[Joint House and Senate Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
S. Hrg. 109-53
MEDICAL LIABILITY REFORM
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HEARING
BEFORE THE
JOINT ECONOMIC COMMITTEE
CONGRESS OF THE UNITED STATES
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
APRIL 28, 2005
__________
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JOINT ECONOMIC COMMITTEE
[Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]
HOUSE OF REPRESENTATIVES SENATE
Jim Saxton, New Jersey, Chairman Robert F. Bennett, Utah, Vice
Paul Ryan, Wisconsin Chairman
Phil English, Pennsylvania Sam Brownback, Kansas
Ron Paul, Texas John E. Sununu, New Hampshire
Kevin Brady, Texas Jim DeMint, South Carolina
Thaddeus G. McCotter, Michigan Jeff Sessions, Alabama
Carolyn B. Maloney, New York John Cornyn, Texas
Maurice D. Hinchey, New York Jack Reed, Rhode Island
Loretta Sanchez, California Edward M. Kennedy, Massachusetts
Elijah E. Cummings, Maryland Paul S. Sarbanes, Maryland
Jeff Bingaman, New Mexico
Christopher J. Frenze, Executive Director
Chad Stone, Minority Staff Director
C O N T E N T S
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Opening Statements of Members
Representative Jim Saxton, Chairman, a Representative in Congress
from New Jersey................................................ 1
Senator Jack Reed, Ranking Minority Member, a U.S. Senator from
Rhode Island................................................... 3
Representative Maurice D. Hinchey, a Representative in Congress
from New York.................................................. 18
Witnesses
Statement of Mark McClellan, M.D., Ph.D., Administrator, Centers
for
Medicare and Medicaid Services................................. 5
Submissions for the Record
Prepared statement of Representative Jim Saxton, Chairman........ 29
Prepared statement of Senator Jack Reed, Ranking Minority Member. 35
Prepared statement of Mark McClellan, M.D., Ph.D., Administrator,
Centers for Medicare and Medicaid Services..................... 36
Information provided to Mr. Hinchey from Dr. McClellan, from the
Office of the Actuary, U.S. Department of Health and Human
Services....................................................... 44
U.S. Department of Health and Human Services Report entitled
``Securing the Benefits of Medical Innovation for Seniors: The
Role of Prescription Drugs and Drug Coverage,'' provided to Mr.
Hinchey........................................................ 46
MEDICAL LIABILITY REFORM
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THURSDAY, APRIL 28, 2005
United States Congress,
Joint Economic Committee,
Washington, DC.
The Committee met, pursuant to notice, at 10:05 a.m., in
room 2226, Rayburn House Office Building, the Honorable Jim
Saxton, Chairman of the Committee, presiding.
Present: Representatives Saxton, Hinchey, and Cummings.
Senator Reed.
Staff present: Chris Frenze, Dan Miller, Brian
Higginbotham, Colleen Healy, John Kachtik, Tom Miller, Chad
Stone, John McInerney, Daphne Clones Federing, and Nan Gibson.
OPENING STATEMENT OF REPRESENTATIVE JIM SAXTON,
CHAIRMAN
Representative Saxton. Good morning, Dr. McClellan.
Welcome.
Dr. McClellan. Good morning. Thank you, Mr. Chairman.
Representative Saxton. We will begin the hearing. I would
like to make a short statement which emphasizes what I think is
the tremendous importance of the subject that we are here to
discuss today.
In doing so, it is a pleasure to welcome Dr. Mark McClellan
to the Joint Economic Committee. Dr. McClellan brings a wealth
of experience and knowledge to bear on the subject of medical
liability insurance, tort medical liability reform. Currently,
Dr. McClellan serves as Administrator of the Centers for
Medicare and Medicaid Services, overseeing approximately one-
third of the health care spending of the U.S. In addition to
being a board-certified physician of internal medicine, Dr.
McClellan is a Ph.D. economist. He has previously served as the
Commissioner of the Food and Drug Administration and as a
member of President Bush's Council of Economic Advisers.
There is little doubt that our Nation's medical liability
laws need reform. Over the past few years, premiums have
skyrocketed. In just the last 5 years, total medical liability
costs jumped 47 percent to a record high of $27 billion.
I would just like to refer everybody to this chart. Maybe
you could turn it so that we can see it here and they can see
it in the audience perhaps a little bit better than that.
In looking at this chart this morning, I was absolutely
amazed. I knew that medical liability malpractice costs had
gone up, but when I looked at this and saw that kind of in the
middle, among the middle bars there, there is a $9.2 billion
mark; that was 1990. Today, medical malpractice costs are
almost $27 billion. So since 1990, medical malpractice costs
have actually tripled in just those few years. This is indeed
an issue that bears close examination.
One of the central cost drivers is rising claims costs.
According to the legal research firm Jury Verdict Research, the
median trial award for medical liability claims stands at an
incredible $1.2 million, and a recent Department of Justice
study reported that nearly two-thirds of medical liability
trial awards exceed $250,000.
Here is another chart that shows growth in median liability
claims. As recently as 1997, the median liability claim, as
represented by the shortest bar to the left of the chart, was
$500,000.
Today, as I mentioned a minute ago, the median trial award
for medical liability claims stands at an incredible $1.2
million. Once again, just since 1997, these claims have more
than doubled. This rise in costs has reached the point where
the quality and availability of health care suffer. Faced with
premiums increasing 20 to 30 percent a year, many doctors are
cutting back on the scope and availability of their services.
Nowhere is this trend more apparent than in obstetrics, where
numerous OB/GYNs have decided it is just easier to drop OB
altogether. Some doctors have elected early retirement or have
relocated away from high litigation areas.
Emergency rooms and trauma centers have also been hurt by
the current crisis. The threat of lawsuits has made the
practice of defensive medicine commonplace, and as a result,
patients are subjected to more tests and procedures than may be
warranted by clinical factors alone.
Despite the rise in costs, the system is not better at
compensating the negligently injured. The typical time that
elapses between the date of injury and a verdict is close to 5
years. And, of course, legal fees go on during that period of
time.
Moreover, it is widely recognized--and this is an
unbelievable fact that we came across in studying this subject
a year or so ago--it is widely recognized that only a small
fraction of negligently injured patients even file a claim. At
the same time, a large majority, around 80 percent, of medical
liability claims do not even involve negligent injuries. One
study even found that more than half of all medical liability
claims do not involve an injury at all.
The shortcomings in the current tort system are such that
The Washington Post has noted that, and I quote: ``The
staggering costs of America's civil justice system are
unacceptable. The tort system is something of a casino,
offering windfall judgments to a small number of claimants and
nothing to others--with the merits of cases seeming almost
irrelevant to their valuation.''
Although each State faces its own set of challenges and
problems, the medical liability crisis has nonetheless reached
national proportions.
I wonder if we could put the chart up of the map of the
U.S. so that I can just point out that some States have taken
steps to mitigate the problem. The States in red are
represented--this is an American medical liability cost and
national view put out by the American Medical Association, just
so that everyone knows its source.
But those States that are depicted in red are States that
are actually in crisis. I am from New Jersey; it is red. The
States that are showing the probability of moving toward crisis
are in yellow and States that have stepped up to the bar and
have done something about it are actually in white.
I might note that in California--if we can look at the next
chart, California is one of the States that did something about
this problem. The red line indicates the national statistics
and how this problem has exacerbated itself. We see that the
increases that start during the 1970s were gradual at first,
but as we move forward, the premium growth during the 1990s and
now in the 2000s is just shooting upward. Contrast that with
what happened in California, which is shown by the blue line.
In the 1970s and 1980s, the costs of premiums for medical
liability insurance began to increase. But in 1975, California
enacted a cap. We can see that the premium growth stabilized
right after that reform occurred, and we have not seen the kind
of growth in California that we have seen nationally. So there
are solutions apparently to this problem.
[The prepared statement and charts submitted by
Representative Saxton appear in the Submissions for the Record
on page 29.]
Thus, we want to thank Dr. McClellan for being here today
to provide some insight into the problem and the direction of
reform. Before we go to Dr. McClellan, we will turn to my
friend, Senator Reed----
Senator Reed. Thank you very much.
Representative Saxton [continuing]. ----Whom I might
publicly congratulate. He got married last weekend, a great
wedding at West Point, I hear.
Senator Reed. For the first time.
OPENING STATEMENT OF SENATOR JACK REED,
RANKING MINORITY MEMBER
Senator Reed. Thank you very much, Mr. Chairman, and thank
you, Dr. McClellan. Welcome.
On the campaign trail last year, President Bush repeatedly
criticized trial lawyers for filing junk lawsuits that he said
were responsible for rising health care costs. The centerpiece
of the Administration's medical liability reform would cap non-
economic damages at $250,000 and institute a 3-year statute of
limitations on most lawsuits.
The 2004 Economic Report of the President stated that the
President's reform plan would lower the cost of providing
health care. However, there is little, if any, evidence to
support that claim. Hopefully, Dr. McClellan, you can shed some
light on that.
While it is certainly troubling that medical malpractice
premiums for doctors have been rising rapidly in recent years
and many physicians in my State have informed me of the cost
burden and potential impact on access to care for patients, it
is far from clear that jury awards are the sole driving force
as the President suggests.
In 2003, the Government Accountability Office studied
States with and without caps on non-economic damages and found
that the States with caps had lower premium increases than
those without caps. However, GAO did not have enough data to
show a direct link between malpractice award caps and premiums.
Similarly, the Congressional Budget Office has found that
there are potential savings for malpractice premiums by
limiting the amount of malpractice awards, but they are
skeptical that a cap would provide relief for health care costs
in general.
Malpractice costs were $24 billion in 2002, less than 2
percent of total national health care spending of $1.4
trillion, according to CBO. Reducing malpractice awards by 30
percent would only lower health care costs by approximately 0.5
percent, or about $7 billion. Granted, any lowering of health
care costs would be an encouraging sign.
CBO also finds that limiting physicians' malpractice
liability would not have much impact on ``defensive medicine,''
such as providing unnecessary tests or procedures to avoid a
lawsuit because physicians do so more often out of concern for
patients or to generate additional income than because they
fear liability.
Dr. McClellan, I know you have studied the issue of
defensive medicine and malpractice, so I will be particularly
interested in your opinions about the amount of health cost
savings caps on non-economic damages would produce. I believe,
however, that there are some other reasons for the latest
increases in medical malpractice insurance premiums that would
not be addressed by the kinds of reforms the President is
advocating. The GAO, for example, points to slower growth in
insurance company investment income and reduced competition in
the liability insurance market as other potential drivers
behind rising malpractice premiums.
We also should not lose sight of the fact that this issue
must be considered in the context of medical errors and the
quality of patient care, which are inextricably linked to
physician accountability. A study by the Institute of Medicine
reported in 2000 that between 44,000 and 98,000 people die
every year because of preventable medical errors. These
statistics point to a need to link any discussion of tort
reform to the issues of medical errors, public safety and
physician accountability.
In the last Congress, the Republican leadership sent narrow
medical liability legislation for OB/GYNs directly to the
floor, thereby sidestepping serious committee deliberation and
inquiry into the nature of and possible solutions for rising
insurance premiums. While it is hard to see how the President's
proposal for medical liability reform will make more than a
dent in spiraling health care costs, this is an important issue
that lawmakers must be allowed to investigate thoroughly.
Again, your presence here today, Dr. McClellan, as the
Chairman said, is an important step in this inquiry. I
appreciate your willingness to testify.
I hope you will also be open to questions regarding your
oversight of CMS, which raises questions now and again. I have
a number of questions regarding the $500 billion of Federal
spending that you administer at CMS that undoubtedly has a
bigger impact on physician behavior and overall health spending
than medical malpractice costs.
I look forward to your testimony.
Thank you, Mr. Chairman.
[The prepared statement of Senator Reed appears in the
Submissions for the Record on page 35.]
Representative Saxton. Dr. McClellan, welcome once again. I
understand that your statement may take more than 5 minutes.
That is fine. We have all morning. We are anxious to get
started. You may begin, sir. The floor is yours.
STATEMENT OF MARK McCLELLAN, M.D., Ph.D.,
ADMINISTRATOR, CENTERS FOR MEDICARE AND MEDICAID SERVICES
Dr. McClellan. Mr. Chairman, thank you for this
opportunity.
Mr. Chairman, Senator Reed, Representative Hinchey,
distinguished Members of the Committee, thank you for inviting
me here today to discuss medical liability reform and, Senator
Reed, congratulations, and I hope this isn't part of your
honeymoon.
As President Bush and many in Congress and across the
country recognize, our current liability system does not serve
the needs of patients and needs reform. It is not simply an
issue of reducing health care costs by lowering the costs of
medical liability. More importantly, it is about improving
patient safety and quality of care.
