organization. 

The majority of my personal practice for the last twenty plus years 
has been devoted to defending physicians at the request of their medical 
malpractice insurance carrier. Indeed, ay firm generates most of its 
income through the defense of physiciems at the request of medical 
malpractice insurers. 



58 



Today, I would like to give you my opinion, as a lawyer who represents 
the health industry not the plaintiff, on how nedical malpractice reform 
has affected malpractice litigation in California. This should be 
important to this Committee's consideration since many proponents of 
malpractice reform cite the California law as successful reform and have 
incorporated many of its provisions in proposed federal legislation. 

As you may recall the "HICRA" limitations were passed by the 
California Legislature in 1975 and were held constitutional by the 
California Supreme Court in almost all pzurticulars in 1984 and 1985. We 
have had, therefore, approximately 10 years of experience with alleged 
malpractice reforms. 

In my view, those malpractice reforms have aided insurance companies 
and physicians, but have, to a significant extent, been detrimental to 
persons injured by medical negligence. As a resiilt of caps on dzunages, as 
well as limitations on attorneys' fees, most of the exceedingly competent 
plaintiff's lawyers in California simply will not handle a medical 
malpractice case. This is a fact, and let me explain why. 

First, the contingent fee allows access to the courts for those who 
lack the means to pay a lawyer's hoxirly fees. 'It provides a client the 
means to finance litigation with funds essentially borrowed from the 
lawyer. If the lawyer loses the case it is as if he or she made a bad 

loan. 



59 



Lawyers cannot earn a living by making bad loans, so they will only 
nake those loans when there is a good opportunity for a return. The 
sliding scale limitation on the contingent fee further reduces those 
opportunities, since it has the effect of underestimating the amount of 
time needed for particular cases. 

Medical malpractice cases can take years to resolve and thousands of 
hours of attorney time. They are notoriously risky. 1 would also suggest 
that even if some attorneys would still take these cases, the quality of 
counsel would not be the same. 

Moreover, when the contingent fee limitation is restricted to one area 
of tort law, such as medical malpractice, tort lawyers simply shift into 
core profitable areas of practice. This only worsens the problem of the 
inability of medical malpractice victims to obtain representation. 

The result is that those attorneys that choose to handle medical 
malpractice cases concentrate on only those cases that have high economic 
damages associated with them, such as cases commonly referred to as "bad 
betby cases," wrongful death cases of a breadwinner, or cases involving 
demonstrable brain deunage. Those cases also attract the attention of the 
media and the public and lead to the misunderstanding that surrounds 
medical malpractice litigation. 



60 



There are entire categories of cases that have been eliminated since 
malpractice reform was implemented in California. The victims of cases 
that have a value between $50,000 and $150,000 are basically without 
representation. As an example, incidents of failiire to diagnose an 
appendicitis still occur, but suits are not filed to any extent in 
California. The reasons for this are simple: 

(1) 80% of medical malpractice cases that go to trial are won by the 
defendant medical practitioner; 

(2) Medical malpractice cases by their very nature are expensive. 

(3) Physicians in California, as in virtually all states have the 
ability to withhold consent to settle <md, therefore, the physicians 
control whether a case is settled or goes to trial; 

(4) Physicians in California are required to report malpractice 
settlements to the Medical Board of California. 

If, by settling, a physician is to be reported to the Medical Board, 
he or she has very little to lose by proceeding to a trial where the 
chances of success are 80%. They are in no worse position professionally 
if they lose than they would be by being reported to the Medical Board. 
Under those conditions, given the expense to the plaintiff and the 
plaintiff's attorney, cases in the $50,000-$150,000 range are rarely filed. 

On the other hand, of the medical Balpractice cases filed, a far 
greater number will proceed to trial, as opposed to being settled. In 
California a significantly higher percentage of medical malpractice cases 
go to trial — the costly alternative — than any other type of case. 



61 



Medical malpractice premiums have not diminished in California as a 
result of MICRA, nor to my knowledge have they in any state that has 
enacted alleged medical malpractice reform. There can be little doubt that 
with caps on pain and suffering and limitations on attorneys' fees there 
are fewer cases being filed (although, as stated, of those filed more go to 
rrial) . I believe these realities confirm the studies conducted elsewhere, 
which assert that damages recovered from litigation are not unwarranted nor 
sre they a prime cause for high malpractice premiums. 

A Harvard study^ in 1990 found that of more than 27,000 victims of 
doctor negligence, fewer than one in eight filed suit, and less than 40% of 
those victims, or 5% of the total, recovered compensation. A more 
comprehensive study^ by Professor Neal Vidmar at Duke University School of 
Law broadly examined malpractice litigation in North Carolina and found of 
the nearly 900 cases that were filed in a three-year period in North 
Carolina, 40% were terminated without payment to plaintiff, 50% resulted in 
a settlement, and 10% were eventually decided by a jury. 

The plaintiffs in jury cases prevailed in one out of five times, which 
is approximately the national average. There were only four large awards 
out of the 117 cases that went to trial and the median award of those 117 
lawsuits was $36,500.00 



^ Patients. Doctors, and Lawyers; Medical Iniurv. Ma lpractice 
Litigation, and Patient Compensation in New York , a report by the 
Harvard Medical Practice Study to the State of New York (1990) . 

^Neil Vidmar, "The Unfair Criticism of Medical Malpractice 
Juries," Judicature . October-November 1992, Vol. 76, No. 3. 



84-714 O- 94 -3 



62 



In H.R. 3600 there are provisions for an alternative dispute 
resolution process through which consumers are required to first attempt to 
resolve the claim. In addition, there is the reporting requirement that 
allows the public to obtain access to information contained in the National 
Practitioner Data B*.nk. 

Similar to the situation in California in which the physician has 
little incentive to settle, these two provisions work at cross-ptirposess . 
First, mandatory AOR is very expensive and will cost the plaintiffs and the 
plaintiff's attorneys, as well as the defendants and their insurers, 
considerable monies with which to comply. However, ttie chances of success 
of ADR are exceedingly diminished by the reporting requirements to the 
National Practitioner Data Bank. 

In other words, if a physician wins the AOR, and the patient opts to 
go no further, then obviously the dispute between the patient and the 
physician would end. In the alternative, if the patient wins the AOR, the 
physician has little to lose by seeking the jury trial to which he or she 
is entitled. Unless some sort of reporting floor is established, the 
alternative dispute resolution process, in my opinion, will not sliBinate a 
significant number of disputes. 



63 



If the Congress is intent on enacting malpractice reforms which 
include the mandatory reporting to a National Practitioner Data Bank, then 
this committee should consider incorporating a provision requiring only 
those health care providers that settle, or incur verdicts and/or 
judgements in excess of $50,000 to report the matters to the National 
Practitioner Data Bank. This, in ny view, would result in far more 
physicians consenting to settlements of the more minor cases, thereby 
removing a large number of lawsuits from our already clogged judicial 
system. 

It is my opinion that malpractice reform has not worked in California 
for the injured victims of medical negligence. Physician groups report 
that there has been no reducion in their medical malpractice premiums. As 
the number of case filings has diminished and dollar amounts of awards have 
decreased, one can assume medical malpractice reform is benefitting some 
entity, but it most certainly is not benefitting the average citizen in our 
country. 

With health care costs in the United States running at $800 billion 
annually, and medical malpractice insurance running around $6 billion — less 
than 1%, alleged medical malpractice reform is not the zmswer to reducing 
health care costs in the United States. In ny.view, this committee could 
do more to assist the American public by looking at some of the real costs 
that are incurred in the delivery of health care in our country. 



64 



One would not have to look beyond the nost frequently performed 
surgery in the United States — the implantation of intraocular lens. The 
fifteen-minute operation may be performed by a physician anywhere from 6 to 
20 times a day for which the charge may be $2,500 er higher per operation. 
That same procedure in em outpatient hospital setting will cost in excess 
of $7,500. The intraocular lens that is implanted by the physician may 
have approximately three to four cents of plastic in it and cost the 
hospital $100-$200. As of the early 1990is, the United States government 
was paying more for the implantation of intraocular lenses than for the 
next four most frequently performed operations combined. 

Another example of real costs is the proliferation of expensive CAT 
and MRl machines. In the City of Semta Monica where I practice there are 7 
MRI machines which are more th«m in the entire country of Canada. Because 
of their proliferation these wonderful but expensive machines are under- 
utilized. As a result, the cost of the diagnostic tests have gone up in 
order to cover the cost of the machine. 

To conclude, it is my view, based on a significtmt amount of 
experience in the California experiment, that a reduction in health care 
costs is not going to be achieved by some of the far-reaching medical 
malpractice reform proposals now being considered by the Congress. What 
will occur is that victims of medical negligence will have a decreased 
opportunity for redress. 

Thank you. 



65 

Mr. Brooks. Ms. Wittkin. 

STATEMENT OF LAURA WITTKIN, EXECUTIVE DIRECTOR, 
NATIONAL CENTER FOR PATIENTS' RIGHTS 

Ms. Wittkin. Thank you. I am Laura Wittkin. I am the executive 
director of the National Center for Patients' Rights, which is a 
medical malpractice victim and patients' rights advocacy and sup- 
port group. I am also a survivor of malpractice. 

Thank you for inviting me to testify about the impact of medical 
malpractice on our health care system. Before I begin, I would just 
like to say that I am recovering from some dental surgery, so I am 
speaking a little more slowly than I normally would, so please bear 
with me. 

I would like to address malpractice from three perspectives 
today: the emotional toll, the disparity between malpractice myth 
and reality, and finally, the administration's response to this silent 
public health epidemic. 

Medical negligence is the Nation's third leading cause of prevent- 
able death. One hospital patient dies every 6 minutes in this coun- 
try from malpractice, and that translates to 100,000 deaths and 
300,000 serious injuries each year as a result of malpractice. And 
that is based on the Harvard Medical practice study. 

It is simply incomprehensible to me how a problem of this mag- 
nitude has been ignored by each and every administration while 
the plight of real malpractice victims has been ridiculed and 
mocked. As a victim of malpractice, I have been left with lifelong 
disability and a constantly painful reminder of what happens when 
the public is left unprotected from incompetent and dangerous doc- 
tors. 

My case was in California and was tried under MICRA, which 
is the Medical Injury Compensation Reform Act, so I am personally 
very familiar with how cruel and dehumanizing and regressive that 
tort reform is. 

It is reform which does nothing but punish victims and reward 
wrongdoers. Yet, it is the same anticonsumer act that provides the 
framework for this administration's malpractice reforms. 

As a patient advocate, most of my time is spent dealing with the 
flood of calls and letters we get from families and victims all over 
the country who are desperate for help, for answers and above all, 
for accountability. 

And to ask you all to imagine what it is like to walk in our shoes, 
it is too cruel a request, I think, but somehow we must begin to 
recognize that malpractice victims are more than abstract statis- 
tics. They are your neighbors, they are your friends, they are your 
families, they are your constituents, the people that you are nere 
to represent and protect. 

Much of the malpractice to date has been eclipsed by outrageous 
myths perpetuated by the medical establishment, but let me give 
you some facts to dispel those myths and set the record straight. 
We don't have too many lawsuits in this country. We have too few. 

More than 90 percent of victims never bring lawsuits. Negligent 
doctors already get a free ride on the shoulders of taxpayers who 
are forced to pay $60 billion a year to provide care and services for 
victims that are already currently locked out of the tort system. 



66 

States that have adopted the reforms that are being discussed 
here today have all failed to realize any of these so-called benefits 
that the administration keeps talking about, whether it is in- 
creased access to care or reduction in health care spending for a 
State, and according to an upcoming Office of Technology Assess- 
ment study, the current liability system is not responsible for run- 
away defensive medicine practices in this country. 

The OTA found that both the AMA and Lewin studies, which are 
being used by everybody in evaluating the defensive medicine 
issue, are unreliable, inaccurate, and based on empirically unsound 
evidence. They found that physicians rarely perform tests that will 
not benefit a patient and that much of what is mistakenly called 
defensive medicine is in fact sound medical practice. 

OTA fiirther concluded that while tort reform may lower pre- 
miums and physician's anxieties, it will not have any effect on de- 
fensive medicine spending in this country. 

And finally, successful frivolous defenses by doctors who are 
guilty of malpractice far outnumber possible frivolous lawsuits by 
plaintiffs by a staggering 12 to 1 ratio. Sixty percent of indefensible 
cases are won by defendant doctors at trial, and that is outrageous. 

For some reason though, these and many other facts which are 
in my written testimony and which have been shared with the 
White House on countless occasions have been ignored by this ad- 
ministration. Instead, their proposals punish both medical consum- 
ers and victims alike and do nothing to safeguard the delivery of 
quality health care. 

For example, the elimination of the collateral source rule reduces 
the value of the case, makes it more difficult for victims to bring 
suit, and it also creates a hidden tax on both employers and health 
care consumers who are forced to pick up the entire bill for all of 
the collateral sources, collateral source benefits that these victims 
are entitled to. 

Periodic payment of an award reduces the value of a case and it 
lets the wrongdoer get off cheap by purchasing an annuity for a 
fraction of the award amount. And the idea of imposing caps on 
noneconomic damages in addition to these other horrendous pro- 
posals is absolutely unthinkable. 

All victims who are seriously injured would be devastated by 
such a cap, and in addition to that, our poor and our elderly, who 
are already far more dependent on the contingency fee system be- 
cause they don't have significant compensable medical expenses or 
economic losses, will be virtually locked out if you impose any kind 
of a cap. 

Nobody is going to argue about the need for health care reform 
in this country. But these reforms do nothing but create a more 
dangerous and costly health care environment. We need a system 
that is built around not only cost and access, but quality and medi- 
cal malpractice prevention, and our organization has provided a 
number of recommendations. I would be happy to discuss them 
after everyone has testified, if you like. 
Mr. Brooks. Thank you very much. 
[The prepared statement of Ms. Wittkin follows:] 



67 




Center for Patients' Rights 

666 Broadway, Suite 410, New York, N.Y. 10012 
Tel. (212) 979-6670 • Fax (212) 982-3036 



TESTIMONY OF LAURA WITTKIN, EXECUTIVE DIRECTOR 
ON MEDICAL MALPRACTICE AND HEALTH CARE REFORM 

Before the 

COMMITTEE ON THE JUDICIARY 

SUBCOMMITTEE ON ECONOMIC AND COMMERCIAL LAW 

JUNE 22, 1994 



Good morning, my name is Laura Wittkin. I am the Executive Director of the National Center 
for Patients' Rights, a medical malpractice victims' and patients' rights advocacy and support 
group. I am also a survivor of medical malpractice. Thank you for inviting me to testify about 
the very real impact medical malpractice has on our health care system. It is an issue of 
paramount importance to the safety and well-being of all Americans, yet one which has been all 
but forgotten in the overall health care debate. 

Medical malpractice is one of the leading public health epidemics our nation faces today. It is 
the third leading cause of preventable death, second only to those deaths associated with cigarette 
smoking and alcohol abuse. And while this may not be a statistic the AMA will admit to, 
medical malpractice is a devastating problem to all Americans and it needs our immediate 
attention. 



Center for Patients' Rights is a non-profit organization 
dedicated to protecting the rights of medical consumers and victims of malpractice. 



68 

It is alanning that a problem of this magnitude can be ignored by this and every other 
administration to date. Instead of attacking the problem head-on, they have all chosen, instead, 
to turn a blind eye to this epidemic and the plight of its millions of victims. 

Thanks to a highly effective medical industry campaign which maliciously and falsely stereotypes 
malpractice victims as greedy, conniving parasites feeding off of the system by persecuting 
'powerless" doctors for financial gain, the rights of victims and of all medical consumers in this 
country have been dealt a crushing blow. 

We must move beyond the rbetmc of rich and powerful interest groups and rely on the wealth 
of empirical studies diat diow an out-of-control medical system which promotes inferior and 
substandard care. That system is responsible for the deaths and injuries of nearly a half million 
people a year. And we must also address the ca ta strophic fiscal inqnct that such substandard 
care has on our nation's health care system as a whde. 

I would like to examine the malpractice issue from three different p erspectives. The first, is the 
emotional impact of this epidenuc. The second, is the disparity between the myths and realities 
of the medical malpractice system. And the third, is the Administration's re^NNise to the 
growing epidemic of medical malpractice. 



69 

I. EMOTIONAL IMPACT OF MEDICAL MALPRACTICE : 

As a victim of medical malpractice, 1 am left with a lifelong handicap and the constantly painful 
reminder of what happens when the public is left unprotected against incompetent and dangerous 
doctors. 

My malpractice case was tried in California eight years ago under the Medical Injury 
Compensation Reform Act, otherwise known as MICRA. Under MICRA 1 experienced, 
firsthand, the cruel and dehumanizing effects of regressive tort reform which rewards the 
wrongdoer and punishes their victims by callously limiting their legal redress and compensation. 
Unfortunately, it is this anti-consumer Act which provides the framework for the Chnton 
Administration's liability reform proposals. 

My own life-threatening experience with medical malpractice led me to form the National Center 
for Patients' Rights (CPR), the largest advocacy and support group of its kind, where most of 
my day is spent responding to the overwhelming flood of calls and letters we receive from 
medical malpractice victims and their loved ones who are desperately crying out for help, 
answers, understanding, compassion and, above all, accountability. 

The families that reach out to our organization are trying valiantly, though often unsuccessfully, 
to cope with the senseless loss of a child, the untimely death of a spouse or parent, permanent 
crippling injuries or unbearable pain and suffering which rob victims of their dignity and quality 
of life, and often leave entire households shattered in their wake. 



70 

In the last month, every network news show has aired a story on a different aspect of medical 
negligence and unfortunately, they haven't even scratched the surface of this enormous problem. 

Someone suggested that I give you specific examples of the types of stories I hear, but I just 
don't know where to begin. Do I talk about the overwhelming problem of managed care and 
the alarming odds a patient in that type of setting takes on just being misdiagnosed. 

Or do I tell you about the many mothers who call me because their children were killed by 
doctors who just wouldn't listen to the very real symptoms the child was complaining of. 
Or, perhaps, I should recount the stories of the myriad of medical practitioners, be they doctors, 
nurses or lab technicians, who, one would think would be prepared for any and all emergencies, 
yet are, themselves pawns, just as all Americans are, when they become patients in our medical 
system. 

All of the stories I hear are horrifying and heaiti)reaking and most typify the plight and human 
toll medical malpractice takes on us all. To even ask you to imagine yourselves in their shoes 
would be too cruel a request. But somehow you must be convinced that 100,000 deaths and 
more than 300,000 serious disabling injuries aren't just numbers. . . they are your neighbors, your 
friends, your families... they are your constituents, the people you are here to represent and 
protea. 



71 

You must understand that in the face of such true and sometimes interminable suffering, we have 
become sick and tired of hearing about how much doctors are the ones suffering from the threat 
of malpractice litigation. And we are tired of hearing how sleepless UlfiiE nights are. No 
doctor's liability anxiety can ever begin to compare to the real life pain, loss or death suffered 
by hundreds of thousands of medical malpractice victims and their families in this country each 
and every day. 

II. MF.DICAL MALPRACTICE MYTH VERSUS REALITY: 

The MYTHS about the malpractice system, which have been carefully propagated by the medical 
industry and now embraced by the Clinton Administration, are simply outrageous and groundless: 

MYTH: The medical malpractice liability system is overwhelmed by excessive and 

frivolous lawsuits. 



MYTH: Lawsuits result in outrageous jury awards, excessive plaintiff attorney fees, 

and do nothing to deter poor care. 



MYTH: The liability crisis and high premiums are responsible for decreased access to 

care, runaway health care spending, and defensive medicine practices. 



72 

Permit me to set the record straight with the following facts (most of which belie the 
medical lobbies "self-anointed" status as "victims" of the medical malpractice system): 

FACT: The current medical malpractice system actually prevents the majority of victims 

(90%) from bringing lawsuits, and most victims who receive awards are 
undercompensated based on the severity of their injuries. 

FACT: The liability system as it exists today, ab-eady gives negligent practitioners and 

providers a free ride on the backs of the American taxpayers. It's the taxpayers 
who foot the sixty billion dollar bill each year to provide care and services to the 
hundreds of thousands of victims who have been locked out of the legal system. 
According to Dr. Troyen Brennan, co-author of the landmark Harvard Medical 
Practice Study, "this figure of $60 billion is larger than the combined estimates 
of the costs of medical malpractice premiums ($10 billion) and defensive medicine 
($IO-$20bilUon)". 

FACT: States which have adopted ton reforms similar to ones outlined in the Clinton Bill, 

have failed to realize any of the so-called benefits this Administration claims they 
have, such as: savings to the health care system, increased access to health care, 
more affordable care, or a reduction in "so-called" defensive medicine spending 
and "frivolous" lawsuits by plaintiffs. The Administration, nonetheless, insists 
on pushing the American people down this misguided path. 



73 

FACT: The malpractice liability system is not responsible for runaway "defensive 

medicine" practices. A soon to be released Study on Defensive Medicine and 
Medical Malpractice, by the Office of Technology Assessment (OTA) found that 
both the AMA and 1 fwin Studies on defensive medicine spending are inaccurate, 
unreliable and not based on empirically solid evidence. (Yet, these defensive 
medicine studies are still used as one of the primary justifications for national 
liability reform.) 

OTA also found that physicians rarely perform tests that will not benefit 
patients, and that much of what is mistakenly characterized as "defensive 
medicine" practices is, in fact, sound medical practice. OTA concluded that while 
tort reform may lower premiums and a physician's anxiet) , it will not effect the 
practice of defensive medicine. 

These findings were echoed in an earlier Congressional Budget Office Report on 
Health Care Reform, which stated that even if medical malpractice liability were 
reformed, "much of the care that is commonly dubbed "defensive medicine" would 
probably continue to be provided for reasons other than concerns about 
malpractice." 



74 



FACT: The tort system DOES deter poor practices. According to Dr. Troy Brennan of 

the Harvard Study team, recent empirical analysis done at the hospital level 
found that as liability claims increased per 1,000 discharges, the risk of negligent 
injury for patients decreased. To quote Dr. Brennan, " this is the first statistically 
significant evidence that there is a deterrent effect associated with malpractice 
litigation. It suggests that tort litigation, with all of its warts, nonetheless 
accomplishes the task for which it is primarily intended, that is the prevention of 
medical injury". 

FACT: Successful firivolous defenses by doctors, lawyers and insurance companies FAR 

OUTNUMBER "possible" frivolous plaintiffs verdicts by a staggering ratio of 
12 to 1 according to a landmark study by the American College of Wiysicians, 
published in the Annals of Internal Medicine, November 1992. The study 
found that doctors currently win a^Toximately 60% of indefensible cases at trial, 
compared to as few as 5% plaintiff wins in so-called defensible cases. 

FACT: Victims of malpractice are forced to wait years for redress and compensation 

while insurance companies and defense attonieys, driven by their own financial 
self-interests, syphon off their profits through investment earnings and uncapped 
and outrageously high hourly defense fees for handling such cases - All of which 
are responsible for driving up the cost of the medical liability system. 



75 



FACT: The malpractice system is not at all biased against doctors, but is, in fact, 

remarkably lenient towards them. It is a system in which doctors do not lose 
malpractice cases they should win. And it is a system whose payouts to victims 
are not based o.i the whims of overly sympathetic jurors, but rather are consist 
with the extent of negligence and injury to the patient. (These findings are based 
on the 1992 American College of Physicians Study on medical malpractice 
lawsuits of New Jersey). 

III. THE CLINTON ADMINISTRATION'S RESPONSE TO THE MEDICAL 
MALPRACTICE EPIDEMIC : 

Despite the overwhelming evidence about the realities of the tort system, the Clinton 
Administration has, nonetheless, chosen to predicate its medical malpractice reform proposals 
on false premises. 

When Ira Magaziner spoke about Health Care Reform at Citizen Action's National Conference 
in July of last year, he said the Administration would be basing medical malpractice reform on 
three KEY principles. They wanted to design a malpractice system which would: 

1 . Increase access to the tort system for people who are currently locked out. 



76 



2. Develop a national enforcement system for repeat malpractice offenders. 
Ironically, Mr. Magaziner even went so far as to state that the Administration believed 
that doctors who commit malpractice twice should permanently lose their right to 
practice medicine in this country. 

3. And last but not least, to ensure tliat victims receive the awards that they 
deserve both in non-economic and economic damages, while limiting all 
attorneys fees ( defense fees, as well, as plaintiff fees). 

But the Administration delivered just the opposite of what Kfr. Magaziner promised. Almost all 
of the liability reform proposals in the Clinton Plan harm, punish and discriminate against 
medical consumers and victims of malpractice, and do absolutely nothing to safeguard the 
delivery of quality health care in this countiy. 

Nowhere is the power of the medical and insurance lobbies more evident than in the text of this 
Bill. Although President Clinton begins by admitting diat the cost of medical malpractice 
accounts for less than 2% of our nation's health care bill. Somehow, from this "less than two 
percent threat" comes legislation which viitually annihilates patients' recourse in the tort system, 
reduces their financial resources to deal with the harmful effects of medical malpractice. . . and 
allows negligent doct(M^ to sleep better at night. 



10 



77 
FOUR of these proposals are particularly troubling: 

1. Elimination of Collateral Source Rule: 

Hiis reform requires that all victims' awards be automatically reduced by any past or 
future health care, social service, employment or other benefits they may be eligible for. 
However, there is no way to guarantee that all of a victim's medical needs will be met 
in a specific health care plan, or that they will, automatically in the future qualify for and 
receive other collateral benefits. Also, the reducing of awards by collateral sources, 
instead of allowing for subrogation, devalues a case, making it less economically viable 
for attorneys to take. 

The net result of this proposal is the further victimization of patients harmed by 
substandard care and a hidden health care tax on employers and all taxpayers, because 
they are the ones who would be forced to pick-up the bill for all collateral source 
benefits. 

2. Periodic Payment of Awards: 

This reform states that, instead of paying out the entire award upfront, either party may 
request that the award be paid out over a period of many years or a lifetime. This proposal 
is yet another example of the cruel re-victimization of patients harmed by poor care, because 
only DEFENDANTS (and their insurance carriers) would ever make this request. 



11 



78 



It allows the wrongdoer to purchase an annuity for a fcacuon of cost of the award (about 
1/3 the cost), invest much of that money, and dole it out to the victim bit-by-bit over the 
course of the victim's lifetime. 

This effectively shackles malpractice victims and their families to an endless bureaucratic 
system and deprives them of their award. And, if the victim dies BEFORE all of the 
award is paid out, the unpaid medical and economic losses go back into insurance 
company coffers, NOT to the victim's family. 

Periodic payments also reduce the overall value of cases, again, creating a fmancial 
disincentive for attorneys to take those cases on. 

AUemative Dispute Resolution Mechanisms (ADR): 

This reform would require that all malpractice claimants first submit to some form of 
non-binding arbitration, mediation or early settlement process PRIOR to proceeding with 
a malpractice action. Because there is NO incentive to resolve the case, this proposal 
would simply drag out malpractice cases, cause further harm to the victims, and increase 
the cost of litigation. The mly effective ADR mechanism which would, in fact, expedite 
cases and reduce the cost of litigation (but which is, unfortunately, NOT part of the 
Clinton Plan), would be binding arbitration for low-end cases, at the discretion of the 
phiintiff ONLY. 



12 



79 



4. Practice Guidelines as a Defense: 

This reform would establish a pilot program to test the use of practice guidelines as a 
DEFENSE in medical malpractice cases. This proposal is one-sided and grossly unfair, 
because evidence about compliance with guidelines could only be introduced at the 
discretion of the DEFENDANT. 

The defendant would be able to literally pick and choose those cases in which they wish 
to introduce evidence of compliance with practice guidelines, while the plaintiff would 
be prohibited from introducing evidence about the FAILURE to follow those same 
guidelines as grounds for medical malpractice. 

This discriminatory proposal is particularly harmful to medical malpractice victims since, 
according to the Physician Payment Review Commission, practice guidelines are already 
being successfully used in malpractice cases, far more by PLAINTIFFS, than by 
Defendants. Under the Clinton Bill, this would no longer be the case. 

CONCLUSION : 

This administration suffers from a skewed expression of outrage and misguided empathy over 
the emotional distress and inconvenience doctors feel when they are sued. 



13 



80 

A sentiment which is, frankly, incomprehensible in the face of our nation's growing medical 
malpractice epidemic. Their complete failure to acknowledge and resolve the endless, 
suffocating pain and devastation negligent doctors inflict on victims and their families, is 
unconscionable. 

For us, the litmus test of whether the Clinton Administration is truly designing a health care 
system that is in the best interest of the American people, a system based on careful, thoughtful 
and honest research and analysis of the entire health delivery system, can be seen in the way they 
have handled the issue of medical malpractice. 

We had hoped for strong leadership and progressive malpractice reform solutions which would 
protect the rights of innocent people harmed by medical negligence while improving the overall 
quality of care. Instead, what this administration has given us is simply a repackaging of the 
same morally bankrupt and fiscally irresponsible ton reform garbage the medical industry has 
been peddling for years. 

No one will argue about the urgent need to reform health care in this country. But, it must be 
a system based on sound pubUc policy, not political expediency. In the final analysis it comes 
down to one simple question... Are we willing to pay for our medical care with our lives? 



(A LIST OF RECOMMENDATIONS IS ATTACHED) 



14 



81 



NeUH 



Center for Patients' Rights 

666 Broadway, Suite 410. New York, N.Y. 10012 
Tcl. (212) 979-6670 • Fax (212) 982-3036 



RECOMMENDATIONS 



JUNE 22, 1994 



82 



FEDERAL PRO-CONSUMER MEDICAL MALPRACTICE LIABILITY 
REFORM RECOMMENDATIONS: 



To improve the malpractice liability system and protect the rights of medical consumers and 
victims of malpractice, the National Center for Patients' Rights recommends the following: 

(NOTE: Where applicable, these reforms are intended to pre-empt state law.) 



1. A three-year statute of limitations for the DISPOSITION of all malpractice cases (from 
date of filing). 



2. Expedited handling of cases involving children and terminally ill patients. 



3. Creation of a Small Claims Binding Arbitration Unit for cases under $1(K),0(X). 



4. A cap on defense attorney fees. 



5. Removal of limitations or caps on non-economic damage awards. 



6. Full, lump sum payment of awards, unless otherwise requested by the plaintiff. 



7. Reinstatement of the collateral source rule, along with the right to subrogation in all states 
which have eUminated that rule. 



83 



8. Opening the National Practitioners' Data Bank to the public, in its entirety. And creating 
an on-line inquiry system to allow easy access for consumers. 



9. Closing the reporting loopholes in the National Practitioners Data Bank which currently 
allow doctors to remove their names from malpractice case settlements involving hospitals 
and managed care plans. 



10. Outlawing secrecy agreements. 



1 1 . Mandating medical malpractice insurance coverage, (the minimum amount of coverage, 
to be determined) as a condition of licensure for all physicians. 



12. Community-rating of malpractice premiums so that the costs are spread more equitably 
among the specialties. 



13. A minimum 3 1/2 year statute of limitation for filing malpractice lawsuits. That statute 
would be extended in cases where there has been continuous treatment, late 
discovery, suppression of information or criminal covenip. (This statute would not ai^ly 
to minors.) 



14. Mandatory audits for all medical malpractice insurance carriers (once every three years) 
so that premium rates can be appropriately adjusted. These audits would also be required 
PRIOR to any state granting premium increase requests. 



IS. Fed^ minimum standards for all State Medical Boards (see attached Federal Model 
prepared by CPR.) 



84 




Center for Patients Rights 

666 Broadway. Suite 410, New York, N.Y. 10012 
Tel. (212) 979-6670 • Fax (212) 982-3036 



MODEL FOR STATE MEDICAL BOARD MINIMUM STANDARDS 



In order to improve physican discipline and protect the public from bann, the Federal 
government should enact the following minimum requirements for all state medical boards 
(in alphabetical order): 



1. Board Composition: 

All Boards shall be composed of a majority of public members (aUfiasl 51 %, preferably 
two-thirds V TheChairpersonand Vice-Chair of the Board shall be public members. The 
size of the Board shall be based on the state's physician population (to be determined). 
Physician Board members shall be appointed by the Governor based solely on 
recommendations nol nominations from a variety of recognized medical and non-medical 
sources (to be determined). Board members shall serve a term of no longer than 3 years 
(with one consecutive term). 

2. Consent Agreements: 

Boards shall prohibit plea bargins or consent agreements unless the physician agrees to 
plead guilty to the most serious allegation. Boards shall prohibit such agreements in 
negligence and incompetence-related cases unless the physician agrees to plead guilty to 
the most serious allegation and surrender his or her license. 

3. Consumer Protection Unit: 

Boards shall create a special Consumer Protection Unit which will consist of consumer 
protection ofHcers with medical or social work background to deal directly with victim 
complainants. And all victim complainants shall be granted statutory immunity from ' 
liability, for libel, defamation, etc. 

4. Disciplinary Hearings: 

Board disciplinary hearings shall be open to the public, and all hearings shall adhere 
to a specified time frame (to be determined). 

5. Funding: 

Boards shall be allotted adequate funding in order hire the caliber of investigators, 
prosecutors and support staff necessary to effectively oversee the profession (and may 
raise physician fees to do so). All physician licensure and registration fees, and any 
reserves , shall be dedicated for exclusive use by the medical board. These funds may not 
be touched by a state for ANY reason other than the prescribed ones. 



85 



Impaired Physicians: 

Boards shall establish an Impaired Physician Program (based on a model to be 
developed), and shall maintain jurisdiction over that program. Boards shall conduct an 
annual audit of the Impaired Physician Program and make the findings publicly available. 



7. Infomul Actions: 

Boards shall share information about informal actions, such as letters of warning, with 
other jurisdictions. 

8. Investigates: 

Boards shall upgrade the salary and qualifications for complaint investigators (2/3's of 
whom shall have medical background). 

9. Licensore: 

Boards shall be responsible for both licensure and discipline of physicians. 
Grounds for denial of licensure shall include the following: 

a. Any set or conduct which would constitute grounds for medical misconduct in the 
state in which the physican is q)plying. 

b. Any disciplinary action taken in another jurisdiction, which would constitute 
grounds for medical miscondua in the state in which the physician is applying. 

c. Any PENDING disciplinary investigation or action in another jurisdiction. 

d. Loss of hospital privileges in another jurisdiction. 

e. Malpractice lawsuits in another jurisdiction indicating that the doctor presents a risk. 



License Restoratioas: 

Boards shall require that any physician who has lost a license (as a result of 
surrender or revocation), wait a minimum of 5 years before applying for leinsutement 
of license, and must provide proof of on-going medical and remedial training (the 
parameters for which are to be determined). 

Malpractice Insuraiice: 

Boards shall require doctors to carry malpractice insurance as a condition of licensure. 
The amount of coverage shall be determined by the specialty. Physicians who perform 
surgery, but DO NOT have ho^ital privileges shall carry the same minimum coverage 
as physicians with hospital privileges. 



86 



12. Malpractice Data Unit: 

Boards shall create a Malpractice Data Unit. This unit will be responsible for collecting 
all malpractice data statewide, and reviewing all malpractice claims to determine if they 
warrant further investigation for possible medical misconduct. This unit will also be 
responsible for developing a system that will flag physicians with an abnormally high 
number of malpractice claims or payouts. Doctors who fit these "outlier" profiles (which 
should be based on the size and scope of a doctor's practice, the specialty, and other risk- 
adjusted foctors) would be subject to an automatic full-scale investigation. 

13. Mandatory Rqrartiiig: 

Boards shall require mandatory reporting of violations or dangerous practices by all 
licensees (including self-reporting by the licensee committing violation), courts, hospitals 
(staff and administration), all other health care providers (including HMO's clinics, etc.), 
liability insurance carriers, state and local m^cal societies and associations, state and 
local professional societies, other state agencies, PRO's, other health care professions, 
and federal agencies. All states shall impose severe civil penalties for failure to report. 

Boards shall assure confidentiality to those rqx)rting to the Board in good faith on 
possible violations. Board members. Board staff, individuals, and organizations required 
by law to report shall be granted immunity from prosecution and suit. 

Liability carriers and self-insured entities must report all claims, and all payments 
including the dollar amount. 

14. Misconduct Defiiutioiis: 

Boards shall adopt uniform definitions of medical misconduct (based on a compilation 
of the strongest current state medical misconduct definitions). 

15. Out-of-SUte Actions: 

Boards shall not conduct a new hearing on any action taken by another jurisdiction, but 
shall only determine the appropriate disciplinary sanction to be imposed based on that out- 
of-state action. That sanction shall, at a minimum, be equivalent to the original sanction 
imposed. 

16. Permaoent Loss of License: 

Boards shall permanently revoke the license of any physician convicted of 
medicaid/medicare fraud, firaudulmt billing, child sex abuse, other sex abuse, murder 
(and other criminal acts, to be determined); or found guilty of falsifying or, in any way, 
altering medical records to conceal malpractice or other wrongdoing. 

17. Physician Discipline Oversight Panel: 

Boards shall establish a Discipline Oversi^t Panel to assess the i^ysician discipline 
system. The panel shall consist of seven members q>pointed by Uie governor and may 
include no mOTe than two physicians and one attorney. 



87 



(17. continued) 

The panel members shall serve as individuals not as representatives of any organization, 
institution, agency or group. Panel members shall not participate in or review pending 
matters, but will review final determinations to assess the quality of work and whether 
the decisions are in the public interest. The panel shall assess the overall goals and 
objectives of physician discipline; how well the goal are being met; and whether and to 
what degree the process serves to minimize or deter medical misconduct. The panel may 
consult with medical and specialty societies, consumer organizations, other governmental 
organizatimis, state organizations, federal organizations and other states in its analysis and 
deliberations. 

This panel shall also handle rnmpiainant appe-aU of cases dismissed by the Board 
without ictioa. 

18. Physician self-referrals: 

Boards shall prohibit the practice which allows treating doctors to refer patients to clinics, 
labs, or other health care-related facilities or services in which that doctor, or his or her 
immediate family, has a financial interest. Any violation sbaU constitute grounds for 
medical miscooduct. Any physician who currently self-refers shall have one year to 
comply with the statute. 

19. Public Infomutioa and Outreach: 

Boards shall have a public information officer responsible for organizing consumer and 
physician outreach and education programs, to include: development of a quarterly 
newsletter, information brochures, public serve announcements, and other outreach efforts 
to community groups, OTganizations, agencies, etc. 

Boards shall set-up (and adequately staff) toll-free hotlines for consumer complaints and 
physician background checks. AnycMie calling to check on a doctor shall autnmatically 
be entitled to the following physician 'profile' information: date physician was first 
licensed; educational background; registration status; hospital affiliations; other states in 
which the doctor holds a license; the number of closed complaints against the physician 
(regardless of whether ot not an action was taken); any formal charges pending against 
the physician; any disciplinary action taken against the physician's license (including a 
brief e}q>lanation about the basis for the action). This profile may be mailed to 
consumers upon request. After the federal government enacts legislation to open up the 
National Practitioners' Data Bank, callers will also automatically be given the Data 
Bank's toll-free number. 

Boards shall issue an annual report made available to the public, media, legislature and 
other state officials. The report should contain information on licensure, including: 
# of applications received, licenses granted, licensure hearings, denials, temporary 
licenses, etc. 



88 



(19. continued) 

The report shall also contain disciplinary information, including: # of complaints received 
(plus the source, status, category), it of actions taken, category of action; types of 
penalties; aggregate information ^ut informal actions taken, etc. (Full list of items, to 
be developed.) 

20. Recredentialing: 

Boards shall require doctors to be recredentialed every S years as a condition of licensure. 
Doctors who have been involved in lawsuits or other disciplinary actions during any 
interim period, would be required to undergo a 'clinical' performance evaluation as part 
of their recredentialing. 

Doctors who practice exclusively io private office settings would also be required to 
undergo clinical performance evaluations and patient chart reviews for recredentialing. 

21. Standard of Proof: 

Boards shall require that the standard of proof in disciplinary actions be a preponderance 
of the evidence ONLY. No other standard will be acceptable. 

22. Subpoena Power: 

Boards shall have full subpoena power. 

23. Summary Suspensions: 

Boards shall have the power to issue sununary suspensions which will run until a hearing 
can be promptly scheduled. 



i 



89 

Mr. Brooks. Doctor. 

STATEMENT OF ANTONIO FALCON, M.D., ON BEHALF OF THE 
HEALTH CARE lAABIUTY ALLIANCE 

Dr. Falcon. Mr. Chairman. 

Mr. Brooks. Glad to have you. 

Dr. Falcon. Thank you very much for this opportunity, sir. My 
name is Antonio Falcon and I am a 1977 graduate of Baylor Col- 
lege of Medicine. I am a residency trained, board-certified family 
physician from the lower Rio Grande Valley of Texas. 

Our medical practice is in Stark County, the second poorest 
county in the United States. Our patient profile is approximately 
80 percent medicaid, 12 percent indigent, and 8 percent private 
pay. We are the only health care providers of obstetrics in a three- 
county area that is at least the size of Rhode Island and possibly 
bigger. 

My partners and I deliver about 1,100 babies a year. Stark Coun- 
ty borders with Mexico and our practice takes care of a lot of illegal 
immigrants. The combination of the above factors and the Rio 
Grande Valley being one of the medical malpractice hot spots of the 
country allow me to offer a unique perspective on the current tort 
system in this country. 

The system is broken. Victims who should be compensated fairly 
are being robbed of money intended for them. Attached to my writ- 
ten statement is a settlement agreement that is an outrageous ex- 
ample of a system gone bad. In a $200,000 settlement on a cerebral 
palsy case that one of the local doctors decided not to contest, 
called the insurance company and said, take care of my patient, the 
attorneys walked away with $160,000. How can anyone fathom 
that a few hours of time is worth that kind of money? Whatever 
happened to somebody saying, this is too much money, let me let 
your child take some of it? 

In another case in our area, an attorney dressed as clergy to so- 
licit clients in an awful accident. I cannot imagine anyone stooping 
so low. In another case, a body was actually taken out of a ceme- 
tery and transferred to our community for a change of venue. How 
can anyone rip the family that lives 5,000 miles away for support 
just for a change of venue case? 

The system, at least as I know it in Texas, has gone crazy and 
the Federal Government must intervene. 

The President in his State of the Union mentioned that health 
care costs must be curtailed in order to control the deficit, and I 
tell you that liability costs must be curtailed in order to control 
medical costs. We have another outrageous example that is some- 
times humorous of some of the abuse that occurs. 

I had a medical malpractice case filed against me on a birth-re- 
lated injury that was later dropped. The expert that was used was 
a retired nuclear radiologist who had done 6 weeks of obstetrics 32 
years prior to the case. This man didn't have the opportunity to 
testify against me because he was picked up by the Board of Medi- 
cal Examiners for peddling drugs. 

Texas is one of the leading States in the country in disciplining 
bad doctors, and I personally am involved in that, working with the 
State licensing board. We have stopped many doctors from practic- 



90 

ing medicine in Texas. I wish the trial bar would stop using them 
as expert witnesses. 

Last spring my partners and I decided that we had had enough 
of lawsuits. I had practiced 11 years without a single lawsuit and 
all of a sudden, after the workmen's compensation laws in Texas 
changed, I was faced with four lawsuits. 

My partners and I decided that we were going to drop our obstet- 
rical care. We knew that this was going to leave a huge area of 
Texas without care, but there was just too much pressure on us. 
We decided that we were beaten. 

The Federal Government intervened at that time. The locally 
funded community health center, under the help of Mr. Jose 
Camancho, came in and offered the Federal Tort Claim Protection 
Act and after many hours of negotiation, we were able to continue 
obstetrical practices without any loss of care to our patients. 

We work under that system right now. 

One last issue that I would like to address to you is the care of 
illegal immigrants along the border of this country. We need to 
be — right now the care of illegal immigrants is covered under emer- 
gency medicaid. 

If there is no coverage for this type of patient, hospitals and pro- 
viders will be devastated along our borders. I ask you to please con- 
sider some kind of safety net for the care of these patients for the 
sake of continuing to keep our hospitals and our practitioners in 
practice. 

Mr. Chairman, the system, I feel, is broken. I will be available 
to answer questions and specifically I would like to address the 
Harvard study later if someone would like for me to do so. 

Mr. Brooks. Thank you very much. 

[The prepared statement of Dr. Falcon follows:] 



91 



STATEMENT 

"^ of the 

HEALTH CARE LIABH^ITY ALLIANCE 

to the 

Committee on the Judician> 

Subcommittee on fk:oDomic and Commercial Law 

United States House of Representatives 

Presented by 

Antonio Falcon, MD 

Family Practice Center 

Rio Grande City, Texas 

H.R. 3600 - The Health Security Act: 
Issues Relating to Health Care Liability 

June 22, 1994 

Mr. Chairman and Members of the Committee: 

My name is Antonio Falcon. I am a board certified family physician from the lower 
Rio Grande valley in Texas. My partners and 1 are the only providers of obstetrical services 
in a three county area, roughly the size of Rhode Island. Our patient population is 80% 
Medicaid, 12% indigent and 8% private pay or private insurance. We deliver approximately 
1,100 babies every year. If not for the tort protection extended by Congress to physicians 
practicing in federally funded Community and Migrant Health Centers, we would not be 
practicing obstetrics at all. 

I am a 1977 graduate of Baylor College of Medicine and a member of the American 
Medical Association and the Texas Medical Association. Last summer, 1 had the privilege of 
meeting with the Clinton Administration's Health Care Task Force to talk about my 
experiences with the liability system. On behalf of the Health Care Liability Alliance and 



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2 

myself, I am pleased to have this opportunity to testify regarding the need for medical 

liability reform as a necessary component of comprehensive health system reform. 

The Health Care Liability Alliance (HCLA) is a coalition of health care providers, 
insurers, health service organizations, manufacturers and individuals who believe that our 
country's dysfunctional system for resolving health care liability disputes is a national 
problem that demands a national solution. HCLA members have come together with the 
common purpose of calling for the inclusion of health care liability reform in federal health 
care reform legislation (An HCLA membership list is attached as Appendix A). 

As the 1994 Physician Payment Review Commission (PPRC) Annual Report to 
Congress -- and many reports before it - make clear, the current system for compensating 
patients who have been injured in the course of receiving health care services is broken and 
should be repaired at the national level. (The PPRC Report is attached as Appendix B.) The 
system is inefficient and wasteful, contributes to problems with patient access to obstetric 
care and other speci^ty services, produces unfair and inconsistent outcomes, and benefits 
lawyers more than it does injured plaintiffs. 

Unless changes are made in our liability laws, health care costs will continue to rise 
and access to health products and services will continue to be unnecessarily constrained. 
Medical malpractice premiums were the fastest growing component of physicians' practice 
costs in the 1980s. Driven by sharp increases in the frequency of claims and the average 
malpractice award in the early 1980s, malpractice premiums grew at twice the rate of 
medical inflation. Following a plateau in the growth cycle at the end of that decade, 
frequency and average award magnitude began to climb again in the early 1990s. My 



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3 

own experience confirms these national trends. Prior to the 1990s, I had practiced 11 years 

without a single lawsuit, when suddenly I was faced with four claims at the same time. In 
Texas, claim frequency increased every year between 1983 and 1992 except one (1989), with 
dramatic increases since 1990. Total .claims against physicians rose 21 percent in 1991 and 
another 23 percent in 1992. Based on past experience, it is likely that more than 70 percent 
of these claims will be closed with no indemnity payment. After analyzing this data, a new 
report from the Texas Medical Association (attached as Appendix C) has declared eleven 
counties in that state to be "disaster areas" due to sharp increases in award frequency and 
average magnitude in recent years. 

Premiums are following these key indicators upward. For example, malpractice 
premiums increased by 14% in New York in 1993, and the largest New York insurance 
carrier has applied to the state's Insurance Commission for a 19% increase in 1994. 
Several other states also have imposed or are preparing to impose double digit increases in 
1994. 

Members of the HCLA believe that liability reform should apply equally to all 
potential defendants in personal injury cases arising from the delivery of health care services. 
Physicians will continue to practice "defensive" medicine or be reluctant to provide treatment 
to patients in those areas of medicine that are plagued by lawsuits. Life-saving drugs and 
medical devices will be slow in emerging and will either cost more, or become completely 
unavailable. Health care costs will increase as managed care plans -- increasingly targeted as 
the "deepest pocket" of all defendants -- feel constrained to pay for unproven or experimental 
treatments radier dian run the risk of multi-million dollar awards. 



84-714 O- 94 -4 



94 



4 

For these reasons, members of the HCLA believe that national health care reform will 
not be effective unless it includes broad-based liability reform applicable in all medical 
malpractice claims arising from the delivery of health care services. Reform should apply 
whether the defendanu, are physicians, nurses, hospitals, pharmaceutical and medical device 
makers and distributors, managed care organizations or others. Twenty years of experience 
in the states has produced valuable information upon which to craft federal policy. In 
particular, California's Medical Injury Compensation Reform Act (MICRA), in place smce 
1975, has proven to be an effective model, and therefore is the basis of the legislative 
package supported by all HCLA members. 

nF.FTNTNC; THE PROBLEM 

The United States has the world's most expensive ton system. At 2.3 percent of 
Gross Domestic Product, U.S. tort costs are substantially higher than that of any country and 
two and a half times the average of all developed countries. {Tort Cost Trends, An 
International Perspective, Tillinghast 1992.) The U.S. tort system cost $132 billion in 1992. 
Between 1933 and 1991, U.S. tort costs rose by a factor of almost 400. By contrast, U.S. 
economic output (GNP) grew only one hundredfold over the same period. Thus, tort costs 
have grown almost four times faster than the U.S. economy over the past 58 years, 
according to Tillinghast. 

Despite the magnitude of spending, our tort system functions very poorly in meeting 
its twin objectives of compensating victims and improving patient safety by deterring careless 
or wrongful behavior. No where is this truer than in what the RAND Corporation has 
accurately dubbed the "high stakes" world of medical liability and product liability litigation. 



95 



5 
{Trends in Tort Litigation: The Story Behind the Statistics. R-^ND R-3583-1CJ. 1987.) For 
many years this country has grappled with the growing inability of the civil justice system to 
resolve health care liability claims in a fair, timely and cost effective manner. 
Health Care Liability: A Public Concern 

Americans want reform and are frustrated by the failure of lawmakers in most states 
to take effective action. They increasingly look to the Congress for leadership. 1 can assure 
you that without Congressional action to shield our practice from non-meritorious suits, my 
panners and I would not be delivering babies today. Following a deluge of suits in the last 
few years, we decided after many hours of serious thought to give up this aspect of our 
practice. We knew that this action would cause a significant hardship to many of our 
patients, as we were the last obstetrics providers in our three county area. And yet the 
lawsuit pressure was too much, so we notified our patients and prepared to help them find 
alternatives. However, as the result of a new federal law that took affect in 1993, we 
discovered that we had another option. By providing all of our obstetrics services under the 
auspices of federally funded migrant health care centers, we were able to be covered by and 
defended under the Federal Ton Claims Act. This is what we do today. 

People know the liability system is out of control. Every recent poll has 
demonstrated that the American public strongly supports effective medical liability reform as 
a component of health system reform. According to a 1991 Gallup Poll, 77 percent of 
Americans think malpractice lawsuits and awards are an important reason for the rising costs 
in health care. The I^s Angeles Times found that given seven possible reasons for 
expensive health care in this country, people are most likely to name malpractice suits. A 



96 



6 

1992 survey shows that 44 percent of the public believes that only about half of the plaintiffs 

in civil liability lawsuits have just cause to file suit. A growing number - now a third of the 
population (34 percent) -- say that the majority of civil liability lawsuits can't be justified. 

Many jurors also feel lawsuits are abused. In interviews with 269 jurors in the 
Northeast, Valerie Hans, a professor at the University of Delaware, says she was struck by 
the jurors' spontaneous referrals to "frivolous lawsuits" and "litigation explosion." The 
jurors' attitudes showed in their verdicts. The jurors agreed or strongly agreed with the 
following statements: There are too many frivolous lawsuits today (83%); people are too 
quick to sue (81 %); and the threat of lawsuits is so prevalent today that it interferes with the 
development of new and useful products (57%). (See, Appendix E, for a humorous 
commentary on our society's litigious climate.) 

The PPRC Report, the Harvard Medical Practice Study, and reports by the General 
Accounting Office (GAO) and the Department of Health and Human Services Task Force on 
Medical Malpractice and Insurance, just to name a few, concur with the following consensus: 
The current tort system, without modification, is unable to resolve liability claims cost- 
effectively and makes a haphazard contribution to deterring negligent behavior or improving 
the safety of health care. 
Liability Reform Objectives are Clear 

There is a broad consensus about the objectives of health care liability reform: 

1. Patient Safety Should be Promoted. 

The HCLA believes that any meaningful reform of the liability system must contain 
meaningful patient safeguards against malpractice or harm from medical products or services. 



97 



7 
The health care community is committed to contmumg efforts to reduce the incidence of 

injury and strongly supports reform efforts to promote patient safety and identify incompetent 

providers or unethical practices. Our efforts alone, however, are not enough to remedy the 

many harms that the current lort system perpetuates. 

2. The System's Focus Should be Compensation for Injured Patients, not 
Lawyers. 

People injured in the course of receiving health care treatment are entitled to fair and 
prompt compensation. No one disputes this. Unfonunately, the current tort system has 
failed the patient population. 

A February 1991 study by Harvard School of Public Health of hospital admissions in 
1984 shows that of the one percent of patients whose medical records indicated some 
negligent treatment, only 12.5% filed liability claims. Significantly, only half of those 
patients -- 6.25% - received compensation from the ton liability system. (Harvard Medical 
Praaice Study, Hai^'ard School of Public Health, 1990.) 

Other data show that even when patients pursue compensation, other panies to the 
system reap disproponionate benefits. The RAND Corporation estimates that only 43 cents 
of every dollar spent in medical liability or product liability litigation reaches injured 
patients. The remainder is spent on administrative "transaction" costs, largely attorneys fees 
and expenses. 

When one actually compiles attorney fees and expenses, a clearer picture of whom the 
litigation system truly benefits emerges. Attached as Exhibit D to my testimony is a final 
judgment order confirming a settlement agreement which involved a $200,000 cash payment 
to the plaintiffs (parents and injured minor), together with monthly payments for 20 years to 



98 



8 

the minor. Of the $200,000 cash payment, more than $160,000 was paid to the plaintiffs' 

attorney in expenses and fees, widi less than $40,000 retained by the parties. This was not a 
case that went to trial. Nor was this a particularly complicated or drawn out case. Nor was 
this a case where compensation of this magnitude was necessary to attract a good attorney to 
take the case. Any system that compensates lawyers this handsomely for a few hours work 
is in serkHis need of adjustment. The HCLA favors a graduated schedule that reduces the 
contingency percentage in steps as the award grows higher, thereby ensuring diat the most 
seriously injured patients keep more of their award. Analysis of medical liability cases 
closed in California in 1993 indkate that the stale's gnduaied limits on anorney contingency 
fees resulted in patients keeping an additional $9 millkm in compensation that would have 
otherwise gone to their attorneys. (799i Medical Malpractice Large Loss Trend Study, 
Medical Underwriters of California, April 1994; see also. Appendix F, a 1989 Forbes artKle 
on the impact of excessive contingency fees on tort costs.) 

3. The PMientyProvider Rdafionsfaip Should be Strengthened, Not Impeded. 

According to the Harvard Study, health cue is completely safe for 99% of patients in 
hospitals. The health care liability system should be designed to target provkiers who engage 
in the one percent of cases that may involve unsafe or unethkal practkxs. Instead, it 
currently creates an overall climate of fear and suspumn that impede the maintenance of 
trusting therapeutic relationships. 

The average physician has a 37% chance of being sued at sometime in his or her 
career. This increases to S2% for a surgeon and 78% for an obstetrician. A compelling 
indkator of the current system's failure is the fact that a physician's chance of being sued for 



99 



9 

medical liability bears little relation to whether he or she has been negligent. The Harvard 

data show that 80% of the claims for medical negligence filed in New York did not 
correspond with a negligent adverse event. These findings reinforce the GAOs estimate that 
nearly 60% of all claims filed against physicians are dismissed without a verdict, settlement, 
or any payment of compensation in the plaintiffs favor {Medical Malpractice, Characteristics 
of Claims Closed in 1984, U.S. General Accounting Office. 1987). These numbers show 
that the current tort system as it functions in most states is not effectively resolving medical 
liability claims or deterring medical negligence. 

4. The Liability Component of Health Care Costs Should Be Contained. 

We all bear the burden of the high health care liability costs paid by potential 
defendants, when these costs are passed on in the form of more expensive health care 
services. In assessing the full extent of liability costs, several component factors should be 
considered. 

The first component is liability insurance premiums, which have been a significant 
factor in the increase in patient health care bills. In the 1980s, professional liability 
premiums were by far the fastest growing component of physicians' practice costs, increasing 
at an annual average rate of 15.1 % between 1982 and 1989. (The Cost of Medical Liability 
in the 1980s, American Medical Association, 1992.) Estimates show that for each baby 
delivered in Florida. $1,119 goes toward payment of liability insurance, and average 
premiums paid by self-employed physicians tripled in the 1980s. The cost is especially 
heavy for some high-risk specialists in certain states whose premiums have exceeded 
$100,000 and approach as much as $200,000 annually. The estimated annual cost of liability 



100 



10 
insurance for physicians and health care facilities has been placed at more than $9 billion in 

1992 and continues to grow. 

A second factor is the cost attributable to "defensive medicine," the term used to 
describe diagnostic tests and services motivated primarily by the fear of litigation and the 
perceived need to build a medical record that documents a health care professional's 
judgment. While difficult to precisely quantify, defensive attitudes and practices are real and 
entirely understandable when physicians have a 38% average chance (up to 78% for 
obstetricians) of incurring a claim regardless of the quality of care they provide. The AMA 
estimates that this practice added an additional $15.1 billion to the cost of health care in 
1989. Lewin-VHI estimates the combined cost of pfaysiciuis' and hospitals' defensive 
praaices to be as high as $25 billion in 1991. (Estimating the Costs of Defensive Medicine, 
Lewin-VHI, 1993.) In an April 1994 study, the Hudson Institute's Competitiveness Center 
reported that liability premiunis and defiensive medical contributed $450 per patient admitted 
to a large urban hospital in Indiana, representing an average of 5.3% of the patient's health 
care costs. (DM Mcintosh, DC Murray, Medical Malpractice Lability, An Agenda for 
Reform, Hudson Institute, 1994.) 

According to the Lewin-VHI report, comprehensive medical liability reform as a 
component of health care delivery system reform could save an estimated $35.8 billion over 
the next five years by curbing premium cost and many defensive medical practices. The 
Lewin-VHI study predicts that tort reform savings will accrue at an accelerated rate as 
practice patterns begin to change. 



101 



11 

The liability costs borne by makers of medicines and medical products contribute 
additional billions to the national health care bill. In 1990. $10.8 billion was paid to 
claimants in all health care product liability cases in the U.S. - and that does not include 
associated administrative and legal defense costs. 

Adding these components together, the total cost of physicians' and hospitals' liability 
premiums, defensive medicine, and coverage for makers of medicines and medical devices, is 
more than $45 billion annually. 

A final cost factor that is potentially enormous, but has not yet been adequately 
measured, is the liability of managed care systems for their utilization review activities that 
restrict payment for health care services that patients demand. Recent verdicts and settlement 
reports suggest that payors who refuse to provide services may be exposed to multi-million 
dollar suits, even if the medical service demanded by the patient has not been proven 
effective and is clearly excluded by the terms of the managed care plan. (See Patients' 
Lawvers Lead Insurers to Pay for Unproven Treatments, New York Times . March 28, 1994, 
page Al, attached as Appendix G.) It is difficult to imagine any scenario in which cost 
containment initiatives can be successful, if the business risk in denying such benefits is a 
virtually unlimited jury verdict. 

5. Medical Innovation Should be Encouraged not Derailed. 

The threat of liability acts to inhibit medical innovation and deprives health care 
professionals of certain medicines and medical devices needed for optimal patient treatment. 
The threat of litigation prompted seven of eight pertussis vaccine manufacturers to withdraw 
from the market between 1960 and 1985, even though no sound scientific study has even 



102 



12 
confirmed a cause and effect relationship between the vaccine and any adverse neurological 

reaction. To prevent a dangerous shortage of the vaccine, the federal government established 

a compensation fund financed by an increase in the cost of the vaccine. Excessive litigation 

costs were also the reason that the manufacturer of the morning sickness drug Bendectir 

withdrew its product from the market, even though there is no credible scientific evidence to 

this day linking it to birth defects. Patients suffer needlessly because no substitute therapy 

for morning sickness has been developed ~ the product liability litigation risk is just too 

high. 

6. Access to the Comprehensive Health Care Should be Promoted. 

Perhaps the most serious societal harm caused by the liability system is reduced 
access to health care. Increasing premiums and the threat of liability have caused physicians 
to abandon practices and/or to stop providing certain services in various areas of the country. 

I have already testified to my own experience, which is not unlike those of many 
other physicians treating the rural and urban poor. Almost one out of eight 
obstetrician/gynecologists (12%) has drq)ped obstetrical practice as a result of liability risks. 
{Professional Liability and its Effects: Report of a 1990 Survey ofACOG's Membership, 
American College of Obstetricians and Gynecologists, 1991.) More than a half million 
residents of rural counties are without any physicians who provide obstetric services. 
{Health Care in Rural America, Office of Technology Assessment, September 1990.) Nor is 
this phenomenon limited to rural areas. An example of this problem was presented by 
Senator Riegle (D-MI) while chairing a 1991 hearing on health system reform, when he 
indicated that his family was unable to remain with its obstetrician of choice because that 



103 



13 
physician gave up obstetrics practice. This did not happen to a citizen in a rural community. 
It happened to a U.S. Senator in the District of Columbia (See also . Appendix 1, a 1990 
Southern Legislative Conference report detailing numerous liability related access problems 

in rural areas.) 

I can personally verify that the high costs of liability are a significant factor in the 
decisions of many physicians, in Texas and across the countn. to drop or retire from high 
risk specialty areas such as obstetrics. After many years of advocating reform. I am 
convinced that the serious access problem will not be remedied without strong national 

leadership. 

Liability concerns are increasingly creating obstacles to the availability and 
affordability of medical devices as well. In response to hundreds of claims filed against 
them, E. L DuPont Company is restricting the sale of its Teflon product to the makers of 
lithium batteries used to power hean pacemakers. Even though it had no role in designing 
the pacemaker device of the lithium batteries, because DuPont supplies a raw material it is 
included in the legal chain of responsibility. By virtue of their size a supplier like DuPont 
may have deeper pockets, and therefore may be more vulnerable to suit, than smaller 
companies who actually design or produce the product. For the same reason, DuPont and 
other companies are also restricting the sale of raw materials to manufacturers of jaw 
implants, artificial blood vessels, heart valves and sutures, among other devices. (Implant 
Industry is Facing Cutback by Top Suppliers, New York Times . April 24, 1994, page Al, 
attached as Appendix J.) 



104 



14 

Until some reasonable limits are put on the liability exposure of defendants in health 

care injury cases — limits that provide fair, but not unlimited compensation for injured 
patients - these access problems will not be abated. 

FEDERAL LEADERSHIP IS NEEDED 

Every shareholder in the medical liability system has the opportunity and the 
responsibility to make the system work better. The health care community is actively 
carrying out its responsibility to identify and address high-risk of injury situations through a 
variety of patient safety and loss prevention programs in virtually every medical sening. 
Unfortunately, we can do little to remedy the waste in our country's tort system. We hope 
that other panicipants in the system will heed the call to participate in this effort. As the 
federal government fashions a nationwide overhaul of the health care delivery system, it 
should act to realize a viable and consistent solution to the panoply of issues raised by health 
care liability. 

The litany of problems with the current tort system does not necessarily mean that the 
system must be abandoned. The HCLA believes that a fault-based system which would 
permit meritorious claims, screen out claims with no merit and lower transaction costs can 
work. Reforms such as those adopted in the state of California tell us that the current system 
can be improved through reform, and that moderate reform can produce dramatic effects by 
promoting settlement of valid claims, discouraging frivolous litigation, and reducing the time 
required for claims resolution and its associated costs. 



105 



15 
Federal Preemptive Tort Reform 

Federal preemptive ton reform represents a bold approach, bui the only one that can 
advance a nationwide solution to this complex problem. 

Vinually every health system reform bill introduced to date, includmg the Clinton 
Administration's Health Security Act (S. 1757/H.R. 3600) incorporates a federal preemptive 
liability reform title. (See Appendix K for a comparison of liability titles of major health 
system reform bills.) I had the privilege of being invited to speak to the Clinton 
Administration's Health Care Task Force, and told them about m\ experiences with the 
liability system in Texas. Although die President and the First Lady should be commended 
for including liability reform concepts in S. 1757. the liability reform sections of their bill 
fall shon of actions needed to accomplish meaningful liability reform. I had hoped they 
would do more. 

In any federal preemptive scheme, states should be left with substantial power to 
implement additional or alternative reform programs that are equally effective at meeting 
federal objectives, and to experiment with a wide variety of alternative dispute resolution 
approaches to injury compensation. State-based demonstration projects like those now 
underway in Maine and a handful of other states to evaluate the use of clinical practice 
parameters/guidelines in litigation should also be helpful in evaluating whether such 
guidelines can reduce liability costs. 
Reform Provisions Supported bv the HCLA . 

The members of the HCLA agree that effective health care liability reform will not be 
achieved unless the reform provisions described below are adopted at the national level. 



106 



16 
These provisions are based on California's MICRA legislation, in place in that state since 

1975. The California model ensures full and fair compensation for all actual losses, yet 
limits costs through various controls exerted on the "lottery* aspects of the medical liability 
system, notably a ceiling on iion-economic damages and graduated limits on attorney 
contingency fees as claimants' awards rise. After nearly 20 years of experience in 
California, we can confidently conclude that California's limits on costs in high stakes cases 
have stabilized medical liability expenses overall, despite a pattern of long term growth in the 
frequency of liability claims in the state. 

1. A pply liabilitv reform prov isions lo all potential defien^«nrc in rficpiii^ «riciny 

from in|uries received in the course of healdi care services delivery. Many liability reform 
titles, including the Health Security Act, apply only to malpractice actions brou^t against 
health care professional and institutional providers. Yet the inanufKturers of prescription 
drugs and medical devices, providers of blood and tissue services or products, and managed 
care organizations are all at risk of lawsuit as well when a patient is injured. It shouM also 
be noted that hospitals, clinks and other institutional provklers are sued not just for 
malpractice, but for personal injury allied to result from their distributkm of medkad 
devices, pharmaceutkal and blood/tissue material. Addressing the liability problems in just 
one part of the health care sector may actually stimulate litigatk>n in other parts whkh are 
then perceived to have "deeper pockets." This detrimentally impacts medkad technology 
manufacturers by deterring the development of new innovative, cost effective products. For 
all of these reasons, the liability reform umbrella should encompass all potential defendants 
in claims arising from injuries experienced in the course of health care treatment 



107 



17 

2. £250.000 Non-Economic Damages Ceiling . Limits on non-economic damages 

are the single most effective reform in containing medical liability premiums, according to a 
September 1993 report Impact of Legal Reforms on Medical Malpractice Costs by the OTA. 
Ceilings on non-economic damages do not in any way restrain the ability of a ciaimar' to 
recover medical expenses, lost wages, rehabilitation costs or any other economic loss 
suffered as the result of a health care injury. It limits only those damages awarded for pain 
and suffering, loss of enjoyment and other intangible items. Based on the successful 
experience of California's MICRA legislation, HCLA members support a S250.000 limit. 
By international standards, this is a generous ceiling. NO other country provides a benefit 
this high for non-economic damages. 

3. Several Liability for Non-Economic Damages . Under the current rule in many 
states, a defendant that is responsible for as little as one percent of the total fault may be held 
financially accountable for the entire award. HCLA members agree that defendants should 
remain jointly liable to the plaintiff for all economic losses, but should be only individually 
liable for the portion of non-economic damages in fact attributable to their own acts or 
omissions. This compromise ensures that the plaintiff will be made whole for all out of 
pocket losses, yet takes a step toward establishing fairness and accountability between 
defendants. 

4. Attorney Contingent Fee limitations . The contingency fee is meant to be the 
"poor man's key to the coun house." However, the contingency fee system is not serving 
this function well. Most persons with small health care injury claims never get access to the 
civil justice system, because the contingency fee stimulates lawyers to be primarily interested 



108 

18 

in the "big ticket" cases. The system would be improved if the attorney contingency fee 

were calculated with some "relative value," similar to what the Medicare system no imposes 
with respect to physician fees. 

All of the major health system reform proposals limit the amount an attorney can 
recover as pan of a malpractice award. However, HCLA members cannot support the 
Health Security Act's contingency fee section which limits the attorney fees to a flat one 
third of the award, merely preserving the status quo. HCLA supports California's contingent 
fee limit schedule: 40% of the first $50,000. 33 and 1/3% of the next $50,000, 25% of the 
next 500,000, and 15% of any amount by which the recovery exceeds $600,000. 

5. Collateral Source Pavmenis . This reform would permit any defendant to 
introduce evidence of any reimbursement received or due to be received by a claimant from 
health or disability insurers or others for losses resulting from an injury. Claimants are 
permitted to provide evidence of amounts paid to secure the collateral source benefit. 
Providers of collateral source benefits would not be allowed to subrogate. The Health 
Security Act's collateral source provision would actually offset the award by the amount of 
collateral source payments received by the claimant. HCLA members believe diat die Health 
Security Act's is not as effective as our proposal to infonn the jury of such collateral source 
payments prior to their deliberations. 

6. Future Damage Awards . Future damage awards over $50,000 should be paid 
periodically. The Health Security Act incorporates a periodic payment reform provision, but 
fails to establish a monetary threshold at w^idi it would begin to apply. 



109 



19 
7. Statute of Limitations . A uniform statute of limitations should be enacted that 

(i) establishes a standard rule that claims must be filed within one year from the date an 

injury is discovered, but (ii) provides an outside limit of three years from the date the injury 

occurred. Exceptions to these general rules allowing extra time should be ma'^". (iii) for 

children under age six who may not be able to communicate the existence of an injury, and 

(iv) in the instance where a foreign body with no therapeutic purpose is left in a claimant's 

body and not discovered for many years. 

Hri.A rnmments on the Heafth Security Act 

The Health Security Act contains a number of additional reform concepts that may or 
may not be effective. We offer the following comments: 

1. Alternative Dispute Resolution (ADR) . The ADR section of the Health 
Security Act is expressly non-binding, presumably in deference to the cherished right of 
access to a jury trial. Yet, die central objective of ADR is to diven cases from litigation. 
This tension can only be addressed by giving parties to a health care injury dispute some 
incentive to voluntarily setde with the ADR decisictn and not pursue litigation. Two 
approaches should be implemented. First, the ADR decision must be admissible as evidence 
in court. The jury should be informed that the dispute already has been through some 
investigation or process and gives diem the benefit of that process for their deliberation. 
Second, adopt a fee-shifting rule, whereby a claimant or defendant who rejects the ADR 
decision and goes forward is made responsible for the professional fees of the opposing 
parties if a result better than the ADR decision is not achieved. Finally, existing ADR 
provisions enacted by the states should not be preempted by federal law. 



no 



20 
Many HCLA members believe that federal leadership in this area is best exercised by 

encouraging state or federal demonstration projects utilizing various ADR models. Because 

so little is clear presently as to the effectiveness of ADR, it may be appropriate to encourage 

state "laboratories" to try and evaluate different ADR approaches. 

2 Praptir-e Tiuidelines . The Health Security Act would establish a pilot program 
to encourage the use of clinical practice guidelines for the purpose of expediting the 
resolution of claims arising from care delivered in accordance with such guidelines. The 
HCLA would not oppose such demonstration projects, so long as they require thai practice 
guidelines be used exclusively as an cffimuitive defense by defendants in Uability cases. This 
approach is consistent with demonstration projects already underway in Maine and other 

states. 

3 (^PTtificate of Merit . Non-meritorious suits will be discouraged if plaintiffs are 
required to have a qualified expert submit an affidavit stating that there is a likely breach in 
the standard of care. In the Health Security Act, the plaintiffs claim must be supported by a 
qualified expert. The Act should be strengthened by requiring a separate affidavit for each 
defendant and a penalty for experts who file affidavits in bad faith. 

4. Fnterprise Li;>hi1itv Demon stration Project. The Health Security Act's 
"enterprise liability" proposal would immunize physicians, nurses and other individual health 
care providers from responsibility for their actions and shift liabUity exposure to the health 
services "plan." This would only shift the associated liabUity costs, and instead of reducing 
diem, could lead to higher losses because of the "deq> pocket" theory. The HCLA 



Ill 



21 
adamantly opposes the authorization or expenditure of federal funds to encourage mandatory 

enterprise liability. 

