Thesecond meeting of the Interim Joint Committee on State Government was held on Wednesday, August 27, 2003, at 1:00 PM, in Room 149 of the Capitol Annex. Senator Albert Robinson and Representative Charles Geveden, Co-Chairs, jointly chaired the meeting. Senator Robinson called the meeting to order, and the secretary called the roll.
Members:Senator Albert Robinson, Co-Chair; Representative Charles Geveden, Co-Chair; Senators Walter Blevins, Charlie Borders, Tom Buford, Julie Denton, Ernie Harris, Alice Kerr, Johnny Ray Turner, and Ed Worley; Representatives John Adams, Adrian Arnold, Eddie Ballard, Joe Barrows, James Bruce, Buddy Buckingham, Dwight Butler, Jim Callahan, Larry Clark, Perry Clark, Tim Couch, Brian Crall, Tim Feeley, Derrick Graham, J. R. Gray, Mike Harmon, Charlie Hoffman, Jimmie Lee, Paul Marcotte, Lonnie Napier, Stephen Nunn, Tanya Pullin, Jon David Reinhardt, Tom Riner, John Will Stacy, Tommy Thompson, and Jim Wayne.
Guests: Senator Daniel Mongiardo; Dr. Don Swikert, Dr. Daniel Varga, Bill Doll, and John Cooper – Kentucky Medical Association (KMA); Tyler Thompson, Kentucky Academy of Trial Attorneys (KATA); Sarah Nicholson, Kentucky Hospital Association (KHA); Danny Garrett, Knox County Hospital; and Janie Miller, Kentucky Department of Insurance.
LRC Staff: Joyce Crofts, Mark Roberts, Kathryn Walton, Stewart Willis, Laura Hendrix, Jim Roberts, and Peggy Sciantarelli.
Representative Geveden assumed the chair. The minutes of the June 25 meeting were approved without objection, upon motion by Representative Lee.
The primary item on the agenda was discussion of medical malpractice insurance. Representative Geveden said that today's discussion will provide an opportunity for the members of the Committee to become better informed prior to convening of the General Assembly in January.
The following persons testified on behalf of the Kentucky Medical Association: Dr. Don Swikert, President; Dr. Dan Varga, Chairman of KMA's Physician Workforce Committee; Bill Doll, Jackson & Kelly law firm; and John Cooper. Highlights of their testimony follows.
Mr. Doll briefly reviewed the history of medical malpractice legislation in Kentucky. He noted that when legislative packages were enacted in the 1970's and the 1980's, the sitting governor and the overwhelming majority in the General Assembly were Democrats, and the legislation was supported across the board by both Democrats and Republicans. He said that KMA would invite members of both parties to again unify to address the problem. He went on to explain that the Kentucky Supreme Court overturned 1976 legislation that created a patient compensation fund and that the tort reform package enacted in the 1980's likewise was ruled unconstitutional. He said that the message is clear—liability reform in Kentucky will require a constitutional amendment.
Dr. Swikert said that skyrocketing medical liability insurance premiums are debilitating the nation's health care delivery system. He said that an increasing number of physicians, hospitals, and other providers are curtailing their services, relocating to other states, or simply ceasing to offer medical services. It is necessary to provide access to practicing physicians and high-quality medical services in order to attract businesses to a community—and for businesses to attract quality employees. According to PricewaterhouseCoopers, seven percent of the increase in health care costs is due to the litigation system; litigation in the health care system has grown dramatically over the past 20 years, resulting in large awards and skyrocketing insurance premiums; and without significant tort reform this could worsen in the next few years.
Dr. Swikert said that the U. S. Department of Health & Human Services has said that if comprehensive medical tort reform were to be instituted, it would save the government between $25-$44 billion dollars. He said that 70 percent of medical lawsuits do not result in a finding of negligence. The size of litigation awards is escalating. In the United States in 2001, 12 lawsuits resulted in awards over $22 million, and three were over $100 million each.
Dr. Swikert said that medical liability reform will not prevent the right of citizens who are truly injured through medical negligence from pleading their case to an impartial jury. He said that KMA supports unlimited compensation for economic damages but that a reasonable, balanced limit is needed on awards for noneconomic damages. He said that 50-60 percent of the amount of a jury award goes to the trial lawyer and the legal system—that the system takes care of trial lawyers but not necessarily everyone else.
Dr. Swikert maintained that reforms do work. He went on to say that California has had meaningful tort reform for the last 20 years. An obstetrician pays an average of $60,000/year for professional liability coverage in Los Angeles; yet in Miami an obstetrician pays an average of $201,000. Trial lawyers claim that California's experience is due to Proposition 103; that proposition, however, applied to all insurance and simply has had no impact. To date, rate increase requests for medical liability insurance have never been denied in California. This year an obstetrician practicing in a Kentucky town not far from Frankfort had his premium increased to $109,000, so he moved to Indiana—which has also had meaningful tort reform—where he now pays $29,000, including his contribution to the patient compensation fund.
Dr. Swikert said that comprehensive reform is needed. He said verdict awards and settlement costs drive insurance premiums. It is not stock market losses that cause the crisis, since insurance company investments are primarily fixed. Indiana's experience in the stock market has been the same as Kentucky's; yet Indiana's premiums did not increase nearly as much. If more insurance regulation is instituted without meaningful reform, the market will continue to be unpredictable and insurance companies will leave the state. In neither California nor Indiana have the citizens suffered from a lack of access to the courts or deterioration in the quality of medical care. Those states have been able to achieve a balance of many people's interests.
