Help Efficient, Accessible, Low Cost, Timely Health Care (HEALTH) Act of 2002

We are concerned that many health care providers face difficulty obtaining reasonably priced medical malpractice insurance; this is a serious problem that merits attention. But this legislation was rushed through in a partisan fashion, and does not reflect a deliberative effort to craft a comprehensive and workable legislative solution in Committee.

The Subcommittee on Health held only one hearing on this matter in July. Despite testimony about the detrimental effect of this legislation on injured patients and about the need to more fully understand factors contributing to the insurance premium increases, not a single substantive change was made to the legislation. And a subcommittee markup was bypassed altogether. Instead, Members were given less than two days notice of a Full Committee markup. Every one of over a dozen amendments offered by the Minority was defeated on a partisan basis. Debate was limited after it was announced that the Republican leadership in the House had required the legislation to be reported after only just one afternoon’s consideration. Clearly, this was not a process of bipartisan collaboration or one that would lend itself to addressing the problem thoroughly. The legislation is now being rushed to the Floor just one week after being reported, at the end of the session. Much less severe legislation against injured victims has already been defeated in the Senate, and with multiple necessary appropriations bills awaiting consideration on the Floor, the timing of this action is most curious.

The bill offers a "solution" prior to having discovered the root of the problem. Merely attacking injured patients’ right of redress under the judicial system, as this bill does, is short-sighted, mean-spirited, and ultimately will do little to address providers’ concerns with malpractice insurance.

We do not dispute that there is a problem. Providers have seen insurance rates increase dramatically in recent years, and some specialties are finding it impossible to secure coverage. The situation is leaving doctors with few options. Those who can afford it will pay the increased cost of providing medical services. Those who cannot afford the increase are forced to assume significant personal liability, leave high-risk specialties, or leave the profession altogether. At best, health care will become more expensive for patients. At worst, in addition to higher prices, patients will be denied access to care, and lifesaving treatments will not be provided.

But while the rising cost of malpractice insurance is a very real concern for doctors and patients alike, we have serious reservations about this proposed "solution" for two primary reasons. First, what has caused the increase in malpractice insurance premiums is not easily identified. Moreover, it is not clear that this legislation will reduce the medical malpractice premiums that providers must pay to insurance companies. Second, the scope and severity of the provisions in H.R. 4600 impose unreasonable restrictions on an injured patient’s ability to hold wrongdoers accountable. The legislation provides nothing more than a shield for bad actors rather than meaningful reforms for overburdened doctors and providers.

To find an effective solution, we must closely examine the insurance industry and how its conduct affects medical malpractice premiums, an activity not undertaken by this Committee. Are medical malpractice insurers properly pricing their product? Are they accounting for their income and expenses while planning for expected downturns in the economy? Or, are they raising rates on doctors to compensate for questionable business judgments and accounting practices?

We know that many factors completely unrelated to jury verdicts and the civil justice system affect insurance rates: changes in state law and regulatory requirements; competitiveness of the insurance market; the types of policies issued within the industry; interest rates; and national economic trends. Moreover, there is scant evidence to date that various state tort reforms have realized appreciable premium savings. In a comparison of states that enacted severe tort restrictions during the mid-1980's and those that resisted enacting tort reform, a recent study found no correlation between tort reform and insurance rates.*  Inflation adjusted premiums per doctor have actually declined over the past decade.** In California, which has one of the most restrictive malpractice laws in the country, the Medical Injury Compensation Reform Act (MICRA), premiums are 8% higher than premiums in states without non-economic damage caps.***  At the same time, medical malpractice insurers in California are paying out in claims less than 50 cents on every dollar they have taken in through premiums. ****

Insurance markets are subject to cycles, periods of underpricing of premiums to increase market share and book premium dollars, followed by a hardening of the market. Once the market hardens, competition intensifies, underwriting results deteriorate, and investment incomes fall. Insurance companies then need to raise premiums to cover losses. For example, as a result of the underpricing of insurance policies over the past decade, it would take a 50% hike in rates to increase inflation-adjusted rates to the same level as existed ten years ago.*****  We are now in the midst of a ‘hard’ phase of the insurance cycle and increases in malpractice premiums are consistent with overall market trends. This problem is not unique to malpractice insurance. While medical malpractice insurance premiums for the three riskiest specialties increased 10% from 2000 to 2001, auto insurance premiums saw similar increases of 8.4% during that same period. ******