Patient Safetv/Risk MaT »igt'ni«»nt 

Providing medical care today involves a complex system of persons "nd technology, 
each individual and component of which is necessary to bring about the safe and effective 
delivery of care to the patient. All of our activities aim at the common goal of improving 
patient health and preventing patient injury. All call upon us to examine what we do or fail 
to do, and how we do it. When problems are detected, solutions are developed and 
implemented. 

Legislation designed to enhance patient safety must occupy a central role in medical 
liability reform. The members of the HCLA support a number of bills introduced in the 
103rd Congress would implement this approach such as S. 1S33/H.R. 3080, the 'Affordable 
Health Care Now Aa," introduced by Sen. Trent Lott (R-MS) and Rep. Robert H. Michel 
(R-IL). The HCLA supports the dedication of health care professional licensing fees to 
increase the effeaiveness of stale medical disciplinary boards. We also support the ability of 
states to enter into contracts with local professional societies to assist in investigating 
consumer complaints, which have the potential to significantly enhance the resources of 
licensing and disciplinary boards. 

HCLA members remain committed to reducing the incidence of patient injury. In this 
context, we support required risk management training for health professionals and are 
proceeding with aggressive endeavors to restrict the ability of unethical physicians to practice 
medicine. 



112 



22 
rONCLUSlON 

Mr. Chairman, our liability system needs to be fixed to meet the needs of injured 
patients who deserve to be fairly compensated, the health care sector, which is willing to 
assume its fair snare of the responsibility for avoidable patient injury, and society, which 
needs to reduce transaction costs, eliminate windfall judgments, and assure that physicians 
can still offer medically necessary services in an atmosphere of fairness to all parties. You 
are in a unique position to make reform happen by putting pressure on all parties ~ including 
the legal profession - to make the system work better for both claimants and defendants. 

I appreciate the opportunity to appear before the Committee and would be pleased to 
respond to questions. 



113 

A ppendix A 



HEALTH CARE LIABmiTY ALLIANCE 
MEMBER LIST (Companies & Associations) 

American Academy of Dermatology 

American Academy of Ophthalmology 

American Home Products Corporation 

American Hospital Association 

American Medical Association 

AM A/Specialty Society Medical Liability Project 

American Society of Healthcare Risk Managers 

Biotechnology Industry Organization 

Califomians Allied for Patient Protection 

Cooperative of American Physicians, Inc./ Mutual Protective Trust 

Council of Community Blood Centers 

The Doctors' Company 

Health Insurance Association of America 

Health Industry Manufacturers Association 

Medical Protective Company 

Medical Mutual Liability Insurance Society of Maryland 

MEDMARC Insurance Company 

MMI Companies, Inc. 

National Association of Manufacturers 

National Council of Community Hospitals 

Pharmaceutical Research & Manufacturers of America 

Physician Insurers Association of America 

Physician Insurance Company of Michigan 



[Note: The text of Dr. Falcon's Appendix B is too voluminous to 
include in the body of the hearing text. See Appendix 1 .] 



114 

Mr. Brooks. Dr. Keller. 

STATEMENT OF ROBERT B. KELLER, MJD., VICE CHAIRMAN, 
PHYSICIAN PAYMENT REVIEW COMMISSION 

Dr. Keller. Thank you, Mr. Chairman, Members of the commit- 
tee, I am Robert Keller, an orthopedic surgeon from Belfast, Maine, 
and today I represent the Physician Payment Review Commission. 

The Physician Payment Review Commission was created by the 
Congress in 1986 to advise it on issues related to physician pay- 
ment in the medicare program. Its 1989 proposal for physician pay- 
ment reform was enacted and was implemented in 1992. 

The Congress' mandate to the commission was substantially 
broadened in 1990. One of its new charges was to advise on medi- 
cal malpractice reform. Although the commission's membership in- 
cludes physicians from several medical specialties apd practice set- 
tings, a majority of the 13 members come from other backgrounds, 
including business, consumers, nursing, HMO organizations, and 
health economics. 

The proposals of the commission, which are presented in this tes- 
timony, have the unanimous support of all members of the PPRC. 
We beheve that the medical malpractice system needs to become 
more effective and efficient in limiting the rates of medical injuries 
and compensating injured patients. Reform should also address 
widespread concerns that the system promotes the practice of de- 
fensive medicine and impedes many efforts to improve the cost-ef- 
fectiveness of health care. 

The commission has outlined a malpractice system for the future 
that we should work toward. We also suggest some steps to im- 
prove the functioning of the current svstem. 

A future malpractice system would have two components. First, 
an efficient administrative system to compensate patients who ex- 
perience medical injuries, and second, a complementary system for 
monitoring quality and for designing and implementating measures 
to reduce the rate and numbers of injuries. 

Separating decisions on compensation from review of quahty of 
care would enable each to be accomplished by a system best suited 
to that purpose. This would permit patient compensation to be im- 
proved while increasing physicians' confidence in judgments of 
their quality of care. 

This new system cannot be implemented at the present time be- 
cause extensive development and experimentation are needed for 
key components, but initial steps should be taken now. 

First, better data on medical injuries should be collected and em- 
ployed to prevent injuries and to improve the quality of care. Sec- 
ond, alternative dispute resolution systems for compensating in- 
jured patients should be developed and tested. Third, more reliable 
standards for compensation and negligence should be formulated. 

To immediately improve the functioning of the current system, 
the commission recommends the adoption of certain tort reforms. 
These include rationalizing damage awards by the adoption of rea- 
sonable schedules for noneconomic damages. Interim limits may be 
employed until a schedule is adopted. 

Next, offset of award for collateral source payments, periodic pay- 
ments of large awards, and assignment of punitive damages to 



115 

quality improvement activities. Additional recommendations in- 
clude schedules for attorneys' contingency fees, thresholds for joint 
and several liability, and reduction of statutes of limitation for mi- 
nors to a reasonable period of time. 

The evidence does not yet justify requiring the use of certificates 
of merit or mandates for enterprise liability. Although tort reforms 
will not solve all of the problems in the malpractice system, they 
can make a significant contribution. Compensation would become 
more consistent and predictable and administrative costs would be 
reduced. The commission believes that the case is sufficiently com- 
pelling for Federal mandate. 

Much attention is being focused on how practice guidelines are 
likely to be treated in the malpractice system. The commission be- 
lieves it would be premature for the Federal Government to man- 
date that all States accord special legal status to practice guide- 
lines. This conclusion is based in part on an empirical study spon- 
sored by the commission. 

The results of this study showed that practice guidelines are 
playing a modest but increasing role in litigation. Their effects 
seem to be positive overall. For example, one fourth of the plain- 
tiffs' attorneys reported that in the past year, a practice guideline 
had influenced their decision not to take a case. 

In the State of Maine, we are currently under a liability dem- 
onstration project using practice guidelines. The data at this point 
is not there to indicate if they will work or not, but it is a useful 
experiment that is ongoing. 

The results of State experiments, such as ours, which accord spe- 
cial legal status to practice guidelines, should be assessed before 
proceeding further in this area. 

Thank you. 

Mr. Brooks. Thank you very much. Doctor. 

[The prepared statement of Dr. Keller follows:] 



116 



Statement On Medical Malpractice Reform 

before the Subcommittee on Economic and Commercial Law 

Committee on the Judiciary 

United States House of Representatives 

June 22. 1994 

by 

Robert B. Keller, M.D., Vice Chairman 
Physician Payment Review Commission 



I am pleased to appear before this subcommittee on behalf of the Physician Payment Review 
Commission. The Commission was established by the Congress in 1986 to provide advice and 
recommendations on methods to reform payment to physicians under the Medicare program. 
The Commission's work helped pave the way for the Medicare physician payment reforms 
enacted in 1989 and implemented in 1992. The Congress subsequently expanded the 
Commission's mandate to include a wide range of health policy issues, including medical 
malpractice refonm. The Commission submits a series of reports to the Congress each year, the 
most comprehensive being its annual report which you received on March 31. 

During the past four years, the Commission has conducted an extensive analysis of the medical 
malpractice problem and explored a range of ideas for reform. It also commissioned the first 
empirical research to be conducted on the role of practice guidelines in malpractice litigation. 
The Commission appreciates the opportunity to summarize the results of its work on this topic. 
Additional details and supporting documentation can be found in a chapter on medical 
malpractice reform in our 1994 Annual Report to Congress. 

The problems with the malpractice system have received widespread attention. Although 
medical care in the United States is generally of high quality, the incidence of preventable 
medical injury is greater than acceptable. Few patients who are negligently injured are 



117 



compensated, and the awards are variable. The existing malpractice system promotes the 
practice of defensive medicine and impedes efforts to improve the cost effectiveness of care. 
Further, the system's inefficiency results in high administrative costs and long delays in claims 
resolution. The goals of reform are to address these deficiencies 

The Commission has formulated a set of recommenddJons that include specific tort reforms to 
improve immediately the functioning of the current system In addition the Commission has 
identified steps that should be taken in the near term to pave the way for more fundamental 
reform of the malpractice system in the future. Tort reforms are discussed first, followed by an 
analysis of the role of practice guidelines in malpractice litigation A future malpractice system 
envisioned by the Commission is then described, along with recommendations for beginning 
work on the building blocks of this system. These include better systems to prevent medical 
injuries, administrative systems for handling malpractice claims, and alternative standards for the 
compensation of medical injuries. 

TORT REFORMS 

Tort reforms are changes in the legal rules governing malpractice lawsuits. The Commission 
recommends certain of these reforms to improve the functioning of the cun-ent system. They 
would make damage awards more consistent and predictable, speed the settlement of cases, 
direct more resources to compensate injured patients, and reduce the occun-ence of 
inappropriate and excessive awards. While some versions of tort reforms have the potential to 
inappropriately disadvantage injured patients, the Commission has taken care to formulate its 
tort reform recommendations so as to improve the system's fairness overall. 



118 



Schedules for Noneconomic Damages 

Reasonable schedules should be developed for noneconomic damages. Much of the 
unpredictability and inconsistency that characterize today's malpractice awards are because of 
noneconomic damages (i.e., pain and suffering), which account for about 50 percent of total 
payments. Reducing the subjectivity of noneconomic damages and eliminating the potential for 
unreasonably high awards would improve decisionmaking during the course of a lawsuit and 
promote settlement. 

The schedules would set acceptable ranges for awards for carefully defined categories of 
injuries. Schedules would establish a different limit for each grade of injuries, which is preferable 
to a single absolute limit that may be too high for some injuries and too low for others. Until a 
schedule is developed, however, it may be necessary to adopt a single interim absolute limit on 
noneconomic damages. 

Schedules for Attorneys' Contingency Fees 

The typical contingency fee paid to the claimant's attorney out of an award is about one-third of 
the recovery. A sliding-scale schedule for contingency fees would better approximate the fee 
to the wori< performed by the lawyer, so that more of a large award goes to the injured patient. 



119 

Modification of the Collateral Source Rule 

This reform would limit the potential for "double recoveries" by some plaintiffs and thus would 
reduce the cost of the system without inappropriately harming plaintiffs. 

Restrictions on Joint and Several Liability 

Thresholds should be adopted for the application of joint and several liability. In cases with more 
than one defendant, the doctrine of joint and several liability holds any defendant responsible for 
the full award if any other defendants cannot pay their shares apportioned by fault. Practitioners 
and entities with adequate insurance or resources to pay malpractice awards do not want to pay 
the full amount of an award when their contribution to fault is minor or negligible, and the 
potential for liability out of proportion to fault encourages defensive medicine. But limits on joint 
and several liability may come at the expense of adequately compensating injured patients. The 
Commission recommends that a balance be stnjck by adopting thresholds for the application of 
joint and several liability. 

Periodic Payments of Large Awards 

More than half the states require that larger awards for future damages be paid in installments 
over time. The Commission recommends periodic payment for large awards. This would ensure 
that adequate resources are available to meet future needs. 



120 

Reductions in Long Statutes of Limitation 

Overly long statutes of limitation create uncertainty, delay, and expense in insuring against 
malpractice claims. Birth-related injuries are the principal source of problems. Eight years is a 
safe period to allow detection of perinatal injury, and shorter periods are defensible. States that 
have longer statutes of limitativ,:is for minors should be required to reduce them to eight years 
at most. 

Punitive Damages 

Part or all of punitive damages awards should be diverted to quality improvement activities. 
Punitive damages, by definition, are not compensatory in nature. Their purpose is to deter 
others from similar conduct, thus protecting future patients from injury. This end would be 
furthered if the money from these awards were used directly for injury prevention or quality 
improvement activities. 



OTHER PROPOSALS FOR TORT REFORMS 

Some other proposed tort reforms have promise, but current knowledge of their effectiveness 
is not sufficient to justify that they be federally mandated. These include a certificate of merit 
requirement and a mandate for enterprise liability. 



121 



Certificate of Merit 

A certificate of merit is a requirement that an independent medical expert review the medical 
record and certify that a claim is worthy before a fomnal lawsuit can be filed. It is often difficult 
to judge at a case's inception whether it is likely to be successful because key infonnation is not 
available in the medical record. If the r^^^uirements for determining merit are loosened to 
respond to this problem, it will simply add another step to the litigation process, consuming time 
and money. This may be a bamer to some meritorious claims being brought, particulariy for low- 
income plaintiffs who would have to incur the additional costs of this initial evaluation. If the 
certificate of merit requirement is too strict, some cases that eventually would be successful 
might be screened out simply because of incomplete information Although the idea has 
promise, more needs to be learned about how to make certificate of merit programs wori< well 
before they are federally mandated. 

Enterprise Liability 

Under enterprise liability, a health care organization assumes financial responsibility for all 
negligent injuries to patients under its care, thereby relieving individual practitioners of any 
personal tort liability for such injuries. This is thought to save administrative costs and to better 
focus efforts to prevent injuries. It is presently worthing well for hospitals owned and staffed by 
one organization. As vertical integration spreads through the delivery system, enterprise liability 
is likely to follow naturally for reasons of efficiency. Although the trend toward enterprise liability 
is encouraging, the Commission considers it unwise to impose enterprise liability on 



122 



organizations and physicians that are not sufficiently integrated for the policy to work well: e.g., 
third-party indemnity payers and independent fee-for-service physicians. 

THE ROLE OF PRACTICE GUIDELINES IN MALPRACTICE LITIGATION 

Practice guidelines are a key element of the nation's efforts to improve the quality and cost- 
effectiveness of medical care. How guidelines are treated in the malpractice system has 
important implications for their success. Practice guidelines may help to improve the functioning 
of the malpractice system. This is because guidelines can make clear the applicable standard 
of care, which is a troublesome issue in many malpractice cases. They might lessen the need 
for expert testimony on the standard of care, thus avoiding a battle of the experts. Guidelines 
may appropriately increase the amount of malpractice litigation by helping make clear to injured 
patients, their lawyers, or juries that a standard of care was breached, while reducing the number 
of meritless cases filed. 

Several factors, however, might prevent practice guidelines from improving the functioning of the 
malpractice system. The topics on which guidelines are being developed probably are in-elevant 
to the circumstances leading to most malpractice claims. Guidelines might be construed to 
create a firm standard of care when one is neither intended nor appropriate. While practice 
guidelines could provide an important legal support for physicians and health care organizations 
that use them, their revision by the judicial system could render guidelines ineffective in helping 
to control costs and improve quality. Such revisions could take two fomns: an explicit rejection 
of the content of the guideline, or a can/ing-out of exceptions that effectively vitiates it. In 
addition, increased litigation might result from questioning the validity of guidelines or the 



123 



circumstances under which exceptions are warranted. In response to these concerns, some 
states, including Maine, have given practice guidelines special legal status to facilitate their use 
by defense attorneys, and thus encourage their use by physicians. No cases have been brought 
since these policies were enacted. 

The Commission believes that the expeiience in these states should be assessed before the 
federal government would mandate that all states accord special legal status to practice 
guidelines. Particular attention should be paid to whether these actions have promoted or 
impeded the appropriate use of guidelines in litigation and m patient care. Until this information 
is obtained, it would be premature to proceed with a federal mandate. A recent study by the 
Commission, which I will describe in a moment, revealed nothing alarming about the current use 
of practice guidelines in malpractice litigation, so special legal protections may not be necessary. 
One would want to accord special status only to high-quality guidelines; the manner by which 
such guidelines are identified may itself confer the desired special weight in litigation The 
asymmetry of some states' initiatives, in which only the defense can use practice guidelines, is 
problematic. 

The Commission's Study of Practice Guidelines in Malpractice Litigation 

Because little is known about the use of practice guidelines in malpractice litigation, the 
Commission engaged Harvard University researchers to conduct a study to provide empirical 
information on this topic. The study had three components The first was a review of published 
judicial decisions that concern practice guidelines. The second was a review of malpractice 
claims files to determine how often guidelines were used in actual malpractice cases, and to 



124 



discover the ways they were used. The last was a survey mailed to a large sample of plaintiffs' 
and defendants' lawyers. 

Several conclusions can be drawn from this study (the findings are described in detail in the 
Commission's Annual Report to Congress 1994). Practice guidelines are playing a modest but 
increasing role in malpractice litigation. About half of the malpractice attomeys surveyed had 
at least one case each year in which guidelines played a role, and a high proportion reported 
that the use of guidelines was increasing. Still, only 7 percent of the 259 claims reviewed from 
the malpractice insurers' files involved the use of guidelines. Obstetric guidelines are the ones 
most frequently being used, probably because they are among the oldest and best known to 
physicians and lawyers. 

Guidelines are being introduced more often by plaintiff than by defense attomeys, possibly 
because guidelines may provide cheaper or stronger evidence of the standard of care than 
expert testimony. The use of guidelines by either side is usually, but not always, successful in 
malpractice litigation. In published judicial decisions, for example, plaintiffs won 17 of the 23 
cases in which their lawyers used the practice guidelines, while in 6 of 9 cases a practice 
guideline was used successfully by the defense. 

Guidelines helped lawyers, judges, and juries reach decisions. Of the attomeys representing 
plaintiffs, one-quarter stated that a guideline had influenced their decision not to take a case in 
the past year; one-quarter of all the attomeys noted that a guideline had influenced their decision 
to drop or settle a case. One-quarter also said that a guideline had influenced the decision of 



125 



a trier of fact (jury or judge) in at least one case during the preceding year. The lawyers did not 
report much change in the need for expert testimony. 

Although the effects of guidelines on the litigation process are varied, overall they seem positive. 
Future monitoring and research are needed to assess whether guidelines are being used 
appropriately in court, including whether disputes about their applicability or content are 
troublesome. The results should inform how guidelines are denved and drafted. 

DEVELOPING A FUTURE MALPRACTICE SYSTEM THAT WOULD BETTER ACHIEVE ITS 
GOALS 

The tort reforms recommended by the Commission are essential to improve the existing 
malpractice system, but they are not sufficient to ameliorate all of its problems. Tort reform is 
unlikely, for example, to reduce substantially the practice of defensive medicine, improve the 
prevention of medical injuries, or compensate more of the negligently injured patients who are 
not compensated today. More fundamental changes are needed to accomplish these goals. 
These changes are embodied in a future malpractice system that the Commission has outlined. 

The proposed system would have two components. One would be a fast, efficient administrative 
compensation mechanism that would provide adequate awards to patients who experience 
preventable medical injuries. The other would be a complementary system for monitoring, 
quality review, and design and implementation of measures to reduce the rate of injury. An 
important feature of the proposed system is that decisions about compensation and quality of 
care in individual cases would each be made by a process designed specifically for that purpose. 

10 



84-714 O -94 -5 



126 



Clear criteria for compensability and for damages awards would be established, whereas 
judgments about quality of care would be made in forums better suited to mal<e those 
determinations. 

These components could be developed in an evolutionary manner. To pave the way for this 
system of the luture, the Commission's recommendations focus on; 

improving systems to prevent injuries, 

developing and using efficient altemative dispute resolution systems for 

compensating injured patients, and 

formulating and testing more reliable standards for compensation decisions. 

Preventing Medical Injuries 

A systematic approach to injury prevention is likely to be most effective in reducing the rate of 
injury. The federal government should support a variety of initiatives that are needed to put a 
systematic approach into action. Effective injury reduction programs require the collection and 
analysis of data, as well as the design and implementation of effective interventions. Better data 
are needed to help detect preventable injuries and determine their causes. Eariy waming 
systems and active surveillance are needed to detect as many preventable injuries as possible, 
not just those that result in claims. The basic epidemiology of medical injuries should be 
delineated. Coding systems should be developed to perniit this more abstract infomriation to be 
entered into computerized databases. Because many events need to be collected and analyzed 
to detect patterns of rare events, local databases must be compatible to permit merging. Health 

11 



I 



A 



127 



system reform may provide an opportunity for the development of standardized coding and 
databases. 

Public Disclosure of Malpractice Data. One strategy that has been suggested to better protect 
patients from negligent injuries is to provide them with information about the malpractice 
experience of physicians anu health plans. Consumers could be given access, for example, to 
the physician-specific information about malpractice payments contained in the National 
Practitioner Data Bank (NPDB), to which all malpractice payments made on behalf of physicians 
must be reported. 

The Commission recommends against such disclosures at this time The information would be 
of little help to the individual patient, and public disclosures would be likely to adversely affect 
the underlying processes that generate the information. There are reports that more physicians 
are refusing to settle cases in order to avoid being reported to the now-confidential NPDB. The 
incidence of defensive medicine -- particulariy the avoidance of risks by refusal to provide high- 
risk services - would likely be increased. The public would be better served if such information 
were used effectively by the quality assurance and oversight mechanisms of the profession and 
of state licensing boards. 

Alternative Dispute Resolution Systems 

Significant improvement in how malpractice claims are processed can occur only outside the 
courtroom. The Commission believes that better alternative dispute resolution (ADR) systems 
need to be developed and tested, however, before all claims should be required to be resolved /- 

12 



128 



by ADR methods. Little is known about the efficacy of ADR in medical malpractice. The 
experience of some health plans with binding arbitration reportedly has been favorable, but at 
least one has discontinued arbitration because of a shortage of qualified arbitrators. 

There are potential disadvantages to ADR. The quality of any ADR process depends heavily on 
the personnel involved. It is unlikely that enough high-quality ADR services would be available 
immediately if ail medical malpractice cases had to use this technique. Finally, ADR systems 
may evoke counterproductive behavioral responses, which are difficult to predict in advance. 
For example, if final adjudicatory hearings are cheaper, easier, and faster than jury trials, more 
cases might proceed to such hearings, lengthening rather than shortening delays in 
compensation. Demonstrations and evaluations should be supported by the federal government 
to learn more about how ADR systems can best operate. 

ADR must be binding to have a positive effect. Otherwise, it would merely impose additional 
delays and costs on an already slow and expensive litigation process. An ideal scenario would 
be the development of ADR systems advantageous to plaintiffs and defendants alike, so that 
both would voluntarily agree to using them and being bound by the result. 

Alternative Standards for Compensation 

The negligence standard does not appear to be a good guide to decisionmaking by providers 
and juries. More reliable standards for liability could possibly be developed. Such standards 
must be tested for their reliability and their effects on the number and size of claims paid. One 
standard that has been proposed is no-fault, which would compensate patients whose injuries 

13 



129 



were caused by medical care, regardless of whether the care was substandard or not. The 
determination of eligibility for compensation would be simplified and made more reliable by 
dispensing with the need to detenmine the standard of care and whether it was breached. The 
principal fear raised by a no-fault system is that vastly larger numbers of injuries might become 
eligible for compensation. A no-fault standard should be tested first in a demonstration. 

Another standard might be based on avoidability, to compensate patients for injuries that need 
not have occun-ed. Some en-ors in care are not negligent. For example, a mistake in considered 
professional judgement is often deemed not to be negligent. This standard would focus 
prevention efforts on the full range of preventable injuries, rather than just negligent ones. Fewer 
claims would be compensated than under no-fault. For example, a particular treatment may 
entail a known but unavoidable risk of serious injury or complication. Patients who experience 
an adverse outcome from that treatment would be compensated under a no-fault system, but not 
under a standard based on avoidability. This standard shares with no-fault the advantage of not 
conditioning compensation on a judgment about whether the care was substandard. 
Compensation for an injury would not itself mean that the care was substandard; that 
determination would need to be made through another mechanism better suited to that task. 
This could reduce inappropriate defensive medicine practices and improve providers' confidence 
in the system. It is probably easier to determine simply whether an injury was avoidable than 
whether failure to avoid was due to negligence, but there is no information on the reliability of 
a standard based on avoidability. Research is needed to develop and test such a standard. 



130 

Mr. Brooks. Dr. Hannan. 

STATEMENT OF DAVID T. HANNAN, M.D., MEDICAL SOCIETY OF 

THE STATE OF NEW YORK 

Dr. Hannan. Thank you, Mr. Chairman. Good morning. My 
name is Dr. David Hannan, I am a board-certified practicing family 
physician in Newark, NY, a village with approximately 10,000 resi- 
dents which is located 30 miles east of Rochester, NY. 

I currently serve as a member of the governing council of the 
Medical Society of the State of New York, and I am also chairman 
of our State Society's Federal Legislation Committee. 

On behalf of the State society and its nearly 27,000 members, I 
thank you for allowing me the opportunity to speak with you today. 

As one of the few remaining family physicians in New York State 
who continues to provide obstetrical services to my patients, and 
last year I delivered 80 babies, I believe I am as qualified as any- 
one to speak about our medical liability system, its impact on the 
practice of medicine, and the need for meaningful Federal tort re- 
form. 

Just last week in New York, the State insurance department an- 
nounced a so-called stabilized rate increase for the 1994, 1995 pre- 
mium year averaging 8 percent. This comes on top of last year's 
"stabilized rate" increase of 14 percent. 

The authority to set these stabilized rates was established by the 
State legislature in 1986 in order to moderate excessively high li- 
ability premium increases. 

According to the State's Superintendent of Insurance, however, 
the State's actuarial assessment of data supplied to the department 
by the State's medical liability insurance carriers justified rate in- 
creases of at least 20 percent for both last year and this year. 

And, since under the law allowing for these so-called stabilized 
rates it is the physicians, not the insurers, nor the State, who are 
subject to a surcharge on their future premiums if there is any 
shortfall of funds. We believe strongly that physicians in New York 
State are merely living on borrowed time. 

Even with the litany of reforms enacted during the mid-1980's, 
physicians in New York State now pay some of the highest medical 
liability premiums in the Nation with obstetricians on Long Island 
paying in excess of $125,000 per year, and even those who practice 
in rural, upstate New York paying close to $45,000 per year. 

However, it is not only the actual premium dollars paid by physi- 
cians that must be taken into account when considering the need 
for reforming the medical liability system. There are indirect costs, 
attributable to defensive medicine, decreased access to care, and 
perhaps most important, the perpetuation of a system which pays 
on average less than 40 cents on the dollar to true victims of mal- 
practice. All of these factors compel Congress to enact meaningful 
tort reforms now. 

However, I must caution you that many of the reforms which are 
now being considered by Congress and that have been tried in New 
York State, while important, have simply not proven adequate to 
the overwhelming problem which the medical liability system has 
become. 



I 



131 

I commend you to a report issued in September 1993 by the Con- 
gressional Office of Technology Assessment, entitled Impact of 
Legal Reforms on Medical Malpractice Costs. This report, which as- 
sessed various State approaches to medical liability reform, noted 
that collateral source payments have been shown to reduce certain 
medical liability cost indicators only slightly. 

Restricted attorney fees, periodic payment of awards, and the use 
of certified standards of care have not adequately reduced mal- 
practice costs. The report continues, however, by noting, quote, 
"The one reform consistently shown to reduce malpractice cost indi- 
cators is caps on damages," end quote. 

I strongly urge members of this committee to examine this report 
which has been prepared at the request of the House Committee 
on Ways and Means and the Senate Committee on Labor and 
Human Resources. 

Why then do I, and apparently the OTA, put such emphasis on 
the need for a cap on noneconomic damages? In the case of New 
York State, the cap is the only major component of reform which 
differentiates New York's reforms of the mid-1980's from Califor- 
nia's landmark Medical Injury Compensation Reform Act of 1975, 
and the lack of a cap is also why in 1994, even with our State in- 
surance department continuing to set a stabilized artificially con- 
trolled insurance premium, a pediatrician in New York pays more 
than twice as much as a pediatrician in California for the same 
amount of liability insurance. 

The absence of a cap, furthermore, is also why many physicians 
in New York State and nationally continue to shy away from high- 
risk specialties and why one in six obstetricians and seven out of 
ten family physicians who had once practiced obstetrics have de- 
cided to discontinue providing obstetrical care. 

Every time we fail to reform the current medical liability system, 
its inherent inequities worsen. Patients with legitimate claims but 
damages insufficient to appeal to the plaintiffs bar rarely find 
their way into the system. Compensation to the plaintiff is often 
delayed in an inordinate amount of time with the average case tak- 
ing 7 to 10 years to settle. 

More money is spent to pay attorneys, expert witnesses, and ad- 
ministrative costs than to actually compensate the victims of mal- 
practice, and perhaps most important, the present system, with its 
emphasis on shock value and emotion, makes a mockery of our ju- 
dicial system while at the same time continuously raising the 
sights of claimants and their lawyers in future cases, thereby fur- 
ther exacerbating the weaknesses inherent in our jury system. 

At a time when our leaders are struggling to reform our Nation's 
health care delivery system, it has become increasingly clear that 
any effort to do so is destined to fail unless it incorporates mean- 
ingful reforms to address the inequitable and prohibitively expen- 
sive system by which we currently adjudicate cases and com- 
pensate victims involved in medical liability actions. 

Thank you again, Mr. Chairman, for providing me the oppor- 
tunity to share with you my thoughts on this pressing matter. 
Mr. Brooks. Thank you very much. 
[The prepared statement of Dr. Hannan follows:] 



132 



Medical Socety of the State of New York 



Govtk.VXaXTAl. Ak^VAUU 



Cmmaet 



Jre«ncft A.CiMot 
VOlS\ Sun Lnim 







TESTIMONY OF THE 

MEOICXL SOCIETY OF THE STATE OF NEW YORK 

SUBMITTED TO 

THE HOUSE OF REPRESENTATIVES 

JUDICIARY COMMITTEE 

SUBCOMMITTEE ON ECONOMIC 

AND COMMERCIAL LAW 

JUNE 22, 1994 
WASHINGTON, D.C. 

GOOD MORNING, MY NAME IS DAVID HANNAN, MO. I AM A 

BOARD-CERTIFIED, PRACTICING FAMILY PHYSICIAN IN NEWARK, 

NEW YORK, A VILLAGE WITH APPROXIMATELY 10,000 RESIDENTS 

WHICH IS LOCATED 30 MILES EAST OF ROCHESTER. I CURRENTLY 

SERVE AS A MEMBER Of THE GOVERNING COUNCIL OF THE HEOICAL 

SOCIETY OF THE STATE OF NEW YORK AND 1 AM ALSO CHAIRMAN 

OF OUR STATE SOCIETY'S FEDERAL LEGISLATION COMMITTEE. ON 

BEHALF OF THE STATE SOCIETY AND ITS NEARLY 27,000 

MEMBERS, I THANK YOU FOR ALLOWING ME THE OPPORTUNITY TO 

SPEAK WITH YOU TODAY. 



AS ONE OF THK FEW REMAINING FAMILY PHYSICIANS IN NEW 
YORK STATE WHO CONTINUES TO PROVIDE OBSTETRICAL SERVICES 
TO MY PATIENTS (LAST YEAR I DELIVERED 80 BABIES) I 
BELIEVE I AM AS QUALIFIED AS ANYONE TO SPEAK ABOUT OUR 
MEDICAL LIABILITY SYSTEM, ITS IMPACT ON THE PRACTICE OF 
MEDICINE AND THE NEED FOR MEANINGFUL FEDERAL TORT REFORM. 



133 



JUST LAST WEEK IN NEW YORK, THE STATE INSURANCE DEPARTMENT 
ANNOUNCED A "STABILIZED RATE INCREASE" FOR THE 1994-95 PREKIUM YEAR 
AVERAGING 8%. THIS COMES ON TOP OF LAST YEAR'S "STABILIZED RATE 
INCREASE" OF 14%. THE AUTHORITY TO SET THESE "STABILIZED RATES" 
WAS ESTABLISHED BY THE STATE LEGISLATURE IN 1986 IN ORDER TO 
MODERATE EXCESSIVELY HIGH LIABILITY PREMIUM INCREASES. ACCORDING 
TO THE STATE'S SUPERINTENDENT OF INSURANCE, HOWEVER, THE STATE'S 
ACTUARIAL ASSESSMENT OF DATA SUPPLIED TO THE DEPARTMENT BY THE 
STATE'S MEDICAL LIABILITY INSURANCE CARRIERS JUSTIFIED RATE 
INCREASES OF AT LEAST 2 0% FOR BOTH LAST YEAR AND THIS YEAR. AND, 
SINCE UNDER THE LAW ALLOWING FOR THESE "STABILIZED RATES" IT IS THE 
PHYSICIANS - NOT THE INSURERS, NOR THE STATE - WHO ARE SUBJECT TO 
A SURCHARGE ON FUTURE PREMIUMS IF THERE IS ANY SHORTFALL OF FUNDS 
WE BELIEVE STRONGLY THAT PHYSICIANS IN NEW YORK STATE ARE MERELY 
LIVING ON BORROWED TIME. 

EVEN WITH THE LITANY OF REFORMS ENACTED DURING THE MID-1980 's, 
PHYSICIANS IN NEW YORK STATE NOW PAY SOME OF THE HIGHEST MEDICAL 
LIABILITY PREMIUMS IN THE NATION WITH OBSTETRICIANS ON LONG ISLAND 
PAYING IN EXCESS OF $125,000 PER YEAR AND EVEN THOSE WHO PRACTICE 
IN RURAL, UPSTATE NEW YORK PAYING CLOSE TO $45,000. HOWEVER, IT IS 
NOT ONLY THE ACTUAL PREMIUM -DOLLARS PAID BY PHYSICIANS THAT MUST BE 
TAKEN INTO ACCOUNT WHEN CONSIDERING THE NEED FOR REFORMING THE 
MEDICAL LIABILITY SYSTEM. INDIRECT COSTS, ATTRIBUTABLE TO 
DEFENSIVE MEDICINE; DECREASED ACCESS TO HEALTH CARE; AND, PERHAPS 
MOST IMPORTANT, THE PERPETUATION OF A SYSTEM WHICH PAYS ON AVERAGE 
LESS THAN FORTY CENTS ON THE DOLLAR TO TRUE VICTIMS OF 



134 

MALPRACTICE... ALL OF THESE FACTORS COMPEL CONGRESS TO ENACT 
MEANINGFUL TORT REFORMS NOW. 

HOWEVER, I MUST CAUTION YOU THAT KANY OF THE REFORMS WHICH ARE 
NOW BEING CONSIDERED BY CONGRESS AND THAT HAVE BEEN TRIED IN NEW 
YORK STATE, WHILE IMPORTANT, HAVE SIMPLE NOT PROVEN ADEQUATE TO THE 
OVERWHELMING PROBLEM WHICH THE MEDICAL LIABILITY SYSTEM HAS BECOME. 

I COMMEND TO YOU A REPORT ISSUED IN SEPTEMBER 1993 BY THE 
CONGRESSIONAL OFFICE OF TECHNOLOGY ASSESSMENT SLN'TITLED, "IMPACT OF 
LEGAL REFORMS ON MEDICAL MALPRACTICE COSTS". THIS REPORT, WHICH 
ASSESSED VARIOUS STATE APPROACHES TO MEDICAL LIABILITY REFORM, 
NOTED THAT COLLATERAL SOURCE PAYMENTS HAVE BEEN SHOWN TO REDUCE 
CERTAIN MEDICAL LIABILITY COST INDICATORS ONLY SLIGHTLY WHILE 
RESTRICTED ATTORNEY FEES, PERIODIC PAYMENT OF AWARDS AND THE USE OF 
CERTIFIED STANDARDS OF CARE HAVE NOT ADEQUATELY REDUCED MALPRACTICE 
COSTS. THE REPORT CONTINUES, HOWEVER, BV NOTING, (QUOTE) "THE ONE 
REFORM CONSISTENTLY SHOWN TO REDUCE MALPRACTICE COST INDICATORS IS 
CAPS ON DAMAGES." (CLOSE QUOTE) I STRONGLY URGE MEMBERS OF THIS 
COMMITTEE TO EXAMINE THIS REPORT WHICH WAS PREPARED AT THE REQUEST 
OF THE HOUSE COMMITTEE ON WAYS AND MEANS AND THE SENATE COMMITTEE 
ON LABOR AND HUMAN RESOURCES. 

WHY THEN DO I, AND APPARENTLY THE OTA, PUT SUCH EMPHASIS ON 
THE NEED FOR A CAP ON NON- ECONOMIC DAMAGES? IN THE CASE OF NEW 
YORK STATE, THE CAP IS THE ONLY MAJOR COMPONENT OF REFORM WHICH 
DIFFERENTIATES NEW YORK'S REFORMS OF THE MID-1980' s FROM 



135 



CALIFORNIA'S LANDMARK MEDICAL INJURY COMPENSATION REFORM ACT OF 
1975 (MICRA) ; AND THE LACK OF A CAP IS ALSO WHY IN 1994, EVEN WITH 
OUR STATE INSURANCE DEPARTMENT CONTINUING TO SET A "STABILIZED", 
ARTIFICIALLY-CONTROLLED INSURANCE PREMIUM, A PEDIATRICIAN IN NEW 
YORK PAYS MORE THAN TWICE AS MUCH AS A PEDIATRICIAN IN CALIFOKuIIA 
FOR THE SAME AMOUNT OF LIABILITY INSURANCE. THE ABSENCE OF A CAP, 
FURTHERMORE, IS ALSO WHY MANY PHYSICIANS IN NEW YORK STATE AND 
NATIONALLY CONTINUE TO SHY AWAY FROM "HIGH-RISK" SPECIALTIES AND 
WHY ONE IN SIX OBSTETRICIANS AND 7 OUT OF 10 PHYSICIANS IN FAMILY 
PRACTICE WHO HAD E\'ER PRACTICED OBSTETRICS HAVE DECIDED TO 
DISCONTINUE PROVIDING OBSTETRICAL CARE. EVERY TIME WE FAIL TO 
REFORM THE CURRENT MEDICAL LIABILITY SYSTEM, ITS INHERENT 
INEQUITIES WORSEN. PATIENTS WITH LEGITIMJ^TE CLAIMS BUT DAMAGES 
INSUFFICIENT TO APPEAL TO THE PLAINTIFF'S BAR RARELY FIND THEIR WAY 
INTO THE SYSTEM; COMPENSATION TO THE PLAINTIFF IS OFTEN DELAYED AN 
INORDINATE AMOLTIT OF TIME WITH THE AVERAGE CASE TAKING 7 TO 10 
YEARS TO SETTLE; MORE MONEY IS SPENT TO PAY ATTORNEYS, "EXPERT" 
WITNESSES AND ADMINISTRATIVE COSTS THAN TO COMPENSATE VICTIMS OF 
MALPRACTICE; AND, PERHAPS MOST IMPORTANT, THE PRESENT SYSTEM - 
WITH ITS EMPHASIS ON "SHOCK VALUE" AND EMOTION - MAKES A MOCKERY OF 
OUR JUDICIAL SYSTEM WHILE AT THE SAME TIME CONTINUOUSLY RAISING THE 
SIGHTS OF CLAIMANTS AND THEIR LAWYERS IN FUTURE CASES THEREBY 
FURTHER EXACERBATING THE WEAKNESSES INHERENT IN OUR JURY SYSTEM. 

AT A TIME WHEN OUR LEADERS ARE STRUGGLING TO REFORM OUR 
NATION'S HEALTH CARE DELIVERY SYSTEM, IT HAS BECOME INCREASINGLY 
CLEAR THAT ANY EFFORT TO DO SO IS DESTINED TO FAIL UNLESS IT 



136 



INCORPORATES MEANINGFUL PEFCR>1S TO ADDRESS THE INEQUITABLE AND 
PROHIBITIVELY EXPENSIVE SYSTEM BY WHICH KE CITRRENTLY ADJUDICATE 
CASES AND COMPENSATE VICTIMS INVOLVED IJJ MEDICAL LIABILITY ACTIONS. 

THANK XOU, AGAIN, FOR PROVIDING ME THE OPPORT'JNITY TO SHARE 
WITH YOU MY THOUGHTS ON THIS PRESSING MATTER. 



137 

Mr. Brooks. Now, some hold out the CaHfornia medical mal- 

gractice reform, known as MICRA, as a model for Federal action, 
ut how does this square with Mr. Keener's testimony as a mal- 
practice defense lawyer that malpractice premiums have not dimin- 
ished in California as a result of MICRA? 

How do you square that? I think Mr. Corboy or Dr. Keller said 
it didn't go up anyhow. You didn't agree with that? What do you 
think about that, Dr. Hannan? 

Dr. Hannan. I think the medical malpractice premiums speak for 
themselves when you compare what the cost is in California com- 
pared to New York and the difference in the laws in the two States, 
that shows itself. There may be just as many suits 

Mr. Brooks. Shows what? 

Dr. Hannan. It shows that the cost of settling cases and the 
awards to plaintiffs are higher in New York and therefore the cost 
to physicians of doing business, the cost of malpractice liability is 
higher in New York simply because of the difference in the laws 
between the two States. 

Mr. Brooks. But Mr. Keener thought that the restrictions under 
MICRA, which had many alleged reforms, didn't seem to function 
well. 

Dr. Hannan. Well, that certainly is not our position and we 
think the rates speak for themselves. 

Mr. Brooks. A recent Harvard medical practice study concluded 
that fewer than 2 percent of medical malpractice victims ever filed 
suit and an even smaller percentage ultimately recover any dam- 
ages. 

How can we increase access to justice for these 98 percent of peo- 
ple who have damages and never even file? Maybe it is a small 
damage or a big damage. I don't know. How do they get any cov- 
erage. Dr. Falcon? 

Dr. Falcon. Yes, sir, that is why I say the system is broken. 

Mr. Brooks. The 98 percent slipped? 

Dr. Falcon. That is right. 

Mr. Brooks. They didn't do anything. 

Dr. Falcon. Yes, sir. Those numbers I think come from the Har- 
vard study. 

Mr. Brooks. Yes, sir. 

Dr. Falcon. And I would like to mention a couple of things on 
it. I have had the opportunity to review this and let me just tell 
you that I review it from the point of somebody who has done qual- 
ity assurance in the State of Texas for 7 years. 

This study was conducted in the State of New York. It is a 
1994 — I mean 1984 study,. In medicine, 10 years is a long time. 
Things have changed tremendously since then. These are not prac- 
titioners. If you look at page 370 of their study, the 
nonpractitioners trained the physicians that reviewed the cases for 
evidence of adverse events and negligence, people that were 
nonpractitioners telling people what to look for and charge when it 
came to negligence, and let me tell you, it has been our experience 
in Texas that you cannot do — ^you have to have active practitioners 
reviewing those cases. 

An adverse event in this study was defined as injuries caused by 
medical management. Ladies and gentlemen, under this study, if 



138 

we — if I gave you an aspirin while you were in the hospital and you 
developed an upset stomach, that was considered an adverse event, 
and that is not quality — 

Mr. Brooks. If you are allergic to aspirin like I am, it would be. 

Dr. F.A^LCON. I am not saying that it is not a problem. I am say- 
ing that that is not a quality problem. People are going to have re- 
actions to medications. If a patient comes to me and says, I have 
a sore throat and I give them penicillin and they have a reaction, 
that is an adverse effect, especially if I didn't know they were aller- 
gic. 

They are problems, but they are not problems that were caused 
by negligence. 

The study involves 7,000 patients, and it has been our experience 
in the State of Texas that if you took 7,743 charts and reviewed 
them for quality issues, it would take five physicians working full 
time for 1 year to do that, and I don't know how much time Har- 
vard took to do this, but that is a tremendous effort from a lot of 
physicians to do a lot of review. 

The other thing that I would like to address about this study is 
that the way that the adverse events and negligence were de- 
scribed depended on two doctors that were reviewing charts, and 
it is interesting to note that board-certified internists and surgeons 
reviewed these cases and they talk about newborns with adverse 
effects. 

Ladies and gentlemen, my children are taken care of by family 
doctors and pediatrician, not internists or surgeons, and so there 
is a lot of flaws in this study. 

Mr. Brooks. Any lawyers have any comment? Ms. Wittkin, do 
you have any comment on how they could get more protection for 
the people who never even file, who may suffer damages? They say 
98 percent don't even file. 

Ms. Wittkin. Certainly. I think one of the issues that was 
brought up by Mr. Keener is something that we should look at. 

I don't necessarily agree with the solution about how we get fast- 
er settlement of low-end cases or cases that aren't highly 
compensatable, but there is another way to do it, and that is to set 
up, within the alternative dispute resolution mechanism, some 
form of binding arbitration at the request of the plaintiff for cases 
worth under $100,000. 

That will do several things. It will allow the victims who have 
cases that are not highly compensable, but certainly meritorious 
and who are having great difficulty getting attorneys, an avenue of 
legal redress and it should be a swift avenue, it should be less ex- 
pensive and it is something that I think we should look at, and I 
think that actually it is Senator Kennedy's health care bill has lan- 
guage about 

Mr. Brooks. It is an interesting idea. Who would you have on 
an arbitration panel? Less than a $100,000 damage and the law- 
yers make a deal. The plaintiffs lawyer gets $30,000; it cost him 
$20,000 to do the case and it takes a lot of time. He might make 
$10,000, he might not make anything, so he doesn't want to do it. 
Defense lawyers make the same $30,000, right? 

Ms. Wittkin. Defense lawyers make money hourly. 



139 

Mr. Brooks. But I mean roughly. They would make about 
$30,000, the plaintiff would make $30,000 and the defense lawyers 
make about $30,000, and the plaintiff, the damaged individual, 
might get 40 percent. We understand that. 

Ms. WiTTKIN. Yes. 

Mr. Brooks. Now, to avoid that, we want to have arbitration. 
Would you have doctors or lawyers do that? Would you have a good 
trial lawyer who knows what the odds are in those kinds of matters 
help make that decision, or just some doctor who works for the 
American Medical Association do it, or what? 

Ms. WlTTKlN. I think in large part you would need attorneys who 
have some qualifications in this area, perhaps with mediation or 
some other things. One of the 

Mr. Brooks. We are getting mixed. Some of the doctors think 
they are lawyers and many of the lawyers talk like doctors. 

You know how they are when they get into that mode. 

Ms. WiTTKiN. One of the things I might suggest is that we look 
at some other State models that have binding arbitration programs 
or alternatives to get a sense of what mixes are working best and 
what kinds of compositions would be the most effective. 

Mr. Brooks. Thank you. 

Ms. WiTTKiN. But another way to also, if I may, get more people 
into the system, that 98 percent that is currently locked out, would 
be to extend the statute of limitations for filing cases. 

I can tell you that as someone who deals with victims every sin- 
gle day, that most people, particularly those who are seriously in- 
jured, have no idea that the statute in their State or in their coun- 
ty or city hospital may only be 90 days to file notice of filing a 
claim, or a year in certain States, or a year-and-a-half in other 
States, and I think that a lot of meritorious cases are locked out 
of the system definitely as a result of that, and I would also like 
to address something that Dr. Hannan said about the differences 
between the California and New York malpractice premium issues. 

I have been working very diligently on these issues with regard 
to the obstetrical care crisis in New York State for several years 
now. One of the things that Dr. Hannan failed to mention is that 
unlike California, New York State already has a cap of sorts in 
place. 

That cap is embodied in something called excess liability cov- 
erage or an excess liability pool. Every doctor who has privileges 
in a hospital in New York State must carry a certain amount of 
malpractice insurance, $1 million per incident, $3 million a year. 

Over and above that, the excess liability pool, which is funded by 
fees paid by consumers covered by Blue Cross/Blue Shield, pays an- 
other $1 million, $3 million on top of that. 

So doctors in New York State are already getting a great deal 
compared to what they would really have to pay out in these cases 
without excess liability coverage. And when you take into account 
that New York State already has in place mandatory periodic pay- 
ments, which means that the value of a case is dramatically re- 
duced, and that we also have the elimination of the collateral 
source rule, and caps on attorney's fees, you can't say that New 
York doesn't have what California has, and I think New York in 



140 

some instances provides an even better deal for malpractice doctors 
than California does. 

The deputy commissioner of insurance in New York State met 
with the State senators and many doctors from the Medical Society 
of the State of New York several months ago to discuss this very 
issue, and what she said was simply that doctors in New York 
would not benefit by having a cap on noneconomic damages, and 
I can tell you from a public policy perspective just looking at what 
tort reform does in general, the American people will not benefit 
from a cap either. 

Mr. Brooks. Mr. Corboy, you had a comment. The gentleman is 
recognized. 

Mr. Corboy. Yes, sir, thank you. 

The use of arbitration subsequent to filing a lawsuit, it can't 
be 

Mr. Brooks. Is that microphone on? Pardon me, sir. 

Mr. Corboy. I am sorry. Excuse me. I apologize. Wayne County, 
MI, has mandatory arbitration in all cases. I am familiar with it 
because I have advocated, although I am a trial lawyer and it may 
sound inconsistent, I have advocated before your legislature. 

We have been turned down by our legislature, I have advocated 
ADR in all cases, not $50 cases, not $500,000 cases, all cases. 
Wayne County, MI, which is Detroit, has the same type of litiga- 
tion medical malpractice climate as does Cook County, IL. Wayne 
County is Detroit, it is a large community. 

The difference is that in Wayne County it takes a year-and-a-half 
to dispose of litigation. In Cook County, it takes 3V2 years. The rea- 
son being, according to the lawyers in Detroit, that they have two 
things in Michigan and that portion of Michigan which most States 
do not have. They have prejudgment interest, which is one way of 
keeping cases from going to judgment, and they also have manda- 
tory arbitration, nonbinding, and with that as a basis, the litigation 
that has to go to trial is defined and determined earlier and cases 
get to suit earlier, and we in the ABA would have absolutely no 
objection to mandatory arbitration as long as it is not binding or 
the parties argue to binding arbitration. 

Obviously you can't do away with the right to trial by a jury, so 
there has got to be an agreement by the parties to have binding 
ADR. If the parties want to do that, not as a condition precedent 
to being treated by a doctor or to get the health care providing 
from any medical care provider, but after a relationship is created, 
as long as the parties know it is mandatory, the ABA has no objec- 
tion to it. 

Mr. Brooks. That is interesting. 

Mr. Keener, did you want to comment? 

Mr. Keener. Yes, Mr. Chairman. My office and my partners 
have, over the years, literally tried hundreds of medical mal- 
practice cases. We have also arbitrated many. 

I cited earlier a overall success rate of 80 percent for malpractice 
defense cases. My firm has been lucky enough that in trying medi- 
cal malpractice cases, we have won in excess of 90 percent of those 
cases. 

Mr. Brooks. Which side have you been on? 



141 

Mr. Keener. The defense side. We have won in excess of 90 per- 
cent of the jury trials. We have a great deal of faith in iury trials. 
We never ever ask for a court trial, because we have a lot of faith 
in the American public. 

We have also tried many, many arbitrations in which the parties 
have contracted — it has not been compelled on them, but they have 
contracted — or doctors have contracted with their patients, and 
that success rate drops down to about 65 percent. 

So what I recommend to my physician clients is don't arbitrate. 
Go in front of a jury. Nine times out of ten, we are going to win 
that case. 

And arbitration is not cheap. People talk about how quick it is 
and how inexpensive it is. That is not our experience. So I firmly 
believe that the American people should have the right to civil jurv 
trials, and I think our physicians are better off with a jury trial. 

Mr. Brooks. Now, how would you expect health care providers 
and consumers to alter their behavior in the event that the collat- 
eral source rule was eliminated? What do you think about that? 

Mr. CoRBOY. I cannot imagine any defendant, whether he be an 
airline pilot, a cab driver, a housewife or a doctor changing his or 
her behavior because of the collateral source rule. 

All the collateral source rule does is shift expenses from one in- 
surance company to another. I can't imagine a housewife being 
more careful for the benefit of the mailman if she knows there is 
a collateral source rule. I can't imagine an airline pilot being more 
careful for his passengers or her passengers because he knows 
there is a collateral source rule. 

I would like to think — and I do think — that the doctors of Amer- 
ica are honorable people and their behavior is not going to be any 
less or any more careful just because of a collateral source rule. I 
can't imagine their behavior being any different. 

Mr. Brooks. You don't think that it would make people who 
bought insurance recover less than those who did not? 

Mr. CoRBOY. Oh, yes, sir, yes. That may happen. There may be 
an elimination of damages to the individual person, yes, sir. 

Mr. Brooks. Prudent 

Mr. CoRBOY. Yes, sir, and they may have contractual rights. 
They have sat down at the table with management, as a result of 
labor and management agreements, that may be a nullity if the 
collateral source rule is done away with. 

But I don't believe that the collateral source rule would affect the 
performance of doctors any more than any other potential 
tortfeasor. 

Mr. Brooks. Mr. Keener. 

Mr. Keener. Mr. Chairman, I don't think that the collateral 
source rule is an issue. If you do away with it, as we have in Cali- 
fornia, where in medical malpractice we can bring out the fact that 
the patient has health insurance — of course they cannot bring out 
the fact the defendant has malpractice insurance. But if that is 
brought out, and if the health care provider, that is the insurance 
carrier, wants to file a lien on that case, they get that money. So 
the defendant is going to have to pay the money. 

It is just not going to the victim; it is going to another insurance 
company. 



142 

Mr. Herman. Would the Chairman yield for one question? 

Mr. Brooks. Mr. Berman. 

Mr. Berman. But where there was no subrogation, there can be 
no doubt that allowing the evidence that the plaintiff has been paid 
for his medical damages would reduce the amount of the recovery 
and prevent the plaintiff from recovering twice for the same medi- 
cal damages, right? 

Mr. Keener. That is right, where there is no subrogation or no 
lien. 

Mr. Berman. Where there is no subrogation or no lien, if you 
can't introduce evidence of collateral sources, then it is possible the 
plaintiff, who is supposed to be made whole from this action, will 
actually recover twice from his health insurer and from the mal- 
practice insurer for the medical damages; isn't that correct? 

Mr. Keener. What we are seeing is more and more health care 
coming in, but you are correct. 

Mr. Berman. Thank you. 

Mr. Brooks. You agree, Mr. Corboy? 

Mr. Corboy. No, sir, I don't. He is not recovering twice. He is 
recovering once. His insurance company is getting paid, so he is not 
getting paid. His insurance company is getting paid. He is getting 
paid once for the medical expenses. 

Mr. Berman. Will the chairman yield just to folio wup? 

Mr. Corboy. Pardon, sir? 

Mr. Berman. Evidence comes in about medical damages, medical 
expenses already paid, hospital expenses, doctor's bill, future medi- 
cal damages. He has already been paid that by his health insur- 
ance provider. 

Mr. Corboy. Which he gives back. He pays for it. He gives 

Mr. Berman. Not unless there is a subrogation. Acknowledge the 
fact — I understand your point, you made it in your testimony, if 
there is subrogation, he gives it back. If there is no subrogation, 
he recovers twice, doesn't he? 

Mr. Corboy. He recovers once. He doesn't recover at all if he 
doesn't get paid. Let's assume I have got a bill for $10 and my in- 
surance company pays the $10, I am not getting it. The doctor is 
getting it. 

So I am not getting paid twice. I am going to get paid once for 

that $10. 

Mr. Berman. And then when you present the evidence that you 
had medical bills for $10, your award includes that $10. 

Mr. Corboy. Yes, sir. I am only saying he gets it once. The doc- 
tor gets it the first time. 

Mr. Berman. Come on. He is getting $10 more than he would 
need to get to be made whole. 

Mr. Corboy. Yes, sir, you are absolutely correct. But in the 
meantime, he may have been paying a dollar a year and he has 
never collected on it, and now he collects that dollar in $10 pay- 
ments later. 

Ms. Wittkin. May I just make a brief comment? 

Mr. Brooks. Ms. Wittkin. 

Ms. Wittkin. I think that a good solution to this is to have the 
kind of collateral source rule in our Federal health care reform that 
California does, where, information about collateral sources can be 



143 

introduced as evidence, but that there would be a right to subroga- 
tion and that would take care of that problem. 

But if you just eliminate the collateral source rule so that vic- 
tims' awards are automatically reduced by that amount, what you 
are doing is forcing the taxpayers and employers to pay all of that 
that the liable party, or wrongdoer, should have been responsible 
for, and I don't think that that is fair. And I think that many peo- 
ple in this country don't think it is fair either. It doesn't really 
serve anybody to do it that way. Also, when you eliminate the col- 
lateral source rale, as interpreted in the Clinton bill, which elimi- 
nates past, present, or possible future collateral source benefits, it 
is particularly cruel. 

How do I know today, standing before a jury, that in 10 years 
from now, I will be eligible for this disability program or that social 
service program, even though my award would automatically be re- 
duced by that amount? What if I am ultimately not eligible? What 
if that program has gone bankrupt? I can't go back to the court sys- 
tem and ask for money to pay for those services out of pocket. 

So I think that it is very, very unfair. I don't, however, think it 
is unfair, to reimburse health insurers or others for money they 
have paid out caring for these people who have been injured by in- 
competent or negligent practitioners. 

Mr. Brooks. Thank you. I have one more question. To what ex- 
tent, if any, can recent increases in health care costs be attributed 
to medical malpractice claims? 

Dr. Falcon. 

Dr. Falcon. Yes, I would like to answer that question, but before 
I leave, I would like to just mention one thing. 

Mr. Brooks. Not the Harvard report again. 

Dr. Falcon. No, sir, not the Harvard report. I think it is very 
important for this committee to know that doctors at the grassroot 
level are not upset about the malpractice situation because it exists 
or that we don't feel that there are bad doctors out there. We feel 
there are. 

What really upsets us is that such a small percentage of the 
medical malpractice premium is going to where it should oe going, 
and I would challenge the gentlemen here on this table to even go 
to the point where, why don't we reverse it, why don't we give two- 
thirds to the patient and let the bar keep one-third? 

To me, that is a very important point. That is what upset doc- 
tors. If I injure a patient and I have $200,000 worth of insurance, 
I would like for most of that money to go to my patient, and in fact 
what happens, it doesn't. And that is what is really upsetting. 

Mr. Brooks. Well, you understand the system that we now have 
in States: The defense lawyers make virtually as much money as 
the plaintiffs lawyers in defending the case, arguing it, and pre- 
senting the facts from the doctor's position, the insurance position, 
et cetera. 

Dr. Falcon. Yes, sir, very clearly. 

Mr. Brooks. Do you want to eliminate them? 

Dr. Falcon. I don't know, Mr. Chairman. But that is why we are 
saying that the system is broken, and when w^e have victims in- 
jured, more of the malpractice money needs to go to them. 

Mr. Brooks. All right. 



144 

Mr. Corboy. 

Mr. Corboy. Yes, sir, I think I can answer your question specifi- 
cally, and I will supply them later with some documentation. I be- 
lieve that the cost of medical malpractice premiums last year or the 
year before, whenever the latest figures are, are $9 billion. 

I believe the insurance companies collected $9 billion. Out of that 
$9 billion, they paid somewhere in the neighborhood of $3 billion 
in payments. 

Now, what happened to that $6 billion differential, I can't an- 
swer, but I will give you the statistics that I just supplied you. 

Now, out of that $3 billion, attorney's fees are paid to both de- 
fense lawyers and plaintiffs' lawyers and administrative costs, and 
everything else out of that $6 billion. The cost of running the insur- 
ance business comes out of the $6 billion. So I don't know where 
the $6 billion goes. 

In your inquiries as to whether medical malpractice reform or de- 
formation should be examined in toto, I suggest you also find out 
how much money the insurance companies are making. 

The insurance company in Illinois, the doctor-supported insur- 
ance company, paid back money to their subscribers last year. The 
doctors paid premiums, yes, but they got money back, and I sug- 
gest to you that you find out what amount of the dollars that are 
actually collected are going into the profits of insurance companies 
and how much of those dollars are spent for administrative costs 
rather than for lawyers which comes out of the corpus of the pay- 
ment. 

Mr. Brooks. Dr. Keller. 

Dr. Keller. Thank you. This is an interesting question, and the 
$6 billion and $9 billion is interesting. Of course, much of that $6 
billion is being held in reserves for potential claims. 

I happen to be on the board of directors of a small physician- 
owned and directed insurance company in Maine, and it is a mu- 
tual company, so we are — we cannot make a profit. We have for 2 
years returned small amounts of money to physicians because 
there were extra funds over reserves for potential claims. 

For years of course, that didn't happen, and all of our indicators 
are showing that that trend is now reversing. The frequency of 
suits is going up and clearly the awards are going up, so that I 
don't think that we can attribute the amount of money going into 
the malpractice arena to insurance company profits since most 
companies are now physician owned. 

I forget the exact percentage, but the majority of malpractice 
companies in this country are now physician owned because of the 
prior malpractice crises when the commercials pulled out. I don't 
think there is a lot of excess profit. I think a lot of those monies 
are used. 

Ms. WiTTKiN. Mr. Chairman, may I just add something? 

Mr. Brooks. Yes, ma'am. 

Ms. WiTTKlN. I agree with Dr. Falcon. I think that we definitely 
need to find a way to get more of the money to the victims or their 
families, and some of the things that our organization is suggest- 
ing, I think, will do that. 



145 

First of all, States like California have a statute of limitation on 
the disposition of cases, so once a case is filed, it must be disposed 
of in one way or another within 5 years. 

We are recommending that there be a statute of limitation on the 
disposition of all cases within 3 years, plus special consideration for 
terminally ill patients and children in expediting the handling of 
those cases. 

Right now, as you heard earlier, malpractice cases have tales of 
7, 10, or 12 years in some States, and if you are looking at why 
so little money is going to victims, you have got to look at that as 
one of the leading culprits, because defense fees just keep piling up 
as the case drags on because defense attorneys get paid hourly win, 
lose, or draw. 

I think the other thing we should take a look at is we are con- 
stantly talking about the need to reduce attorney's fees, but we are 
only talking about reducing plaintiff attorney fiees, and I think it 
is time we talked about finding a fair solution and reduce defense 
attorneys fees as well. That will also filter more money back into 
the system for victims and their families. 

The other thing is that there was a study done in New Jersey 
last year by the American College of Physicians based on a review 
of 15 years of malpractice insurance claims by one malpractice in- 
surance company, and as I said earlier, this study found that 58 
percent, close to 60 percent of all indefensible cases by malpractic- 
ing doctors were nonetheless won by those doctors and their attor- 
neys at trial as opposed to 5 percent of defensible cases won at trial 
by plaintiffs. 

That suggested to me that while it may definitely suit doctors to 
go to jury trial all the time; it certainly is not in the best interest 
of patients. When we talk about frivolous lawsuits in this country, 
why aren't we outraged that almost 60 percent of cases that doctors 
should be losing, they are winning at jury trial. There should be 
some sort of punitive action or penalty attached to that practice to 
eliminate that kind of abuse. 

Also, I think if you outlaw or prohibit doctors and hospitals from 
entering into secrecy agreements as a requirement of settlement, 
you will move cases along much more quickly. Right now, victims 
are being held hostage by these agreements. They are pushed to 
the wall. It doesn't matter if it takes victims 2 years to fold or 3 
years to fold, the defense can afford to wait. 

It is in the interest of the doctor and the hospital to keep many 
of those agreements secret and they do it. They don't settle the 
cases until the end, until the family says, I have this child, he or 
she has got all these medical needs, what am I going to do, I have 
to settle, and I have to go along with the secrecy agreement which 
means nobody will ever know about what this doctor or this sub- 
standard hospital did to my child and my family and myself. 

I think all of these things are definitely viable alternatives and 
solutions to the system and will help bring more money to the 
plaintiff. That coupled with mandatory binding arbitration at plain- 
tiffs request for cases under $100,000 will definitely bring much 
more money to the plaintiff. 

Mr. Brooks. Mr. Fish, the gentleman from New York. 

Mr. Fish. Thank vou, Mr. Chairman. 



146 

Mr. Keener, I would like to get into the question of enterprise li- 
ability. You did not specifically address the provision in the Presi- 
dent's bill regarding enterprise liability, as you may know, the pro- 
vision would substitute the physician with the health care enter- 
prise should the physician be sued for malpractice. 

And my question is: Does your organization have an opinion on 
that proposal and if so, would you comment on it? 

Mr. Keener. Congressman, that is one of the few aspects of the 
proposal that we have not as yet taken a position on. 

Mr. Fish. OK. Would you let us know what and when you do? 

Mr. Keener. Absolutely. 

Mr. Fish. We are not sure how long the Congress will be at this. 
Could be a while. 

Dr. Keller, in your Physicians Payment Review Commission Re- 
port, you stated that you conducted an extensive analysis of the 
medical malpractice problems prior to making its recommendations 
for reform in the 1994 annual report to Congress. Could you tell 
us more about just what research was conducted and more about 
the analysis,? On what evidence was the commission's rec- 
ommendation on malpractice reform based? 

Dr. Keller. The commission had its own hearings on this issue 
and had expert testimony from a number of sources across the 
country. We have on our staff a physician/attorney who is an ex- 
pert in these fields and has done a great deal of his own research 
on various aspects of the malpractice issue. In addition, for this an- 
nual report, 1994, the commission underwrote a study by some of 
the researchers in the same Harvard group that has been ref- 
erenced in terms of the famous New York report who looked at sev- 
eral aspects of the malpractice issue, particularly the guidelines 
issue. They focused on whether guidelines were going to be helpful 
in this whole arena of trying to better define what is a compensable 
injury and how better to handle it. 

That study showed that the guidelines are not being very much 
used at this point, only about 7 percent of cases reported. An analy- 
sis of files that involved guidelines showed that where they were 
used, they seemed to offer some optimism for controUing, as you 
will, the number of cases. 

In other words, where there is a useful guideline, cases may not 
be brought or cases may be settled. So it has been that combination 
of our own internal research, testimony, and our own commis- 
sioner's analysis that has resulted in the recommendations that we 
presented to you. 

Mr. Fish. With regard to your support for practice guidelines, is 
it your opinion that such guidelines, when used to defend doctors 
should constitute an absolute defense or merely an affirmative de- 
fense? Furthermore, if such guidelines are used by plaintiffs to 
bring suit against doctors, should they be able to be used to estab- 
lish a prima facie case? 

Dr. Keller. I can't answer that question very well. Our opinion 
on guidelines is that we don't have the final answer yet. The exper- 
iment in Maine uses guidelines as an affirmative defense, that is, 
in the demonstration under the law physicians may use the guide- 
lines, but plaintiffs can't. 



1 



147 

So the physician can say, I followed this guideline, I took care 
of the patient according to the guideline. There was an adverse re- 
sult, but this case should be dismissed on the basis of following the 
guideline. The trial bar in Maine is absolutely convinced that that 
is not constitutional, and the first chance they get, they will obvi- 
ously bring it to the State Supreme Court and test that theory. We 
have had views on both sides of that particular question. 

Our experiment with guidelines in Maine is still ongoing. We 
don't have a lot of information to report yet, but we think there 
may be a useful role for them. And clearly if guidelines are avail- 
able and are useful, one would anticipate that both sides would in- 
evitably wish to use them, and I have no personal objection to that. 

If there are acceptable standards of care, everyone ought to be 
able to access that information. 

Mr. Fish. Dr. Hannan, I am going back to this cap on non- 
economic issue, which you developed and which you were ques- 
tioned about. I think you stated that this is the only major compo- 
nent of reform which differentiates New York reforms of the mid- 
1980's and the California Landmark Reform Act, MICRA, and you 
argue that this lack of a cap in the New York reform law is what 
has made it less effective tnan the California effort. Can you ex- 
plain to us in more detail how the cap might be effective in New 
York based on the success of the reform in California? 

Dr. Hannan. I think it is clear that the trend in judgments is 
increasing and the — it is in the noneconomic damages for alleged 
pain and suffering that we are seeing the greatest increase in the 
awarded judgments. 

If there were a cap in New York like there is in California limit- 
ing this award to $250,000 per case, we probably would not see the 
kind of judgment that came out of one of our downstate court- 
houses recently where an award of $90 million was made. 

I just don't think you could reach that kind of a judgment with- 
out noneconomic damages playing a major role in that. 

Mr. Fish. Thank you. In your view, are there particular medical 
specialists that are disproportionately victims of the medical mal- 
practice system as it currently operates? And if so, why? 

Dr. Hannan. Well, there are certain specialties that have higher 
premium rates because the experience rating of those specialties 
shows that they are more likely to be sued. 

Whether they are victimized or not, I don't think I am in a posi- 
tion to make that statement, but clearly neurosurgery and obstet- 
rics and orthopedics are three of the so-called high-risk specialties 
with higher premium rates. 

Just elaborating on one point, for obstetricians, the case of the 
neurologically impaired infant is one which has gotten a lot of 
press recently, and in my opinion, needs to be removed from the 
tort system because medical evidence now shows that the vast ma- 
jority of neurologically impaired infants have that disability not as 
a result of medical malpractice. 

Mr. Fish. Dr. Hannan, in what State are medical malpractice 
premiums the highest? Is New York State one of the highest? It is 
my understanding that for an OB-GYN practitioner in New York 
State, the annual malpractice insurance premium exceeds $100,000 
per year, is that correct? 



148 

Dr. Hannan. That is correct, and that is an average. As I stated 
in my testimony, downstate in the metropoHtan New York City 
area, the cost is now going to be $125,000 per year. In rural up- 
state New York where I practice, the obstetrical premium is 
$45,000 per year. 

I vmderstand in Florida, the cost may exceed that in the range 
of $152,000 in certain areas, but I don't have the specific details 
regarding the geographical areas of Florida that that has effect. 

Mr. Fish, Could you answer my question about what States have 
the highest premiums? 

Dr. Hannan. It is my understanding that New York is one of the 
highest. I think Florida also carries a high malpractice premium 
that may exceed New York's rate. 

Mr. Fish. Who sells medical malpractice insurance in our coun- 
try? Are there many private carriers that offer such coverage? Does 
that constitute most of the malpractice insurance or is it true that 
it is sold in our country through not-for-profit companies estab- 
lished by medical societies? 

Dr. Hannan. Well, in New York State there are four insurance 
companies that are certified by the Superintendent of Insurance to 
sell malpractice coverage, and in order to have hospital privileges, 
a physician would need to be insured by one of those companies. 

There are so-called offshore or out-of-State carriers who can pro- 
vide malpractice insurance for those physicians who are not on hos- 
pital staffs, but in general, the vast majority of physicians practice 
on hospital staffs and would be insured by one of the four carriers, 
and these are not for-profit insurance companies, mutual compa- 
nies, as was previously alluded to. 

Mr. Fish. Thank you very much. 

Thank you, Mr. Chairman. 

Mr. Brooks, Mr, Conyers, 

Mr, Conyers. Thank you, Mr. Chairman, and my congratula- 
tions to you on holding this hearing because this is one of the col- 
lateral issues to health care that is very important that we view 
along with the development of health care reform as it is moving 
along. 

I would like to ask Ms. Wittkin about her impressions of the 
medical malpractice provisions in the Clinton bill, H.R. 3600, if you 
have had a chance to look at them. 

Ms. Wittkin. Yes, as I said earlier, all of these provisions are 
anticonsumer and regressive. They are reforms that will do nothing 
to lower health care spending in this country, will do nothing to in- 
crease access to care for underserved populations. The only thing 
it is going to do is make the practice of malpractice more affordable 
for doctors who commit it. And what is most irresponsible about 
what we are seeing in this bill labeled health care reform is that 
we are only looking at the liability end of malpractice, like, how do 
you diwy up the money once the victim has already been harmed. 

Why aren't we in this country looking at ways to prevent mal- 
practice? Our organization looks at State medical boards all over 
the country, and dangerous doctors do have licenses to kill. State 
medical boards do virtually nothing to discipline or oversee the pro- 
fession. 



149 

Last year fewer than 3,000 doctors were disciplined, and maybe 
10 percent of those were discipHned for neghgence or incompetence, 
and most of those doctors never stopped practicing and in this 
country. Doctors can easily move from State to State. They can lose 
a license in one State and go to another State and become licensed 
or oftentimes they can carry licenses in five or six States at a time. 

Currently, we speak 50 different languages when it comes to 
State medical boards because there is no continuency or uniform- 
ity. We must do something to make them more responsive, more 
aggressive, and allow them to fulfill their mandates. 

Mr. CONYERS. Do your recommendations include a Federal list of 
minimum standards that would be applicable to all the boards in 
the several States? 

Ms. WiTTKEN. Yes, they do, and what we attempted to do is look 
at every State medical board's regulations and statutes and pull 
out the best that we found in each State program and sort of make 
the new floor the old ceiling, and as a result, we think that it defi- 
nitely goes a long way to give the States what they have not had 
up to this point. 