Dr. Swikert said trial lawyers frequently tout the Harvard study—which estimated that 98,000 deaths each year are caused by medical errors—as an argument against reform. He said that that study, however, is 19 years old and that its author recently said that the data really gives a different impression—that if one extrapolates studies done in New York, California, and Utah, 92,000 deaths in 1984 decreased to 25,000 deaths in 1992. Dr. Swikert said the evidence would suggest that a lot of improvements are being made. Accreditation requirements are more stringent than ever before. He went on to say that trial lawyers also point to the Institute of Medicine in support of their argument. The Institute of Medicine, in fact, has said that the focus must shift from blaming individuals for past errors to a focus on preventing errors by designing safety into the system.
Dr. Swikert said that Kentucky would be where Indiana is now if the Kentucky Supreme Court had not struck down 1976 and 1988 reform legislation. He said a constitutional amendment is needed so that any laws that may be passed to remedy the situation will be able to withstand judicial challenge. He went on to say that more than 70 percent of Kentuckians support some sort of medical liability reform. If the litigation system is left as is, the Commonwealth will have to deal with uncontrollable rising premiums; physicians relocating, retiring early, or restricting services; potential doctors looking for other professions; and reduced access to health care. He urged committee members to support a constitutional amendment.
Dr. Varga, Chair of the KMA Physician Workforce Committee, explained that he is also a general internist, member of the University of Louisville School of Medicine's admissions committee, and the chief medical officer at Norton Health Care. He said the state's physician workforce is neither stable nor secure. One hundred Kentucky counties are designated "underserved," in part or in whole, on the basis of total available physician workforce. Kentuckians lack access to many critical specialties. A majority of Kentucky counties are without an obstetrician, and many are without a general surgeon. Many rural community hospitals have struggled for some time with access to anesthesiology coverage, and this has now become a problem for urban centers as well. The Commonwealth's access to such specialties as neurosurgery, high-risk OB, multiple pediatric specialties, and cancer surgery is becoming limited to the point that Kentuckians may have to seek care out of state. This contraction of access also applies to the future physician workforce, and the crisis is severe. KMA undertook a study which employed the joint databases of KMA, the Kentucky Board of Medical Licensure, and the AMA Physician Movement Report, for the years 2000, 2001, and 2002. According to the study, Kentucky has suffered a net loss of 819 practicing physicians and residents in the last three years—the result of more than 2,000 leaving the state, while only 1,200 chose to move to or stay in Kentucky. By specialty, gone or retired are 36 percent of neurosurgeons; 29 percent of general surgeons; 26 percent of orthopedic surgeons; 21 percent of emergency room physicians; and 25 percent of OB/GYN's (not including those who have restricted their practice to GYN only). In the last three years 466 residents, or almost 60 percent of those who completed training in Kentucky residency programs, left the state. The applicant pool has declined to the point that there are fewer than two Kentuckians applying for each in-state slot available at the University of Kentucky and the University of Louisville medical schools. Also of concern is the decline in applicants from rural communities, who would be most likely to return to serve their communities. Dr. Varga said that Kentucky's professional liability climate is a major, if not defining, factor. In closing, he said that the Commonwealth had a significant shortage of physicians in the year 2000, that the situation has only worsened since, and that it will continue to worsen unless there is change.
Senator Borders spoke about the serious illness of his daughter, who lives in northern Kentucky and is receiving treatment there. He expressed concern about people having to leave the state for treatment and the fact that babies can no longer be delivered at two hospitals in his area of the state—Our Lady of Bellefonte Hospital and the hospital in Maysville. He referred to a March 2003 report by the U. S. Department of Health and Human Services ["Addressing the New Health Care Crisis: Reforming the Medical Litigation System to Improve the Quality of Health Care"]. He said the report found that California has more than 25 years of experience with reform; it has been a success; doctors are not leaving California; and insurance premiums in California have increased by 167 percent, compared to 505 percent nationally. Over the last two years, states with limits of $250,000 or $350,000 on noneconomic damages have seen average combined highest premium increases of 18 percent, while states without reasonable limits on noneconomic damages have seen average increases of 45 percent. He asked the speakers whether they have any quarrel with those findings. Dr. Swikert said they do not.
Senator Borders asked Dr. Swikert his opinion of the report's statement that only 28 percent of what is paid for insurance coverage actually goes to the patient; and that 72 percent is spent on legal, administrative, and related costs. Dr. Swikert said that KMA uses that report in its research but that there are other statistics that differ somewhat. Further referencing the report, Senator Borders said that the average jury award is about $1 million. A leading study estimates that reasonable limits on noneconomic damages—as in California—can reduce health costs by 5-9 percent, with national health care expenditures currently estimated to be $1.4 trillion; and that if this reform were adopted nationally there would be a $70-126 billion savings in health costs per year. He said he appreciates KMA's testimony and looks forward to hearing additional testimony—if it is aimed at resolving the issue rather than just protecting a particular industry.
Representative Marcotte said he is aware that doctors are leaving the state. He said that doctors were not given a voice in 1994 in the passage of HB 250, which turned out to be one of the most disastrous pieces of legislation ever passed by the General Assembly. He urged the Committee to heed the testimony of Dr. Swikert and Dr. Varga and said he would certainly support a constitutional amendment. He also referred to a recent editorial in Forbes magazine, "Texas Tackles Toxic Torts," concerning that state's efforts to reform the tort system. In closing, he said that probably 75-80 percent of his constituents feel that reform is needed.