A serious effort to provide relief to providers from high malpractice premiums would have looked at these and other issues. A number of Congressional Democrats have requested the General Accounting Office look into these questions so that we may make informed decisions about any federal action needed. The Committee, however, chose to take a one-sided approach.

In addition to the above mentioned concerns that H.R. 4600 is premature and may not remedy the current problem, draconian provisions in the legislation make it even more unpalatable. There are many flaws in the legislation, but our dissenting views will focus on four of the most egregious: the cap on non-economic damages; the cap on punitive damages; the "FDA defense"; and the overly restrictive statute of limitations.

Non-Economic Damages

The severity of this cap is astounding. The intent is to parallel the cap in California’s MICRA law, which was enacted in 1975 and never indexed to inflation. The value of this cap has declined to a mere $40,389 in 2002 dollars. Using the Consumer Price Index for medical care, this cap today would be more than $1.5 million. In addition, the California law only applies to medical malpractice cases and not claims against drug and device manufacturers, HMOs, insurance companies, or nursing homes covered under H.R. 4600.

In addition, by capping non-economic damages, H.R. 4600 discriminates against women, children, the elderly, minorities, the unemployed and others who cannot show substantial economic loss (i.e., lost wages or salary). A child who suffers brain damage or other catastrophically debilitating injury would recoup little in economic damages, and would be left with a maximum of $250,000 for the remainder of his life, which could exceed 70 or 80 years.

Non-economic damages are also an important measure of compensatory damages for older persons, and in particular nursing facility residents. These individuals have neither long life expectancies nor large earning capacities, the traditional measures of economic damages. By so stringently limiting non-economic damages, H.R. 4600 would remove a strong financial incentive to nursing facilities to provide residents with decent care.

Punitive Damages

The legislation sets a nearly impossible standard for awarding punitive damages and then limits such damages to twice economic damages or $250,000, whichever is greater. By basing punitive damages on the level of economic losses, the bill discriminates against injured women, children, elderly and others who tend to have lower incomes. For example, if Ken Lay were injured while CEO of Enron, his economic damages would have been worth millions upon millions of dollars. If a stay-at-home mother were injured, she would have minimal economic damages awarded to her.

In order to assess punitive damages, H.R. 4600 imposes a federal standard of "clear and convincing" evidence that (1) the defendant acted with malicious intent to injure or (2) the defendant understood the plaintiff was substantially certain to suffer unnecessary injury yet deliberately failed to avoid such injury. This standard of "malicious intent" requires more than criminal misconduct; such a standard would likely protect a drunk doctor who kills a patient because a court would likely hold that the doctor was unable to form the necessary intent.

The bill also could increase the length and cost of malpractice actions because it prohibits plaintiffs from seeking punitive damages in an initial suit. Only at the court’s discretion, after a finding by the court that there is a substantial probability that the plaintiff will prevail, may the plaintiff file an amended proceeding to request punitive damages be awarded. This requirement for a separate proceeding in essence turns one trial into two.

FDA Defense

H.R. 4600 goes beyond protecting providers from malpractice awards; it also provides immunity from punitive damages to manufacturers of drugs and devices that are approved or cleared by the FDA as well as those that are not FDA-approved but are "generally recognized as safe and effective," and to products that comply with packaging regulations. This is akin to arguing that because someone drives at the speed limit, they cannot be negligent or reckless. It is clearly possible to obey the speed limit, yet still act in a negligent or reckless manner.

Approval of drugs and devices by the FDA provides no guarantee that a particular device is not defective, that the manufacturer has continued to maintain safety after approval, or that all problems are discovered before approval. This topic was the subject of considerable debate in Committee. Proponents of the provision argued that because the bill includes an exception for cases where information was knowingly misrepresented or withheld from the FDA and the FDA requires manufacturers to report certain items to the FDA, if a manufacturer did not report problems, such manufacturer would not be exempted from punitive damages.