State medical boards have been ignored by State legislatures. 
They have been underfunded, understaffed. They have been run 
largely by the medical profession, and I think that what we have 
seen for decades in this country is they have failed to do their job. 

It doesn't matter if we stand on our heads and beg doctors, and 
we have, to take responsibility for their own profession. They fail 
to do it, and I think it is time that the American people got in- 
volved protecting the quality of their own health care, and I think 
that it is time that Congress support that. 

Mr. CoNYERS. Could you tell me just briefly how your rec- 
ommendation list was put together because it is quite impressive 
and pretty comprehensive. 

Ms. WiTTKiN. Well, essentially, I have been looking at the mal- 
practice question since my malpractice occurred over 13 years ago, 
and in doing research and working with a variety of other 
consumer groups that are involved and interested in this issue, 
what we have done is looked at the malpractice issue without our 
heads in the sand. 

If there are legitimate gripes about the system not being fair to 
one side or the other, we want to know about them because we 
want the best system possible. What we are seeing, however, is a 
system so far tilted in one direction that we can't even get on level 
playing ground to talk about how to move that system and improve 
that system. 

But the recommendations that we made reflect the joint efforts 
of a variety of citizen groups out there, public citizen, citizen action 
and so on, who have looked at the issue, looked at tort reform, 
looked at the effects of tort reform, studied research, read every re- 
port that was done on it, and what we have come up with, we 
think, places us on the road to a solution to this crisis. 

Mr. CoNYERS. Thank you very much. 

Mr. Corboy, do I understand that arbitration is your major rec- 
ommendation to this committee in terms of dealing with the prob- 
lem? 



150 

Mr. CORBOY. No, sir. I have some negative recommendations, but 
we have gone through those. No. What I am saying is that the 
American Bar Association is in favor of some type of ADR in all 
types of tort litigation. 

There is no reason why ADR should not be applied in automobile 
accidents, in product liability cases, in railroad accidents. Mal- 
practice is just another, and I realize — I am not being derogatory 
of the genre, but malpractice is just another type of tort, and it 
should not be singled out and given any type of specific differentia- 
tion in the litigation process. 

We are in favor of all types of torts being arbitrated or mediated 
or doing something so that the cases that have to be tried. This 
amount is a small number. In every urban community in the coun- 
try, less than 5 percent of the cases go to verdict. That is true in 
Detroit, MI. It is the same in Chicago. It is in New York, also. 

No matter what system we have, 4 to 5 percent go to verdict. 
Therefore, if you can delineate and isolate those 90 percent of the 
cases that never reach the litigation system by way of settlement 
or verdict, I say 90, and I realize the differential of 5 or 6 percent. 

Those other 5 or 6 are abandoned or they are kicked out of court 
because of summary judgments, but let's assume that 85 to 90 per- 
cent go out of the system by way of settlement. One way to isolate 
those cases is to have some type of ADR as a condition precedent 
to going to trial, but not as a condition precedent to filing a law- 
suit. 

Mr. CONYERS. Have you found that caps are sometimes an easy 
way to try to solve a very difficult problem? I mean, economic caps, 
it seems to me, would in some ways hurt patients a couple of times. 

Mr. CoRBOY. Absolutely, sir. You know, it is very easy to reduce 
a premium. If I were in the insurance business and I set about to 
issue an insurance policy wherein only Congressmen or Congress- 
persons would be eligible to buy the premium and they had to be 
killed on the quarter of 42nd and Broadway in the middle of the 
afternoon in the summer months, you can appreciate how small the 
premium would be. 

You could buy that policy for practically nothing and get a $10 
million compensation if you fit the system, if you fit the contin- 
gency. 

Obviously, if you take out of the potential for a medical mal- 
practice or any tort award, if you take out of that potential com- 
pensation for payments for noneconomic damages, we will take the 
housewife, we will take the child, we will take the elderly person, 
where the medical damages and medical expenses have been deter- 
mined, there is no future medical expenses for the blind housewife, 
it is very easy for that case to have a lesser premium than the case 
where compensation is going to be awarded as we know it today. 

So putting a cap on any type of recovery for the victims of a tort, 
whether it be automobile, airplane, railroad, or anything else, obvi- 
ously is going to have the potential for reducing premiums. Wheth- 
er they do reduce the premiums is within the confines of the car- 
rier, but at least it has the premium. 

If they are going to have to pay out less, the potential for the 
premium is less. However, but the only person that can be hurt — 
certainly the insurance company can't be hurt by paying out less. 



151 

The only person that can be hurt is the seriously injured person. 
The most notoriously injured person is the one that would suffer 
the most. 

Mr, CoNYERS. The more severe the injury, the more limitation 
that would occur as a result of caps? 

Mr. CORBOY. Yes, exactly. 

Mr. CoNYERS. Could I ask Ms. Wittkin what her case against 
caps in summary would be? And then I would yield to any other 
doctors that are — and lawyers that would want to respond, 

Ms. Wittkin. Well, I think that you sort of just said what I 
would say, as well, and that is that for people who are the most 
seriously injured in our society and people who are poor and elder- 
ly, who don't have the compensable economic losses, who don't have 
compensable medical expenses, will be devastated by caps. And if 
you couple caps with the elimination of the collateral source rule 
the only compensable area left for the poors' elderly is pain and 
suffering. And capping that would prevent more of these victims 
from seeking legal redress. 

I think it is outrageous in this country that we would arbitrarily 
and capriciously limit damages when we do nothing to stop dan- 
gerous doctors — do you know that we have doctors in the New York 
State with dozens, if not hundreds, of malpractice cases against 
them? We can show you case after case after case of doctors who 
have moved across this country over the last several years killing 
people, getting relicensed, getting insurance or not carrying any in- 
surance, and going about their business. 

Why would we want to further harm those people who are al- 
ready our most vulnerable members of society? It is cruel, it is in- 
human, and the reality is that we should be looking at prevention, 
and the reality is also that these tort reforms, particularly MICRA 
with its cap, have not demonstrated in any way a reduction in 
health care spending in the State of California, have not dem- 
onstrated in any way increased access to underserved areas, and 
those were two of the biggest selling points of MICRA. 

The only thing MICRA has done is put money in the pockets of 
doctors because premiums have gone down, and I think it is a dis- 
grace. 

Mr. CoNYERS. Thank you. 

Mr. Keener and Dr. Falcon. 

Mr. Keener. Congressman, with reference to caps, I think the 
ultimate issue that we must all focus on ultimately in our justice 
system in this country is fairness. Is it fair? 

If you look at MICRA, which was enacted in 1975, a cap of 
$250,000 was imposed. That $250,000 is still in place today. That, 
I understand, is the number that is in H.R. 3600. 

I had an economist run those numbers yesterday for me. That 
$250,000 is now worth $84,011. 

Mr. Brooks. I figured that in my head a minute ago. That is the 
interest yield on it. The other alternative, the more conservative al- 
ternative, would be to make an annuity out of it. Then one would 
have to look at the plaintiffs lifespan. If the annuity projected the 
plaintiff would die at 66, then the payout would be $15,000 a year 
until age 66; if the plaintiff didn't die at 66, the annuity would 
cease. 



152 

Mr, Keener. What we actually did, Congressman, was two 
things. One, we took the Consumer Price Index. That got us down 
to $84,011. We also took triple A bonds, and that value would be 
$46,000 or $48,000, so there has been an enormous drop since 1975 
in what $250,000 is worth. 

And I commented earlier about unfairness to certain parts of our 
population. 

Mr. CONYERS. But there would be an argument against it any- 
way, even if we had — suppose there was an adjustable provision in 
there so that the cost of living would be factored in. Would your 
argument disappear then? 

Mr. Keener. It is the same. In fact, if I may, let me give you 
a quick example of a gentleman that went to trial against a doctor 
we represented in the early 1980's. He was a man in his early 60's. 
He was at the end of his working career. He came in to have a can- 
cerous kidney removed. 

There was a mistake in the OR. They switched the x-ray, and re- 
moved the healthy kidney. Then he had to go back later and have 
the cancerous kidney removed. That man has lived to this day on 
dialysis every day. His total recovery was $250,000 because he had 
no loss of earnings since he was retired. 

That, I submit, is not fair. The jury actually returned a verdict 
of just over $2 million, but that was cut by MICRA to $250,000. 

Mr. CoNYERS. Thank you very much. 

Dr. Falcon. 

Dr. Falcon. Thank you, Mr. Congressman. I would like to men- 
tion one thing that Ms. Wittkin has mentioned that has not been 
touched on, and that is quality. 

We cannot have any changes in health care without assuring our 
patients that quality will remain in place, and I would just like to 
touch on a few issues to tell you what our problems are in dealing 
with quality and physicians that do have a problem. 

There are several things in place right now that help to insure 
quality for patients. We have hospital medical staffs at the local 
level that do utilization and quality assurance review. It becomes 
a real problem, though, when you try to get rid of a bad doctor, be- 
cause it goes to the courts automatically. 

Sometimes the doctors that do things in OR are afraid they are 
going to turn around and be sued, so that is something at the Fed- 
eral level that could be done to try to help doctors in policing their 
own at the local level. 

We have insurance carriers who do utilization review, so when 
I admit a patient with pneumonia, I have to call the insurance car- 
rier and justify that that patient has pneumonia and needs hos- 
pitalization. We have the Board of Medical Examiners. I agree that 
for a very — in Texas about 2,300 doctors are sanctioned a year by 
the BME, but there is another bunch that is sanctioned by the 
PRO, and that is a system that I think is very effective as a watch- 
dog over quality of care. 

We have a tort law system which probably is the least effective 
and the most costly in having a sentinel effect on medical mal- 
practice. I do not know of a single doctor who has been sanctioned 
as a result of a medical malpractice case, and we have laws in 



153 

Texas that fores the BME to look at doctors who have had several 
medical malpractice cases. 

Mr. CoiSfYERS. So you support some of the recommendations of 
the Center for Patients' Rights that would create more severe sanc- 
tions and more effective review of doctors who practice poorly? 

Dr. Falcon. Yes, sir, but I think it is also real important, and 
we have noticed this in Texas, quality does not equal medical mal- 
practice, and it is really unfortunate because that is a misunder- 
standing that a lot of people have. 

We do not have the same doctors that are sanctioned for quality 
reasons that are sanctioned — that come up as a result of medical 
malpractice. Two-thirds of our neurosurgeons get sued in Texas 
just about every year, and that does not mean that two-thirds of 
our neurosurgeons have quality problems. 

I would like to add just one thing. The data bank. The Federal 
Government could turn the data bank into a very constructive sys- 
tem. If we are collecting data all over this country on what is caus- 
ing malpractice, why not use that information to educate the medi- 
cal public about what is being done wrong and what can be done 
to improve it? 

Mr. CoNYERS. Well, why not use it in the way that they propose 
to use it as well? 

Dr. Falcon. I am sorry, which was? 

Mr. CoNYERS. Well, under — I thought that was a pretty good 
idea making the data bank more available for people to understand 
who is doing the wrong thing where. 

Dr. Falcon. Well, I mean, that is an option that you have, but 
let's carry it a step forward. If we recognize — last year in Texas 
with our PRO, we recognized that there was a problem with put- 
ting nasal gastric tubes into patients. 

There were three cases that we picked up where the tube was 
put into the wrong place, and two resulted in patients' deaths. Im- 
mediately we notified the practitioners of the State of Texas that 
the standard of care had to include a chest x-ray to make sure that 
there was proper placement. 

We took the initiative to educate physicians and say, this is a 
problem and this needs to be changed. I would like to see that done 
with data bank information also. 

Mr. CoNYERS. Dr. Keller. 

Dr. Keller. Thank you, sir. In another part of the commission's 
report, we talk about model practice acts and that may get to some 
of the issues of standardization of standards for physicians across 
the country and the objections, with which I agree, regarding 50 
State boards of licensure with standards that are ver>' uneven. 

They are clearly, at least the ones I know about, underfunded. 
They can't do the job they want to do. We should also consider the 
fact that there are lots of other people who provide health care 
other than physicians, although physicians are certainly on the 
forefront, certainly on the forefront of litigation. But there will be 
more and other kinds of providers who will be also subject to litiga- 
tion in the future, such as nurse practitioners, certified nurse spe- 
cialists, physician assistants, and the like. 

So we have advocated the development of some model practice 
acts on the Federal level that might indeed help to address some 



154 

of these issues. I think we need to reform the whole system and 
we advocate this in our report. We don't beHeve that tne current 
tort system is at all efficient or effective, and continuing to support 
that in a major way probably isn't going to help very much. 

So we have advocated in our report, as I indicated, some fairly 
major long-term restructuring of the system which ought to make 
it better. Not simple to do, can't be done overnight, lots of research 
and demonstrations need to be done to produce that. 

That is probably the best answer. We think more patients ought 
to be covered than are at the moment. The current system isn't 
going to do it that well because doctors are forced to try to defend 
themselves, even in instances where they may not wish to, as has 
been suggested. 

We also make a different recommendation about caps that I 
think is important. We don't agree with a single cap at this point, 
$250,000 or whatever amount. We have advocated a schedule of 
caps, recognizing that there are some injuries and events that are 
much worse than others, and in which case a higher cap for non- 
economic damages might be very appropriate. There are some 
where that is clearly not true and a lower cap would be appro- 
priate. 

Again, we need to do research and develop some demonstrations 
to decide what those levels of caps or specific schedules might be. 

As an interim one to try to get control over this very expensive 
component of the system, and I agree that it is, a single cap might 
be put in place, but we don't think it ought to stay there. We think 
we ought to work towards these schedules. And a very important 
element in all of this is the need for more information, and I don't 
think this has been emphasized enough. 

We certainly do in our report. We need a lot more information 
about malpractice events, and negligent care than we currently 
have. That requires new data systems which in fact would help the 
entire health care system. We just don't know a lot about these 
kinds of events, and we don't have large data bases to several 
trends and profiles which allow people to see where the problems 
are. I think it is a very important component. 

Mr. CONYERS. Thank you very much. 

Thank you, Mr. Chairman. 

Mr. Brooks. Mr. Gallegly. 

Mr. Gallegly. Thank you, Mr. Chairman. This has been a most 
interesting hearing this morning. I think we have really had an op- 
portunity to hear some excellent testimony. 

On this issue of caps, and I think Mr. Keener had a good exam- 
ple a few minutes ago about the retired individual who didn't have 
any real financial or economic damage, let me ask you this: Do you 
believe that there should be any type of caps or a schedule cap on 
pain and suffering? Do you think it should be completely open- 
ended? I think Dr. Hannan pointed out a case in New York where 
there was a $90 million judgment for pain and suffering. Is that 
easy to justify? 

Mr. Keener. I would have to look at that verdict to understand 
it. I can first answer your question. I do not believe we should have 
caps. Let me also say that from our own experience in having tried 
hundreds of medical malpractice cases, we have only had two ver- 



155 

diets come in in excess of $1 million. One was for $22 million in 
a case where the physician showed up under the influence of co- 
caine, delivered a baby and separated — essentially separated her 
head from her spine so she can now move only from the neck up. 
That case was settled for $3 million. The other million dollar case 
was a case where there was billing fraud, and it didn't have any- 
thing really to do with malpractice at all. 

So you hear about excessive damages, but we actually, in trying 
these lawsuits, and believe me, we try them a lot, we don't see 
them. Every once in a while you will have a runaway verdict, but 
that is why you have the person in the black robe. It is his or her 
responsibility to cut that verdict, and they do that. 

Mr. Gallegly. Dr. Falcon, let me stray for a second here, you 
brought up a subject that is of great concern for me as a Califor- 
nian — the issue of providing health care services to undocumented 
aliens, and you mentioned that in your community this is a con- 
cern. 

In the city of Los Angeles, where I am from, in the last 3 years, 
over two-thirds of all the births in the county-operated hospitals, 
the mother had no legal right to be in the United States. 

Do you have any idea of the approximate percentage of patients 
that your group treats that have no legal right to be in the coun- 
try? 

Dr. Falcon. Yes, sir, I would think that our particular experi- 
ence is about 35 percent. In the urban areas, San Antonio and 
Houston, I think it is a little bit lower than that, but it is still a 
significant part of the practice. 

We used to be able to deliver — or had to deliver those patients 
under Federal mandates without compensation, and it was causing 
a lot of problems with providers and practitioners, and that is why 
I think it is very critical that if there is no language or no provision 
for illegals, that those mandates be removed, and that somehow or 
other we be allowed to let those patients know that it is going to 
cost them if they want health care delivered in this country. 

Mr. Gallegly. With those mandates, have you actually found 
that doctors have moved to higher ground or left the area because 
of the economic effect it has had on their practice? 

Dr. Falcon. No, sir. In our area we did it. We are the only group 
in town, there are seven doctors in my group, two nurse practition- 
ers and two physician assistants, and we — there is no way we could 
turn those patients down because they could have no care other- 
wise. 

Mr. Gallegly. I didn't mean turn them down. But just because 
of the economic effect it is having, when I say move to higher 
ground, I mean maybe move to Amarillo or someplace else to prac- 
tice medicine. 

Dr. Falcon. No, sir. We like the heat, just like you had it vester- 
day. The one thing that did hurt, though, was that we were deliver- 
ing those babies and exposing ourselves to potential lawsuits with- 
out any kind of remuneration for our services. 

Mr. Gallegly. That brings up another question. To your knowl- 
edge, have there been actual lawsuits filed for malpractice by those 
who were seeking services in this country that had no legal right 
to be here? 



156 

Dr. Falcon. I think every single one that has been filed in our 
community, but one has been from patients from across the border. 

Mr. Gallegly. You are saying that every malpractice lawsuit 
that you are aware of, and that accounts — let's back up a second. 
About a third of your patients are illegal immigrants, yet 100 per- 
cent of all the lawsuits that have been filed nave been filed by 
illegals rather than citizens? 

Dr. Falcon. Not 100 percent, but very close to it. 

Mr. Berman. Will the gentleman yield? 

Mr, Gallegly. So, the likelihood of having a case filed against 
you for malpractice is greater on a per capita basis by someone who 
is here illegally than a citizen of this country? 

Dr. Falcon. Absolutely. Because what happens, most of those 
patients are walk-ins. The one that I can remember that was just 
filed recently is a patient that spent 7 days seeing doctors in Mex- 
ico, had a ruptured appendix, developed a huge abscess, came into 
our community septic, almost dead, was resuscitated, had surgery, 
had to have a permanent colostomy, and is suing us because he has 
a colostomy. 

If this fellow hadn't gotten to our hospital within a few hours, 
he would have been dead. But that is the kind of gratitude that 
some of those patients have. 

Mr. Berman. Will the gentleman yield? 

Mr. Gallegly. Certainly. 

Mr. Berman. So from that, I gather it would be safe to conclude, 
at least in southern Texas, if you could get rid of malpractice cases 
by undocumented people, you would not have a malpractice prob- 
lem? 

Dr. Falcon. We would have a much smaller problem, yes, sir. 

Mr. Berman. Well, you talked about a hell of a lot of reforms 
when the whole problem, according to you, or a big part of it is 
coming from people coming across the border. 

Mr. Gallegly. I thank the gentleman and I want to thank all 
the witnesses this morning. 

Thank you, Mr. Chairman. 

Mr. Brooks. Thank you. 

Mr. Berman. 

Mr. Berman. Mr. Chairman, thank you. 

I want to echo my colleague from California's comments and 
thank you for holding this hearing. It has been very interesting. 

I had the misfortune to chair the Select Committee on Medical 
Malpractice in 1975 when Travelers Insurance decided to raise the 
premiums on, I think it was Ob/Gyn's by 476 percent, thereby pre- 
cipitating a physician strike and then a major effort to change the 
tort laws as well as to look at alternative ways of dealing with 
medical malpractice insurance coverage. 

While I supported a certain number of the changes in the law at 
that time, I have to say that the legislation that went through got 
away from me, to say the least, and was far more sweeping, and 
I think in some way injurious, than is appropriate. 

But I find the whole thing very, very funny in a way. Because 
on the one hand, I have never seen a report which would indicate 
that the health care inflation index in California since 1975 in 
terms of costs of health care for consumers is substantially lower 



157 

as a result of those sweeping, sweeping reforms that we undertook 
and which the physicians of this country are asking us to now fed- 
eraHze in effect. You may talk about premiums not having gone up 
much, but no one makes any case that health care costs in Califor- 
nia are significantly lower than they would have been without 
those reforms, or significantly lower than anywhere else in the 
country. If anything, the very, very recent deescalation of infliation 
in California may be prompted by the fact that it is leading the 
way in the area of managed care and leverage by different kinds 
of health maintenance organizations on hospitals and physicians 
and other health care service providers. 

So I would love to see hands out to come to the Congress to say 
that this is at the heart of cost containment, it is not about medical 
malpractice insurance, given the lack of evidence of that in Califor- 
nia over 20 years; we are not talking about a couple of years here. 
I find that to be very misleading, I think unintentionally, but mis- 
leading. 

On tne other hand, for those who talk about medical malpractice 
as the key way of deterring bad doctoring, I have seen no evidence 
that doctoring in California is significantly worse because recover- 
ies are so tightly capped, attorneys' fees are so harshly restricted, 
the rules of evidence and the mandatory arbitration provisions are 
so onerous, and that therefore physicians practicing in California 
are worse, more careless, more negligent, more reckless than they 
are in other States. 

Basically I think what you've got here is a tort system which, in 
the end, is designed to try to compensate the injured plaintiff for 
the negligent acts of a provider and to try to make the person 
whole. 

It is not a great system for deterring negligence, and it is not the 
key to reducing health care costs, and so I think there is a hyper- 
bole on both sides. 

What I am interested in, though, is, from any physician who 
would like to comment on it, in California at the time, the whole 
thing was premised on this sort of tripartite deal. Doctors in health 
care, hospitals, are all going to get a break, a massive change in 
the tort law: These very harsh caps, which, as somebody has point- 
ed out, have not been changed by inflation and now are massively 
discounted fi-om what they were in 1975, very tight restrictions on 
attorneys' fees which prompt and promote certain kinds of settle- 
ments because the attorney's incentive to pursue the case to conclu- 
sion is vastly diminished, and other changes. 

But the quid pro quo is going to be a meaningful and effective 
disciplinary system that is not going to depend on malpractice in- 
surance to screen out substandard physicians, but is going to 
strengthen the system, and thirdly, we are going to deal with the 
insurance industry's windfall profits and their whole situation. But 
now, all of a sudden, we have sprung loose the one aspect of mal- 
practice reform or tort reform from the other two reforms. 

It would be another story if the physicians of this country came 
to Congress and said, give us tort reform and federalize and tough- 
en up the discipline on doctors, and provide alternative mecha- 
nisms for licensing and — either in terms of federalizing it or setting 
standards that all States would have to comply with, have a major- 



84-714 O -94 -6 



158 

ity of public members, nonphysician members on the boards of 
these medical boards that regulate physician practices, and take 
over regulation of the insurance industry as well. 

If the chairman's McCarran-Ferguson bill passes, maybe we will 
have a start of that, but I have never heard anybody talking about 
that side of the federalization. I would like to know, first from the 
doctors, if you would support a significant federalizing of discipli- 
nary procedures for physicians at the same time that we now suck 
up from every one of the 50 States their ability to regulate tort law 
and federalize it in the area of medical malpractice? 

Dr. Falcon. Mr. Herman, that system is already in place with 
your pro's. The PRO's are chargea with reviewing quality of care 
for medicare providers. 

Mr. Berman. For Medicare providers. I am talking about for all 
medical providers. 

Dr. Falcon, Yes, sir, I understand that, but there is already a 
system in place that provides what you are asking about to a small 
segment of the population. 

Mr. Berman. Explain to me. Does it have the ability to delicense 
doctors? 

Dr. Falcon. Yes, sir, it does. 

Mr. Berman. Show me where. 

Dr. Falcon. OK Basicallv what happens is that if, after a chart 
review, it is found that a pnysician has a quality problem and the 
quality problems are tiered into level 1, level 2, and level 3, where 
level 3 puts the patient at significant risk and possibly death, those 
are reviewed by the State committee. Less of the quality problems 
are reviewed at the regional committees. 

If after a hearing with that physician we find that he has a sig- 
nificant deficit in his fund of knowledge, then that physician — that 
recommendation from the panel is turned over to the Office of the 
Inspector General, and I can think of probablv at least 40 cases 
where we have sanctioned physicians to not to be able to see medi- 
care patients for the rest of their lives, and probably another 60 to 
100 that have voluntarily turned in their licenses and retired. 

Mr. Berman. Do you support extending and insuring a 
nonphysician dominated agency to delicense physicians with Fed- 
eral standards applying to all 50 States, taking over the licensure 
functions or setting the standards for licensing for all 50 States? 

Dr. Falcon. I would hope that if a delicensing — I mean a 
nondoctor committee was going to do that, that there be oppor- 
tunity for physicians, specifically practicing physicians, to review 
the chart and make recommendations. 

Mr. Berman. Sure. 

Dr. Falcon. Because sometimes the charts get very complicated 
technically, and sometimes there are complications that occur as a 
result of — possible complications from procedures that can be mis- 
construed by nonphysicians as a quality problem, but that system 
is in place, and I certainly would favor expansion of that system 
if that is one of the things that would happen, because that is a 
system that is fair to physicians. 

They are able to come before a committee and defend themselves. 
In the process 

Mr. Berman. Who sits on that committee now? , 






159 

Dr. Falcon. I am one of the seven members that sit on that com- 
mittee. 

Mr. Berman. How many nonphysicians are on that committee? 

Dr. Falcon. We have no nonphysicians on that committee. 

Mr. Berman. And what is your jurisdiction of review? 

Dr. Falcon. At present, it involves medicare patients and ap- 
proximately 200 other 

Mr. Berman. What physicians do you have jurisdiction over? 

Dr. Falcon. Any physician that is taking care of a Medicare ben- 
eficiary. 

Mr. Berman. In what area? 

Dr. Falcon. Any area. 

Mr. Berman. Of the country? 

Dr. Falcon. Our PRO is limited to the State of Texas, each state 
has a PRO. 

Mr. Berman. You are one of seven people for the entire State, 
all physicians? 

Dr. Falcon. Yes, sir. And I believe that they are all physicians 
because that is what the law calls for. 

Mr. Berman. Ms. Wittkin, what is your feeling about federalizing 
all this as part of the quid pro quo and how would you change 
things? 

Ms. Wittkin. I certainly think that we need to do something to 
make the State medical boards consistent, sort of homogeneous en- 
tities in that if you lose your license, because you are too dangerous 
to practice in one State, you are too dangerous to practice in any 
State. 

If you move out of the State and you want to come back in, 
States won't just accept your registration fee and allow you to walk 
back in and worry about what you did for the last 5 years, later. 

There are a lot of things that we can do to standardize what 
State medical boards must do, which I think will have an enormous 
impact on the quality of health care, but they are only one part of 
this program and one part of the picture of quality and patients' 
rights and consumer protection. 

I just have to say in response to the discussion on the PRO's, 
that the Federal peer review organizations were blasted for being 
embarrassingly inadequate programs for this country. The money 
is misused. You are talking about millions and millions of dollars 
thrown into this program. 

In this entire country since the PRO program has been in place, 
maybe 10 or 20 doctors have been sanctioned by the program, 
which means that they have lost their ability to receive Medicare 
reimbursements from patients. There is no mandate or require- 
ment in Federal law that says that those cases must then be re- 
ported to the State medical board for further disciphnary review. 

It is totally up to the individual PRO which is run by doctors, 
largely medical societies within a State, to decide what to do with 
that. So most of the cases where there has been an action against 
a doctor, information about a potentially dangerous doctor through 
the PRO program is never referred automatically to the State med- 
ical board for a comprehensive review and investigation of that doc- 
tor's practice patterns. 



160 

In addition to that, doctors have so many layers of due process 
in the PRO program that it is outrageous. We deal with senior citi- 
zens all the time who are very scared, and they are scared for a 
variety of very legitimate reasons. 

If they have been harmed by poor care and they want to com- 
plain, they are afraid of retribution. They are afraid of not being 
able to go back to that emergency room or that hospital or that doc- 
tor, but those that have the courage to file a complaint with one 
of these PRO's is then frustrated because under the Federal law, 
the doctor gets to decide whether you as a complainant have a 
right to see the outcome of the investigation, and if the outcome of 
the investigation is that the doctor has been sanctioned or placed 
in some remedial program or subject to a more comprehensive re- 
view, that accountability is very important. 

People need to know that they didn't lose a family member for 
no reason and that something that they do is going to help correct 
a problem, and in the PRO program, what happens is that people 
come forward but they never find out the result of their complaint. 

Mr. Berman. Thank you. Your comments are very helpful. There 
are other people who would like to question. Let me just finish 
with two questions. 

One, to the three physicians, do you think a $250,000 cap for 
pain and suffering, without regard to what happened to the patient 
and what the reason for that was, is a fair limitation in all situa- 
tions? 

Dr. Keller. I have previously said no. 

Mr. Berman. I thought that is 

Dr. Keller. There does need to be a schedule that needs to be 
developed. It is not a simple thing to do, but there should be cat- 
egories, if you will, recognizing the severity of injury that should 
not necessarily relate to negligence or liability but just to the pa- 
tients situation. 

We do suggest that that will take a while to develop and in the 
meantime, one might consider more rigid caps on the way to a bet- 
ter system. 

Mr. Berman. Dr. Hannan. 

Dr. Hannan. Yes, sir. I would like to argue the opposite point, 
and I would say that in the current medical practice and mal- 
practice environment, that such a cap is fair. 

Now, it may appear to be unfair in the individual case, but when 
you look at what is happening in this Nation in terms of health 
care costs and what the reasons are for the increase in health care 
cost, it has to do with malpractice as one of many components. 

Mr. Berman. Prove that case. Tell me why California, which has 
the $250,000 caps, tell me why California's health care inflation 
index is no better than anywhere else in the country and frankly, 
California is probably as high a health care cost area, at least until 
the last two years or so, as any other part of the country. 

Dr. Hannan. I would like to state that in a recent Families 
U.S.A. Study, that the average New York family's health care costs 
in 1991 were $5,585. While in California, it was $4,433. That is 
$1,100 a year difference. 

Mr. Berman. What was the differential in 1975? 

Dr. Hannan. I don't have that information. 



161 

Mr. Berman. I would be willing to review everything if you could 
show me that the medical malpractice changes in California sub- 
stantially assisted California patients in reducing their health care 
costs. Then I think we can make some balancing judgments. 

Not right now, but I would be very interested in seeing that evi- 
dence. 

Dr. Hannan. There are many factors other than malpractice 
which go into play in terms of what these costs were based on, but 
I think, getting back to your original question, what is fair, I think 
it has been totally ignored by this panel that when an individual 
is compensated, society pays. 

You may think you are getting into the deep pockets of the hos- 
pital and the physician, and you may drive an individual physician 
into bankruptcy, fairly or unfairly, whether this was professional 
misconduct or not, but if a verdict is malpractice and it goes to the 
insurance company, the insurance company pays, the rates go up, 
the office visits and the surgical fees increase. 

It is society that is paying, and if you are going to look at getting 
control of Federal health care costs in a system that is federally 
dominated, there has to be at this time a cap on noneconomic dam- 
ages in order for the tort system to be applied fairly to all of the 
alleged victims. 

Mr. GooDLATTE. Would the gentleman yield? 

Mr. Berman. Sure I would. 

Mr. Goodlate. Dr. Hannan, the information that I have in re- 
gard to your point, it doesn't go directly to that, but we show, and 
I am sure we can make these figures available to you, that Califor- 
nia's professional liability insurance premiums were the highest in 
the world in 1975; and by 1990, of those premiums one-half to one- 
third were in States that had not enacted MICRA type reforms. 

Mr. Berman. If I may reclaim my time, the gentleman missed 
my point. It was not that the medical malpractice insurance pre- 
miums have not gone up less because of those reforms. It is that 
medical malpractice premiums as a factor in the cost of practicing 
medicine has been massively overstated by the medical community 
in its effort to encourage the Congress to federalize the tort law 
and adopt the California law as the national law. Not that the pre- 
miums — I agree completely with the statistics the gentleman cited. 

California malpractice premiums have basically stabilized be- 
cause of the very rigid caps. California health care costs have not 
stabilized. They have gone up massively. 

Mr. Goodlatte. If you would yield further, I would be interested 
in seeing the same information that you have asked for regarding 
comparative costs back in 1975 compared to the figures the gen- 
tleman just cited, because I would venture a very strong guess that 
those figures would not compare the same way then that they do 
now in such a favorable light. Eleven hundred dollars or a 20-per- 
cent reduction is pretty substantial. 

Mr. CoNYERS [presiding]. Mr. Berman, are you nearly concluded? 
Mr. Berman. I am. 

Mr. CoNYERS. All right. Could we recognize the gentleman from 
Virginia for a while and then we want to get to Mr. Scott of Vir- 
ginia before we close down. So we would appreciate just taking a 
few minutes. 



162 

Mr. GooDLATTE. I will be brief. Thank you, Mr. Chairman. Mr. 
Corboy, as a former member of the American Bar Association, I 
was interested in the ABA's position on issues. I do not agree with 
the issue we have just discussed. I think that some form of a slid- 
ing scale cap on noneconomic losses would be appropriate. 

But I do agree with you on at least a couple of the other areas. 
The alternative dispute resolution mechanism, perhaps including 
mandatory arbitration, I think, would be a significant improve- 
ment. I also agree with you, and disagree with tne California law, 
that we should not have price controls on lawyers, which is what 
a limitation on the contingent fee would be. 

However, I am a little concerned about the statement that you 
made that the American Bar Association has called for universal 
coverage for all through a common public or a public/private mech- 
anism oecause every one of the plans that have been offered to this 
Congress that include guaranteed universal coverage also include 
some form of price controls on doctors. I wonder if you can square 
the position of the ABA with the fact that price controls being un- 
desirable for lawyers which I believe would also be undesirable for 
doctors. 

Mr. Corboy. I can't. Congressman, because I frankly am not 
privy to the differentiations between the various congressional bills 
and Senate bills that are before all of you folks. 

I am not professing to be even remotely capable of recommending 
what type of universal health care to supply you. I just don't know 
the answer because I have not studied it. I suggest, if I have any 
expertise, it is in the area of malpractice tort reform or malpractice 
deformation. 

Could I supply another answer to you, though, that we have sup- 
plied in our written statement? Our exhibit, it is appendix C, spe- 
cifically points out what has happened in California concerning 
costs. The increase of medical expenses, not premiums, medical ex- 
penses, has gone up 99 percent in California over a 9-year period. 
California is the second ranking State with health care costs in- 
creasing from 1982 to 1990, and if you look at the document we 
have supplied you, you will see that the 1982 cost per family was 
$1,451. 

In 1990, it is $2,894, which is an increase of 99 percent. I again 
suggest we have given an answer to the inquiry that was made. 
What effect has tort changes had on the cost of medical care in 
California, and the answer is, it has had absolutely no effect other 
than to allow an increase since 1982 of 99 percent. 

Mr. GooDLATTE. Well, let me point out, however, that the 
MICRA reforms went into effect 7 years before 

Mr. Corboy. Yes, sir. 

Mr. GooDLATTE [continuing]. This study was performed, and 
therefore, the impact of that would already have been felt by the 
time 

Mr. Corboy. But you know how long it takes the impact of any 
tort system? It doesn't affect pending cases until those cases are 
gone. 

Mr. GOODIATTE. Let me turn the tables on the physicians now 
and ask them and say to you that I would like to hear the ABA's 
further opinion on price controls on physicians. Let me suggest to 



163 

you that when the President of the United States says he is going 
to give everybody a plastic card that assures them all the health 
care coverage that they are ever going to need, that it is going to 
place an unprecedented demand on health care providers. It is the 
President's plan that creates the necessity of price controls. 

We have price controls on some government programs in place 
right now. If you go and add additional government programs, you 
are going to make more price controls necessary. I am not in favor 
of that, but I would Hke to ask the physicians, given that, do you 
favor price controls on the lawyers in these cases? 

Dr. Hannan. It is the position of both the American Medical As- 
sociation and the Medical Society of the State of New York that 
there be a limit on contingency fees, and in New York, we have had 
that as one of the components since 1985. 

I think it has been fair and equitable. I think that it has got to 
be one of the components of tort reform at the Federal level. It is 
in the President's plan, although the proposal that is in H.R. 3600 
is more generous to the plaintiffs attorney than what is currently 
legislated in New York. 

Mr. GrOODLATTE. I would encourage you to reconsider that as 
well. I think you are both trying to get both what you want and 
what you don't want. Let me ask you, Mr. Keener. 

Mr. CORBOY. Can I give you some thought on that. Congress- 
man? 

Mr. GoODLATTE. Sure. 

Mr. CoRBOY. I think it would be unfair for me to sit here and 
not supply the fact that I have written a law review article which 
a few people have read. It was in Litigation Magazine of 1976. 
That is how old it is. 

This is not a new issue, and I came out with a bold statement 
and backed it up with some persuasion that, again, not many peo- 
ple have read about perhaps. I don't believe any contingent fee 
should be in excess of a third. 

I just don't — I would think it would be unconscionable for it to 
be more than a third. A lot of lawyers disagree with me, but I 
think the marketplace makes up for it. 

Those cases that you charge a third on and you make more 
money than you perhaps should in — that you might be expected to 
in a given case, you satisfy it by losing and having cases where the 
recovery is very small and you are still restricted. 

Mr. GOODIATTE. But what about that small case — Ms. Wittkin 
may want to address this — where the lawyer finds it far more eco- 
nomical simply to pass it by and only work on those larger cases 
where a one-third fee might be sufRcient remuneration, and when 
you are talking about something as complex as medical mal- 
practice, a case where the specials, the medical loss, and other out- 
of-pocket loss is small, or in the thousands or tens of thousands of 
dollars, it may be just as complicated to prove the liability there 
as in a case where the specials may be in the hundreds of thou- 
sands or millions of dollars, and where one-third may be a perfectly 
good or maybe even too high. 

Mr. CoRBOY. You are absolutely correct, sir, and they are a ne- 

flected set of tort victims. Those people are neglected completely, 
hey just do not get lawyers because lawyers cannot only not af- 



164 

ford to take the case. They can't afford to sponsor the case finan- 
cially because of the cost of litigation and expert testimony, et 
cetera, et cetera, et cetera. 

Mr. GooDLATTE. I do think mandatory arbitration might help 
some in that regard. 

Mr. CoRBOY. Again, though, mandatory arbitration is expensive. 
The costs of mandatory arbitration are the same as the costs of 
trial except for the filing of the suit and the filing of the jury de- 
mand. 

Doctors are going to charge just as much to appear. Witnesses 
are going to charge just as much to appear, and I don't know if the 
mandatory arbitration system will have discovery, but if it has dis- 
covery, it is going to cost just as much as if it goes to court. 

Mr. GooDLATTE. Let me ask one more question if I may, Mr. 
Chairman. 

Mr. Keener, you had mentioned that your experience in Califor- 
nia and by the way, I have a family member who is a professional 
liability defense attorney in Stockton, CA, who gives me a different 
impression of the success of the California reforms, but nonethe- 
less, you say that 80 percent of the verdicts are successful on be- 
half of the defendants. 

Mr. Keener. Yes. 

Mr. GooDLATTE. Tell me further, in your opinion, how many 
cases are settled out of court for a de mmimis amount where the 
case is nonmeritorious? 

Mr. Keener. I am not sure I can give you a number on that. I 
can tell you that about 40 percent go away completely without any 
payment at all. 

Mr. GOODLATTE. After suit is filed? 

Mr. ICeener. After suit is filed. 

Mr. GooDLATTE. There is a substantial amount of cost incurred, 
both by that plaintiff, the plaintiffs attorney, and by the defense 
and the insurance companies, so on, before that takes place in 
many instances, I would suspect. 

Mr. Keener. In many instances, that is right. These cases are 
very expensive. 

Mr. GOODLATTE. Let me ask everybody, and again, Ms. Wittkin 
may want to jump in to address this as well, what do all of you 
think about requiring the loser in these proceedings to pay some- 
thing. Many States provide some minimal court costs to be paid. 
In Virginia, for example, it is not even the cost of depositions, but 
maybe the cost of the jury and the cost of filing the suit and so on 
that might be awarded to the prevailing party. What do you think 
about this idea? I believe you have got to limit it because otherwise 
an insurance company or somebody spending a great deal of money 
in the suit might simply price plaintiffs out of the market, but 
what do you think about requiring physicians to pay the attorneys' 
fees or some reasonable award to the prevailing plaintiffs and con- 
versely, requiring plaintiffs who do not prevail to pay something to- 
ward the cost of the attorneys' — the attorneys' fees of the physi- 
cians? 

Ms. Wittkin, I will give it to you first. 

Ms. Wittkin. Well, unfortunately, based on the New Jersey 
study by the American College of Physicians, which shows that 60 



165 

percent of nonmeritorious doctor defense cases are won by defend- 
ants at trial, I would say that that is an outrageously bad thing 
to happen to medical consumers and to victims. 

What we have here are too many frivolous suits on the other end 
and we are not looking at it. 

Mr. GooDLATTE. What do you mean by that? 

Ms. WiTTKiN. I mean that victims lose cases more often as a re- 
sult of just good, slick defense work, the ability to spend unlimited 
funds as opposed to what many of the plaintiff attorneys can spend 
on cases, and, in many instances, you are talking about perjury, 
you are talking about altered records, you are talking about fraud. 

Those things go hand in hand with medical malpractice and any- 
one who tells you it doesn't is — you know, is just not being truthful. 
Most cases get settled. Well over 90 percent of the cases are settled 
before they ever go to jury trial and a good, maybe another 5 or 
6 percent are settled before you get a verdict. 

So most of the cases never get into the jury system. But the ones 
that are getting into the jury system, in 60 percent of the instances 
where the doctors are flat out guilty of malpractice, they are win- 
ning those cases. 

Mr. GrOODLATTE. Can you supply us with some statistics that 
show that what you claim is correct — that there is a high percent- 
age of cases where plwsicians should lose, but they actually win? 

Ms. WiTTKlN. Yes. Trie journal, the Annals of Internal Medicine, 
pubHshed the report by the American College of Physicians last 
year. I will be happy to supply you with that, along with the letters 
to the editor by outraged doctors over the 5 or 10 percent of cost 
of frivolous plaintiffs' suits and the admonishment bv the authors 
of the study, about the fact that those doctors totally missed the 
fact that 60 percent of their indefensible cases were being won by 
them at trial. 

I would further just like to say that over this same American 
College of Physicians study, which looked at 15 years of mal- 
practice experience in New Jersey, also found that even though a 
large portion of the claims are closed without payment, over 70 per- 
cent of those cases are closed either before discovery, or before dis- 
covery is completed, so there is not an enormous expense. 

Large expenses are incurred in cases that drag out for years and 
years and end up in the court system. Most cases, however, are dis- 
posed of very quickly. 

[The information follows:] 



166 



MEDICINE AND PUBLIC ISSUES 



The Influence of Standard of Care and Severity of Injury 
on the Resolution of Medical Malpractice Claims 

Mark I. Taragin, MD, MPH; Laura R. Willetl. MD; Adam P. Wilczek. BA; Richard Trout, PhD; and 
Jeffrey L. Carson, MD 



■ Objective: To explore how frequently physicians 
lose medical malpractice cases despite providing stan- 
dard care and to assess whether severity of patient 
injury influences the frequency of plaintiff payment. 

■ Design: Retrospective cohort study. 

■ Setting: Physicians from the state of New Jersey 
insured by one insurance company from 1977 to 1992. 

■ Participants: A total of 1 2 829 physicians involved in 
8231 closed malpractice cases. 

■ Measurements: Physician care and claim severity 
were prospectively determined by the insurance com- 
pany using a standard process. 

■ Results: Physician care was considered defensible 
in 62% of the cases and indefensible in 25% of the 
cases, in almost half of which the physician admitted 
error. In the remaining 13% of cases, it was unclear 
whether physician care was defensible. The plaintiff 
received a payment in 43% of all cases. Payment was 
made 21 % of the time if physician care was considered 
defensible, 91% if considered indefensible, and 59% if 
considered unclear. The severity of the injury was 
classified as low, medium, or high in 28%, 47%, and 
25% of the cases, respectively. Severity of injury had a 
small but significant association [P < 0.001) with the 
frequency of plaintiff payment (low severity, 39%; me- 
dium severity, 43%; and high severity, 47%). The se- 
verity of injury was not associated with the payment 
rate in cases resolved by a jury (low severity, 23%; 
medium severity, 25%; and high severity, 23%). 

■ Conclusions: In malpractice cases, physicians pro- 
vide care that is usually defensible. The defensibility of 
the case and not the severity of patient injury predom- 
inantly influences whether any payment is made. Even 
in cases that require a jury verdict, the severity of 
patient injury has little effect on whether any payment is 
made. Our findings suggest that unjustified payments 
are probably uncommon. 



Annals of Interna! Mi-dicme. 1992;ll7:78n-784. 

From the University of Medicine & Dentistry of New Jersey- 
Robert Wood Johnson Medical School and Cook College. New 
Brunswick, New Jersey; and The New Jersey Medical Inter- 
Insurance Exchange. Lawrenceville, New Jersey. For current 
author addres.ses. see end of text. 



1 he fear of medical malpractice has resulted in signif- 
icant physician dissatisfaction and has contributed to 
the decrease in the number of persons entering the field 
of medicine (1, 2). Further, physicians have stimulated 
legislation for tort reform, increased the practice of 
defensive medicine, and avoided ""risky" patients (3-7). 

Physicians' apprehensions about malpractice stem 
from several perceptions (7). Perhaps foremost is tht. 
concern that the malpractice resolution process is unfair 
(8). Because standards are unclear and possibly incon- 
sistent, physicians are afraid of being sued and of losing 
the case despite their having provided standard medical 
care (9). Further, juries are seen as unjustifiably reward- 
ing patients solely on account of the severity of their 
injuries. 

We explored the influence of physician care and the 
severity of patient injury on the malpractice process. 
Contrary to many perceptions, our study suggests that 
physicians usually win cases in which physician care 
was deemed to meet community standards and that the 
severity of patient injury has little beanng on whether a 
physician loses a case. 

Methods 

Data Source 

We obtained our data from The New Jersey Medical Inter 
Insurance Exchange, a physician-owned insurance company. 
This company insures approximately 60% of the physicians in 
New Jersey. Since 1977, demographic information on physi- 
cians and detailed descriptive information on every malpractice 
claim have been entered into a standardized computer data- 
base. 

Study Design and Population 

We did a retrospective cohort study that included physicians 
insured for any time berween 1977 and 1992. Dunng this pe- 
riod, 12 829 physicians were insured and 11 934 cases were 
filed, of which 80% are currently closed. Because the time 
from an incident until its resolution can vary greatly, we chose 
1 January 1986 as a cutoff point for the incident date because 
96% of cases thai occurred before this date were closed by 
1992. After excluding 14 cases that lacked peer review results. 
we evaluated 8231 closed cases. 

Study Variables 

The insurance company's assessment of whether a physi- 
cian's actions represent standard medical care is based on 
medical criteria and is not supposed to be influenced by legal 
concerns. First, the physician is contacted, and if he or she 
admits error, the case is labeled "indefensible— insured admits 
deviation," and no further review is done. Otherwise, the case 
is reviewed by a claims representalive employed by the insur- 
ance company. If the physician's performance is thought lo be 
clearly medically defensible, the case is labeled •"no peer re- 
view, clearly defensible." Otherwise, a peer review process 
ensues in which a physician from the same specialty is chosen 



780 t> 1992 American College of Physicians 



167 



from volunteer physicians, many of whom have performed this 
service regularly for several years. This physician-reviewer 
then participates in a discussion of the case with the claims 
representative, the defense attorney, and the defending physi- 
cian or physicians. Based on the standard of medical care 
currently practiced by physicians of similar traimng and expe- 
'icnce in the community, the physician-reviewer classifies the 
Jim as "defensible" if standard care was provided, "inde- 
:ensible" if not, and "defensibility unclear" if the reviewer is 
unsure. A slight vanance to this standard procedure occurs for 
.neurosurgery and orthopedics cases because, historically, ex- 
perts hold divergent opinions about the appropriate approach 
to some routine problems. Therefore, a panel of physicians is 
used instead of one physician-reviewer, and the majority vote 
IS considered final. For every case, we '■ mmanzed this pro- 
cess of the assessment of physician care as defensible, inde- 
fensible, or unclear. 

If a plaintiff receives financial compensation through either a 
settlement or a jury verdict, the terminology "payment" is 
-iplied. For the subset of payments resulting from a jury 
-rdici the term "award" is used. We created four categories 
of pavment: less than $10 000; JIO 000 to $49 999; $50 000 to 
5199 999; and $200 000 or more. All dollar amounts are ad- 
justed to represent 1990 dollars. 

The insurance company classifies the severity of the pa- 
tient's injury using the industry standard National Association 
of Insurance Commissioners Index (10). This index has nme 
categones of increasing seventy. We collapsed this into three 
categones: low (no injury, minor injury with no disability, or 
minor injury with temporary disability): medium (major injury 
with temporary disabihty, minor injury with moderate disabil- 
■\-, or major injury with moderate disability); and high (grave 
,)urv with moderate disability, brain injury with impaired life 
expectancy, or death). 

The stage of resolution is the point in the legal process at 
which the case is resolved. A case is created when the insur- 
ance company is notified of a plaintiff's claim of damages. A 
suit occurs when this complaint is filed with the court. Dis- 
covery refers to the process by which lawyers collect informa- 
tion about the case. 

Statistical Analysis 

Statistical significance was assessed by chi-square tests as 
ppropriale (11). 



Results 

The characteristics of the 8231 closed cases are sum- 
marized in Table 1. Physician care was considered de- 
fensible in 62% of the cases and indefensible in 25%. In 
almost half of the latter cases, the physician admined 
error. The remaining 13% of cases were unclear as to 
defensibility. Payment was made in 43% of all cases, 
vith 52% for less than $50 000 and only 15% for greater 
than S200 000. The median payment was $45 551 (range, 
S24 to $3 965 000). The severity of the injury was clas- 
sified as low in 28% of cases, medium in 47%, and high 
in 25%. 

Physician Care 

Evaluation of physician care correlated closely with 
the likelihood of financial payment. A payment was 
-lade in 21% of the cases considered defensible, in 91% 
of the cases considered indefensible, and in 59% of the 
cases considered unclear. The amount was not directly 
related to judgments of defensibility (P = 0.16 [for lin- 
ear trend]). 

Most cases closed early In the process (Figure 1); 
67% were closed before discovery was completed. Only 



Table 1. Medical Malpractice Claim Factors 



Factor 


Closed Cases 




1/1 = 8231) 




nl%l 


Physician care 




Defensible 


5132(62) 


No peer review, clearly defensible 


2378 (29) 


Insured found defensible by peer review 


2754 (33) 


Indefensible 


2000(25) 


No peer review held, insured admits 




deviation 


881 (U) 


Indefensible (breach of standard) 


1119(14) 


Unclear 


1099(13) 


Payment 




No 


4730 (57) 


Yes 


3515 (43) 


< $10 000 


744 (21) 


$10 000 to < S50 000 


1089 (31) 


$50 000 to < $200 OOO 


1141 (33) 


$200 000 or more 


541(15) 


Seventy of injury 




Low (no injury or minor injury with no or 




temporary disability) 


2334 (28) 


Medium (minor or major injury with moderate 




disability or major injury with temporary 




disability) 


3824 (47) 


High (grave injury, brain injury, or death) 


2087 (25) 



one quarter of the 12% of cases requiring a jury verdict 
resulted in payment to the plaintiff. Of these awards, 
the median payment was $114 170 (range, $3281 to 
$2 576 377). For each stage, the percent of cases that 
resulted in payment strongly correlated with physician 
care (P < 0.001). For example, in those cases that 
closed before a suit was filed, payment was made to the 
plaintiff in 6% of defensible cases, in 69% of cases in 
which physician care was deemed unclear, and in 93% 
of indefensible cases. In addition, physician care influ- 
enced the stage of resolution. A jury verdict was re- 
quired for 15% of defensible cases, for 10% of cases in 
which defensibility was unclear, but in only 5% of in- 
defensible cases {P < 0.001 [for linear trend]). Even in 
the 12% of cases that required a jury verdict, physician 
care correlated with the likelihood of a jury award: 21% 
if defensible, 30% if unclear, and 42% if indefensible 
{P < 0.001 [for linear trend]). 

Severity of Injury 

The influence of the severity of the claimant's injury 
on the resolution process is summarized in Table 2. A 
similar distribution of physician care was seen in every 
severity category. The likelihood of obtaining any pay- 
ment showed a small (< 8% difference between low and 
high claim severity) but statistically significant {P < 
0.001) trend toward an association between increasing 
severity and the likelihood of payment. These findings 
remained consistent when all nine severity-of-injury lev- 
els were analyzed. 

The amount of payment correlated closely with the 
severity of the injury. The median payments for injuries 
of low, medium, and high severity were $7189, $50 000, 
and $115 089, respectively. These findings also re- 
mained consistent when all nine severity-of-injury levels 
were analyzed, except in the case of death. In cases of 



1 November 1992 • Annals of Internal Medicine • Volume 117 • Number 9 781 



168 



DEFENSIBLE CASES 



3000 



^ Clotad caMS wittwut paymvnt 
I — I ClOMd e*aM wtm p«ym«nl 



the likelihood of payment {P > 0.2). However, the se- 
venty of the injury did correlate with the payment 
amount (P = 0.03) (Table 3). 



N-5132 



■' -■■I 

B«)ora Biion >45 a»yi w/i «5 aiyt anting vtatta 

sultllHd al»co»«v pf«-lrHI o( trial trial or attar 

INDEFENSIBLE CASES 



N=2000 



° Batora Batora >45 daya w/l 4S daya Dur1o» ""^ 

aultniao diacovary pra-tnal ol trial trial or attar 



UNCLEAR CASES 



N'1099 



Discussion 

In most of the malpractice cases included in our anal- 
ysis, a physician was judged to have provided medical 
care that was defensible, and the plaintiff did not re- 
ceive any payment. Although physician care strongly 
influenced the overall process, the seventy of the pa- 
tient injury had little effect on the probability of any 
payment. Most cases closed at a.i early stage, so a jury 
verdict was rarely needed. For the small number of 
cases that required a jury verdict, only 24% resulted in 
payment to the plaintiff and the sevent>' of injury did 
not influence the probability of payment. 

The determination of physician care was a good pre 
dictor of the outcome of a case. For the cases that were 
felt to be indefensible, the payment rate was 91%. This 
high payment rate is expected because the insurance 
company uses the determination of physician care to 
decide whether to offer to settle a case. In contrast, in 
the cases where physician care was classified as defen- 
sible, the payment rate was 21%. 

Several factors may explain why payment occurred in 
cases classified as defensible. First, the determination 
about physician care was made very early after a clai.-f 
was generated and may have been inaccurate as more 
information became available. Second, a physician- 
based review process may be biased toward assessing 
physician performance in the physician's favor. Third, 
the insurance company may err toward an initial deter- 
mination of physician care as defensible to avoid un- 
necessary payments. The possibility that new informa- 
tion rendered the original assessment of defensibility 
incorrect was supported by the fact that 68% of defen- 
sible cases that resulted in payment were settled befor. 
trial, in half of these before discovery was complete. 
Further, only 15% of defensible cases that resulted in 
payment represented awards made to the plaintiff by a 
jury. In addition, because the physician has the right to 
refuse to settle and the insurance company is physician- 
owned, many of the defensible cases that resulted in 
payment were probably misclassified as defensible. 
Therefore, although we can only speculate on the num- 
ber of cases that were inappropriately lost by the phy- 
sician, our data suggest that inappropriate payments are 
probably uncommon. 



Batora 
ault fllad 



>45 daya 
pra-lhal 



w/l 4S daya 
olMal 



Ourlng 
trial 



Vardlct 
or attar 



Figure 1. Suge of resolution and paymenl rale for cases con- 
sidered defensible, indefensible, or unclear as to defensibility. 

w/i = within. 



death, the median payment was $94 346, whereas for 
the remaining high-severity injuries, the median pay- 
ment was $210 807. 

In contrast to the overall findings, in cases requiring 
a jury verdict, the severity of injury was not related to 



Severity of Injury 

Although the findings of previous studies are incon- 
sistent (7, 8, 12, 13), we found that the severity of 
patient injury had little influence on the probability of 
plaintiff payment. We anticipated that a jury would be 
more likely to rule in favor of the plaintiff if the patient 
had a more severe injury. Similarly, we expected that 
the plaintiffs attorney might negotiate a payment for 
the plaintiff more frequently in cases in which injury 
was of higher severity than in those in which injury was 
of lower severity. 

We also found that the assessment of the standard of 



782 1 November 1992 • Annals of Internal Medicine • Volume 117 • Number 9 



169 



Table 2. Relation between Severity of Injury and Physician Cart. Haymeiu. and Macv nf Kisnluuon 



Variable 



Physician care 
Defensible 
Indelensible 
Unclear 
Payment 
No 
Yes 

V .10000 

$10 000 to < S50 000 
S50 000 to < S200 000 
S200 000 or more 
Stage of resolution 
Before sun filed 

.\fter suit, before discovery complete 
Alter discovery, more than 45 days before trial 
Within 45 days of trial 
Dunne trial, before verdict 
Verdict or after 



Low 



140" !61 





I Jj-l 


394 


iP; 


1420 1611 


9()t- 


(.-9, 


521 


("Oi 


2-'b 


, ■»> , 


u- 


|9i 


i: 


i:i 


891 


1?S| 


950 


iJOi 


SO 


l?l 


140 ini 


102 


|4i 


is.- 


iSl 



!5evi:ri!y of Injury 



Mediun; 



:45f, 


(64 


9(j- 


1 24 


45" 


il2 


:i'<6 


,j- 


lh.-4 


u.'; 


i.M 


|24 


034 


l5% 


o3" 


i5e 


1S2 


i.'!4 


544 


Il4 


192" 


150 


1S9 


,51 


■^9-; 


ilO 


:"o 


,", 


49" 


il3 



Hieh 

m = 2085) 



1269(61) 


568 (27) 


248(12) 


nil (53) 


974 (47) 


41 •') 


179(16) 


407 (36) 


34-' (64) 


219(11) 


1005 148) 


142 (7) 


238 111) 


186 19) 


296 il4l 



care by a peer review panel was not related to the 
seventy of injury. This finding differs from that of a 
recent study, which found that the patient's outcome 
strongly influenced reviewers" opinions of the appropri- 
ateness of care (14). The contradictory findings may 
reflect the fact that the physician-reviewers in that 
study had only abstracted data of selected cases. In our 
study, the malpractice cases were judged during the 
actual processing of the case, with the medical records 
available for review and with the treating physician 
available for additional insight. 

We suspect that our results can be generalized even 
though our study was done in a subset of physicians 
from one state. In a previous study, we found that the 
demographic characteristics of the physicians in our 
dalabase were similar to the overall population of phy- 
sicians in New Jersey and varied only slightly from 
national figures (10, 15. 16). In addition, the frequency 
of payment, average amount of payment, severity of 
injury, stage of resolution, and proportion of claims 
involving only one physician are consistent with the 
findings of other studies (10, 13, 17). Thus, despite the 
implicit nature of judgments about defensibility, our 



results should be generalizable to other physician-pa- 
tient populations. 

These results have implications tor tort reform. This 
insurance company felt liabilir\ was unclear for only 
13'~f of cases, and j iur> verdict was required for only 
I2'~c of all cases. This suggests that much of the effons 
in the malpractice process involves determining the 
facts of the case and negotiating the amount of settle- 
ment rather than resolving disagreements about the 
presence of liabilin. . Neither the patient nor the physi- 
cian is served by this extremely inefficient and costly 
process, which results in delayed payTtients to injured 
parties and casts a prolonged cloud over physicians. 
Our experience in determining physician defensibility 
suggests that arbitration panels may be successful in 
assessing liabilit>. Unlortunately. our data shed little 
light on the costs and benefits oi a "no-fault" system 
because most injuries do not enter the current malprac- 
tice resolution process (18). 

In summary, our analyses suggest that, in malpractice 
cases, the physician's care is usually defensible and that 
the plaintiff usually does not receive any payment. The 
severity of patient injury affects the payment amount 



Table 3. Cases Requiring a Verdict: Relation of Physician Care and Injury Severity to Final .Award Status 



Vanable 




Award 








Pavment 








No 

(n = 740) 


Yes 
(n = 236) 


Total 


< SIOOOO 


Sinoonto 

< S50 000 


S50 000 to 
< S200 000 


5200 000 
or more 


Total 


































Physician care 
Defensible 
Indefensible 
Unclear 

Severity 
Low 
Medium 
High 


605 (79) 
59 (58) 
76 (70) 

141 (77) 
372(75) 
227 (77) 


161 (21) 
42 (42) 
33 (30) 

42(23) 
125 (25) 
69(23) 


766(100) 
101 (100) 
109(100) 

183(100) 
497(100) 
296(100) 


8(5) 
0(0) 
2(6) 

3(7) 
5 (4) 
2(3) 


53 (20) 
8(19) 
8 (24) 

15 (361 
24(19) 
10(14) 


62 139) 
13(31) 
11 (33' 

16(38) 
52 1421 
lS(2hl 


58(36) 
21 (50) 
12(36) 

8(19) 
44(35) 
39(5Ti 


161 (100) 
42(100) 
33(100) 

42(100) 

125 (100) 

69(100) 






1 


1 November 1 


992 • AnnaL 


s of Internal Me. 


dicme • Volume 


IP • Numbei 


r9 783 



170 



but has little influence on whether monetary damages 
are received by a plamtiff, especially in cases that are 
decided by a jury. Further efforts to clarify the fre- 
quency of unjustified payments are needed, but our data 
suggest that such payments are uncommon. 

Acknowledgments: The authors thank Shatx)na Shapiro. MPA. and Su- 
san Jacobs. PhD. for review of the manuscript; and Leona Stem for 
manuscript preparation. 

Requests for Repnnts: Mark 1. Taragin, MD, MPH. University of 
Medicine & Dentistry of New Jersey. Roben Wood Johnson Medical 
School. Division of General Internal Medicine. 97 Patenon Siieei, New 
Brunswick. NJ 08903-0019. 

Current Author Addresses: Drs. Taragin. Willett. and Carson: Division 

of General Internal Medicine. Department of Medicine. Universiiy of 

Medicine & Dentistry of New Jersey. Roben Wood Johnson Medical 

School. 97 Paterson Street. New Brunswick, NJ 08903-0019. 

Mr Wilczek: Medical Inter-Insurance Exchange, 2 Princess Road. 

Ljwrenceville. NJ 08648. 

Dr Trout: Staiisucs Department, Cook College, P.O. Box 231. New 

Brunswick, NJ 08903. 



References 
1. l^rwis CE, Prottt DM. Chalmen EP. Lceke B. How satisfying is the 
practice of uitemal medicine'' A national survey. Ann Intern Med. 
1991;lH:l-5. 
:. Charles SC, Wlibcrt JR, Fruke KJ. Sued and nonsued physicians' 
self-reported reactions to malpractice liugation. Am J Psychiatry. 
1985;142:437-10. 

3. Boggs JS. Florida neurosurgical lawsuit profile — 1987. J Florida Med 
Assoc. 1987;74:767-73. 

4. Weiss BO. The effect of malpractice msurance costs on family 
physicuns' hospital practices. J Fara Pract. l986:23'.5S-8. 

5. SaBod FE. Liability threat skiws progress of medical tedmokjfy. 



Charlotte Observer. In; U.S. Senate. Congressional Record. 18 
September 1986;sl2923. 

AllKncan Medical Association/Naiional Medical Specialty Socict\ 
Coordiiution Project on Professional Liability. The Conlmuing 
Need for Legislative Reform of the Medical Ljabiliry System. Chi- 
cago: AMA; February 1987 

U.S. General Accounting Office. Medical malpractice no agreemeni 
on the problems or solutions. Washmgton. DC: General Accounting 
OIBce; 1986: Publication no. GAO/HRD 86-SO. 
CkcKy FW. Paawr K, Caplaa R. Ward RJ. Standard of care and 
anesthesia lUbility. JAMA. 1989:261:1599-603. 
Medicine by the book. American Medical News. 6 Jan 1989. 
U.S. General Accounting OSice. Medical malpractice: characteris- 
tics of daims dosed in 1984. Washmgton. DC: General Accountuig 
Office; 1987. PuMication no. GAO/HRD 87-55. 
SeMoadBaa J. Case-Control Studies New York: Oxford Unrvci- 
sity Press; 19K2. 

■•ft^ta UU Taacndi LR. GsyUa DS. Obstetrics and malpraaicc 
Evidence on the perfonnance of a selective no-fault system. JAMA. 
1991^65:283^3. 

Iliaa FA, Hiick CR. Variability m medical malprsaice payments: is 
the coopeiisation fair? Law and Society Review. 1990:24:997-1039 

14. Caplaa BA, Paiair iCL. Cbcacy FW. Effect of outcome on physKian 
jut^roenu of appropriateness of care. JAMA. 1991;265:19S740. 

13. Tar^«a MI. Canea JU WUcak AF. Karw ME, Troal JR. Physi- 
cian demographics and the risk of medical malpractice. Am J Med. 
1992:93(1n preasj. 

American Medical Association. Physician Charactenstics and Db 
tributnn. Chicago: Department of Data Release Services, Division 
of Survey and Dau Resources; 1984. 

U.S. General Accounting Office. Medical malpractice: six slate case 
studies show claims and insurance costs still nse despite refonos 
Wastaiogtoo, DC: General Accxmntmg OIBce; 1987. Publicaiioa no 
GAO/HRD 87-21. 

AR, Lawlfecn AG, Bwaa TA. UM NM, llebcn LE. 
LM, M al. Relation between malpractice claims and ad 
verse events due to negligence. N Engl J Med. 1991;325:245-51. 



8. 



12. 



13. 



16 



17 



18. 



784 I November 1992 • AFu%als of Internal Medicine • Volume 117_> Number 9/ 



171 



SifM-n HirschfeU. MD. PhD 
Paul Jaro^inski. PD 
N.iiional Insiiiuies of Health 
Belhesda. MD :0892 



Checklist for Dietary Assessmetit Methods 

To the Ediion: The Uniied Kingdom Nuiriitonal Epidemiol- 
ogy Group IS an informal group of individuals m research 
insiiiuies and academic deparimenis involved in the measure- 
ment of dietary intake and in research into appropriate meth- 
ods for such measurement. This group proposes that a consis- 
tent standard of editing of articles on nutrition be widely 
adopted. We have drawn up a checklist of information neces- 
sary for a dietary assessment me'>'od to be adequately de- 
scribed. The checklist has been or is oeing published in 1993 in 
the following journals: Bntish Journal of Nutntton. Metabo- 
lism. Journal of Nutniion. Australian Journal of Nutrition and 
Dietetics. Journal of Tropical Pediatrics. Acta Paediatrica, 
International Journal of Epidemiology . European Journal of 
Clinical Sutntion. and Journal of Human Nutrition and Die- 
tetics. 

We ask thai authors consult the checklist before submitting 
articles on nutrition for publication. We also recommend that 
authors include in full any questionnaires used (even if much 
reduced in sizei as an appendix, or give a reference if it has 
already been published. If publication is not practical, we 
suggest that the authors be required to submit a copy of any 
questionnaire used for purposes of peer review. 

Michael Nelson, PhD 
Kjna's College London 
London W8 7AH. England 

Barrie M. Margetts. PhD 
University of Southampton 
Southampton 509 3TU. England 

.4/iion £. Black, BSc. SRD. F/FST 
Dunn Nutrition Laboratory 
Cambridge CB2 IQL. England 



The .Medical Malpractice System 

To the Editors: A critical review of Taragin and colleagues' 
111 useful analysis of data on medical malpractice cases in the 
state of New Jersey is not so reassunng. Between 1977 and 
1992, there were 12 829 insured physicians, and 11 934 cases 
were filed. The data analysis on 8231 closed cases, which had 
been prereviewed by insurance company medical experts, 
showed thai 62'"c of these cases were "defensible"; that is, 
there was no clear evidence of physician error. Because a 
malpractice claim can seriously disnjpi a physician's personal 
and professional life and can cause him or her significant 
■emotional distress. " even when the case is eventually re- 
solved in the physician's favor, this percentage is distressingly 
high. 

Even more disturbing is the fact that payments were made in 
2l^c of the cases classified as defensible. Although Taragin and 
colleagues suggest the possibility of misclassification, it is also 
possible that the insurance companies paid the plaintiffs to go 
away, deciding it was less expensive than defending the case in 
court, even if ultimately successful. 

Robert J. Yaes. .MD 

University of Kentucky Chandler Medical Center 

Lexington. KY 40536-0084 

Refertnce 

I Taragin MI. Willeit LR, WUciek AP. Trroil R, Canon Jl. The 

influence ot standard of care and seventy of injury on the resolution 
of medical malpractice claims. Ann Intern Med. 1992;117:780-4. 



To the Editors The timely discussion of malpractice issues 
(1. 2) was cogent but totally failed to address two major as- 



pects of the liability problem. First is the inhibition ■>: >cic:ititi%; 
progress and public health, as shown by industry^ demands 
for indemnification of liability risks for research and de\elop- 
ment (3). Second, the failure ot a workable countersuii avail- 
able to defendants encourages a prolileration of litigation, as 
plaintiffs and their attorneys can function without tear of re- 
sponsibility for filing suits without merit. Corrective legislation 
in both areas is sorely needed. 

Joachim Oppenheimer. MD 
114 Central Avenue 
Glen Rock. NJ 07452 

References 

1. Tangin Ml. Willett LR, Wilclek AP. Trout R. Carson JL. The 
inllucnce of standard oi care and seventy of injury on ihe rcstilulion 
ot medical malpractice claims. Ann Intern Med. 1992.1 1":7S0.4 

2. Bovbjer^ RR. Medical malpractice: folklore, facts, and future. .Ann 
Intern Med. 199::117:T88-91. 

3. Cotton P. Infants, science may lose as liability is blamed lor com- 
pany pullout from HIV preveniion tnal [Ne\fcs|. J.A.M.A. 1992:268: 
1991-2 

To Ihe Editors: litipis and coworkers (II investigated the 
medical malpractice ton system through use of closed claims 
data from the Medical Inter-Insurance Exchange of New Jer- 
sey. They presented the conclusion that physician care in 
malpractice cases is usually defensible and suggested that un- 
justified payments are probably uncommon. Their findings are 
generally consistent with the Amencan Society of Anesthesi- 
ologists' study of 1004 closed anesthesia malpractice claims 
(2). Their study, however, differed from ours and others (3) in 
one important aspect: In their study the standard of care as- 
sessment was not associated with severity of injury. In con- 
trast, we found that in cases of severe injury, care was more 
commonly assessed as substandard, whereas in cases of non- 
disabling injuries, care was more commonly assessed as meet- 
ing standards (2). We subsequently found in an experimental 
study that knowledge of seventy of injury influenced anesthe- 
siologist reviewers' judgments of the appropriateness of care 
(4). 

One possible explanation is the difference in sampling: Tara- 
gin and colleagues studied claims from a single state: we stud- 
ied a national sample with claims from 17 insurance companies 
(including the source of Taragin and colleagues' claims). Tara- 
gin and colleagues studied all medical malpractice claims; we 
studied only anesthesia-related claims. A second explanation 
concerns how "defensibility" was defined and assessed. The 
two studies did not use identical definitions of ■"defensibility" 
(1) or "appropriateness of care" (2). Although peer reviewers 
in both studies had access to complete files, only in Taragin 
and colleagues' study did the reviewer have access to the 
defendant and defense attorney. Another explanation is that 
reviewer bias may be more common among anesthesiologists 
than other specialists because of the nature of anesthesia prac- 
tice. The goal of anesthesia is usually to enable or facilitate 
therapy, not to provide a treatment or cure in itself. The 
avoidance of unnecessary side effects and poor outcomes is a 
fundamental and highly valued objective (4). If outcome bias in 
judgments about standard of care is specialty specific, then 
specialty-specific data are required. 

Karen L. Posner, PhD 

Frederick W. Cheney. MD 

University of Washington Medical Center 

SealUe, WA 98195 

Robert A. Caplan, MD 
Virginia Mason Medical Center 
Seattle, WA 98195 

References 

1. Tarafin MI, WlUett LR, Wileiek AP, Trout R, Carwn JL. The 
influence of standard of care and seventy of injury on the resolution 
of medical malpractice claims. Ann Intern Med. 1992;117:780-4. 

2. Cheney FW, Posner K, CapUo RA, Warxl RJ. Standard of care and 
anesthesia liability. JAMA. 1989:261:1599-603. 

3. Bmnan TA. Leape LL, Laird NM, Hebert L, Localio AR. Lawilien 



908 



1 June 1993 • Annals of Internal Medicine • Volume 118 • Number 11 



172 



AG. el al. InciJence of jdverse events and neetlgcncc in hospitalized 
pjiienl-. Results dl the Harvard Medical Practice Study 1. N Engl J 
Med. IS)9l:3:4:37U-6. 
4 Caplan RA. Posner KL, Cheney FW. EEFecl of outcome on physician 
judements of appropriateness of care. JAMA. 1991 ;265: 1957-60. 