The Medicare and Medicaid programs are not immune from the
costs created by our liability system. The Congressional Budget
Office has estimated that if legislation the House has
considered, and that you just mentioned, Senator Reed, were
signed into law, it would result in savings to the Federal
Government alone of more than $11 billion for the 2004 to 2013
period.
But this figure only considers premium reductions. It
doesn't take into account the far greater savings possible as a
result of reducing defensive medicine. Peer-reviewed research
that I conducted with Professor Dan Kessler at Stanford
University found that capping non-economic damages and revising
joint and several liability rules could reduce the practice of
defensive medicine so that overall hospital expenditures would
drop by between 5 and 9 percent.
During fiscal year 2004, we spent more than $133 billion on
hospital care in our fee-for-service Medicare program, and so
that would translate to annual savings of between $6 and $11
billion. Other peer-reviewed studies have reinforced the
importance of liability pressures driving broader cost
increases in our health care system.
Right now, Medicare faces a real challenge with physician
payments. Spending on physician services during 2004 rose by
approximately 15 percent from the previous year. As we work on
solutions to the physician payment problem, we can no longer
afford to pass by opportunities where there is overwhelming
evidence of billions of dollars in cost savings without
compromising patient health.
For example, a significant driver of the past year's
increase is the fact that more patients are receiving more
complex and more frequent diagnostic imaging services. This is
exactly the kind of medical practice that is aggravated by
liability concerns.
Doctors understandably worry about being sued for bad
outcomes rather than bad care, since that is mainly what
happens in our current system. Doctors worry about being sued
even when they follow state-of-the-art medical practice because
that is what happens.
In fact, physicians get a double whammy. These liability
pressures drive up costs without increasing quality, and
because of the way our physician payment systems work in
Medicare, when that happens, physicians get hit with reductions
in payments on top of it. That can worsen the problem of
access. We just can't afford to do this anymore.
The problem is seriously aggravated by the disturbing
recent trends in liability settlements and awards. Mr.
Chairman, you put up some of the figures showing up through
2003, which were very concerning, but on top of that, the
Physician Insurance Association of America, a main insurer of
physicians for liability costs, has recently noted that the
average jury award increased by 46 percent between 2003 and
2004, to over $439,000, and that includes an increase in the
very large awards that you mentioned. So on top of the big
increases in settlements and awards in the preceding years, I
fear the quality and cost problems caused by our liability
system will continue to worsen.
With the new Medicare law and our proposals for Medicaid
reform, we are taking many steps to support prevention-oriented
care and promote better quality and safety, but it is hard to
do that in an environment where legitimate worries about
liability stand in the way of quality and safety improvement.
That is the main reason we need liability reform through such
proven measures as caps on non-economic damages.
Liability reform will improve health care quality and
access and costs, leading to better health for Americans. In
saying that our liability system needs reform now, I want to be
very clear that I fully support the goals of liability law.
These are the right goals. Patients who are injured deserve to
be compensated when they are treated negligently, and we need
to provide strong measures to assure that physicians and other
health professionals provide high-quality care and face
consequences when they are negligent. But the fact is our
liability system is failing miserably at both goals.
For example, one of the most definitive studies, the
Harvard Medical Practice Study, reported that, on average, it
takes more than 5 years for an insurer to pay a malpractice
claim after the date of the incident, and when an injured
patient does finally successfully settle or win the case, the
patient doesn't get most of the money.
Even worse, only a tiny fraction of those who are injured
due to negligent care get even this delayed and incomplete
compensation, as you noted, Mr. Chairman. So in the system we
have now, most of the money that is finally awarded goes to
lawyers and to patients who were not injured negligently. These
are the features of a long, slow and costly lottery.
The liability system is not achieving its goals. Because
doctors know they can and will be sued even when, in fact,
mostly when they don't do anything wrong, it is no surprise
that the result is higher health care costs and quality and
access problems. The defensive medicine resulting from our
liability system includes the costs and risks of unnecessary
procedures, and it includes problems in access to care. In
emergency care, in obstetrics, in neurosurgery and in other
specialties in many areas of the country, as your chart showed,
the result of high liability premiums and frustration over
lawsuits is simply less access to physicians. And even if you
can get access to care, it means higher costs.
Our legal system simply does not serve the needs of
patients and it does not encourage physicians to practice
science-based, quality medicine. The evidence is clear that
Congress could reduce health care costs and improve quality by
passing legislation that puts in place reasonable caps on non-
economic damages and revises the joint and several liability
rules that encourage lawyers to collect several times over for
the same damages. Such reforms would still allow patients to
get very large recoveries for their injuries, including full
compensation even for services like child care that do not come
with a paying job.
There are other steps that can be taken, as well, that
would also help our liability system do what it is failing to
do today, without adding unnecessary costs or compromising
quality of care like the current system does. For example, in
late 2004, the Department of Health and Human Services
announced a voluntary early offers program.
Under this program when someone files a claim against the
department, for example, for care in a community health center
or through the Indian Health Service, HHS will evaluate the
claim and then send that person a notice telling them about the
option of using an early offer. Then both sides have 90 days to
submit a confidential settlement offer to an independent third
party. If the offers match or they overlap, the case is settled
and HHS immediately pays the amount requested with much more of
the money going much faster to the injured patient. If there is
no match, the case can proceed as usual.
The goal of this program is to do what our liability system
is failing to do, provide prompt and predictable settlements
for injured patients without the delays and the uncertainty of
trying to go to court. And these patients will not have to turn
over a large part of their settlement to their lawyers. We need
to support more steps like this.
Some time ago, Johns Hopkins Hospital began requiring non-
emergency patients who came to them for elective procedures to
sign an agreement to take any malpractice claims to mediation
prior to going to court. In 2003, 24 cases went to mediation
and 21 of them were resolved promptly. As a result, the
experience for Hopkins Hospital in 2003 claims decreased in
expense by almost 30 percent.
Mediation is typically much faster than a court case and
involves far lower attorneys' fees. In short, patients who are
injured get compensated at a higher level and in a shorter
amount of time. Costs are lower and more predictable, improving
the delivery of care.
We are looking at ways to encourage such steps toward
better compensation and lower costs to the liability system in
the Medicare program. For the sake of our patients and for
quality of care, we can't afford to pass up these opportunities
anymore.
Another promising idea is the establishment of special
health boards or courts devoted to hearing cases involving
claims of medical malpractice. These specialized courts would
employ specially trained judges with health care expertise and
background and would deal only with liability cases. Judges
could be selected through a non-partisan process. Their
expertise and impartiality would provide the predictability,
the timeliness and the fair compensation that simply don't
exist in our current system.
Besides looking at opportunities to provide a better
compensation system for injured patients, we are also taking
many steps at CMS to help patients actually get better care.
This includes new systems for reporting information on the
quality and safety of care in hospitals, in nursing homes, in
home health agencies and, soon, in ambulatory care as well. It
includes quality improvement initiatives and more coordinated
work with State oversight agencies. These are effective ways to
increase provider accountability.
I am also pleased about the bipartisan congressional
interest in patient safety legislation that includes a
mechanism for allowing anonymous reporting of errors and risky
situations, and anonymous systems to help prevent those errors
in the future. It protects these badly needed data from
discovery. We don't have as much of this preventive information
as we should because health professionals rightly fear that it
would be used not to improve quality, but as the target of a
fishing expedition for lawyers. The same concerns are slowing
the adoption of electronic health information systems that can
improve quality and safety. As the Institute of Medicine has
noted, if we don't take these steps, we will keep missing
opportunities to improve patient safety and quality.
Mr. Chairman, we are increasingly using performance
standards in our health care system. We need to subject our
liability system to this same kind of performance review. Its
very low levels of performance in terms of compensating injured
patients and encouraging quality care mean that it is blocking
progress toward better care.
The current medical liability system is not meeting the
needs of patients and it is costing those patients and the
Federal Government and other payers billions of dollars because
it causes unnecessary care and problems in access to care, and
it is providing no reliable compensation to patients who are
injured. We know how to do a lot better and we are looking
forward to working with you toward liability reforms that
improve quality and access to care and reduce health care
costs.
I would be pleased to take any questions that you all may
have.
[The prepared statement of Dr. McClellan appears in the
Submissions for the Record on page 36.]
Representative Saxton. Dr. McClellan, thank you very much
for an excellent statement. Let me begin by referring to
something that you alluded to and that I mentioned in my
opening statement.
It is quite surprising to me to find that a large majority,
according to some studies, of doctors who have been subject to
lawsuits--that something in the neighborhood of 80 percent of
the medical liability claims don't involve negligent injuries.
This has been something that I have found hard to understand.
In fact, as I pointed out in my opening statement, one study
found that more than half of medical liability claims don't
involve any injury at all.
Can you talk a little bit about this and explain how this
can be and what kind of a problem? It is obviously a big
problem.
Dr. McClellan. Mr. Chairman, your figures are right. They
are drawn from studies like that Harvard Medical Practice Study
that took a systematic look at the cases that were coming to
court. They reviewed all of the cases over a certain time
period in some specific States or a large sample of cases,
including cases in New York, and they found the kind of results
that you are talking about.
And other follow-up studies have yielded similar results,
that very often cases are brought when there are bad outcomes,
even if there was no medical negligence involved, and very
often there may not even be actual harm demonstrated. It may be
a claim that the patient was perhaps someday at risk of harm
even when, again, the physician has followed appropriate
medical practices.
The system that we have now does not screen out these kinds
of cases. It doesn't encourage us to focus, most importantly,
on cases where there has been true negligence and, as a result,
doctors should be held accountable. If we did a better job of
that, we could compensate the patients who are truly injured
negligently much more effectively, and we could provide more
predictability to the doctors.
They wouldn't have to worry that when they are providing
care that is up to standards and doing what they think is right
from the standpoint of their medical expertise, they will be
able to practice appropriately. They won't be hauled into court
for it.
Representative Saxton. How did these studies arrive at the
conclusion that all of these cases did not involve any
negligent behavior?
Dr. McClellan. They involved a kind of medical review that
ought to be a more systematic part of our approach to medical
liability and medical negligence. They had independent expert
reviewers, multiple reviewers, look at all of these cases, look
at all the documentation and reach conclusions about whether
appropriate medical practice was followed or not and whether
the alleged injury was, in fact, from a medical standpoint,
related to the actions of the doctor. It is that kind of expert
involvement that we don't have in our liability system today.
Representative Saxton. Of this large percentage of cases
that don't involve negligent injuries, do many of them result
in awards to the claimant?
Dr. McClellan. Yes. Most of the awards that do occur are
for cases where there was no negligence by the physicians. A
lot of these cases end up being dropped or end up being settled
for little or no money; but many of them do end up in large
settlements, and even in the cases that don't end up giving
money to the plaintiff, they do end up taking a lot of time and
effort on the part of the doctor and the doctor's medical
staff, and they do end up with a lot of the money going to the
lawyers that are involved.
Representative Saxton. On the other side of this coin, I am
told it is widely recognized that only a small fraction of
negligently injured patients file a claim.
How can this be so backwards?
Dr. McClellan. Well, it is a very difficult system to
navigate because the costs are so high, and it takes so long,
and there is so much burden. There is a burden on the doctors.
There are also burdens on the patients for going through this
long process. A lot of them don't bother with the effort. That
is why I think that some of the steps that I outlined in my
written and my oral statements are so important.
If we can take steps to take these out of the court system,
that is a 5-year-long process that has a lot of burdens along
the way, and have a quicker approach, like this Early Offers
system that I mentioned or approaches that rely on mediation, I
think more patients who are truly injured negligently could get
compensated, and more of the money would actually go to them.
It wouldn't go to the costs of administering this very long and
complicated system. It wouldn't go so much to the lawyers
involved.
Representative Saxton. So to conclude this point, I guess,
there are a large number of people who receive, for lack of a
better term, negligent treatment who are not compensated, and
there are a large number of people who receive very adequate,
non-negligent treatment who get compensated.
Dr. McClellan. And then a lot of money goes to the lawyers
in the process, at least 30 to 40 percent of any settlements
that occur. And then there are other administrative costs for
the lawyers on the other side, the courts and so forth.
Most of the money in the system doesn't end up going to
patients, and you are right that only a very small fraction of
it actually goes to patients who are injured negligently.
Representative Saxton. Now, of course, I am not a doctor;
but I am a human being, and if I were a doctor, it would seem
to me that I would go to my practice each day with a list of
things that I needed to do, and perhaps one of the most
important--maybe the most important--is to protect myself from
potential claims. And if I were a doctor, not being one, how
would I do that?
Dr. McClellan. Well, there are steps that you could take to
protect yourself from claims. I think people who have studied
this issue talk about positive and negative defensive medicine.
``Negative defensive medicine'' is that you just stop
taking the cases. If there are high-risk procedures, cases
where there is some real chance of a bad outcome, like in
neurosurgery or in obstetrics or in some types of emergency
care, there are many doctors who are just leaving those
practices.