Representative Larry Clark asked Dr. Swikert whether he has any data from PricewaterhouseCoopers regarding insurance companies' increased costs due to investment losses. Dr. Swikert said he does not but that he believes that percentage is small, since insurance companies are restricted from investing more than five percent in any one stock company, and the vast majority of their investments are in fixed income. He went on to say that for every premium dollar that insurance companies receive in Kentucky, they are paying out $1.53. It is not a stock market issue; rather, it is that verdict and settlement amounts are increasing. Representative Clark asked about the health plan that physicians established for themselves years ago. Dr. Swikert said the Kentucky Medical Insurance Company (KMIC) was formed by KMA in 1978 and served physicians well; however, the market was too small for the company to survive. It subsequently merged with other insurance companies and is now a Michigan company that still writes in Kentucky. Mr. Doll noted that additional information about KMIC is contained in a handout being distributed to the Committee, "Kentucky Medical Insurance Company – A Chronology." Representative Clark said he believes the only way to resolve the problem is to remove it from the political arena and said that doctors and lawyers need to work together to find a compromise. He expressed reluctance to blindly pass a constitutional amendment without knowing what would follow. He suggested that any vote for a constitutional amendment should be coupled with consideration of the issues that are involved and what statutes would need to be changed.
Representative Gray asked whether a "one payer" system, like that used in other industrial nations, could be a solution. Dr. Swikert said it would not, in his opinion, because without reform of the tort system for medical liability, there would still be the same unpredictable market, regardless of who pays. Representative Gray said he shares Representative Clark's concerns about blindly supporting a constitutional amendment. He asked that KMA provide the Committee with the following information for the past 10-year period: (1) total dollars paid out for medical liability insurance; (2) total dollars paid out to patients as a result of any litigation; (3) total dollars paid out to patients' attorneys as a result of litigation; and (4) total dollars paid out to attorneys defending the cases. He said he would also like to have a breakdown on allocation of medical malpractice premium dollars—that is, how much went to boards of directors, etc. He said this information should enable legislators to make an intelligent decision about whether to support a constitutional amendment. Mr. Doll said he is not sure the information is retrievable; however, he and Mr. Cooper said they would try to obtain it. Representative Geveden said that the information should be forwarded to committee staff.
Representative Geveden suggested that KMA should use regions, rather than counties, when determining which areas of the state are medically underserved. He pointed out that many counties are very small but their residents still have access to medical providers in other localities. He went on to say that what he is hearing from KMA is that the tort system is the cause of higher medical malpractice insurance rates. He countered that people would not turn to the legal system unless they have been injured by a doctor or a hospital. Dr. Swikert disagreed. He said that 70 percent of the lawsuits that are filed are dropped, and 80 percent of those that go to trial are found in favor of the physician. He said that the system rewards lawyers for taking cases in the hope that they can be settled, regardless of whether negligence was involved. Representative Geveden said that, as an attorney, he does not handle medical malpractice cases but, in his tort work, he would not take a case unless there is reasonable injury or a good chance of recovery.
Representative Geveden asked Dr. Varga whether he had statistics for the number of physicians who retire or leave the state specifically because of medical malpractice insurance. Dr. Varga said he did not have those figures but that for a large number of physicians—particularly in certain specialties—the professional liability climate is the cause. He conceded, however, that there are other reasons why physicians retire or leave.
Representative Geveden noted that under Rule 11 of the Kentucky Rules of Civil Procedure, attorneys who bring meritless lawsuits are subject to sanctions by the court and the Bar Association. He said that most lawyers he knows would not bring suit without a legitimate reason. Representative Stacy (later in the meeting) said he would like to know how many times Rule 11 has been invoked in Kentucky. Representative Geveden said he did not know but that he would have staff research this with the Kentucky Bar Association.
When Representative Harmon inquired, Mr. Doll explained that there is potentially an "incredible" length of time during which litigation can be initiated against a doctor for medical malpractice. Dr. Varga confirmed that doctors need to have insurance coverage beyond retirement, for that reason.
Representative Stacy said that he lives in a small community that has few physicians and is far from large hospitals and that he does not think it is relevant to use regions rather than counties when designating areas as medically underserved. He went on to say that communities that do not have "a piece of the economic development pie" will be relegated to a lower status and will not be able to compete and grow—that doctors and hospitals mean more to a small community than just medical care. There will be a day of reckoning in Kentucky—and in the General Assembly—because the state's health care system is extremely fragile. If medical malpractice insurance rates cause doctors to leave the state or hospitals to close, the percentages are irrelevant.
Representative Geveden thanked the KMA representatives for their testimony. He also asked them to provide committee staff with data to back up their testimony today. They agreed to do so.
Next to speak was Tyler Thompson, an attorney from Peewee Valley, Kentucky, representing the Kentucky Academy of Trial Attorneys. (A handout from KATA, which was provided prior to the meeting, was included in the meeting folders.) Mr. Thompson said his wife and brother are both practicing physicians and that he is speaking because he is concerned about the medical malpractice insurance problem. [Mr. Thompson referred to the June report by the Program Review and Investigations Committee staff on the issue of medical malpractice insurance, and Representative Geveden pointed out to him that the report is not up for discussion, since it was not adopted and is not an official LRC report.] Mr. Thompson said that caps on noneconomic damages do not have a significant relationship to medical malpractice insurance premiums. He pointed out that Weiss Ratings, Inc. reported [June 2003], "In 19 states that implemented caps during the 12-year period [1991-2002], physicians suffered a 48.2 percent jump in median premiums….However, surprisingly, in 32 states without caps, the pace of increase was actually somewhat slower…" Mr. Thompson said that, according to the Kentucky Trial Court Review, in 2002 there were only two medical negligence cases in Kentucky—one in Jefferson County and one in the Pennyrile area—in which the award exceeded $250,000 for noneconomic damages. He said that capping noneconomic damages would affect only the worst-injured segment of society.