To the Editors: The 21'"f paymeni rale in cases where phy- 
sician care was defensible contradicts the conclusion that un- 
justified pavments are probably uncommon. 1 propose an al- 
ternative analysis ol the data. Exorbitant awards are 
commonplace and can exceed a physician's coverage. The 
htieation itself is an agonizing process that drags on for years. 
Juries do not understand medical problems, especially those 
that are difficult or complex, and their decisions are arbitrary. 
These forces frequently lead to "token settlements." which 
maintain privacy and are much less expensive and risky than 
jury trials. 

Lynn G. Lagerquist. MD 
5120 South Cottonwood Lane 
Salt Lake City. UT 84117 

To the Editors: Annals should be commended for publishing 
articles such as that by Taragin and associates (1) and the 
companion editorial by Bovbjerg (2l. Yet, too little attention 
has been given to the problem of medical prostitution, a prob- 
lem 1 encounter frequently in my practice, which is limited to 
the defense of health professionals and health care institutions 
accused of malpractice. An emergency physician testified that, 
on the strength of a chest roentgenogram alone, he was able to 
diaenose pneumococcal pneumonia. A family practitioner tes- 
tified that she knew the standard of care for an orthopedist 
because she had taken an orthopedics rotation in medical 
school, had observed orthopedists providing care to her own 
children, and had discussed the facts of the case at hand with 
an orthopedist over dinner. An obstetrician-gynecologist testi- 
fied that a practitioner of his specialty, on the basis of a 
mid-tnmester ultrasound, should have been able to diagnose 
the hvpoglossia-hypodactylia syndrome in a fetus at 20 weeks' 
eesiation. 

I could cite numerous other examples; my experience is far 
from unique. Physicians must understand that 1) a plaintiff 
unable to identify an ■'expert" who is prepared to testify to 
breach and causation does not win the case; 2) integrity is not 
universal among holders of the MD degree; 3) testifying is for 
some an occupation unto itself; 4) statements that would be 
scoffed at by doctors may be believed by lay juries; and 5) 
unless and until truly massive tort reform is undertaken, and 
mavbe even despite such reform, expert testimony will con- 
tinue to plav a major role in malpractice litigation. In addition, 
certain companies turn a handsome profit by lining up "ex- 
perts" to testify against physicians, and some of these organi- 
zations actually perform this service on a contingent fee. These 
facts put the medical profession in a position to do more about 
the malpractice liability problems than merely to kvetch about 
it. 

If physicians do not police the activities of medical prosti- 
tutes, then they must accept at least some of the responsibility 
for the spread of the malpractice virus. Witnesses such as 
those I describe bring no credit to law or medicine. 

Joseph P. McMenamin, MD. JD 
McGuire, Woods. Battle, & Soothe 
Richmond, VA 23219-4030 

References 

1. Taragin Ml, Willelt LR, Wllciek AP, Troul R, Canon JU The 

inlluence of standard of care and severity of injury on the resolution 
of medical malpractice claims. Ann Intern Med. 1992;117:780-t. 
:. Bovbjerit RR. Medical malpractice: folklore, facts, and future. Ann 
Intern Med. 199::1 17:788-91. 

In response: These letters highlight the fact that medical 
malpractice is a complex process where simplistic descriptions 
or solutions always fall short. Dr. Yaes' concern that the 
number of claims is too many depends on one's perspective 
(1) Malpractice claims vary greatly among specialties (2). We 



aeree with Dr. Oppenheimer that the tear "M mjlpraciicc is j 
powerful force in U.S. medicine. The pr;r\'alcnc?; o: "medical 
prostitution" and the possible deterrent effect of filing coun- 
tcrsuits are unknown. 

One aim of our study was to contrast malpractice percep- 
tions with reality based on the expenence ol a physician-owned 
insurance company in New Jersey. We explicitly described how 
the company initially assesses physician defensibility. We con- 
cur with Dr. Posner and colleagues that assessing defensibility 
is difficult and subject to bias. Whether explicit or implicit 
standards are used for peer review, it must be recognized that 
some misclassification will occur (3). Whether misclassiftcation 
varies with specialty deserves further study. Our hypothesis to 
explain why 21'~c of cases initially classified as detensible re- 
sulted in payment, namely that these cases were probably 
misclassified as defensible, is being tested by studying those 
cases. 

The alternative hypotheses proposed by Dr. Lagerquist 
show the anger that fuels the fires of an already emotionally 
charged topic. Our work and the work of others clearly show 
that exorbitant awards are rare (4) and that jury decisions are 
typically not arbitrary (5 1. Furthermore, a physician-owned 
company will not condone and thereby promote "token settle- 
ments." No case can be settled without the wntten consent of 
the physician defendant. 

One of our conclusions with which all seem to agree is that 
"neither the patient nor the physician is served by this ex- 
tremely inefficient and costly process, which results in delayed 
payments to injured parties and casts a prolonged cloud over 
physicians." Tort reform is needed and requires knowledge 
about the strengths and weaknesses of the medical malpractice 
process. For example, although exorbitant rewards are rare, 
the financial and emotional impact to the physicians and insur- 
ers is profound. 

Our article provides the reader with facts. Not surprisingly, 
proponents of various causes have used the same data to 
arrive at different conclusions. We believe that the interpreta- 
tion and application of these facts should generate hypotheses 
to be carefully evaluated. 

Mark I. Taragin. MD. MPH 

Laura R. WlUett. MD 

Jeffrey L. Carson. MD 

University of Medicine of New Jersey-Robert Wood Johnson 

Medical School 
New Brunswick, NJ 08903 



References 

1. Breniun TA. Letpe LL, Liird NM, Hellert U Locilio AR, Liwthen 
AG, el al. Incidence of adverse events and negligence in hospitalized 
patients. Results of the HJtvard Medical Practice Study 1. N Engl J 
Med. 1991:324:370-6. 

2. Tangin MI. Wllciek AP. K«nis ME. Tpoul R, Canon JL. Physician 
demographics and the risk of medical malpractice. Am J Med. 1992. 
93:537-12. 

3. Schroeder SA. Kabecnell Al. Do bad outcomes mean substandard 
care? JAMA. I991;265:1995. 

4. US GcnenI AccouoUng OfKct. Medical malpractice: characteristics of 
claims closed in 1984. Washington D.C.: General Accounting Office; 
1987; publication no GAO/HRD 87-55. 

5. Vldmar N, The unfair criticism of medical malpractice juries. Judi- 
cature. 1992;76:118-24. 



More on Medical Malpractice 

To the Editors: We read with great interest and considerable 
apprehension the article (1) and accompanying editorial (2) on 
medical malpractice. Dividing the number of claims filed in 
New Jersey over a 15-year period 111 934) by the number of 
physicians insured (12 829) yields an average of 1 case per 
practicing physician. Further, payment was made in 43'"o of the 
cases. If New Jersey is representative of the whole country, 
then over a 15-year period, 40% of the physicians will have a 
liability claim against them. Over the professional life time of 
a physician, there is almost a 100% guarantee that a malprac- 
tice claim will not only be filed but won! 

Further, in 15'i'c of the cases where the physician action was 



1 June 1993 • Annals of Internal Medicine • Volume 118 • Number 11 



909 



173 



detensible. a jury award was made. Would il be lolerable in 
the criminal justice system if 15'~f of the persons we send to 
jail had committed no crime? Neither Taragin and colleagues 
nor the editorialist chose to comment on these alarming stails- 
lics. 

Janardan D. Khandekar. MD 
Gershon Y. Locker. MD 
Evanston Hospital 
Evanston. Illinois 60201 

RrfervncFS 

1 Tangin Ml. Willelt LR, WilcJtk AP, Troul R, Carson JL. The 

influence of standard of care and severiry of injury on the resolution 
of medical malpractice claims. Ann Intern Med. 1992;117:78D-4. 
:. Bovbjerg RR. Medical malpr-":iice: folklore, facts, and the future. 
Ann Intern Med. 1992;U7:788-9I. 

To the Editors: In his editorial, Mr. Bovbjerg (1) failed to 
mention rwo of the best measures to curtail the myriad medical 
malpractice suits in the United States: 
1. Have plaintiff's attorneys pay all fees and levy stiff pen- 
alties for suits deemed "frivolous." 
;. Eliminate the antiquated and unfair "contingency fee" 
remuneration of plaintiff's attorneys. Instead, have them 
work by an hourly or case rate, as do plumbers, auto 
mechanics, defense attorneys, and yes, physicians. 
Things would change in a hurry. 

David R Neihlum. MD 
Paierson. NJ 07503 

Reference 

I. Bovbjerg RR. Medical malpractice: folklore, facts, and the future. 
.Ann Inlcm Med. 199:;!17:788-9I. 

In response: Taken together, these letters make four points. 
First, legal performance is unsatisfactory. My editonal agreed. 
although with different emphasis. Second, the correspondents 
all find claims much loo frequent ("myriad" suits, "alarming" 
frequency). Claims are certainly high relative to the placid 
1950s, when lifetime chance of suit was only 1/7(1). For 1991, 
1 7 was the national average annual rate (13.9rc, down from 
all-time high of I7.7<'<, in 1985 (data from the St. Paul Fire & 
Marine Insurance Co. Personal Communication)). The typical 
doctor's risk of claim is lower, however, because claims are 
concentrated disproportionately in high-claims areas and spe- 
cialties, and among repeated defendants. Still, claims remain 
vasih- outnumbered by legitimate negligent injuries. Major 
studies have found negligent hospital injuries higher by 8:1 or 
10:1 (2: see also editorial references). It may seem deplorable 
that nearly all physicians now can expect to have paid claims 
sometime in their lives, but almost all motonsis do, even 
though most drive only part-time, whereas most physicians 
work extra hours. 

Third. Drs. Khandekar and Locker profess shock that juries 
might err in favor of plaintiffs 15% of the time (false-positives 
in fact were 21 "c (see Table 3 of article by Taragin and col- 
leagues]). Actually, the far higher rate of errors favoring de- 
fendant physicians (false-negative rate of 58%) was not men- 
tioned. Criminal law requires the state to prove guilt beyond 
any "reasonable doubt," perhaps a 90/10 standard, punishing 
ihe innocent seems much worse than leaving the guilty unpun- 
ished. In contrast, civil litigation like malpractice only requires 
a "preponderance of the evidence," roughly, above 50-50. In 



such cases, the (alleged! underlying harm ha:> already been 
done, so the only question is who should bear us costs. 
Wrongly leaving them on the plaintiff seems equally bad as 
wrongly shifting them to the defense 

Fourth. Dr. Neiblum suggests moving toward the British 
rules that losing parties pay winners' costs (although he wants 
only the losing plaintiffs so burdened and only in "frivolous" 
cases) and thai plaintiffs be banned from paying their lawyers 
through contingency fees (under which only winners pay). 
Again, note the asymmetry here: added negative incentives for 
one side of a contingency (losing) but subtraction of a positive 
incentive for the other (winning). The need for further disin- 
centives to claim may be questioned, given that so lew negli- 
gently injured patients come forward (2) and that New Jersey 
doctors are already winning fully 76% of all jury tnals. includ- 
ing 79% their insurer thinks they should win and 58% they 
should lose. Readers should also understand the business as- 
pects of contingency fees. They act like legal-fee insurance for 
the high costs of litigation. They also make lawyers screen out 
most would-be cases (3), which should please physicians, al- 
though also to seek maximum recovery, which does not. In- 
surance of litigation expense is taken for granted by defen- 
dants, whose premiums are also not only lax deductible but 
also passed on to patients as higher fees. One can imagine the 
outcry from physicians at any proposal to make them respon- 
sible for all legal fees from their own personal, aftertax re- 
sources. In England, only the wealthy and legal-assistance 
clients have easy access to courts, and many question the 
system (4). In the United States, legal-aid lawyers are barred 
from taking personal injury cases, precisely because contingent 
fees make private-pay lawyers accessible. A less drastic ap- 
proach is to regulate the high end of legal fees (California 
style) and to end the unpredictability and potential "jackpot" 
recovery possible under vague, open-ended rules of figuring 
damages, especially for "pain and suffenng" (5). 

Broader reforms are necessary to produce a system that 
deals with more cases more expeditiously, at lower transaction 
cost, with greater predictability and consistency of findings, 
and with a structured rather than open-ended approach to 
damages, again, especially for pain and suffering. Patients are 
caught in the crossfire between those doctors who want to 
declare open season on all the prerogatives tort plaintiffs have 
accrtied over generations and plaintiffs' lawyers who want to 
retain a profitable, insurance-funded enterprise for top lawyers, 
but one that yields a minor and delayed compensation for 
negligently injured patients. Patients and doctors deserve bet- 
ter. 

Randall R. Bovbjerg, JD 
The Urban Institute 
Washington. DC 20037 



References 

1. Americnn Medical Association. Opinion survey on medical malprac- 
tice. JAMA. 1957:164:1583-94. 

2. Localio AR, Lawthers AC, Brtnnan TA. el al. Relation berween 
malpractice claims and adverse evenis due to negligence. N Engl J 
Med. 1991:325:245-51. 

3. Curran WJ. How lawyers handle medical malpractice cases: an 
analysis of an important medicolegal study Rockville. Maryland: 
National Center for Health Sendees Research: 1977. DHEW pub. 
no. (HRA) 77-3152. 

4. What price justice'' The Economist. 1993:326:16-7. 

5 Bovbjerg RR, Sloan FA, Blumslein FA. Valuing life and limb in ton: 
scheduling "pain and suSenng" Nw Univ L Rev. 1989:83:908-76. 



910 1 June 1993 • Annals of Internal Medicine • Volume 118 • Number 11 



174 

Mr. GoODLATTE. Mr. Keener, do you agree with those statistics 
she cited and what do you think about loser pays? 

Mr. Keener. Let me answer in reverse order. With reference to 
losers pay, we have in California a provision that the loser pays 
certain costs, deposition, transcript cost, photocopy. Sometimes 
those may only be a few thousand dollars. Sometimes they are sev- 
eral thousand dollars. 

We have found very few occasions where we have had a plaintiff 
in a medical malpractice case that frankly had the money to pay 
it. So the money doesn't get collected. 

With reference to her numbers, I really don't know the numbers, 
but I suspect certainly that just like in the practice of medicine, if 
you go to an outstanding doctor, your chances of getting better are 
probably higher than if you go to perhaps a mediocre physician. 

Same thing with reference to the results in trial. If you go to an 
outstanding trial lawyer, the odds are you will get better represen- 
tation, and that is one of the points we made. The really outstand- 
ing plaintiffs' attorneys have left the medical malpractice field be- 
cause there is too much risk; it costs too much for them to handle 
them; and the return is just not there. 

Ms. WiTTKiN. May I briefly respond to that? 

Mr. GooDLATTE. Briefly. The chairman wants to move along. 

Mr. CoNYERS. We have one more Member who has waited very 
patiently here and has been here as long as anyone. 

Mr. GooDLATTE. Mr. Chairman, may I just ask to have Mr, 
Gekas' statement introduced for the record? 

Mr. CoNYERS. Without objection, so ordered. 

[See appendix 2 for the prepared statement of Mr. Gekas.] 

Mr. CoNYERS. Let's turn now to Mr. Scott of Virginia. 

Mr. Scott. Thank you, Mr. Chairman. Our goal here is to try to 
reduce health care costs, I guess, by reducing the costs of mal- 
practice and improving health care, and it is under that context 
that I want to ask a couple of questions. 

And also in line with what is in the bill, we have talked about 
a lot of things that aren't in the bill. One thing that is in the bill 
is alternative dispute resolutions, apparently there is not a lot of 
controversy about that. It would give some access to the 98 percent 
that aren't able to file right now. Any controversy about that provi- 
sion, the other provision? 

Ms. WiTTKiN. Excuse me? 

Mr. Scott. Yes. 

Ms. WiTTKiN. The ADR that is in the bill right now is also some- 
thing that is going to disadvantage people who are poor, elderly, or 
have low-end cases, because as long as it is not a binding system, 
and I am not suggesting that it be binding for all, but as long as 
it is not a binding system, if the physician or the hospital don't get 
the outcome that they wish, they can go on to court. 

The victim doesn't have that kind of money to go ahead and do 
that. First, bring on the case through arbitration with experts and 
review, and then go ahead and go to court. They can't do it, and 
the doctors and hospitals know they can't do it. 

Mr. Scott. Can you use the results of the arbitration in — is that 
admissible in court? 



175 

Mr. Keener. Well, it would depend on the jurisdiction. Certainly 
the whole concept is settlement, and in most jurisdictions, settle- 
ment discussions are never admissible. 

Mr. Scott. OK The other areas, the collateral source rule, which 
we discussed a little earlier, when you have a collateral source, I 
would like to compare what happens when you have a person with 
insurance compared to the person without insurance. 

We mentioned the $10 bill. If you have a suit, you collect the 
$10. The defendant pavs it, the plaintiff gets it, ana then pays the 
bill with it. When you nave someone with insurance, somebody who 
has set aside money every month or every year in case they ever 
needed hospitalization, the present situation, at least in most 
States, is that the insurance company pays the bill. 

When they receive the recovery, they don't have to pay the bill 
again, and so the benefit of them having insurance accrues to the 
plaintiff and they are better off because they have insurance than 
the person who did not have insurance. 

Now, when you get into the collateral source rule and subroga- 
tion and everything, there are a number of people at interest. You 
have got the defendant, you have got the plaintiff, you have got the 
insurance company. I tnink the plaintiff, having made arrange- 
ments for his possible medical bills, is an appropriate person to re- 
ceive the benefit of the insurance. I think you can make a case for 
that. 

You could also make a case, in my opinion, for the insurance 
company. If the next in line, I guess, would be the insurance com- 
pany because if the plaintiff can pay the bills through the mal- 
practice route, then maybe the insurance company ought to get a 
windfall and not have to pay the bill. 

I think the last person out of the three of interest who would 
have the windfall, the benefit of the plaintiffs premiums being paid 
month after month, the last person in line who ought to get the 
windfall ought to be the person who caused the damage to begin 
with. 

Let me ask, a couple of people supported the introduction of the 
insurance to offset the award. Can you explain why the tortfeasor 
in this case ought to receive the benefit of the insurance policy 
rather than the plaintiff who paid the premium or the innocent in- 
surance company, health insurance company? Why should the 
tortfeasor receive the benefit? 

Dr. Keller. 

Dr. Keller. Our position has been there should not be a double 
recovery. 

Mr. Scott. Then who ought to receive the recovery? Why should 
the tortfeasor rather than Blue Cross-Blue Shield, receive tne bene- 
fit of the insurance? 

Dr. Keller. We don't think they should. In other words, the in- 
surance company ought to be paid. If it has been paid at the begin- 
ning, then the plaintiff should not recover the monies that the in- 
surance company has paid because they may not have to pay them 
now. 

If there is subrogation, then obviously the plaintiff has to write 
a check to the insurance company for $10,000 to pay off that hos- 
pital bill. But the argument is, I think, if that doesn't happen, then 



I 



176 

that bill is added onto the medical care expenditures of the plain- 
tiff, and the jury says they need $10,000 because they had a hos- 
pital bill of $10,000, we are going to give them $10,000. 

Now, our position is that the plaintiff shouldn't be paid twice. 

Mr. Scott. Well, then if the plaintiff doesn't get it, why 
shouldn't Blue Cross/Blue Shield be reimbursed? 

Dr. Keller. They should. 

Mr. Scott. They should? 

Dr. Keller. Yes. 

Mr. Scott. So out of the three people of interest, your position 
now is that if you are going to deny the plaintiff the Jbenefit of the 
premiums, then Blue Cross-Blue Shield ought to receive the benefit 
of the potential windfall? 

Dr. Keller. Well, you can argue it both ways, I guess. 

Mr. Scott. If there is a windfall, should Blue Cross/Blue Shield 
get it or should the defendant? We are comparing this to a person 
who didn't have insurance. You have one who didn't have insur- 
ance, there is no question. The defendant pays the $10. 

You have somebody with insurance, and the question is whether 
Blue Cross/Blue Shield ought to pay the $10 or the tortfeasor ought 
to pay the $10. 

Dr. Keller. To the extent that the Blue Cross company had 
some legitimate expenditures for the care — let's say that of the $10, 
$5 was appropriate health care, but the other $5 was extra ex- 
penses to that company because of the malpractice event, I suppose 
you could make an argument then that Blue Cross ought to get the 
first $5 because that was a normal expenditure, but when they are 
asked to pay the second $5 

Mr. Scott. We are talking about the damages, medical damages 
admitted into evidence that are caused, $10 damage was caused by 
the malpractice. 

Dr. Keller. Right. 

Mr. Scott. Medical expense. Blue Cross/Blue Shield paid it be- 
cause it was a medical expense. Now, you got a recovery and the 
question is, should the defendant still have to pay the $10 or does 
Blue Cross/Blue Shield get its money back? 

We have apparently ruled out the idea that the plaintiff ought 
to get benefit of the premium in this situation, so if the plaintiff 
isn^ going to get it, should the tortfeasor benefit from the plaintiffs 
insurance premiums or should Blue Cross/Blue Shield not have to 
pay the bill? 

Which is most appropriate to get the windfall of the collateral 
source rule situation? 

Dr. Keller. I don't have a firm opinion on that part. 

Mr. Scott. Don't you agree that the tortfeasor, which in this 
case, is medical malpractice, in another case, might be a drunk 
driver, ought to be the last person to benefit? 

Dr. Keller. Yes. 

Mr. Scott. OK. So if we are going to deny the plaintiff the basis 
of the benefit of their recovery, then we ought to have subrogation 
so Blue Cross/Blue Shield gets its money back. 

Dr. Keller. I would agree with that. 

Mr. Scott. That would be the next fairest thing. 

Dr. Keller. That is right. 



177 

Mr. Scott. Now, we get back to what effect this has on mal- 
practice. If we deny the plaintiff $10 and the defendant is going to 
pay the $10 one way or the other, the question is does the insur- 
ance company gets its money back. How does that reduce mal- 
practice costs? 

It doesn't because the doctor's going to pay the $10 one way or 
the other. Isn't that right? 

Dr. Keller. If it gets paid twice, then it increases health 
care 

Mr. Scott. The question is whether Blue Cross/Blue Shield is 
going to have subrogation. I think you agreed that that is more ap- 
propriate than having the tortfeasor benefit by the change in the 
collateral source rule. The doctor is going to pay $10 one way or 
the other, right? 

Mr. CoRBOY. Seems simple to me. 

Mr. Scott. So it doesn't reduce your malpractice costs? So the 
only way the collateral source rule change can affect malpractice is 
if you give the tortfeasor the benefit of the plaintiffs premium. 

So if you have two plaintiffs, one with insurance and one not, the 
insurance company, and we denied that the plaintiff isn't going to 
benefit, the insured plaintiff isn't going to benefit by its policy, and 
we agree that if you are going to deny the plaintiff the benefit, 
Blue Cross/Blue Shield ought not have to pay, the doctor is going 
to pay the same amount either way if you go into a subrogation sit- 
uation. 

So changing the collateral source rule will not reduce malpractice 
costs. All right. 

Let me get to attorneys' fees. There is a provision in the bill that 
provides for a certificate of merit. Don't you feel that as a lawyer 
who is on a contingent fee and if it is not a good claim, I am not 
going to get paid and probably won't get my out-of-pocket expenses 
paid, don't you think that is a certificate of merit? 

Dr. Keller. I will answer from the commission's point of view. 
We do not favor the certificate of merit idea at the present time 
because we don't think we know enough about it. It is one of those 
areas that one might explore but there are some real problems, as 
you point out, one of them being to have people who can make 
judgments on those cases frequently without adequate information 
because these would be developed very early in the process of liti- 
gation so that all of the facts and all the information that one 
might need to make a 

Mr. Scott. Is there any concern about the certificate of merit, 
whether it is in there or not? Is it going to make any difference? 

[No. response.] 

Mr. Scott. OK. On attorneys' fees, we are talking about limiting 
plaintiffs' attorneys fees, and I think Dr. Falcon mentioned one 
case where it sounded like about 60 percent of the award went to 
the plaintiffs attorney. Is that 

Dr. Falcon. Yes, sir, it was actually more than that. 

Mr. Scott. More than 60 percent. OK, if we are talking about 
reducing the cost of malpractice, how much difference would it 
have made to the cost of malpractice if the attorney hadn't been 
paid at all? 



178 

Dr. Falcon. That is not the point, sir. The point is that we want 
more of the malpractice premium going to the injured patient. 

Mr. Scott. That is fine, but if the fact is that the plaintiff is pay- 
ing the attorney's fees out of that portion, I think the number you 
gave was about $260,000 payment from the defense side to the 
plaintiffs side, and the criticism was that the plaintiffs lawyer got 
a disproportionate share of that award. 

Dr. Falcon. That is correct. 

Mr. Scott, If the lawyer hadn't gotten anything, how would that 
have reduced your malpractice costs? 

Dr. Falcon. It wouldn't have, but that was not the issue. 

Mr. Scott. Let me get to this. Reducing attorney's fees will not 
reduce the costs of malpractice. 

Dr. Falcon. In this particular — I guess your — ^yes, I would have 
to agree with you. 

Mr, Scott. Anybody disagree with that? OK Periodic payments, 
I think we all know that if you have periodic payments, the amount 
of money is paid out over time — the Virginia lottery, when they 
give out one of these $1 million, $50,000 a year for so many years, 
what they do is buy an annuity on the spot. They buy it for about 
50 cents on the dollar and it pays out the $1 million over 20 years. 

Mr. Corboy mentioned the fact that if you have already reduced 
it to present value, cutting it again by spending it out over time 
only takes the same discount twice. Do any of the physicians have 
any dispute with that logic? 

Dr. Hannan. The only other factor to consider is the survival of 
the patient well beyond what the projection is, or short of what the 
projection is, 

Mr. Scott. Doesn't that work both ways? 

Dr. Hannan. Yes. 

Mr. Scott. I mean, if they live longer, the damage might have 
been more. 

Dr. Hannan, But if the reward is for a certain period of time and 
the victim doesn't survive that long, then there is no need for those 
damages to be paid if it is done over a periodic payment, 

Mr, Scott. Because you do life expectancy. If they live longer 
than life expectancy, they didn't get paid enough. If they lived 
shorter than life expectancy, they got paid too much. 

So on judgment day, you take your best shot and that is what 
you get. I think what you are talking about is if they don't live long 
enough, then they get cut short. But if they live longer, they don't 
get any more. 

Dr. Hannan. Right. 

Mr. Scott. So you want it both ways. Did you have a 

Mr. Keener. Yes, Congressman. There are really two survivals 
that we need to be concerned about there. What if the insurance 
company or annuity company doesn't survive but the patient does. 
The patient has a verdict he has been told he is going to collect the 
judgment over time. 

The patient might survive but if the insurance company isn't 
around, then the patient really turns out to be the loser, 

Mr. Corboy. Congressman, may I give you some information on 
that? Since 1985, the State of Illinois has had a periodic payment 



i 



179 

of judgments act applicable to medical malpractice cases at the ojp- 
tion of either the plaintiff or the defendant. 

Since 1985, not one doctor in the State of Illinois has opted for 
periodic payments. Why? Because the verdict is not reduced origi- 
nally. Therefore, let's assume there is a future of $1 million for 
medical payments that are necessary for the care of the patient, if 
those million dollars are not reduced, say, to $300,000, the verdict 
is going to be $1 million instead of $300,000. 

Therefore, doctors and other health care providers do not want 
that $1 million verdict against them. They would rather take their 
chances and take the $240,000 verdict and have it paid out in one 
lump sum, if at all. 

If I could follow through what I said before. If there is $1 million 
of future expenses and it is reduced to $240,000 and then reduced 
again, you can see the immeasurable unfairness of the periodic 
payment of judgments. 

The American Bar Association has come out very strongly in 
favor of periodic settlement, but that is an entirely different mat- 
ter. That is a matter of negotiation and that is a matter of protect- 
ing the plaintiff with a triple A insurance company which does not 
always follow, by the way. 

Mr. Scott. So in your case that you mentioned, if you calculated 
the damages to be $50,000 a year for 20 years, $1 million, present 
value, maybe $500,000, the physician would have a choice, he could 
pay the $1 million over time or $500,000 lump sum. 

What the bill does is — tends to reduce it to $500,000 and then 
spread it over the 20 years which has a present value of $250,000. 

Mr. CoRBOY. That is right, sir. 

Mr. Scott. And any periodic payment that doesn't cut it just 
once, it tries to cut it twice, is unfair. 

Mr. CoRBOY. And by the way 

Mr. Scott. Do any of the physicians disagree with that? Okay. 

[No response.] 

Mr. Scott. OK. 

Mr. CoRBOY. By the way, when we use the term physician, don't 
forget we are talking about the insurance company, not the doctor. 

Mr. Scott. We are talking about all we have here. Let me just 
say one other thing, and that is that we did a little insurance re- 
form in Virginia and one of the pieces of evidence that came out 
was that every year for every dollar that comes into the medical 
malpractice carrier, only about 14 cents went out in claims ex- 
penses. 

Is that consistent with what people on the panel have heard? 

Mr. CoRBOY. The figure I heard is last year they collected $9 bil- 
lion in premiums, and I may be wrong on this and I will try to get 
the exact figure, but it was between $2.5 and $2.7, I believe it was, 
in payment of medical malpractice claims. 

That is by claims, judgments, satisfactory judgments, settle- 
ments, so a little over $6 billion goes for expenses and also, of 
course, for financing future litigation and future settlements. 

How much of that $2.5 billion that they pay out is compared to 
the money they take in, I think, is probably more, and I reluctantly 
state this to you, is probably more than the 14 cent ratio that you 
mentioned. 



180 

Mr. Scott. But it may be as much as 33 cents? 

Mr. CORBOY. Yes, sir. 

Mr. Scott. Any question about that? [No response.] 

It seems to me that a Httle insurance reform would go a lot fur- 
ther than some of the recommendations in the bill. 

Dr. Hannan. 

Dr. Hannan. Yes, sir. The thing to keep in mind is that both the 
incidence of suits and the judgment amounts are increasing as time 
goes on, so the insurance companies are holding in reserve an 
amoimt in excess of what they are paying out this particular year. 
The cases that were judged this year may go back 10, 12, 14 years. 

Mr. Scott. Well, we have also heard that fluctuations in medical 
malpractice premiums are more a function of the interest rates 
than — as much interest rates as the amount of money paid out in 
claims. 

Anybody want to comment on that? 

Dr. Falcon. Mr. Scott, I just wanted to comment that in Texas, 
we have a 21-year statute of limitation on newborns and so part 
of that money is also, I guess, going to — ^for future or possible fu- 
ture lawsuits. 

Dr. Keller. I think that the amount of money going to plaintiffs 
is much less — that the ratio is much different. The company that 
I am familiar with has an expense ratio of about 14 percent. 

That is what it costs to run the company, if you will. But that 
does not include when a case goes to litigation and there is a settle- 
ment of one sort or another. It does not include all of the fees that 
are paid to attorneys, both by the plaintiff, who must pay whatever 
fee there is, plus what the company must pay for their own attor- 
ney. 

So that the total amount of money getting to plaintiffs is consid- 
erably less. 

Mr, Scott. What effect the plaintiffs attorneys' fees have on the 
cost of malpractice. 

Thank you very much, Mr. Chairman. 

Mr. CoNYERS. You are welcome. This has been a very interesting 
hearing. I want to commend Mr. Corboy of the Committee on Medi- 
cal Professional Liability, Mr. Keener of the American Board of 
Trial Advocates, Ms. Wittkin of the National Center for Patients' 
Rights, Dr. Falcon of the Health Care Liability Alliance, Dr. Keller 
of the Physician Payment Review Commission, and Dr. Hannan of 
the Medical Society of New York. 

You have been very, very helpful. We could go further, but you 
have been here a very long time. Without objection, I would like 
the closing statement of Chairman Brooks to be incorporated into 
the record at this point. 

[The closing statement of Mr. Brooks follows:] 

I would like to thank the witnesses for their information testimony. 

While it is important that the law be fair in the responsibilities it imposes on 
health care providers, it is also important that our legal system offer fair protections 
to people whose lives are disrupted by injuries caused by medical malpractice. We 
must not neglect these important principles as we move into the final stages of the 
health care debate. 

Mr. CoNYERS. The hearing is adjourned. Thank you. 
[Whereupon, at 1:05 p.m., the subcommittee adjourned.] 



* 



181 



Appendix 1. Material Submitted wth the Prepared Statement 

OF Antonio Falcon, M.D. 



I 








PHYSICIAN 

PAYMENT EEVIEW 

COMMISSION 

Annual ^Report . 
to Congress 




182 

CHAPTER 15 
MEDICAL MALPRACTICE REFORM 



The medicai nulpracuce system does not adequately prevent medical injunes or compensate 
injured patients. There is also widespread concern that the current functioning of the 
malpractice system may promote the practice of defensive medicine and impede efforts to 
improve the appropriateness and cost effectiveness of care. The importance of malpractice 
reform is underscored by its inclusion in nearly all the major health system reform proposals 
being considered by the Congress. 

This chapter incorporates the Commission's prior woric on malpractice reform and extends its 
recommendations to address additional issues that have been raised in the various health 
system reform proposals now being debated. These include newly proposed ton reforms, the 
use of practice guidelines in malpractice litigation, and public disclosure of information aoout 
malpractice payments. 



RECOMMENDATIONS 

The Congress should effect the widespread adoption of certain tort reforms, 
including: 

• reasonable scfaedoks for noneconomic damages (interim limits may be 
employed until a scfaedole is adopted), ofEset of awards for collateral 
source payments* periodic payment of large awards, and diversion of 
pnnitiTe damages awards to quality improvemoit activities; 

• schedules for attorneys' contingaicy fees, tiiresholds for joint and several 
liability, and reduction to a reasonable period of long statutes of 
limitations for nunocs; and 

• encouragement of the use of binding alternative dispute resolution 
methods (nonbinding alternative dispute resolution should not be 
required). 

Althon^ initiatives to require certificates of merit, accord special l^al status to 
practice guidelines, and raise the burden of proof for punitive damages have the 
potential to improve the fiotDCtioning of tht malpractice system, current knowledge 
of thdr effectiveness is not snfDciait to justify that they be federally manrtatfd. 



289 



183 



Work shouid begin to develop a future maipracrice system that would include a 
fast, efficient administrative system to compensate patients and a 
complementary system to detect and prevent medical injuries. To this end. the 
Congress should pro>ide support for demonstrations and evaluations of binding 
alternative dispute resolution systems, enterprise liability, and alternative 
standards of compensability including no-faulL The federal government should 
support efforts to reduce injuries related to medical care. 

Information in the National Practitioner Data Bank should not be disclosed to 
the public because of the likely adverse effects on the detection, compensation. 
and prevention of injuries and on disciplinary actions against physicians. 
Information on preventable injuries and malpractice payments should not be 
included Li health plan peribrmance reports for consumers unless better data 
and measures of comparability are available. 



THE TASK FOR REFORM 

The Commission described the goals and problems of the maiptactioe system in depth in its Annual 
Report to Congress 1991 (PPRC 1991). Reducing the rate of medical injury is the most impottaiK 
goal of the malpractice system. Although medical care in the United States is generally of high 
quality, the incidence of preventable medical injury is more than acceptable. A second goal is to 
compensate fairly those patients who experience a medical injury. Few patients are being 
compensated today, and the awards are variable. Besides felling to meet these goals, the existing 
malpractice system may promote the praaice of defisisive mryjirinr and imprflr efforts to imixove 
the cost eSectiveDess of caie. Furthec the system's ineffidescy results in hidi administiative costs 
and long del^ in claims resolutiotL C ci ne ction of these defideodes. dien. is ^ challenge of reform 
e£fons. Malpractice reform trnist be mfecmed by an uiiderstandirig of their urideriying causes. 

The ability of the current system to reduce the number of injuries is limited by its failure to 
collect and systematically analyze data with which to design and implement measures to 
prevent medical injuries. At present, most injuries do not result in claims, and databases are 
largely fragmented. Knowledge about the causes and prevention of medical injury is scarce. 
In addition, incentives for practitioners, institutions, and health care organizations to 
participate in formal injury reduction efforts are not as effective as they should be. 

Compensanon for negligent injuries is not consistent, timely, or proportionate to losses. Nor 
is it available to all who may qualify. The accuracy of determinations of liability is impaired 
by the difficulty of applying the negligence standard to individual cases. Awards for 
noneconomic damages, in particular, are highly subjective and variable. 

The provision of cost-effective care may be deterred to die extent that the malpractice system 
requires (or is perceived as requiring) the delivery of more expensive care than would be 

290 



184 



Ji>;reJ b> :r.o<e u:;irr.a:el\ reur:n^ ;;> s."0"''.>. :r.e :eNi;i;;r.£: w\)>is rr.>:> re ."..cue". ;; :-t e\;-j-; 
:!"i: tr.e ■•t;ir,c::rc o; czrt s.r.iTtT.'.- ■" :T.iS..:'s. r.onor.v or 2000 pr^ciice ;.> :cc r.:c'. The .e^j^: 
x-.ar.curd of care resul's frcrr. ud hoc dec:>ior:s of junes. ;r.e re:ro>pec'.:vs .c;r:;^r> o: ex^er 
•vv■.:ne^>e>. and professionai prac::cei :h2t T.a\ be influenced b> oiher :r.cen::\e> :o :r-.cre2.\e 
:r.e Jei:^ery of serv;ceb. Paradonic^iily. heaith care pracnces are dr:\er z} rercer'.ior.s of 
DO^^ibie iegai :;abiiit>. There is great concern. :hai ;iabiii:y considerauoni rray hinder effons 
:o reduce tne dei:\ery \:i inefrlcient or met'fective care. Thi:> concern i^ benind rropONais to 
provide >pec:a; iegai protection for follow. ing practice guidelines. 

Defensive medicine represents unnecessary or inefficient care delivered to reduce :ne nsk of 
being sued or paying damages. Its e.xtent and cosi are unicnown but may be substantia:. 
Several factors may contribute to defensive medicine. The negligence standa.-d does no: 
provide a good prospective guide to decisionmaking. Physicians often disagree about the 
required standard of care :n panicuiar cases (Brennan et ai. 1989). Furthermore, judgments o'^ 
negligence after an injury are biased by knowledge of the adverse outcome, so %«.ha: may 
seem to be appropnate care before the fact may later be deemed negligent (Capian e: al. 
1991). In addition, physicians probably apply the standard differently than do juries. 
Judgments of liability that are inconsistent across similar cases, made by lay junes meeting 
one time, may conuibute to defensive medicine. Tne medical professions lack of agreement 
about what care is effective, as well as misperceptions of physicians about me legal standard 
of care, are also contributors. 

The high administrative costs of the current malpractice system result from the formal 
processes for discovery of information, preparation for and conduct of the trial itseif. and the 
use of expen witnesses. These reflect the need for extensive information and understanding 
that is associated wim an inquiry into medical causation and individual fault. High procedural 
costs are barriers to filing claims for many potentially compensable injuries, panicuiarly 
•jiose that are less serious or that entail relatively minor economic losses. 



TOWARD A MALPRACTICE SYSTEM OF THE FUTURE 

The problems with the malpractice system are so pervasive that only a profoundly different 
system offers the potential for dramatic improvement .A. proven model for such a system 
does not exist in the United States, but a possible future system is outlined here. The system 
would have rwo components. One would be a fast, efficient administrative compensation 
mechanism that would provide adequate awards to patients who experience preventable 
medical injuries. Tne other would be a complementary system for monitoring, quality 
review, and design and implemenution of measures to reduce the rate of injury. Self- 
insurance or experience rating would provide strong incentives to prevent injuries. .A.n 
important feature of the proposed system is that decisions about compensation and quality 
of care in individual cases would each be made by a process designed specifically for that 
purpose. Clear criteria for compensability and for damages awards would be established. 

291 



185 



ur.ereas ■■jcg~er.is loci: cuaiitv of czrs w.-oi:!d be made :r. :orw~s ?e"er s_;:sc ;c rr. a.<e 
:hose cetermmaiions. 

The administrative compensation system would provide access for as m.ar.y vaiic claims 
as C'-a'.:fy. ve: control the compensation ieveis to iceep the system, affordabie. Ennanced 
access would be achieved by lowering economic and other barriers to rliing claims, 
ensunns iegai representation, and helping patients realize when they have experienced a 
potential!) com.pensable injury. Injuries wouid also be detected by data-based 
surveillance and by encouraging or requiring the panicipation of providers in identifying 
and reponing potential injuries. Nonmeritorious claims would be screened out early, and 
the overall process would be expedited and efficient. It is possible that an even sim;pier. 
less formal process could be in<;tituted for smaller claims. Compensation would be based 
on a more reliable standard than negligence, such as avoidability of the injury or no- 
fault. 

The injury prevention and quality improvement system would receive information from ±e 
compensation system, its own surveillance mechanisms, and voluntary reponmg. It would 
collect and analyze data on injuries, thereby facilitating the design and implementation of 
interventions. Health care organizations would be self-insured or malpractice insurance 
premiums would be experience-rated to provide strong incentives to prevent injunes. Ideally, 
this system would be pan of a broader continuous quality improvement system operating 
throughout the health care system. The system would have an appropriate balance of public 
and professional input 

To realize this system will entail considerable developmental work; even then, it may not be 
feasible as described. Its components could, however, be developed in an evolutionary 
manner and implemented one at a time. To pave the way for this system of the future, the 
Commission's recommendations focus on: 

• improving the functioning of the current system. 

• developing and using efficient alternative dispute resolution systems for 
conroen sating injured patients, 

• formulating and testing more reliable standards for compensation decisions, 
and 



I 



collecting better Hara on medical injuries and improving systems to prevent 
injuries and improve quality of care. 



The federal government should play a role in all four of these areas. 



292 



186 



IMPROVING THE FUNCTIONING OF THE CURRENT SYSTEM 

T'r.:< ve::ior. ar.2!>ze<. prcoos^ii :o •.r^.p^o^e the sertorrr.^ncj o:' :hs .•urre-.: — .j;prjs::x-e 
x\-;:e— .. iricluci.-.g '•:.::cci :o': rerorrr.s. ^;corair.g >pec:2i iegal status :o pric::je ^uice^ir.es. 
jnc enterpnse iiab:i::>. 

Tort Reforms 

Ton reforms are changes in the legal rules goserrsing malpractice lawsuits. The> compose the 
bulk of the malpractice reforms commonly proposed. Widespread implementation of ton 
reforms would not in itself solve many of the underlying problems of the malpractice system, 
which persist even in .states that have already adopted many ton rsiorms. Some ton reforms. 
however, could help the malpractice system operate somewhat more efficiently and consistently 
until more fundamenul changes are made, and they can be instituted immediately. In the shor 
run. these changes would be beneficial for the health care system as a whole. In addition, some 
ton reforms are prerequisites for the nnalpractice system of the future outlined in this ch^ter. 

Ton reforms have been enacted inconsistently by the states. It is unlikely that they w,ill be 
adopted uniformly, and some have been declared unconstitutional by state couns. For ton 
reforms to be implemented across-the-board, either federal preemption of state law is 
required, or states need strong federal incentives to adopt the reforms. A third alternative is to 
authorize individuals or groups to agree by contract with physicians or health care 
organizations to adopt whichever set of reforms is mutually acceptable (Havighurst 1989). 
This, however, would not ensure the widespread implementation of ton reforms. The 
Commission believes the case for certain ton reforms is sufficiently compelling that they 
should be federally mandated. 

If ton reforms were enacted in isolation, however, their benefits would come at the expense 
of some injured patients. Some awards would be reduced, and access to legal representation 
for some potential claimants may be hindered if strict limits on damages and contingency 
fees were adopted. Ideally, ton reforms should be adopted as pan of a broader reform 
package that includes expanded access to well-functioning alternative compensation 
mechanisms, better systems to prevent injuries and improve quality of care, or other measures 
that would benefit patients. 

The Commission favors certain ton reforms in conjunction with other reforms tiut would 
benefit patients. The following discussion analyzes the merits of proposed ton reforms. If 
they are adopted, it would be important for the .Agency for Health Care Policy and Research 
to fund studies of the effects of the reforms on patients" rate of claims, access to legal 
representation, and compensation for injuries. 

Schedules for Noneconomic Damages. Much of the unpredictability and inconsistency 
that characterize todays malpractice awards is because of noneconomic damages (i.e.. pain 

293 



i 



187 



anc iuffer.ng;. •.vh:ch account for sbou: 50 percen: of :oiai paymer.-.s Me-.z.cf:' :99i,. s^ch 
d2~2ges are highly subjective. Reducing :his unprecictabiiity and e::rr.:r.2::r.£ -r.e coter.i-a; 
tor unreasor.abiy high a-^ards wouid !~prove Qecis;or.n:aion2 cunr.s :he course of a iawsu't 
and promote seciiernen:. Aimos: half the states have no statutory limits on r.or.economic 
'■^ma^es. 

Awards for nor.economic damages should be rationalized by reasonable schedules of awards 
for noneconomic damages. The schedules would set acceptable ranses for awards for 
carefully defmed categories of injuries. Schedules establish a different !im:t for each srade of 
injuries, which is preferable to a smgie absolute limit that may be too high for some mjuries 
and too low for others. Until a schedule is developed, however, it may be necessar.- to adopt a 
single mterim absolute limit on noneconomic damages. 

Schedules for Attorneys' Contingency Fees. Tne typical contingency fee paid to the 
claimant's attorney out of an award is about one-third of the recovery. Contmsency fees are 
limited so that they better approximate the fee to the work pen'ormed by the lawyer. About 
half the states have restricted contmgency fees in some manner, including 1 1 that have 
enacted specific fee schedules or sliding scales based on the recovery amount. Fee reductions 
possibly may restrict access to legal represeniation for those wi;h small claims or uncertain 
chances for recovery, although this problem couid be minimized if the schedule permits 
greater percentages for smaller awards. In addition, it is desirable to discourage those claims 
that have linle chance of success biu are pursued simply because the potential anomey's fee 
is unreasonably large. The Commission recommends reasonable schedules for anomeys" fees 
so ±at more of a large award goes to the patient. 

Modification of the Collateral Source Rule. The collateraJ source rule prohibits the 
consideration of other payments, such as those from health or disability insurance, received 
by a claimant for losses due to an injury. These sources of payment tend to operate more 
efficiently than the malpractice system, permitting more money to be devoted to 
compensation and less to administrative costs. Nearly half the states have not modified the 
collateral source rule and permit duplicate payments for a given loss. An offset of malpractice 
awards for collateral source payments is consistent with the compensation function of the 
malpractice system (although in theory it weakens general deterrence of injuries because the 
provider does not bear their fiill cost). OSsas of awards for collateral source payments are 
advisable under the present malpractice sjrstem. They would be vital to the affordafaility of 
the internal costs of a future, icore-inclusive administrative system for compensating medical 
injuries. 

Restrictions on Joint and Several Liability. In cases with more than one defendant, the 
doctrine of joint and several liability holds any defendant responsible for the full award if any 
other defendants cannot pay their shares apportioned by fault. This rule is designed to ensure 
adequate compensation for the injury, even though it penalizes defendants who have to pay 
more than wh^ would be warranted by their share of fault. A total of 31 states have placed 

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rs>:ri-::onN i:>r join: ^r.d >e'.era; ;:::b:::'.>. Some h;:se jjcpts,: ;. •.-reir.oio o: J^; 

bsio">v v.hich jo:r.: jnd ^everu! liabijiiy <:oe> not -ppi>: v^ner^ r.j\e uboi>r.ec :\::t.: ir.z -^mtj.'. 

;.ab:i;:> entirely ro: nor.ew"0"om:c carr.^^es. 

?r-c:::!oners ir.,: er.;:::es vv,::h adequate insurance or resource^ :c pay -.a:p:a::;ce zvvzrds co 
not ^^ant to pay the r'u!! amount o: an award uhen the:: contr.buuon ;o t'aui; :> minor or 
negiiiTible. But -t should be recognized that limits on their iiabiiity m.ay come at the expense 
or' acequjte'y compensatmg injured patients. Tne Commission recomm.encs ;ha: _ oaiance be 
struck by adopting thresholds tor the application of joint and several iiabiiit\. 

Periodic Payments of Large Awards. More than naif the states require that larger awards 
be paid in installments over time. It is best if the payments are tailored to meet spec:t':c future 
needs. An annuity can be purchased to meet continuing needs resulting from permanent 
injuries. .Annuities also permit tax-advantaged investment of an award. 0>>eraii. the 
Commission considers periodic payment bener'icial. 

Reductions in Statutes of Limitation. These laws limit t.he time period, after an inrjr> ;s or 
should have been discovered, during which claimants may fiie a lawsuit. If trie allotted pe.nod 
e.xpires. a claim is barred even if it clearly has merit. .Most states allow a longer period for 
minors, often until the age of majority. Long statutes of limitation create uncertainty, delay. 
and e.xpense in insuring against malpractice claims. Birth-related injunes are the principal 
source of problems. Eight years is a safe period to allow detection of perinaiai i.njury. and 
shorter periods are defensible.' States that have longer statutes of limitations for minors 
should be required to reduce them to eight years at mosL 

Punitive Damages. Punitive damages are rarely justified in medical malpractice cases. They 
are requested far more often than they are awarded (Metzloff 1991 ). Judges frequently reduce 
excessive or unjustified punitive danuges awards. Overall, punitive damages do not appear to 
be an important problem in medical malpractice cases. 

Two reforms have been advocated with respect to punitive damages. The first is t.hat part or 
all of punitive damages awards be divened to quality improvement activities. The rationale 
for ihis is that punitive damages, fay definition, are not compensatory in nature. They are not 
"needed" by the plaintiff. Their purpose is to deter others from similar conduct, thus 
protecting future patients from injury. Consistent with this rationale would be to use the 
money from these awards directly for injury prevention or quality improvement activities. 
The Commission encoiu^ges the diversion of some or all of punitive damages awards for 
these purposes.- Plaintiffs would continue to allege punitive damages when warranted — 



'■ CeiebraJ palsy C2n usiuJIy be iamosed by three years of ace: difficult cases can be diagnosed by the age of five 
(Stanley and Waoon 1985). 

- Juries should not be informed of this diversion so that their decisions on damages are not distorted. 

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iespi'.s :r.e civersior. — because their expected -.^iue \«.Owic be -..-.ciudec .r. ie:::e~.er.: 
r.egotiaiions. - 

A iecond proposal for punitive cimages is to raise Lhe standard of proof rscuurd :o rece:\e 's.in. 
rrorr. a preponderance of the evidence to ciear and con\'incing evidence. Tne arsument for ihis is 
•_na: the greater penalties represented by punitive daniages should be meted out oniv :: proof is more 
cer-ain than ;s requTed for ordinar.- negligence. This piausibie rauonale appues to rumuve daniages 
in all contexts, not just medical malpractice. .Although changing the standard of proof seems 
reasonable, the Commission believes that the case for this more fundamental change :n legal rules 
should be made on a broader basis than medical malpractice. .AJtemahvely. convincmg e\ idence 
should be put forward thai there is a special need for this reform tn the medical raaipracuce arena. 

Certificate of Merit .A, certificate of merit is a requirement that an independent medical 
expert review the medical record and certify that a claim is worthy before a formal lawsuit 
can be filed. .Although this requirement appears reasonable, there are p>otentiai problems with 
it. It adds another step to the litigation process, consuming time and money. Tnis nay be a 
barrier to some mentorious claims that would otherwise be brought. Plaintiffs' lawyers tend 
to require the plaintiffs to pay for this iniriai expen evaluation, which is difficult for low- 
income plaintiffs who already sue less firequently than wealthier ones. 

It is often difficult to judge a: a case's inception whether it is likely to be successful tjecause 
key information is not available in the medical record and must be obtained through the legal 
process. If the certificate of merit requirement is too strict, some cases that eventually would 
be successful might be screened out simply because of incomplete information. Tne test 
should not be whether the claim is likely to succeed. Rather, the criterion should be some 
minimum threshold of the probability of success. It may be difficult to develop criteria that 
would not squelch meritorious claims, yet be stria enou^ to reduce significantly the number 
of nonmeritorious claims that proceed to litigation. 

Completely frivolous lawsuits do not appear, anecdotally, to be a major problem for 
defendants, and the defense can fairiy easily identify groundless claims. Although the idea 
has promise, more needs to be learned about the benefits and drawbacks of cenificaie of 
merit programs before they wanant being federally mandated.-' 

Practice Guidelines and Malpractice Litigation 

With practice guidelines becoming more integrated into medical practice, more attention is 
being focused on their relationship to the malpractice system. There are two areas of interest. 



' The cenificaie of merit reauiremem proposed ia the Adminisaation"s health tefonn proposal would apply only 
after a ciatin has bees litigated to a fmai conchision in as alternative di^piitr resolution progiam. It is extretnety 
unlikely that such a claim would be filed anew in the cowt system unless at least one expert was wiUing to testify for 
the plaintifF. The cemfkaie of mem reqaiietnem in this context seems superfluous. Procedures to screen out fnvolous 
ciaxms are most useful at the outset of a ctaittu not after it has already been extensively liugated. 

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84-714 O -94 -7 



190 

Qr.i :> 'Aherher :r.e v^vten". :xcec:e> '-"S l:>c o: -rzz'.ut ^uics/.r.ei '?> hsjith j^rc pro. ;jer> lo 
i.T:pro\e the ::pprcpr:a:er.ess cir.c cos: ewe>::i\eness o: c^-e. Ar.otr.er li ;hs ert'ewts :!■.;.: rr;ji:vS 
iuideiir.ss have or. :he proce.>s ur.c ou:co— es or' r".;:;pru:".;ve iitigatior.. Th:> >ec::on a.-.a:>2e> 
these ;opics and aeicnbes :he results or a Commission-sponsored siucy or :he use or" practice 
>:'jice;ines in mairractice iitisaiion. 

The Relationship of Practice Guidelines and the Malpractice System. The t.'eatment of 
practice guidelines in the malpractice system has important implications tor their success m 
promoting the delivery- of appropriate, cost-effective care. Practice guidelines couic provide 
an imponant legal suppon for physicians and health care organizations that use them to 
provide less-costly but appropriate care. But revisions of practice guidelines by the judicial 
system could render practice guidelines ineffective in heipmg to control costs and improve 
quality. Such revisions could take two forms: an explicit rejection of the content of the 
guideline, or a carvmg-out of exceptions that effectively vitiates it. In response to this 
concern, states are providing or planning to provide special legal status to practice guidelines 
to facilitate their use by defense attorneys, and thus encourage their use by physicians 
(General .Accounting Office 1993). 

Practice guidelines may help to improve the functioning of the malpractice system (Gamick 
et al. 1991 ). This is because guidelines can make clear the applicable standard of care, which 
is a troublesome issue in many malpractice cases. They might also lessen the need for expert 
testimony on the standard of care, thus avoiding a battle of the experts. Guidelines may 
appropriately increase the amount of malpractice litigation by helping make clear to injured 
patients, their lawyers, or juries that a standard of care was breached. But several factors 
might prevent any improvement in the malpractice system resulting from the use of practice 
guidelines. The topics on which guidelines are being developed probably are irrelevant to the 
circumstances leading to most malpractice claims. Guidelines might be revised or reversed by 
the judicial system, either explicitly or by the creation of exceptions. In addition, increased 
litigation might result from questioning the validity of guidelines or the circumstances under 
which exceptions are warranted. Further, guidelines might be construed to create a firm 
standard of care when one is neither intended nor appropriate. Finally, the need for expert 
testimony might stay the same or even be increased. 

The Harvard Study. Because little is known about the use of practice guidelines in 
malpractice litigation, the Commission engaged Harvard University researchers to conduct a 
study to provide empirical information on this topic (Hyams et aL 1994). The study had three 
components. The first was a review of published judicial decisions that concern practice 
guidelines. The second was a review of malpractice claims files to determine how often 
guidelines were used in actual malpractice cases, and to discover the ways they were used. 
The last was a survey mailed to a sample of plaintiffs* and defendaxus* lawyers. 

A computerized search of all published judicial decisions located 32 cases in which practice 
guidelines were used: 23 by the plaintiff (claimant) and 9 by the defendant Plaintiffs won 17 

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o: :he 23 cases :- '.vhich their lawyers used the practice gu:de:i.-e. wnne ■.:: 6 of 9 .ases a 
practice guideline was used successtuiiy by the defense. Fi\e adduior.al cases concer-.ec -.he 
.-arrower question of whether nationa: practice guidelines couic provide e-. :dence of !oca; 
standards of practice. Tne majohty of the cases invoived practice suideiines tiromuisatec bv 
tne .Amencan College of Obstetncians and Gynecoiogists. 

The claims t'lles of two malpractice insurance companies were randomly sampled 'with 
oversampimg of anesthesia and obstetric claims) and 259 claims were reviewed. Only !7 i7 
percent) involved the use of practice guidelines. 1 1 of which were obstetnc cases. In 12 of the 
cases the practice guidelines were mtnxiuced by the piaintifTs lawyer, and in 4 they were 
used by the defense (one case was indeterminate), .\lihough the power of the analysis was 
limited by the small numbers, the use of guidelints was not significantly associated with 
various characteristics of the physician, lawyer, hospital, or injury, except that physicians who 
had a longer relationship with the patient were significantly more likely to have claims t.hat 
involved practice guidelines than were others. There seemed to be greater use of guidelines in 
cases involving nonteaching and smaller hospitals, as well as those i"iled by .Medicaid 
patients. 

Surveys were mailed to a random sample of 960 plaintiff and defense medical malpractice 
anomeys in the United States; 578 (60 percent) responded. Three-quarters were aware of 
practice guidelines. Half the respondents had at least one case each year in which guidelines 
played a role, and a high proportion reported that the use of guidelines was increasing. The 
majority of the cases involved care that departed from the guideline. While most of the 
anomeys reported thai the need for experts in the practice guideline cases had not changed. 5 
percent of anomeys said it had decreased, and 12 percent said it had increased. Of the 
attorneys representing plaintiffs, one-quarter stated that a guideline had influenced their 
decision not to take a case in the past year, one-quarter of all the attorneys noted that a 
guideline had influenced their decision to drop or settle a case. Finally, one-quarter also said 
that a guideline had influenced the decision of a trier of fact (jury or judge) in at least one 
case during the preceding year: 

Several conclusions can be drawn &om this study. Practice guidelines are playing a modest 
but increasing role in raalpracdcs litigation. Obstetric guidelines are most ^quently being 
used, probably because they are among the oldest and best known to physicians and lawyers. 
Guidelines are being introduced more often by plaintiff than by defense anomeys. possibly 
becacse guidelines may provide cheaper or stronger evidence of the standard of care than 
expert testimony. The use of guidelines by either side is usually, but not always, successful in 
malpractice litigation. 

Although the effects of guidelines on the litigation process are varied, overall they seem 
positive. Guidelines helped judges and juries reach decisions, but there was not much change 
in the need for expert testimony. Even though the overall effea of guidelines on the amount 
of litigation cannot be assfssed, they may well have led to better decisions to take, settle, or 

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cror c»>e>. rii:urs ~cr:::or:r.g ;:nc resear;:?. ure neecc^ :o ^^>e^^ v^ ne;ner ju-.L-j/^.e^ are ?,;;ru 
u^eJ jrcrcpr.ate'.N ir. coun. -.-ciucing uhe:her j>pu'.e> arout ".heir uppiiw.r:;::'. .^: ..t.ut.; 
2re tro-jblesome. The re^u!;> ^houic ;r.rbrm hou iT'jieeiir.eN ure jcrv.ec jr.c w.-_::eJ So-ne 
v:^ieN have given guiceiir.es xpeciai iegii meatus in n:aipract:ce v"2Ne>. The:: evoerience ^ho'S.c 
re ;;'-se>';ed. paying particular i::en:ion to whether these actions have pronotec or .rr.pidic 
the appropnate use c:"gu:deiines in litigation and in patient care. 

Enterprise Liability 

Enterprise liability refers to the situation when a health care organization assumeb tlnanciai 
responsibility for all negligent injuries to patients under its care, thereby relieMng !ndi\idual 
practitioners of all personal ron liability for such injuries (Weiier 1991). This is thought to 
offer two benefits. First, enterprise liability results in clear savings in administrative costs. 
Instead of multiple defendants — each often requiring .separate lawyers and in\es::eai:ons — 
there is only one defendant: the enterprise. .Additional savings also result from eliminating 
the many separate individual and corporate malpractice insurance policies :ha: must 
otherwise be maintained. 

Second, enterprise liability is thought likely to result in fewer medical injuries. I: places the 
burden of injury detection and prevention on an entire entity or system that delivers care, one 
that can more effectively use resources — and devote more resources — to accomplish these 
tasks than individual physicians aaing separately. Others argue, however, that ente.T5rise 
liability deprives individual physicians of the deterrence incentive stemming from their need 
to purchase their own malpractice insurance. The debate is theoretical because of the absence 
of empirical evidence relevant to the issue. 

The formation of accountable health plans under system reform would undoubtedly 
accelerate the trend toward iniegrattd delivery systems and other entities that increasingly 
look like unified enterprises. Enterprise liability already exists for hospitals owned and 
staffed by one organizauon. such as a health maintenance organization (HMO), or a typical 
university or county hospital, and for those thai provide, or channel, malpractice insurance to 
their affiliated staff. As vertical integration spreads through the delivery system, enterprise 
liability is likely to follow for reasons of efficiency. Enterprise liability is also the end result 
of the trend in legal doctrine toward holding hospitals and other health care organizations 
responsible for negligent injuries to patients (Weiier 1991 ). 

Enterprise liability is probably an inevitable result of legal trends and the incentives 
sharpened by increased competition in the medical marketplace. The policy question is 
whether its spread should be encouraged or required sooner than would occur otherwise. 
There are some practical difficulties with imposing enterprise liability. It requires an 
enterprise that is tied financially and professionally to the care for which it is responsible. If a 
hospital and its medical staff were considered an enterprise, for example, this relationship 
would be present for inpatient but not outpatient care. Third-party payers are financially but 

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no: professionaiiy iirjced w::r. physicians, a: least a: ihis t:me. :t would also se cirf.cui: :c 
;aiicrate rr.alpracrice insurancs premiums and fees for physicians who do not practice 
exclusively within an enterprise. 

Se\eral steps could be taken shon of imposing enterpnse liability. Policymaking would be 
improved if there were empirical evidence that enterprise liability reduced costs a.-id 
enhanced quality of care. Federal suppon is thus warranted for demonstration projects and 
evaluauons of existing examples of enterprise liability. 

Another possible step would be to require accountable health plans to repon mformauon on 
aesreaaie malpractice payments made to their patients for consumers to use in comparing 
plans. This approach would not involve plans in defending physicians or paying damage 
awards on their behalf, but it would give plans an incentive to select doctors more carefully. 
monitor the malpractice claims experience of their physicians, and help them avoid claims. 
Phvsicians would have a greater incentive to ensure that their professional colleagues work 
to prevent negligent injuries. It would be useful to supplement malpractice claims 
information with a requirement that health plans actively monitor for preventable mjunes to 
their patients as pan of their quality assurance activities. For reasons discussed later in this 
chapter, improvements in data and measures of comparability are needed before this should 
occtir. 

Finally, enterprise liability could be encouraged by the way in which quality assurance 
activities are structured within health plans. Health plans could be required to conduCT such 
activities in a manner analogous to that of hospitals, through the equivalent of medical staff 
quality assurance committtes. Each plan would be responsible for ensuring the successful 
operation of its committees, but the physicians — the health plan's medical staff — would 
perform the peer review and quality improvement activities. A group of plans could delegate 
this function to a single local entity, so that each plan would not need its own quality 
assurance cotmnitiee. Quality assurance strucoues that link physicians and engage them in 
quality review could pave the way for bener quality improvement activities and an easier 
transition to enterprise liability. 



COMPONENTS OF A FUTURE MALPRACTICE SYSTEM 

These recommendations would help improve some of the deficiencies of the malpracuce 
system- They would not. however, address two underlying causes of the problems with the 
malpractice system: reliance on the court system, and use of the negligence standard to 
determine both the standard of medical care and eUgibility for compensation. The fumre 
malpractice system envisioned by the Commission would utilize an efficient administraave 
system to resolve claims on the basis of a standard for comp en sa ti on that is more reliable 
than the current negligence standard. Such a system would be helpful for monitoring quality 
of care and implementing programs to prevent medical injuries. 

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Alternative Dispute Resolution Systems 

Siir.'.ricin; irr.pro'.ir^.eri: :r. proL"es>ir:j nainrcctice claims v:;:r: occur oni;> vj_:>;je ;-- 
counroom. Adm;r.;>:rai:ve sy^cems and other aiterr.ative liispure reso/c::or: ADR: methods 
orrsr ;n« poientiai for re>>oiN.ir.g maipractice claims more cuickiy. eff:cisr.:i\. a-d cor.sisier.tiy 
(Jor.p.Nor. et ai. 19S9). A variety ot ADR mechanisms ha\.e been deveiopec. such as 
arbitraiior. and meuiation. Administrative systems not only m.ay give pctert:a; ciairr.ants 
easier access :o compensation, but also use alternative standards {"or compensation ; discussed 
in Che foilovung section). The future compensation system anticipated by t.he Commission 
would rely on an acmmistraiive system to process claims. Most malpractice reform proposals 
encourage or require using aitemative dispute resolution. 

Several possible features of ADR mechanisms may improve the resolution of malpractice 
suits. If decisions uere made by someone with e.\perience (as could be the case with .ADR), 
they might be of better quality, have more precedent-setting value, and be more consistent. 
By contrast a jury meets only once: it has rto firsthand experience to draw upon in deciding 
cases and no access to written decisions for other similar cases. A jury does not have to 
justify its decision, nor is it accountable for its perfonnance. If decisions were wnnen and 
accessible, they would likely be more consistent and predictable. Inconsistencies among 
cases could be resolved by an appeals process, and the relevant standard of practice would 
then be known prospectively by health care providers. An administrative decisionmaker may 
be more likely to understand and honor the recommendations of good practice guidelines and 
to condone cost-effective care. 

Little is known about the efficacy of ADR in medical malpractice, although the experience of 
Kaiser Permanente is heipfiii. Several of its health plans use mandatory binding arbitration to 
resolve all malpractice claims. Their experience reportedly has been favorable, in that 
litigation costs are somewhat less because the bearings are much shorter than those in jury 
trials. In addition, compared with public trials, private arbitration hearings are less 
burdensome for Kaiser physicians. Cases appear to be resolved faster than comparable cases 
litigated in the courts (Felsentfaal 1994). Kaiser has discontintied arbitration in at least one 
regioiL however, because the quality of the available arbicraiOTS was considered insufficient 

Despite its potential, alternative dispute resolution has a number of possible drawbacks. If the 
result reached through ADR is not binding, the method would merely impose significant 
additional delays and costs on an already slow and expensive litigation process. In addition, 
the constitutional right to a jury trial is a potential barrier to requiring the use of binding 
ADR. And finally, whether shifting attorneys* fees to the party who loses an appeal in the 
courts truly discourages reson to the courts is unknown. On the one hand, lower-income 
claimants might be relatively disadvamaged because attorneys would require them to assume 
the risk of paying their opponent's legal fees. On the other, the fee-shiftiag provision might 
be waived for them, and thus not have its desired effect of discouraging relitigation in the 
courts. An ideal scenario would be the development of ADR systems advantageous to 

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riiir.iirfj and defencanis alike, so rhat both would volur.tanly agree :o usT.g -.he- zr.z be:r.2 
bour.d by ths result. 

One of the judictal system's most imponant features is its perceived impaniahty and the 
desree of control accorded the parties over the litigation process. This is especially 
important to injured claimants, who may feel less powerful t.han the provider or system 
thev are suing. In administrative or .A.DR systems, the decreased amount of formal 
orocedurai protection makes the need for objectivity even more important. .AithoLgh asms 
e.xDerienced personnel can be advantageous, it can be difficult for them to remain 
unbiased when dealing with a few large repeat players such as malpractice insurers and 
health plans. 

Further, each type of .\DR method is more useful in some situations than in others. Tnere is 
little experience in tailoring the use of .A.DR to the needs of particular cases. The quality of 
any .A.DR process depends heavily on the personnel involved. It is uniikeiy that enough high- 
quality ADR services would be available immediately if all medical malpractice cases had to 
use this technique. Finally, .ADR systems may evoke counterproductive behavioral responses, 
which are difficult to predict in advance. For example, if final adjudicatory hearings are 
cheaper, easier, and faster than jury trials, more cases might proceed to such hearings, 
lengthening rather than shortening delays in compensation. 

In view of these uncertainties, it may be prcmanire to require that all malpractice claims be 
resolved through ADR. Demonstrations and evaluations should be supported by the federal 
government to learn more about how these systems can best operate. Workable methods need 
to be devised to permit easier access for potential claims while rejecting nonmentorious 
claims early. Incentives for settlement should be used. Among the issues that require study 
are the length of time needed to resolve cases, the system's efiSciency and ability to improve 
access for claims, and the objectivity and quality of the judgments. 

Alternative Standards for Compensation 

The negligence standard does not appear to be a good guide to decisionmaking by providers 
and juries. Possibly, more reliable standards for liability could be developed, such as ones 
based on no-fault or avoidability of the injury. Such standards must be tested for their 
reliability and their effects on the number and size of claims paid. 

No-F«ulL A no-£uilt standard would compensate patients «4iose injuries were caused by 
medical care, rtgardless of whether the care was substandard or not. The determination of 
eligibility for compensadwi would be simplified by dispensing wirix the need to detcrmiiK the 
standard of care and whether it was breached. Evidence from one smdy suggests that 
judgments of causation can be made more reliably than judgments ai negligence, although 
some difficulties would lemam becanse the adverse effects of neannent must be distinguished 
ftom the underiying illness (Brennan ct aL 1989). Definitional problems may occur if the 

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ur:\;r^tf o: s;o-r.perNUD.s :r.;»::es :> :ur;r.;r ;:.T::iec >ucr. a^ e\c»ua!ng ur.;;".o:cabis ru::ure o: 
:.-eu:mer.; trom compenv^itior.. 

The rrir.cip^l tesr raised b> a r.o-raui: syster:i :> thui vasiiy iarger number or' ;^.Iu^le^ misiht 
be-wjrr.e eiigibie for worr.per.sation. Av<.arcs would have 'o be restricted :o keep the i>stem 
arr'orcabie. In e>t!mating the cos; of a hypothetical no-fauit s>steT. :n New York, for e\ar?.pie. 
the Har-vurd Med:cai Practice Study investigators restricted compensation :o ne: economic 
!os>es experienced more than six months after the :r,jury. with no r.oneconomic damages 
permitted (Harvard Medical Practice Study !990). In addition, the experience oversexs i> that. 
with a no-fault system, the number of claims increases steadily (Hellner 1985). .A no-fauit 
standard should be tested first in a demonstration in the United States. When comparing 
results across systems of care, demonstrations 'hould employ methods to adjust rates of 
injunes and levels of compen.sation for differences in the health systems" patients — especially 
age — that influence the likelihood and severity of injuries. 

Avoidability. Some errors in care are not negligent. For example, a mistake in considered 
professional judgment is often deemed not to be negligent. Whereas in hindsight an injury 
might have been avoided, having missed the opportunity to prevent it is not necessarily 
negligent. It may be easier to determine whether an injury was avoidable — by some measure 
of probability — than whether failure to avoid it was due to negligence. 

.A standard based on avoidability is appealing because it compensates patients for injuries that 
need not have occurred. It also would foctis prevention efforts on the ftill range of preventable 
injuries. Fewer claims would be compensated than under no-fault, which would help keep the 
system affordable. For example, a particular treatment may entail a known but unavoidable 
risk of a serious injury or complication. Patients who experience an adverse outcome from 
the treatment would be compensated under a no-fault system, but not under a standard based 
on avoidability. More claims would qualify for compensation, however, under an avoidabiiity 
standard than under a negligence standard. 

An avoidability standard would offer other advantages as well. It shares with no-fault the 
advantage of not conditioning compensation on a judgment about whether the care was 
substandard.'* Compensation for an injury would not itself mean that the care was negligent; 
that determination would need to be made through another mechanism. That compensation 
would not depend on judgments about quality of care could reduce inapprtqniate defensive 
medicine practices and improve providers' confidence in the systetn. At the present time, 
there is no information on the reliability of such a standard, but it may be more reliable than 
the nesiieence standard. 