I have talked to physicians in different parts of the
country, the Mississippi Delta, the Las Vegas area, parts of
Ohio, Pennsylvania, other parts of the country where there are
now real access problems, particularly for certain kinds of
specialties and certain kinds of procedures from doctors just
staying away from them. It is not worth the risk. They can't
afford the insurance. They don't want to go through the hassle
when they are practicing good care.
On the other side, so-called ``positive defensive
medicine'' costs, or extra tests and extra procedures that
might be ordered not because that is what the medical
guidelines say, but just because a doctor wants to be protected
in the event of a suit being brought, that is where we see
maybe extra cases of imaging procedures being done.
I talked about some of the rapid growth we have seen in the
past year in the Medicare program, in the use of advanced
imaging procedures that are very costly, and in some cases,
when a patient comes in with a headache or another problem like
that, that just aren't medically warranted. So we would like
doctors to come to practice every morning thinking about,
``What are the things that I can do today that are going to do
the most for my patients at the lowest cost?'' This system
creates some very different kinds of pressures on how they make
their decisions.
Representative Saxton. Your answer reminded me of an
incident that occurred in New Jersey.
We have neurological physicians, of course, in New Jersey.
At one time we had around 90. Now, I understand we have less
than 60. One of the hospitals that lost their neurological
surgeon had a need for one. A lady was admitted to the hospital
and there was no neurological surgeon to treat her. So they
literally had to get a helicopter and fly her across the river
to Philadelphia for treatment. It seems to me that that would
create a situation where people don't actually have access to
proper care.
Dr. McClellan. It is.
On the one hand, it is higher cost because she had to get
all that extra transportation. At the same time, it is worse
quality of care. Many neurologic procedures are urgent. The
transportation time, the disruptions that can occur in moving a
patient can compromise quality of care. And so from both a
quality and a cost standpoint, it is a real problem.
Representative Saxton. On the positive side, the things
that you referred to as positive steps that can be taken, I
suspect that very thorough examination and testing would be a
way to protect myself if I were a doctor.
Dr. McClellan. That is right. And very thorough examination
and testing is appropriate in many medical cases. We want
doctors doing a thorough job of working up a patient
appropriately, according to the latest medical science. But
their decisions ought to be determined by the medical science,
not the latest court verdicts where doctors are being sued
successfully. So often when there hasn't been any actual
medical negligence, when they are being sued unsuccessfully in
a lot of cases where there is no negligence--but they still
have to be dragged into court, it still takes a lot of time and
effort, it still adds to their liability cost--you end up with
different kinds of pressures on the way the doctors are
practicing. And that is what we would really like to avoid.
Representative Saxton. It seems to me that one of the
downsides of doing too many tests would have to do with
expense. That goes without saying. You do tests that are,
quote, ``unnecessary'' to protect oneself, the doctor. It is
going to cost more.
Any other downsides?
Dr. McClellan. You can get into a vicious cycle. Very often
when these imaging procedures are done, there may be an anomaly
on the test. No test is perfect. No test is right 100 percent
of the time.
If you are doing a diagnostic test on a patient that has
got a very low likelihood of actually having a real problem and
you see something anomalous, probably in many cases it is just
going to be the fact that a test isn't perfect. But if you see
that, if you have done the test in part because of liability
pressures, you are going to have to do something else about it.
So you may end up in a situation where you are going just from
ordering an MRI to then having to go on to further workup of a
patient, a biopsy procedure, other types of services that carry
with them their own risks and potential for harm and additional
costs.
Representative Saxton. A large percentage of the American
population pays for medical care through Medicaid and Medicare.
It seems to me that since older folks, in terms of Medicare,
receive a very large percentage of medical treatment in this
country, for obvious reasons, that there would be a particular
concern with regard to the implications for Medicare and
Medicaid.
Can you speak to that subject? What does it do to the
system that you oversee?
Dr. McClellan. When you take account of these defensive
medical costs, it means higher costs in a couple of ways. One
is the higher costs associated with the extra procedures, the
extra tests and so forth. Another is the higher costs
associated with complications of problems of access to care. If
patients can't get access to the neurosurgical services they
need, or the emergency services or other problems, that can
lead to higher costs as well. It certainly leads to quality
problems.
Some of the studies that I have been involved with, these
peer-reviewed studies published in academic journals, suggest
that we could have an impact on Medicare costs of 5 percent or
more, at least for hospital costs, by addressing these
defensive medicine problems, by reforming our liability system.
Even if you are only looking at the direct costs of the
higher liability premiums and the costs of the liability system
itself, again money that is mainly not going to care for
patients and not going to compensate patients who are injured
negligently, even there you can save billions of dollars in
program reforms as that CBO study that Senator Reed mentioned
documented. There are real opportunities for lowering costs,
and that is something that we need to be paying a lot of
attention to right now when we are struggling to find ways to
pay our physicians appropriately, and when we are trying to
take steps to make our program as sustainable as possible.
Representative Saxton. Tell us about the effect on the
Medicare trust fund.
Dr. McClellan. The savings that these reforms would
engender, the billions of dollars in savings, according to CBO
estimates, the even larger savings that could result from
really doing something about defensive medicine, would assist
the trust funds. That would reduce the pressure that the trust
funds are facing.
I won't say this is the only step that we need to take to
make sure Medicare is sustainable. We also need to bring our
benefits up to date and take other steps that promote higher-
quality care as I talked about.
But we really want to create an environment that encourages
high-quality medical practice and that avoids unnecessary
costs, and the liability system that we have today is standing
right in the way of that goal.
Representative Saxton. One of the answers to this problem
appears to be something that is referred to as ``caps on non-
economic damages.'' These caps have been touted as an important
element of effective medical liability reform, and I referred
to the one chart.
Maybe we could put that chart back up again, the one that
is right there in the front. That is good.
The national average for premium growth since 1976 up until
2003 is demonstrated here by this chart as a relatively flat
line in the case of California, which enacted caps in 1975 and
a very steep inclining rate of growth for the national average.
I am told that Kenneth Thorpe of Emory University
recently--and incidentally a former Clinton Administration
health official--came to the conclusion that premiums in States
with a cap on awards were significantly lower, as is depicted
by this chart, than States without caps.
Would you discuss this?
Dr. McClellan. It is not just Dr. Thorpe's conclusion. It
is also the conclusion of studies that have been done by the
policy and evaluation office in the Department of Health and
Human Services. It is the result of studies that we have done
and that have been published in peer-reviewed academic journals
before I came to work in Government. It has been the result of
other studies by other distinguished economists and health
policy researchers.
From these studies, together they show that these kinds of
caps on non-economic lead to changes in physician behavior
because the physicians feel less pressured to deal with
liability and more focused on providing care for their
patients. They lead to lower costs of defensive medicine, as we
have already talked about a little bit. They lead to lower
liability premiums because they reduce the costs of our
liability system. And they lead to greater access to care.
A recent study by the Agency for Health Care Research and
Quality showed that in States that have implemented these
liability reforms, they have a significantly larger number of
physicians in practice. So you have less situations like the
one that you described in New Jersey where a patient can't get
access to the care they need.
Representative Saxton. If caps were successful in bringing
about these changes in medical care and the performance and
activities of physicians, would it also be fair to say that it
would have the effect of reducing the costs of the actual
premiums charged to doctors?
Dr. McClellan. It would have a direct effect on reducing
the premiums; that is correct.
The beneficiaries in the Medicare program pay a quarter of
the costs for Medicare Part B, and that is the cost of
physician services and all the other outpatient services,
including all those imaging procedures and lab tests and so
forth. So it would have a direct effect on premiums.
Representative Saxton. Would it have an effect on the cost
to the consumer?
Dr. McClellan. It would also have an effect on the cost to
consumers. Not just because of lower premiums, but because if
they are undergoing fewer tests, if they are getting medical
care that is practiced more efficiently where they can get the
relief they need for their health problems at a lower cost--
that is, lower copays, as well, and lower out-of-pocket
payments for that reason, too.
Representative Saxton. In your opening statement you
mentioned--along with caps for medical liability tort reform
involving caps on non-economic damages, you also mentioned
mediation.
Dr. McClellan. Yes.
Representative Saxton. Would you explain the effect of how
you see mediation working?
Dr. McClellan. Mediation is just a better environment for
getting to resolution of issues in a way that reflects the
medical science. Mediation is led by an independent expert,
someone who knows the field of medicine and who is not on one
side or the other, who can work to try to bring the different
sides together.
I mentioned the Johns Hopkins Hospital case where now this
is mandatory for patients who are coming in for elective non-
urgent procedures. They have time to think about whether they
want to get care this way, and mostly, generally, they decide
that they want to.
The cases--if there is a problem of a bad outcome or other
dispute, go to mediation instead of going straight to a court
in that long, 5-year-or-longer, lottery to get to resolution.
The mediation can take place in a matter of a few months
because there is less court time and less lawyer time involved.
The money involved in the mediation settlement goes to the
patient who is injured, and because you have got an independent
expert involved in getting to a conclusion, you are more likely
to reflect the actual medical facts and have a decision that is
predictable based on what medical science says it should be.
Representative Saxton. I apologize to Senator Reed. I have
one final question and then we will go to Senator Reed.
We know that the medical liability crisis has not hit all
specialties in the same way. Obstetricians, orthopedic
surgeons, neurosurgeons and radiologists have been hit
particularly hard. It would seem that the higher premiums
charged to these specialties would have an impact on which
areas of the medical profession students choose to enter. So
the question is fairly obvious.
Looking down the road, do we see any problem in finding
specialists in certain areas that are especially hit negatively
by this medical malpractice situation?
Dr. McClellan. It is certainly a concern. When I talk to my
colleagues who are still in academic medical practice, they
note that this is having an impact on student decisions. That
will have consequences down the road. But I think even more
worrisome is, it is having some consequences now.
I have talked about some of the evidence on different
levels of access to physicians in conjunction with whether or
not a State has reformed its liability system; and as you put
up on your chart earlier, there are areas of the country where
physicians are leaving practice, particularly in these
specialties, where they are not taking the more complex cases
in these specialties right now.
So this isn't a problem that is just down the road, that
will be aggravated by the decisions that medical students are
making today about specialties to avoid because of liability
concerns; it is a problem right now in many areas of the
country.
Representative Saxton. Thank you very much.
Senator Reed.
Senator Reed. Well, thank you, Mr. Chairman. I wonder if we
could have a second round, and I can limit my questions and
allow my colleagues to ask their questions without an extended
period.
Thank you very much, Dr. McClellan, for your testimony and
for your work. In fact, back in 1996, you and Dr. Kessler did a
path-breaking study of the effects of defensive medicine. You
estimated the costs to be somewhere between 5 and 9 percent.
Others have looked at the same issue, CBO for one, and have not
found as great an impact.
Do you have any insights as to why CBO would find a much
less----
Dr. McClellan. Senator Reed, I know you pay a lot of
attention to these economic issues, and I appreciate the
question. We had a little bit of discussion of this in my
written testimony. When CBO looked at the same conditions we
did, they found similar results.
So looking just at heart disease--these are pretty well
defined cases. There is an event that occurred, a patient
having a heart attack or other serious heart problem, then we
tracked after that. When CBO looked in the same way, they found
the same kinds of effects.
But the problem with the CBO study is that it also looked
at other types of cases, just sort of the overall population of
patients; and that is a very heterogeneous set of patients,
some of which have certain diseases, others have other
diseases. And there are a lot of things that influence costs of
care in these patients and their outcomes of care. And so, in
economic terms, that means this is a noisier or less precise
estimation situation.
They also had only a proportion of the cases, not the whole
larger sample that we looked at. And so it is probably not
surprising that they didn't get to as statistically significant
results.
The other thing is that in the cases that we were looking
at, these were cases where people were already getting care.
They had come into the hospital with a very serious medical
problem.
In the cases that CBO looked at, they would also pick up
cases where people may not get treatment. Remember, there are
two kinds of defensive medicine. There is defensive medicine
that leads to higher costs and perhaps a worse outcome, and
there is also defensive medicine where the doctors just don't
take the cases, that leads to less access to care. They
probably were mixing up some of both. There may well be some,
quote-unquote, savings from doctors not seeing patients. But I
am not sure that is a good thing.
The bottom line, though, is that CBO concluded, as you
mentioned earlier, that reforming the liability system would
save Medicare billions of dollars. We can argue about what the
magnitude of those savings should be, but there is no question,
all these studies say ``significant savings,'' and that is
something that I think is really important to take advantage
of.
Senator Reed. But your study was more precisely related to
those heart procedures?
Dr. McClellan. Those heart conditions, right.