Mr. Thompson said that KATA proposes other solutions to address the problem: repeal the anti-trust exemption for the insurance industry; require prior approval of rate changes; form new medical malpractice insurers with start-up loans from the state; and prohibit recoupment of investment losses through rate increases. He noted that the Kentucky Department of Insurance is requiring prior approval of rate changes and that it seems to be having some effect.
Mr. Thompson said it is the economy that has really spurred the problem. He said that insurance companies had been relying on investment income. When the stock and bond markets declined, they did not have adequate reserves and, as a result, increased premiums. He said a constitutional amendment is not needed. He also said that to assert that jury verdicts are increasing insurance premiums is misleading and that a review of Kentucky's insurance awards for the past 5-10 years will show that there is no relationship.
Senator Borders asked whether passing a constitutional amendment would, in itself, cap economic or noneconomic damages, establish peer review, or limit attorney fees. Mr. Thompson said it would not, but he said he feels it would be dangerous to tamper with guaranteed constitutional rights, one of which is "trial by jury." He believes each case should be decided on its own, rather than have a "cookie cutter" one-size-fits-all type of system that caps damages regardless of the extent of injury. Senator Borders added that, regardless of how Kentuckians feel about medical malpractice reform, without a constitutional amendment in place, the legislature cannot address the issue without fear of judicial intervention. He again emphasized that passing an amendment would only allow the legislature to begin debate and determine what changes, if any, need to be made.
Representative Wayne asked whether KMA wants to cap noneconomic damages at $250,000. Mr. Thompson said that is what KMA has proposed. Representative Wayne said he does not understand the correlation between noneconomic damages and increased premiums if there were only two cases in 2002 that exceeded that amount. Mr. Thompson said that is his point—and the point of others who have studied the issue. He said that caps on jury awards would not result in lower insurance premiums. What they would do is take away from the awards of the few who have horrendous injuries.
Representative Wayne asked whether the anti-trust exemption would make it difficult to obtain information about the insurance companies. Mr. Thompson responded affirmatively. He said it is his understanding that baseball and insurance companies are the only entities that are exempt from the Sherman Anti-Trust Act.
Representative Harmon, using punishment in criminal cases as an example, asked whether the amount of a medical injury award should be kept within a range, based on the seriousness and type of injury. Mr. Thompson expressed the opinion that this would not be feasible. Representative Harmon also spoke of the need for criteria for setting malpractice insurance premiums. Mr. Thompson said that a study by Americans for Insurance Reform [see KATA handout], indicates that awards have tracked the rates of medical inflation and states that "not only has there been no 'explosion' in medical malpractice payouts at any time during the last 30 years, but payments, in constant dollars, have been extremely stable and virtually flat since the mid-1980s." He said insurance executives themselves have said that they would not lower premiums because of caps on damages—and they have not in states that have capped damages. He referred to quotes on page 1 of KATA's handout. Donald Zuk, chief executive of Sepie Holdings, a leading malpractice insurer in California, said, "I don't like to hear insurance company executives say it's the tort system—it's self-inflected." The American Insurance Association said in a press release, "Insurers never promised that tort reform would achieve specific savings..." and Victor Schwartz, General Counsel of the American Tort Reform Association, has said that many tort reform advocates do not contend that restricting litigation will lower insurance rates and that he had never said that in 30 years.
Representative Crall said that Owensboro physicians who are licensed to practice in both Kentucky and Indiana have told him that their malpractice insurance premiums are appreciably lower in Indiana. He asked Mr. Thompson if he believes it would be legitimate to contrast what may ultimately be proposed in Kentucky with the actual experience in Indiana. Mr. Thompson said that Indiana has a different system. Doctors there not only pay a premium but also pay a surcharge to a state fund, which raises their premiums appreciably. He went on to say that Indiana is "a mess" and that he does not know of any doctors, defense lawyers, or plaintiff lawyers that like the system there. It is virtually impossible for someone who is catastrophically injured to get to court in Indiana, and it is virtually impossible for doctors to have their cases finalized because the review panel process takes about three years. Representative Crall said he does not see a lot of Indiana doctors moving to Kentucky but that people from Owensboro, Henderson, and other border communities are going to other states—particularly Indiana. He said it would seem to him that this gives Kentucky a body of experience by which to judge the proposals that have been discussed and will be discussed in the future. He added that he would like to see KATA do some earnest work on a comparative analysis of malpractice insurance for dual-licensed doctors. Mr. Thompson said that they will do that.
Senator Harris said it should be instructive for this Committee—or possibly the Banking & Insurance Committee—to devote a future meeting to hearing from representatives of the insurance industry.
Representative Geveden asked about the criteria that lawyers use for determining whether to take a malpractice case. Mr. Thompson said there is a three-step screening process: the lawyer reviews the case for merit; a doctor looks at whether the case involves substandard medical care; and a judge also screens the case. He said he is not aware of many frivolous medical malpractice lawsuits being filed, and he disagreed with an earlier statement that 70 percent of medical malpractice lawsuits that are filed are dismissed. He went on to say that his law firm accepts approximately one of every 25 cases and that the person must have been severely injured. Some people who have grounds for a lawsuit probably don't pursue it because of the expense of bringing a case to trial. Mr. Thompson also said he is aware of cases in which physicians have sued lawyers. Recently in Louisville a physician sued a lawyer who did not do a proper review before filing, and he was awarded about $8,000 in compensatory damages and $70,000 in punitive damages.