- The acceleated-coinpeasjoon event pcopoial anemjns to >peil out aa «voUlabiiity tttadanl for cerain injuhes 
(TaiiKwli and Bo\-ti3er| 1991: Bovbjergetai. 1991). Thex tfompnseaUstof avoidable advene outcomes of care that 
are desitoaied m advance to be c o mp e ns abie. Tbe cuneitt nulpracoce system would comiane to govera compensation 
for all other injuries. An accelented< om pe nsati on e\ent •>y<em that applies only to a subset of injuries, however, raay 
eenerate disputes about vbiiicfa system co\-en tbe injuiy. 

303 



197 



BETTER PREVENTION OF MEDICAL INJURIES 

The crevention of mecicai iniuries is a d:rf:cuii task :r,a: rec'jires cor.s:cerab;e resources and 
a s\-;iemauc approach. The general deterrence incentive providec by :he :hrea: or' iegai 
liability is no: sufficient to reduce preventable iniunes to a min:nium. In par., this ;s because 
the seneral incentive for physicians not to be negligent must be transiaied by mcividuai 
physicians into the panicuiar ways in which tney try to avoid injury. Isolated lapses m 
vis'.iance inevitably happen, and it is difficult for individual physicians to ieam fro.T. the 
relativelv few occurrences about which they may be aware. In any case, since the general 
deterrence incentive is already in effect, spjecific measures designed to prevent injuries are 
needed to reduce their rate of occurrence further. 

.A systematic approach to injury prevention is likely to be more effective than relying purely 
on seneral deterrence. Risk management activities within hospitals, for exa.mple. have been 
shown to be associated with fewer malpractice claims iMoriock and .Malitz 1991). Effective 
injury reduction programs require the collection and analysis of data, as well as the design 
and implementation of effective interventions. 

Data Collection 

Better data are needed to help detect preventable injuries and determine their causes. 
Data usable for injury reduction have come principally from closed claims files of 
malpractice insurers. Only a small percentage of avoidable injuries is included in such 
files: often, the information about each claim is limited (Harvard .Medical Practice 
Study 1990). There is also a substantial time lag for claims files to accumulate 
information, since they depend on the legal process. The National Practitioner Data 
Bank (NPDB) in theory contains a complete listing of malpractice claim payments, but 
the information on each claim is not coded in a way that is useful for prevention 
activities. 

Early warning systems and active surveiliance are needed to detect as many preventable 
injuries as possible, not just those thai result in claims. The basic epidemiology of medical 
injuries needs to be delineated. Methods to describe the etiology and nature of injunes are in 
their infancy. Coding systems need to be developed to permit this more abstraa information 
to be entered into computerized databases. Because many events need to be collected and 
analyzed to detect patterns of rare events, local databases must be compatible to permit 
merging. Health system reform may provide an opportunity for developing standardized 
coding and databases (see Chapter 16). 

Despite its importance, however, data-based surveillance — no maner how well designed — is 
not sufficient. The best information source concerning care-related problems is the caregivers 
themselves. Early warning and reporting systems for medical injury have been effective in 
identifying, soon after their occurrence, many of the injuries that result in claims (Lindgren et 

304 



198 



_■_ :yt::,.' i; > iikiA :r.s. TTi^ny or' :he pr<'.cn:jbie ;r,;ur:ev reror.cc :>> pr.\N;s;;-r.-, ^re r.o; 
viiNCoverubie in ;r.e 7-.edicai record s:mp:y by u^:ng sur.-^irc >jrcsr.:r.c ;e--hn;c-jSN. 
CiT.:":der.:iai \oiur.:ar\ rspcrtms ot' po:enuui;\ pre\sn:abie :rj-jr:e> :c .: ho^p::-! or c.r.er 
re>-cor.s:bie or£^n:za::on hus promise iPe'.ersen et ai. 1^92!. \oiL:r.:2ry repor::ng cf irvwrie^. 
-N vve:; _b can:c:ca:or. in peer review and injury pre\ention -c::-.::ies jsing iho^e data, needs 
:o re protected and encouraged by s:a:e and lederai iuw. 

Design and Implementation of Interventions 

When oreven:able medical injunes are detected and their causes understood, ways m.ust be 
devised to prevent such occurrences. These interventions can be either cognitive or 
procedural. The education of providers is imponant; cognitive interventions make sense 
intuitiveiv to address cognitive mistakes. Errors that cause injury, however, are often due to 
isolated lapses that are difficult for individual health care workers to eliminate. In addition, 
iome injunes are caused by problems in health care delivery systems and procedures rather 
than by an individual caregiver's mistake. 

Svstems or process interventions are likely to be even more effective at preventing injuries 
than education alone. .Administrative policies and medical practice guidelines can be 
desisned to minimize the risk of avoidable injury, and checks can be instituted to make sure 
that policies are followed. Guidelines for intraoperative monitoring of blood oxygen 
saturation, for instance, have reduced the number of hypoxic injuries during anesthesia 
iKesnan and Boyan 1991). 

Integration with Quality Improvement These activiiies are best performed in conjuncuon 
with the quality assurance and improvement programs of health care organizanons. Strucrures 
to conduct these functions do not exist for fee-for-service plans. Hospitals are natural 
locations for surveillance and eariy warning for inpatient care problems, but outpatient care 
mav be more difficult to monitor. The standardized data reporting that may be required under 
health system reforau however, could facilitate the detection of preventable injuries stemming 
from outpatient care (see Chapter 16). 

After possible preventable injuries are identified, individual cases must then be reviewed. 
Some thought is needed on how peer review can be better conducted, especially for outpatient 
care. As described above, one way in which health plans could conduct better quality 
assurance and improvement activities might be for the professional staff of a health plan to be 
responsible for peer review within that plan in the same manner in which the medical staff of 
a hospital is responsible for quality assurance related to physicians. The health plan would 
ensure that quality assurance committees and stmctures exist and are functioning property. 



- Tbere are addinooal benefits to eariy identificaaon of panents injured by medical care. Any neede d remedial or 
re-habilhauve neaanent con be provided sooner. Claims can be resoKed earlier. A better, eomempotaneous evidentiary 
record ctn be created and preserved, which can help improve the accuracy with which liability determinations are 
made. 



199 



ySi the actual peer rev.ew and quality :n?ro\erner.t activities xouic be :r.e resronsibiht-v of 
the physicians panicjpatmg in the plan. Monitonng and early warning s> stems would idertitv 
probietns for review by the quality assurance committees. It may not be necessary- ror eacr. 
health plan to maintain an independent committee for local peer review of pnvsicians not tied 
:o a single plan: it may be easier to use a single review organization for multiple payers that is 
structured on local group practices, hospitals, or geographic areas (see Chapter 10). 

The Role of the Federal Government. The federal government should ensure that 
practitioners, hospitals, and health care organizations engage in effective effons to reduce 
injuries due to inpatient and outpatient medical care, including those caused by negligence. 
These activities should be a required pan of quality assurance and improvement programs of 
practitioners and health care organizations, and should include both inpatient and outpatient 
care. The federal government should support research on the etiology, classification, and 
prevention of medical injury. Suppon should be given to the development of the necessary 
databases and to efforts to reduce the incidence of medical injury. 

Disclosing information About Malpractice to the Public. One strategy that has been 
suggested to protect patients from negligent injuries is to provide them with information 
about the malpractice experience of physicians and health plans. Consumers could be given 
access to the physician-specific information about malpractice payments contained in the 
NPDB. to which all malpractice payments made on behalf of physicians must be reponed. 
The NPDB information is now available only on a confidential basis to hospitals and other 
qualified health care institutions for physicians who have staff privileges or are applying for 
them. Some managed-competition proposals envision consumers using a quality report for 
health plans that could include infoimation about the plan's aggregate malpractice experience 
(see Chapter 10). These possibilities raise difficult issues. Among these are the pubhc's right 
to information and choice, and the ability of consumers to understand and use primary 
infonnadoD relating to quality of care. Others relate to the effects of public disclosure on the 
processes that generate the information, and whether internal programs or external public 
pressure is more effective in improving quality (to the extent that the two strategies are 
incompatible). 

Some believe that consumers have a right to the information in the National Practitioner Data 
Bank to help choose a physician. They argue that fears that the public will not imderstand or 
will misuse the information are paternalistic and unfounded. Peiiiaps implicit in this position 
is the belief that the oversight mechanisms of the profession and of state licensing boards 
have not been successful in protecting the public &om substandard practitioners. 

Other considerations, however, weigh more strongly against permitting public access to the 
information in the National Practitioner [}ata Bank. This information essentially comprises 
profiles of the malpractice experience of each physician. It is subject to the potential 
problems with profiling information that the Commission has previously discussed, including 
the accuracy and relevance of die data (PPRC 1992). 

306 



200 



T'-e :.-.:"v.-r-r.u::or. in the NPDB > orobubi> ^-iiiriiy acwurste ir. :err:'!> or' pu^-nenis :o ci.::mun-< 
; jl:hou£r. "-one decree or" jncerrepori'.r.g undoubtediy occurs-, bu; :he br-.e:' ce>cr.pt:on or 
eswT. r.eciiser.: event otien does not permit a fu!! understjr.ding or' the w:rcums;;r.cei i^r' rr-.e 
:r:ur\. loues ot" causation c-d negligence are often quite dii^lcui: and corr.piex :?. :.-G;Mdua; 
c^>e>. -T.c it can be probiernatic to allocate individaai responsibility tor a medicai injunes. 
The relevance of the data is questionable. Paid malpractice claims are oni> modestly 
Dredictive of future claims. Tnis is enough to experience-rate groups or ph> sicians but not 
>uffic:en: :o predict the future e.xpenence of any one physician iRoiph :99; \.^ .A paid 
malpractice claim does not necessarily represent poor quality of care, and even poor care in 
any particular instance does not imply incompetence with respect to that condition or 
procedure. Finally, it would be difficult for consumers to use the data to avoid receiving 
neslisen: medical care, because errors or poor competerce in one aspect of care are probably 
not predictive of problems in others (Sanazaro and Wonh 1985). 

Permittins public access to the NPDB would likely adversely affect the underlying processes 
that generate the information. There are anecdotal repons that more physicians are refusing to 
settle cases in order to avoid being reported to the now-confidential NPDB. Tne allocation of 
fault amon£ individual physicians involved in a case is problematic and difficult to convey in 
NPDB repons. The need to assign individual fault and repon physicians to the .NPDB can 
cause unnecessary conflicts within enterprises. These effects would be greatly exacerbated if 
the .NTDB were opened to the public. The incidence of defensive medicine, panicularly the 
avoidance of risks by refusal to provide high-risk services, would likely be increased. 

These problems would be lessened if aggregate malpractice claims experience, rather than 
physician-specific information, were reported yearly for health plans. Perhaps this 
information could be included on the quality perfonnance reports that are pan of managed- 
competition proposals to aid consumers when choosing among plans (see Chapter 10). 
Individual physicians' behavior would be less likely to be affected, but health plans might 
become less aggressive in searching for preventable injuries and more interested in 
prolonging litigation when possible. Before such aggregate malpractice data could be 
reported, however, appropriate measures must be developed to ensure comparability of the 
profiles among plans, including the mix of services they provide and the propensities of their 
enrolled populations to file and resolve claims. With some experience and research, however, 
meanineful indicators might be developed that would not cause adverse behavioral reactions 
by plans or practitioners. For example, one possible measure of a plan's perfonnance in 
detecting negligent injuries might be the number or proportion of injuries that resulted in 
successful malpractice claims but were not first detected by the plan itself. Most health plans 



* The .^oministrauons health tefonn proposil would Umii discJosore to physicians with multiple claims that 
exceed a threshold to be set by the Secretary of Health and Human Services. Although this would better target 
physicuns more likely to have fumre malpractice claims, the malptaciice risk exposure of the physician mast be taken 
into account. The threshold for disclosure should vary depending on the number of years of practice, whether the 
physician worics fuU tune, the physicians specialty, and the relau^-e nsk within thai specialty of the services provided 



by the physician. 



201 



CO r.ot now r.ase access :c tntorrr.anon on malpractice ciairr.s -scir.s: pr.>i:c;a-s cr -.ONr::ais. 
so daia sources would need to be developed and refined. 

L".:inate;y. decisions concerning public disclosure of :n:orT.a:ion or. -a!p:cc::ce claims 
decend on judgments about whether quaiity of care ir. general — and the rate of negiigent 
medical injuries in particular — would be improved and a: what cos;. At present, the 
Commission t>ei:eves that the problems related to public disclosure outweigr. the Denefits. 



REFERENCES 

Bovbjerg. Randall R.. Laurence R. Tancredi. and Daniel S. Gayiin. •Obstetrics and 
Malpractice: Evidence on the Performance of a Selective No-Fault System." Journal 
of the American Medical Association 265(2 1):2836-2843. June 5. 1991 

Brennan. Troyea A.. Russell J. Localio. and Nan M. Laird. "Reliability and Validity of 
Judgmenis Concerning Advene Events Suffered by Hospitalized Patients." Medical 
Care 27:1 148- 1158. E>ecember 1989. 

Caplan. Robert .A.. Karen L. Posner. and Frederick W. Cheney. -'Effect of Outcome on 
Physician Judgmenis of Appropriateness of Care.** Journal of the American Medical 
A5JoczariVjn 265(15): 1957-1960. April 17, 1991. 

FeisenthaL Edward. "What Happens When Patients .Arbitrate Rather than Litigate." Wj// 
Street Journal. February 5, 1994. p. B-1. 

Gamick. Deborah W. Ann M. Hendricks, and Troyen A. Brennan, "Can Practice Guidelines 
Reduce the Number and Costs of Malpractice aaimsT* Journal of the American 
Medical Association 266(20):2856-2860. November 27. 1991. 

General Accounting Office. Medical Malpractice: Maine's Use of Practice Guidelines to 
Reduce Costs. GAO/HRD-94-8 (Washington. DC: 1993). 

Harvard Medical Practice Study. Patients. Doctors, and Lawyers: Medical Injury. 
Malpractice Litigation, and Patient Compensation in New York, report to the State of 
New York. 1990. 

Havighurst. Claik C. "Malpractice Reform: Getting There by Private Vehicle." in M. .Martin 
Halley, Robert J. Fowks, F. Calvin Bigler, et aL, eds.. Medical Malpractice Solutions: 
Systems and Proposals for Injury Compensation (Springfield. IL: Charies C. Thomas, 
1989). 



I," \ O; 



202 



'.vt'v.-f.'T £;;/vv>f iBsri'.n: Springer-\'erias:e. :9S5). 

H>;ir.i>. Andrew L.. Je-nirer Brandenburg. Siiiart Lipsitz. zr.c Tro>er. A. Brer.r.ar.. P'-ixni.t 
CitiiifUn^^ luu! Mciipmaice Lhtiuiinn. repor: to :he Ph>v;c:c.-; Pu>rr.sr.: Re^ieu 
Comr.i>Mon. under wontrac: no. 92-C04 (Boston: Harvard L'ni\ersit> Schoo! or' 
?-.:bi:v; Heuith. Januar> 1994). 

Johnson. Kirk B.. Caner G. Phillips. David Orenilicher. et ai.. ".A Fauii-Based .Adn:iniNtraii\e 
System tor Resolving Medical Malpractice Claims." Vunderbil! Lu-.y. Review 42: 1365- 
•406. 1989. 

Keenan. Richard, and C. Paul Boyon. "Decreasing Frequency of .Anesthetic Cx-diac .ArreNi>." 
Jotin:a! of Clinical Anesthesiology 5(5»:354-357. September-October i 99 i 

Liadgren. Oriey H.. Ronaid Chrisiensen. and Don Harper Mills. "Medical Malpractice Risk 
Management Early Warning Systems." Law and Contemporary- Pmbiems 54il;:23- 
41. Spring 1991. 

.Metzlolf. Thomas 6.. "Resolving .Vtalpractice Disputes: Imaging the Jury's Sh2do\^." Law 
and Contemporary Problems 54(2):43-l29. Spring 1991. 

Morlock. Laura L. and Faye E Maiitz. ~Do Hospital Risk \tanagement Programs .Make a 
Difference? Relationships Between Risk Management Program Activities and 
Hospital Malpractice Claims Experience." Law and Contemporary Problems 54(2 ): 1 - 
22. Spring 1991. 

Petersen. L.A.. T.A. Brennan. A.C. O'Neil. et al.. -Reporting by Residents of Adverse Events 
on a Medical Service." abstraa presented at the American Federation for Clinical 
Research Annual .Meeting. 1992. 

Physician Payment Review Commission. Annual Report to Congress 1991 (Washington. DC: 
1991). 

Physician Payment Review Commission. Annual Report to Congress 1992 (Washington. DC: 
1992). 

Rolph. John E.. "Merit Rating for Physicians' .Malpractice Premiums: Only a .Modest 
Deterrent." Law and Contemporary Problems 54(2):65-86. Spring 1991. 

Sanazaro. Paul J., and Worth. Roben M.. "Measuring Clinical Performance of individual 
Internists in Office and Hospital Practice." Medical Care 23(9): 1097-1 1 14. 
September 1985. 

309 



203 



Siz-'.iy. Fiona J., ^r.c L:"ca D. Watsor.. "■Me:hocoiogy cr z Cerecr-i ?a!5> Regisre:. .he 
V\'esie— Ajs:ri;:ar. Expenence." Stutroepidemtoio^y m} i:\~6-\6Q. Decerr .oer '.9i5. 

Tuncreci. Laurence R.. and Randall R. Bovbjerg. "Rethinking Respons;b:i::> for ?z::er.: 
Iniur%-: Acce:erated-Con?.oeasat:on Events, a MaiDrac::ce anc Qua;;:\ Rer'crrr. Rioe 
:"cr a Test." La-.v and Contemporary Problems 54(2): U7- ; 77. Spr.ng !99 i . 

Weiier. .^aal C. Medical Malpractice on Trial (Canibndge: Harvard L"nivers::y Press. 199; ). 



310 



204 



Medical 
Professional 

LlabllRy 

f • '^ An Examination of 

;Slaims FrcQuency and Severity in Texas 



lointly Prepared by 
Texas Medical Association 
and • 
ToNN & Associates 

Febniaiy, 1994 

..' 1994 Teas Medical Association 



205 

Med isa: Professior.a: Lizbilin - 

TABLE OF CONTENTS 

Page 

Repon 1 

Chan 1 Frequency of Claims Agains: Physidans 13 

Cnart 2 Frequency of Claims Against Physicians (graph) K 

Chan 3 Qaims Against Physicians (graph) 15 

Chart 4 Illustration oi Claims Frequency Against Physicians 16 

For Coimties Over 100,000 Population 

Charts 5A Frequency Of Claims Against Physicians By Countj- 17 

to 5C Over 100,000 Population For 1992 (Sorted 3 ways) 

Cnart 6 County Claims Appendix For 1992 ' 21 

Cnart 7 Haimg Against Physicians by Specially, 1988, 1990, 25 

and 1992 

Cnart 8 r\arm^ Against Physidans by Specialty, 1988, 1990, 26 

and 1992, Unduplicated number of physicians 
receiving claim 

Chart 9A Analysis of Claims Against Physician 27 

Defendants,Unadjusted Dollars 

Chart 9B Analysis of Claims Against Physician Defendants, 28 

Adjusted To Constant Dollars Using the General 
Consumer Price Index 

Chart 9C Analysis of Claims Against Physician Defendants, 29 

Adjusted To Constant Dollars Using the Medical 
Consumer Price Index 

Chart lOA Analysis of Plaintiff Liability Qaims, Unadjusted 30 

Dollars 



206 



Medicai Professional Liabiiitv 



-age 

Chan lOB Analysis of Piaindff Liability Claims, Adjusted To 31 

Constant Dollars Using the General Consumer Price 
Index 

Chan IOC Analysis of Plaintiff Liability Claims, Adjusted To 32 

Constant Dollars Using the Medical Consumer Price 
Index 

Chart 11 Physician Claim Analysis: Claims Filed More Than 33 

Two Years After The Date of Incident 

Chart 12 riafm Hling - Number of Da^ from Incident, 1980- 34 

1993 

Chart 13 Phvsician Defendant Qaim Outcome 35 



Notes 36 

Appendix - Spcdaity Charts 37 



207 



INTRODUCTION 



Mecca. .Tc:=i5:=r.a: _:ao:i:r» 



In July of 1992, Torm anc Associates presentee a repon, 
"Medical and Hospital Professional liability", to the Texas 
Health Policy Task Force which contained a preiiininary 
analysis of medical malpractice claims data through 1990, 
focusing particulariy on the contribution of the current nedicai 
malpractice system to the rapid growth of health care 
expenditures. In order to explore additional issues especially 
reports of explosive growth in the feequency of physician iiabiiity 
litigation, the Texas Medical Association initiated addidonal 
studv of the claims frcauencv and severitv for medical 
professional liability. Toward that end, TMA's Heal± Care 
Financing Department obtained and analyzed the complete data 
base maintained by the 'Texas State Board of Medical 
Exansiners for claims reported through 1992. Tonn and 
Associates was retained to assist TMA's staff in analyzing the 
data in order to validate the methodology and verify the 
findings. 



TipT 



METHODOLOGY 



208 

Mcdicai Professional Liabiiir,- 



The Stale Board of Medical Exarairxrs gathers a comprehensive 
set of claims data for all licensed physicians in the state. Texas 
law requires that claims be reported when a physician or his 
insurer is notified of a claim which "seeks damages relating to 
the insured's conduct in providing or felling to provide medical 
or health-care services" (Article 4495b, VA.CS., Sec 5.05(a)) 
A simple request for medical records does not meet this 
definition. It should be noted that a notice of claim, as defined 
above, is the event that commonly causes a physician or his 
insurer to begin preparations for a legal defense by opening an 
investigation or retaining legal counsel. Therefore, the claims 
reponed to the Board of Medical Examiners comprise an 
appropriate measure of the impact of medical malpractice 
claims on physicians. 



In analyzing the data, it was possfole to isolate three diSerent 
units of analysis. The file is composed of records of individual 
claims against physicians, the first level of analysis. In some 
cases, several claims against physicians may have arisen from 
the same inddenL These claims can be grouped together to 
represent a plaintiff claim, the second unit of analysis. Finally, 
it is possible to identify the nimiber of individiial physicians who 
are affected by r-laims, without regard to the number of claims 
against each individuaL This third unit of analysis is referred to 
as the "unduplicated physicians receiving claims". 



Tagel 



209 



Medical Profcisionai Lizbiiir.- 



When analyzing the dzims data for a specific year or a specific 
county, i: is difacuit to fully reconcile all the data. For exa—pie, 
a ciaiiE initiated in a specific year and county z:ay :n\'oive 
defendants who praaice in more than one county and additional 
defendants may be named to the same claim in subsequent 
reporting years. Despite these occasional small discrepancies, 
the large number of claims provides an indication of trends for 
both freauencv and severity. 



Tii53 



210 

Mccicai Professior.ai Liabiiin- 



MMOR HNDLNGS 



Qaiias frequency has increased at an alarming rate for 1990, 

1991, and 1992 on a statewide basis and in many counues. In 
particular, claims frequency has increased to unprecedented 
levels in a number of large counties including Hidalgo where in 

1992, nearly 3 of every 10 physicians reu:ived at least one claim 
against them. Other counties with high claims frequency 
included Montgomery, Cameron, Webb, Nueces, Tarrant, 
Lubbock, Jefferson, Smith, and Harris counties. 

Even after adjusting for inflation, there is a significant increase 
in the total indemnity dollars paid in the early 1990's over the 
late 1980's for both claims against physicians defendants and 
plaintiff liability claims. 

A large percentage of the claims that are filed result in no 
indemnity paid by physicians. These claims cause cost to be 
incurred with no ultimate benefit to plaintiffs. 

There is a need to farther identify and research the faaors 
causing high HaTTng frequencies. The result of this further 
research could have implications fon 

• public policy affecting the legal and medical framework of 
medical professional liability in Texas, 

• medical school curriculum development, 

• physician-patient relations 

?age4 



I 



211 



Medical Professior.ai Liabiiin- 



alternative dispute resolution, and 

potential for reducing claims by giving providers greats 
insight into the causes of iitigiousness. 



Pagei 



212 

Medical Professional Liabilitv 



FREQUENCY OF CLAIMS 



To better assess the trends of claims frequencv-, claims 
data were assembled based on claims against individual 
physicians and claims tied to particular plaintiffs. Tnis is 
significant since one plaintiff may file a claim against 
several physicians. Tcerefors, trends regarding activity 
in a given area of the state can be examined based on 
the number of claims against physicians and by the 
number of piaintifiis initiating a claim. 



Even though the exaa number of claims may vary due 
to some reporting differences, the trends attributable to 
counties with large populations indicate claim frequency 
has been increasing at a rapid pace during 1991 and 
1992. 



The Tonn report indicated that claim frequency- had 
increased substantially during the mid 1980's and 
perhaps was leveling off in 1989 and 1990. However, the 
1991 and 1992 data now suggest that the ratio of claims 
against pi^rsicians and the ratio of plaintiff claims to 
physicians have reached unprecedented levels. Chart 1 
reflects the ratios as percentages. The ratios are also 
presented graphically in Chart 2. The data indicate that 
even though the number of physicians and the 
population has been increasing, the ratio of claims, 
particuiariy for 1991 and 1992, has still been increasing 
at an alarming rate. The ratio of plaintiff claims to 

" Pageb 



I 



213 

Medical Profsssior.E: Liabiiin- 



physicians in 1988 was 82 ptrccn: znd ir. 1990 :he rario 
had actually deciinsd to 8.0 psrcsn:. However, as Tonn 
reported during the presentation of the earlier Sndings, 
insurers had raised concerns to him that they were 
experiencing higher numbers of claims curing 1992. In 
fact, the ratio of plaintiff claims to physicians increased 
to 9.6 percent in 1991 and to 12.1% m 1992. Chan 3 
graphically illustrates the claims aaivitv- as reported 
throuEh 1992. 



There have also been questions as to how many different 
physicians are being affected by professional liability 
claims. To examine this question, a detailed analysis was 
conducted to caicoiate the unduplicated number of 
physicians receiving <•<»""< for counties with population 
over 100,000. Chart 4 rank orders the counties and 
indicates that in 1988, for example, 19% of the 
pi^cians in Hidalgo county received a claim, in 1990, 
2L5% received claims, and in 1992, the percentage had 
increased to 29.6%. These numbers compared 
resp e cti v ely to a statewide average of 10.8 percent, 11.6 
percent, and 14.4 percent These firequency rates and 
the overall increases represent significant changes. For 
21 of the 29 large counties in Texas, the frequency rate 
increased from 1990 to 1992. Charts 5A, 5B, 5C, and 
5D provide additional descriptive data for those same 
counties for 1992 and are sorted or ranked as noted at 
the top of each chart. An alphabetical listing of counties 
is presented in Chart 6 depicting similar data for 
counties in vi^ch claims were filed in 1992. 

PageT 



214 

Medical Prcfessionai Liabilitv 



To examine freoueacy of claims against physiciar^s by 
specialty, Chan 7 was prepared comparing 1988, 1990, 
and 1992. In addition to the large number of claims 
against plastic surgeons, many other specialty categories 
have experienced significant increases. Some of these 
specialties include radiology (253% to 49.2%), 
cardiovascular diseases (19.6% to 28.8%), emergency 
medidnc (18.2% to 24.6%), general surgery (14.0% to 
223%), Ob/Gyn (20.6% to 26.8%), and oncology (837% 
to 28^%). Chan 8 presents a similar comparison with 
an unduplicated number of physicians receiving claims by 
specialty. It is sigmncant to note that the Texas State 
Board of Medical Examiners is not requiring full 
reporting for product liability claims and as a result an 
a ccura te accounting for breast implant cases is not 
reflected in the number of total claims. 



TigeF 



215 

Mscicai ?rc:2S3:cr.ai Liabiiirv 



SEVERrn- OF CL\LMS 



Quesnons of severiry continus :c be diScui: ic interpre:. 
The Tone findings using ciaims data through 1990 
indicated that indemnity payments when adjusted to 
constant dollars increased in the mid I980's and 
appeared to level off in 1989 and 1990. This finding is 
consistent with national data. As opposed ro tracking 
riaimic tied to the original date of the claim, the current 
research was able to tie the amount of the disposition 
payment to the date of final disposition, independent of 
the date of the original claim. 



Charts 9A, B, and C present an analysis of ciaimsagainst 
physicians. Chan 9A presents the data in tmadjusted 
dollar amonnts. Chart 9B presents the data in CPI- 
General Constant dollars- The data presented in CPI- 
Medical constant dollars (Chan 9C) indicate that the 
average indemnity payment has remained relativeiy flat 
since 1988. The pawments at the twenty fifth percentile 
and the fiftieth percentile (median) have increased. 
Payment amounts at the seventy fifth and ninety fifth 
percentile have fluctuated and slightly declined over the 
same time period. Total dollars paid, however, are up 
significantly from the late 1980's. 



Charts lOA, B, and C compare plaintiff liabtlirv claims. 
Chan lOA presents the data in tmadjusted dollar 
amounts. Chan lOB presents the data in CPI-General 

■ PigS7 



216 

Medical Professional Liabiiitv- 



consian: dollars. Chan IOC shows that average 
payments have fluctuated since 1990 while the payments 
at the twenty fifth, fiftieth, and seventy- fifth percentiles 
have increased. Plaintif: liabiiiiy claims at the ninety 
fifth percentile have declined. However, total dollars for 
plaintiff liability claims have increased significantly from 
the late 1980's. 



Page 10 



217 



Medics! Professional L:2biiir%- 



RISK LN RELATION TO TLME: THE LONG TAIL 



Since 1980, twenty percent of ali claims iiave been filed 
more than two years after the date of injury. Among the 
high risk specialties, the percentage of delayed cases is 
higher for plastic surgeons, most likely the result of a 
recent surge in breast implant claims, and lower for 
emergency physicians (Chart 11). Chart 12 illustrates the 
number of days from incident date to claim filing date 
for claims filed from 1983 to 1991 



Forty-iune percent of ail plaintiff claimis reported in 1991 
and thirty percent of all plaintiff claims reported in 1990 
remained open by- August of 1993, and at least six 
percent of claims against physicians filed in every year 
since 1980 remain open. 



Page 11 



218 

Medical Professicnal liabiiin- 



CLAIMS CLOSED WITH NO INDEMNITY PAID 



There continue to be many claims reponed tc the State 
Board of Medical Examiners that are ultimately closed 
with no indemnity payments. For claims filed in 1989 
which have been closed, seventy-one percent of claims 
against physicians were closed with no indemnity (Chart 
13). In some cases, physicians are named in a claim to 
protect the claimant and subsequently are dropped as 
information is developed which indicates that he was not 
negligently involved. The claims frequency problem 
continues to concern physicians because of the 
physician's time and defense costs associated with 
resolving a claim. When a physician receives a notice 
letter, it is common for the physician to forward such 
notice letter to their insurer. When an insurer receives 
such notice, an investigation and related costs start to be 
incurred. If the plaintiffs attorney later determines 
there was no negligence and so advises the claimant, who 
files no suit, the Hafm will be reported as having been 
closed with no indemnity being paid. In addition, parties 
who are potentially liable are listed as parties to a 
lawsuit even though they may be dropped from the suit 
before trial Physicians and instircrs continue to be 
concerned about the large numbers of such claims being 
initiated because of the time and costs associated with 
dosing claims even though no indemnity payments are 
being made. 



Pageli 



219 



Chart 1 



Freeuenc^ Of Claims Against Physicians 



Estiaated Number Of 
Aaive Patient Care 
Year Phvsiciaaj in Texas ' 



Nninber of Ctaias 



Saiio Of Claims 



Number of 



Aninst Pfaysiciaiis' Against Physiciaiu PlaintifT Claims ' 



Ratio or PlaintifT 
d^i' OS Attains: 

PbTsiciaB3 



'.9S3 


;:.:33 


1.745 


7.9% 


1.116 


5.C% 


1984 


Z1.99\ 


1.793 


7.r/. 


1.190 


5.2% 


!98S 


23M9 


2.00* 


8.4% 


U55 


5.7% 


1986 


24.673 


2,516 


10J% 


1.605 


6.5% 


1987 


2iJ28 


3.013 


11.8% 


1.976 


7.7% 


1988 


26.3S2 


3J31 


12.6% 


2.164 


82% 


1989 


25.612 


3,276 


12.3% 


1.893 


7.1% 


1990 


26.992 


3.612 


13.4% 


2,146 


8.0% 


1991 


:T.894 


<.376 


15.7% 


2.673 


9.6% 


!99; 


:S.796 


5J96 


IS.7% 


3.496 


:2.i% 



Dsvsiopec By Hs£l:i dx riaaasng Depi. Divisioa Of Medical Economics. Tens Medical Association 



Page 13 



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Chan 11 
Physician Ciaic: Asaiysis: Claims Filed More Than Two Years After The Date Of Licident 



Nnmber of pfaysieiaa 
QcfcDoan: '•i*'"* - 



Nuober of pnysietzc 
dcfeDllant ^*''"« with two 
it of Total ve«r difTereaec * 



Ciaims »itb two year 

difTcrcnce u a perceac of 

lotai ^i»it*»« 



B»a» O?' Claim 



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709 


13«« 


•.33 


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985 


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rsii-JTt v> Cocnie 


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4.4% 


269 


20% 


Nesi:e=: Dub»S3 


:.493 


4.8% 


360 


24% 


Necicss: Sureen* 


6343 


21.1% 


1.446 


22% 


Ntai:st=: Treasaea: 


13.972 


45.0% 


2.780 


20% 


FsaureofCosses: 


3SS 


1.2% 


/ / 


22% 


5rsscccrCo=ac5=ee 


15 


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0% 


-=scass=^- Ssrwrv- 


350 


1.1% 


76 


22% 


Totais 

Location of Incident 


31i)62 

887 


100% 
19% 


6J30 

152 


20% 
■7% 




rinJmowr. vsrjbie; 


3.985 


12.8% 


628 


16% 


Hosssa: 


21.269 


685% 


4592 


22% 


=Tes£^roos: 


1.116 


3.0% 


1_» 


11% 




127 


0.4% 


13 


10% 


Oasii«=: 


1.015 


3J% 


212 


21% 


OSes 


2.610 


8.4% 


605 


23% 


=«?.--t r-rr- 


53 


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5 


9% 


Totaii 
Specialty- 

O'ossr.=s *Ei Gi'saooioei- 


3t062 
3.904 


100% 

llfi% 


.6430 
822 


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21% 


?;i$u: S'jTssrv- 


1334 


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484 


36% 


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105% 


559 


17% 


Onsooec:; S-jzeerr 


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544 


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3=eni Surwrr 


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2:zi5 


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434 


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1.187 


3.8% 


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1.500 


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289 


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247 


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Nearoioaea: Saraerv 


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118 


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IJ05 


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136 


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672 


22% 


139 


21% 




582 


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123 


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120 


17% 




518 


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9! 


18% 


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102 


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■Jroioecai Surwrv 


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2.0% 


27 


4% 




851 


2.7% 


78 


9% 


•«>*er 


3.981 


12.8% 


1:009 


25% 


Totals 


31,062 


100% 


6,330 


20% 



* Two yterfitmg period induda a 75 6t^ pvee paied. 

De v tijaej By Health Ccc riniasmg Dqr-. Dtvisiop Oft fediril 



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NOTES 



• Active Patient Care Phradans is based on the American Medical Associatior.s 
Ph\'5ic:2r: Characteristics and Distrib'jiion in the U.S. These figures do no: 
include physicians in admiiiistrative, teaching, or research positions. 

- "Oaizis Against Physidans" is a count of every claim reported to the Texas State 
Board of Medical Examiners. It indicates the extent to which physicians are 
affected by claims. 

^ A piainti5"s claim represents a single episode which may result in claims med 
against more than one physician. I: can provide a quantifiafale measure of 
litigiousness. 

* To quantify the mmiber of physicians directiy affeaed by claims, a dete rmin ation 
was made of the number of physicians in each county or specialty who had 
received at least one claim during a specific time period. This number is referred 
to as "Unduplicated Physidans Receiving Claims" and is sm a l ler than the total 
number of riaimg against pi^dans because some physidans received more than 
one claim. When soned by county, the unduplicated physidans are soned by 
practice address, whereas fiairrK are dassified by the cotmty in wiiich the inddent 
occurred. Some physidans currently practice out of state. 

^ PoDulatidn is from 1990 U. S. Census. 



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Appendix Z 



j^y NO. 86-CT-I0557 i 

~ ClLBEHTnliid ftCSARIo'/wVAREf" • 'iN THt OiSTRlCf COURf 

Indlviduilly Md is h«xt Fritnd * 



CO 



or AUnMA ALVAKl^. a Kinor * 

vs. 



45TK JUDICIAL DISTRICT 



ROEERTC M. 60RLUE2. K.D.. 3R. • 

ROGERTO H. fiONZAin CORP. P.A.. • 

eoNZAL£z kcd:cal sussical 

CEHTER and RANIRSZ-fiONZALEZ • 

M10:eO-5UR5;UL riWJLY ClINIC • BIXAR OX^'TY. texas 

AGP.EED riHAL jarewENT 

On Uiis da/ casa an to b« h««j-U Uie ai>ove*s(>led aod niaiiiered c&use, 
whercis GlUBLRro AKO ROSARIC ALVAREZ, IKSIVIDUA.LY AND AS NEXT FRIENDS FOR 
AURORA ALVAREZ, A KINOS. arc PlaintSffSi and ROBERTO R. CaHZA:^. .M.£.. DR. 
ROBERTO H. CaH2ALE2 CflRP. P.A.. G0N2A<.C7 K£DICAi. URSICA^ C£NT£R NXH 
RAMIfi£2-C0NZAI.n KEOICO-SURCICAi FAllILT UINIC are Defendants. 

It appearlrg tc tne Cwir*. tUt AURORA ALVAREZ Is a cioor, in\wi by aad 
tfercush her next frierdt, GILBKTO 2nd ROSARld AuVA.REZ. both of ahaa «1te 
have individual ciiios. «nc the Court toelx; of the opinion ti:«t Itaere atsnt 
b* a conn iui of Interest >et«feen said Hinor and her next friends, ti«e 
Cojrt has heretofore appslnted Gene Toaearj as Suardiar. Ad ilteo 

for $«id Minor Plal.-»tiff. 

All Parties appc*t-*d hy and tl>ro«sh thetr respective 4ttome/» of 

nccni and «pp««r«nce Mi *\xb aade bjr tlte (iuarflian Ad Lttca *nd all 

present announced tc the Court tMt tii«y had agreed to conpnaise and 

settle an eatters in dispate and at issue oetveen thee, subject to the 

UPrOval Cf tike Cenrt. I'^ was furtliar «anaur.ced that th« Guardian Ad Lite*: 

h*A Bade hit ln*ckii^«tten and ttao dccemtDec cna; Uie agreenent of the 

S Parties vas fair wd just aad in the best interests of his >«rd. AURORA 

ALVAREZ, and that in the opinion of the 5«ardiai! Ad Lltetn said aqreeacnt 

•*• should be ratified *jw1 *ppro«td b/ t»iB Court. The Parties' wrttt*!* 

2 CawproBite Se-.tlenent Asfrsomni has seen filed Kith the court Md exaoined 

^ by the Court. The Court further exaained the p-eadin^s and heard the 

evidence presented by the Parties rejarding the occurrence oade the subject 

of Plaintiff** «««t, th« r««u>tin3 tnji»r««s aad «aM9c» 4nes«4, the Banrer 

4n which thMc iajBries were alleges to have been received, and tne Mtdre. 



CO 



250 



«xt«nt «nd •ffect or $»ae. After considering all of the facts and 
circuBStances and studying the Cospnaise Sattleaent AgrecBan: txwuittd hy 
the Rartlcs, thair respectiva attemays of record and ctte CaardiAa Ad 
Litae, an^ with the ruRMBMndttlon of tat 6u*rdUn Atj Lites. the court ts 
ef tha opinion and finds that staa foiproiiise Sett'eflent i^reennt is, under 
4l) oF the facts and circumstances » fair and rcasenatle, that it ts to the 
best intcrast ef the aiaor child. AURORA iUVMn. and that such Agretsent 
should htf ratified and approved hy tha CiMirl. 

The Court further ttwts, after bearing all of the evidence, that the 
sattleaent consideration, both the present payaants and future payoents as 
herein set forth, are to be paid as full and final setil*<*nt of all elates 
Of Plaintiff. CIIBPRTO and ROSARIO ALYAaEZ. tndivldiMn/. aad 9S Next 
Friend for /UiRflftA ALVAREZ, a BlWHT. 

n IS TH£li£FW£ OOOED, ADJUDGED AMD D-CREED by the Court that the 
Cooproaise Sftttleoent Agreeaent filed with th* Court u ratified and 
appravvd 1ft all respacU. IT iS rUKTUER OftKRED by XM Court that 
PUistlffs CILBERTD and ROSARIO ALVAREZ, individually aad as next friends 
for AUWtA ALVAHa, a aioor, do have and recover of aod fro* ROBEiHO M. 
GONZALEZ, H.D., OR. ROBERTO M. C0H2ALEZ CORP. PA. eO«2ALE2 llEDICAl 
SURSICAl CENTER and RAMIREZ COKIALO KCDICO-SURSICAL fAMILY CLINIC, the im 
of TWO NUMMEO iHOUSAND OaiARS ($200,003.00). out of Mhicfa suo: all 
attorney's fees and cxpeeses of Plaintiffs herein, includi&g those ef the 
ainor Plaintiff, are to be paid. 

IT IS rWtKBt ORDERCS by tha Court tb«'. OBf«o<Janvs snail aake future 

pa^ffmls l« the aloor Plaintiff AURORA ALVAREZ, by and through her legal 

f^ guardian. In tlw aaouat ef EIGHT HONORED FORTY AND OVIOOTMS DOLLARS 

cfi (SSAO.Oe) per aohtb. Said aonthly payaents shall coooence on Ape. 264987 

S ^tb all fttl«r« amothly payaents coatiotting thereafter payable eii Uai first 

day of each and every aooth tnrottgheut the lifetiae of the ainor Plaintiff. 

AlAORA ALVAREZ, or for tmnty (20) years (240 aontlily payaents), ahichever 

is longer. Beglaning on Aaril 26,1988, the aonthly payaents will be 

Increased at the rat* of 3Sl per anauB, eoaap««ndcd annua: 1> and iocroaaad 

every yoar thereafivr on Uie anniversary date of Aprti 26 oaring the total 

tine that such payaents shall be aadc. In the event the ainor Plaintiff, 

AURORA ALVAREZ,, dies prior to »«*Mh '«* 2002. then all future aoathly 



-2- 



251 



paynenis, throuc^i as\d including k&rsc 2€,2(»7, sh*'; be oatift J3tnl*i> to 
h»r par«rtts, CILBtRTC ALVAREZ tnC ROSARIO ALYASE2. i Unle« Otftemise 
proy-KiKj, *li futtrt piyaenis nade in «ccord»rc« wUn the Up»s cf tht: 
judgwent sh»n be paid tc the legil jtardlM af the miner PTjin*«ff, AUROfiA 
ALVAREZ, for the -jse acw-: bentfit o' AUSSRA ALVARIZ. 

:7 !S fURTilCR ORDERED Uai TEXAS T-UJICAL LIABILITY TRUST, the iojurcr 
Of Oefeaoantj ROoERTC M, GONZALEZ, K.O.. DR. ROBiRTO H. GONZALEZ CORP. 
P.A.. GONZALEZ MEDICAL SURGICAL C£h7£R and RAMIREZ-SONZAlEZ MfOim-SUWlCAL 
fAKi^Y CLINIC, as a B±tti»r of right, and in Us sole discrettdu, ^uj sleci 
to assign the duties «r:'j otltsa^ioQS to sake the future pajnoencs herein 
ordered ts be aide by defendants ROBERTO K. GONZALEZ, K.O., OR. KOBlRTO K. 
SONZALO CORP. P.A., GONZALEZ MEDICAL SURGICAL CFKTER and RAMIREZ-CONZALEZ 
HED: CO- SURGICAL FAHILr CLINIC; «nd tfcat such a&iigntent, If Ude, shaJl de 
accepted «nd binding upon Flilnttffs GILSE.^T0 and ROSAAIO ALVAREZ, 
Indf vidua: 1^, and as Next Frier^s ef AURORA ALVAREZ, a ninor, without right 
ef rejection, In full discharge and release of the daties 2n.-{ o^'^igsttont 

ef R08ERTC H. aaH7A\n, M.D., OR. ROBERTO COKZAICZ CORP. P.A.. GOKZALIZ 
KE0:CAL SURSICAL CENTER and RMIIREZ-COTI^ALLZ MEDICO -SURGICAL FAMILY CLINiC 
and the TEXAS KEOlCAL LIASILITY TRUST to aaiie such fuU're payneflis. 

IT IS FURTHER ORDERED that if TEXAS HESiCAL LIASIim TRUST .Vctj to 
assl0A Defendast^ ' and its dstics and obligations to vike U« «foresalC 
future |>*>»etitk U METROPOLITAN PibJ>*tHtT ANO LIABILITY COKPAfilY, PUtntlffs 
and the Guardian Ad Liteoi be. and the/ are berebiy autnorized, eapowered and 
ordered to execute a 'Release and Satlsfsctloo of Judgswmt- »s to roeerto 
K. O0K2ALCZ. M.D., OR. R03ERTO GONZALEZ CORP. P. A., &QffZALEZ HECILAL 
SURIalCAL CEIiTER, KAniKt^-GONZALEZ KEDICO-SURGICAL EMILY CLliflC add TEXAS 
MEDICAL LIASILITY TRUST. HETRDTOLITAK PROPERTY A«0 LIAfilLlTY COMPANY Shall 
thereafter he solely responsible for the duties and cbHsatlanx ta Mke 
such futsre piyu^ntx. 

!T IS FURTHER ORDERED, ADJU06ED AND DECREED tfJ4t when ROBERTO K. 
SOKALEZ, K.O., OR. R03ERTC GCMALE2 CORP. P.A., G0SZAl£2 MEDICAL SURGICAL 
CEKTER and RAMIREZ-SORZALEZ MEDICAL SURGICAL FAWIY CLINIC or their 1.nir«" 
hawe paid th« aforeuld tima presently due ««t» the ?l«intJff> *od TEXAS 
MEDICAL LlAeiLITY THUSi has Bade the asslgnaent of Defendants* and its 
duties and ebllgatlens to sake the future pajrwnts as provided for herein, 



252 



that thU JiuJgewnt fttvAll b« 4c«M«i fully siiisna::, ini DefondftAts ROBERTO 
H. G0N2AIE2, M.Q.. OK. R03ERTC GOKZAIEZ CORP. P.A.. GONZALEZ KECICAL 
ViixSICAL' CEMTEP. »Rd (UVHIUn-SONZALh HESICG-SURSICAI. FAMILY CLINIc'ind the 
TEXAS MEDICAL LIABILITY TaUST, ir^ joy »B"i. s«rvint. up^eyca or 
prtnciD«l thertcf, ^tli stud fulli. flnalljr a:k2 forever «cqunt«C itii 
discharged of and frao My and aU claics, deoands or c&use$ of tctioft 
asserted is tkis C2(ts«, or «hich could, luy or sight h.ve been aserted &> 
CILStRTO and BOSAS!0 ALVAREZ. Indivtdiu'ly, and zt N:xt Friend for AMOOA 
AlVAREZ, a Miaor, b^- reason of itm aedica* traataen:, care and injories 
cMti1«i!!cd of 1A Plaintiffs* Origioal Petition or file bereia; and 
Plaintiffs and tJie Cuardian Ad Li tea are ordered to then prooptly ejo^ut^ 
and deliver to said Defendants the aforesaid Ralaate and Satisfaetian of 
Judgocnt. 

It appcarlsg to tbe Coart that tfee recovery of the Plaintiffs snoulfl 
be tpportioned betMeen the ainor Plaintiff, AURORA ALVAREZ, Plaintiff t. 
CILfiERTO ALVAREZ and ROSARIO ALVAAEZ. and their attorneys, 'iiRSMx k 
Koiiser. Inc., aed after bavlng heard tbe recoanendicions of the Guardian Ad 
Lilea for the aioor Plaintiff; 

IT IS ORDERED. AOJUKEC ANO DECREcD that the recovery to the 
Plaintiffs in tiw sua of HO HUMORED TWJUSAHC DOLLARS (JMO.OOO.OO) -in 
each, and tba futnra pa^acats be apportlcnicd *k follows: 

(1) The Plaintiff, BILBERTO ALVAREZ, have and recover from the 
Defendants tlM *m of S iq.coo.80 in cash; 

(2) Tlie Plaintiff. ROSARIO ALVAREZ, have »nd recover frot the 
0«if«Miants Ihs ««a of S 10,000.00 In teab; 

(5) The Binor Plalnttft, AURORA ALV<«£Z, have and recover fron 

<o ti» Defendants the sua of S 19, 253. $3 in cash; said 

tn — ^— ^— — ^— — 

Q stfl to be paid tc the leeal Qaardlaii of the ninor Plaintiff, 

'^ AUaORA ALVAREZ: 

{^ <4) T^e aloor riatctlff, AURORA ALVA.'IEZ. have and recover fros 

CM 

« the Defendants futvra aonthly payaents as provided for herein; 

^ those being J84C.08 per emitb. incraasins at « per asms, the 
first payment to b« Apr. ad, 1987 ai»d continuing for the life of 
AURORA ALVAREZ or twenty <20) ywrs, whichever IS longer; 
(S) The attorneys for the Plaintiffs, Tinsaan I Houser, Inc., 



253 



bav8 a«d recover Ui« sub of i lfeQ.84;.07 In c«sh tS 
•ttarnejfs* ftes for rtpreser.Hrvg the P'alBtiffs, sfLBERIO "ALVAR£Z 
•nd ROSARIO ALVAREZ, and "th7tt1aor"pfrint1ff USUDBA alvkHZI, '\~ 
this action, said xm to include rcitk>griewmt of all czpeases 
inearred «nd to be tacsrrtd on the Plaintiffs' twhalf in this 
sutt. 

IT IS RffiTHER OROERED. ASJUCGED ASO DECREED by th* Court that all 
costs of Court hortin shall be paid b> tn* o»f«A«v»t£. R06C:iT0 H. qonzal£Z, 
M.O.. 0£. R03ERTO N. eONZAL£2 C0»>. P.A.. OONZALEZ RESIUVL SURSICAl CEATEft 
and (tAHIRa<60NZALEZ riESICO-SURGICAL fMlU CLINIC, inclodias a fco of 
S ^PPO"^ . tfjicJj shall b9 paid to the fiiardian Ad Liioa, 
S€ne Toscaac _, for his services «s such, and Mhieh said fee is 
htrphy t»x«d as part of th« Covrl costs to XAU suit «n<i shoul4 be paid b> 
said Oefcadants. 

siCHED this /ft ^ ay of fnkAjC/^ . !S87. 



Jiifi6£pfeli)i/f'^^^ 



APPftOVES: 





^x--^ 



SUte Bar l.O. m. jJC Oy 4^.^ O C> 

GUAROIAK AD ilTEM FOR AUROiU ALVAREZ, 
AHIKOR 



TIRSWi A HOUSEft, IMC. 

1900 Rational Baali of Cosnerct Bldg. 
m Saa Antenie, T«xas 78205L 

en (512) 225-3121 

^ Robert Scott' 

(S SUU iUr 1.0. MC. 179093CO 

^ ATTQKMETS FOR PUIKTIFfS 



ATUS X HALL 

P. 0. Oraner 3725 

HcAllen, Icxas 78502 

(S12) 



Mr- 




SUt« Bar I.D. Ko. O9a342O0 

AnORNEYS FOR KFEMOANTS A«D 
TEXAS KEDICAL HABILITY TRUST 



84-714 O -94 -9 



254 



Tfae^BestBaidljavncrsin America 



Youve heard about those crazy' damages suits, those huge 

awards, the insurance rates crunch. Well, it's an ill liability crisis 

that blows no one any good — $10 billion a years worth. 

The plaintiff attorneys' 
great honey rush 



"^e are frttiam ;:^men Ve ail con- 
suier cuneifes soaal vngi- 
neen . 'Ve an cr.aaden or good. ___^^^_ 
\one of us do u for me rronev. trhai ue are -j^ 
paid is asnzadtraaL ~— Tna:'s Ned CoocQ 5» 
speajusg, FaMcena pumcif itwmey, ■zsssz.- ^ 
sei of ta; isaer C^cie aca oa Forbes' Ust of 
ta; iugaest-raisiag artomeys m the aa 
uoa. Good was reiuctant v> discuss bow 
=uca aonsy he camadenaliy makes 
la :ae course of ais cnoade. but FouES 
esszates ::'s aizost ceruiniy more 
thaa S3 J mdlioa a year. 

Roil over. Wall S rreet. Meet the real '' 
chasaiocs of the great American \\ 
greed gasie: the riaintuf attorneys^ , ■ 
lawyers who specuiize ui suing. \^ 

To? moceymajcer m 1988. according 
to ?o«ES' louat <p 204), was Houston's 
Toe iamail He made most cf his S4S0 mil- 
lion— our coaservanve estimate; u could be 
as high as S600 millios — by mducmg Texas 
courts to accept the quesoonabie theory that 
Peaaaoii had a cuiding contract to buy Getty Oil 
even though there was nothing on paper. His vicnm. 
:exaco, the couatry's third-laigest oil company, was 
forced mto banicniptcy. But lamatl lexxivcd only a aacnon 
of the puhliacy Mike Milken got for the SiSO SBiilion he 
made with Dtsxei Bumiiam back in i9S7. 

Iamail is merely the most spectacular example to date of 
a powerful rnir?yng trend. The 62 other p'"""'^ attor- 
neys on FouES' list all made above S2 million in both 
19S7 and 1988. And Fokus has idmnfitti at least IS more 
Sl-miUion-a-year-plus saspects, widi another 50 in tiie S 1 - 
■n 1 H ion-to-S2-m 1 1 1 i nn rangr Then there are the. other 
53.000 plaintiff a ttorn e y members of the Washington. 
D.C-based Assocuaon o7 Trial Lawyers of Amesca (de- 
spite Its name a piainnif attorneys' lobby: Defense lawyers 
are ehgible only for nonvoting m e nilieis hip). Given tiie 
windfall nature of the attack-lawyer business, any of them 
imgfat strike it rich with a smgie case. 

One measure of the money uowmg to plamrrff attor- 
neys; Yeshiva Umvcrsity's Caidoxo School of Law Profes- 
sor Lester Bnckman estimates that tiieir total income 
from contingent f ees their share of the settlement, apan 
from their expenses— "exceeds SIO billion." 




^ ^ s cnoo 



And their boocit is g^owtag rap- 
idly. The ;c? =:oaey=Lixers oa 
Forbes' hs: typicaliv said tha: 
'they've been hiraag ta: big aumbers 
only for t.he last decade. 
Uniike Wail Saeeters. piamcif attor- 
neys doa't have to worry about Oie stock 
market's swuigs. Tney mcstiy didn t 
bother with high-pnced ivy League law 
schools — la fact, they cftec say they 
"didn't leam a thag about pracnc- 
isg law la law scaooL" Waiter 
Uaphrey 'M« Zsr.* even told Forbes 
that he had trouble graduatiag .Tom 
Southern .Methodist Uaiversiry. 
which he attended on a football 
scholarship, because of "a deficieacy 
m English." But he has co dehcieacy la 
mcome: S14.5 million la 1988. 
_^ Why has a smgie. rrianveiy obscure 
comer of U.S. legal pracnce created so many 

Tffininn w^njlyf mCOmeS^ 

It's a "fearful concatenanon of circumstan- 
' to quote a famous early Amencaa tnal lawyer. 
Daniel Webster, in one of those lastnunoaal accidents 
rw^T occasionally ^■'n *'ii i3 a structured but dynamic 
society, the checks and balanrrs that nomally tesoam an 
organized mroest group have failed, crrarmg an opporru- 
mty to hold the rest of the economy to nnsom. Other 
recem examples: stockbrokers m the 196Qs, who were able 
to "'^i^^ inssmnonal mvestors pay full commission rates 
because stock exchange rules forbade volume discounts; 
airime pilots m the 1970s, whose powerful inirm^ extort- 
ed stratospheric ^jIj"*^ out of an industry sttaioacketed 
by reguiaoan. 

How has this happeaedl 

The 'Tf^"'* tm^ tu ntOTw is simple. Two distinctively 
American phenomena have imetacted: the contingent fee 
sy stem and the "liability crms." the explosion of Litiga- 
tion and awards that has u. i .uiied durmg the last 30 years 
m the previously ileepr area of tort law— the law of 
accidents and pesoaal tnntry. Both have been bistorKaily 
unknown m odier common-law ronsdicTionv such as Brit- 
ain. .Vid pLamttff attorneys there are a lot poorer. 

\ icartiingly Large pan of the recent massive damage 
jwatds goes to the lawyers. Plainnff attorneys commonly 



FOME& OCTtUUl 16. 1919 



19' 



255 



TheBestPaidXaYT>-as in /Vmerica 



— tur c= a co=:i=geacv fee o; 33% to -0% Plus they ge: 
expesses — whatever has beer, spent to litigate the case. 
The acr^iai outcome varies asiong the deferent classes c: 
tor:. Sut, :cr exasipie. the Kas.i Corp.'s institute to: Civil 
Justice has estuzated that -^ the asbestos ciairis settled in 
the early 19SCs. plair.ti:: attomevs' tees a=d expenses 
aaouated to sonie '0 cents :cr every dollax that ie 
aiures parses received. 

And by one esnmate the asbestos industry's liability 
say be anywhere tron: S7.6 biUion .^ SE7 bilhon. 

Why has sus happened? 

The hd was knocked off the honey pot la the last 30 
years by ludges arbitrarily deciding to rewnte the law 
■,?oti»iS, June 1. :98~l The plaintu: attorneys are swam- 
tng to tne sweet stuff like flies. But for the plarnci; 
attonieys. their new wealth has meant power. Those 
swarsing rues are now rocking the pot to spill more honey 
out — and buzzing anznly at anyone 
who interferes. 

PIj'-^-'^ attorneys bu:: paracuia:- 
ly anptly at talk of the iiagation 
explosion. 

"We have been told that Americans 
are the cost litigious people m the 
world," wntcs the celebrated Wyo- 
sruig-based plaintiff attorney Cerry 
Spcnce lahis 19S9 book vyahjusnce/or 
.None: Desrvy:T:g an Amer-xan :-hOi 
(Tiffies Books;. "Yet. per capiu, there 
are no core suits today than there 
were in 19S9, and the amount of the 
meaa verdict, SS.OOO, has remained 
nearly constant smce that year after 
adjustments tor inflation have been 
calculated." 

Tnis is the sort of argument that 
makes the mnccent observer suspect 
tnai lawyers. On invescgaaoc, the 
Rand smdy that Spence cites tiuns 
out to be based on the single expen- 
eace of Cook County, 111., between 
1960 and 1979 only. Although the ____^.^^____ 
overall number of avii jury mails was "■■"^■i^"^™"^ 
only slightly higher at the beginsing and the end of the 
pcnod. within that number there was rapid growth of 
nonautomobile torts. And Spence has confused the mean 
laRthmescal average) ^"'"'~"l award with the median 
(half higher, half lower) award. The mean rose sharply — 
because the laijest awards were increasing dramaacaily. 

Subsequent studies show these trends have contmued. 
The bulk of tort filings and awards, routine personal iniu- 
nes such as automobile cases, are grtiwmg at a stable rate. 
But maipiacnce and product liability filings and awards 
are sharply higher than three d e ca d es ago dee chansi. 
Inilatian-adiusted average awards m Rand's sample of 
busmess/ contract tort hngation were up 9,100% between 
I960 and 1984. (Awards can be reduced on appeal but they 
have a pervasive effect because they serve as a benchmark 
for all settlements.) Overall, plamtiits are winning more 
frequently and gemng more. 

And this may not be the whole story. "The real amounts 
being transferred m the channels of commerce are much 
greater than any statisncs will show," says lames Sales ot 
Houston's Fulbnght &. laworski, who was local lead coun- 
sel on Tezaco's ucsuccesstui appeal against Pennzoii 




Sales savs tnat many cases are now settled beicrt zz:^i 
icrmallv hied— and that recent setUements hiv; icfuaiiy 
excetctd csmparabie ;ury awirds because certnca^ts -ire 
scared to bet tnt company anymore." 

rORBis' conclusion about the iitigatior. explosic.-.; ■<.'. 
t.hat plaintiff attorney honey is coming frcm scmcw.-trt. 

rOR8£S' ccnciusicn about Gerry Spence: difhcul:. be- 
cause he refused to uik to us on the grouncs tria: we work 
fo: "the new oligarchy — namely corporate .\mtr.ca." 
"The last guemlla aghters m the count-- are ::; tna: 
lawyers."! But he's probably stuiring some Sl.i niiliion a 
year into his bandolier. 

A man is iniured after he deliberately throws himseii \z. 
iront of a New York subway tram. He sues tnt city, 
alleging the driver should have stopped faster, and wins 
S650.00O. 
.Another example: Spanish-speaiung farmhands s. Texas 
p» accidentally kill a price bui; with pes- 

,«, t^^^^m^m^^ ticide because they couldn't read th: 
warning label. Tneir empiove: sues 
the manufacturer and is awarded Ss.5 
million, mduding S7 miUion cf puni- 
tive damages. Later, the case setues 
out of court. 

But these tudicial atrocities are lust 
the c-uimmation c: a step- by-step pro- 
cess that began l-. theoretical argu- 
ments among legal mtellecruals m 
law schools and on the bench some 30 
>'«ars ago— a classic demonstration 
that ideas do have consecuences. 
Forbes columnist Peter W. Huber. au- 
thor of ijabUav: The legal Rei-oiur-on 
and IS Consequences ; Basic Books! and 
himself a la<»7er and engiaeer, calls 
the men who started the process— 
mduding William Prosser of Hastings 
College, John Wade of 'V'anderbii: 
Umversity Law School, Roger 
Traynor of the Califotaia Supreme 
Coun — "the Founders." Judges under 
their inilueace overthrew the com- 
^^"^■■■^^^ moa law of ton as it had deveiopec 
over SIX centunes. The chaos that has replaced it has htss. 
highly profitable to the piamnff bar. 

For example, before the 1960s, damages could geae.'aily 
be collected only under a numher of fixed ccmdinons — \i 
the defendant was actually at fault, if the plamtiif had not 
coatnbutcd to the accident, if the plaintiff had not volun- 
tarily assumed obvious nsk and so on. Pnvate contracts, 
which covered most cransacaoas, were considered mvio- 
late. But gradually, ludges imdctmiaed these coadiaotis. 
Defeadants, particularly if they are perceived to have 
"deep pockets," ha'vc begun to fmd they run the nsk cf 
losmg lawsuits even if their mvolvemeat is mminal Even 
the most specific coauaci s to the contrary are igaorcd. 

"In a nutshell the law now says "Be careless, get paid,' " 
summanres Victor E. Schwartz, a partner with Washing- 
ton. D.Cs Crowell ft. Mormg and a tort reform lobbyist. 
Similarly, ludges have allowed a proliferauon of ever- 
tnore-iageaious damage claims. Formerly, damages were 
pr.marJy a question of compensatag the plamtiff for out- 
of-pocket costs, like medical expenses. Now notuneasui- 
able damage i-t^'TK like "pam and suifetmg," "loss o: 
consortium" la spouse's company! and "mental anguish" 



The iid •^•25 knocked off the 

hone\' pot in the last 50 

\'ears by judges arbitrarily 

deciding to rewnte me law. 

The plaintiff anomev-s are 

swarming to the sweet stuff 

like flies. But for the 

plaintiff anome>-s. their 

new wealth has meant 

power. Those s^^arming 

flies are now rocking the 

pot to spill more honey 

out — ^and buzzing angrily at 

anvone who interferes. 



fOMES. OCTOBER 16. \fi* 



256 




\ 



have burgeoned, .^as "?ua:nve" dasuges i.-. product ii- 
sb:;::v eases, upheld or.iv t.irr; tiaes :r. the firs: ;00 years 
c:'t' S h:s:on-. have becsrr.e an ep:ce=::c. Even co=i?i:- 
ir.:e w::h recera: rer-'^^o^' Spaniards dees r.c: prorec: 
:i:er.dar.:s aea:.-.s: :her=. 

■Since t.-.e ■^60s, ccur:s r.ave ?c.con:e .T.ore poiiacai." 
Sivs Schwa:::. ■Aisc. :herr :s a :ee::r.g cr. the part c: 
:udges that the U S. :s bch:nd -.r. no: hav.ng a c=— prehen- 
5ive soc:a! welfare systerr.. Tor: ;aw has becc=:e a systes; 
o: socia: insurance." 

iudges orened L-.e hcr.ev po: because u-.ey wanted :o 
red:s:r.bu:e :he wca::h. ?Iaintii: a::omey5 wan: :s heip. 

Partiv. piair.ui: a::orr.eys help :o keep :he hone^■ flow- 
ing by sheer reienrless pressure. »sey are intensely 
meavared :o coae .;i with new moneynaiang gan:bits. 

Would you believe "hedonic damages"— the value an 
accident victim woulc have placed on his rurure happiness 
u- acciiion to his loss of earnings. 
pain anc suffer.ng, his spouses loss of 
conscrtium. etc. etc.- How about 
■posthutr.ous pain and suffering"? 
New Ycrk s Robert Sullivan ;roRats' 
income estimate: SI.- million: once 
wc: 



Grawtli indnstTT" 



r 



.•=- ? " i .Tuiiion in extra damages tor 
■ seconds m which a truck 



Few liaags hare lisea ai teicst> 
lesstv as tart eate awards. The 
dotted Uses ate piojectians, 
based os prior treada, in these 
TWO actire markets. 



iccicent victim burned to deam ;"We 
got coctcrs :o testtry his brain explod- 
ed":. Or t.he Stg .^ppie Pothole 
Corp.— a pr.vate pcthoic census 
tcundid bv .vianhattan piamtiif attor- 
nev rred Queiler Forbes' income es- 
timate S 1.25 million, to counter New 
York's attempt to restr.ct its iiabihty 
c.-Jv tc accidents involving potholes 
cf -v^-hich i: had seen informed- 

Quantitv counts as weii as q-jaiity. 
.■\ plaintiff attorney hrm often rus few 
pr.ncipais and many suppon staff be- 
cius: much of its litigation can be 
m.iss-procuced boiler-plate, some- 
tim.es desired simply to overwhelm 
the defense. .These can be class ac- 
tions, another fsarure of the "legal 
revolution." but piamtu'f lawyers prefer filing mdivicual 
suits en rr.asse: Class action fees can be lioited by the 
!ucet.' Tnis mass production, presumably, is how .Melvm 
Belli :S2.5 million: came to file a claim m the Dupont 
?lara -Hotel tire case on behalf of an miured wocaan's 
.husband, who had been dead for years. 

.•\nd the flies' campaipi to rock the honey pot is helped 
bv Its accumulating financial momesium. For example. 
monies won by plamaff attorneys against the Dalkon 
S.hieid contraceptive case went directly to finance further 
lawsuits agams: other land saferl contraceptives and motn- 
ing-sickness drugs. 

.•\ more complex factor:' the disintegtanoa of the tradi- 
tional code of legal ethics. In his book on the hagaaon 
cTplosioa cue next year from E.P. Dutton. Manhattan 
Institute Seruor Fellow Walter Olson argues that the "legal 
revolution" has also seen the effective erosion of long- 
standing rules against barratry (inciting diena to hngatel. 
"The old rules told bwyers to sit around passively and 
wait for business." says Olson. "The new rules encourage 
them to recruit clients, stoke their gnevaaces and run the 
suit for miximum. dollar output." 



.l« 

1 

, no 

in 


UHiOmm 






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Total iwadiiac 
pndoet lubilRT 




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The traditional code was enforced partly by starute and 
ludicia; rulings, but also by consensus within the profes- 
sion. .Now. however, many piainnff attorneys are openly 
hostile to Its restrains, lais year loan O'Quitj: laumber 
S. S8 million; justified his hirtag noniawyers to sohcit 
clients on the grounds aat tins "case rucaing" should be 
legaiiced m Texas, .^n attempt to dubar him failed. 

But the piamtiif artomeys' most important leverage on 
the honey pot is provided by their interlocking relation- 
ship with two key ppups: ludges and poutiaans. 

Tne tellow-feeiing between lawyers and judges is one of 
the more obvious facts of life. So obvious that some years 
ago a lucge admitted frankly m an opinion that invahdat- 
mg contingent fees was "an unpleasant task fcr courts. 
especially this one. for it has practiced law for so long m 
the vineyard before coming to the bench and reco^izes 
the difhculues of naintainmg a law offtce. ..." Symboii- 
caily. New York's lacob ruchsberg. 
ex-president of ktlk and founder of its 
magazine Trxd. scent some years as a 
judge on N^w York's Court ot Appeals 
before returning to his nneyard mo 
FoMts vineyard estimate, but he says 
It's a "muitiffiiilion-doUar" onel. 

In some states, and at the federal 
level, ludges are appomted. But the 
Asencan Bar Assocution ratmg sys- 
tem, which has 'oecome a crucial test 
for ludicial nominees, is weighted to- 
ward trial experience— even for appel- 
late courts, although they focus ex- 
clusively on points of law. This obvi- 
ously favors both the piamtiif and 
defease bars over corporate lawyers 
and legal acaaemics. 

Where ludges are elected, the role of 
the pLamtiff attorneys has become no- 
torious: ''?mt"'C^ coQtnbuaons. In 
Texas, the fandraisiag drive suppon- 
ed by [oe laaaii and Pat Maloney |S6 
oiUioal was so successful that, ac- 
cording to one Texas attorney, "until 
last year the plaintiff bar oM-ned and 
controlled the Texas Supreiae Coun." .\nd .Maloney is 
confident that 1988'$ elccaon reversal will be corrected in 
1990: "We are resilient, and we will bounce back " 

It is another obvious tact of life that many poh nn a ns are 
lawyers. Sixty out of 100 U-S. senators and 186 out of 43S 
House members have law de g rees . At least 43 se n a t ors and 
161 House members have been practicing lawyers, mclud- 
tng maionaes on both Senate and House f u d iriar y Com- 
mittees. Perhaps the most significant: Senator Emest Hol- 
lings iD-S.C), a thai attorney and a founder of atia's 
predecessor, now i-fmnr'" of the Senate Commerce C om- 
mittee, where he is ideally placed to stop tort reform 
legislation. 

A.TLA has given money to 1,485 Congressional Demo- 
crats and 656 Republicans since 1977. In 1987-88. it dis- 
bursed S3.9 millien. And this doesn't include plamtis 
attorneys' individual conmbutioas. 

"They're a highly focused lobby," says tort leiotm lob- 
byist Victor Schwartz ruefully. "They've wiw lost on aa 
issue before Congress." 

PUmtifi attorneys are also intucately uivolved wita 
sute politics. "I am on a first-name basis with all the 



FORBES. OCTOBER 16 1989 



l»« 



257 



TheSest Paid La^Tjcrs in America 






tfie cLm 

cost OK tost tA CBB H WHIiBiy. 

tlii* tDtat> tbe aoaai 
ietei te leu th*B halfc-^ 



C3r.su=er orgssiranoa couid uk :ie piiiatif: atton-.eys. 

Such Js: is tr.ere esougi coi::?en::oz bcrweea aea — 
nseiTci: suggisis :hs:r cc2t:igta: :ies lezc to "durrp" a: 
cr.c-thirc asi ~% ef the award— lus: the sort o: suspi- 
cion "pariiie: behavior" that has caused piaiaaff attor- 
neys to sue other incustnes. allegtr-g anamist vioiatioas. 
Co piair.tii: attorneys cac;ose enough to prospective cii- 
er.ts — shouic they ch'er a choice o: coatmge^t tees or 
hourly bilhag' Ir-cett. why are piamtiii attorneys allowed 
to .-»— «if^ cctttingettt tees ac all in cases where there is 
piaiaiy no contutgeacy — such as aircrash cases. :n which 
Uahiiiry is oo: la doubt as a practical matter, with the 
result that soae plaintiff attorneys have received fees 
equ'.vaiest to SIO.OOO an hour? Or r 
with successful piamnr attoraeys 
regularly choosing their cases so caie- 
ruliy that 95% settle out of coun? Or 
IT. commercial cases, when the client 
IS no: indigent? Oo clients have 
enough control over the txpetises that 
p:a:r:T;ff attorneys deduct from a set- 
tiement:" What about practices like 
recuinng all personal iniury clients to 
riconam their hurts with pamcuiar 
ccctors. at a high pnce that can be 
passed to the defendant' iDoctor al 
lies are often defended by the plain 
CLff attorney in any malpractice 
suits.: What about allegations 
that piamtiif attorneys repre- 
sentiag union clients some- 
ttmes pav kickbacks to the 
union business manager? 