Senator Reed. That is where you would see that, based on
your----
Dr. McClellan. Potentially in others. I think there have
been some other studies done of care for patients with other
particular conditions, obstetrical conditions, deliveries,
where you see similar kinds of effects. More use of Cesarean
sections, for example, in States that haven't reformed their
liability systems.
When you look at particular types of illnesses where we can
really define the cases clearly, there is not this big
heterogeneity problem. You tend to see effects.
Senator Reed. One of the other measures of whether this
works or not is what the actors in the economic system do.
Interestingly enough, in Texas, which adopted caps on non-
economic damages, GE Medical Protective, a large insurer, made
a regulatory filing where they estimated that capping non-
economic damages will show loss savings of 1 percent. Again, 1
percent of a big number is real money, but they requested a
premium increase of 19 percent 1 year after Texas capped their
non-economic damages.
One of the assumptions implicit in most of the discussion
we had this morning is that if you cap non-economic damages,
you will reduce premiums for malpractice insurance. Here is a
situation where they are asking--and they are economic actors
looking at their costs--for a significant increase and they
estimate that there is a saving from the cap, but relatively
small.
What is going on down there?
Dr. McClellan. Well, I think they are looking at the so-
called ``direct liability costs'' or this impact on liability
premiums, and there are other savings that would come from the
impacts on defensive medicine. That is not something that the
liability insurer is actually going to see. That is something
that our health care system is going to see as a result of
differences in medical practice.
But as you have said, a percentage point reduction in
medical spending, that is still real money, and in a big health
care system, that is still billions of dollars.
They also are facing price increases in Texas for other
reasons. That Texas liability reform didn't do everything that
I think the kinds of damage caps that we have talked about
would do. But just to put this in perspective, if you look at
the 75-year actuarial deficit for the Hospital Insurance trust
fund, that is, the Medicare Part A trust fund that people are
really concerned about because it is scheduled to become
insolvent in 2020, we could get rid of two-thirds of the 75-
year deficit by reducing the rate of growth in medical spending
by 1 percentage point.
So if we change the way medicine is practiced, even if it
is incremental, it really adds up to savings over time.
Senator Reed. Let me focus on the point that there is an
implicit assumption that if you cap medical non-economic
awards, you will reduce medical premiums; and here you have a
company who is saying, ``You've done that. Terrific. Now give
us a 19 percent increase.''
I would also suggest, as many others did, that the
California experience was shaped not just by the 1985 law
capping damages, but by the 1988 law that actually imposed
limits on the increasing size of malpractice premiums.
Dr. McClellan. As you saw from the chart, the slowdown in
growth started before 1988, and it has continued well after.
Senator Reed. But my point with respect to the premiums
that physicians are paying is that the result was not simply
the adoption of caps on non-economic damages, but also limits
on malpractice premiums.
Would you support, in conjunction with a proposal for tort
reform or insurance reform, putting caps on insurance premiums?
Dr. McClellan. I certainly want to see how such a proposal
would actually work. If you put caps on premiums, but don't
change the liability system, for example, you will end up with
insurers not being able to cover the rapidly rising costs of
claims that we are seeing.
If you look at the claims growth in recent years, including
that 40 percent increase that I mentioned between 2003 and
2004, you are going to end up without liability insurance and
then you are really going to end up with doctors out of
practice.
Senator Reed. But the other side of the equation is, if you
cap non-economic damages, but don't put any limits on insurance
premiums, you could have the situation as there seems to be in
Texas with GE Medical where they get the benefit of the law and
they still ask for a 19 percent increase. That, I think, would
be unfortunate because, again, a lot of this debate is being
driven by the implicit and sometimes explicit assumption that
if you cap damages, you lower premiums to physicians and
hospitals and other health care providers, and they go on their
merry way. Which raises the other issue behind why premiums are
going up, why medical costs are going up, and that is the
technology, allowing increased procedures.
It is interesting. You mentioned the diagnostic imaging
procedures. I had my radiologists from Rhode Island in. Their
major comment--I won't say ``complaint'' because they never
complain--their comment was internists, general practitioners
are now getting very good, digitized equipment to do
radiological procedures. It is not the old bulky kind that
required a little more practice and training. It is secondhand
equipment, though it is still adequate; and because they are
under acute pressure in their offices to generate income, they
are doing tests which before they might not do. Because it is
so easy to do it, they can step in the next room and now give
you a little scan with their radiological equipment.
How much of these costs and these increased procedures are
being generated by access to technology and the pressure,
because of the way we pay people through Medicare, to generate
these procedures to get more income?
Dr. McClellan. Senator Reed, I think you are right that the
way that we pay in Medicare also doesn't necessarily focus on
getting the best-quality care at the lowest cost.
We are having some discussions right now with the
radiologists, with other medical groups, about how we can get
to a better system, where our payment rules are focusing more
on supporting doctors, delivering high-quality care at a low
cost.
I would be delighted to continue to work with you on that
issue. But I think the fact remains that you are right, that it
is easy now for physicians to obtain this imaging equipment and
to bill for it. But the liability pressures on top of that are
just going to encourage that even more. So I think we should be
looking at better ways to formulate Medicare payments, to
support and reward doctors that are really trying to do the
right thing.
But we can also do that by reforming the liability system.
If we do both together, we are going to have a much better
effect.
Senator Reed. Again, I think what your comments suggest and
what my instincts are is, this is a multifaceted problem
requiring multifaceted approaches. But we seem to hear the
Administration use one approach, which is basically, if we just
rein in those junk lawsuits, everything is fine, when in fact I
think you would concede, we have a complicated medical delivery
system that has all sorts of different incentives and
disincentives.
Dr. McClellan. That is true, but I also think if we rein in
the lawsuits, we will get higher-quality care, better access
and lower cost.
There are other things that we should be doing to achieve
that goal as well. I hope we can work together on them, too.
Senator Reed. Well, Mr. Chairman, again I think this is
very productive. I appreciate Dr. McClellan's presence. But I
would--in lieu of a second round, let me just stop and let my
colleagues go.
Representative Saxton. Mr. Hinchey.
Representative Hinchey. Good morning, Dr. McClellan, thank
you very much for your testimony.
The licensing of professionals, including medical
professionals and specialties in medicine, and the regulation
of those professions is an activity that is carried out by the
various States. And various States, as we have seen in one of
the charts, have taken various steps over the years to deal
with the problem of medical malpractice, including the
regulation of lawsuits, as well as other steps.
Why is this a Federal issue? Why should the Federal
Government be involved in trying to limit people's access to
the courts?
Dr. McClellan. Two reasons. One is that the Federal
Government is involved in providing access to medical care for
these individuals. In our Medicare programs and our Medicaid
programs, we are the primary insurer. And how we provide this
care, how we provide the support for medical care, makes a big
difference.
So I care a lot about the quality of care that our
beneficiaries are receiving. And I also care a lot about the
cost of these programs. I want to make them as sustainable as
possible so that Medicare beneficiaries and Medicaid
beneficiaries, who really need our help, can get the greatest
help possible, can get the best access to up-to-date treatments
that are really making a difference in their lives.
When I look around the country, in these States that
haven't reformed their liability systems, seeing a lot of the
money going into areas that are unnecessary procedures and that
are problems in access to care, I really think we can do
better.
Representative Hinchey. I think we can always do better in
every field. But I still wonder why the Federal Government
should be putting itself into this situation when it is,
traditionally, for all the time in our history, that we have
left this particular situation to the States to deal with, to
regulate, and they have done so in various ways.
So I am not convinced that just because we have Medicare,
we should be stepping in to try to limit people's access to the
courts. But I do agree with you that we ought to be doing
everything that we can to try to reduce the cost of our health
care services.
I am wondering if you could tell me how much money we would
save if, say for Medicare particularly, if you were allowed to
negotiate with the pharmaceutical companies for the cost of
prescription drugs.
Dr. McClellan. Well, that is a very good question, one that
there has been a lot of interest from Congress and the public
in. For that reason, I have been asking my actuaries, our
independent actuaries that do these forecasts of Medicare
costs, about what the impact would be. And I can send you a
copy of the letter that my chief actuary, Rick Foster, sent to
me on this very topic back in February.
What he concluded was that negotiation by the Federal
Government, on top of, or instead of, all of the negotiation
that is going on right now as we implement the Medicare drug
law to get the lowest possible prices to seniors--that
additional negotiation would not lead to significantly lower
costs and could potentially cause problems in access to care.
So the reason for that conclusion is that people have
looked at what happens when the Government does step in and
regulate drug prices. In Medicare, what we saw before the
Medicare law was passed was prices that were higher, much
higher, than can be obtained in a competitive system for the
drugs that Medicare covers now under Part B.
They have looked at problems that could arise in access to
care. The way that the Government could potentially negotiate
is by saying, people won't get these drugs unless you give us
some kind of lower price. And the result would be problems in
access to the drugs.
I think it is very important, as we implement the Medicare
law, that people have access to the medicines that they need,
that they can get the drugs that best meet their needs. So for
those kinds of reasons, our independent actuaries concluded
that this wouldn't lead to more savings.
The independent analysts at CBO have reached a similar
conclusion as well.
Representative Hinchey. Well, I would like very much to see
that letter.
Dr. McClellan. I will send it right along.
[The information referred to can be found in the
Submissions for the Record on page 44.]
Representative Hinchey. Sometimes independent actuaries
turn out to be not quite so independent as you would like them
to be.
Dr. McClellan. I think ours have a pretty good tradition of
speaking what they think is right.
Representative Hinchey. I would like to see the letter to
see what the conclusions were that they drew. And particularly
in light of the fact that in every situation, in every country
where you have a system of health care, national health care,
and the price of pharmaceuticals are negotiated by that
organization, the prices of drugs are very, very much lower
than they are here, every single country.
Dr. McClellan. Well, it is true for some new drugs. I don't
think it is true across the board. And it is certainly not true
for the generic drugs that make up a majority of the medicines
that people use in this country.
When you put price regulations on generics, you end up with
higher prices, so what we see in these other countries that you
are mentioning is they may have some lower costs on the new
drugs that they have access to, but they do not have access to
as many as we do.
But they have got higher drug costs and less access to
generics, and the result is, they are spending money in a way
that does not lead to the best value for their citizens.
Representative Hinchey. That is not true in the case of
Canada, for example. And the Canadians have access to every
single drug that we have access to.
Dr. McClellan. We will give you the specifics on that too.
But there are a number of drugs that are available in the
United States that haven't been available or are available with
a significant delay in Canada, and you have to go through a
Government system for access to many drugs, including proton
pump inhibitors, AIDS drugs.
There are some drugs that are non-preferred or off
formulary in Canada. There is a study. We will get all of the
specifics; I don't have them all at the tip of my tongue. But
there is a study done by, again, the Assistant Secretary for
Planning and Evaluation that documented all of these back in
2002.
But there are AIDS treatments that were available only
after substantial delay, compared to the United States, and
many of the drugs that are available in Canada you have to go
through Government processes in order to get. And the generic
drugs in Canada do average about 40 to 50 percent higher in
price than the drugs here. And generics account for most
prescriptions in the United States.
Representative Hinchey. Well, I have never heard that
before. That is an interesting point.
Dr. McClellan. We would like to follow up with you.
[The information referred to can be found in the
Submissions for the Record on page 46.]
Representative Hinchey. When you look at the overall cost
of prescription drugs, not generics specifically, but generics
included in the overall cost of prescription drugs, the cost of
those drugs is substantially lower. That comes about as a
result of the fact that the agency in charge of the health care
system there, such as Medicare, has the authority to negotiate
with the pharmaceutical companies, and therefore they are able
to bring down the cost of those drugs specifically.
So you have looked, outside of this letter from the
actuaries, at the benefits that might accrue, the financial
benefits, if you were able to negotiate?
Dr. McClellan. In the process of passing the Medicare law,
there were a lot of discussions about this in Congress, as you
know. Subsequently, as we have implemented the law, we have
asked repeatedly, What is the best way to achieve two goals?
One, we want to get prices down for drugs as much as possible
for our seniors; and two, we want to make sure that seniors
have access to up-to-date medicines.
What we have seen too often in Medicare, where we have
relied on Government regulation and statutes only, rather than
giving people access to choices about how they get their
coverage, is, the benefits fall way behind. We have fallen way
behind in prevention, we have fallen way behind on assistance
for people with chronic illnesses and preventing complications.
We have fallen way behind on prescription drugs.
So the steps that we are taking, as reflected in that
actuarial letter, are the ones that are going to get us the
best access to medicines and the best prices on those medicines
at the same time. We need to achieve both goals.
Representative Hinchey. Well, I look forward to reading
that letter. When do you think you can get it to me?
Dr. McClellan. Today.
Representative Hinchey. There is another aspect to this,
too, of course. And the availability of drugs does not mean
that they are available to everyone. There are many people who
cannot afford drugs that become available. And so the
consequence is that they are not able to take them; it is not
likely that you are going to have access to those drugs.