Senator Kerr spoke on behalf of women, especially those who are about to give birth and are, therefore, in a medically precarious position. She said she does not know all the solutions but would rather commit a "sin of commission" rather than a "sin of omission" by taking some positive step for the women of Kentucky. Mr. Thompson said he, too, is concerned that doctors be available when they are needed but said he believes that the argument that capping damages will cure the problem is horribly misplaced.
Representative Stacy suggested that a lawsuit against a doctor is less likely to go forward if the doctor has poor insurance coverage. He said that legislators need to decide whether they want to be influenced more by trial attorneys or by their constituents who need a secure health care system. Mr. Thompson said that whether a physician has insurance would not be learned until after a case is filed but that it could affect whether an insurance company is willing to settle the case; or if a doctor has a small amount of coverage and the patient is catastrophically injured, the insurance company might tender the policy limit at that point.
The next speaker was Senator Daniel Mongiardo. He made the following opening statement:
"Being the only practicing physician in the legislature, sometimes members come to me for my opinion on medical issues. It's a responsibility I take very seriously, so I spend a lot of time researching to make sure I'm giving sound advice. I have researched this issue for more than a year, and the overwhelming majority of medical data and independent studies conclude that caps will not solve the problem of rising malpractice premiums. [Brief reference here to the Program Review & Investigations staff report; Rep. Geveden explained that the report was not being discussed since it was not adopted.] A representative for the insurance industry has even said not to expect any reduction in premium rates if caps are adopted. Well, if they are not going to lower their rates for doctors if caps are adopted, what's the point?
Ladies and gentlemen, I submit that the issue is not about doctors. It is not about lawyers. It is about patients and their safety. There are two kinds of malpractice cases that arrive at the courthouse—one that has no merit—and, yes, we have to stop lawsuits that do not have merit—but we have a moral obligation to prevent the second type of case—and that is the one that has truly been injured by malpractice due to a preventable medical error. This second case arrives at the courthouse as a direct result of a failure of the current health care delivery system.
This issue is not 'caps versus no caps.' This issue is really about medical errors, for it is medical errors that are the root cause of medical malpractice and, by extension, medical malpractice lawsuits. And most errors are not individual doctor or nurse errors; they are errors of our current antiquated health care delivery system. Seventeen-year-old Jessica Sintillian, who received the wrong blood type heart, is a great example. Duke University—best doctors, best surgeons, best nurses, best hospital, perfect operation—however, Jessica died because of a failure of the health care delivery system.
If we can only tear ourselves away from the partisan politics of this issue, we can see that the answer lies not in eliminating jury awards for truly injured patients; rather, the answer lies in eliminating medical errors that result in malpractice cases and, more importantly, injury and death for patients. Preventable medical errors result in 44,000 to 100,000 deaths a year in the United States. Using the lower number of 44,000, medical errors are the eighth leading cause of death in the United States—6.5 percent of all hospital admissions will suffer preventable medical errors; 17 percent of these errors will result in death. If you are admitted to the hospital—regardless of your illness or injury—your chance of dying due to a preventable medical error is 1 in 200. To put it into better perspective, your chance of surviving helicopter glacier skiing is 50 times better than surviving a trip to the hospital due to preventable medical errors. Think about that for just a moment. Statistically, you are 50 times safer strapping a pair of skis to your feet and jumping out of a perfectly good helicopter and skiing down the side of a glacier than you are from being admitted to the hospital. Preventable medical errors lead to longer hospitalizations, permanent injury, and death, adding billions of dollars in unnecessary health care costs. Caps or no caps-—it is too simplistic a view that offers no hope in addressing the true problem and true cause of medical malpractice. If we only dare to do what we know to be right and resist the political pressure to do what we know to be wrong, we can not only solve the problems of rising malpractice insurance for Kentucky's doctors; we can go a long way toward improving patient safety, improving the quality of health care, and lower health care costs for Kentucky families and Kentucky businesses.
To truly address the issue requires a comprehensive approach. First, let's focus on preventable errors by increasing the implementation of information technology and establishing a Health Information System or E-Health Network. I know, I know—I've been pounding this drum for two years now, but just two months ago Health & Human Services Secretary Tommy Thompson announced new steps to form a National Health Information Infrastructure or a national E-Health Network. In recent weeks, the Majority Leader in the United States Senate, Bill Frist, has started touting a national E-Health system as a core solution to solving the many problems facing our health care system.
Second, establish medical review panels that are independent and fair, to reduce nonmeritorious malpractice cases. And I don't mean fair to doctors or fair to lawyers. I mean independent and fair to the injured patient, while eliminating cases that have no merit.
Third, establish a medical review board that conducts root cause analysis when medical errors occur and suggest changes that will reduce errors, improve safety and reduce cost. This can be done in conjunction with a fourth recommendation, which is, work with federal officials to establish a publicly funded research center for Patient Safety, Health Care Quality Improvement and Cost Reduction in partnership with the University of Louisville and the University of Kentucky Centers for Health Informatics. This could be Kentucky's first federal research center, attracting federal as well as private research dollars. I have already been working on this, and the U. K. and U. of L. partnership in this area is already well on its way. With the help and leadership of this body, we can lead the nation.