Public Ciaren's Ciaybrook 
says she "doesn't know the an' 
swer" to fee-ciumpag and disclo- 
sure. "I am not a tnal lawyer, and I've 
never gone mto the issue. ' Public 
C:ti::n has said that contingency 
rres should net exceed one-third, atid 
w-htre the award is large "we would 
hope the lawyer would take less." 
Otherwise Ciaybrook defends con- 
tingency tees on the standard 
grounds that some clients can't af- 
■ ford houriy rates and "a piainrrff law- 
yer gets paid only when he wins." 

Ciaybrook will have an opportunity to "go into" these 
issues the next time Trial Lawyers fc>r Public Jusace and 
ATij^'s Civil lustice Foundation have board meetiags. 
She's on both. 

I saw you earher today, like sneak thieves in the mght, 
slipping in here without nametags to snoop on our 
proceedings. A message to you. you medicxae men of the 
oil siick. vou fork-tongued serpents of the dollar. You have 
no neai to sneak m here, 'cuz right after this meeting, we 
are coming after you. I'm nrrd of playing defense. ... All 
the plainnrf lawyers of America are coming after you, you 
insurance demagogues, because we oiceyou one'" 

Southern oratory is not dead. New Orleans' Russell 
Htnnan (Forbes mcoaeesonute: SU millionl took time 
duruig his presidential address to luly's atia Annual Con- 
vcanon to daect these fraternal words at another lobbv. 
the Nanonal Conference of Insurance Legislators, conven- 
ing by unhappy coincidence m the same Boston hotel. 




.\scut 3.000 plamtii: attorneys came '•.■• ; i^_ ^ 

over the country to the weekiong ccnventioi. Thev at- 
tended a vast seiecuoa of iecrures en technical sur;ects. 
Taey honored friendly loumaiists and judges — Chief jus- 
tice Paul Liacos of .Massachusetts, and lustice Pascal Caia- 
gero ot Louisiana, who thanked atia President .Herman 
for "helping me continue to wm elections." Thev attendee 
35 separate "hagatioa groups" with names kke "Silasac 
Cel Breast Implants" and "Bic Lighters." where :hev 
swapped information and strategies. Herman announced 
that a larger clearinghouse, the atxa Exchange, is to accu- 
mulate "a cavalcade of horrors" for use by atia nemoers 
m personal miury and other cases. 

Notwithstanding a luncheon ad- 
dress by cool conservative columnist 
George Will, the convention's atmo- 
sphere was rather like a liberai ver- 
sion of a funcamentalist revival meet- 
mg: emotional, evangelical, moralis- 
ac. Bob Gifabins described his 
accepting atlas vice presidency as 
"taking on the cause for the mtured 
and suffering, victimized, minonties 
and women." 
Plainaif attorneys are an ancmaly, 
like lournaiists and academics: a 
professional group whose politics 
on average are deasiveiy to the 
left of others of comparable m- 
come. "There are a few Republi- 
can trial lawyers, but few m 
number," says Pat .Maloney. 
"You can pick them out, because 
they wear peculiar clothes." 
"Most of us are liberal Demo- 
crats," says Mike Gallagher iS2.5 
million!, recommended to fORBU as 
a token Republican. IBut he savs he 
su pp orte d Edward Kennedy and 
Lloyd Bentseo — and contributes to 
Ralph Nader.) Does he know anv oth- 
er Republican piainnff lawyers-: Gal- 
lagher chuckles: "I saw one other 
one, one tune." 

Among soxae piamtiif attorneys, 
political alirnarinn runs very deep 
j- fiAit^ "I rtrmlr it's a bitter shame 
about this society, the Russians have got a more respon- 
sive political system rh^n we do," says Herb Hafif, would- 
be cleanser of America's defense industry. 

This hoscdity toward American insasioons sometimes 
even mfl"'^*^ Fotats. "Why would Fouts maganne want 
to be here?" asked atia Secretary Roxanne Cnniin iesn- 
matcd income: $750,000). "I mean, we sue your readership 
regularly, and we eaioy doing it very much." 

piainnff attorneys TinT*"*""''""'^*y believe their own 
rhetoric. At least atia's Civil Justice Foundanon thinks 
so. Its ^rnrf-nm ng leaflet 3t the conventitm began: "As a 
trial lawyer, you profit fitjm your work m many ways — cne 
sweet success of nghtmg an egregious wrong, the tnumpa 
o: empowering the powerless, tiie ccrtam knowledge of 
your role m penalizing wrongdoexs." 
All this and SIO bilhon. too. 

.A specter is haunting the piamtiif attwneys — the spec- 
ter ot ton reform. After 30 years, the flies rocking the 



FORBES. OCTOBER 14 19SV 



258 




Brotben in bocks 



^ou =::g3: »$ **■«- T-^' togeaer a list of proscrjtes 
Xmc how such rsosey usey sake." saaried ton 
lawyer and iaai: Circie rousce: Rjciard Grand, waea 
FoRBU asked to ir.terview hia:. "How wouid you like it 
li I wrote an article teiiiag the world where you tog m 
Cestrai Park?" 

Grand's surliness was in sharp contrast to the aear 
sk2es over Sun Valley, Idaho, this years venue tor the 
g-n-ul suaiser -1'"'""^ of the Inner Circle of Advo- 
cates — the highly exclusive frateaity of personal uuury 
lawyers founded in 1972 to celebrate tht tort industry's 
cheashec trophy: the csillion-doUar verdict 

TnanJcs to tn!£Iaaon (both the cosetary and le^ 
taadl, a ssiliion-dollar verdict isn't w'aat it used to be. 
But the inner Circie is mote than keeping 
pace. To qaaiiiv today, a lawyer needs four 
verdicts of over a dliion dollars upheld on 
appeal Punitive dasuges don't count. And 
sesibership is limited to 100 attorneys— of 
"hi^ =orai character." 

routs' listing of the naaon's highest-paid lawyers 
aciudes 26 Inner Circle aesibers. Some openly boast- 
ed ci their big verdicts and settlements, while others 
like Richard Grand wished we would go away. As 
Sheldon Schlesinger |who earned S4.5 million last year) 
pa.1 it: "Pouts showing up here aakrt all these gnys 
very nervous." 

inner Circle sessions a: the amiul meeting are 
ciosed-coot; not even wives of 'jus so-far all- m a ie group 
are allowed to attend. But between golf and mountain 
biking, the "brothers," as some like to call themselves, 
convene to swap strategies and stones about their latest 
victories. 

in one session, Florida's Frederic Levin, who last May 
won a 55 million wrongful deaa case m a one day tmi. 



^•^ 



noted that his ceiebnty surjs as a local r/ host is a big 
asset. "Every luror m Pensacola knows me," he said. 
Veteran Inner Circier and Califomian Dave Hamev 
recounted his winning a total liietiae payout o: around 
S34 mUlion for a brain damaged child. In addiacn to 
compensating the child for a lifetime of medical care as 
well as for pain and suffering, says Harney, "they jthe 
luryj have aa going to college and ■'^ming $30,000 a year 
by age 22. We had a neonatologist give her a normal life 
expectancy" — ail with 53% to 6% mcerest annually. 

Now you know why your doctor iias to raise his fees 
to pay the high cost of aaipractice insurance. 

One contnbuoon to the Inner Circie is loseph la- 
mail's KISS (Keep it Staple Stuptdl Principle. Junes, 
"^ according to lamaii don't understand much 

and don't like bemg bombarded with facts. 
A roundtable discussion focused on the 
plan to introduce satgllite iv mto the court- 
rooo. beainiag in clients and expert tesa- 
aaoay from other anes. and even countnes. 
TV testUBony wtjuld cost as high as S12.000 an hour. 
But '-<«^T Qicie fn^'-i>«- « can easily spend S2C0,000 on 
one mulamillion-doUar case. 

One big benefit of Inner Circle membership: the 
group 's e jipen witness darabasf. not meant to be 
shared widi """'■»^r,7ti >i i. These doctors, engineers 
jT|rf ecanomiscs can demand up to S2.000 for one 
day's consultation, t"^ as much as 510,000 for two 
days in trial 

Guy Allisoa. on Fokbes' list at S4 mrilion but not a 
member of the Inner '"iflr is unimpressed. Says he: 
"All the Inner O" -'"* does is sit around and boast about 
r hn r in$ '\'-t\ % It's like boys m the locker irmm talkin g 

about how many girls they've " Taeyve got a lot to 

brag about.- InHr Spcnea 



hcne>- po: may finally have provoked Amenca to replace 
the lid. 

In 1985-S6 ins-jrance rates, Mrced ever upward and in 
good part because of raids by the piainnff lawyers, threat- 
ened to close popular public services for want of um ir a nc f 
Tne media is publicizing useful products allegedly kept off 
the market for fear of litigation, notably an asbestos sufasn- 
rjtc developed by .Monsanta Peter Hubcr's book liat nl t n - 
••»j< focused attention on the total "tort tax" on the econo- 
my. Huber estimates that individuals, businesses and gov- 
ernments pay at least S80 billion a year directly, m such 
ways as litiganon costs and higher insurance premiums. 
and a total of S300 biilipq indirectly, counting the cost of 
efforts to avoid liabiliiy. 

Ultimately, this "ton tax" is paid by the consumer. For 
example, an estimated 55% of the average football hel- 
met's SI 10 cost IS now due to liability m^iranrr costs. 
Helmetsiakers on the margin have been squeezed out of 
business: In 1970 there were about 18, now there are 2. 
And sports on the ""'y" are being squeezed out. too: A 
recent survey found that several hundred colleges and 
umversities have eliminated sports such as flag football, 
noncompeunve diving, canoemg and hiking because o: 
liability costs. 



Partly as a result, sophisncated new tort reform lobbies 
are emerging— such as North Palm Beach. FU.S Coaliaon 
of Americans to Protect Sports and the defense bar's Wash- 
ington. D.C-based Lawyers for Ovil iustice. 

But the piaumfb' a ttorne ys are fighting back hercely. 
They blame the insurance mdustry, sometimes striking a 
pubhc chord, as when CaUfomia passed Proposinon 103, 
rolling back aT i"> rates. Theu argument is made superh- 
cully appealing as the rates crunch eases, although this is 
probably a cyclical phen om enon 

Tne battle for ton reform IS now raging across the states. 

But Its entirely possible that it could be lost, much as no- 
uult automobile iasntancc was eitectiveiy blocked daimg 
the 1970s. 

SuU. some states have began to allow courts to assess 
costs against fnvolous actions. Perhaps this is the farst st^ 
to iome sort of "English niie" whereoy either side must be 
prepared to pay the other's costs if their action is unsuc- 
ccssnl. Decisively altering the plaintiffs mcenuves to 
Imcition. the "English mie" may be the ultimate ton 
rctorni , 

VN it.'iout jt. the swarming plainnft attorneys may <lo to 
the .A-.'nencan economy what labor unions did to tne 
British ■ 



tonus. OCTOBER 16. 1989 



US 



259 



TheBestPaid Trial LavT>ers 



The top ten 



Oo the basis ot our estimates oi theii 19S7 and 1988 raminp. these art the countrv's 
ten highest paid trial lawyers. Other welJ paid trial laxrvets loUow. 




1. JOSB*H DAHX JAKAQ. 

lunail &. Kaliiu, Hoiucao. Tex. 

1988 iacoiDc: S450 million 1987 income: SZS millios 





famail. 65, gradxiated from the Uaiveisity of 
Texas law school and is best knows for (he 
victory in the 1987 Texaco-Peaazoil case that 
brought him an estimated S420 millinn in ices. 
)amaii spea: around So "^''1'"" on a I9-passe3- 
gez Culfstteam let. His personal injury pracnce 
won over SI 00 miUion in nzdgaents and set- 
tlements tn 1988. and S75 million in 1987, of 
which the fiiE reaped about a third. "I never 

t. BZSBEBT HAnr 

Law Office) of Hsben Hafif. Claremant. Calii. 
1988 iscome: S40 million 1987 income: SIS million 

Hafif, 59 and a graduate of the University of 
Southern California law scaooL has brought 
aree "whistieblower" cases against defense 
concactor Northrop Corp. on behaif of former 
and present Northrop employees and the gov- 
ernment. His firm's tactics m these cases have 
already brought a S5,0CX) sanction and an order 
to pay S58.0X to cover Nortfarop's legal bills. 
iThe onier has been reduced to $5,000.) He 
made nanonal headlines with die S540 million 

Michaod. Hrnvn &. Bndihaw, Wicfaita. Kasi. 
1988 income: S18 """"«" 1987 iacome S9 nfniwi 

Age 60. Gra'^'"'^ of Wasi^um Univeisity law 
school A leading player m otf, toxic shock 
and live polio vaccine cases. Michaud has han- 
dled over 500 birth control pill cases since the 
late 19603. Recent cases ia d udc a S16 miHinn 
verdict in 1988 in a tone shock syndioaK case 




wash windows," he says, "nor do 1 work by the 
hour." Recent cases include winning a S32 
million verdict m a Texas wrongful death suit 
that settled in 1988 for ill TTiillinn iamail's 
seven associates are on salary and are guaran- 
teed a percentage of profits; thev also get a 
pcrcsntage of the cases they wm. ;As with ail 
salaries m this survey, the mcose figures are 
for (amail alone, not for bis ftrm.1 



he won against ComputerLand -jz. a 19SS ::~ 
case he brought on behalf of .Micro Vest. : na: 
judgment gave Kanf 5% of the company's 
stock, worth S25 miilion; he now represents 
Computerljnd. Big cases mdude a I9S6 set- 
dement with asx Corp. for over $43 million 
^""^> on behalf of some 500 plamtiifs who 
charged bkl with operating an unsafe laiflfill 
His take; $13 millioiL Ran unsuccessfully u a 
Democrat for govetaor of Califotaia in 1974. 



twraighr against Playtex 
chand's take: $4 ""'I"'" 



Intemanonal. .Mi- 
in 1988 alone he 
>-l ft5j«f some 20 cases, each of which was worth 
over SI million. Has r^>"-" home over $5 mil- 
li ffn annually for the last ten years. Owns an 
80-aoe ranch and 30 quarter horses. 



4. VUttn UMFHUr 

Um^htcr S muiiuut Eddn A. Carver. lUnmnnnt. Tex. 
19MiBcamc:S14JaiIIiao I9S7 incasu: SU3 



Umphiey is S3. Started out as insurance adins- 
tor. Graduated from Baylor University law 
school; was a pi oneer m asbestos Uagatioa. in 
1985 he was the leading lawyer in a $138 
Billion settlement is' a class acnon produ ct s 
liability smt against 16 asbestos hnns. Eam- 



M 



Toberoff, 67. is known as the medical toalptac- 
nce 'fi-'g of New York. »ath a specialty m 
mnning down podiacnsts. Claims to have lost 
only 6 of the 600 cases he has tned. .\ ten-week 
medical malptacnce tnal m Wtid brought an 



S.IUX 

TebcnS. Tenter *. S^ecfact. New Yoffc. N.Y. 
IfttiocoaeSUmilliOB 1987 



wift- $18.2 wtiWrm U mplu e y 's Beaumont turn 
rr„A^ over $23 t^*"'"" in 1988. His Houston 
f»TT« recently merged with Houston labor law 
imn Watson. Hym &. Besstkrand counts 
among its clients the Oil. Chemical & Ato sue 
Wotkets Union. Has two planes, a behcopter. 



SI1.S "■«">"" verdict. He boasts that he settled 
5 cases over the phone <*"rm^ that tnal. for an 
extra $15 "'i"i>" Owns an apartment in Pans 
wtoth over $2 oillioa and a villa near Cannes 
He giaduated from Brooklyn Law School. 



|>OltU& OCTOBEK 1«. i*»* 



260 






6. EKRZST C&HHOB 

EncJt Cisnon &. Asiociatcj. Houston, Tex. 

19SS iaeoae: i' aiUioo 19S7 income: SU miUioB 

A Ur.:vsrs:ty of Texas law school pad, Can- 
noz. -iS. operates irair.ly out of Texas' Mau- 
gori: Ccusry, fasous for its csuitaaiUioti- 
coiiar lucgstests IForses. Apr 7. I98Q. Is 1988 
Casaon won about $40 cillion is gross recov- 
enes, aad soss $70 million in 1987. His tar- 
gets induce rots Motor Co. Also tc 1988 he 
won S25 tsiiiion for a 5-year-old client who 

7. BOHALO D. KBIST 

Kiut. Guns. Wellct, Nciunaaa &. .Monii, Hoostos. Te 
1988 iscome: S9 milUon 1987 iacome: S7.5 millioa 

3es: ir.sais with loe iaaaii. Krut won head- 
iines for rerresestag some of the faauhes of 
the OxUienger space shuttle asooiuuts. The 
aso'ont of the settlement is under seal, but it's 
in the aany atlUons of dollars. Knst won the 



8. JOEB o'onnif 

O'Qinna. Koaukv ft. McAnmcb. Hansun. Tex. 
I9M income: S8 miUioa 1987 iscamc Mmiilioe 

Age a. Graduated from the University of 
Houston law school. The Sure Bar of Texas 
has lust completed an mvestiganon into 
whether O'Quins paid people to solicit clients 
for .his. The bar found him guilty, but rather 
than disbar him. it merely charged O'Quisn a 
nosisal fme for his ctune and ordered him to 



was severely miured while ndmg a lawn- 
mower. Cannon convtsced the lury that the 
manufacturer, Anens Co.. was possiy negli- 
gent. Puniave damages m the case were $13 
rsilliot:. i.'Vnens subsequently settled.! Known 
for his dose ties to local judges: In one of 
Cannon's cases a 6-yea;-old plaiatiif sat on the 
;udge's lap to deliver her closing testimony. 



*> 




fust "crashworthisess" case in Texas against 
General .Motors m 1976. His seven associates 

pay their own oventeads and make whatever 
they can on their cases. A graduate of the 
Umverstty of Texas law seaooL Kast is 52. 



peii o rm 100 hours of public service. O'Quisn 
recently won a breach of contract verdict 
for over $600 million against Tesaeco, which 
later setded for an undisclosed sum. His ; 
fees from this settlement alone will raise : 
O'Quias's poss income for 1989 to about S50 ; 
niiilion. I 



\ 




s.sumxTs. 

Sommen, ScfawxiB, Sihrct d Scfawaro. Ocuon. MitL 
1988 income: S7 mHlios 19S7 income: %6J. miiiioa . 



Schwars. S 7. specializes m birth trauma cases. 
His firm employs 66 lawyers and 100 support 
staff, and processes over 100 infant brain dam- 
age cases a year. These cases yield annual 
settlements of over S 100 million, ot which the 



firm takes a third. The firm employs ten nurses 
full tune to evaluate the 60 cases a month that 
come into hu office. A Univemtr of Michigan 
law school graduate, he has written a two- 
volume, 1400-page oeatise oa birth trausaa. 



10. UCBAXS ^ 

.Hithofi ti tacks. Hosnos. Tex. 

1988 tacomc: S7.4 miUioa l«t7 iacome: $5.4 millioa 



Mithoff is 43, graduated from the University of 
Texas law school and specializes in product 
lubaity and medical maipracncc Ancr work- 
ing for Ralph Nader as a law student, he spent 
mne years as a lawyer with (oe fastail. In 1986 
he won a S50 million setdement trom North 
Texas Hospital for an infant btain djtnage 
case. Soon after, .Mithoff set up i S 100.000 



endowment for the Uaivemrjr of Texas medi- 
cal school to improve tiaiaiBg m delivery room 
techm^ues. Last year gross recoveries troa 
verdicts and settlements were S2I trillion , and 
the year before. S16 million. Out of this Mit- 
hoff takes 40%. Represented his friend lamail 
pro bono m a 1986 contract/fee dispute iamail 
had with a referRng lawyer. 



fOMIS. OCTOBER 1«. !»«» 



»3 



261 



TheJBest Paid Trial Lanyers 



Liw'f ci /rjs 



Laeiaac 



I9U lacomc 
iSoulliotttt 






I L>»>ch«e4 



Cilbcr. .3u44tI UwO.-tii:. 5«- ^ "tcKcr 






9.9 



j.3 L*£jv ot Tcxu 



*r 



- FrMcnc Lena/ 


Pecucsu. FI 


:s 


5.0 


Ui;» 01 ficstt 


SI 


fhilip CortoT'Coreor 6. De=«r.o 

1 


Cfiuio. n. 


•£ 


5.7 


loycj ;.- » 


ei 


i 


MiruuiTX 


6.0 


4.0 


UaiT oi Texu 


62 


1 


New Yor«. NY 


6.0 


6.0 


BraociycLiw 


l' 


Pit .Hjia3cr<:j» Cr:u> o: ?a: Volosrv a. Aatocnto 

1 


&>s Aatoaio. TX 


60 


60 


L.'£1V of TcXAl 


4J 


' bu OltaiTf Uw C=:cu a: lice Clczcc: a Auscuwi 


Wiit^sjac DC 


6.0 


6.C 


UsiT o: Pitaaurta 


5i 


T^osu Ocaetno/ Ccrsov A Dcscinc 


<ZiM2tS.ll. 


3 


a 


Coliesc 01 Law 


•- 


1 


rJCTn'nr, T^ 


S.0 


5.0 


Uciv ot Houses 


51 


Lmsare gay' — i-c Kisf s. Auoeiixs 


ChiufalL 


«.t 


i.i 


Oe Paul U=:» 


66 



£c;esc Paraiot, Paviic: a. Cscxz 




as 


:i) 


■NcttilwOICB 


56 


iaaaac ithiaicfcvizciioz. 1 Sch^n— grr 


Ft liufj-ttic Fi, 


«5 


*j 


Umrot.Musi 


i? 




Cotpui Ortn. TX 


a.O 


*o 






i 






j A. BoscR ZciLles A. Zc= & Maicsa 


DeaKi.Ml 


4.0 


i.1 


Utttvct Detroit 


55 






i.7 


3.7 


Uuv ot Texai 


53 


i itobcit .nasi(oocrT Ic/Moaitaserr & Uraorcsz 


WFiiaBaet.a 


i7 


3SI 


UsxYoiFlonda 


59 



Ned Good/U- 0:»xi ot Ned Good 


Puade3a.CA 


3.S 


3£ 


VesreiSCihi 


61 






ladiaCA 


i.1 


IS 


Unrr ot Sas FruoKS 


61 






New York. NY 


a 


US 


New Teik Uoir 


37 





KotcR OiSetd/JloecR A. OiHaid & Alton im 



Chicaco.IL 



iSl 



U OePialUniT 



3£ 



Tom Meetc/Kiasc DiUot. Tcucl Ou^ & Moor 



.New YocK NY 



ijO 



; .\it On&on/Afcs^ 0=sac Lcwm & Aiinnamw Let 
I w iiirttw 4 hjiii.s» f/ ^ ^ ^*7^..ifT Scott 6l Bidaft 



Csa^o. !L 



ClatTteonr. CA 



iJO 



XO 



3X) 



ri«i«ii«wi 



2J N mUa w tJ tga Umr 



i£ UatretW 



Oee Bowta/Heia, Plrrrhrr. Hosia. Sowen & Sunvlfn 



Houstoa. TX 



U UatvoiTaaa 



FOUES. OCTOBEa 14 l»«» 



262 




•aw :i :r.; cs.v s_j:=:ir j:T:rstv :; oi eii lire ectsje f-na. Snv«e u uxi. coctici :or vmea S. EJtru .s ETS; u::7^>: tue a^oi^i: i -a-cizi 
-r^ci :tJu::cc iS i vert;: a: $: 3 tui:o= A iVBS ie::ie=:e:: <»iO! 4 ei the ruioiCj neieci S135 — , r . : os. Ku uxe: Jlli ■S'iiim He ipuu su 
rc=iir.trr.cv :et» w.ts z^t r.rr. Rerrejer.tei T 3oore p-.czcsi is IS'* Ciua Stnr.ce .ios:ile uieove- 



:.cvia eir=ei I50C 000 a »ri» »s C-- Power Co i |tc=e:a: .iuuncs caunw.. IS&J- J9 Woi i $i =ul:oe vttaiet a oae civ =U5 Miv ter tae cu:^ o: a 
i,n .— ; — -- H;j rv 1.-.0W "Law U« " •"■-"1 sude i-^n a ioea. ceieir.ry Coussei rot ooxer iUjy losei Ir Meaoer « Ixses Otiie oi AivcciteJ 



Co»ov IS one c: rr.e 6e«-itrowr. c:*-=or.ev =cs;i|csce ■ ■■ 'vcn is izc csuatry He beasts ruvjlf losf osiv oc« case ts I ' years iit was overrjsec Oi 
jppea— 7;:r=s cown i9 ot: c: 20 requests tcr rcpreseaatios is 3iea:ca; zuipractice Mestoer or Icrer Circ:e ot Advocates. 

Satdw" surree asbestos utifaaon sa US with I9'8 case agairst ?-.cc3urs& Cotusf. waic: seiued for S20 r-il'Bir One o: lead counse: ~ 1987 

■ - I-— ■;--« ■■ ■ -1"-^ ,->^— ^...f^ whicaseaieilerSlli =:li»r.. f-jss staif oi 15 — ri um two pUoo (er fca pnrate giage. Me=oer o! iege; 

Cirtie or Acvocates. 

liTsi; 3 ccssrcereo ce ' «iaj or »ja' m New Yorx. Starrca aew r.r3 earirer tha yai anet r-tter sr w.ta za two toiner partaen. wao ri i -T "^e r:;s 
-i;- sow esiov a =ore esartabie Cisstsunos ' o! the ?ror.ts Cuiter.tly suiaj Mike Trtos =r-. oeiaii e; MiKh Creese »r Si5 aiiiroa tor asuu.t a=d 
har-jrv Creese :s aise 5uy:| Tvson ror iaJure :o hjh: ' Reiieca c= s»s ior.« career "Ive wrecked eaoujs lives to leei wiecxes svscil" 

Maiocev processes over l.OOC cases a Teat. Partaen are sis wue asd kids. Acave is crp ; Teias S-.pre=c Coun eiecsoo r a ^r a n"' oo oesai: o: 

e:e juis;;:: Sir Was e=sroiled is rtcesr "•— --'i icvoivisj Texas Si^itae Cour; lusccc C L Ray. is which he dosated seaer w the nudge's 
CiStparss ass receives ?re:ete3=ai treatssect is rer,s=. .Mersbrr ot 'jsier Ciicic e: Advocates. 



Oictwer 13 t?.e - vt^f ' or t 1-^«" oalpraence ic D.C. .Mavor .v^noe Sarry decuree reb. IS. 1957 to be lacx Oicscer Dav is rec o g nirro s o: his 
■ — .1,— — .- ,._^pQ_. is: o c crv ccuasei otreiais He tave the "lacx Olesder Pcaeesaker Award" a IW8 to Cortaehev asd Rea^as. A recest "40 
vl— utes special ."ocuseo o= tsc -'— ' f ta larje versicts save cose to :se sesicai ecnn-;:— rv is O.C Mesioer ot Isser Ci:cie ot Advocates. 



3e=e=io IS » -■•••» Cotsov s partscr asd hen appatesr. 1*8* presidest o: ["-rnis T.-ji iuwyen Associasoa. Active is ATLA. He asd Corsov save 
ro^etie =ase a: teas: SS suUios to J:S csiliais a tzis is eats ot tsc Ust 8 yors. _^^_^^^__ 



Riddie r.u sascied over 153 raiireac ensus; cases, asd has .ost osiy otie Won SS i r-.i:;;na is i987 is a jffi ra ; piDCuc: iiasiiitv ease, alter w!uc-. 
-.»— Tr- dec. Is a separate case he czpccs to wis SIC —•■■"- to Xli isiLios tot tse amiiy or tse deceased dieai. hnpr; the; Mtai award to asout 
$:0 siliios- i tse secose case succeeds hts totai take will be at ieas: JS.5 "I'i i io r. 



Risj was respessioie rer «i— -> up tse ATIA ooutMai acoos or — I'gee us \9'i'i Specauscs -.2 preeedeat-seias; eases -Jiat rrj a n a dcwT 'i—f 
iiasmrv, '«s=i su=er 1989 was i--^.— j-i o: the ATi-A cotaaunee taat proposes asd SfSts lep iim on is rmgtsa. Cuiraaa oi Toit asd lasurxsee 
Praettc; Seeties oi the .^3A .vie=oa ot laser Cacie at Advocates. 



Pavaios WIS :y87-88 ATIA presides:, is ourea: presides: ot the Xcscoe fouac Feuaaatwc. ATLA's "tas 
acaias: Ccaera: 7e:epso=e ter S23J saiiioo is 1988 Kis take fros aie case: $« 7 saiiioa. 



I task." Settles a wi ni-ff^i dc at s auto case 



Schiejia^er is oae o: the siBest sedicai saiptacnce speciaiisa la f ionda. Wos a S5 — lilifrr prae«t iiasiiity verdict is 1982 uaiast Toyota, aipiias 
that a hiei tasx cesi^ sdrci kiiied Siree people is a reaf-ead eejmnr It was tae ociy lud^ea: ever woo ipi-st Toyota- Retcrs to fc. "nsr;i as Ucx 
=ie Ciis: !u2ef asd "she ccualiser." V.eaeer oi laser Circle oi Advocaees- 



.■V.usori — — =sre raoaev is a 1988 case a^aiim Ceaerai Motors teas CM had pais hits « tae iS yean he a .)H j < -U L d it betweea l»6i asd 19S7 
Deresds =eiicii lasvaers. otoufh: case ic 1988 ajaiasi Circle K st«es caazpsi laera with illejaiJy vli-it uquor to a drjak "c uii iii ' a." The 
rasjacusss were su^cd. Settled •■'■" tor as usdiselosed aaocat la febtuarv Owns a a.SOO-acrc cartie races oear Pon issd . Tci. 



Zer specii-ises is divorce cases, tot wtuea fcis tees ate "'■•■ ""-^ la part ay tae result obtaiaed. Ceasc^eoey tea lo Civoree cases ate la v i e ii-toa oi 
ajA siies Rerteseated Cr-stiaa ftatl wue oi Heary ford 0. is 1980 divtxce. Measet oi laser Ciicie ot Advocates. 



C.bbias IS eurrest v.ce ptesicent ot ATLA. Settled 1988 iesai ~-''r-'~~ '■'" '?■'"<' Vmson Si FilrTTn rot "in hire to advise" B ini a mnr 
law A=oiis: sr suii: S3:.; aimioa ir. di=afei. Se ul t j'O" a uacer ps order. Should r- i nf SS ni'l'f^ la 1989. 



_^ — tg-ci' Tiim^;— 'V^"''''^-^ tin^.ii.~^ verdict X f Itjtrta la a siajie taiorr case, Uwret tor Kamieea Du Roas Foid . 

wicow or Hearv fard Z. Split with aa lortcer paiiser Omsiia a Searcy loc bad trrer tiiinr-il rtnapteaoaa. Meaihrr oi taaer Casie ei Advocatea. 

m at oves iSOO.OOO. Owm and pilots a 7. 



Good s boutique r.rta specialises is avucoo aad mam acodeaa. ScttNi 50 
sea: rjboprpp air^iace. .Member ot laser Orcic ot Adrocases. 



> a year, half oi winch c 



Aseenon woa a pusiave disa(c vetdiet oi IU7 ciIImo m the l»M Teehaical Eijuises aaud case. Seme drtnwlin tn settled prCTiou aly ^ **^ 
auiiioa. The vesiiet 15 still petidir*. His take so iar 11 Bi l linn R ctJu-miLi 160.000 clAinatro a a r-iss i mnn igad nat a^amst evntemt lia aaktea 
a5datsocu:edaesc=atsistir3:.Uioecesstul.hehopesto»na Jl.OOOtoractdtjiaiict. or S160 auHaoa. MeabeioilncerCueleat A*recatei. 



Coaasoa IS lead cauaselm tae oldest piaiatiiifaniia New Yont.t£Sucded by Harry Caixia 1915 speaalaes to medical oalptaeoce. Woo 14.5 BiiiMD j 
IS .March o: ^89 :or aaaly oi a cuesi iciiled bv a sarcaccs ondereover jgnii . Metaber oi laaet Cirdfoi A il v ucjni 

mtiieDC-lO 1 



Ciidord started hia career wira a iO-y«arappteatiee»iapat the Osseajo mm Of Philip CortoriaJsooo hstl Rep«e»CBt> three passcsjjesj 
Siouz Citv arrpiase crash ot fuiv 1989 ^^^^^ 



I 



Mooiehasukeaostheasaaticotreiantlyd eceised lirmtounder.ChaticsltxasBeT. one eilouaaeaoi otdtial trilprirnrr ia New Y ork. Ret«atlT»e«i 
a SiJ 1— ii.y.. legal taaiptacace lud^aeat ai^aiast another mrrfiral malpractice Lawyet. .Member ot the laaet Cutic oi Ailiucates. 



Os=oa IS a =ara arcaiteet ot the Stmemral Wore Act ei lliiiion an act that rxpinns uability claim tnhts tor ujujuuLunB — »Lm. 



Sheraorf speoauses is "icsuraace b« taith la- " Won U,i rnillmn vetdiet o»er a Sa« disputed metlical clai m. Heip cd ioimd -^ *^}^^J^ 
Nanooai issiiraace Cocjurser Orsaaixaaoa. Obtained a iS« tailiioa renmd iot doetets who ciaimea taer were oveieharfed OB maij 

Author oi "P a v oea t Refused." a baadbook oa inirTnnrf "bad ianh." 



Oesixaated auasei lor Uaited Ttaasportanoo Union. Bo-en bandies over aOO feoera. iiaplovrr, Uabtbtr Act «»°,^f^ ^^J"^' J^' 
S^^ch 1^1^, loss U^sL^IEa cases pn»iuee aS% to S0>. or nrta s .rcoe.t PsTaers oa Ust: C««r Pi~her aLd Michael Sauiders 



rORBES. OCTOBER l« 1989 



a7 



263 



The Best PaidTrial Lawyers 



Lacau oc 



Esofflstcd 

19U ucsac 

iSoiUiooi) 



1987 lAcomc 



Alt 



£d»i.-d S«ru,S-i.-= 4 >•«= 


3o»Ma. MA 


IS 


2S 


Bcsu: '.'=:v 


55 


PmJ Due/Due j=ia 4 Ciau-efo 


3«os Rouft iA 


17 


15 


LfWTiur.i Su:e L'z:* 


-Ml 




Houstsc T^ 


17 


15 


aiYioi 


52 


I MclTu BcJli/'Bcll:. Bcu. Stewa. Mnr-ioac rabbn A. 7ir-tru 


Sac PrinfTVO. CA 


iJ 


15 


BcTKCiey 


s: 


. Fnai SaaMo/Uw Otsca at fanit L Suasea 


DiiiuTX 


li 


IS 


SMU 


aa 


j %iU Caitae/Caiiac riuju. iiowo. Cellos A. Miusewt 


Maatfl 


U 


15 


Usir o: Mu=i 


*« 


; Lcsaud Oeesl/Decot a. Cr.= 


Piotndc»e. Ki 


ij 


Ij 


Ha.-va.-e 


6C 




HouiKcTX 


13 


U 


Uav o: Texas 


:G 


' loha M4T«j/Hi»ej A ?owe 


Chiufo. C 


:5 


:.5 


3e Pii. Us;» 


is 


i l«epb foma it/Htm A. Powa 

1 




IS 


ij 


Loyoia Lzi" 


i& 


, Mic&aci Staaitn/Has. Fictcss. Hofu. Bowes ol iiuseen 


Houi»a. TX 


IS 


u 


Karrarc 


4a 


; C^nsuA ScACCT/Seirrv Dennry ScuoU &unna£t & Silipier 


W Pile Be«i. n. 


li 


IS 


Stetsos U£:v 


il 




Mutai. a 


li 


10 


U&iv o; Miasi 


66 


W. Uaa Knaio/v^i'. Uses Knafc. Anoncr « i^w 


Houjtoa. TX 


14 


10 


Usiv o; Texas 


69 


Umes T^omo Ocmoa/D^ees «. Buiis 


^^luzo. Q. 


U 


u 


De Paul Uaiv 


ja 


; Uma Oaffr'Knse:. CiUoL Tessci Duttr A. Moore 

1 


New Yoiit. NY 


U 


Ij 


Biook.>TsLaw 


53 


1 lia PtTascfFeteue. Tunc A. Bott 

i 


Houstac TX 


u 


13 


Uan ct Housaa 


>C 


Bna WiUrap/ 
1 WtUooi. SkeUrr. BassLMelodu.KeUT.£clie<mu«iUBk 


SwFtucueo. CA 


u 


u 


BetkeltT 


75 




Cotpm Or.nin. TX 


12 


11 


St-Minrj 


as 


HmdJc TBdcT/Uw OHm o< Wmiiie Todcr 


SalUi.TX 


U 


u 


SMU 


SC 


. Rebcn B<*im/uis(eimu. BcfBB. Lewn & Msks 


PiMiemxAZ 


lA 


10 


Yak 


61 




SakMe.CA 


10 


10 


SuancdUmr 


75 


loia •onvKk.'Bonwuk a. Tetata 


Sia Haaoxa. CA 


U 


10 


UCHsaap 


a6 


1 «1lliiB Uvndt'Edwiida «. Pott 


Cotpni Ctntn. T^C 


ZX> 


10 




58 


Ted rriirtminfUw Othco of Thcodart H. fncdn«a 


N«wYo«*.NY 


U 


li 


Hamd 


33 


DiTid PtST/Uwiids a. Pbtt 




LO 


uo 


UanoiTan 


a6 


l«a VhiwiilfT^VinfiilrT. Klaaick & Weis 


Ne- Tort. Nt 


10 


10 


gnoUraUv 


57 


HimT WcRX/Sehaeslei. KJeuick 8l Was 


N.- Toft NT 


10 


10 


tnakinU^ 


• 57 


CMif neukomeia. Pleccbs. Ho(ia. Bewea «. Sauaaen 


Hot^oo. rx 


IJ 


10 


NoocOase 


4. 



rORSES. OCTOBEK 16. 1989 



264 




r 



:i. 



_____ kuier ajvj- s-^:t iic =i<l- i*60j A;;:sor o: Toyj Tzi: Oce t Circ." •Ton Tij: ii^:." "Sau^K: Br Procic^' ■; 

1 "wTcspui 4ca— ■' CMC am'tt Ojce ziczzr.z V.esDOTCjp Corr 



>^t s:;c:u.:fcs ;£ : 



-c i:«s:c3 Wo: i t; 5 =;iaes >«::lc=c:: i 



=-»r^ "s- -aai .y »;eCii.:;Tj ;= frootc: c«:^ i-.i niiiu;icru.-,=« iiioujry cua u -cU J> aeaicji sajpiacca He tu» te«=uy g=tte= a-.o tie 
:ucrjr:« ^eii K i.-.t;triJt i.-.>i JsSxstos l:::si;:ci fer= er prenaes; c: :^e Sute SjT of TexJi. Mesotr o: iaser C jcie oi AavocMo. 

■ Oae a: t« r_-s: liwvtrs ;= ViJsei in«r tae sii ipJi. he |3:±e7cd *C0 znena tsc 



-trt r^ei Ji 000 :s ;«S6 hi: =li=8 on seiiii; o: i ptiisua ; 



- He ana ptfser Rxuifa Browr 
: --^ Dupes: Piss* Hote: kit use "reo aid ted >evem reirj booie =e sre. 



^■;-,„- „u eie ot -^e pioceen o: we Viijeo Ser^exei: Snxr^-t. i viuectise i- n-yr e aj rl— i-iu cer5a»=o= wjtn tse deMsae a >e-,ue=ie=u. la 
'.955 '^a 1 SiS — •■■■ "^ lerJeses: »r a Pruscisusee jwver Measer « the Teiu Supreme Csur ruiea aar-jory ca=l:nee. 



C3ijarwa«tae=r»::owviaveri;c!iga:cjt5oni-j:aP=;coguuiiKeaseia 19'S Woa aie hir; =iUi;oa-coUat eeami ni l por- rf verfcci a lac U-S 
is '.96' The =:= hil .terstiy tose lara asocscos imjacoa Meaoer ec laser Crtie « A<l\x>cato. 



Dee- lis wo= or letriec over 2i iporu hei=et cuej. irdui:=s oie tor HI saiUes u: 1983. tr 1986 be woo a JM nulaoe "wjcp-t «*"- "erte; 
, ,..r, . Coodyeir rK tee a=ijT o: raceiar (Inver Mark Oonosue. woo «« fcUed la aa a fr: < !r- i whjle pKCg ITjnph- Has easrilei oaav -wtosi-- 
reiaree ■ caiea. 0£S. It.'O isd the Pill C«ea:lv "■•• 'f tae U.S. Caii Assocano: ace Seouaai'a iloval A Aiie:e=t Coli Cup ior over J :0C iijiioc « iz 

aa-~is: a=c liaaicr ot ptwiiKS" caK o= behaii o: P-.ag toL- ciub) sake fancea Maaufa cr j n s t Mesfaer o; laser Cucie ot A^YOcatea 

Ltser c: Wayce fuher Very ici:ye = poiittca. letvo u sretii; ccuajei to tee Texas Senate oc procuct i- i tni itv Oae ct tae x^ 
, - ^2s. Speciaiiaes lc c^caicai pUa: asc oti reneery espiostos cases. 



.-uyes WOT. a 



Si' —:- m- .eraret Tf'" Syatei :s 1585 lot a sra;a iaeiase case, .vxaioer o: iaaer Circle ot AgY Tjraii-i 



fowerwoa$«-5=ii^ay«rtt;ctui ;98«case:orstiaci=ia5exca;ii:$trjc»t>Yaear Cjaaseeaa»Bcyeriostacase.iarje«se;t:e=ea:: J5: 
— — -; sa.pracsce case la 198*. His tajte: S2 — llinr 



vtuacan .- —-■— ;a rr— ■■■■•■ atijrractice. la 1988 woe a Jit i --il-.os »erc;c: ararn two ooctots tnt mi£ iaaaajeti caiii Twoocer cocton. tae 
aoj-:;;. aae ;;e aaestaes-.! —„—.-r sjauiaettircr settiec tot uadijciosee smoan-i- Parcaers on irtt: Ceot^e ?:etcaet sad Don ftowea 



Seinv ipecu^us -i — ,.,—„..„^ M^it-„ ^^ b:i^ na -i tc casev Ur^ot vetaic;: tlC.S ^ . -llinn a 198* 



Speaee pioaeerrd a:^_ioo-eoliar iseocai =a.prac=S£ ;a f .ortoa. Setied 12 •wtoagrji deata" :a«esa«»;=st A«o- Air »r a toiai oi S15 =11^ 

his u«e 56 aii^oa. Tool 6 cottthj ot in 1988 aad spetit over UOO.OOO to t>t=t cocKi r . -t so p il aa ea d ac-i t =at would hrve put caps oa daoujes. 

v.eraser 5: ' ' C-de ct Advocates. ^ 



t atch-stases appeiute tawvers. 



jt:csjiT wonteew.taloelasiail-JCTexicsPecaasUUtitatiop as lejal and appellate asvxscf.Osieot the eojtpia 

^.i: ■--;njc;3 3cta;j:a::rj i=- diri-'ni -n — .■ •^-.ini.jrpfr^n.^jj imury j=<:;ag;=e;:ia: iirrin n T ^ Chjito oc aveiajte t*SO to «0C aa t»- 

»r eetease wor«. aad usuiiiv jea 5% to 8% ot tee ttaai award rot p-.=st:= woti^ ^^^^^___^___^__^ 



Oe=c» specta-taes :a aseaicii 
lorsenv latsmasoaAi Harvester. 



:pract:ce aad product uapthty cases. Was a U.' stiiioa award ipi-n .N 
-. -or "dcteettveiv oesigaed" t»r= equjpeseat .Meaber o: iaaer Orcle or 



.Sansta: latesiaoeal Traaxporusoo Cor; 
Advocxces. 



Du=v a parser c: Tea: .Moore loa iist! aod is -.he o-Jer "ir^ wjma- la the ana. Spe nih-n to aettical aaipraccee. espeoaiiT hnaa <ia=u«ed sapy 
lues r-TS. Closed 69 eases resteseatta* SSO -ai-lioit la 1988 aad has as =uch as J7 suUioa ovesien la eases at asT oee tiae. _^__ 



PcTCut. tae «--^fl or — r^-^*' aAPtacsce :a Houstoc. woo a S 16-5 sii 
la tat S ; =uuca to ii taillioc raaje. 



J yertjct sa a stais caffiaje case IS 198*. brjap m levesii setuesciats per rear 



: ptesuMai aad touaciaj susapei oi laaet Cucie oi Advocaocs. WaUsp ts occ as the ffrvi^ ata a pattMoi mmrr uo«Hioc in uaiaorsu. 
.v.etaoer at iaaer Circie o: Advocates. 



.^irtaer to Cur .Aiiiaca. Huerta spmilTTS la worxers' : 



uriev ■« touacer aad soie ov«er o. ooe OS the UrrtK periooai larurr a=j ic tae eoastiT. w,ti» IS lavrrtri a^^ 

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fORSEi OCTOZOi 16. 1989 



i09 



4 



265 




June 1990 

Medical Malpractice Insurance and 
Access to Obstetrical Care 



Introduction 

Problems ^viTh medical malpractice insur- 
ance for obsietrical providers are threatening to 
reverse recent gains in infant monality pieven- 
tioQ. In the last five years, awareness of the 
problem of infant monality in the Unittd S tales, 
and paniculariy in the South, has risen. Many 
poiicytoakers and concerned citizens know that 
too many babies are bom too small, too soon, 
and that too many die before iheir first birthday. 
Initial efforts to arldiTss the problem at the 
federal and state level have centered on increas- 
ing access to prenatal care for pregnant women 
since early, high quality prenaol care is the 
single most effective way to ensure the birth of 
a healthy baby. However, although financial 
access for low-incotne women has Improv ed 
with recent expansions in Medicaid, access for 
all pregnant women is being threatened by a 
shorage of providen available and willing to 
deliver babies. 

Factors behind the Staorta{e 
of Obstetrical Providers 

• The per c enta ge of ob/gyos who accept 
Medicaid paziems is low and is dropping. 
Cunentiy, less than 60% accept Medi- 
caid. In 1976. over 63% of ob/gyns ac- 
cepted Medicaid, while 74% of other 
physicians serve Medicaid paii e nn . 

• The number of family physicians, who 
are often the sole source (^primary care — 
including obstetrics — in rural areas, is 
dropping. In 1963. there were 73.000 



practicing family physicians nationwide. 
By 1989. there were fewer than 60.000. 

• Many ob/gyns are dropping obstecics 
firom their practice. In 1982. 80% of the 
ob/gyns in the south atlantic states and 
93% of the ob/gyns in the east south 
central states practiced obstetrics. By 
1989. those percentages had dropped to 
72% and 86% r espect i vely. 

• The cost of medical liability insurance is 
rising dramatically. The American Col- 
lege of Obstetricians and Gynecologists 
fomxl that malpractice costs increased 
350% between 1982 and 1988. from an 
average of SlljOOO to S37.000. In some 
met ro p olitan areas, ob/gyns pay in ex- 
cess of $100,000 per year. 

• Pfaysidans'fiearofbeingsuedisjustified. 
It is nxae likely than not thai at least one 
malpractice claim will be filed against an 
obstetrician during ids or her career. A 
1988 survey di»e for the American Col- 
lege of Obstetricians and Gynecologists 
(AGOG) found diax 70% of ob/gyns had 
e x pe r ienced ate or oxsre medical mal- 
practice claims. FaQy 25% had experi- 
enced three or more claims. 

The difBcolty in finding an obstetrical pro- 
vider is parncnlariy acme fOT women on Medi- 
caid and in nixal areas. Physicians de c&n e to 
parndpaiBin Medicaid fbnnanyreasons.llsere 
is a penepti(» that has not been confirmed by 
research studies, that poor women sue tncre. 



266 



-2- 



There is also t perception, which may have a 
sponger bajis in fact, that poor women are more 
likely to have high risk pregnancies or a poor 
binh outcome. Excessive paperwork and delays 
in receiving reimbursement under Medicaid are 
frequent complaints of participatingphysicians. 

Perhaps the greatest obstacle to increased 
Medicaid participation is low reimbunemem 
rates. In d^t states, including two in theSouth — 
Louisiana and Missouri, the cost per delivery of 
medical malpractice insurance is higher than 
the reimbursement rate for that delivery under 
Medicaid. In these states, physidans actually 
lose money for each pregnant Medicaid patient 
:hey see. In tsany more, the con per delivery of 
tnalpractice insurance is nearly as high as the 
reimbursement rate. Physidans in these states 
make much less for services rendered to a 
Medicaid patient than for those rendered to a 
patient carrying private insurance. 

Physicians who continue to pracnce obstet- 
rics often chose to limit their practices in an 
ancmpt to reduce their risk of being sued and 
reduce their premiums. Limits include discon- 
tinuing care to high risk patients, reducing die 
numijer of obstetrical patients, and reducing or 
discontinuing gynecological surgery. The 19S8 
.A.COG survey found that 27% of ob/gyns re- 
ported they had decreased the number of babies 
they delivered. The survey also showed that tbe 
situation has deterioiated over time. Sigoifi- 
cantiy more ob/gyns had made changes in their 
practice because of the risk of malpractice in 
1988 as cotimaied to a similar survey in 1985 
(41% vs. 35%). 

S imilar problems are experienced by family 
physicians and other obstetcical providers such 
as certified nurse midwives. Family physicians 
who indude obstetrics in their practice paid an 
average of S 10.000 in 1988 for malpractice 
insurance. Those who don't practice obstetrics 
paid an average of $5,600. Premium costs for 
family physicians who included obstetrics in 
their practice increased 43% between 1987 and 
1988. much faster than for those who did not, 
who faced a 34% increase. While the cost of 



coverage tnay seem low compared io the burden 
faced by ob/gyns. family physicians deliver far 
fewer babies, so the cost per delivery of awlical 
malpractice may be very high. A 1988 survey 
by the American Academy of Family Physi- 
cians found that 18% of family physicians had 
discondnued r>bstetrics because of liability 
problems, and an additional 6% had decreased 
the number or type of obstetrical procedures 
because of tnedical liability probietss. 

In many states, the use of certified nurse 
midwives is increasing because of the high 
quality patient care, low cost and improved 
patient education they provide. Certified nurse 
midwives face relanveiy high costs for medical 
malpracnce insurance compared to both their 
average income and their risk of being sued. 
Only 6% of certified nurse midwives have ever 
been sued, and j^et insuiexs charge t hem the 
same rates as physicians who accept only low 
risk patients. This means that with an average 
aontial income of S33,000, certified nurse 
midwives pay about 21% of their income for 
liability coverage. Obstetridans pay an average 
of 10%. Another problem for certifi ed nurse 
midwives is that insurers often attach a sur- 
charge ot the medical malpractice premiums of 
physicians who supervise them. Insurers claim 
that a lawsuit is llkdy to name die supervising 
physician as well as the certified nurse tnid wife, 
but supervising physician as weQ as the certi- 
fied nurse midwife, but the American College 
of Nurse Midwives argues that the surcharge 
has no actuarial basis and limits their employ- 
tpent oppomiiiinPiS 

State Tort Reform 

States have enacted a variety of ton reform 
measures in recent years in an attempt to rem- 
edy pioblems with access to care for low in- 
come patients, and curb rising malpractice costs. 
The most cotnmoQ approaches have been: 
• Collateral source rules. These govern 
whether or not evidence can be pre- 
sented at a trial regarding amounts re- 
ed ved by the plaintifFfitm other sources 



267 



such as health or disability insarancs. 
workman's compensadon. pensions or 
Social Secairy. Some states have re- 
quired uha: awards be offset by the arrwunt 
received from other sources; 

• Caps on punitive or noneconomic dam- 
ages; 

• Allowing periodic payments of large 
damage awards to lessen the impan on 
the defendant and ensure that pLajntiffs 
don't mismanage lump sums: 

• Joint and several liability laws have been 
changed so Uiat defendants are only re- 
sponsible for payment of awards in pro- 
poTDon to their fault; 

• Ad damnum clause restricaons have been 
enacted which prohibit the plaindfTs 
complaint from specifying the amount 
of damages sought so that pretrial pub- 
licity does not damage the defendant's 
reputation. 

• Establishing arbitranon with a neutral 
third parry as a cheaper, quicker alterna- 
tive to the traditional coun system reso- 
lution of a case. 

A number of southern states have enacted 
reforms in the last three years. The following 
are examples of reforms enacted in response to 
shortages of obstetrical care caused by prob- 
lems with malpractice: 

• In 1987. Alabama's legislature enacted 
a number of refonas, including a cap of 
5250,000 in noneconoizuc damages, a 
cap of SI million in wrongftil death 
damages, periodic payment of damages 
over IS years. At that time, die collateral 
source rule was repealed 

• In 1987, Georgia passed a law capping 
noneconomic damages ai S250.0OO and 
allowing juries to hear evidence about 
funds received from collasral sources. 
Another law shortened the statute of 
limitations to 10 vears for a child under 



5 a: the tine of alleged malpracccc. and 
to 5 yean after 'jic occurrence for older 
children. This law also provided immu- 
nir-' to health care professionals provid- 
ing voluntary care to indigent patients. 

• In 1987, Misjouri passed a law provid- 
ing state funded indemnity for physi- 
cians who provide pregnancy-related care 
to indigent panents through ±z state ton 
claims act — the law which allows the 
state to assume liability for state employ- 
ees. 

• In 1987. Virginia passed the Binh-Re- 
lated Neurological Injury Compensation 
Act, which esublishes a no-fault system 
of awarding coiEpensaaon to victims of 
oxygen dcprivadon or mccha-nical in- 
jury that occur during bir±. 

• In 1988, Horida passed an ambidous 
aaaipracdce reform bill which established 
an arbitranon system with a S250.000 
cap on noneconomic damages for ±ose 
who pardcipatt, and a S350.0OO cap for 
those who choose the tradidonal jury 
trial. Tne bill also established a fund to 
compensate victims of birth-related 
neurological injuries. 

• In 1989, Texas passed a Rural Health 
Care bill which provides indemnity to 
any health care provider whose padent 
load is at least 10% indigent. Obsteoi- 
dans and emergency room physicians 
are indemniiied for the fast $100,000. 
and all ocber physicians who serve 10% 
indigentpadents andpanicipaie in speci- 
fied risk management acdvides are in- 
detsnified for the fizst $22,000. 

• In 1989. West Virginia passed a law es- 
tablishing a state insurance system for 
physicians who provide obstenrical care 
to Medicaid padents. Pardcipadng phy- 
sicians will contribute a fee for each 
delivery into the system in exchange for 
$1 million in insurance coverage. 



268 



-4- 



The Limits to Tort Reform 

In early 1989, the Institute of Medicine 
(TOM) releaseda study entitled Af«i'ca//'rqf«- 
sionai Liability and the Delivery ofObstemcai 
Care. The lOM study concludes that state cf- 
fons to refonn the ton system have either failed 
complexly, or have yielded results that are too 
limittd to help resolve the problem for obstetri- 
cal p^^viders. Therefore, the lOM recommends 
thai stares focus thcirrefonn efforts on develop- 
ing altemanves to the tort system. The three 
alternative approaches found most promising 
bv the lOM study group were no-fault compen- 
saaon for certain events, a fault-based adminis- 
trative system, and the use of private contracts. 

• No-fault cotapensation systems for cer- 
tain events can be established legisla- 
nvely to delineate specific condinons or 
outcomes due to medical intcrvcnnons. 
and establish payments for those condi- 
tions without regard to negligence. 
Conditions other than those included 
would continue to be dealt with through 
the ton system. In addition, any discipli- 
nary action for providers would have to 
be dealt with separately. 

• The American Medical Association and 
32 rp|^^T"'^ specialty sociedes advanced 
a proposal in 1988 for a new administra- 
dve system that would replace the cur- 
rent ton system. A strengthened me d ir ai 
practice board or new agency would be 
empowered by the legislature «> admin- 
istratively review and rule on claims. 
Legal representaticm for potential claim- 
ants would be provided. Disciplinary 
acnon for providers who have rende r ed 
substandard care would be handled by a 
branch of die new agency. 

• The expanded use of private contracts 
would allow prt>viders and patients to 



sign agreements which would goverr. 
conipcniatior.. or procedures to de*.er- 
mine compcnsanon before bcgLnning 
medical care. No iegisiation would be 
required for 'iiesc contracts. However, 
parent's rights advocates point ou: that 
many patients are not educated consum- 
ers of mrdic^! care, and many have lim- 
iwd choices of providers. 

Conclusion 

The shortage of obsteffical providers will- 
ing and able to deliver babies is already causing 
problems for women seeking prenaai care and 
delivery services, particularly women eligible 
for Medicaid and those who live in medically 
underserved areas. In recent .years, gains in 
infant mortality have been eroded, largely be- 
cause of continued problems for women getdng 
access to comprehensive, high quality prenatal 
care. Women who do not get adequate prenatal 
care are rwice as likely to have a low birth- 
weight baby Gess than 2500 grams). Low birth- 
weight is a major cause of infant death. 

A major cause of the provider shoruge is the 
high cost or unavailability of medical malprac- 
tice insurance, and the fear of being sued. 
Re gardless of the cause, die implications for the 
health of mothers and inants, and for the fight 
against infant mortaiiry in the South, is that 
action is needed. Traditional ton reforms have 
been partly successful in some states in ensur- 
ing the availability of medical malpraoice in- 
surance, and in limiting cost increases. How- 
ever, many states are studying or impletiKnting 
altemanves to the ton system in recogninon of 
the fan that ton reforms have not stemmed the 
exodus of obstetrical providers from the field, 
and some solution is needed to ensure that 
pregnant women have access to good medical 
caze. 



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269 

SOLVING PROBLEMS WT TH VfEDICAL MALPRACTTCF TVSURANCE 



by Shcliy Gehshan 



Reprinted from "Problems and Solutions: 

Background Papers for the 

Southern Legislative Summit on Healthy Infants and Families 



Southern Regional Project on Infant Mortality 

1990 



V 



270 



In a Tsztzi survey of %izit iegisiators and satcraal and child htiitr. 
dir:c:ors, problsas -A-ith mscica! malpractics insurance fcr obstetricai providers 
were found :c be the =ost serious health provider issue facing stare 
pc:;cy-akers. There is a sense of aiarni and frustration among stare cfficiais 
that j:rcblens with medical malpractice are causing obstetricai providers to stop 
delivering babies and the resulting shortage of providers is threatening to 
reverse progress m infant mortality prevention. Recent efforts to address the 
problem of 'infant mortality at the federal and state level have centered or. 
increasing access to prenatal care for pregnant women since early, high cuaiity 
prenatal care is the single most effective way to ensure the birth of a healthy 
baby. However, although financial access for low-income women has improved 
with recent expansions m Medicaid financial access is meaningless if women 
cannot find obstetrical providers. 

Problems with medical malpractice insurance are perceived, defined and 
experienced differently by those involved. Many trial lawyers define the 
problem as one of negligence by physicians; tort reform efforts are often 
opposed bv trial lawyers because they feel they erode patients rights to recover 
damages. 'Physicians define the problem as one of excessively costly malpractice 
insurance, damage awards, and legal costs that make it difficult to continue 
practicing obstetrics; many physicians, although they empathize with patients* 
problems, also believe patients have unrealistic expectations and hold them 
accountable for poor outcomes that are "acts of God.* Consumers define the 
problem as one of rising health care costs, difficulties finding physicians who 
practice obstetrics, and concerns about quality of care; for those who experience 
medical malpractice, high legal costs and the length of time taken to settle cases 
are major concerns. State health officials and policymakers face the challenge of 
designing solutions that will ensure access to obstetrical care for state residents, 
discipline negligent practitioners, help physicians stay in practice and keep 
insurance companies from leaving the state. 

The shortage of providers is the result of a number of factors which are 
discussed in detail in the next chapter. Perhaps the most important factor is a 
decrease in the number of family physicians and obstetricians-gynecologists (ob- 
gyns) who practice obstetrics due. in part, to the high cost or unavailability of 
medical malpractice insurance and the fear of being sued. 

• Many ob-gvn«! are dro noing obstetrics from their practice. In 1982, 
80% of the ob-gyns in the South Altantic states and 93% of the ob-gyns m 
the east South central states practiced obstetrics. By 1989, those 
percentages had dropped to 72% and 86% respectively.* Nationally in 
1985, 83% of ob-gyns practiced obstetrics.' 

• Physicians w hn cowfinue to oraetiee ob^tetries often limit their 
nr^!-Tieg< in an ? rtgmm to rediiM their risk of being sued and jcducg 
th^ir nreTniutns. A 1988 survcy by the American College of Obstetricians 
and Gynecologic (AGOG) found that 27% of ob-gyns had decreased the 
level of high risk obstetrical care, and 13% had decreased the number of 
babies they delivered.* 

• TV. ^»^t nf mrAi^y liability insurance has riWTl '^""'V'""^- .^^Qg„ 
found that malprtctice cons increased 350% between 1982 and 1988. from 
an average of $11,000 to $37,000. In some metropolitan areas, ob-gyns pay 
in excess of $100,000 per year.* However, medical malpractice insurance 
costs have stabilized in the last few years in most states. 



1 



271 



Phv;;c:3rs fgar cf hsrrg y^.^ :, ;,.«.:-:.<^ I: is mors iiksiy :han not 
tr.a: at :£as: 02s aaiprac:;;: cia.^ vt,;i be :'ilsd against as obstetrician- 
gynccoiogis: during his or her career. Of all ob-gyas. 70% have 
experienced one or more =:ed:cai maipractice ciaios. Fuiiv :5»3 have 
experienced three or more ciaiais.* 

* "l^-- -g^- S^STerr is ;!ow ;T--?r>«iv; ^nri ineff-cienf fr^r ?" :~vniv;;< a 
I98. study found that average ciaims took more than two years to reach 
resolution. Some cases took up to : i years to be resoivcd. insurers paid 
S800 million to investigate and defend claims in addition to ciaims 
payments of S2.6 billion. .Attorneys' fees for both piaintiff and 
defendant account for 38% of total expenses in resolving an average 
claim, compared to only 43% of total expenses going to compensate the 
victim of injury. 

* State tort reform; have had »pwe fruoagr on the go^t nf T^a'nragrrgg 
insurance, but litiie or nc efieet on access to obsretrieal care. Almost 
every state has passed one or more tort reforms since the i970s. but the 
frequency of claims and the size of awards and settlements have 
continued to increase.' The Institute of Medicine studied the issue and 
concluded that tort reforms 'have not lessened the tort system's negative 
impact on the delivery of obstetrical care nor have they increased 
providers' confidence in the system.*^ 

Medical LiabJlirv Ins--'rar=g and Medicaid 

The difficulty in finding an obstetrical provider is particularly acute for 
women who receive Medicaid benefits and those in rural areas. One of the 
greatest obstacles to increased provider participation in Medicaid is low 
reimbursement rates, especially when considered in relation to reimbursements 
from private insurers and to the cost of medical sulpraetice insurance. (See 
Chapter V for more discussion of Medicaid participation.) A 1988 study found 
that in eight states, including two in the South—Louisiana and Missouri, the cost 
per delivery of medical malpractice insurance was higher than the 
reimbursement rate for that delivery under Medicaid. In these states, 
physicians actually lost money for each pregnant Medicaid patient they served. 
In many more states, the reimbursement rates were very dose to the cost per 
delivery for medical malpractice insurance. 

Table 4 A compares 1990 medical malpractice insurance rates with 
Medicaid reimbursement rates. The differences in just two years are marked. 
Only one Southern sute, Florida, has medical malpractice cosu per delivery that 
are higher than the Medicaid reimbursement for a normal delivery. 
Reimbursemenu have risen in most states in the last two years, while medical 
malpractice insvraoce rates have stabilized in some areas. However, it u 
important to note that medical malpractice costs per delivery are still very high- 
averaging S333 across Southern states — and these high costs can result in higher 
physician charges. 

P^ffhlfftn^ Faced bv Other Providers 

Problems experienced by ob/gyns are also felt by family physicians and 
other obstetrical providers such as certified nurse midwivcs. Family physicians 
who include obstetrics in their practice paid an average of SI 0,000 in 1988 for 
malpractice insurance. Those who don't practice obstetrics paid an average of 
S5.600. Premium costs for family physicians who included obstetrics in their 



272 



practice iacrsassd 4550 bstwess 198T and 1988. siuch faster t.'ias for thos: *-c 
d;i not, who facsd a 54^ iscrsase."^ While the cost of coverage aiay see:: low 
ccr.?3red to the buraea faced by ob/gycs. family pny$;ci2r.s deliver far feu;.- 
bacies. so the cost per delivery of aedical malpractice may be very high. A 
;988 survey by the American Academy of Family Physicians found that iS'r cf 
farriiy physicians had discontinued obstetrics because of liability problems, zzz 
ar. additional 6^ had decreased the nu_mbcr or type of obstetrical proced-res 
because of medical liability problems." 

In many states, the use of certified nurse midwjves is increasing because 
of the high quality patient care and improved patient education they provice :o 
low risk patients at low cost. Certified nurse midwives face relatively high costs 
for medical malpractice insurance compared to both their average income ar.d 
their risk of being sued. Only 6% of certified nurse midwives have ever been 
sued, and yet insurers charge them the same rates as physicians who accept only 
low risk patients. This means that with an average annual income of S33.000. 
certified nurse midwjves can pay as much as 21% of their income for liability 
coverage. Obstetrician-gynecologists pay an average of 10%." Another probie.-n 
for certified nurse midwives is that insurers often attach a surcharge on the 
medical malpractice premiums of physicians who supervise them. Nearly half cf 
physicians who supervise one or more certified aurse midwives paid an 
insurance surcharge ic 1987." Insurers claim that a lawsuit is likely to name the 
supervising physician as well as the certified nurse midwife, but the American 
College of Nurse .Midwives argues that the surcharge has no actuarial basis and 
limits their employment opportunities. 

Tn«L'r;nce Regulation 

Regulation of the insurance iadostry has traditionally been relegated to 
states. State legislatures establish parameters within which companies may offer 
their products, and state insurance commissions or boards enforce the laws. 
State regulation is not intended to restrain inflation in medical malpractice 
insurance rates. Legislatures give state insurance commissions little or no 
authority to deny or restrict rate increases, perhaps because the availability of 
medical malpractice insurance has been a problem; 40 states have physician- 
owned medical malpractice insurance companies that were formed in response to 
other insurers pulling out of the market entirely, or pulling out of particular 
states." 

As Table 4B shows, nearly half of the sutes in the South allow insurance 
companies to file rate increases and use them immediately, unless they exceed a 
specified percentage increase set by law. Even theti. if a company provides 
documentation that the rate is justified, they can use the new, higher rate. In 
states that require prior approval for a rate increa se , insurance companies must 
submit proof that rate increases are justified and wait a specified number of 
days before new rates go into effect. Even with this process, rate increases are 
seldom denied. Although insurance companies are sometimes blamed for the 
high cost of medical malpractice, and accused of reaping undue profits, 
numerous studies have found that variations in insurance prices are not 
capricious, but are due to the number and size of awards and changes in the 
overall economy." 



273 



POSSIBLE STATE ACTION TO SOLVE PROBLENIS ^TTH MEDICAL 
MALPRACTICE INSURANCE 

1. Encourage obstetrical providers to care for Medicaid*eiigibie. low iacoae 
aad rural patients by subsidizing their medical malpractice insurance or 
assuming state iiabiiity. 

2. Continue current tort reform efforts, and expand efforts to include 
consideration of alternatives to the tort system. 

3. Ensure quality of care for patients by strengthening medical practice 
boards, and supporting risk management activities. 

Encourage Providers to Care fo- MeJisaJd-elieihle. Low Incstr.e and R-jral 

A number of states concerned about gaps in access to obstetrical car: for 
rural rssidests. or women eligible for Medicaid, have instituted new systems to 
subsidize medical malpractice insurance or provide state-funded indemnity for 
obstetrical providers. One of the first such initiatives began in Montgomery 
County. Maryland in 1987 when two hospitals stopped performing deliveries of 
Medicaid patients, leaving only two more to handle approxitnately 800 deliveries 
each year. Obstetrician-gynecologists in the area complained of medical 
malpractice rates that were so high that the Medicaid reimbursement rate would 
not cover their costs. In addition, physicians felt that the area's Medicaid 
patients were often at high risk medically or socially, so the exposure to 
potential problems was great. In conjunction with an insurance company, the 
County agreed to assume the liability for physicians they recruit under contract 
:o perform deliveries of .Medicaid patients at local hospitals. 

North Carolina's Legislature passed the Rural Obstetrical Care Incentive 
in the 1988 session to help alleviate shortages of obstetrical care in rural areas. 
The bill provided S240.000 for a one year pilot program to help cover medical 
malpractice insurance premiums for family physicians and obstetricians 
practicing in medically underserved rural areas. 

In 1989, the Texas Legislature passed a broader initiative as part of an 
omnibus rural health bilL Cospoasored by Rep. Mike .McKinney, a physician, the 
bill establishes a state-funded indemnity system for any medical practitioner, 
including nurse practitioners, certified nurse tnidwives, physicians* assisunts, 
aad phvsiciaas. To qualify, at least 10% of patient encounters in a year need to 
be charity care, which includes Medicaid and other publicly funded maternal 
and child health programs. The program offers medical malpractice premium 
discounts to qualifying practitioners, and state payment of claims against 
participating practitioners of up to S 100.000 for obstetrical care aad S25.000 for 
other medical care. The Omnibus Health Care Rescne Act, H.R- 18, was 
supported by a broad coalition of legislators, providers aad advocates who were 
concerned about severe access problems in rural Texas. A survey by the Texas 
Medical Associatioa fouad that 61% of family aad geaeral practitioaers had 
limited or eliminated obstetrics from their practice, aad 21% of obstetriciaa- 
gyaccologists had limited their care to Medicaid aad iadigeai patieats. 

West Virginia's Lcgislatare passed a bill in the 1990 session which 
authorizes the State Board of Risk aad Insurance Management to establish a 
statewide insurance fund to provide primary medical malpractice lasurance to 



I 



274 



any medics' practiticser who provides obstetrical car; :c paiients eligible for 
Medicaid. Participatmg physicians win pay a surcharge for each Medicaid 
delivery into the insurance fund in exchange for coverage c: up to Si million 
per incident. Doctors will also be abic to purchase additional insurance up tc S5 
million. The intent is to reduce the risk for insurance companies so that 
insurance premiums for physicians in the state will drop. W-st Virginia passed 
this bill in response to a critical provider shortage. Five years ago, there were 
SCO physicians delivering babies in the state. This year, there are only 80 
oc-gyns. 20 family practitioners, and two certified nurse midwives left to attend 
an estimated 21.000 births. Since nearly half of deliveries in West Virginia m 
any given year are Medicaid eligible, the plan is likeiy to aid a large number of 
the state's obstetrical providers. 

Alabama's Legislature will be considering a bill in their next session 
which would take an entirely different approach. The bill would establish a 
grant program within the Department of Health for obstetrical providers who 
locate in rural or medically underserved areas of the state. Grants of up to 
S30.000 would be available for physicians who established new practices to help 
then defray costs of medical malpractice insurance. Over the last ten years, 
more than half of Alabama's 430 obstetricians and family physicians have 
stopped practicing obstetrics." It is very difficult for women in rural areas to 
find an obstetrician. The proposed bill. H. 317. has the support of state 
maternal and child advocacy groups, state health care providers and a number of 
influential legislators. 

While it is unclear whether state initiatives which establish state 
indemnity for obstetrical providers will motivate insurance companies to lower 
their premiums, it is clear that initiatives that subsidize medical malpractice 
insurance premiums can help family physicians and obstetrician-gynecologists 
continue practicing obstetrics. In lieu of a more comprehensive solution, states 
can work with state and national medical and specialty societies, including 
ACOC. and the American Academy of Family Physicians, hospitals and 
insurance companies to develop a plan that allows obstetrical providers to extend 
their services to Medicaid-eligible and indigent patients. 

Continue Tort Reform Efforts and Consider Alternatives to rhe Tort Svstem 

States have enacted a variety of tort reform measures in recent years in 
an attempt to curb rising malpractice costs and numbers of claims. The most 
common approaches have been: 

* Collateral soorce rules. These govern whether or not evidence can be 
presented at a trial regarding amooats received by the plaintiff from 
other sources such as health or disability insurance, workman's 
compensation, pensions or Social Security. Some states have required that 
awards be offset by the amount received from other sources; 

* Caps on punitive or noneconomic damages; 

* Shortening the statute of limitations which govern the period of time 
within which a person who has sustained an injury can file a claim; 

* Allowing periodic payments of large damage awards to lessen the 
impact on the defendant and ensure that plaintiffs don't mismanage lump 
sums; 



275 



• Joiat and several iiability laws have been changed so thai defssdaats 
are only rcspoasiblc for paymea: of awards ia proportioc to their fault; 

• Ad dannuni clause restrictions have been enacted which prohibit the 
plaintiff's co=piaint from specifying the amount of damages sought so 
that pretrial publicity does not damage the defendant's reputation. 