Notwithstanding the fact that the exception referenced only applies to withholding or misrepresenting information to the FDA, and thus protecting a manufacturer from punitive damages if it blatantly misrepresented its product to the public, there are numerous other problems with this provision. Manufacturers are not required to report all problems with manufacturing or changes in their process to the FDA. Moreover, some of the reports are only filed annually. What of patients injured before the report is filed?

After approval, the FDA does not review individual drugs for manufacturing defects and the FDA does not have nearly enough resources to continuously monitor the conditions in every facility here and abroad. And, in particular now that approvals have been accelerated, the FDA ends up withdrawing approved drugs from the market for safety problems discovered after the approval. Also, dozens of cleared devices are recalled from the market each year for safety or effectiveness problems not identified in the clearance process. In the meantime, patients have been injured. The FDA cannot be omnipresent, nor should it be.

If enacted, this provision could have the perverse incentive of encouraging manufacturers to be disengaged in quality monitoring in their manufacturing process. If a manufacturer does not know about problems, they cannot be accused of failing to report the problems to the FDA. Basically, what they don’t know can’t hurt them, but could surely hurt consumers.

Ultimately, by shielding manufacturers of dangerous or defective drugs from exposure to punitive damages, this bill would remove incentives for manufacturers to make the safest products and to quickly withdraw dangerous products from the market. Congress should not reduce any incentives for the industry to police itself above and beyond government regulation.

Statute of Limitations

H.R. 4600 also sets a stringent federal statute of limitations on state tort cases. The statute of limitations for bringing an action is the earlier of three years after the date of injury or one year after the date of discovery, but in no event shall the time for commencement of a lawsuit exceed three years. This provision also was subject to considerable debate in Committee, with particular focus of the effect of this absolute time limit. While some injuries are manifested immediately, many times malpractice or product defects are not manifested or diagnosed for some time, for example, a hemophiliac who contracts HIV from tainted blood may not learn of the disease until five years later. By establishing a absolute time limit for filing a case this legislation would completely preclude many injured patients from any recourse and would therefore shield negligent practitioners, facilities, and manufacturers from any liability whatsoever.

To conclude, the legislation before us today focuses on drastic reforms of the judicial system and extends those draconian reforms beyond the realm of medical malpractice rather than focusing on the underlying causes of the medical malpractice premium increases facing providers. While inefficiencies in our courts may be a contributing factor to the current crisis, they are by no means the only cause -- or even the single largest cause -- of the current crisis.

Moreover, even if we accepted the notion that verdicts and settlements benefitting injured patients have increased significantly, which is less than clear, it is our responsibility to examine why judgments favorable to victims are on the rise - a factor this legislation does not even touch upon. Are there fatal flaws with our health care delivery system and HMO’s that cause more medical errors and patient injuries? Failure to examine all aspects of the problem is irresponsible, and in this instance will wind up disproportionately hurting women, children, elderly, and others who are injured as a result of the few careless or even malicious health care providers

The rise in malpractice premiums is a real problem that calls for real reform. All aspects of this crisis should be examined thoroughly and responsibly. And above all, any legislative solution should strike a careful balance preserving an injured patient’s right to just compensation and the delivery of health care without unreasonable costs of insurance.

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*  Center for Justice and Democracy, Premium Deceit - the Failure of Tort Reform to Cut Insurance Rates.

**  Testimony of Travis Plunkett, before the Subcommittee on Health of the Committee on Energy and Commerce, July 17, 2001.

***  Medical Liability Monitor, 2001.

****  Testimony of Jamie Court, before the Subcommittee on Health of the Committee on Energy and Commerce, July 17, 2001.

*****  Testimony of Travis Plunkett, before the Subcommittee on Health of the Committee on Energy and Commerce, July 17, 2001.

******  Public Citizen, Equal Opportunity Rate Hikes, July 2002.