Fifth, create a system whereby doctors can report medical errors without fear that that information will be used against them in court. Lawyers won't like this, but there are other ways that attorneys can develop the information to prove an error occurred and whether that error resulted in malpractice. I am just saying that if doctors demonstrate the courage to report an error, his or her report should not be used against them in a court of law. Currently, only five percent of errors are reported; 95 percent of errors go unreported. Error research will lead to quality improvement and is a major key in this initiative.
Sixth, we need to offer doctors and medical providers a voluntary medical malpractice plan that limits total provider liability of $500,000, with a newly-created Patient Compensation Fund that covers any award exceeding the provider's initial $500,000 policy. In exchange, providers would be required to report errors and comply with patient safety improvement and health care cost reduction programs, as developed by the Federal Research Center for Health Informatics that I proposed a moment ago. Doctors, attorneys, insurance companies, and general fund dollars could fund this Patient Compensation Fund.
This comprehensive approach would solve the crisis with malpractice insurance premiums, reduce medical errors, improve patient safety, and reduce costs for the state as well as businesses, individuals, and families, so that such an investment can be publicly supported. In closing, as the only practicing physician in the General Assembly, I sympathize with my medical colleagues who cannot afford to continue paying rising malpractice insurance premiums. I'm one of them. Hundreds of doctors are struggling because of the escalating cost of malpractice premiums. I understand that. But where is the concern for the hundreds of thousands of Kentuckians who are struggling or have no health insurance because they can no longer afford their premiums? As an elected senator, I believe that to address the rising cost of malpractice insurance for doctors without also addressing the soaring cost of health insurance and skyrocketing prescription drug costs for Kentucky families and seniors is morally irresponsible. Instead, as a doctor, I believe we have a moral responsibility to our patients' health and safety first.”
Representative Feeley asked how "defensive" medicine—that is, doctors protecting themselves by overprescribing medication or tests—affects costs in the health care system. Senator Mongiardo said the research is clear that defensive medicine can account for up to 30 percent of the cost of health care. He said it is a misconception, however, that doctors practice defensive medicine because of insurance premiums. The true reason is that a doctor does not want "to see a lawyer," no matter what the cost, because that would mean that the doctor did not do his best for the patient. Representative Feeley asked whether effective peer review or independent review of cases before they reach the discovery or trial stage might help eliminate defensive medicine practices. Senator Mongiardo said that nonmeritorious cases must be stopped, because even the mere filing of a case results in defense costs. He said that in the future, due to automation and advances in information technology in health care, there will be more standardized health care, and this should eliminate a lot of defensive medicine, as well as improve the quality of health care.
When asked by Senator Borders, Senator Mongiardo agreed that passing a constitutional amendment would not prevent any of the changes he had just proposed. Senator Borders said he appreciates Senator Mongiardo's testimony, but he repeated that the aim of a constitutional amendment is not to cap noneconomic damages but to allow the legislature to look at what it can do to solve the problem. Senator Mongiardo said that previous legislation relating to medical malpractice was overturned because of technicalities and that he believes that the legislature can act to reduce malpractice premiums without a constitutional amendment. He went on to say he believes there could be bipartisan support for a constitutional amendment if the caps issue is taken off the table. His research shows that caps do not provide the answer. California passed caps in 1975, but between 1975 and 1988 malpractice premiums increased by 450 percent in that state—faster than the national average. It was not until other reforms were instituted in 1988 that premiums began to stabilize.
Senator Borders said he thinks the issue needs to be studied and put before the public so that they can make a decision. Senator Mongiardo said that, in his opinion, based on sound scientific medical research, caps do not work. He went on to say that a major part of the problem is a developing failure of the health care delivery system. Money for hospital reimbursements is being taken out by Medicare and Medicaid; and nurses are being layed off even though there is a nursing shortage. Frivolous lawsuits are a problem that needs to be attacked, but patient safety should be the first priority. Senator Borders said that keeping doctors in the state is key to patient protection, and he admonished against letting caps confuse the issue.
Senator Mongiardo again urged taking caps off the table. Regarding physician availability, he said there is a major problem if the patient cannot afford the care. He went on to say that businesses can no longer afford the cost of health care and are shifting the cost to employees, who also cannot afford the cost. The legislature needs to "wake up" and attack the problem instead of doing what is politically expedient. Catastrophic failure of the health care delivery system is looming. Senator Mongiardo said that patient safety is a moral obligation and important to him above all else.
Representative Geveden pointed out that the constitutional amendment proposed in Senate Bill 1 in the 2003 Regular Session would place the General Assembly in the position of limiting damages. He said he believes the legislature would probably approve a constitutional amendment if it did not affect Section 54 and applied only to Sections 241 and 14. He asked Senator Borders whether he could support that. Senator Borders said he does not see any reason to go for "part of the loaf" instead of the "full loaf." He said he trusts that the legislature will hear the will of the people and do the right thing in January—that they will allow the general public to consider a constitutional amendment which goes well beyond the issue of caps. Representative Geveden commented that the meeting today is informational and said it may be that many of the possible reforms can be accomplished without a constitutional amendment
Senator Harris asked whether medical review boards and panels can be established without a constitutional amendment. Senator Mongiardo said it would depend on how it is set up. He said it would be unconstitutional to give them total control over whether a case can be tried. However, they could be given the ability to declare whether a case has merit, and their decision could be used in court proceedings. He said much can be done right now, without amending the Constitution, and that it is expedient to act as soon as possible.