Table 4C shows how far Southern states have progressed in implemeatiag 
these reforms. Every Southern state except .S'orth Carolina has adopted one or 
more of the reforms regarding attorneys' fees, damages or sources of recovery. 
In many states, these initiatives have faced legal challenges and have been 
overturned oh the grounds that they unduly restrict consumers' accc^ to the 
courts, or violate equal protection guarantees. A number of states have also 
enacted other system-related reforms, including seven Southern states— Arkansas. 
Georgia. .Vlississippi. .North Carolina. Oklahoma. South Carolina, and Texas~who 
have instituted penalties for filing frivolous lawsuits. Five Southern states- 
Alabama. Florida. Georgia. Louisiana, and Virginia— have some form of 
arbitration available which allows plaintiffs and defendants to settle their case 
out of court.^' Since the public is net familiar with alternative dispute 
resolution systems, states .have found they must promote their use through public 
education efforts. 

There is a growing consensus, however, that these traditional tort reforms 
are not working to resolve access probleou. In early 1989, the institute of 
.Medicine (lOM) released a study entitled Medical Professional Liabilitv and the 
Dei i very of Obsterrical Care . The lOM study concludes that state efforts to 
reform the tort system aave either failed completely, or have yielded results that 
are too limited to help resolve the problem for obstetrical providers. Therefore, 
the lOM recommends that states focus their reform efforts on developing 
alternatives to the tort systesL The three alternative approaches found most 
promising by the lOM study group were: 

* No-fault compensation systems; Under a no-fault system, the legislature 
establishes a board or commission to resolve cases involving specific 
conditions or outcomes due to medical interventioiu. The board sets 
payments for tbose conditions without regard to negligence. Conditions 
other than those included would contiaue to be dealt with through the 
tort system. In addition, any disciplinary action for providers would 
have to be dealt with separately. Advantages of a no-fault system would 
be the reduced cost of settling cases that fit the specified definition, 
settlement in a much shorter time, and uniform benefits for victims. In 
addition, physicians aod plaintiffs would be spared the pressure of court 
proceedings, and medical malpractice insurance rates would presumably 
drop if the no-fault system assumed liability for specified events. 

* An administrative system; In 19SS, the American Medical Association 
and 32 medical specialty societies proposed a plan for a new 
administrative system that would replace the current tort system A 
strengthened medical practice board or new agency would be empowered 
by the legislature to administratively review and rale on claiins. Legal 
representation for potential claimants would be provided. Disciplinary 
action for providers who have rendered substandard care would be 
handled by a branch cf the new agency. Since this system has never been 
tried, it is unclear what the costs or advantages would be. Proponena say 
this system would be fairer and more efficient than the current system. 



276 



Critics say :h2t i: would place too much regulatory power in the hands cf 
the ssedica! profession, creating potential for conflicts of interest. 

• Expanded use of private contract; This proposal would allow providers 
and patients to sign agreemeais which would govern compensation, or 
prccedu-'es to determine compensation before beginning medical care. No 
legislation would be required for these contracts. However, patients' rights 
advocates feel this is not a viable alternative because many patients are 
not educated consumers of medical care, and have limited choices of 
providers. 

Both Virginia and Florida have enacted oo-fault systems which establish 
a neutral panel of physicians to rule on compensation in cases of severe birth- 
related trauma which result in permanent, substantial physical and mental 
injury. The definition of injuries covered is extremely narrow and would 
therefore have the potential to remove only a few cases each year from 
resolution by the tort system. Both systems guarantee prompt payment for 
victims of injury over their lifetime. Since Virginia passed its no-fault system 
in 1987, and Florida in 1988. they are still relatively new and untested. One 
result is that insurers, who had threatened to stop selling insurance in the state, 
have remained. Claims filed under the no-fault plan in both states will be paid 
out of a fund built from initial and subsequent annual assessments of 
participating physicians, and per-delivery assessments on hospitals. 

Tort reforms which limit attoraeys' fees, cap noneconomic damages, 
provide for periodic payment of damages, apportion liability according to fault, 
and reduce awards by the amount already compensated by other sources have 
had some success in reducing the cost of resolving medical malpractice claims 
with the tort system. However, they have not been sufficient to prevent 
obstetrical providers from leaving the field. Therefore, sutes should examine 
the results of their tort reform efforts and consider implementing alternatives 
which give consumers and physicians a way to resolve cases of alleged medical 
malpractice outside of the tort system. 

5:r.;rgrheR Mechanisms to Fnsiire Onalitv of Care 

One of the reasons why state tort reform efforts do not work to resolve 
problems with access to obstetrical care is tlut physicians perceive themselves to 
be vulnerable to lawsuits regardless of oegligence. A recent study of medical 
records and malpractice claims in New York state done by Harvard University 
found that of all the plaintiffs who sned their doctors, only 20% had actually 
experienced an injury due to negligence. '^ Aaotiier study found tbat 60% of all 
claims filed against physicians are dismissed withoot a verdict or payment to the 
plaintiff.'^ This points to the fact that consumers often hold physicians 
accountable for adverse events that are not the result of poor medical practice 
or negligence. Obstetriciatis and family physicians faced with high premiums 
and the potential for large damage awards-ooiy part of which may be covered 
by their insurance—often choose to discontiooe obstetrics. 

Although medicine is an imperfect science, medical care is actually 
delivered with relatively few problems for patients. The Harvard study found 
that 3.7% of patients experienced injuries daring medical treatment, and only 
about 1/4 of those-or about 1% of those admined to hospiuls-were due to 
negligence. Another way of suung that is 99% of patients receive competent 
medical care. Despite the large number of medical malpractice claims 



277 



saticnwics. the s:udy found :r.a: osiy ess :z sigh: patiests who suffcrsc aa 
injury due to nsgligeac: filssi a ciaie. About 16 times as many patients w-re 
injured by negligence as received costpensation through the New York tor: 
system. Most incidences of injury due to negligence were minor, and 2 majority 
0:" patients recovered within six months.** 

Risk Managerient 

Physicians, hospitals and insurance companies have responded to the large 
number of medical malpractice claims, high damage awards and high medical 
liability costs by instituting a variety of risk management and peer review 
activities to improve the quality of care and protect themselves from lawsuits by 
reducing adverse events. Almost all insurance companies that sell medical 
malpractice policies have voluntary or required participation in risk xnaaagement 
activities. These vary greatly, but include providing seminars for new 
physicians or those with large numbers of claims on using informed consent and 
communicating with patients, risk analysis surveys and reviews of claims, 
newsletters on risk management and using professional standards of care, and 
correspondence courses.^ Participation in these activities is often encouraged by 
providing premium discounts to physicians who do so. Physician-owned insurance 
companies have extensive peer review of claims which can result in insurance 
surcharges, restrictions in practice, requirements for further training, or denial 
cf insurance coverage for physicians who are found to be negligent. 

Risk management activities can result in substantial improvements in 
patient care and reductions in risk of mediea.! malpractice cUims. Harvard 
University hospitals, who are self-insured. found that their claims resulting from 
anesthesia-related injuries were large. They assembled a committee of 
anesthesiologists to develop practice guidelines for their hospitals. Published in 
1985. the eight principles or guidelines have been nude mandatory in Harvard 
hospitals and have been widely copied elsewhere. Since 1985. there has not been 
a single death at their hospitals during the administration of anesthesia and, 
consequently, insurance premiums have dropped dramatically. ACOC has 
developed and periodically updated a comprehensive volume of practice 
standards that can be used as a guide for institutions or individuals involved in 
risk management evaluations.'* 

<;targ Rggulation nf Medical Prairtiee 

The traditional mechanisms for regulating the practice of medicine and 
censuring negligent doctors arc sate medical practice boards. State boards have a 
range of options in dealing with a physician who has been found to be 
negligent: reprimands, admonishments, limitations on narcotics permits or 
prescriptive authority, restrictions on practice, license suspension and license 
revocation. Despite their broad authority over physicians in practice, sutc 
boards revoke very few licenses in response to cases of negligent medical 
practice: less severe sanctions, or censures for action unrelated to medical 
practice, are much more common. A 1985 study found that three-quarters of 
state board actions involve inappropriate writing of prescriptions and abuse by 
physicians of drugs or alcohoL Of the remaining quarter, most actions were 
uken in response to a felony or fraud conviction, and not for incompetent 
medical practice." Sute boards are hampered in their ability to oversee medical 
practice by strict rules regarding the burden of evidence required to revoke or 
suspend a physician's license, a Uck of extensive peer review apability needed 
to properly evaluate cases, and a severe lack of resources that has resulted m 
backlogs of cases in many states. 



278 



1= 1986. Congress passed the Health Cars Quality Inprovexent Ac: :o 
hii- s:s:es assenibie a centralized pool of information about discipiicary ac::or.s 
"a'jc*- and izsuraace claims made agaiast physicians. The law established a 
NstVcr.ai Practitioner Data Bank which was funded for the first time in 1989. 
""hcData Bank is intended to centralize information on disciplinary actions 
:VK"er. c>~ state licensing boards, hospitals or other institutions to deny or revoke 
ad--'":::r.g priviieaes. and medical malpractice claims paid by insurance 
rcr^panies on behalf of a physician. The intent of the law is to prevent 
rrrilp.j.-t phvsiclans and other licensed providers from moving from state :o 
star": to escape knowledge of prior incidences of negligent medical practice, or 
other problems. 

States need to do everything in their power to ensure that the quality of 
cart delivered bv all medical practitioners is competent and appropriate, and 
tha: occurrenccs'of medical malpractice are minimized. State medical practice 
boards must be given the resources, authority and peer review mechanisms to 
Quicklv resolve all reported cases of alleged medical negligence, and take the 
necessary action to censure, train or remove from practice physicians who render 
substandard care. States can also encourage or support risk management and 
peer review activities at all state-supported medical institutions to try to reduce 
incidences of poor medical practice. 

r-ic:-jsion 

A major cause of the obstetrical provider shortage is the high cost or 
unavailabilitv of medical malpractice insurance, and physicians" fear of being 
sued Traditional tort reforms have been partly successful in some states in 
ensuring the availability of medical malpractice insurance, and in limiting cost 
increases. However, manv states are studying or implementing alternatives to 
the tort system, and assuming liability or subsidizing insurance premiums for 
providers of charity care, in recognition of the fact that traditional tort reforms 
have not stemmed the exodus of obstetrical providers from the field. 



10 



279 



TASLE 4A 

KSD ICAID RSIKBURSSMEKT RATSS C0KPAS2D TO 
AVERAGE KZDICAL MALPRACTICE INSTJRAKCE COSTS 

19SC 





Medicaid 


Average 




Fees for 


Medical 




a Noraal 


Liahili^y 




Deliverv 'i> 


Per Deliverv f2\ 


STATE 




Alabama 


SIOOO 


$324 


Arkansas 


750 


100* 


Delaware 


590 


280* 


2.C. 


1084 


421 


-lorida 


ICOO 


1040 


Georgia 


12C5 


246* 


Ker.rucJcy 


SIO 


219 


Louisiana 


SIO 


379 


Maryland 


1194 


330 


Mj.ssissippi 


726 


256 


Missouri 


1050 


840 


N. Carolina 


925 


166 


Oclahoaa 


750 


370* 


Snicr^o Rico 


n/a 


n/a 


S. Carolina 


1010 


37 


Tennessee 


725 


158 


Texas 


804 


353 


Virginia 


930 


149 


Virgin Isls. 


n/a 


n/a 


w. Virginia 


950 


333 



71) Fees lisrad are exrher global £ees (including prenaral care, 
a norsal delivery and postpar^ua care) , or reijuburseaenrs for 13 
prenatal visits, a nornal 'delivery and a risk assessment where 
required. Soxirce: Aaerican College of Obstetricians and 
Gynecologists and thm Southern Regional Project on Infant 
Mortality. 

C2) Average medical liability rates per delivery are based on 165 
deliveries pmr year, the average nuaber reported by ACOG in 1988. 
Insurance rates used are the average charged by the two insurance 
companies with the top market share in each state. Rates are for 
"claims made* policies of $1 million per occurr«nce/$3 million per 
year for obstetrician-gynecologists. * Rates in these states 
supplied by St. Paul's Insurance Companies, Minnesota. 

Data not available for Puerto Rico and the Virgin Islands. 

Source: Southern Regional Project on Infant Mortality 1990 survey 
of state Insurance commissioners. 

11 



280 



TABLE 4B 
STATE RSGCIATION OP KEDIC&L MALPRACTICZ INSuSAKCS 



Type of 



Authority 

to 

Deny Rate^ 

Increases* 



Hearings 
Required 
en Rate 
Increases' 



Special 
Prcgrans 

for 03 



Lrers 



-c« 



Alaba=a 


PA 


Arkansas 


ru 




rU 


Delaware 


PA 


ricrida 


FU 


Georgia 


FU 


Kentucky 


FU 


Louisiana 


PA 


Maryland 


PA 


Mississippi 


PA 


Missouri 


FU 


N. Carolina 


FU 


Okiahoaa 


PA 


Puerto Rico 


PA 


S.Carolina 


PA 


Tennessee 


FU 


Texas 


?A 


Virginia 


FU 


Virgin Is Is. 


n/a 


W.Virginia 


PA 



Y 
y 

y 
y 
y 
y 
y 
y 
y 
y 

N 

y 
y 
y 
y 
y 
y 
y 

n/a 
y 



K 
K 
K 
N 
N 
K 
N 

y 
y 

N 
N 

y 
y 

N 

y 

H 
N 
N 

n/a 
y 



N 
N 
M 
N 
N 
N 
V 
Y 
N 
N 
N 
N 

y 

K 
N 

y 

N 

y 
y 



:posec 



Source: Southern Regional Project on Infant Morutlity 1990 survey 
of State Insurance Cosailssioners. 



^ PA a Prior sppreraL Inssrers most obtain approval from the sute insurancs 
commission or board before charging new rates. FU > Flic mad ose. Insurers may file rates 
and begin using new rates immediately or within a specified time period. 

*Most sute insurance boards have very limited authority to deny rate increases. 
Commissions generally deny rate increases only when they are not justified by actuarial (lata 
or documentation is insufficient. 



im 



'in most states, public bearings can be requested by insurers or are required only if rate 
reasss are denied. 



*The Puerto Rican government requires insurers to charge lower rates for Medicaid 
providers. The Virgin Islands subsidizes medical malpractice insurance for all medical 
practitioners to the extent they serve indigent patients. See chapter text for details about 
programs operating or proposed -in Alabama. Maryland, Texas and West Virginia. 



12 



281 



rABLZ 4C 





•rKAOi-.. 


:OKAi ^ 


TORT KSFORMS 


SNACTilU 


IN 


SOL'TUZSK 


STATES 




Att: 


;mey 


collateral 


Joint 




Linits 


Periodic 




Fee 




Source 


& 




on 


Payaent 




I~i:z: 


Lts 


Rule 


Severa 


,^ 


Dasages 


of 








CD 


Liabil 
(2) 


"ity 




Damages 


STATS 
















XL 






y 






y 


y 


AH 














y 


D£ 


y 




y 








y 




y 




y 


y 




y 


y 


GA 






y 


y 








XY 






y 


y 








LA 












y 


y 


MD 


y 










y 


y 


MS 








y 








MO 








y 




y 


y 


NC 
















OK 


y 














SC 














y 


TN 


y 




y 










TX 








y 








VA 












y 




WV 








y 




y 





(1) Collateral Source Rules govern compensation from sources other 
than the defendant such as health insurance or vorlcers' 
compensation, usually by mandating that awards be offset by the 
amount already received by the plaJjitiff . 

(2) Joint and several liability statutes govern the extent to which 
a number of defendants are liable for damages. Joint liability 
means that defendants are equally liaible for damages, regardless 
cf fault. Several liaibility means that defendants are held 
accountable for damages in proportion to their fault. 

Data not available for the District of Coliaabia, Puerto Rico and 
the Virgin Islands. 

Soxirce: American Medical Association Tort Reform Compendium, 
1989 



13 



I 



282 



Ckie, Susan, "Sericus Threat to Obstetrical Care Seer.," The 
washir.ctcr. Post . October 12, 1939. 



,1 ^w 



he American College of obstetricians ar.d Gynecologisrs, 
Cb/Gyr. Ser\'ices for I-digent Woaer.: Issues Raised by ar. 
ACCG Survey," aonograph, 1986, p. 2. 

3. Cpir.icn Research Corporation, "Professional liability a-d 
its effects: Report of a 1987 Survey of ACCG's Membership," 
The Aaericar. College of Obstetricians and Gynecslogisrs, 
March, 1988, p. 11. 

4. Ibid. 

5. Ibid, p. 14. 

6. General Accounting Office, "Medical Malpractice: A 
rraaewcrk for Action," CAO/ERD-87-73, May 20, 1987. 

7. Testiacny Presented to the Health St:bccscsittee of the 
Cossittee on Ways and Means, U.S. House of Representatives, 

April 26, 1990, Appendix A. Source: The Rand Corporation. 

8. General Accounting Office, "Medical Malpractice: Six State 
Case Studies Show Claias and Insuraiice Costs Still Rise 
Desoite Reforms," GAO/HRD-87-21, Govemaent Printing 
Office, 1987. 

9. Rostov, Victoria, editor, "Modical Professional Liability 
and the Delivery of Obstetrical Care," Institute of 
Medicine, National Academy Press, 1989, vol. I, p. 131. 

10. Rostov, Victoria, editor, op.cit.. Table by Dana Hughes and 
Sara Rosenbaum, Children's Defense Fund, 1988, pp. 61^62. 

11. Schnittling, Gordon, and R. Michael Killer, "The Impact of 
Prohibitive Liability Insurance Upon the Obstetrical 
Practice of Family Physicians: A National Study," 
American Academy of Family Physicians, 1989, p. 3. 

12. Ibid., p. 6. 

13. Rostov, Victoria, editor, op.cit., pp. 104-107. 

14. Opinion Research Corporation for the American College of 
Obstetricians and Gynecologists, op. cit., p. 8. 

15. Fager, Donald, Testimony Presented to the subcommittee on 
Health of the committee on Ways and Means, U.S. House of 
Representatives, Physicizm Insurers Association of America, 
April 26, 1989. 

14 



1 
i 



283 



16. Rcstow, Vicccria, editcr, op.cit:. 

"!7. Rcsenbaua, Sara, "Medical Liability Victcry in Texas," 
Ir.'Eemal Mesorar.dua, Children's Defense r;ind, July 13, 
1989. 

18. Ccnversation with Doris Bamett, Director of ?a=ily Healtii 
services, Depart=enr of Health, Aleuaama, July, 1990. 

19. Banr.on, Nancy, "AMA Tort Refers Co=?endiuE," Aaerican 
Medical Association, Chicago, IL, 1989, pp. 132-134. 

20. "Patients, Doctors and Lawyers: Medical Injury, 
Malpractice Litigation, and Patient Coapensation in New 
York," A Report by the Harvard Medical Practice Study to 
the State of New YorX, February, 1990. 

21. General Accounting Office, "Medical Malpractice: 
Characteristics of Claias Closed in 1984," GAO/ERD-87-55, 
Gaithersburg, Md, 1987. 

22. Harvard Medical Practice Study, op.cit. 

23. Rostow, Victoria, editor, op. cit., vol. I, pp. 219-224. 

24. The Aaerican College of Obstetricians and Gynecologists, 
"Standards for Obstetric-Gynecologic Services," Seventh 
Edition, Washington, D.C, 1989. 

25. Dept. of Health and Huaan Services, "Medical Licensure and 
Discipline: An Overview," Office of the Inspector General, 
Boston, Mass., June, 1986. 

26. Schwartz, William B. , H.D., and Daniel N. Mcndelson, "The. 
Role of Physician-Owned Insxirance conpanies in the 
Detection and Deterrence of Negligence," .jgu-Tr.al of the 
Aaerican Medical Association . Sept. 8, 1989, Vol 262, No. 
10. 



IS 



284 



Infant Mortality Rates. . . 
Improvement in the South 



Sute 


1985 


1989 


% Chance 


Ali=a=a 


12jS 


11.8 


-6.4% 




11.6 


3.9 


-733% 


Deiavk-are 


116 


iZ3 


-2.4% 


Distrin cf Co:un:bia 


20.S 


22.5 


-S.2% 


Florida 


:u 


9£ 


-13355 


Georpa 


1X7 


12.1 


-4.7% 


Kearjcky 


112 


8.6 


-23.2% 


Louiaaiu 


11.9 


lU 


-5.0% 


Marv-iasd 


11.9 


9.1 


-233% 


MississiDsi 


lj.7 


10.8 


-21.2% 


Missouri 


10^ 


U.4 


■rns% 


Nonh Caroiina 


11.8 


11.4 


-3.4% 


Oidahoaa 


10.9 


9.1 


-16.5% 


Puerto Rico 


145 


14J 


-4.0% 


Sou± Carciina 


IA2 


12.4 


-12.7% 


Teanesses 


11.4 


IIJO 


-3J% 


Texas 


9^ 


9< 


-3.1% 


Vagia Islands 


17.7 


N/A 


N/A 




11^ 


9.5 


-17.4% 


"Wesi Vi:;ginia 


10.7 


9.2 


-14J0% 


SOUTH 


1Z4 


113 


-8.9% 


VS. 


10.6 


9.5 


-10.4% 



For more detailed iafbnnatioo oonceroing the aixai mortality rates 
cispiayed in the chart above, or on programs described in this issue of 
Sp ^ OiU D cUwij, ' UJuiJa Cmiij -Wc Ov^ei" « 202?624-5897. ■ 



Southern Xegioaal Projea an Infaat Mortality 

Soux^cn Oo^TQors AsKcimoB 

Sootbrrn IrghUtr v c Coatereace 

444 Kortfa Capital Sc N.W. - Soite 240 

Wiahiogiaa, D.C 2tXX)l 



^|.^.|, 



Jl Ji 




'^^'^BwOStC 







I 






•,. Herbert NUes^t.u^^^ 
650 Penn. ^^^^ -000" 



ut 



285 



NC- Von; TlT^iG^, A^-.- 

IMPWNT INDUSTRY 
IS FACING CUTBACK 
By TOP SOPPL IERS 

THREAT TO MEDICAL GEAR 



Giants Lilce Da Por.* and Dow 

Fear They'll Be Drawn Into 

Product Liability Suits 



By BAXNABY f. TZO BR 

Big dvetnicil cwnpanr^ tni other 
rnvwticurert of roucrtab used to 
mak« hurt rmWM, artlfida] tiksod 
veoeU xsi oOkt lmpl««s lave been 
quietly wzrsng x<£}ca] equtpmeot 
eca;>*Mei ui«t tt«y ir.tead to en on 
deliv«Tie£ beuuse of itxn ot Uv- 
suits. 

WhCe the wpfiUefr ae« pauoes 
h»Te not yet roroed tepenant prod- 
uc» f rsm tb* ciAiket. iMdicsU e()ut^ 
sent ci«j(ars BkU on scrunMn{ n 
prcteci thetoseivs <raa (be topentf- 
ra« eutoft* uy Otey <re iavtttx tnu- 
We usjv up alternate wpfjiint. (■- 
tfunry executives aad docton uy 
thit tbe mad could wentuaUy make 
setae UlevaTuu; otiptaiKs hard m 
ec9« by and have « dcvasutsg cl- 
tea on dcvttapoMfit et ac« deviea^ 

About too «qulpRient canpaowc 
bawt tlreidy had supply problems, 
sccsrdlnt to repcns nc i wri by the 
n*«mi Lodust/y Maaufactur«fs An«- 
ettuotv Om eQuSpmaa rntken' 
WasAisgten-bucd tnde group. . 

Th* eaat*rial« iaaautietar*f«. »• 
cludtct xjosu like E. L du Foot de 
Neraoon and I'm Oow Ch egjc a l 
Cempaoy. arc df«ppiA2 tt>» medical 
busUiew bi respou* to 8m hi(b rtsk 
«f betftg dragged Into Vtnua filed 
acalns imfUmr makara by ooocoin- 
ers who tay lAey b*v« beao tatorad 
by dciactivc product*. Suppheis ba«t 
•irvady been nasMd in tiuBdreds ef 
Kua lAvcivini law unplams. siiicoae 
braatt iieplarti and other dev«ccs. 

EQuiptnent makers siy thai the 
UUtauon that net prompted tfle suo- 
ptaers 10 wiindra« has also made n 
harder to obtam the tnatcnats lodi- 
reaty ihrouafi dairtortors or other 
mlddlcmtn. la addition, sone etpnp- 
taent corn?tiu^ say elecmajct com- 
panict and o<h«r important auoeen- 
tractors ttui assemble atgMeeh 
compmems tor e>e «r.«: sophjsueat- 
«d impunu are increasmsiy irtut- . 
tani to take on such bustfsess. 



)r>~, pi«e A2 



••^QU can WK ■ tr.stuter secnarta 
wtter* thU «eta wtiiiy out of hand." 
said CurtU Holmci, vice jrcsideu for 
tcennuk^ty <^ Wilsen Creoibatch Lid. 
of Oireace. N.Y, a suppiicr of tuMi- 
tm batttrks for heart pacercakers. 
Wltaon U scratsbllac for a rtplar*- 
f-.enc far Oe ptacfc of Du Potst Teltoc 



Con:fiRiCd From Pagt At 

. roe* » each batte^. Replacias dM 
'eflee cetdd ultimately cost up lo 
SCQM tt usung and rcsuUunr 
eartta* and take mcarchcni away 
mm devaloplAg prodttos. BtK ttsst is 
ot wlut really worries Mr. Helmo. 

-Wat if f h* iittiiuin eotopaniet d*- 
rte tney doon warn to «en to «»?•• h» 
tked. "Ve the iodine, st«lslest tteel 
t tttaoiiim {KtvnieeraT*' 

Despiu bebicdHha-sceae* lobby- 
ig, eqniptneat makers end madical 
ro^ have 30 far raised Ittde coo- 
tm Is Vatfiioston about the trcttd. 

Contuiser sreups say the ehctstcal 
ontpantts* aiovas are steady part of 

brosoer campaisn ey laomry to 
ressure Cengnst to linnt the re. 
r«s* availabw bi cotsis for tAeie 
3iue*4 by dafaetlv* Droeueti. B>a 
ae kadisg sttpporter « lestslation to 
'*e(liaul pnouct-babifiqr nties baa 
«en eonrmeed that the iatplsnt mak- 
TS'pll^it )i f ipf^iB l eaac. 

"T«is U a public healdi time 
■omt," saldSetuior JoaepB L Lieber- 

oan. Oeuniwat Of Cosnicticut. «bo 

«pes to bold bcarop on tfte ss^ect 
ttsx nonth. Seaatar U^erman said 
hat 8lthai<eb «^ pmpesed efaaaees in 
■rodeet ttaaUty laws would radaee 
caterlab auppuers' exposure to law- 
oits. tbe proBlen aigxt have to be 
>«ir wuA ti uuu^ii speeiflc laaattace 
r. the bealta caratnerttattl l^lattaa 
jeing wrtnea ea Capaoi UUl. 

The foedleal cquipeieat tsakers 
fear that partia; ;i«weafcai from Jici- 

Stlea wm am be eaoagh ta bring 
di U« bis ekamJeal and piastjoc 
SBp^ien becaoe they have aotStle 
ts uin tram ibe nedicat boslaco. 
Medical devws typicaiiy tiM ssuU 
quaiutties cf raw maiariaii eon- 
pared woh ctber appbcatiaBa. 

Polyester yarn, lor example, is 
used a aniucui wood vessels, aean 
vaNcs end s»tgi«s Ml ia the body 
after inttmal suneiy. Total annoal 
sataj for >uch IMM ara lots (ten 
S20aSM.ataiyfrarjefloflperceMaf 
the a biOioo market for such yam m 
rtnthna. iiomes and Industry, accord- 
tag to a recant staty for tbe Keaitb 
tr.dustry Maxmlacturers Assaciatioa 

A Otos la the Bodctt 

Another ctaterisi being wiihdrawD 
from Oie implant furtet by Ou Pota 
and Hocchst Ceiaoese ts polyacetal 
resin. The autoreetive. tndustriai, 
p;uabing and consumer products 
sectors buy SI J btUlon of It amuaUy ; 
tne unptan: loOustrv bu;-« iu<t SSfi 
peunds. vak>ed at sJOO. for ess ir. 
hcaii vitves. 




tM ivnckTtaa 



Ptfletran. a poij 
Dow Otealeal boon I 
iHcrtfat loartDBt in 1 
products nice sirnnK 
athletic shoes. The nc 
so small that Sow < 
(eaUee that eempan 
trattc laCs tbe world' 
mater nuAUttetttre] 
trane as a ceetins of 
after Dow acquired its< 
Ibe lA^dui Company 

h> the past, cooipao] 
ftav««mede pcdodcu 
polyester. Delm potya 
Teflon petyieirafhioTt 



rethane thai 
niag from the 
4, is osed in 
lie hoses and 
■eal naricet ts 
M K did IMI 
> like Med- 
Urges: uce- 

tscd PfU^ 
1 threa y ears 
^sicess f rots 

IIKk 

I 'Ike Ou Poot 
like Dacrvn 
nal resffl and 
Jiylejie fiber 



84-714 0-94-10 



286 



tz£ rasjis avtiUfck ts fr.«i:s*j ecm- 

a:tl a»7 hJUl «wt o««n ^ttieC in wo- 
way 13 estttuei Cax »uiu&UHy lor 

-ever/tWng U iMnuftetureC lor 
Woiir* •"« eeniumer purposw." 
iii^ K»aienn« Knox. Ok mafuger 
overj««a» IW font* irmnsiuoo to- 
wwti cutting oK sU wci s*l«s. -iot 
terJO ye^TJ we h«<i « policy «« •« 
wouWr'twlOhOkl mitarUS from tft» 
r.«Jis«l ssoor beciusc w« dlbal 
w«n: to Bihlblt devtiopmesL" 

That policy bc»u m ima !oeIiati 
after « (urt-vp oonptny ia Hegctoa 
VBtic toe used Tcfloa to Kike c }tw 

Big companies 
don't want any 
blame for misuse 
of their products. 

tmplaaC The device was mat] by oral 
n neons in more (lua 25,000 patiesu 
;c tM tMO't to mat teapoTO-niao- 
&su!ar ^fiiZR lysdronw. wmcs causes 
pam. cUclcir^ aunds tn «M jtw and 
restricted taw movcoent 

Bach Vu«k knptaAt usad about S 
eeots' wcfflt oi Ttflca. Ob Pont 
played ts TVii in dwigmtit or seUla^ 
rbc piDducL But wtws Ow t-nplantt 
began ce UU. ptatiatUTs' lawy«rt, wtio 
anueipated that Vttck «o«td sooe bt 
twsxiped by ruinrt. odea Bsovd Ou 

Putil *» a o»4«(oo«anl. 

Tb* pUJulMi. «iM were secklnt 
cattpffni t » iw for dtsflguremect, de> 
f ir^ nktn . tiinBie. pais aad spasms 
(bat ifltarfcred wnti aotvities Uke 
eatint ttd taSdag, have a.'zued tax 
Du POM icnew or snouid faav« tGoowB 
tnat ituon wu tjnsuitad for vuck't 
"• ttnplasts and mould have refuted to 
Siraty K. So Ur, Ou Portt tas aocctst- 
iuuy dcte n^ d all but enc suk. It ayt 
it M eoandest of havmg tbat jury 
verdid Osrewn out oa appeal, but Us 
i«sai coats are rufloint tato tens oS 
nUU0Rse(4anai>«. 

Da Pom told eusuaars m Janaiy 
vm (bit it would stop svpfXyms tag 
etatartala u Iwptaix cuiov»aim» ia « 
yctft titna. But csfflplaimi (rem 
eustoflsart tbeiK diOicuhies Undiitg 

tttaraaet auppUen quMkiy hxl lh< 
oompiny to graat pvmissnQ for tbt 
sale al an cart two years' supply. 

ta Poot also asreeo to evauaw 
casa by case the prsblems e( any 
eempaay tnabie to find alternate lup- 
pttes by than. Some may er.:i up oes- 
ii;nM fu< uiota lioic. 



•■'W« ve i??rs*c.*vei more tjur. H 
polywtif m4Mr» t» Um Lr.lud Staler 
tr.i E-rop«, ftci Ox besi response 
we ve hag k far tuts been a few 
people wUhRg to etvt us samples to 
lAO. wcETi no ca(tt.-a((/ner.t to supply." 
said Ccuus Gemio. vk* prcsidant of 
product KPrciUaaco at Medoz Medl- 
cala l«e^ >a OahUind, KJ« inaiiuta<> 
turef of artinetal blood vessels and 
otber vascular inlts made of Oi 
Paat's OserotL ^W« are bepia« la 
fbid an tkeratM wd M( ft (hrou«n 
Dm rotulaterY precMt is line but I 
wouidst say Vm o^wustic" 

Lcnl cUias tatalini bttuoas of 
dollars hBV« pOad U9 iavalvifts faulty, 
breut ia^vu (hat nsad tiUcona 
oiadt by So* Coniaq^ wMeh ius 
stuped cup9tyias atUeena lUbber to 
(tiflst ttitttofliwtt ffiiffipi*^**- 

nnw Ooniiac laade tiueost breast 
isniaau and MiMtout ettier davieaa 
at wen as nw matarUU for Mtter 
eompaaics. Btit as (be suut iKiu- 
pt«d, base aOteoov 3utii>ii«fa wiUt ■» 
oclior commct l BM to tbe anplaitts, 
Oka OMCtal Elaeuic and Uaioa Car- 
Mda, vera also aamMl as d^endaatSi 

CoBJOoer advoeatef int« Dr. S«- 
o«y voffe. (ha ne«eal «Rair( 
sookeaaa for (be PttbUe OUaca 
Htaiih ResBueb CraA »■ wastiins- 
toe-baaed tofabyias snwp. sty ibt lilt- 
aatieo is aa tnevUabic rentt o( i 



from* twppUarc *" w r.t t: cor 

unuc deiiiAa w;?. ii.l c-f.c— .en 

uui ssree to wy fer s ' liugiiicn 

coiu mat mij.'it eotae i; Dow Cor- 

nlci. for example, tail pplias sIU- 



gacaoi 

guided Federal irws asd polickf Oat 
teve allowed aacst isadicai tn^tans 
to raacA Ae pobUc vttbeut «it«st*e 
tesuij aad tpadflc awiuvid Irom 
the i^bod aad Qrus Acmtrtatrafjon. 
"ne basic lav fovasnlat taedieal dt- 
viees. peaaed ia ItM. eUowerf •(|iit(>- 
mot fluiten to martlet pradiios and 
tDtroduee aaw ooaa witiiaBt VtofOif 
CawenuaK revfowa by cubminiaf 
evidasca dtat fiwy war* ^tabttandaP 
iy tiaUar" to pndoos already aotd. 

Or. WoUa aaid tt made acasc to 
nave s«mian ioBi^wtttt tbecq^ 
mcnt BiBcen m protecting coosub* 
en tren wBat he sees as dcQOooaas 
tn tb« l>7< act. 

**If you MU soaechiDgt you ai* to 
tba ctolB of l a tp o nafci niyr Dr. woue 
said. Evouoiiiy, ba said, dia lawsiats 
will latd to the uaa «( bcn»T»^ a alHy 
naterials ia BMdleal aqutptaeat. 

Sappbara aad aartpawnt isaicers 
rfbu iat ww, aayiwf aya a p o Ufy pu" «" 
aBworicable wraas tn wppiian to be 

oeepiy awa ivcd to tHe aotollo «f cos- 
toners* products and oparatluas- 

"How aiany qtKstioei eaa a stippit- 
er ask wtthouf tatUag into trade se- 
crets'" said John Daires. a lawyer n 
Qiieaco with KcUay. Drye 4 Warren, 
wtwsc ciiefus uKltide Uniea Carbide 
m tnc suKoee cmst*unpum ii>t»<- 
tton. "Not fsaav.** 

That is not the only problen. UoiAc 
U« kiuatiea in Che Orwa taOuatry. 
wnieti ts dontmated by a tew gtaiua, 
(wo-tiurdi of (fat produas dev«io|)«d 

m ih» madW-sl «m <j» p ) 'n> m ar*a lyftt. 
caliy came froa ama;) companies 
Msiiy boy sud) small amouiis of 
niAtenAts that titcy do <m deal dtrca 
:v wiin oig ttipptiers. msKDig it nsro 
•cr Suppliers le mottiior ttow csatcn- 
't* *t« used 



ccoe rubber Icr custom 
ter IniematicnaL the wr 
hosciu: supply oompaA 
RUKes Baxter retpoDSil 

IBX up SUaLltlCaUOM fo: 

ruber. Uaa. aoutpnen' 
too fisaU to produce s rt 

nifiiratlwi agrMmMn'. T 

du rtseardi expertite b 
lartals' t peeifiea t io ai 
vithfist (bur suppUart' 

Ia aoaa casct. larga, 
iltd auppUers wtU pro 
Dtaead by maUer opera 
ksa Ucafy to ba-suad. 

Tbat aoems to be ba; 
sibeooa robber maifcei 

Cinuiaif's custeoMT* •• 
stBeooe from ibe Ap( 
CorporatioR aad News 
Stewftfttm <:attferaia ear 
"As far as I know, w< 
two left to tb« wortd," 
wim. eiuaf cxaoRtve 
coae, oasao r ventora. 



s like BsK- 
id's largest 

But t'. now 
{ lor draw- 
tb* sllleoec 
rskars art 
tMeiadca. 
tyalse lack 
ievetob fita- 

cfnetaaOy 

ntkcaptuu 
ibty be rt- 
snathatara 

ningiatbe 
wbere Dow 

teoliiBJi for 

ed Sihcone 
two toull 



iraOitenly 
lid Aktutr 
^ppUtd 5IH- 



287 



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289 
Appendix 2. — ^Material for the Hearing Record 



STATEMENT FOR THE HEARING RECORD 
OF THE AMERICAN BAR ASSOCIATION 

Submitted to the Subcommittee on Economic and Commercial Law 

House Committee on the Judiciary 

on H.R. 3600 Health Security Act 

July 15, 1994 

The American Bar Association respectfully submits the following views 
concerning the proposed revision to section S07 of title 1 1 , United States Code as set forth in 
H.R. 3600 Health Security Act. The proposed legislation would give priority status to any 
"payments under subtitle B of title IV of the Health Security Act owed to a regional alliance (as 
defmed in section 1302 of such Act)," "payments owed to a corporate alliance health plan under 
trusteeship of the Secretary of Labor under section 1395 of the Health Security Act" and 
"assessments and related amounts owed to the Secretary of Labor under section 1397 of the 
Health Security Act." Section 5234 of H.R. 3600 Health Security Act ("Section 5234"). For 
the reasons more fully set forth herein, the American Bar Association is opposed to such 
revision. 

The proposed legislation would give certain claims related to the Health Security 
Act priority in payment to other unsecured claims in a bankruptcy case. Although it is 
recognized that the legislature desires to develop a strong national health insurance system, 
giving these claims priority in bankruptcy will only deteriorate the effectiveness of the 
bankruptcy reorganization process. 

The American Bar Association has adopted blanket authority to oppose any 
proposed priorities to the United States Bankruptcy Code, except under exceptional 
circumstances. None of the proposed priorities under Section 5234 are warranted by the 
presence of exceptional circumstances and therefore, if enacted would not advance the important 
underlying principals upon which the American bankruptcy system is predicated. 

One of the most important principals of the American bankruptcy system is equal 
treatment of creditors. Upon the filing of a bankruptcy petition, all actions to collect debts from 
the debtor are stayed so that a debtor can concentrate on a plan for reorganization. This stay 
also prevents a "race to the courthouse" by creditors who would otherwise attempt to attach the 
debtor's property before any other creditor. The result of a race is that certain creditors would 
receive a distribution on their claim, while other creditors, for no justifiable reason, would not. 
This important and powerful element of the American bankruptcy system is reduced by the 
addition of priorities, which give persons, who are otherwise general unsecured creditors, 
priority in payment to other creditors similarly situated. In a sense, priorities produce the same 
result as a "race to the courthouse," that is, unequal distribution to creditors, sometimes for no 
justifiable reason. 



t34U.I 



290 



Although the current Bankruptcy Code contains certain carefully chosen priorities, 
the success of the American bankruptcy system can be credited in part, to the fact that the 
system is relatively free of priorities. Recent developments in International Insolvency Law 
serve as a lesson when amendments to the United States Bankruptcy Code are considered. For 
example, the recent proposal for revision of the German bankruptcy system attempts to make 
Germany's system more similar to the United Stotes bankruptcy system especially as to 
limitations placed upon priorities. Upon unification, Germany sought to revise its bankruptcy 
system, which allowed broad categories of debts to receive preferential status including: a) 
cl:i ms of employees and other labor costs; b) fiscal or government claims; c) clerical claim* or 
claims of churches, etc.; d) claims of medical doctors, veterinarians, surgeons, pharmacists, 
etc.; and e) claims for children. Hans-Jochem Luer, Hans-Gerd Jauch, Foreign and 
Multinational Business Insolvency In Germany, The Third National Institute of Multinational 
Commercial Insolvency (1993). There is little doubt that each and every one of these priorities 
viewed individually are worthy of preferred treatment. However, the cumulative effect of these 
priorities was to deny other worthy creditors a distribution on their claims. The draftsmen of 
the new German Insolvency Code found that the preferential treatment was arbitrary and without 
justification, and therefore abolished all preferential claims, so that now, all unsecured creditors 
will rank equally as a class. S^ Stefan Reinhart, Germany's Insolvency Bill. Vol 2., 
International Insolvency Review, 29, 35 (1993). "The experience in Europe and elsewhere has 
been that engrafting welfare priorities into the reorganization process had destroyed the process. 
Chapter 1 1 is the envy of most nations because it works; it works in large part because priorities 
are limited and parties are compelled to negotiate." Hearing Be fore the Subcomm. on 
Monopolies and Commerical Law to Consid er H.R. 2969. 100th Cong., 1st Sess. 160 (1987) 
(testimony of Nathan B. Feinstein.) 

If every special interest is given priority in bankruptcy, other non-priority 
unsecured creditors, which more often than not are trade creditors who are vital to a debtor's 
continued existence, will have no desire or reason to participate in the bankruptcy process. Once 
a large network of priority claims is established, which includes claims that tend to be unusually 
large, such as taxes and health care claims, the general unsecured creditors will understand from 
the first day of the reorganization that there is no hope for any distribution to them. Not only 
will unsecured creditors be unwilling to help the dd)tor through the reorganization, but they will 
be unlikely to continue to work with a company that is on the verge of bankruptcy. This will 
certainly decrease the number of successful reorganizations. 

The establishment of more priorities will not only decrease the willingness of 
unsecured creditors to deal with a debtor or a potential debtor, but it will erode confidence in 
the American bankruptcy system. It is also important to realize that unsecured creditors can also 
consist of claims of, for example, workers injured by exposure to asbestos as in the Manv'Hg 
bankruptcy case and women who were injured by defective intrauterine devices as in the AJL 
Robbins bankruptcy case. Further, unsecured claims are often held by small business that 
depend on a distribution on their claim for the very survival of their business. As the late 
1980's filing numbers reflect, many more Americans have been touched by the bankruptcy 
system. Although it has become more acceptable to file for bankruptcy, the belief still exists 



83483.1 



291 



that bankruptcy is a way to wipe out debts at the expense of the "little people," which are 
usually general unsecured creditors. By way of further example, a "60 Minutes" story on 
bankruptcy was recently re-broadcast, showing the ability of executives of large companies, who 
have filed bankruptcy to retain possession of large estates. Although that story focused on the 
bankruptcy exemption laws, it is evidence of the fact that the confidence in the American 
bankruptcy system is being eroded. With the expansion of priorities, it is more likely that the 
"little people" will not receive a distribution in a bankruptcy case. This will certainly facilitate 
the erosion of any confidence that remains in the system. 

As more priorities are established, a point will be reached where the system will 
be completely changed from one of cooperation and negotiation between certain interests, which 
must cooperate in order to reap the benefits of a reorganized debtor, to one of hopelessness due 
to the unlikely event that unsecured creditors will receive a distribution in the bankruptcy case. 
This certainly will hinder the use of the reorganizational process. This has happened in 
England. "In England . . . there has been the growth of the 'floating charge' under which banks 
or similar institutions take possession of all of an insolvent debtor's assets and proceed to 
liquidate or reorganize outside of the bankruptcy process, generally without significant judicial 
supervision. In France, and indeed in most other countries, reorganization is rare unless by the 
substantial infusion of governmental moneys." Hearing Before the Subcomm. on Monopolies 
and Commerical Law to Consider H.R. 2969 . 100th Cong., 1st Sess. 169 (1987) (testimony of 
Nathan B. Feinstein.) 

There is no obvious reason why corporate alliances should be preferred over other 
unsecured creditors who, for example, must be encouraged by the debtor to continue supplying 
post-petition services and supplies to the debtor. The guarantee provided by Section 1396 of the 
Health Security Act ensures that a corporate alliance can continue to operate, despite the 
bankruptcy of a member of the Alliance. Although the Federal Government certainly would like 
the Fund to be reimbursed, in full, as part of the reorganization plan, such payment could only 
be made at the expense of the general unsecured creditors. The results of this preferential 
treatment, as previously discussed, are not justified when the Secretary of Labor has the ability 
to set assessments on all corporate alliance health plans in order to ensure the solvency of the 
Fund. (Section 1397 of the Health Security Act). Through assessments, the costs of a 
member's bankruptcy can be spread over a larger number of entities, rather than placing the 
entire burden on the unsecured creditors of the debtor. 

Although it is clear that no entity enjoys paying for another's misfortune, it is also 
clear that if a company were not afforded a chance to reorganize, the loss of the company could 
cause far more economic demise than the cost of its rehabilitation. The goal of reorganization 
is to help the debtor through rough times so that everyone can reap the benefits in the future. 
Even in a liquidation, the equality and fairness of the distribution scheme is essential to the 
public's faith in our bankruptcy system. The expansion of priorities significantly decreases the 
chance that everyone will be entitled to reap the benefits, rather, it ensures that certain parties, 
deemed to be more important by the legislature, will reap more than their fair share, at the 
expense of the others. 



U4U.I 



292 



GEORGE W GEKAS 

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TESTZMONT 

by 

The Honorable George N. Gekas 

before the 

House Judiciary Subcommittee on Bconomlc and Commercial Law's 

hearing on 

"MALPBACTICB LIABXLZTT BBFOBM" 

Mr. Chairman, I join my colleagues on the House Committee on the Judiciary 
in thanking you for holding this hearing, since health system reform will 
be incomplete without inclusion of provisions to reform our medical 
malpractice licibility system. 

Malpractice licQjility costs -- which include the direct costs of 
insurance, litigation, and settlements emd the indirect costs of defensive 
medicine -- play a significeuit role in the rapid gro*rth of health care 
spending. The costs associated with medical liability have Increased more 
rapidly than any other conponent of physician practice costs. The costs of 
defensive medical practice and of litigation related to health care 
disputes have had a substantial impact on the affordeUDlllty euid 
availability of quality medical care. 

In 1991, total Americam tort costs were $132 billion, or 2.3 percent 
of Gross Domestic Product (GDP) . These direct costs included payments to 
plaintiffs, costs of defending suits in court, and administrative overhead. 
Since 1980 real tort costs have increased 7 percent annually while real GDP 
has risen only 2.4 percent per year. 

In 1991, medical malpractice torts comprised almost 7 percent of total 
direct tort costs, or $9.1 billion. This number excludes indirect costs 
such as those due to defensive medicine. Physician-associated suits 
comprised 56 percent of these costs, 28 percent were associated with 
hospitals, and 14 percent were designated as other. 

Real malpractice tort costs increased from $0.9 billion In 1974 to 
$9.2 billion in 1991, for an average anntial grotrth rate of 15 percent, 
roughly one and one half times the growth rate of all torts. Even total 
health- care esqienditures only grew at am 11 percent annual rate during this 
period. 

The first wave of malpractice reform emerged from the malpractice 
insurance crisis of the early 1970s. Responding to malpractice Insurcuice 
pjremium increases of 410 percent between 1970 and 1975, a 42 percent 



293 



increase in the frequency of claims and a 264 percent increase in me 
average award size in the same time period, IndieUia signed into law zhe 
Medical Malpractice Act of 1975, one of the most far-reaching such reforms 
enacted to date in the U.S. 

This Indiana act capped total damages at $500,000, limited physicians' 
liability to $100,000, capped legal contingency fees at 15% for awards over 
$100,000, established mandatory medical review panels, and esteiblished the 
Patient's Compensation Fund. It also established a statute of limitations, 
mechanisms for reporting and reviewing claims, rules for periodic payments, 
and a residual malpractice insurance authority. In 1990, the $500,000 cap 
was raised to $750,000 fo*- claims originating in 1990 or later. The 
reforms have been upheld by Indiana courts. 

A second flurry of tort reform swept across the nation in the middle 
19 80s, after another episode of skyrocketing malpractice insurance rates. 
States adopted caps on noneconomic damages {15 states do this, with eight 
(8, states having caps on total damages), reformed collateral source rules 
;i9 states require mandatory offsets of collateral sources and eleven [11] 
states admit evidence of collateral sources but leave offsets to the 
discretion of the court), and revised joint emd several licibility. 
Fourteen (14) states mandate periodic payment of large damage awards, 
ge.nerally starting at $100,000, and sixteen (16) leave it to the court's 
discretion. 

Almost all states now restrict the statute of limitations to three (3) 
vears from the date of injury or discovery. Bight (8) states have sliding 
scales for attorney fees, and five (5) have flat maximums. Indiana's is 
the mos.t restrictive, with a 15 percent cap on fees for all awards greater 
than $100,000. Fifteen (15) states have adopted arbitration provisions 
soecific to medical malpractice. Thirty (30) states restrict punitive 
damages, and thirty-three (33) have revised or abolished joint and several 
liability. 

The controversial nature of caps has led to numerous challenges in 
state courts, on the grounds that they violate due process, equal 
protection, separation of powers, and right to trial by jury. Courts have 
uDheld caps in several states and struck them down in several others. 
Opponents have also challenged medical review panels. The Indiana court 
rilled that the review panels did not cause added delays in the litigation 
process and the mandatory admissibility of the panel's verdict did not 
violate the separation of powers. 

States -- especially California, Indiana, amd Mississippi -- are way 
ahead of the federal government on malpractice reform. 

I have both cosponsored and introduced legislation containing 
orovisions to reform the medical liability system. Both bills -- the 
House Republican Task Force bill (H.R. 3080, Minority Leader Michel's 
Action Now Health Care Reform Act) and the Gekas bill (H.R. 191, the 
American Consumers' Health Care Reform Act) -- would enhance medical 
liability management and quality assuramce and enact tort reform, such as 
limiting non-economic damages and using alternative dispute resolution 
(ADR) systems. 

Malpractice liability reform in and of itself is insufficient as a 
response to the problems in the U.S. health care system. Malpractice 
reform must be accompanied by iax reform. Necessary tax changes include 
the right of individuals to receive the same health insurance premixim tax 
treatment as do employers as well as the right of consumers to utilize 
rmedical savings accounts" to have em incentive be cost conscious in the 



294 



r.ealch care inarKec. 

With regard to anti -malpractice reform forces, it is necessary in 
zerms of honesty to remind interested parties that more deaths in this 
country come from malpractice (90,000) than car accidents (40,000). 
Therefore, malpractice must deal not only with the costs -- direct and 
indirect -- of malpractice claims, but also with the incidence of 
Taipractice itself. Malpractice reform must include steps not only to 
reform the direct and indirect costs of tort liability, but also steps to 
empower consumers with information about providers, including public 
disclosure of the Heath Practitioners Data Bank . Public disclosure has 
been in'luded in legislation I introduced in 1992; ACHRA includes a 
prevision to require states to collect and publish outcomes data of 
r.ospitals and insurers. 

Federal malpractice reform is necessary, since many states, including 
?erjisvlvania . refuse to reform their medical tort liability systems. 
Pennsylvania's only malpractice reform is a non-binding arbitration panel. 
However, federal reform should not preempt more restrictive state 
xaipractice systems. 

An important justification for malpractice reform is something called 
" r.eaative defensive medicine . " in which the high cost of malpractice 
insurance decreases the number of insured doctors, thereby decreasing 
access and quality. For example, since 1/2 of Florida surgeons can't 
afford licLbility insurance, injured patients will not be able to recover 
their medical costs and lost wages (economic damages) . Florida patients 
also have less access to quality Ob-Gyn emd neurosurgeon services, so an 
unsteible malpractice environment cuts the number of providers cUid quality 
of their health care services. 

As far as my past action on this issue, in 1992 I helped pass a bill 
which was signed into law by former President Bush. The "Federally 
Supported Health Centers Assistance Act" included workers at federally- 
funded community clinics under the Federal Torts Claims Act, which pays for 
government claims. I helped pass this bill by offering a "budget neutral" 
amendment -- later adopted -- which would require HHS to give the Justice 
Department funds to cover claims against clinic workers. Clinics should 
have benefited from this in the amount of cLbout $100 million over three 
years . 

President Clinton has decided not to place a cap on malpractice 
awards, but has instead proposed a watered-dotm pleui with 2 main features: 

1. Clinton's first provision is to institute what lawyers call the 
■collateral source rule, " which requires them to seek payment first 
from a client's own insurance policy and atrten5)t to recover from the 
doctor's malpractice policy only if the client's policy does not cover 
the damages; and, 

2. The other main feature is a cap on attorney's fees. This cap, 
however, does not liinit fees to Indiana's generous 15%, or even 25%. 
Showing much more generosity to attorneys than he has shoum the 
taxpayers, the president will cap attorneys' fees at 33%. Since 
market studies show that 33% is the typical fee for most contingent 
arrangements, Clinton's cap should have very little effect in reducing 
the costs of health care and malpractice insurance. 

3. The White House Health Care Task Force once publicly proposed an 
enterprise liability rule. This would exen^t individual physiciams 

. - from paying for malpractice a%(ards. The responsibility would be 



295 



transferred to the hospital or other health care organization wnere 
the physician practices. Clinton has since dropped enterprise 
liability from his bill. 

Public Citizen, a pro- government Democrat group, criticizes the Clinton 
plan as doing nothing to prevent and punish medical malpractice. 

Moving to my own Commonwealth of Pennsylvania , the Commonwe=lth's 
medical liability system costs far too much and toikes too long to resolve 
claims; provides exorbitant awards to some patients, while not providing 
fair compensation to others; encourages the practice of defensive medicine; 
and threatens access to h'^alth care in certain specialties (e.g., 
obstetrics) , particularly for rural or other medically underserved areas of 
the state. The following strategies will improve timely and fair claim 
adjudication, enhance predictability in premiums and insurability of risks, 
reduce costs associated with defensive medicine and the tort system, and 
improve risk management. These strategies, supported by the Hospital 
Association of Pennsylvania, include: 

(1) the establishment of caps for non- economic damages 'to ensure 
reasonable compensation and predictable awards for pain and suffering, 
disability and disfigurement, loss of consortium, mental anguish, 
emotional distress, psychic injuries, and loss of society; 

(2) the payment of punitive damages for egregious behavior to the 
Catastrophic Insurance Fund, rather than to an individual claimant; 

(3) a direct offset of all collateral sources of payment received by a 
plaintiff, except for Social Security amd life insurance; 

(4) limitation of attorneys ' fees in medical liability cases to assure 
that damages awarded in a case accrue to the benefit of the plaintiff 
and to reduce the incentive for pursuit of frivolous lawsuits; 

(5) the use of periodic payments or structured settlements for future 
damages to ensure that payments to plaintiffs for future needs are 
accrued in a cost-effective manner; 

(6) the abolition of the rule of -Joint and several liability to ensure 
that defendants bear a judgement in proportion to their culpability; 

(7) the evaluation of new alternative dispute resolution mechanisms for 
the Commonwealth as an alternative to the state's current ineffective 
non -mandatory, non -binding arbitration psmel system; 

(8) the establishment of time frames for the production of medical expert 
testimony following the filing of a mediced. malpractice claim and a 
reauirement that standards be established requiring that experts be 
qualified in the Seune field as the defendant; and, 

(9) an evaluation of the appropriateness of the concept of "enterprise 
liability" under health care reform where care is rendered through 
integrated networks. 

Without malpractice reform, our health care system will not have been 
reformed. Once again, 1 thank the chair emd pledge to work with him in 
this regard. 



296 



STATEMENT FOR THE HEARING RECORD 
OF THE NATIONAL BANKRUPTCY CONFERENCE 

Submitted to the Sxibcommittee on 

Economic and Commercial Law 

House Committee on the Judiciary 

on H.R. 3600, Health Security Act 

June 29, 1994 



Re: Bankruptcy-Related Concepts 

in the Clinton Health Security 
Legislati ve Proposal 



The National Bankruptcy Conference* respectfully 
submits the following views about two bankruptcy-related 
concepts included in S. 1757/H.R. 3600, the Health Security 



♦The National Bankruptcy Conference is a non-profit, 
voluntary association of about 65 judges, professors and 
practicing attorneys from all parts of the United States. 
Its members are selected for demonstrated professional and 
technical excellence in the field of bankruptcy law. The 
Conference was founded in the middle 1930s to promote the 
improvement of the bankruptcy laws and their administration. 
The Conference, which meets twice a year, has been 
consistently active in the legislative process. It assisted 
and advised Congress in drafting the Chandler Act of 1938 
and played major roles in the enactment of the current 
Bankruptcy Code in 1978 and the amendment process ever 
since. (See, e.g., 6/29/84 Congressional Record, S-8888) 
(Senator Thurmond describes the NBC's role in compromise 
leading to enactment of § 1113 of the Code regarding 
rejection of collective bargaining agreements) . 

The NBC has no staff, paid or unpaid, and operates on a 
budget of approximately $40,000 per year of cash 
contributions from members plus various "in kind" 
expenditures by members for the NBC's benefit (e.g., plane 
fares of members, photocopy, etc.). 



297 



Act ("HSA") . Copies of the two provisions we discuss are 
attached . 



Sununary of NBC Position 



1 TOPIC 


PpSITXON 


REASON 


New priority 


Opposed 


Priorities 


status for amounts 




distort fair 


1 due to regional 




distributions in 


1 alliances, 




bankruptcy cases 


1 corporate 




and impair 


1 alliances and the 




public 


1 health fund 




confidence in 


guaranty 




the integrity of 


corporation 




the federal 
insolvency laws. 


1 Secretary of Labor 


Support , 


In cases where 


1 as trustee for 


except when 


health claimants 


insolvent 


the corporate 


are the only 


corporate health 


alliance has 


creditors, the 


alliances 


liabilities 


federal 




for borrowed 


government 




money , 


guaranties 




leases, etc. 


payments of 




in excess of 


their benefits. 




$1,000,000, 


There will 




in which case 


therefore be no 




insolvency 


creditor loss, 




should be 


and use of the 




administered 


Bankruptcy Code 




under the 


is unnecessary. 




Bankruptcy 


In other cases. 




Code 


however , the 
Bankruptcy Code 
should be used. 



298 



TPPIC 


POSITION 


REASON 


Jurisdiction of 


Opposed 


The language in 


the federal courts 




§ 1395(f) is so 


over Secretary of 




overbroad that 


Labor trusteeships 




it could sweep 
jurisdiction 
over employer 
business 
failures into 
the proceedings | 
for the 
employer's 
insolvent health 
plan. 



II. S 5234 — Proposed New 

Prioritv in Bankruptcy Cases 

NBC Position: Opposed 

Reason: Unwarranted deviation from historic, strong 

policy of equal treatment of creditors 

The public gets furious when official policy in 

insolvency cases is unfair and not even-handed. Special, 

favorable treatment for targeted groups means they get paid 

in full and other groups, unfavored, receive little or 

nothing. This is as or more unpopular and unwise in 

insolvency laws than "special breaks" in tax statutes. 

Deviation from fair distribution in bankruptcy cases thus 

destroys public confidence in the insolvency process, 

thereby chilling, to a measurable degree, creditor 

willingness to accept risk. This in turn deters economic 

growth . 



299 



Much experience over the decades in America and 
around the world supports and confirms the point made in the 
preceding paragraph. 

Section 5234 of HSA would amend Section 507(a)(8) 
of the Bankruptcy Code to deviate from fair and even-handed 
treatment of creditors by: 

(1) giving a priority to certain Medicare amounts 
due regional alliances; 

(2) giving a priority for certain amounts owed to 
insolvent corporate alliances; and 

(3) giving a priority to assessments due to a 
new, FDIC-like entity, which will guarantee 
self-insured health plans of large 
corporations. 

The creation of all these priorities is 

wrongheaded. For instance, consider No. 2 above. Suppose 

hypothetical Metal Bender Inc., of MidAmerica, Wisconsin, an 

old company, having 40,000 blue collar workers and 60,000 

retirees, all receiving medical care at Metal Bender's 

expense under Metal Bender's "corporate alliance" (the new 

name for its same-old health plan) , is forced into 

Chapter 11. Suppose also that its health plan is insolvent. 

Priority No. 2 above could draw away so much of the 

operating company's working capital that it might not have 

enough cash to (i) make pension-funding contributions that 

are required by other federal laws or (ii) worse, keep 

operating. This shutdown would cost the economy 40,000 

jobs. 



300 



This is often the unanticipated, undesired effect 
of uncontrolled, unlimited priorities in bankruptcy. 

Moreover, at least one of the proposed new 
priorities is unneeded, because existing Section 507(a)(4) 
already creates a carefully defined priority for amounts due 
to employee benefit plans. This was carefully thought out 
in the enactment of the 1978 Code and we believe it should 
be adequate for purposes of HSA. 

Accordingly, we believe S 5234 should be deleted 
in its entirety from any health bill enacted by the 
Congress . 

III. S 1395 — Trusteeships 

of the Secretary of Labor 

NBC Position: Not opposed in concept but the NBC does 

oppose (i) its use when there are $1,000,000 
or more In creditors other than health 
^ claimants and (ii) certain provisions on 

judicial jurisdiction 

Reason: Section 1395 follows roughly the model of 

FDIC receivership of failed banks; this seems 
reasonable, given federal guaranty of health- 
coverage costs. However, where liabilities 
to persons other than health claimants, such 
as landlords and lenders, exceed a ds minimis 
euBount, then the protection of the Bankruptcy 
Code should be invoked. The language needs 
clarification to prevent health plan 
trusteeships from superseding the 
availability of Chapter 11 for the employer. 

Under HSA, a "corporate alliance" is the new 

statutory name for self-insured health plans offered to 

employees and their families by business entities with 5,000 

or more employees, in the aggregate. Some of these plans 



301 



are offered by single employers (e.g., General Motors); 
others have multiple employers acting together under the 
aegis of union contracts. The HSA would allow these types 
of plans to continue, under new regulations, whereas smaller 
employers or groups with less than 5,000 employees would 
have to disband their plans and purchase insurance through 
regional alliances. 

To protect workers from insolvency of corporate 
alliances, the HSA creates a Corporate Alliance Health Plan 
Insolvency Fund (§ 1396(c)) designed to play the same role 
for health plans that the FDIC plays for banks. That is, 
the employers pay assessments to build up an insurance fund 
and the fund can be drawn on to cover the liabilities of 
insolvent plans (§ 1397) . It would appear from S 1396 that, 
in effect, the full faith and credit of the United States 
stands behind the obligations of these plans to health 
claimants. See § 1396(a). This is consistent with the 
universal coverage objectives of HSA. 

Section 1395 provides that the Secretary of Labor 
shall be appointed by the appropriate U.S. District Court* 
as the trustee for a corporate-alliance health plan if it 
"will b« uneUdle to provide benefits when due or is otherwise 



I 

in a financially hazardous condition". 



*See § 1395(f) (2) 



302 



When the only creditors are health claimants, it 
does not seem to us to be sensible to provide for the 
administration of these insolvent plans under the Bankruptcy 
Code, for two reasons: (1) the Code does not now cover 
domestic insurers (see 11 U.S.C. § 109(b)(2)) and does not 
contain any provisions whose application has ever been 
thought out or applied in the context of a defunct insurance 
obligor; and (2) given the evident liability of the United 
States to guaranty and pay all liabilities of the insolvent 
plan, it does not seem likely that any creditors will suffer 
any loss. It follows that the protections of the Bankruptcy 
Code for creditors in the public are not called for. 

However, when the corporate alliance has other 
significant liabilities, not guaranteed by the federal 
government, we believe the alliance's insolvency should be 
administered under the federal Bankruptcy Code. We suggest 
that the threshold for application of the Bankruptcy Code be 
$1,000,000 or more in probable liabilities to claimants 
other than health claimants. The foregoing is needed 
because the applicable provisions of HSA do not address a 
host of issues involved in a proceeding under the Bankruptcy 
Code, such as pro rata distribution, voidable preference, 
fraudulent transfer, entitlement to vote on plans of 
reorganization, dischargeability of debt, etc. 

With regard to S 1395(f) ("Jurisdiction of 
Court"), we see all manner of possibility for un-needed 



7. 



I 



I 



303 



litigation expense and confusion in the case of large, 
industrial business failures. 

For instance, § 1395(f) says that upon approval of 
the filing of an application to appoint the Labor Secretary 
as trustee for a corporate alliance health plan, the 
district court shall "stay . . . any pending ... ' 
proceeding to reorganize . . . the sponsoring alliance". 
Additional language gives other powers over the "sponsoring 
alliance" and its property to the health-plan district 
court. 

We find no definition of the term "sponsoring 
alliance". One logical construction we would fear is that 
"sponsoring alliance" means the sponsoring employer. If 
this be the case, then HSA would supersede Chapter 11 and 
prevent use thereof to reorganise large enterprises in the 
United states I This would occur, for instance, if the 
Secretary was made the trustee of the corporate health plan. 
The court would then (arguably) be required to enjoin the 
sponsoring employer from filing a Chapter 11 petition. 

This cannot be the Congressional intent. 

A second possible definition of "sponsoring 
alliance" would be the case of a multi-employer corporate 
alliance where "sponsoring alliance" would not obviously 
mean "sponsoring employer". Even in this context, we see no 
policy justification for giving to the health-plan court 
broad power over other property of the sponsoring alliance. 



8 



304 



Also, if the employer is (despite the foregoing) 
actually in Chapter 11 and the health plan is in a 
trusteeship, we see regrettable possibility for clashing 
courts. There could easily be a life-tenured District Judge 
running the employee health-plan case in one judicial 
district and a non-tenured bankruptcy judge running the 
Chapter 11 for the employer in another district, possibly in 
another circuit. Who will have what authority over the 
Chapter 11 case? 

Given the authority over the sponsoring alliance 
and its property conferred on the district court in 
§ 1394(f), will great expense, uncertainty and delay so "gxim 
up" the employer Chapter 11 case that successful 
rehabilitation might be threatened? 

We see the foregoing as a real danger and suggest 

resolving the scope-of- jurisdiction problem by adding 

language to § 1395(f) such as the following: 

"Nothing in the provisions of this subsection 
(f) and no order of any court hereunder shall be 
in derogation of the right of any eligible person 
to seek relief under Title 11 U.S. Code or in 
derogation of the jurisdiction of any court 
administering any case under Title 11 U.S. Code. 
In case of any conflict of jurisdiction between 
this Title and Title 11, U.S. Code, Title 11 
jurisdiction shall prevail." 

Also, we suggest that language be added to § 109 

of the Bankruptcy Code making it clear that no corporate 

alliance health plan or regional alliance as defined in HSA 

is eligible to be a debtor under Title 11, U.S. Code, except 



305 



if it has $1,000,000 or more in debts to entities other than 
health claimants. 

This will all keep future "Hatfield" health plan 
cases separated from future "McCoy" employer Chapter 11 
cases, all to the good of reduced expense and faster legal 
proceedings generally. 



Please address any questions to the NBC's vice- 
chair of legislation, Stephen Case, at 202-962-7140 (Suite 
1200 East, 1300 I Street, N.W. , Washington, D.C. 20005). 
Thank you. 

NATIONAL BANKRUPTCY CONFERENCE 
Attachment 



10 



306 

921 
1 

2 

3 

4 

5 

6 

7 

8 

9 
10 
11 
12 

1 3 SEC. 5234. PRIORTTY OP CERTAIN BANKRUPTCY CLAIMS. 

14 Section 507(a)(8) of title 11, United States Code, is 

15 amended to read as follows: 

16 "(8) Eighth, allowed unsecured claims — 

17 "(A) based upon any commitment by the 

18 debtor to the Federal Deposit Insurance Cor- 

19 poration, the Resolution Trust Corporation, the 

20 Director of the Office of Thrift Supemsion, the 

21 Comptroller of the Currency, or the Board of 

22 Governors of the Federal Reserve System, or 

23 their predecessors or successors, to maintain 

24 the capital of an insured depositoiy institution; 

25 "(B) for payments under subtitle B of title 

26 rV of the Health Security Act owed to a re- 

•8 1771 PCS 



307 

922 

1 gional alliance (as defined in section 1301 of 

2 such Act); 

3 "(C) for payments owed to a corporate alli- 

4 ance health plan under trusteeship of the Sec- 

5 retary of Labor under section 1395 of the 

6 Health Security Act; or 

7 "(D) for assessments anu related amounts 

8 owed to the Secretary of Labor under sectior 

9 1397 of the Health Security Act". 



10 
11 
12 
13 
14 
15 
16 
17 
18 
19 
20 
21 
22 
23 
24 
25 



•8 ir78 PCS 



308 

210 
1 
2 
3 
4 
5 

6 SEC. 1395. TRUSTEESHIP BY THE SECRETARY OF INSOL- 

7 VENT CORPORATE ALLIANCE HEALTH PLANS. 

8 (a) Appointment op Secretary as Trustee for 

9 Insolvent Plans. — ^Whenever the Secretary of Labor 

10 determines that a corporate alliance health plan which is 

1 1 a self-insured plan will be unable to provide benefits when 

12 due or is otherwise in a financially hazardous condition 

13 as defined in regulations of the Secretary, the Secretary 

14 shall, upon notice to the plan, apply to the appropriate 

15 United States district court for appointment of the Sec- 

16 retary as trustee to administer the plan for the duration 

17 of the insolvency. The plan may appear as a party and 

1 8 '^ther ir.terestfd persoiw .» ^y in'sr/ere '-n the proceedings 

19 at the discretion of the court. The court shall appoint the 

20 Secretary trustee if the court determines that the trustee- 

21 ship is necessary to protect the interests of the enrolled 

22 individuals or health care providers or to avoid any unrea- 

23 sonable deterioration of the financial condition of the plan 

24 or any unreasonable increase in the liability of the Co^ 

25 porate Alliance Health Plan Insolvency Fund. The trustee- 

•s im PCS 



309 

211 

1 ship of the Secretary shall continue until the conditions 

2 described in the first sentence of this subsection are rem- 

3 edied or the plan is terminated. 

4 (b) Powers as Trustee.— The Secretary of Labor, 

5 upon appointment as trustee under subsection (a), shall 

6 have the power — 

7 (1) to do any act authorized by the plan, this 

8 Act, or other applicable provisions of law to be done 

9 by the plan administrator or any trustee of the plan, 

10 (2) to require the transfer of all (or any part) 

11 of the assets and records of the plan to the Sec- 

12 retary as trustee, 

13 (3) to invest any assets of the plan which the 

14 Secretary holds in accordance with the provisions of 

15 the plan, regulations of the Secretary, and applicable 

16 provisions of law, 

17 (4) to do such other acts as the Secretary 

18 deems necessaiy to continue operation of the plan 

19 without increasing the potential liability of the Cor- 

20 porate Alliance Health Plan Insolvency Fund, if 

21 such acts may be done under the provisions of the 

22 plan, 

23 (5) to require the corporate alliance, the plan 

24 administrator, any contributing employer, and ah^ 

25 employee organization representing covered individ- 

•• 1171 PCt 



310 

212 

1 uals to furnish any information with respect to the 

2 plan which the Secretary as trustee may reasonably 

3 need in order to administer the plan, 

4 (6) to collect for the plan any amounts due the 

5 plan and to recover reasonable expenses of the trust- 

6 eeship, 

7 (7) to commence, prosecute, or defend on behalf 

8 of the plan any suit or proceeding involving the plan, 

9 (8) to issue, publish, or file such notices, state- 

10 ments, and reports as may be required under regula- 

1 1 tions of the Secretary or by any order of the court, 

12 (9) to terminate the plan and liquidate the plan 

13 assets in accordance with applicable provisions of 

14 this Act and other provisions of law, to restore the 

15 plan to the responsibili^ of the corporate alliance, 

16 or to continue the trusteeship, 

17 (10) to provide for the enrollment of individuals 

18 covered under the plan in an appropriate regional al- 

19 Uance health plan, and 

20 (11) to do such other acts as may be necessary 

21 to comply with this Act or any order of the court 

22 and to protect the interests of enrolled individuals 

23 and health care providers. 