There is just one other thing that I would like to ask in
this particular round, if I may, and that is that many of the
studies that I have seen that have been conducted by States
indicate that a small portion of the medical profession is
responsible for most of the malpractice cases and actions. And
some of those doctors, if they are convicted of medical
malpractice in one State, move to another State.
Do you think it would be an idea that we might pursue to
have someone form a Federal oversight of physicians who are
guilty of malpractice and who seek to escape that by moving to
other States?
Dr. McClellan. I think having better information available
on the quality of providers, including physicians, is really
important. And we are taking a lot of steps to make that happen
right now. We started reporting information, for example, on
the quality of care on just about every hospital in the
country. We started that a month ago.
We are going to expand that. We are going to make this work
for ambulatory care, as well.
So I think steps in the direction of providing better
information so we can identify potentially problematic
providers is very important. But in terms of the cases that are
actually brought, while only a relatively small share of
doctors are sued frequently, in the specialties that we have
talked about before, in OB, neurosurgery, most doctors have
been sued at least once, if not more often.
And that gets back to this lottery problem that I talked
about. Sure it would be nice to find a system, better ideas for
targeting those really problematic physicians that are a small
part of the total.
But most doctors are being sued. Our current system is not
doing a good job of targeting in on truly bad physicians.
Representative Hinchey. True.
Representative Saxton. If I may, if we can go to Mr.
Cummings, inasmuch as we are going to have a vote.
Representative Cummings. Thank you very much, Mr. Chairman.
Doctor, I want to pick up where you just left off. You say
that most physicians are sued. And I am just wondering, there
have been a number of proposals that there be more of a
screening process early on to eliminate the so-called frivolous
cases. Do you think that would help?
Dr. McClellan. I think it could help. And as I mentioned
earlier and was talked about in my written testimony, right in
Baltimore at Johns Hopkins Hospital, they have this automatic,
or this required, process to go to mediation first for elective
cases, you know, where the patient has a chance to think about
it and signs a form before they get care at Hopkins, saying
that they are going to mediation first.
And that works. The vast majority of complaints that are
brought, get settled quickly and effectively through mediation.
They never have to go to court.
Mr. Cummings. And as one who--I support Johns Hopkins, of
course, I have a lot of constituents that work there. But Johns
Hopkins has had its share of suits, too, sadly--I mean, that
have been--I mean, with substantial awards; and in some
instances, they basically just about admitted liability from
the very beginning.
I can think of two right off the top of my head, and cases
of death. And that is not knocking Johns Hopkins, because it is
a great institution. But even in a great institution like
Hopkins, things do happen.
I guess, as I sit here and I listen to my colleagues and I
listen to you, I cannot help but think about something that my
good friend, Senator Obama, talks about; and he talks about an
empathy deficit in our country, an empathy deficit.
You have got the California law that puts a $250,000 cap on
economic, non-economic loss. That was enacted, when, in 1975?
Dr. McClellan. Right.
Mr. Cummings. Do you consider this the gold standard for
what the country should be doing?
Dr. McClellan. I think it is one important step the country
can take to get better quality care, better access and lower
cost. There are other things that we can do as well.
Mr. Cummings. Let's talk about the victim for a moment.
I do not what kind of house you live in. But if you bought
a house 30 years ago for $50,000, I would hate to think that
now, today, 30 years later, it is still valued at $50,000, you
could just sell it for $50,000.
And I was just wondering, do you think that that figure is
a little low, considering it is 30 years old, the $250,000?
Dr. McClellan. We can talk about what the figure is. When I
think about these cases of damages, what I look at is the
overall compensation that the victim receives. And the costs
for raising a child, the cost for losses on the job, the cost
for other services performed around the home, even for someone
who is not working, all of those costs are fully compensated in
this kind of system.
And those numbers have been going up and up and up, along
with the economic costs, along with it. And if the costs of a
house--those are determined by economics. The costs of wages,
the costs of providing for your child, the costs of caring for
your child, those have real economic implications; and those
can all go up over time.
Representative Cummings. My point is, so you would expect--
we can be 100 years from now and we are still at--in other
words, at the time that they passed the law, they must have
felt comfortable about $250,000 and what its value was at that
moment. I understand they haven't changed it.
But my point still remains, I just used the house as an
example that things do go up, we consider it. There is nobody
sitting in this room that would accept the same salary they
received 30 years ago, today; they would not do it. Nobody.
And I know that salary, given inflation and other things
going up, people expect it to increase. And I am just curious,
considering that, does it make sense to leave the non-economic
damages cap there, considering what I just said?
Dr. McClellan. Well, again for salaries and other things
like that, those go up with the costs going up in the economy.
That is not subject to the cap.
Representative Cummings. You are still missing my point. My
point is, do you leave it at $250,000 thirty years later.
Dr. McClellan. Again, if you are looking at a system that
can lead to lower costs without causing problems with access to
care, this is definitely something that can do it.
If I can say just one thing, and I have heard Senator Obama
talk about the empathy deficit too, and I think the real
concern here is that patients who are injured negligently just
have no chance really in the court system. Only a very small
fraction of them are actually able to bring cases all of the
way through this very long and complicated and costly process.
Those that do make it through, most of the money goes to
lawyers, they don't get any compensation until years after the
event has happened.
We ought to be able to do much better than that. The system
is failing in compensating people who do deserve compensation
for their negligent care.
Representative Cummings. Well, Mr. Chairman, I know we have
got a vote. I will follow up with some written questions.
Representative Saxton. We do have a vote on a rule for
consideration of the budget report. So we are going to recess
for a few minutes. We will recess for about 15 minutes.
[Recess taken.]
Representative Saxton. Dr. McClellan, first of all, I
apologize. Nothing I can do about it, obviously, when we have
votes. But I apologize to Senator Reed, too.
I think that Senator Reed may have a couple of more
questions. So let us go to Senator Reed.
Senator Reed. Thank you, Mr. Chairman.
Dr. McClellan, just a couple of follow-up questions. One is
a point that Mr. Hinchey made.
One would like to think that every physician in the United
States is excellently prepared, trained, unburdened by the woes
of the world, et cetera, but that is not the case. In fact, you
can probably posit there is a normal distribution of skills and
of temperamental characteristics.
It is not surprising, then, that there is a portion on one
side of the curve that seems to be involved in lots of issues
of medical malpractice.
Has anyone done an estimate, since we are talking about
what we can do to bring down the price of health care, that
would show the savings through malpractice premiums and
systemic savings by more thoroughly regulating and identifying
and either retraining or redeploying these individuals?
Dr. McClellan. I haven't seen any specific savings
estimates on that. I can tell you that as long as most of the
lawsuits that are brought, most of the claims that are brought,
are not related to negligent care, you know, there is only so
much that you can do to focus in on providing better oversight
for those really problematic physicians.
I think, as part of liability reform, if we were able to
take a lot of these inappropriate lawsuits off the table, then
we could really concentrate our efforts on those problem
physicians.
Senator Reed. I do not want to be unnecessarily
argumentative, but based upon observation and not analysis,
most people understand in the profession, other doctors, who is
competent, who is attentive. Complaints are made to medical
societies. This is a mostly secret process at the local level
by medical societies, and there are reasons for that,
obviously.
But it seems to me that you are kind of, you know, missing
the point if you are suggesting we have to reform the tort
system before we can focus on what may be another cause of
medical malpractice, costs, and basic quality of care. Now that
gets us into a whole set of issues, local licensure versus a
Federal role, et cetera; but again I think, if we do not look
at that, then we are not being----
Dr. McClellan. I think that is a legitimate point. I am
saying that the tort system as it is now is drawing in a lot of
physicians who are practicing perfectly good, if not stellar,
care into lawsuits and into all of those additional pressures
and costs associated with the liability.
There is a foundation to build on now. There is now a
national practitioner database that the Agency for Health Care
Research and Quality maintains. And that is intended to be a
repository of information on claims that may be brought in
different States and so forth. And it can be used by hospitals,
by other health care organizations, and by States in
accreditation issues for doctors.
Senator Reed. My final point, I think it would be extremely
useful in this overall debate to try to quantify what is going
on here with respect to the quality issues and the capability
issues of physicians. Because if there were--I do not know, but
if there were equal savings in that arena, or even greater
savings vis-a-vis capping damages, certainly that is something
that we would want to know about.
Let me shift gears to something else under your
jurisdiction, the Part D drug benefit. You are implementing it
now. Many States, like my own, Rhode Island, have their own
local programs. We have something called RIPAE, the Rhode
Island State Pharmacy Assistance Program.
There is some confusion about benefits. There is confusion
about who is qualified for what. We have more robust benefits
at the State level in certain circumstances, the Federal
program has other benefits.
Bottom-line question: What are you doing to try to address
this issue, not just for Rhode Island, but particularly for
Rhode Island?
Dr. McClellan. Senator, we are doing a lot. And I hope, if
you have been talking to any Rhode Island State officials who
do not feel completely plugged into CMS right now on how to
make these programs continue to work and actually improve with
the implementation of the drug benefit, you will get them in
touch with me and our agency right away.
I just got back from a conference sponsored by the National
Governors Association in Chicago, where representatives of
almost every State government that have been working with us on
implementing the new drug benefit, came together to take stock
of where we are and what the further problems are that we need
to address.
We had some excellent discussions about the materials that
we have already prepared for transitioning dual-eligibles, to
steps that we are taking to make sure that every State saves
money under the law as intended. And I feel very good about the
track that we are on.
In the case of programs that provided prescription drug
assistance, like the Rhode Island program, the intent of the
law is to build on that. So instead of the State having to pick
up all of the costs on their own, the Federal Government is
going to provide some comprehensive help for low-income
beneficiaries. The State will have to pay virtually nothing,
and more than $1,000 worth of help for higher-income
beneficiaries, so the State can add to that.
We have guidance and work groups that are working right now
to make sure that that gets implemented smoothly. So if there
are any concerns there, they need to come to us. We have got
processes in place.
Senator Reed. Thank you.
Representative Saxton. Thank you. Sorry to have held you
up, Jack.
Dr. McClellan, a good doctor-patient relationship has
always been considered to be a crucial element of a medical
care program--caring doctors and trusting patients, I would
characterize it.
In a recent survey of Pennsylvania doctors, they found that
75 percent of specialists agreed with the following statement,
quote, ``Because of concerns about malpractice, I view every
patient as a potential malpractice lawsuit,'' end quote.
Seventy-five percent of the doctors agreed with that
statement. I am wondering, given that, what is the current
nature of the doctor-patient relationship generally with
specialists, and are you concerned about it?
Dr. McClellan. I am very concerned about it. That gets back
to what you brought up before, Mr. Chairman, about the fact
that since most of the claims and suits that are actually
brought do not involve negligent care, doctors have to view
this sort of system as a lottery, as just a random risk of lots
of time in court, lots of opportunities for lawyers to rake
their reputations over the coals unfairly; and that clearly is
going to have an impact on their relationship with patients, on
how they practice.
It can have an impact on how they practice medicine. It may
have an impact on whether they stay in the profession.
Pennsylvania is one of the States that is in red because of
some documented problems in access to care, resulting from the
rising pressures of medical liability. As I said at the outset,
I worry that is getting worse. We are seeing big increases--
according to the Physician Insurance Association of America and
other groups, big increases in the liability pressures that
doctors are facing, most of it completely unrelated to
negligent care. That is not a good situation when we are trying
to really focus on delivering high-quality care at a low cost
and focusing on fostering that doctor-patient relationship.
Representative Saxton. Do you have any information relating
to--obviously, the rising cost of malpractice insurance itself
is an issue to doctors, and a health care cost driver. But
there is another set of activities that you have referred to
today as practice of defensive medicine.
What percentage of the rise in health costs would you
attribute--or do you have a way to do this--would you attribute
to practice of the defensive medicine in conjunction with the
actual cost of increases in medical malpractice?
Dr. McClellan. The best estimates from our peer reviewed,
published studies are that that can be 5 to 9 percent of
hospital costs for serious medical conditions. Our studies
looked at heart disease, which is the single most prevalent
type of illness in the country.
Other studies have looked at obstetrical care. They find
increases as well. While the exact number may be hard to pin
down, it is significant, it is much larger than the costs of
the liability premiums alone.
Representative Saxton. Let me turn over to the insurer
side. One of the issues that occurs, which creates a problem
and a medical liability crisis, is that insurers actually
withdraw from the market. Obviously, insurance companies have
to make a profit or they cannot stay in business. Rising claims
costs may simply make this line of insurance unprofitable.
Dr. McClellan. That is correct, and we have seen insurance
companies pull out of this business. There are, in many States,
maybe one option available, if that, for getting liability
insurance. That is not a good recipe for getting liability
insurance costs down.