Representative Harmon said that Senator Mongiardo has some great ideas. He said that in the past it was common to share responsibility for medical mistakes, before doctors began to feel pressured to practice defensive medicine. He asked what can be done to enable medical providers to share responsibility for errors without fear of legal action—and whether it can be done without a constitutional amendment. Senator Mongiardo said that he understands that past legislation on this subject had been ruled unconstitutional because of a problem with the title of the Act. He said he believes it could be accomplished by passing legislation with the correct title and is fairly confident it would pass constitutional muster. He went on to say that 42 percent of Americans have experienced a medical error, either for themselves or family members—and 35 percent of physicians. It is a pervasive problem. The liability system in health care fails to improve quality because the focus is placed on individual nurses or doctors. Most errors are not by individuals but rather errors in the system. The legislature, by continuing to take funds from hospitals by reducing reimbursements, is contributing to the decline of the health care delivery system. When Representative Harmon asked about the Open Records Act, Representative Geveden explained that the open records laws do not apply to hospitals. Representative Harmon asked about the possibility of passing a constitutional amendment concurrently with other medical malpractice legislation. Senator Mongiardo said he thinks that is exactly what needs to be done, but he repeated his belief that the caps issue should be removed.
The next speakers were Sarah Nicholson, representing the Kentucky Hospital Association, and Danny Garrett, Administrator of the Knox County Hospital. Ms. Nicholson said that skyrocketing liability insurance is one of the main reasons patients are losing access to quality health care. She went on to say that the people of Kentucky deserve to have every option available that is working in other states that have addressed the medical liability insurance problem. Practically every state has passed some sort of reform, and this year Florida, Nevada, Oklahoma, Texas, and West Virginia have passed reforms. KHA is in favor of allowing the General Assembly to decide whether to go to the voters to see if they want to discuss it and allow reforms to be enacted in Kentucky. Ms. Nicholson said it is clear that a constitutional amendment is needed to allow peer review records to be discussed without being divulged and subject to lawsuits. She went on to say that the Kentucky Supreme Court has thrown out reforms enacted by Democratic legislatures and Governors in the 1970's and 1980's; however, other states have passed those reforms and they are working. Representative Geveden asked Ms. Nicholson whether she would provide committee staff with information and statistics about the reforms passed in other states, including how the reforms have affected medical malpractice insurance premiums and jury awards. Ms. Nicholson said she would be happy to.
Ms. Nicholson said she believes that 70 percent of medical malpractice cases do not result in an award, rather than 70 percent of medical malpractice cases are thrown out, as stated earlier. She also provided the Committee with a chart relating to premium growth in California, compiled by the National Association of Insurance Commissioners. She noted that the chart shows that the increase in medical malpractice insurance premiums in other states has been 505 percent since 1976 but in California was 167 percent. In closing, she said that hospitals are working to reduce the number of medical errors and that only a small percentage of hospital patients experience a medical error. She added that KHA wants anyone who is truly injured to be compensated.
Mr. Garrett, Administrator of the Knox County Hospital, Barbourville, Kentucky, said that there are about 20,000 emergency room visits to the hospital yearly, with 2,000 admissions. The hospital had been delivering 200 babies a year, but the four physicians who provided obstetrical services ceased delivering babies at the hospital in July because their malpractice insurance cost had increased by approximately 400 percent. He said that in one year there were 17 "precipitous" deliveries at the hospital, and he expressed concern for patients who now have to travel additional miles to reach a hospital. Since June five expectant mothers—including one at high risk—came to the emergency room but had to be sent elsewhere. The chief of staff is retiring because his malpractice insurance cost will be doubled. The emergency room physician group is going to charge the hospital an additional 40 percent for services in order to cover the increase in their malpractice insurance cost. At the same time, reimbursement for outpatient services is going to be cut by 40 percent, when it was already almost below cost. Mr. Garrett said he is here today to plead to the legislature to find a solution to the medical malpractice insurance problem—even if it requires a constitutional amendment. He asked not only for help for Knox County but also for all rural counties, so that they can continue to provide services and a high level of patient care.
Senator Worley said he was offended that Mr. Doll and Ms. Nicholson, as legislative agents, made references to partisan politics in their testimony. He said he would advise all concerned—particularly KMA and KHA—that it is inappropriate to do that. He went on to say that he is open to the issue and has conversations daily with the medical community. He commended the Co-Chairs for allowing the discussion to take place and said that meetings like this will help the legislature find the best solutions to probably the most significant issue that exists in Kentucky now—i.e., how to deal with the deteriorating medical infrastructure. Ms. Nicholson apologized to Senator Worley. (Just before the meeting concluded, Mr. Doll addressed the Committee to say that it has been his pleasure since the latter part of 1975 to deal with members of the General Assembly as a lawyer and as a lobbyist and that he has tried to do so in a forthright, above-board, and always truthful way. He said he is sorry that Senator Worley was offended by his remarks but that he only intended to demonstrate that there has been an ability to reach a consensus and to find common ground and that there historically has been bipartisan support in dealing with these kinds of issues.)
Representative Geveden thanked Ms. Nicholson and Mr. Garrett and said he hopes the Committee's work will help address problems affecting the hospitals. He advised the Committee that, for informational purposes, the folders include a report prepared by the Program Review & Investigations Committee staff and minutes of the meeting at which the report was discussed. He explained that the report was not adopted but is a matter of public record.
The final speaker was Janie Miller, Commissioner of the Department of Insurance. Ms. Miller opened by saying that under the Department's designated order the medical malpractice line became effective last January 15. She added that if the Committee would like to have information about rate filings, she would be glad to provide it.