•• ITTl 



311 

213 

1 (c) Notice of Appointment.— As soon as prac- 

2 ticable after the Secretary's appointment as trustee, the 

3 Secretary shall give notice of such appointment to— 

4 (1) the plan administrator, 

5 (2) each enrolled individual, 

6 (3) each employer who may be liable for con- 

7 tributions to the plan, and 

8 (4) each employee organization which, for pur- 

9 poses of collective bargaining, represents enrolled in- 

10 dividuals. 

11 (d) Additional Duties. — Except to the extent in- 

12 consistent with the provisions of this Act or part 4 of sub- 

13 title B of title I of the Employee Retirement Income Secu- 

14 rity Act of 1974, or as may be otherwise ordered by the 

15 court, the Secretary of Labor, upon appointment as trust- 

16 ee under this section, shall be subject to the same duties 

17 as those of a trustee under section T04 of title 11, United 

18 S^^ite", C^69, md ^^M ^:?^e *h§ duties of a E'^i^my for 

19 purpo&«?s of Siich part 4. 

20 (e) Other Proceedings.— An application by the 

21 Secretary of Labor under this subsection may be filed not- 

22 withstanding the pendency in the same or any other court 

23 of any bankruptcy, mortgage foreclosure, or equity receiv- 

24 ership proceeding, or any proceeding to reorganize, con- 



•8 1778 PCS 



312 

214 

1 serve, or liquidate such plan or its property, or any pro- 

2 ceeding to enforce a lien against property of the plan. 

3 (f) Jurisdiction op Court.— 

4 (1) In general. — Upon the filing of an appli- 

5 cation for the appointment as trustee or the issuance 

6 of a decree under this subsection, the court to which 

7 the application is made shall have exclusive jurisdic- 

8 tion of the plan involved and its property wherever 

9 located with the powers, to the extent consistent 

10 with the purposes of this subsection, of a court of 

11 the United States having jurisdiction over cases 

12 under chapter 11 of title 11, United States Code. 

13 Pending an ac^udication under this section such 

14 court shall stay, and upon appointment by it of the 

15 Secretary of Labor as trustee, such court shall con- 

16 tinue the stay of, any pending mortgage foreclosare, 

17 equity receivership, or other proceeding to reorga- 
1S h\ze, co-..aei r*e, Ui iiquMate tr<e p\»n, Uie sp<>iisoriiig 

19 alliance, or prcpei^ of such plan or alliance, and 

20 any other suit against any receiver, conservator, or 

21 trustee of the plan, the sponsoring alliance, or prop* 

22 erty of the plan or alliance. Pending such a^judica- 

23 tion and upon the appointment by it of the Sec- 

24 retary as trustee, the court may stay any proceeding 

25 to enforce a lien against property of the plan or the 

•S 1T7S PCS 



313 



215 

1 sponsoring alliance or any other suit against the 

2 plan or the alliance. 

3 (2) Venue. — ^An action under this subsection 

4 may be brought in the judicial district where the 

5 plan administrator resides or does business or where 

6 any asset of the plan is situated. A district court in 

7 which such action is brought may issue process with 

8 respect to such action in any other judicial district. 

9 (g) Personnel. — In accordance with regulations of 

10 the Secretary of Labor, the Secretary shall appoint, retain, 

1 1 and compensate accountants, actuaries, and other profes- 

12 sional service personnel as may be necessary in connection 

13 with the Secretary's service as trustee under this section. 

14 SEC. 1396. GUARANTEED BENEFITS UNDER TRUSTEESHIP 

1 5 OF THE SECRETARY. 

16 (a) In General.— Subject to subsection (b), the Sec- 

17 retary of Labor shall guarantee the payment of all benefits 

18 under a corporate alliance health plan which is a self-in- 

19 sured plan while such plan is under the Secretary's trust- 

20 eeship under section 1395. 

21 (b) Limitations. — ^Any increase in the amount of 

22 benefits under the plan resulting from a plan amendment 

23 which was made, or became effective, whichever is later, 

24 within 180 days (or such other reasonable time as may 

25 be prescribed in regulations of the Secretary of Labor) be- 

•8 trrs PCS 



314 

216 

1 fore the date of the Secretary's appointment as trustee 

2 of the plan shall be disregarded for purposes of determin- 

3 ing the guarantee under this section. 

4 (c) Corporate Alliance Health Plan Insol- 

5 vencyFund. — 

6 (1) ESTABLlsmiENT.— The Secretary of Labor 

7 shall establish a Corporate AlHance Health Plan In- 

8 solvency Fund (hereinafter in this part referred to 

9 as the "Fund") from which the Secretary shall au- 

10 thorize payment of all guaranteed benefits under 

1 1 this section. 

12 (2) Receipts and disbursements. — 

13 (A) Receipts.— The Fund shall be cred- 

14 ited with — 

15 (i) funds borrowed under paragraph 

16 (3), 

17 (ii) assessments collected under sec- 

18 tion 1397, and 

19 (iii) earnings on investment of th^ 

20 Fund. 

21 (B) Disbursements. — The Fund shall l^j) 

22 available — 

23 (i) for making such payments as tE5 

24 Secretaiy of Labor determines are nee 



•a ins pct 



315 

217 

1 essary to pay benefits guaranteed under 

2 this section, 

3 (ii) to repay the Secretary of the 

4 Treasury such sums as may be borrowed 

5 (together with interest thereon) under 

6 paragraph (3), and 

7 • (iii) to pay the operational and admin- 

8 istrative expenses of the Fund. 

9 (3) Borrowing authority.— At the direction 

10 of the Secretary of Labor, the Fund may, to the ex- 

11 tent necessary to carry out the purposes of para- 

12 graph (1), issue to the Secretary of the Treasury 

13 notes or other obligations, in such forms and de- 

14 nominations, bearing such maturities, and subject to 

15 such terms and conditions as may be prescribed by 

16 the Secretary of the Treasury. The total balance of 

17 the Fund obligations outstanding at any time shall 

18 not exceed $500,000,000. Such notes or other obh- 

19 gations shall bear interest at a rate determined by 

20 the Secretaiy of the Treasuiy, taking into consider- 

21 ation the current average market yield on outstand- 

22 ing marketable obligations of the United States of 

23 comparable maturities during the month preceding 

24 the issuance of such notes or other obligations by 

25 the Fund. The Secretary of the Treasuiy shall pur- 
's irripcs 



316 

218 

1 chase any notes or other obligations issued by the 

2 Fund under this paragraph, and for that purpose 

3 the Secretary of the Treasury may use as a pubhc 

4 debt transaction the proceeds from the sale of any 

5 securities issued under chapter 31 of title 31, United 

6 States Code and the purposes for which securities 

7 may be issued under such chapter are extended to 

8 include any purchase of such notes and obligations. 

9 The Secretary of the Treasury may at any time sell 

10 any of the notes or other obligations acquired by 

11 such Secretary under this paragraph. All redemp- 

12 tions, purchases, and sales by the Secretary of the 

13 Treasury of such notes or other obligations shall be 

14 treated as public debt transactions of the United 

15 States. 

16 (4) Investment authority. — ^Whenever the 

17 Secretary of Labor determines that the moneys ofj 

18 the Fund are in excess of current needs, such Sec- 

19 retary may request the investment of such amounts 

20 as such Secretaiy determines advisable by the Sec*. 

21 retary of the Treasury in obligations issued or guarii 

22 anteed by the United States, but, until all borrow^ 

23 ings under paragraph (3) have been repaid, the obS 

24 gations in which such excess moneys are investec 



•0 1779 PCS 



317 

219 

1 may not yield a rate of return in excess of the rate 

2 of interest payable on such borrowings. 

3 SEC. 1397. IMPOSITION AND COLLECTION OF PERIODIC AS- 

4 SESSMENTS ON SELF-INSURED CORPORATE 

5 ALLIANCE PLANS. 

6 (a) Imposition of Assessments. — Upon a deter- 

7 mination that addition&I receipts to the Fund are nec- 

8 essary in order to enable the Fund to repay amounts bor- 

9 rowed by the Fund under section 1396(c)(3) while main- 

10 taining a balance sufficient to ensure the solvency of the 

11 Fund, the Secretary of Labor may impose assessments 

12 under this section. The Secretary shall prescribe from time 

13 to time such schedules of assessment rates and bases for 

14 the application of such rates as may be necessary to pro- 

15 vide for such repayments. 

16 (b) Uniformity of Assessments. — The assess- 

17 ment rates so prescribed by the Secretary for any period 

18 shall be uniform for all plans, except that the Secretary 

19 may vary the amount of such assessments by category, 

20 or waive the application of such assessments by category, 

21 taking into account differences in the financial solvency 

22 of, and financial reserves maintained by, plans in each cat- 

23 egoiy. 

24 (c) Limitation on Amount op Assessment.— The 

25 total amount assessed against a corporate alliance health 



84-714 0-94- 11 



318 

220 

1 plan under this section during a year may not exceed 2 

2 percent of the total premiums paid to the plan with respect 

3 to corporate alliance eligible individuals enrolled with the 

4 plan during the year. 

5 (d) Payment of Assessments.— 

6 (1) Obligation to pay.— The designated 

7 payor of each plan shall pay the ?ssessments im- 

8 posed by the Secretary of Labor under this section 

9 with respect to that plan when they are due. Assess- 

10 ments under this section are payable at the time, 

1 1 and on an estimated, advance, or other basis, as de- 

12 termined by the Secretary. Assessments shall con- 

13 tinue to accrue until the plan's assets are distributed 

14 pursuant to a termination procedure or the Sec- 

15 retaiy is appointed to serve as trustee of the plan 

16 under section 1395. 

17 (2) Late payment charges and interest.— 

18 (A) Late payment charges. — If any as- 

19 sessment is not paid when it is due, the Sec* 

20 retaiy of Labor may assess a late payment 

21 charge of not more than 100 percent of the as- 

22 sessment payment which was not timely paid. 

23 (B) Waivers.— Subparagraph (A) shall 

24 not apply to any assessment payment made 

25 within 60 days after the date on which payment 



319 

221 

1 is due, if before such date, the designated payor 

2 obtains a waiver from the Secretary of Labor 

3 based upon a showing of substantial hardship 

4 arising from the timely payment of the assess- 

5 ment. The Secretary may grant a waiver under 

6 this subparagraph upon application made by 

7 the designated payor, but the Secretary may 

8 not grant a waiver if it appears that the des- 

9 ignated payor will be unable to pay the assess- 

10 ment within 60 days after the date on which it 

11 is due. 

12 (C) Interest. — If any assessment is not 

13 paid by the last date prescribed for a payment, 

14 interest on the amount of such assessment at 

15 the rate imposed under section 6601(a) of the 

16 Internal Revenue Code of 1986 shall be paid 

17 for the period from such last date to the date 

18 paid. 

19 (e) Civil Action upon Nonpayment. — ^If any des- 

20 ignated payor fails to pay an assessment when due, the 

21 Secretary of Labor may bring a civil action in any district 

22 court of the United States within the jurisdiction of which 

23 the plan assets are located, the plan is administered, or 

24 in which a defendant resides or is found, for the recovery 

25 of the amount of the unpaid assessment, any late payment 



320 

1 charge, and interest, and process may be served in any 

2 other district. The district courts of the United States 

3 shall have jurisdiction over actions brought under this sub- 

4 section by the Secretary without regard to the amount in 

5 controversy. 

6 (f) Guarantee Held Harmless. — The Secretary 

7 of Labor shall not cease to guarantee benefits on account 

8 of the failure of a designated payor to pay any assessment 

9 when due. 

10 (g) Designated Payor Defined. — 

11 (1) In general. — For purposes of this section, 

12 the term "designated payor" means— 

13 (A) the employer or plan administrator in 

14 any case in which the eligible sponsor of the 

15 corporate alliance health plan is described in 

16 subparagraph (A) of section 1311(b)(1); and 

17 (B) the contributing employers or the plan 

18 administrator in any case in which the eligible 

19 sponsor of the corporate alliance is described in 

20 subparagraph (B) or (C) of section 1311(b)(1). 

21 (2) Controlled groups.— If an employer is a 

22 member of a controlled group, each member of such 

23 group shall be jointly and severally liable for any as- 

24 sessments required to be paid by such employer. For 

25 purposes of the preceding sentence, the term "con- 



321 



223 

1 trolled group" means any group treated as a single 

2 employer under subsection (b), (c), (m), or (o) of 

3 section 414 of the Internal Revenue Code of 1986. 



322 



C A P ■ M P T 



COOPERATIVB 0^ 
AMERICAN PHYSigANS. INC 
MUTUAL PnOTECTION TRUST 



3bliU WILSHIHI- BOULEVAftO 

aurTE 1800 

LOS ANOELES. CA 90010 

12131 251-0«00 

I8C0I 2C2-770C 

FAX 121 31 380-8205 



NORTHERN CAUFORNIA 
111 g) 34(t-Sfl72 

ORANGE COUMTY 
1714) 938-0777 



SAN DIESO 
18191 S86-3t32 



BOARD Of TKUSTCES 

J. Michiril Wormtanf. MO 

Chainnan 

Mariino M. Col<m>n, MC 

Hnrvev E. KroemachiM. MD 

Moon A. Naconlc, MD 

Phillip Ungar. MO 



8OAR0 OF ORECTOKS 

Oan«oo« 8. Mane*. MO 

Pnaldant <i Chairnian 

Jnhn F Brtdflaman. MD 

AHmd V. Budria, MO 

Paul OcMiab. MO 

Oav?d S. Oulllon. MO 

Jonn t. Ingram. MO 

Cart 0. Moguini. MO 

Louia e. Potvrt. MO 

Marvin A. Rawlleh. MO 

RoBan A HaiJ. MO 

Madiaon F, Rrchanlaon, MO 

Oavid B. 5Mv«r«, MO 

Dannii P. Thompaon, MD 

Williom W. Tioren. MD 

Lanca 0. Waavcr, MD 



Cart A. Wnmntt*t 
CUti Exacutlva Ofllear 

Audrey A. Stnoker 
Exaeutiv* Vieo Pretidant 



TESTIMONY OF ROBERT A. REID, M.D. 
FOR THE JUDICIARY SUBCOMMITTEE ON 
ECONOMIC AND COMMERCIAL LAW 
UNITED STATES HOUSE OF REPRESENTATIVES 
ON H.R.3600, HEALTH SECURITY ACT 
MEDICAL MALPRACTICE ISSUES 
JUNE 22, 1994 



PROVIOINO THE HIOHeST 

OUALITV PnOFISSIONAL 

LUBILDV PflOTBCTlON AT 

THE LOWEST LONO-TERM 

COST FOR aUALIFlEO 

MEMBER PHYSICIANS 



323 

Mr. Chairman and Members of the Committee: 

I appreciate the opportunity to make this statement. My name is Robert A. Reid, 
M.D. I am an obstetrician and gynecologist, and I have been in private practice in Santa 
Barbara, California since 1971. I graduated from the University of Colorado, School of 
Medicine in 1965 and obtained my specialty training at tiie University of Colorado Medical 
Center. I served as President of the Santa Barbara County Medical Society in 1982 and as 
Chief of Staff of Santa Barbara Cottage Hospital from 1988 until 1990. I now serve on the 
Board of Directors of Santa Barbara Cottage Hospital. I served on the California Medical 
Association Board of Trustees from 1982 to 1990 and am currently Speaker of the California 
Medical Association House of Delegates. I am a member of the Board of Directors of the 
Cooperative of American Physicians/Mutual Protection Trust (CAP/MPT). 

CAP/MPT, an interindemnity trust founded by and for physicians, has provided 
professional liability protection for qualified California physicians since 1977. The 4,000- 
plus member CAP/MPT was formed as an alternative to traditional malpractice insurance 
during the height of the medical malpractice crisis of the mid-1970s. Member physicians 
share financial responsibility for the professional liability claims against fellow members. 

On behalf of the Cooperative of American Physicians/Mutual Protection Trust and 
myself, I am pleased to have the opportunity to offer this statement regarding the need for 
effective liability reform as a necessary component of health care reform. Our primary 
concern is that no federal health care plan preempt existing California laws on medical 
malpractice reform. 



324 



2 

Even without federal pre-emption of state medical malpractice laws, if there is federal action 

which is weaker than California laws, it will nonetheless influence and tend to push 
California toward the federal model. Therefore, CAP/MPT would prefer federal enactment 
of MICRA rather than adoption of half measures at the federal level. Health care reform 
should include liability provisions that contain two very important components, caps on non- 
economic damages and limits on attorneys' fees. Enactment of any medical liability reform 
as part of a federal health care plan without these components will not be fully effective as 
California's Medical Injury Compensation Reform Act of 1975 (MICRA). 

As a California doctor, I think I bring a unique perspective to your deliberations. 
California is home to one of the most comprehensive medical liability laws in the nation - 
the Medical Injury Compensation Reform Act of 1975 - commonly known as MICRA. 
These laws were passed in response to a medical malpractice insurance crisis. In 1975, due 
to a dramatic increase in both the number of suits filed and the magnitude of awards, 
malpractice insurance rates skyrocketed 300 to 400 percent. Many physicians were forced to 
close their doors as they were unable to buy insurance. 

Before MICRA, California's medical malpractice insurance premiums were the 
highest in the nation. Today, they are one-third to one-half the price of premiums paid by 
health care providers in other states. The five essential provisions of MICRA are: 

(1) A limit on non-economic damages of $250,000. Economic damages such as 
past and future medical expenses, lost wages, and retirement benefits, have no 
limit. 



325 



3 

(2) A limit on contingency fees, so that the bulk of the award in malpractice 

lawsuits goes to the plaintiff, not the lawyers. The scale limits lawyers' fees 
to 40 percent of the first $50,000, 33 1/3 percent of the next $50,000, 25 
percent of the next $500,000, and 15 percent of any amount exceeding 
$600,000. 

(3) Waiver of the collateral source rule. A jury can be informed of any other 
benefits a plaintiff is collecting such as workers' compensation, disability 
insurance or health insurance. 

(4) Periodic payments of future damages over $50,000. 

(5) A statute of limitations identical to the one advocated in the federal reform 
proposal. 

WHAT DID THE PASSAGE OF MICRA ACHIEVE? 

(1) Stability for the medical liability system that ensures there is a pool of money 
available to pay legitimate claims of malpractice. 

(2) Lower malpractice rates for doctors and thus lower health care costs for 
Califomians ~ although consumer costs in California were generally higher 
than the national average in 1991, the state's medical care services index was 
lower. Just as a basis of comparison, the average California Ob/Gyn pays 
approximately $40,000 annually for medical liability coverage. This compares 
with $142,000 for the Michigan Ob/Gyn, $131,000 for the Florida Ob/Gyn, 
and $100,000 for the New York Ob/Gyn. Michigan, Florida, and New York 
have all failed to enact MICRA- 



326 



like reforms. 

(3) Access to care ~ because of MICRA's liability protections, health care 
providers are more willing to provide high-risk care and treat high-risk 
patients. 

(4) Reduced litigation costs — because of MICRA, grievances are resolved quickly 
and more responsively for the patient. Out-of-court settlements as well as 
alternative dispute resolution by binding arbitration are encouraged under 
MICRA, rather than drawn-out jury trials. 

I am here to define the medical liability problem, urge you to strongly consider 
MICRA-like reforms as the solution, and encourage the inclusion of MICRA's components in 
the national health care reform package. 

The United States has the world's most expensive tort system. Tort costs are 
substantially higher than any country. The U.S. tort system costs $132 billion in 1992. 
Between 1933 and 1991, tort costs rose by a factor of almost 400, while U.S. economic 
output (GNP) grew only one hundredfold. 

Despite this magnitude of spending, our tort system functions very poorly in meeting 
its objectives of compensating injured parties and improving safety by deterring careless or 
wrongful behavior. 



327 



5 
Americans want reform, both in our tort system and in our health care system. 

Americans strongly support effective medical liability reform as a component of health 

system reform. In a Gallup poll, 77 percent of Americans cited malpractice lawsuits and 

awards as an important factor in rising health care costs. The consensus is: The current tort 

system, without modification, is vnable to resolve liability claims cost-effectively and makes 

a haphazard contribution to deterring negligent behavior or improving the safety of health 

care. Action at the federal level is needed to bring normalcy to a medical liability system 

gone awry. Here's why: 

Liability is a major factor influencing access, quality and cost of health care in the 

United States. Medical liability insurance premiums rose from $1.7 billion in 1982 to 

$5.6 billion in 1989, and are even higher today. 

Defensive medicine must be considered in estimating system-wide medical malpractice 
costs. Defensive medicine is carried out by physicians and medical institutions to 
avoid malpractice claims. In a 1992 Gallup poll of general practice physicians, 93 
percent said that fear of lawsuits causes them to prescribe diagnostic tests that were 
otherwise unnecessary. According to a Lewin-VHI report, comprehensive medical 
liability reform as a component of health care reform could save an estimated $35.8 
billion over the next five years by curbing defensive medicine practices and premium 
costs. 

The more the federal government regulates health care, the more important it is to 
regulate liability. 



328 



6 

If health care benefits, delivery, and costs are mandated by federal government, but 
liability exposure is different among the 50 states, these differences will cause gross 
inequities in different regions of the country. 

New federal mandates will generate new ''ibility exposure. Physicians and health 
care providers who have contracted with mandated alliances will be under economic 
pressure to make decisions to deny care, which will create a climate generating 
additional liability. 

It is important to stress that although federal involvement is crucial to solving the 
medical liability crisis, it should not be at the expense of states that have already enacted 
strong medical liability reform, such as California. Federal law should not preempt stronger 
state laws ~ it should instead serve as a floor to establish uniformity and equality, reserving 
for the states the right to establish more forceful reforms. 
The major objectives of health care liability reform are as follows: 

(1) Any meaningful reform of the liability system must contain meaningful patient 
safeguards against malpractice or harm from medical products or services. 

(2) The system's focus should be compensation of injured patients. People injured 
in the course of receiving health care treatment are entitled to fair and prompt 
compensation. No one disputes this. Unfortunately, the current tort system 
has failed the patient population. While our system ostensibly is designed to 
compensate the injured, the RAND Corporation estimates that only 43 cents of 



329 



7 
every dollar spent on medical liability and litigation reaches patients. 

(3) The patient/provider relationship should be strengthened, not impeded. The 
current liability system creates an overall climate of fear and suspicion that 
impede: the maintenance of trusting therapeutic relationships. 

(4) The liability component of health care costs should be contained. All patients 
bear the burden of the high health care liability costs paid by potential 
defendants, when their costs are passed on in the form of more expensive 
health care services. Liability insurance premiums are a significant 
contributing factor to the growth in patients' health care bills. Defensive 
medicine has added to the cost of health care. In 1989, it was estimated that 
the practice of defensive medicine added an additional $15.1 billion to the 
costs of health care. The number is even higher today, 

(5) Access to comprehensive health care should be promoted. Increasing 
premiums and the threat of liability have caused physicians and health care 
providers to abandon practices and to cease providing certain services in 
various areas of the country. 



^ 



330, 



8 

There has been a broad diversity of experimentation among the states with regard to 

liability reform. There are, in fact, fifty different systems in place for resolving disputes 
over medical negligence. The question is, which of the fifty systems has been the most 
successful in achieving the following purposes of a medical liability system? 

To fairly and adequately compensate people who have been injured through medical 
negligence. 

To nurture adherence to the high professional standards among health care 
professionals. 

To maintain affordable coverage for medical liability so that every provider secures 
coverage which will create an adequate insurance reserve to compensate valid claims. 

-»^ To provide incentives for individual responsibility at a level which will motivate all 
health care providers to take reasonable steps to reduce risks of injury and protect the 
safety of patients. 

We believe the answer is MICRA, it works for Califomians, and it can work for 
health care consumers all across America. If the Judiciary Committee does not adopt 
MICRA, we respectfully urge that it leave these matters to the states where they have 
traditionally remained. I appreciate the opportunity to present this statement to the 
Committee and I invite your questions and comments. Thank you for your consideration. 



331 



BALTlMOnC. MO 
McLCAN. VA 

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towson. mo 
bcl air. mo 



BiCH*«0 M vKMA»kC •ia*»-<*io< 



VENABLE, BAETJER, HOWARD & CIVILETTI 

Attorneys at Law 

A PARTNERSHIP INCLUOINO PROFESSIONAL CORPORATIONS 
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WASMINOTON, o.c. aooOB-3ei7 Jttk 

<iofi»«>-«aoo •**■ 

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BENJAMIN R. CIVILCTTI. P.C. 



wMitCM ■ DOCCT MuMMCII rft 



I202I 9e2Aa43 



July 21, 1994 



Chairman Jack Brooks 
Committee on the Judiciary 
House of Representatives 

Dear Mr. Chairman: 



I had hoped to to have the opportunity to testify before the 
Subcommittee on Economic and Commercial Law on behalf of G.D. 
Searle & Co. and the Pharmaceutical Research and Manufacturers of 
America with regard to what I believe are the significant and 
adverse effects of Section 2003(e) of the Health Security Act, H.R. 
3600. I believe that this "emti-discount" provision could 
radically and unnecessarily change longstanding antitrust policy 
and law, particularly the Robinson-Patman Act and the Nonprofit 
Institutions Act as they apply to the pharmaceutical industry. The 
pace of Congress' consideration of health care legislation, 
however, appears to preclude such hearings. 

Accordingly, I am submitting the attached Memorandum to the 
Subcommittee and to other Members for consideration during review 
of this legislation. 

As discussed in greater detail in this Memorandum, because 
Section 2003(e) — called 'unitary pricing" — seeks to require 
that identical discounts be provided by manufacturers for every 
purchase of a drug in this $50 billion industry unless different 
discounts can be justified by reduced costs of production, I 
believe that the provision is unnecessary and unwise as a measure 
to address improper price discrimination in the pharmaceutical 
industry. 

As a matter of health care policy, I believe that history 
shows that price control measures such as these rarely work and are 
often counterproductive. This provision could also threaten the 
world' s most productive pharmaceutical research and development 
industry, and unwisely seeks to end the discounting of 



332 



\T\ABLE. DAETJER. HOWARD fie CIVII-ETTl 

Chairman Jack Brooks 
July 21, 1994 
Page 2 



pharmaceuticals that President Cla.nton ironically cited as a model 
for containing health care costs in other areas. And finally, it 
may well lead to large, new paperwork intensive enforcement 
bureaucracies . 

If you determine that it is appropriate, 1 request that this 
letter and the attached Memorandum be included with the records of 
the Subcommittee with regard to its consideration of this 
legislation. 



Sincerely, 



A^} 



jt^/8^ 



A ti2ta 

Benjamim R. Civiletti^'^ 



333 



\ ENABLE B.\ETJER HOWARD & CTS'ILETTl 



STATEMENT OF BENJAMIN R. CIVILETTI 
SUBMITTED TO THE SUBCOMMITTEE ON ECONOMIC AND COMMERCIAL LAW OF 

THE 
COMMITTEE ON THE JUDICIARY OF THE UNITED STATES HOUSE OF 

REPRESENTATIVES 

ON BEHALF OF G. D. SEARLE & CO. AND THE PHARMACEUTICAL 

RESEARCH AND MANUFACTURERS OF AMERICA 

July 21, 1994 

This Statement is submitted on behalf of G. D. Searle & Co. and the 
Pharmaceutical Research and Manufacturer's Association (PhRMA) in connection with 
consideration by the Sutjcommittee of the "anti-discounting" provision of the 
Administration's proposed Health Security Act, Section 2003(e) of H.R. 3600. 

This anti-discounting provision would significantly restrict the ability of 
pharmaceutical manufacturers to provide discounts in the sale of drugs, and could^ 
eliminate the ability of these manufacturers to provide sharper discounts to purchasers that 
are capable of increasing sales of a product^. I believe that this provision should not be 
enacted for four reeisons. 

First, the anti-discounting provision is ambiguous, unnecessary and would conflict 
with longstanding antitrust policy to promote competition, and longstanding antitrust law 
including the Robinson-Patman Act*. Furthennore, its enactment would unwisely fragment 



84-714 O -94 -12 



334 



\"ENABLE BAETJER HO\V.\RD & CUILETTl 

Congressional and Executive Branch jurisdiction and enforcement over antitrust policy, at 
least for the pharmaceutical industry. 

Second, this provision is ill-advised public policy. Government price control efforts 
have consistently failed. In fact, the experience with pharmaceutical price control 
mechanisms established by the 1990 Omnibus Budget Reconciliation Act (OBRA) 
suggests that this anti-discount provision may actually raise pharmaceutical prices; not only 
for those consumers directly affected, but also for others. It is also ill-advised because 
Congress would displace the judgment of the marketplace and seek to favor one discrete 
set of purchasers and disadvantage others. 

Third, despite the fact that the Administration proposed it, this approach would 
contradict a fundamental ~ and correct ~ market-based principle of its own health care 
policy: that costs can be controlled by consolidating purchasing power in large buyers, 
institutions and collectives, who can drive down prices and the costs of health care to 
workers. Experience has shown that managed care providers achieve these savings in 
large part by obtaining discounts from all of their providers: physicians, hospitals and 
pharmaceuticals. 

And finally, enactment of this provision may well lead to^exactly what all concemed 
about health care reform seek to avoid - the creation of entirely new government 
enforcement bureaucracies and the likelihood of massive compliance reporting and 
paperwork. 

-2- 



335 



VENABLE BAETJER. HOWARD & CIVILETTI 

I. The Anti-Discount Provision Is Inconsistent with 
Established Antitrust Policy and Law. 



Section 2003(e) of the proposed Health Security Act provides: 



AGREEMENT TO GIVE EQUAL ACCESS TO DISCOUNTS. An Agreement 
under this subsection by a manufacturer of covered outpatient drugs shall 
require that every manufacturer offer drugs to every seller and every 
manufacturer and seller shall offer drugs to every purchaser with all rights 
and privileges offered or accorded on equal terms including purchase prices 
for similar volume purchases, rebates, free merchandise, samples and 
similar trade concessions. Nothing in this subsection prohibits the giving of a 
discount, on equal terms, that is justified by the economies or efficiencies 
realized by the manufacturer or seller resulting from; 

i) volume buying, including opportunities made available to all 

purchasers on equal terms to increase their volume buying through 
influencing physician prescribing practices or from agreements to 
place drugs on a formulary, 

ii) prompt payment, and 

iii) prompt delivery. 

At the time this statement is submitted, to my knowledge this provision is contained 
only in the Administration's bill and in the version of it reported from the Ways and Means 
and the Labor and Education Committees of the House of Representatives. 



While it appears similar to the Robinson-Patman Act, it differs fundamentally from 
that law in critical respects that would result in a reduction, and not an enhancement, of 
price competition in pharmaceuticals. The Robinson- Patman Act is a time-tested statute 
that deals adequately with the antitrust issues concerning the pharmaceutical industry. 



336 



\EXABLE BAETJER. HOWARD & CI\"ILETTI 

As you know, discrimination in the price of products -- including pharmaceuticals -- 
sold in the United States is generally governed by the Robinson-Patman Act Amendment 
to the Clayton Antitrust Act. The Robinson-Patman Act makes price discrimination illegal 
when the same kind of goods -- "commodities of like grade and quality" in the terms of the 
Act -- are sold to competing purchasers at different prices, and the effect of the 
discrimination is to "injure, destroy, or prevent competition" between and among the 
competing purchasers. But the Robinson-Patman Act, which has now been in effect for 
some 57 years, contains various exceptions and defenses that recognize that the purpose 
of the Act is to preserve and enhance competition, and not to impede it or create a 
windfall for any particular class of purchasers. 

The Differences Between the Robinson-Patman Act and proposed Section 
2QQ3(e^ of the Health Security Act. H.R. 3600 

A comparison of Section 2003(e) with the Robinson-Patman Act reveals how little 
the two standards have in common. In fact, they would be in substantial conflict. 
Enactment of this anti-discount provision would have a negative impact on competition and 
impose confusion on the well-established body of law and procedure of the 
Robinson-Patman Act. 

There are substantial ambiguities in the provision ~ and more are likely when the 
Department of Health and Human Services and the courts interpret it superimposed upon 
the Robinson-Patman Act. Section 2003(e) is even ambiguous as to whether there are 
exceptions to allow different discounts. Even if it would, manufacturers would have to be 



337 



\I;N ABLE. BAETJER. HOWARD & CI\ILETTI 

willing to disclose and litigate their most proprietary information, i.e., their costs, prices and 
other sales and marketing information and prove that these different discounts are justified 
by reduced production and sales costs. In most instances, however, these discounts are 
provided not because manufacturing costs can be reduced but because sales can be 
increased". According to its proponents. Section 2003(e) is intended to prevent 
manufacturers from giving discounts to increase sales. In addition, manufacturers will 
interpret this provision warily because of the significant penalties involved*. As a result, 
consumers who purchase from efficient sellers could be penalized and those who 
purchase from less efficient sellers at higher prices would be rewarded. That is an 
incentive to increase health care costs. 

Another fundamental difference between the two provisions is that they treat 
competition differently. For example. Section 2003(e) would prohibit the charging of 
differing prices to various purchasers of a pharmaceutical even where the different 
purchasers do not themselves compete. The Robinson-Patman Act prohibits price 
discrimination only where such discrimination would have an adverse impact on 
competition between the two buyers. Section 2003(e) is an anti-discount provision, but in 
no sense of the term is it a "competition" bill. 

Still another fundamental difference is that this anti-discount provision would 
effectively repeal the Nonprofit Institutions Act^ wherein Congress recognized the 
desirability of allowing nonprofit institutions to obtain the benefits of the lowest prices 
possible, and thus exempted purchases by nonprofit institutions, including hospitals and 

-5- 



338 



\"£N"ABLE BAETJER HOWARD & CUILETTI 

charitable institutions, of supplies for the institution's own use. That Act also allows 
discounts to qualifying non-profit HMOs. See De Modena v. Kaiser Foundation Health 
Plan. Inc. . 743 F.2d 1388, 1393 (9th Cir. 1984). cert, denied . 469 U.S. 1229 (1985). 

But Section 2003(e) provides no similar exemption for sales to nonprofit institutions 
Thus, its passage would repeal the Nonprofit Institutions Act and would likely result in 
immediate, upward pressure on prices chau'ged these institutions and ultimately consumers, 
the very opposite result from the goal of health care reform. 

Section 2003(e) also differs from the Robinson-Patman Act t>y failing to include two 
other important defenses, defenses which help to erasure that the Act encourag es rather 
than obstructs price competition. 

Seemingly the only certainty is that if this provision were enacted, pharmaceutical 
manufacturers could look forward to years of litigation to detemnine what pricing 
restrictions Congress intended for phamiaceutk:ai manufacturers by enacting this provision 
would be authorized by Robinson-Patman. Moreover, the incentive for manufacturers to 
devise cost efficiencies, savings and mariteting strategies based upon differing customer 
needs and purchasing power would be dulled considerably if the same discount must apply 
to all customers. 

Even more troublesome, however, is the absence from Section 2003(e) of perhaps 
the most fundamental defense available under the Robinson-Patman Act ~ the meeting 



339 



\EN.VBLE. B^VETJER, HOWARD & CI\ILETTI 

competition defense. Under Section 2(b) of the Robinson-Patman Act, sellers may 
discount their products or services to a customer if the level of discount is reasonably 
believed to be an attempt to meet the equally low price of a competitor. That defense 
reflects the belief that underlies American antitrust laws -- that robust competition in the 
marketplace is the best way to assure a vibrant economy. This is as true when the 
Government is policing the marketplace as when the Govemment is the purchaser. But 
there is no meeting competition defense under the Health Security Act. 

Accordingly, a sale of pharmaceuticals that would have been legal under 
Robinson-Patman, may not be legal under Section 2003(e). As but one example, under 
the Robinson-Patman Act's meeting competition defense, a manufacturer can discount a 
drug to meet a competitor's price for a therapeutic equivalent, including a generic drug. 
Under the anti-discount provision, however, a manufacturer facing competition from a 
generic drug could be forced to either lower the price to aH purchasers, or forego 
discounting to any. 

And finally, there is no basis for concluding with confidence that the manufacturers' 
decision in response to enactment would be to lower the price for all and reduce costs 
accordingly. Rather, experience with govemment price controls in general, and OBRA '90 
in particular, suggests that a manufacturer or seller will likely limit its discounting practices 
and/or raise its base price. While neither prior price control failures nor the experience 
under OBRA are conclusive proof that price inflation would occur if Section 2003(e) were 
enacted, the OBRA experience is the most relevant current economic infonnation available 
concerning the likely economic effects of the proposal ~ and it strongly supports the 

-7- 



340 



\ ENABLE BAETJER HOWARD & CIVILETTI 

experience of other government price control efforts and the likelihood of a significant 
inflationary distortion of the marketplace as a result of these latest government efforts at 
favoritism to one class of purchaser. 



Enactment of This Provision Would Create Overlappinq and Inconsistent Antitrust 
Regulatory Schemes. 



As disturbing as its substantive departures from current ~ and sufficient -- price 
discrimination law would be, Section 2003(e) also is ill-advised because it would add a 
parallel, duplicative and (at this point) poorly-defined enforcement mechanism for the 
pharmaceutical industry but for no other industrial sector. While the Robinson-Patman Act 
is enforced by both the Department of Justice and the Federal Trade Commission, plus 
private plaintiffs. Section 2003(e) presumably would be enforced by the Department of 
Health and Human Services. Thus, at least each of these agencies would have authority 
to enforce overlapping and inconsistent statutes for this one segment of industry. The 
prospect of inconsistency is increased by the fact that HHS does not have the experience 
of the Department of Justice and the FTC in antitrust matters to determine if a prosecution 
would promote competition. 

I do not believe that a new regulatory scheme is needed to ensure price competition 
in this industry. The Robinson-Patman Act has applied to pharmaceutical sales for 
57 years. The percentage of health care costs attributable to pharmaceuticals in the 
United States is among the lowest in the worid. The U.S. pharmaceutical industry is the 
world's leader in technology and innovation. The industry is highly competitive 

-8- 



341 



\E.\ABLE BAETJER HOWARD & CIVILETTI 

domestically and internationally. The share of total sales held by the 20 largest firms 
accounts for 75 percent of industry sales; all other firms account for 25 percent of the 
market. None of the major companies holds more that a 7.5 percent share of the market.^ 



There is no solid basis for concluding that the existing Robinson-Patman Act or the 
Nonprofit Institutions Act works properly in all other fields of manufacturing except 
pharmaceuticals. Furthermore, the application of Robinson-Patman principles is well 
understood by this Committee and by the Federal antitrust enforcement agencies. There 
is no reason why additional agencies are needed to interpret and apply novel provisions 
exclusively to the pharmaceutical industry. 

In summary, the anti-discount proposal is a poor substitute for and bears no true 
similarity to the Robinson-Patman Act. As a result, the provision is likely to have the effect 
of and be implemented primarily as a price control measure, bringing with it the prospect of 
a new data-intensive enforcement bureaucracy and perhaps higher prices to consumers. 

II. The Proposal Is lll-Advised For Other Reasons. 

"The cost containment provisions of the Administration's proposal might be 
useful in reducing taxpayer costs for the new benefits in Medicare, but they would 
add administrative complexity, could have substantial side effects, and might not 
reduce overall pharmaceutical costs."* 



342 



VE.\.\BLE. BAETJER, HOWARD & CrV'ILETTI 

Providing discounts to purchasers who can demand them or who can increase 
product sales, including Federal agencies, is a market-based means by which costs are 
increasingly controlled in the pharmaceutical industry, and also within the health care 
industry. Ironically, the success of HMOs and managed care groups in negotiating 
substantial discounts from drug companies by using their bargaining power was cited by 
President Clinton as a model of how consolidating bargaining power could drive down 
health care costs in other areas'. (Ironic, because the President's bill -- the anti-discount 
provision -- seeks to prevent the very discounts he lauds.) 

Section 2003(e) is simply government price control that will likely benefit only one 
class of purchaser by making it unlawful for a manufacturer to cut prices to purchasers who 
can effectively demand them. History demonstrates that the efforts of our Federal 
government and other governments over hundreds of years to control prices by 
government intervention often have been counterproductive'". Some predict that price 
controls for the pharmaceutical industry would be consistent with that history. "If Congress 
adopts price controls on prescription drugs, it can expect results similar to the disastrous 
effects of price control on oil and natural gas."" 

Congress already has experience with the distortion and inflationary effects of a 
different, more limited form of pharmaceutical price control in the Omnibus Budget 
Reconciliation Act of 1990. As a result of that experience, in 1992, Congress specifically 
exempted the Veterans Administration and other Federal agencies from these price control 
provisions upon finding that the provision increased Federal budgetary outlays because it 

-10- 



343 



\ENABLE BAETJER HOWARD & CIVILETTI 

penalized price discounting to the Veterans Administration and other Federal agencies by 
requiring that the "best price," i.e., the deepest discount, be the basis for rebates to the 
Medicaid program. A recent HHS Report also acknowledges that these phce controls 
raised Medicaid out-patient drug costs as well.'^ 

This effect of OBRA '90 provisions on pharmaceutical prices was found by GAO, in 
Congressional oversight hearings,'^' and by HHS.'" This history suggests that Section 
2003(e) similarly would create substantial, government created market dislocations and 
may well result in an overall increase in pharmaceutical costs for the economy. 

.The anti-discount provision would run counter to the current practice in the 
marketplace, and while all of its effects are not predictable, it would likely raise prices for 
consumers, or it will significantly impair the research and development investments by the 
United States pharmaceutical industry that have made it the most productive and 
competitive in the world.'^ Or, it will both raise prices and reduce the R&D expenditures in 
the industry. 

a. Discounting is an Important Means of Controlling 
Health Care Costs Today. 

Cost-containment is the raison d'etre for managed care plans such as HMOs and 
PPOs, the driving forces behind the concept of managed competition. A critical element of 
their cost-containment efforts is their negotiation with suppliers of medical goods and 
services for discounted rates and other expenses. Both physicians and hospitals therefore 

-11 - 



344 



\EN-.\BLE BAETJER HOWARD & CIVILETTI 

regularly give discounted rates to managed care providers.'® Accordingly, discounting has 
become increasingly widely practiced throughout the managed health care field, not just for 
pharmaceuticals.'^ 

The negotiation of discounted rates for pharmaceuticals is an important part of this 
cost-control strategy because although pharmaceutical costs since 1 972 have accounted 
for only between 4.5 percent and 6.5 percent of total national health expenditures,'* 
expenditures on pharmaceuticals have almost doubled since 1988. Furthermore, 
pharmaceuticals have in the past -- and promise in the future -- to be a very cost-effective 
treatment alternative.'® According to the U.S. Office of Technology Assessment, "the 
potential for price competition is expanding rapidly as all kinds of health plans, both HMOs 
and indemnity plans embrace the concept of managed care pharmacy."^" 



b. Price Controls for Pharmaceuticals: The Experience 
Under the 1990 OBRA. 



Although "Economists have found that properly measured, pharmaceutical 
company profits are only slightly above the average for companies in all industries",^' 
Section 2003(e) is a government price control measure making it unlawful for a 
manufacturer to cut prices to those purchasers that can effectively demand them. 

Section 2003(e) like previous governmental price control measures would benefit 
some purchasers and harm others for reasons that are not driven by economics or 
competition in the marketplace, but by government edict. It would harm HMOs, hospitals, 



12 



345 



YEN ABLE BAETJER HOWARD & dVILETTI 

and other large-scale purchasers, and benefit higher-cost retailers. It would affect 
pharmaceutical companies differently as well. It would harm those who compete for 
business on the basis of price discounting, and benefit those who do not. The economic 
incentive would move to price rigidity. In other words, the Federal Government would 
determine who would win and who would lose in the marketplace. 

The 1990 OBRA provision substantially limited price competition for out- 
patient pharmaceuticals consumed by Medicaid patients, which constituted 13% of the 
: overall pharmaceutical market. That legislation required drug manufacturers to rebate to 
HCFA the difference between the actual price charged to Medicaid recipients for outpatient 
drugs and the "best price" for the drug negotiated by the manufacturer with another party, 
usually a wholesaler. A mandatory minimum rebate of 12.5% was aisp established. 

Congressional investigations soon revealed that the 1990 OBRA "best price" 
requirement had an immediate unintended inflationary effect. Many pharmaceutical 
manufacturers that had extended price discounts as a marketing incentive for certain large 
institutional customers (such as the VA. HMOs and hospitals) were forced to curtail or end 
these discounts because they could not afford to extend them to a much larger customer 
base. As a result, costs to the VA, HMOs and other purchasers of pharmaceuticals with 
substantial market power skyrocketed. In response. Congress in 1992 exempted the VA 
and other Federal entities from having their prices included in the Medicaid "best price" 
determinations. 



- 13- 



346 



VENABLE. BAETJER HOWARD & CTVILETTI 

Recently released information by HHS reveals that this government price 
control effort not only raised prices for purchasers other than Medicaid, but ironically also 
increased costs for Medicaid, even after the rebates were deducted from its overall 
pharmaceutical costs, "in fact, the Medicaid drug program (net after rebate collections) 
has increased by about 30 percent from CY 1990 through CY 1992."^ 

This experience with a limited restriction on discounts does not, of course, 
necessarily predict the outcome of a different and much broader limitation that would apply 
across the entire market. Its powerful effect on important pharmaceutical customers, such 
as the VA,*^ hospitals." and HMOs,** however, provides a dear waming of the risks of an 
even broader government price controls intended to override the marketplace. 

Technk»ily. the 1990 OBRA provision covered only a relatively small portkm (13%) 
of the pharmaceutwal market. But its extraonfinary impact on the rest of the market is 
powerful evidence of the extreme sensitivity and volatility of pharmaceutk^l discounts and 
the perversities created by govemment interference in the marketplace. According to the 
HHS Inspector General, approximately 90% of all dnigs sold to bulk buyers had increased 
prices due to OBRA. neariy a third of which increased by more than 20%." 

The U.S. Congress Office of Technology Assessment described the OBRA "90 
situation as follows ~ 

The power of certain classes of purchasers to exact discounts was 
recognized by the framers of the 1990 Medicaid Rebate Law, which attempts to 

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347 



\E.\ ABLE DAETJER. HOW ARD & CI\1LETn 

piggyback on the negotiating power of HMOs and large hospital groups to obtain 
the same discounts for Medicaid. The strategy may have backfired, however, 
because manufacturers become unwilling to give discounts to HMOs if, by so 
doing, they stand to lose the amount of the discount on 10 to 15 percent of the 
total market for outpatient prescription drugs. A coalition of large pharmaceutical 
purchasing groups recently called for the repeal of "best phce' provisions because 
of the elimination of such discounts after the Medicaid rebate law went into 
effect."" 

c. Price Controls could both increase the costs of phanmaceuticals 
and reduce the level of research and development expended 
bv the pharmaceutical industry. : 

Congress should think hard before it rejects both economic logic and recent 
- and not so recent - experience that suggest that price controls through a ban on 
negotiated price discounts could actually raise pharmaceutical prices to customers. 
The pharmaceutical industry has some unique features that make it particulariy 
susceptible to the perversities of government price controls.^' While some entities 
might initially benefit from this approach, others - particulariy the managed care 
providers - would lose, and the overall effect may well be negative. 

According to the U.S. Office of Technology Assessment, Ihe amount by 
which returns from developing a new drug exceed costs are modest, on average, 
and would be eliminated if the average price received for drugs sold worldwide 
were just 4.3 percent lower.'*' 



-15- 
/ 



348 



\ENABLE DAF.T. JER. HOWARD & CIVILETTl 

But even if some pharmaceutical costs would decline, the anti-discount 
provision would have a significant negative impact on those drug companies that 
rely most on discounting, especially smaller firms -- and ultimately upon 
consumers. According to the Office of Technology Assessment, "...economic 
returns to the pharmaceutical industry as a whole exceeded returns to corporations 
in other industries by about 2 to 3 percentage points per year from 1976 to 1987, 
after adjusting for differences in risk among industries."** If pharmaceutical prices 
would decline, to avoid lower revenues firms would likely lower their current and 
significant investments in research and development." (Collectively, pharmaceutical 
companies currently spend almost $1 1 billion annually on research and 
development, or approximately the same as the entire annual budget of the federal 
government's National Institutes of Health."") 

Indeed, European and other foreign countries that have adopted strict price 
controls have experienced exactly that result. According to a September 1991 
study by the U.S. Intemationai Trade Commission, similar foreign efforts at 
cost-containment price controls 'often resultO in decreased levels of R&D spending 

'3' In fact, 'several countries that have implemented such programs have 

seen their pharmaceutical industries weaken and shift their production outside their 
borders.''* "Virtually no innovative pharmaceutical products have been developed 
in Canada since the advent of stringent price controls in that nation in 1969. 
Countries like France and Austria, which have the toughest price restrictions on 
pharmaceuticals, also do the least research."** 

-16- 



349 



\ L\ ABLE BAETJER. HOWARD & CIXILETTI 

Because new pharmaceuticals often replace more expensive forms of 
medical treatment, such as surgery, a decrease in research and development 
would not only suppress the quality of future medical care but would also limit the 
extent to which pharmaceuticals replace more expensive treatment. Their 
experience in price controls sets an example to be avoided, not followed. 

'Japan, Canada, and eleven of the twelve nations of the European 
Community (EC) all have some type of pharmaceutical price controls, yet spend 
proportionately more than the U.S. on drugs. In the one EC country without price 
controls, Denmark, spending on pharmaceuticals accounts for only 9.3% of national 
health spending - a share that is lower than any other eleven EC nations. 



"The U. S. spends less on drugs not only in percentage terms but also in per-capita 
terms than any of the other six nations which comprise the 'Group of Seven' (G7) 
with the world's biggest economies."* 



III. The Anti-Discounting Provision is Contrary to the Thrust of the 
Administration's Health Care Litigation. 

"CONTROLLING PRESCRIPTION DRUG PRICES 

"In the 1980's, the prices of prescription drug prices rose at quadruple the general 
rate of inflation. In recent years, several attempts have been made to control drug 
costs - often involving the use of buying clout to bring down prices. 

"For example, HMOs and managed care groups are successfully using their 
bargaining power to negotiate substantial discounts from drug companies. Because 
they often control the brand of drugs prescribed by doctors, health plans have the 
power to drive down prices. 

-17- 



350 



\"EN ADLE BAETJER. HO\V.\HD & CIMLETTI 



"Under reform, with the addition of prescription drug coverage, Medicare will 
become the world's largest purchaser of drugs. And the Medicare program will use 
its negotiating power to get discounts from the pharmaceutical companies. In 
addition, with competing health plans trying to become more efficient, more and 
more buyers will use the same successful negotiating techniques.'^^ 



Ironically, although the President's Health Security Report to the American People 
uses the example of the effects of increased bargaining power In the phannaceutical 
industry as a model for cost containment In other areas of health care, the Administration's 
bill also seeks to preclude the discounting the Report lauds. 

Congress' Office of Technology Assessment also concluded that - 

"The most effective cost-control mechanisms are available to those private- 
sector plans that can control prescribing through formularies. Hospitals and staff- 
model HMOs have used this power to exact price discounts from manufacturers 
even when the manufacturers are single-source producers of a specific 
compound."^ 

Today, large and small purchasers of pharmaceuticals have access to and follow as 
closely as Congress and the GAO an amazing amount of Infomiation concerning the 
prices, costs and margins of Individual drug sales around the world. As a result, the terms 
of individual pharmaceutical sales are detemnined by powerful market forces. Greater 
consolidation of purchasing power and increased use of the vast new amounts of data will 
enable even more widespread discounts to consumers. 



.18 



351 



^■^^■ABLE baetjer ho\v.\rd & cixiletti 

The effects of an anti-discount provision are not as predictable or as well 

documented; but it is clear that enactment would significantly distort the current market 

direction under which an increasing percentage of consumers obtain lower pharmaceutical 

prices by aggregated purchasing power. Instead, the essential -- and correct -- thesis of 

the overall health care reform effort provides the evidence that its antithesis for 

pharmaceuticals may well increase prices and decrease research and development. 

According to the Office of Technology Assessment - 

The success of some HMOs and hospitals in getting price concessions from 

manufacturers of single-source drugs (i.e.. those with paient protection) attests to 

ttie potential for price competition to kMver the cost of drugs to patients or their 

insurers."" 



IV. This Anti-Discounting Provision May Well Lead to Burdensome Paoerwofk 
Intensive Reoortino and Record-KeeoinQ Reouiremants. 



The anti-discounting provision may well lead to new government data collection and 
reporting requirements for pharmaceutical manufacturers to collect, certify and submit 
detailed price and sales information to federal enforcement autfiorities. The Congressional 
Budget Office hints at the magnitude - and the difHcuity - of the compliance effort. 

'CBO's estimates assume that the federal government could enforce price 
restraints. But that is an open question. Many times in the past the federal 
government has tried to restrain price growth, usually with mixed results at best. 
The modem market is too complicated for a limited bureaucracy to track and control 

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352 



\ EN ABLE BAETJER. 1I0\V.\RD & aVILETTl 

successfully. Prices in the drug market are especially complicated; drug prices vary 
In many dimensions (dosage, form, and packaging, to name only tfiree), any one of 
whicfi could be used to mask a price increase. Given the hundreds of drugs and 
manufacturers and the thousands of dosage and packaging forms, the federal 
agencies in charge of monitoring drug prices would have to rely on the basic 
compliance of the drug companies, as they do now for the Medicaid rebate. Such 
reliance often leads to incomplete compliance."**' Apparently, it cannot be done 
currently under the Medicaid Rebate Program of OBRA 1990.*' 

V. Conclusion . 

The anti-discount ban in the Administration's proposed bill cannot be justified as an 
antitrust measure. Indeed, it conflicts with and hopelessly complicates and confuses long- 
standing antitrust law and enforcement policy under the Robinson-Patman Act. 

The ban is also ill-advised public policy that would lead either to increased prices for 
pharmaceuticals for ail consumers (and especially those who pool their purchasing power 
to reduce their costs), or it will significantly reduce the investments in research and 
development that have made the U.S. pharmaceutical industry the world's leader. 

And, by making illegal and subject to substantial penalties the provision of discounts 
to consumers who can now demand them, the provision would require an impossible 
bureaucracy, requiring massive paperwork reporting, to administer. 

The provision should be deleted from any legislation conceming health care. 



1 Section 2003(e) is quite ambiguous. The Congressional Budget Office apparently 
interprets Section 2003(e) to not apply when the terms of the sale are different: 
"Apparently, this equal-pricing provision may not prevent manufacturers from granting 
greater discounts to hospitals and health maintenance organizations than to retail 
phanmacies." " How Health Care Reform Affects Phannaceutical Research and 

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353 



\'E\ABLE BAETJER HOWARD & CIVILETTI 

Development ". A CBO Study, the Congressional Budget Office, Congress of the United 
States, June 1994, page 30. 

On the other hand, the proponents of this anti-discount provision believe the 
opposite: 'The non-discriminatory prices/provisions in the President's bill are designed to 
eliminate manufacturers' existing pricing practices which result in substantial, non-justified 
discounts being offered to limited segments of the pharmacy market, such as individual 
HMOs, hospitals, or mail-order pharmacies, as a means of securing market share." 
Statement of Ronald J. Ziegler, President and Chief Executive Officer of the National 
Association of Chain Drug Stores on Behalf of the Community Retail Phamiacy Health 
Care Reform Coalition Before the Health and the Environment Sub-committee of the 
House Energy and Commerce Committee, February 8, 1994. 

In any event, the provision would introduce substantial ambiguities that may not be 
resolved for years and is unnecessary due to the Robinson-Patman Act, as discussed 
herein. 



2 ."The high level of R&D in this industry, together with relatively low production costs, 
has created a cost structure that encourages companies to seek ever-larger markets for 
their products, even if this requires substantial price discounts. The reason is that once a 
product is developed and approved for sale, it has already incurred R&D costs. Additional 
sales, even at deep discounts, serve to spread the R&D costs." " How Health Care 
Reform Affects Pharmaceutical Research and Development ". A CBO Study, the 
Congressional Budget Office, Congress of the United States, June 1994, page ix. 



3. 15U.S.C. 13. 

4. See endnote #2. 



5. For example, according to the Congressional Budget Office, "the Secretary would 
be empowered to inspect the records of manufacturers and survey wholesalers, 
pharmacies, and institutional purchasers of drugs 'as necessary' to verify reported 
prices. [Health Security Act, Title II, Subtitle A, Sec. 2003(b)(3)(C)] Financial penalties 
of up to $100,000 could be imposed on manufacturers who refuse to comply." "How 
Health Care Reform Affects Pharmaceutical Research and Development," A CBO Study, 
the Congressional Budget Office. Congress of the United States, June 1994, page 30. 

6. 15U.S.C. 13c 



-21 



354 



\ TNABLE BAETJER. HOWARD 8c CI\ILETT1 

7. IMS America. U.S. Pharmaceutical Market: Drug Store and Hospital Purchases. 



8. "How Health Care Reform Affects Pharmaceutical Research and Development." A CBO Study. 
the Congressional Budget Office, Congress of the United States, June 1994, page 38. 

9. "CONTROLLING PRESCRIPTION DRUG PRICES 

"In the 1980's, the prices of prescription drug prices rose at quadruple the general rate of 
inflation. In recent years, several attempts have been made to control drug costs - often 
involving the use of buying clout to bring down prices. 

"For example, HMOs and managed care groups are successfully using their bargaining 
power to negotiate substantial discounts from drug companies. Because they often 
control the brand of drugs prescribed by doctors, health plans have the power to drive 
down prices. 

"Under reform, with the addition of prescription drug coverage. Medicare will become the 
world's largest purchaser of drugs. And the Medicare program will use its negotiating 
power to get discounts from the pharmaceutical companies. In addition, with competing 
health plans trying to become more efficient, more and more buyers will use the same 
successful negotiating techniques." 

" Health Security: The President's Report to the American People ". The White House 
Domestic Policy Council, October 1993, page 55. 



10. "The federal govemment has tried often in the past to restrain price growth, usually with 
mixed results. A limited bureaucracy cannot successfully keep track of and control the modem 
market. Prices in the drug market are also very complicated; they vary in many dimensions 
(dosage, form, and packaging, to name only three), any one of which could be used to mask a price 
increase." "How Health Care Reform Affects Pharmaceutical Research and Development," A CBO 
Study, the Congressional Budget Office, Congress of the United States, June 1994, page 38 

1 1 . "Why Global Budgets and Price Controls Will Not Curb Health Costs." Edmund F. 
Hairlmaiser, Heritage Foundation Reports, March 8, 1993. 

12. Report to Congress: Medicaid Drug Rebate Program, Secretary of Health and 
Human Services, 1993 (although not released to the public until June, 1994). Page ES-2. 



13. See, e.g.. General Accounting Office, Medicaid: Changes in Drug Prices Paid by 
HMOs and Hospitals Since Enactment of Rebate Provisions (GAO/ED-91-139, Sept. 18, 

-22- 



355 



VENAULE UAn iHH. HOWAKI) Ik GIVIl.ETTJ 



1991); Senate Rep. No. 102-401. Veteraji Health Care Act of 1992 P I 10? ss^ i i ^ 

S D^'^r'?'^''- ": 'V^ ''a'^2.(H.R.2890): ^ ^^/L'^'ofX^^ 
Affairs Drug Rebate. Ajnciidincnts of 1992 (H.R.2890). '"crans 

14... Report to Congress: Medicaid Drug Keoate Program, Secretary of Health and 
Human Services, 1993 (although not released to the public until June. 1994) Page ES-2 



15... "U.S. pharmaceutical companies are highly competitive in the international 
marketplace. The strength of the U.S. industry lies in its large R&D infrastructure and 
ability to produce new products of high quality. According to one recent survey, U.S 
companies developed 113 of the 265 major globally prescribed drugs that were developed 
between January 1970 and May 1992." (citing Heinz Redwood, "New Drugs in the World 
Market," The American Enterprise (August 1993), pp. 72-80], "How Health Care Reform 
Affects Pharmaceutical Research and Development," A CBO Study, the Congressional 
Budget Office, Congress of the United States, June 1994, page 12. 

16... See Kralewski, John, et a!., "Factors Related to the Provision of Hospital Discounts 
for HMO Inpatients, " Health Services Research . 27:2 (June 1992). 133-53; U.S. Gen'l 
Acctg. Office, Managed Health Care , GAO/HRD-94-3. October 1993. p. 27; D. Garnick, et 
a!., Services and Charges by PPO Physician for PPO and Indemnity Patients; An Episode 
of Care Comparison," Medical Care . 28:10, Oct. 1990, pp. 894-906. 



17... "How Health Care Reform Affects Pharmaceutical Research and Development," A 
CBO Study, the Congressional Budget Office, Congress of the United States, June 1994, 
page x. 



18... "How Health Care Refonn Affects Pharmaceutical Research and Development," A 
CBO Study, the Congressional Budget Office, Congress of the United States, June 1994. 
page 3. 



19... "The innovative medicines developed in this country - while expensive - enable the 
patient to avoid painful and even more costly surgery. Treating ulcers with H-2 antagonist 
drug therapy costs about $900 a year. But the cost of ulcer surgery averages $28,900.' 
Murray Weidenbaum. "Drug price Rx with side effects". Thg Washington Times . May 1 , 
1993. page CI. 

"Anecdotal evidence suggests that managed care providers use more 
pharmaceuticals than the average fee-for-service provider, even when demographic and 
other differences between the enrollees are taken into consideration. Managed care 
providers, such as group or staff health maintenance organizations, which are at financial 
for the costs of their patients' care, have a strong economic incentive to provide cost- 

-23- 



356 



\F-N.\DLE BAETJER HOWARD & CIVILETTI 



effective treatments." "How Health Care Reform Affects Phamiaceutical Research and 
Development,' A CBO Study, the Congressional Budget Office, Congress of the United 
States, June 1994, page 42. 

20 U.S. Congress, Office of Technology Assessment, Pharmaceutical R&D: Costs. Risks 
and Rewards . OTA-H-522 (Washington, DC: U.S. Government Printing Office, February 
1993). 

21. "How Health Care Refonn Affects Phamiaceutical Research and Development," A 
CBO Study, the Congressional Budget Office, Congress of the United States, June 1994. 
page 9. 

22 Report to Congress: Medicaid Drug Rebate Program, Secretary of Health and 
Human Services, 1993 (although not released to the public until June, 1994). Page ES-2. 



23. Prior to enactment of 1990 OBRA, the VA enjoyed perhaps the lowest 
pharmaceutical costs of any institutional purchaser in the country. Nevertheless, 
Immediately after OBRA's enactment, drug prices negotiated by the VA rose by 14% in 
FY 1991, compared to 4% in pre-OBRA years. Senate Rep. No. 102-401, Veterans Health 
Care , 102nd Cong., 2nd Sess., 63 (1992), reprinted in 6 U.S. Code Cono'l and Adm News . 
102nd Cong., 2nd Sess. at 4153. 

By April 1992, the VA reported a $92.6 million cost increase in FY 1991 from 
the 1990 OBRA alone. House Rep. 102-384, Part 2, The Medicaid Drug Rebate 
Amendments of 1992 . 102nd Cong., 2d Sess.. 10 (1992). 

Companies that chose to continue discounts to the VA (among them Searle) 
paid a heavy price. For example, one company testified that its plan to continue extensive 
discounting to the VA would alone cost it more than $100 million in Medicaid rebates in 
FY 1 992. Prescription Drue Rebate Program , hearing before the Subcomm. on Health and 
the Environment of the House Comm. on Energy and Commerce, 102d Cong., 2d Sess., 
199 (1992) (Statement of R. Ingram, Group Vice President, Glaxo, Inc.). 



24. Both the anecdotal and statistical data for hospitals confirmed a dramatic increase in 
costs due to pharmaceutical drug price increases. One study of 45 public hospitals and 
hospital systems found a 14% increase in costs in 1991 alone, costing $130 million, jd. at 
86 (Statement of M. Day, Executive Vice President, Pari<land Mem. Hosp., Dallas, TX on 
behalf of the Nat'l Assn. of Public Hospitals). More than one-half of this hike was 
attributable to OBRA. 



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357 



Vnx.VBLE BAETJER HOWARD & CIXILETTl 



25. HMOs also were adversely affected by OBRA. An informal survey by the Group 
Health Association of America found a net 6. 1 % increase in prices charged to member 
HMOs after discounting for inflation. Prescription Drue Rebate Program , at 151-53 
(Statement of P. Penna, Group Health Cooperative of Puget Sound, on behalf of Group 
Health Ass'n of America, Inc.). 

26. Dep't of i lealth and Human Services, Office of the Inspector General, Medicaid Drug 
Rebates: impact of the Omnibus Budget Reconciliation Act of 1990 bn Drug Expenditures 
Including Best Prices . 4 (1991). 

27. U.S. Congress, Office of Technology Assessment, Phamiaceutical R&D: Costs. 
Risks and Rewards . OTA-H-522 (Washington, DC: U.S. Government Printing Office, 
February 1993), pages 262-3. 

28. "It is well known that researchers in the pharmaceutical industry typically test 
thousands of chemicals in order to find one that passes all the clinical trials and is finally 
approved by the FDA. It is less well known that, on average, only 3 or 10 drugs approved 
by the FDA and brought to market sell sufficiently well to earn back the average 
investment in R&D for a new drug, which includes the cost of the pharmaceuticals that do 
not even make it to market.25 Of these three, in the recent past, only one has been a 
principal source of industry income. Thus, a few very successful discoveries provide most 
of the income (see Figure 7).' "How Health Care Reform Affects Pharmaceutical 
Research and Development', A CBO Study, the Congressional Budget Office, Congress of 
the United States, June 1994, page ix. 

[Footnote 25: Henry Grabowski and John Vernon, "A New Look at the Risks and 
Returns to Pharmaceutical R&D,' Management Science (July 1990), P. 816. Analysts 
lack published data on costs by project; only the average cost is available. Thus, a drug 
might still be profitable even if sales do not cover the average amount spent on R&D, but 
it is unlikely to be very profitable unless its R&D costs are also very low.] 

29 "How Health Care Reform Affects Pharmaceutical Research and Development,* A 
CBO Study, the Congressional Budget Office, Congress of the United States, June 1994, 
page 45. 

30. U.S. Congress, Office of Technology Assessment, Phannaceutical R&D: Costs. 
Risks and Rewards . OTA-H-522 (Washington, DC: U.S. Government Printing Office, 
February 1993), page 2. 



-25 



358 



\EN.VBLL BAETJER HOW.\RD & CmLETTl 



31 . "When price controls are imposed on any industry, they reduce returns on 
investment and thus reduce the ability of producers to fund research, development, or 
increased production. And they discourage outside investment in the controlled industry, 
as investors find that they can get a better return elsewhere." "Why Global Budgets and 
Price Controls Will Not Curb Health Costs," Edmund F. Hairimaiser, Heritage Foundation 
Reports, March 8, 1993. 

32. " Why Global Budgets and Price Controls Will Not Curb Health Costs ." Edmund F. 
Hairimaiser, Heritage Foundation Reports, March 8, 1993. 

33... U.S. Infl Trade Comm'n, Global Competitiveness of U.S. Advanced-Tec hnology 
Manufacturing Industries: Pharmaceuticals , Rep. No. 332-302 to Comm. on Finance, 
U.S. Senate, USTIC Pub. No. 2438, at 10 (1991), reprinted in Health Care Reform and 
Prescription Drugs , at 191. 



34. Jd . 

35. Murray Weidenbaum. "Drug price Rx with Side Effects," The Washin gton Times. 
May 1, 1993, page CI. 

36. " Why Global Budgets and Price Controls Will Not Curb Health Costs ," Edmund F. 
Hairimaiser. Heritage Foundation Reports. March 8, 1993. 

37. " Health Security: The President's Report to the American People ". The White House 
Domestic Policy Council. October 1993. page 55. 

38. U.S. Congress. Office of Technology Assessment, Pharmaceutical R&D: C osts. Risks 
and Rewards . OTA-H-522 (Washington. DC: U.S. Govemment Printing Office. February 
1993). page 262. 

39. U.S. Congress. Office of Technology Assessment. Pharmaceuticai R&D: C osts. Risics 
and Rewards . OTA-H-522 (Washington. DC: U.S. Govemment Printing Office. February 
1993), page 29. 

40. "How Health Care Reform Affects Pharmaceutical Research and Development.* A 
CBO Study, the Congressional Budget Office. Congress of the United States. June 1994, 
page xv. 

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359 

\E\ABLE BAETJER. HOWARD & CI\ILETTI 



41. "In practice, isolating a price paid to the manufecturer for drugs sold at retail is 
difficult. Most retailers, primarily pharmacies, buy drugs through a wholesaler, but so do 
many institutional purchasers. About three-quarters of all drugs are distributed through 
independent wholesalers to both phanmacies and such institutional purchasers as 
hospitals. About 22 percent of the wholesalers' business consists of sales to hospitals. It 
is theiefore difficult to calculate the average manufacturer retail price on the basis of the 
price charged to wholesalers. This calculation is currently done, however, for the 
Medicaid rebates, based on prices reported by the pharmaceutical companies." U^., p. 30. 



* 



27 



360 




SOCIKTY KOR 


IHM^N 


RKSOl KCK 



viana(;k\iknt 



TESTIMONY SUBMITTED BY 

MICHAEL R. LOSEY, SPHR 

PRESIDENT & CEO 

SOCIETY FOR HUMAN RESOURCE MANAGEMENT 

ON 
HEALTH CARE REFORM 



THE COMMITTEE ON THE JUDICIARY 
SUBCOMMITTEE ON ECONOMIC AND COMMERCIAL LAW 

U.S. HOUSE OF REPRESENTATIVES 
JUNE 22, 1994 



«0* NORTH «ASHINCTON STREET 
AI.KXANDRIA. VIRGINIA 22314. 1997 USA 

(7031 S48'3440 FAX 170)1 83«.03t7 
Till): I70.1l 548. «9«9 TELEX: 6503^2491 



361 



Mr. Chairman, my name is Michael R. Losey, and I am President and 
CEO of the Society for Human Resource Management (SHRM) . Thank 
you for the opportunity to present to the Subcommittee our views 
on the issue of malpractice reform. 

As you may know, SHRM is the leading voice of the human resource 
profession, representing the interests of more than 60,000 
professional and student members from around the world. SHRM 
provides its membership with education and information services, 
conferences and seminars, government and media representation, 
and publications that equip human resource professionals to 
become leaders and decision makers within their organizations. 
The Society is a founding member and Secretariat of the World 
Federation of Personnel Management Associations (WFPMA) which 
links human resource associations in 55 nations. 

SHRM strongly feels that reform of the medical malpractice system 
would contribute significantly to the reduction of health care 
costs. This system should be reformed to avoid wasted energy and 
money spent on unnecessary "defensive" medicine and litigation. 

According to the American Medical Association, between 1982 and 
1989, professional liability premiums paid by health care 
providers exhibited the fastest annual percentage growth, over 15 
percent, of all medical practice cost increases. In addition, 
the existing litigation system can lead providers to conduct many 
unneccesary tests as a "defensive" medicine against potential 
lawsuits. 

SHRM believes that as part of malpractice reform Congress should 
encourage the creation of practice parameters as an affirmative 
defense. Practice parameters would establish guidelines for 
appropriate and inappropriate care and could serve as a legal 
basis for demonstrating that treatment was responsible and 
professional. 

Reform of the system should also include caps on lawyer 
contingent fees. Although the contingent fee arrangement is 
useful for those unable to pay an hourly rate for an attorney, it 
is clear that if the patient is injured, the legal system should 
work to increase the patient's share of the ultimate recovery — 
not the attorney's. President Clinton has supported this concept 
in his health care reform package. 

SHRM believes that contingent fee changes are essential to 
malpractice reform. However, the Clinton bill should go further 
by also capping punitive damages. SHRM understands that this 
type of cap is contemplated by the groups working on bipartisan 
reform plans, such as the Rowland/Bilirakis proposal pending in 
the House and the "Mainstream Group" plan to be introduced in the 
Senate Finance Committee. 



BOSTON PUBLIC LIBRARY 




362 3 9999 05983 053 7 



The House should act accordingly and not allow unlimited punitive 
damage awards to be available as a windfall to litigants. SHRM 
believes that if the health care reform system includes practice 
parameters, changes to the contingent fee structure, and caps on 
punitive damages there will be a significant positive impact on 
this nation's health care system. 

A study by Lewin-VHI has shown that medical liability reform 
could save $35.8 billion over five years. These savings would be 
achieved by reducing premium costs and decreasing the amount of 
defensive medicine practiced by health care providers. The money 
saved from malpractice reform could in turn be used to provide 
subsidies for the poor or health care coverage to the uninsured 
to help reach the President's goal of universal coverage, 

SHRM appreciates the opportunity to share its views and the views 
of the human resource profession with the Subcommittee. We look 
forward to working with the Committee to ensure that this 
critical element of health care reform is included in the final 
legislation. 

o 



84-71 4 (368) 



ISBN 0-16-046380-7 



9 780 



60"463808 



90000 



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