If we had a more predictable liability system, where
insurers could manage and anticipate the risk more effectively,
we would see lower liability insurance premiums from more
competition and a healthier insurance market.
But the liability insurance market is struggling in many
States, and that is another aggravation, another consequence of
the problems that we have with our liability system today.
Insurers are there to deal with risk, But insurers like
predictable risk. If you have got a lottery system where in 1
year costs can increase 40 percent for reasons that have
nothing to do with things that you can easily predict, like the
quality of medical practice, then it is a much tougher line of
business. And we are seeing the consequences of that with
insurers pulling out, and with some of the premium increases
that have been mentioned.
Representative Saxton. Back to the doctors. Most
malpractice claims are dismissed or dropped before ever
reaching trial. And among those that do reach trial, most end
in a verdict for the defense.
However, even if doctors are exonerated by trial, they
still suffer significant costs in terms of legal fees, stress,
time away from their practice, and out-of-pocket expenses.
Can you discuss, if you would, the impact on doctors of
being sued, even if the claims are ultimately dismissed?
Dr. McClellan. There is a lot of good direct evidence on
that. There have been surveys done nationally. And you can use
that survey information to compare a doctor's outlook on their
practice, the way that they practice in States that have
implemented liability reforms to those that haven't.
What you see is, in States without reforms, the doctors
feel the consequences of this pressure more. They feel like
they have got to do more tests, they feel more frustrated with
their practice of medicine. They actually spend more time away
from their patients dealing with the consequences of the
lawsuits.
All of these things add to health care costs, without
improving the quality of medical care, and compromise the
ability of doctors to deliver high-quality care to all of their
patients.
Representative Saxton. There are--as Mr. Reed or Mr.
Hinchey pointed out, there are a lot of other factors that go
into what we have seen in the spike in the cost of medical
care: new kinds of treatment, inflationary pressures of various
kinds, labor rates, and so on.
Do you have any information that would help us understand
how serious the malpractice component is in the overall costs,
increasing costs of medical care?
Dr. McClellan. Well, from the previous studies, again 5 to
9 percent cost differences in hospital spending that can be
saved by implementing liability reforms. That adds up over time
to some big savings. As I said before, if we can bring down the
rate of growth in our hospital costs by 1 percentage point,
that is two-thirds of the 75-year deficit for Part A, the
Hospital Insurance trust fund.
That is a huge impact on medical costs in this country. And
some of these increases in costs are clearly worth it. Many new
technologies bring new cures to patients, bring better quality
of life. But as we spend more on some of these valuable new
technologies to come along, to keep health care affordable, we
have got to pay even more attention to getting rid of
unnecessary costs in the system. That is why I think it is even
more urgent; especially with the recent increases in liability
costs that I documented in 2004, it is even more urgent to take
action on liability reform.
Representative Saxton. Thank you very much, Dr. McClellan.
I don't believe that I have any further questions at this
point. I would just say that we have been dealing with this
subject on this committee because we think it is extremely
important, and we thank you for being here today and for your
input.
I also suspect that the House will pass a reform measure
this year. I wish I could suspect that the Senate would do the
same, but we will see.
So we thank you for being here today to discuss these
important matters with us. And we look forward to working with
you as we go forward.
[Whereupon, at 11:50 a.m., the hearing was adjourned.]
Submissions for the Record
=======================================================================
Prepared Statement of Representative Jim Saxton, Chairman
It is a pleasure to welcome Dr. Mark McClellan before the Committee
this morning to address medical liability reform.
Dr. McClellan brings a wealth of experience and knowledge to bear
on this subject. Currently, Dr. McClellan serves as the Administrator
of the Centers for Medicare and Medicaid Services, overseeing
approximately one-third of health care spending in the U.S. In addition
to being a board-certified physician in Internal Medicine, Dr.
McClellan is also a Ph.D. economist. He has previously served as the
Commissioner of the Food and Drug Administration and as a member of
President Bush's Council of Economic Advisers.
There is little doubt that our nation's medical liability laws need
reform. Over the past few years, premiums have skyrocketed. In just the
last five years, total medical liability costs jumped 47%, to a record
high of nearly $27 billion. One of the central cost drivers is rising
claims costs. According to the legal research firm Jury Verdict
Research, the median trial award for medical liability claims stands at
an incredible $1.2 million, and a recent Department of Justice study
reported that nearly two-thirds of medical liability trial awards
exceed $250,000.
This rise in costs has reached the point where the quality and
availability of health care suffer. Faced with premiums increasing 20%,
30%, or more per year, many doctors are cutting back on the scope and
availability of their services. Nowhere is this trend more apparent
than in obstetrics, where numerous OB/GYNs have decided it is just
easier to drop the OB part altogether. Some doctors have elected early
retirement or have relocated away from high litigation areas. Emergency
rooms and trauma centers have also been hurt by the current crisis. The
threat of lawsuits has made the practice of defensive medicine
commonplace, and as a result, patients are subjected to more tests and
procedures than may be warranted by clinical factors alone.
Despite the rise in costs, the system is not better at compensating
the negligently injured. The typical time that elapses between the date
of injury and a jury verdict is close to 5 years. Moreover, it is
widely recognized that only a small fraction of negligently-injured
patients even file a claim. At the same time, a large majority--around
80%--of medical liability claims do not even involve negligent
injuries. One study even found that more than half of all medical
liability claims do not involve an injury at all.
The shortcomings in the current tort system are such that even The
Washington Post has noted that ``the staggering costs and irrationality
of America's civil justice system are unacceptable. The tort system is
something of a casino, offering windfall judgments to a small number of
claimants and nothing to others--with the merits of cases seeming
almost irrelevant to their valuation.''
Although each state faces its own set of challenges and problems,
the medical liability crisis has nonetheless reached national
proportions. Thus, we are grateful to have Dr. McClellan here to
provide some insight into the problem and direction for reform.
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Prepared Statement of Senator Jack Reed,
Ranking Minority Member
Thank you, Chairman Saxton, for holding this hearing on an issue
that has received a great deal of attention recently. l welcome Dr.
McClellan and thank you for testifying today.
On the campaign trail last year, President Bush repeatedly
criticized trial lawyers for filing ``junk lawsuits'' that he said were
responsible for rising health ease costs. The centerpiece of the
Administration's medical liability reform would cap non-economic
damages at $250,000 and institute a three year statute of limitations
on most lawsuits.
The 2004 Economic Report of the President stated that the
President's reform plan would ``lower the cost of providing health
care.'' However, there's little, if any, evidence to support this
claim. While it is certainly troubling that medical malpractice
premiums for doctors have been rising rapidly in recent years, and many
physicians in my state have informed me of the cost burden and the
potential impact on access to care for patients, it is far from clear
that jury awards are the sole driving force as the President suggests.
In 2003, the Government Accounting Office (GAO) studied states with
and without caps on non-economic damages and found that the states with
caps had lower premium increases than those without caps. However, GAO
did not have enough data to show a direct link between malpractice
award caps and premiums. Similarly, the Congressional Budget Office
(CBO) has found that there are potential savings for malpractice
premiums by limiting the amount of malpractice awards, but they are
skeptical that a cap would provide relief for health care costs in
general.
Malpractice costs were $24 billion in 2002, less than two percent
of total national health care spending of $1.4 trillion, according to
CBO. Reducing malpractice awards by 30 percent would only lower health
care costs by approximately 0.5 percent or about $7 billion.
CBO also finds that limiting physicians' malpractice liability
would have much impact on ``defensive medicine'' practices, such as
providing unnecessary tests or procedures to avoid a lawsuit, because
physicians do so more often out of concern for patients or to generate
additional income than because they fear liability.
Dr. McClellan, I know you have studied the issue of defensive
medicine and malpractice, so I will be particularly interested in your
opinions about the amount of health cost savings non-economic caps on
damages would produce.
I believe, however, that there are some other reasons for the
latest increases in medical malpractice insurance premiums that would
not be addressed by the kinds of reforms the President and his
supporters are advocating. The GAO, for example, points to slower
growth in insurance company investment income and reduced competition
in the liability insurance market as other potential drivers behind
rising malpractice premiums.
We also should not lose sight of the fact that this issue must be
considered in the context of medical errors and the quality of patient
care, which are inextricably linked to physician accountability. A
study by the Institute of Medicine reported in 2000 that between 44,000
and 98,000 people die every year because of preventable medical errors.
These statistics point to a need to link any discussion of tort reform
to the issues of medical errors, public safety, and, physician
accountability.
In the last Congress, the Republican leadership sent narrow medical
liability legislation for OB/GYNs directly to the floor, thereby
sidestepping serious Committee deliberation and inquiry into the nature
of and possible solutions for rising insurance premiums. While it's
hard to see how the President's proposal for medical liability reform
will make more than a dent in spiraling health care costs; this is an
important issue that lawmakers must be allowed to investigate
thoroughly.
I appreciate Dr. McClellan's willingness to testify on this issue,
but I also hope you will be open to questions regarding your oversight
of the Centers for Medicare and Medicaid Services (CMS). I have a
number of questions regarding the $500 billion of Federal spending that
you administer at CMS that undoubtedly has a bigger impact on physician
behavior and overall health spending than medical malpractice costs.
I look forward to Dr. McClellan's testimony.
Prepared Statement of Mark McClellan, M.D., Ph.D.,
Administrator, Centers for Medicare and Medicaid Services
Chairman Saxton, Senator Bennett, distinguished members of the
Committee, I thank you for inviting me here this morning to discuss the
important topic of medical malpractice liability reform. It is a
subject to which I have devoted considerable attention, both in my
capacity as a civil servant and previously as an academic researcher
and an internist. As President Bush and many in the Congress and across
the country have recognized, our current malpractice liability system
does not serve the needs of patients and is in need of reform. It is
not simply an issue of lowering insurance premiums for physicians. It
is particularly about patient safety and quality of care, as well as
reducing unnecessary health care spending. According to the CBO,
modification to malpractice laws will result in substantial savings to
the Federal Government as a result of reduced malpractice premiums. My
own research shows that resulting reductions in defensive medicine may
also produce savings in both the public and private health care sector
of up to several billion dollars per year.
All insurance programs are potentially subject to costs created by
the liability environment. For example, a recent CMS letter to the
Medicare Payment Advisory Commission (MedPAC) indicated that spending
on physician services during 2004 rose by approximately 15 percent. A
significant driver of this increase is the fact that more patients are
receiving more complex and more frequent imaging services, such as
magnetic resonance imaging and computer tomography scans. For several
years now, in fact, spending for these diagnostic services has been
rising at a more rapid rate than overall physician expenditures. Based
on my own research and the research of many academic experts, my
interactions with other physicians, and my experience as a clinician,
it is clear to me that the practice of defensive medicine is
contributing to these cost increases. The evidence suggests that
reforms to the malpractice system, including caps on non-economic
damages and revision of the joint and several liability rules can
reduce defensive medicine, which can reduce unnecessary health care
expenditures. The CBO scoring of legislation in 2003 estimated that
Federal expenditures would drop by nearly $15 billion over ten years.
Those savings depend only on reduced premiums. My own research
concluded a reduction in defensive medicine could lower overall
hospital expenditures by between five and nine percent. During FY 2004,
the Medicare program spent more than $133 billion on hospital fee-for-
service. That would mean potential annual savings of between $6.65 and
$11.97 billion dollars, just for that program, not to mention the
private sector.
Even more importantly, liability reforms will improve quality and
access to health care, leading to better health for Americans. I would
urge the Congress to work with the Administration to formulate a plan
to address the problems with our current liability system and to
promote a culture of patient safety and quality within the healthcare
arena. The changes in liability law have the potential not only to
produce significant savings, but also to simultaneously improve patient
safety and the quality of care.
This morning I would like to review some of the systemic problems
in medical malpractice liability and some innovative alternatives for
addressing the needs of those who have been medically injured.
Specifically, I would like to highlight the Department's ``Early
Offers'' program as one possible way to speed resolution of malpractice
claims so that patients' needs are satisfied in an effective, efficient
manner.
THE CURRENT SYSTEM DOES NOT WORK
Malpractice liability laws seek to address two primary goals:
first, to adequately compensate and care for the needs of patients who
have been injured due to negligence, incompetence, or other improper
conduct by a provider; and second, to motivate providers to engage in
high quality, professional care. The existing system falls far short on
both of these goals. The current judicial process for addressing
malpractice needs to be reformed not simply to save money, but also
because individuals who have just cause to make a claim are not
receiving the help they need and deserve.
It is well known that the vast majority of individuals injured by a
caregiver do not file suit. The 1990 Harvard Medical Practice study
reported that only 2 percent of individuals experiencing an adverse
event due to medical negligence filed suit and, of more concern, only 1
in 14 individuals seriously injured by such an event received any sort
of compensation. More recent work by some of the same researchers
confirms these findings.\1\ The Physicians Insurance Association of
America reports that, on average, it takes more than 5 years for an
insurer to pay a malpractice claim after the date of the incident--
mostly due to delays in reporting (22 months) and delays in the tort
system (43 months). When an injured patient does finally successfully
settle or win a case, lawyers typically take anywhere from 30-40
percent of those funds as compensation. In short, many of those who are
injured due to negligent care are simply not receiving justice because
the system does not work for them.
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\1\ Studdert et al., Negligent Care and Malpractice Claiming
Behavior in Utah and Colorado, Medical Care Vol. 38 No. 3 (2000), pp.
250-60.
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On the other side of the coin, the current system does not do much
in terms of screening out cases with no medical merit, or in
differentiating between adverse events due to negligence and
unavoidable adverse events. A study published in the New England
Journal of Medicine found ``no association between the occurrence of an
adverse event due to negligence or an adverse event of any type and
payment . . . among the malpractice claims we studied, the severity of
the patient's disability, not the occurrence of an adverse event or an
adverse event due to negligence, was predictive of payment to the
plaintiff.\2\
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\2\ Troyen A. Brennan, M.D., J.D., M.P.H., Colin M. Sox, B.A., and
Helen R. Burstin, M.D., M.P.H., ``Relation between Negligent Adverse
Events and the Outcomes of Medical Malpractice Litigation,'' The New
England Journal of Medicine, Volume 335: 1963-1967, December 26, 1996,
Number 26.
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The same study reported that 10 of 24 cases involving no adverse
event whatsoever were settled with a mean payment of nearly $29,000.
Six of 13 cases involving an adverse event not due to negligence were
settled with a mean payment of more than $98,000. More broadly, of
claims filed during 2003, only about a third resulted in some payment
to the plaintiff, and of the small percentage that go to trial, more
than three in four resulted in a finding for the defendant, immediately
leading one to question the validity of the bulk of claims.\3\
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\3\ Physician Insurers Association of America, ``PIAA Claim Trend
Analysis'' 2003 ed. (2004).
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Rapidly rising premium rates can have a real impact on patient
access to care. A study by the Agency for Healthcare Research and
Quality examined how the supply of physicians varied across states
between 1970 and the present. The study concluded that states adopting
caps on non-economic damages experienced about 12 percent more growth
in physicians per capita than States without caps. Notably, the study
also found that States with relatively high caps were less likely to
experience an increase in physician supply than States with lower
caps.\4\ This sort of disparity can translate into very real access
challenges. It means that it is more difficult for patients to find the
types of specialists they need, that they must go further out of their
way, and take more time from their own lives to access the care they
require. In some cases, the limitations on access result in negative
health outcomes as well.
---------------------------------------------------------------------------
\4\ Hellinger, Fred J., Ph.D., and William E. Encinosa, Ph.D.,
``Impact of State Laws Limiting Malpractice Awards on Geographic
Distribution of Physicians,'' Agency for Healthcare Research and
Quality, July 3, 2003.
---------------------------------------------------------------------------
Just to illustrate, a 2004 survey of Ob/Gyns in Illinois found that
in the previous two years, 11 percent had stopped practicing obstetrics
as a result of medical liability concerns. Based on how many office
visits physicians report in an average month (N=250), that means 46,250
office visits for Ob/Gyn services were lost across the state during
those two years.
The malpractice system has important adverse effects on quality as
well. In a widely read 1999 report, ``To Err is Human,'' the Institute
of Medicine (IOM) noted that: [R]eporting systems are an important part
of improving patient safety and should be encouraged. These voluntary
reporting systems [should] periodically assess whether additional
efforts are needed to address gaps in information to improve patient
safety and to encourage health care organizations to participate in. .
.reporting, and track the development of new reporting systems as they
form.\5\
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\5\ Committee for Quality Health Care in America/Institute of
Medicine, ``To Err is Human: Building a Safer Health System,'' 2000.
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The IOM emphasized that fear of lawsuits deters doctors and
hospitals from making reports, even when they are not negligent,
because in many states such reports can be used against them in court.
This very understandable concern impedes quality improvement efforts.
If our liability laws do not encourage error reporting and analysis,
they serve only to perpetuate the very problems that they ostensibly
exist to address.
The truth is that common human decency and professional ethics are
sufficient motive for the vast majority of physicians to provide the
best care possible. Most medical errors today are not the result of bad
doctors or nurses, but rather the result of complex or difficult
systems in which they work.
You would think that we would do everything in our power to
encourage the kind of self-analysis and systems evaluation necessary to
identifying and addressing systemic errors. Instead, our current tort
system sets up roadblocks that discourage this very important activity.
This roadblock needs to be removed.
Congress should pass patient safety legislation that includes a
mechanism for allowing anonymous reporting of errors and that protects
databases of such information from discovery. If we don't collect this
data, we'll never see the patterns that will allow us to make changes
to improve patient safety and will never realize the concurrent savings
resulting from reduced errors.
THE COSTS OF OUR CURRENT SYSTEM
As an acadmic, I conducted my own research on this subject that
focused on whether, and to what extent, physicians engage in defensive
medicine as a result of their concerns over being sued. In 1996,
Stanford University Professor Daniel Kessler and I conducted a study on
the extent to which physicians engage in defensive medicine.\6\ We
examined national data on Medicare beneficiaries experiencing a new
primary diagnosis of serious cardiac illness in 1984, 1987, and 1990.
We also compiled a comprehensive database of reforms to state liability
laws and malpractice control policies from 1969 to 1992. Each of the
observations in the Medicare data set was matched with a set of two
tort law variables that indicated the presence or absence of direct or
indirect malpractice reforms at the time of their initial
hospitalization. Dr. Kessler and I found that direct liability reforms,
such as caps on damage awards; abolition of punitive damages; and
mandatory prejudgment interest and collateral-source rule reforms
reduce hospital expenditures by 5 to 9 percent within 3 to 5 years of
adoption. The drop in expenditures resulted from a change in physician
practice patterns that we attributed to a moderation in defensive
medicine. It is important to note that this shift had no consequence in
terms of patient mortality or other serious adverse health events--that
is, reforms made it possible to lower medical costs significantly
without compromising quality of care. This particular study was peer
reviewed and published in The Quarterly Journal of Economics. In 1997,
the International Health Economics Association, a well-known global
professional association of health economists, presented us with the
Kenneth J. Arrow Award for this article.
---------------------------------------------------------------------------
\6\ Kessler, Daniel P. and Mark B. McClellan, ``Do Doctors Practice
Defensive Medicine?'' The Quarterly Journal of Economics, vol. 111, no.
2, May 1996.
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The article's findings on the impacts of liability reforms on cost
and quality are supported by a substantial body of other work. In an
earlier study published in the Journal of the American Medical
Association, researchers found a positive relationship between
malpractice claims risk and rates of cesarean sections.\7\ In a 2002
paper also published in a peer-reviewed economics journal, Dr. Kessler
and I further explored the role of malpractice reforms in reducing
defensive practices. Dr. Kessler and I found that malpractice reforms
affect physician behavior by changing both financial measures of
``malpractice pressure'' (such as malpractice claims rates and
malpractice insurance premiums) and non-financial measures (such as the
time and hassle spent in defending against a claim). \8\
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\7\ Localio, Russell et al., Relationship Between Malpractice
Claims in Cesarean Delivery, JAMA Vol. 269, January 20, 1993, p. 366.
\8\ Kessler, Daniel P. and Mark B. McClellan, ``How Liability Law
Affects Medical Productivity,'' Journal of Health Economics, vol 21
(2002) pp. 931-55.
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Based on the work we did, Dr. Kessler and I concluded that if
direct liability reforms had been adopted nationwide between 1984 and
1990, it would have resulted in annual savings of $450 million for each
of the first two years and close to $600 million for each of the
succeeding years for just the two conditions we studied.\9\ As I
mentioned earlier, our study concluded that these reforms could
potentially reduce overall hospital expenditures by five to nine
percent. Those kinds of savings, if realized, could have a significant
impact on the fiscal health of the Medicare and Medicaid programs.
Furthermore, as stated above, these savings would come without any drop
in the quality of care and outcomes experienced by patients.
---------------------------------------------------------------------------
\9\ Kessler, Daniel P. and Mark B. McClellan, ``Do Doctors Practice
Defensive Medicine?'' The Quarterly Journal of Economics, vol. 111, no.
2, May 1996.
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CBO has taken issue with the estimates from the paper written by
Dr. Kessler and me, contending that tort reform will not reduce
defensive medicine. CBO used our work as a model, but their efforts are
hampered by two critical methodological limitations. First, when CBO
sought to replicate our study on a more recent sample of patients with
the conditions we examined, it obtained similar results to ours. The
finding of insignificant effects arose only when CBO sought to re-
estimate our models on a set of patients with very broadly defined
illnesses. Because hospital expenditures on patients with a broad range
of illness are likely to be heterogeneous and hard to predict, the
unexplained variance in hospital expenditures for these patients is
likely to be large--larger than the unexplained variance in hospital
expenditures for patients with clearly defined illnesses we studied.
Since the standard errors of the estimates of the effects of limits on
liability are proportional to the unexplained variance in expenditures,
the statistical significance of estimates from models with broadly
defined illnesses would be less than the significance of estimates from
models with narrowly defined illnesses.
Second, we used more comprehensive data, while CBO used data from a
20 percent random sample of beneficiaries for most (1991-1996) of their
study period. Third, there was very little variation in states' tort
laws during the CBO's entire study period (1991-1999)--according to CBO
staff, only 6 states changed one or the other of the two liability
system variables under analysis. In the period that we studied (1984-
1994), 33 states changed one or the other of the liability system
variables under analysis. These two differences--the less comprehensive
data and the smaller number of ``experiments'' in the CBO analysis--
would also lead the statistical significance of estimates reported in
their brief to be lower than the significance of our estimates.
It is important to put the differences between myself and Dr.
Kessler, and the CBO, in the context of what we focused on. CBO has not
made estimates of savings from reductions in defensive medicine. They
have, however, concluded that reduced premiums would save the Federal
Government billions of dollars. My own research shows the potential for
billions more in savings as a result of reduce defensive medicine. What
we both end up saying--along with numerous other researchers--is that
reforms will lead to billions of dollars in savings each year.
LIABILITY CONCERNS REDUCE PHYSICIAN PRODUCTIVITY
Every time our malpractice system ties up a physician in judicial
or administrative matters, then their clinical skills are temporarily
removed from the productive pool. Even small drops in the average
amount of time spent on malpractice claims will have the beneficial
result of making physicians more productive in terms of patient care,
which is ultimately where we want them to spend their time. The 2002
paper with Dr. Kessler that I mentioned, documented how this works:
reform-induced decreases in the time and hassle spent defending against
malpractice claims leads to lower health care costs, but not worse
health outcomes.
The perceptions of practitioners themselves back up these
statistical results. A 2002 poll by Harris Interactive found that the
fear of litigation impacts healthcare administrative issues. Well over
three-fourths of all physicians and nurses (84% and 81%, respectively)
reported that they spend more time on paper work, such as medical
record documentation, because of malpractice concerns than they would
based solely on the patient's clinical needs. Additionally, nearly all
physicians (94%) believe that written descriptions of cases are very
often or sometimes influenced by the fear of litigation.\10\
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\10\ Taylor, Humphrey, et. al., ``Common Good Fear of Litigation
Study: The Impact on Medicine,'' Harris Interactive, April 11, 2002.
---------------------------------------------------------------------------
In a 1997 paper, Dr. Kessler and I investigated how the
intrusiveness of the liability system affected physician perceptions of
medical care. We estimated the impact of liability reforms on objective
measures of malpractice pressure--such as claims rates--and on
perceptions of the effects of malpractice pressure on practice
patterns. The study found that malpractice pressure affects physician
perceptions of two important dimensions of medical practice: propensity
to make referrals, and the ability to spend time with patients.\11\
---------------------------------------------------------------------------
\11\ Kessler, Daniel and Mark McClellan, The Effects of Malpractice
Pressure and Liability Reforms on Physicians Perceptions of Medical
Care, Law and Contemporary Problems Vol. 60 (1997) pp. 81-106.
---------------------------------------------------------------------------
More generally, the legalistic atmosphere in which physicians
practice warps the physician-patient relationship. Hauser et al. give a
good example of how fear of litigation can reduce the trust in the
physician-patient relationship and actually become a barrier to clear
and effective communication.
A woman went to a gynecologist for a problem and a minor surgical
procedure was recommended. At the beginning of the discussion of this
procedure, the physician commented, ``The law requires me to inform you
of certain facts about this operation.'' And then, in a perceptible
alteration of his normal patterns of speech, the gynecologist began to
chant a litany of side effects, risks, morbidity, mortality,
percentages, probabilities, etc. The patient later reported that after
about ten seconds of listening to this, her mind shut down entirely.
``This appears to be some sort of arcane ritual! The communication was
not directed to me for any benefit of mine whatsoever.\12\
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\12\ Hauser MJ, Commons ML, Bursztajn HJ, Gutheil TG. ``Fear of
Malpractice Liability and its Role in Clinical Decision Making,'' in
Gutheil TG, Bursztajn HJ, Brodsky A, Alexander, v. Decision Making in
Psychiatry and the Law. Baltimore: Williams & Wilkins, 1991.
---------------------------------------------------------------------------
High-quality medicine requires effective communication with
patients. The various tests and procedures available to us provide a
tremendous amount of useful information, but often, a diagnosis, or the
type of test to utilize, is prompted by something the patient shares
with the physician in conversation. If, because of liability concerns,
physicians are unable to discuss the inherent ambiguities and
complexities of medical practice, and the variety of potential outcomes
to a given procedure or service, in a manner to which the patient can
personally relate, then the patient's ability to make informed
decisions is compromised. Our current system, because it recasts this
relationship in legalistic terms does not promote mutually beneficial
exchanges of information.
INNOVATIVE PRIVATE SECTOR APPROACHES
Although those in the private sector cannot modify tort law, a
number of organizations and providers have begun experimenting with
mediation, with some success.
Some time ago, Johns Hopkins Hospital began requiring non-emergency
patients who came to them for elective procedures (individuals who had
the option of going elsewhere if they so chose) to sign an agreement to
take any malpractice claims to mediation prior to going to court. In
2003, Hopkins mediated 24 cases and resolved 21 of them. As a result,
Hopkins 2003 claims expenses decreased almost 30 percent. Mediation is
typically much faster than a court case and involves far lower
attorney's fees. In short, patients who are injured get compensated at
a higher level and in a shorter amount of time. Furthermore, this
reform has helped the hospital communicate more freely with the
patients, and probably with the professional staff, in order to be sure
the mediation is successful and the highest possible quality of care is
achieved.
TORT REFORM AND LIABILITY INSURANCE PREMIUMS
As you are well aware, a fairly fierce debate over how the medical
malpractice system should be reformed has been going on for some time
now. While more research evidence would help in making the path forward
obvious to all, there is no question that liability reform has the
potential to produce significant healthcare savings, as well as reduce
problems of access and quality care. The time to act on this issue is
now--from the standpoint of health care quality and cost, we can't
afford to wait.
A number of possibilities exist for improving our medical liability
system. Tort reforms include actions such as capping awards for pain
and suffering, so called non-economic damages, as well as capping
punitive damages. In addition, suggestions have been made to reframe
rules for joint and several liability, such that each actor involved in
a given episode of care, including the physician, hospital, and payer,
all bear a level of blame proportional to their share of fault or
responsibility. Liability for damages would not be joint. As another
option, attorneys' fees could also be capped, so that more of the
dollars won by a plaintiff with a meritorious case actually go to that
individual to address their health needs, and large awards could be
paid as an annuity, or over a number of years, instead of as a lump
sum, so that the money is available in the future when the individual
needs it to pay for care. Collateral source rules, taking into account
funds coming from health, automotive, or workers' compensation
insurers, could also be modified to allow reductions in settlements or
jury awards commensurate with insurers' payments. Alternatively,
mandatory pre-trial screening by an independent medical expert to weed
out baseless claims could reduce the number of baseless suits faced by
physicians. President Bush supports securing the ability of injured
patients to get fast, unlimited compensation for their economic losses,
including the loss of ability to provide unpaid services like care for
children or parents, but has urged the Congress to support a cap of
$250,000 on non-economic damages, limit punitive damages, eliminate
joint and severable liability, create a uniform statute of limitations,
and provide for the structured payment of future damages.
According to the GAO, the greatest driver of increases in physician
liability premium rates is losses suffered as a result of malpractice
claims.\13\ They also concluded that states with tort reforms that
include certain damage caps had lower growth in liability premiums than
did those without such caps. Another study by Stephen Zuckerman et al.
concluded that capping medical liability awards reduced premiums for
general surgeons by 13 percent in the year following enactment of that
reform and by 34 percent over the long term. The reforms resulted in
similarly lower premiums for general practitioners and Ob/Gyns.\14\ A
2002 HHS study found that during 2001, states with meaningful caps on
non-economic damages saw average premium increases of 15 percent, while
states without such caps saw increases of 44 percent.\15\
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\13\ Hillman, p. 1.
\14\ Stephen Zuckerman, Randall R. Bovbjerg & Frank Sloan,
``Effects of Tort Reforms and Other Factors on Medical Malpractice
Insurance Premiums,'' 27 INQUIRY 167-182 (19.90).
\15\ ``Confronting the New Health Care Crisis: Improving Health
Care Quality and Lowering Costs by Fixing our Medical Liability
System,'' HHS Office of Assistant Secretary for Planning and
Evaluation, July 24, 2002.
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Like many academic studies, my own research has demonstrated that
direct tort reform, including capping damages, abolition of mandatory
prejudgment interest, and collateral source rule reforms reduce premium
expenditures significantly. The 1997 paper with Dr. Kessler I mentioned
above showed that in states adopting such reforms, within three years
physicians saw substantially and statistically significant lower trend
growth in their real malpractice insurance premiums of approximately
8.4 percent.\16\
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\16\ Kessler, Daniel P. and Mark B. McClellan, ``The Effects of
Malpractice Pressure and Liability Reforms on Physicians' Perceptions
of Medical Care.''
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Amounts paid on malpractice claims, either in settlement or because
of a jury award, have been growing substantially in the past few years.
The Physician Insurers Association of America (PIAA) reports that the
median jury award in medical liability cases nearly doubled from 1997
to 2003, increasing from $157,000 to $300,000. The PIAA's as yet
unpublished report on 2004 indicates that the median jury award during
that year was $439,400; a one-year increase of more than 46 percent. It
is notable that PIAA found a 2004 mean payment on a jury verdict of
$606,907. Such a large difference between the median and the mean
indicates the existence of a significant number of large awards. The
size of settlements has similarly increased. Median settlements
increased from $100,000 to $200,000 between 1997 and 2003. As
previously noted, these increasing losses drive increases in premiums.
However, physicians must also pay legal fees. Physicians who win at
trial have average defense costs of $87,720 per claim and in cases
where the claim was dropped or dismissed, their costs averaged
$17,408.\17\
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\17\ ``Physician Insurers Association of America, ``PIAA Claim
Trend Analysis: 2003 ed. (2004).
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There is substantial evidence on the positive effects of tort
reform to provide a basis for congressional action at this time. Not
only will tort reform result in lower premiums, but, much more
importantly, it will help foster an environment in which physicians do
not feel the need to engage in defensive medicine and we will see our
costs drop as a result. Tort reform will increase access to healthcare
and it will result in improved quality as providers feel the freedom to
openly discuss systemic improvements that will lead to a higher degree
of patient safety. I would urge the Congress to take this issue up and
act on it.
THE IMPACT OF MARKET FORCES
There is no significant controversy about whether the number of
claims made against physicians and ballooning settlements and judgments
has contributed to rising premiums. However, there are others who
contend that the tort system itself is not the only reason for premiums
to increase; they argue that the insurance market also contributes to
the rise in premium rates.
Insurers typically invest the bulk of their revenues into bonds.
Some people argue that during the stock market rise of the 1990s,
insurers realized profits from their investments that allowed them to
reduce premium rates. They contend that as the stock market has
suffered declines, insurers have raised their premiums to make up for
investment losses. In addition, many insurers purchase reinsurance from
larger entities. Some say that such reinsurance has become increasingly
expensive in the past few years, particularly after the tragedy on
September 11, 2001, and that it is also common for insurers entering a
new market to provide lower introductory rates in order to obtain
market share, and then raise the rates once they have an established
client base.
In addition to business cycle factors, the St. Paul Company, one of
the larger physician insurers in the country, decided to cease
providing malpractice coverage at the end of 2002. This action reduced
competition among insurers and allowed them to, at least temporarily,
increase their premium rates.
Critics of tort reform efforts point to all of these factors as
relevant to the malpractice debate. They argue that we should not
engage in tort reform if it is not the only driver increasing premiums
and expenditures.
The GAO concluded that although none of the companies it examined
experienced a loss on their investments, a 1.6 percent decline in
investment return from 2000 to 2002 would have resulted in premium
increases of 7.2 percent over the same period.\18\ Such a decline would
not have been outside the realm of possibility given market movement
during that period. Studies like these lend credence to the argument
that a component of liability premium increases may result from factors
other than rising settlements and jury awards.
---------------------------------------------------------------------------
\18\ Hillman, p. 8.
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That said, the present problem in many States is not the result of
the so-called ``insurance cycle,'' or reckless investments by insurance
companies. Although we have been on an ``up'' part of the cycle, that
does not explain extremely high premium increases in the last few years
in some States that have not reformed their liability system, compared
to much smaller increases in most of the States that have implemented
significant reforms. The insurance cycle is not a phenomenon that
occurs in some States but not others. But the growth in liability
premiums and even the availability of liability insurance has clearly
varied substantially across states, in association with differences in
liability laws.
Consequently, reforms in insurance would not address the underlying
causes of the problems of unnecessary costs, lower quality, and less
access to care that result from our current liability system. Insurance
market reforms will not change physicians' perception of the liability
environment in which they work and market reforms will not reduce the
level of defensive medicine. Furthermore, market based reforms will not
produce swifter settlement of claims, or improve the equity of injured
patients' compensation.
ADDITIONAL STEPS TO IMPROVE OUR LIABILITY SYSTEM
In late September of last year, then-Secretary Thompson announced
an HHS initiative to deal with claims made against providers who are
employees of the Department, including those practicing at community
health centers or through Indian Health Service programs. To reduce the
amount of time it takes a patient to receive compensation, HHS designed
the Early Offers program to encourage rapid settlement of cases,
provide quick payment in deserving cases, and avoid the delay, cost,
and emotional distress of litigation.
When a patient who has been served at a federally-funded health
center or Indian Health Center facility files a medical malpractice
liability claim against HHS, we send a standard notice explaining our
early offers program. Both sides have 90 days to submit a confidential
offer to a neutral third party who will compare the offers and notify
both sides only if a match is made. Not only are offers voluntary,
their amount and existence remain confidential forever if no match is
made. So neither side tips its hand or loses leverage if the case goes
to court.
The program is up and running at HHS and we're hopeful that it will
show promising results in the months to come. In the meantime, any
doctor or hospital can set up an early offers program. Because an early
settlement only occurs when both parties agree, you're not losing any
options by setting up a program, and no government action is required.
Evidence on how we can improve quality of care for patients should
drive our reform efforts. We should be sure that if doctors take steps
to encourage quality, for example, installing and using electronic
medical records so that they can more easily track adverse events and
thereby prevent them, that these physicians are not then punished by
our legal system. If a physician who is considering such a system has
in the back of his/her mind the fact that some day an attorney might
use his data to bring suit, that physician may abandon the idea
altogether. We should be looking to create systems that support quality
care, that provide the data that are needed for good decision making.
To illustrate what can happen when physicians are able to be more
open with their patients about medical errors, I would point you to the
experience of the Lexington, Kentucky Veterans Affairs medical center.
In 1987, after losing two malpractice cases with judgment totaling more
than $1.5 million, this facility adopted a policy of radical honesty.
They began to openly and immediately discuss with patients and/or their
families any errors that occurred during treatment, including giving
the patient information about their right to file a claim or an
application for compensation. Furthermore, the facility disclosed
medical errors when the patient or family had no reason to know one had
occurred. A 1999 study of the Lexington facility's claims experience
during the years 1990 to 1996 concluded that the facility did not pay
any more in malpractice claims than comparable VA facilities, and had
concurrently avoided significant legal expenditures.\19\ Partially due
to the success of the Lexington policy, the VA adopted this practice
system-wide in 1995.
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\19\ Kraman, Steve S. and Ginny Hamm, ``Risk Management: Extreme
Honesty May be the Best Policy,'' in Annals of Internal Medicine, vol.
131, issue 12, 21 December 1999, pp. 963-67.
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The VA is not entirely analogous to the private market, but I bring
up this example because it demonstrates how the real needs of patients
who have been injured can be addressed more adequately when systems are
in place to encourage patient-physician communication.
CONCLUSION
We are considering a variety of administrative ways to test
innovative ideas that would lead to a solution to the malpractice
problem.
Mr. Chairman, the current medical liability system simply does not
address the needs of patients, and it's costing those patients, the
Federal Government, and other payers billions of dollars every year
because it adds to costs and encourages care that does not improve
health. More importantly, our liability system reduces access and
reduces quality of care. I would encourage the Congress to take action
on this issue and would be happy to work with you as you move forward.
I would be pleased to take any questions at this time.
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