Commissioner Miller discussed the status of the medical malpractice insurance market. She explained that the market is very tenuous and that rates are very high and increasing, although the rate of increase has stabilized. The rate filings that came in under the designated order show that, for the most part, regulation did have some effect. Two insurance companies—ProNational and OHIC—filed very large rate increases. Since they were above 25 percent, they were designated "prior approval" filings, subject to review by the Department, and a public hearing was held on those two increases. The Department felt that ProNational's 57 percent increase was not justified, and the Company withdrew the 57-percent filing and subsequently filed a 40-percent increase, which was ultimately approved. OHIC filed a 29 percent increase for physicians and surgeons and a 157 percent overall rate increase for facilities. After a hearing, the Department approved the 29 percent increase but not the 157 percent rate filing. The filings of eleven companies (total of 18 filings) were under 25 percent—most in the 14-15 percent range—and were allowed by law to go into effect.
Commissioner Miller said the situation of the market is still very tenuous with regard to the number of carriers and the fact that practitioners are still receiving rate increases. She said that 20-30 carriers have either indicated they have current business and/or filed rate increases. The market has access—it is affordability of premiums that is the problem. One carrier, Reciprocal of America, has gone into liquidation since the last legislative session. That company was domiciled in Virginia and wrote primarily hospitals in Kentucky.
Commissioner Miller explained that it has not been uncommon in times of a "hard market" for the market to seek alternatives. The most flexible and aggressive form is self-insurance. However, another alternative form—the captive insurer—is beginning to develop. A captive insurer is a company that is wholly owned by another—usually noninsurance—entity; it is solely the risk of its parent and affiliate, and the standards of regulation are somewhat lower. The advantage to the entity is the ability to tailor coverage specifically to risk. Any savings under that arrangement would accrue to the entity that is insuring its risk—not to the benefit of the insurance company. It increases the availability of coverage, is a mechanism to provide that coverage, and avoids some of the loads associated with traditional insurance products. Since the "captive" law went on the books in 2000, the Department has issued three licenses. Two of those are for medical malpractice coverages. The Kentucky Hospital Insurance Company, a risk retention group, will write for KHA member hospitals. Medcap Insurance Company, owned by a nursing home chain, will insure member nursing homes.
Commissioner Miller said the Department is in the process of working with a new medical malpractice carrier that will be formed as a reciprocal insurer—another example of the market seeking alternatives. She said she cannot discuss specifics because the application is now in process. She explained that "reciprocal" has been on the books for probably 100 years. It is an old method of managing risk and is similar to the old Lloyds plans, in that it consists of a group of insurers who act as subscribers. The concept is, "I insure you, and you insure me." The exchange of the contracts and the administrative function for that company are handled through an "attorney in fact"—which may be an individual corporation that actually administers the plan. Commissioner Miller said the Department is also in the process of talking with three other entities regarding formation of captives to insure their medical malpractice liability coverage.
Senator Blevins asked what is the approximate total premium for medical malpractice insurance in Kentucky. Commissioner Miller said that direct-written premium for 2002 was a little more than $124 million. She added that 90 percent of the premium in Kentucky was concentrated in 21 companies. Senator Blevins asked whether any of the companies are domiciled in Kentucky. Commissioner Miller said she would find that out for him. She noted that the two "captive" insurers she mentioned are domiciled in Kentucky.
Representative Pullin said she hopes the Committee will take advantage of Commissioner Miller's offer to make written information available regarding the monitoring of rates since January 15.
Commissioner Miller said that Mr. Thompson was technically correct when he spoke earlier about the anti-trust exemption but that he did not go far enough. She said the McCarron-Ferguson Act, a federal act that was passed either in the late 1800's or early 1900's, says that the business of insurance is not interstate commerce; therefore, it is within the purview of the state to regulate insurance. To repeal the exemption, as suggested, would in essence repeal the McCarron-Ferguson Act and make the business of regulating insurance a federal responsibility. Commissioner Miller said there is an exemption under the federal act but that every state she is aware of has passed anti-trust type statutes. She referred to Subtitle 12 of the Kentucky Insurance Code, 304.12.010 (unfair competition – unfair, deceptive practices prohibited), and 304.12.130 (curtailment of undefined practices), and said that there are plenty of statutes in the Insurance Code in Kentucky and every other state, so far as she is aware, that prohibit collusion or anti-competitive activity. Beyond the general powers given to the commissioner through the Insurance Code to investigate and enforce those laws, the Attorney General would have even broader powers to investigate issues of collusion.
Representative Barrows said he believes state regulation of insurance companies, based on the federal law, dates back to about 1929. He said that one might argue now that there are large national and international insurance companies that put some states at their mercy, which was the case in Kentucky's efforts at health insurance reform. He went on to say that he thinks that the state should be looking at the question of what information companies are required to provide when the state is trying to decide whether a rate request is appropriate. Some would argue that medical malpractice insurance rates are going up because of the awards; some say it is due to other losses by insurance companies. Doctors wonder why their premiums go up when they have never had a claim filed against them. Representative Barrows questioned whether the premiums doctors pay in Kentucky are based just on Kentucky experience or are helping to subsidize other states. He said that the Commonwealth, in its review of any insurance rate increase, probably does not yet have the tools necessary to make insurance companies provide all the information that is needed. He said he does not know if it is possible to answer whether companies are "gouging" Kentucky doctors to cover losses in other states or in their investments. Also, he said he does not think anyone believes that capping damages is the whole story. He feels that insurance companies have a lot to do with the problem, and they tend to not want to divulge much information. He suggested that it would be good for Commissioner Miller to come back before the Committee to discuss the process for establishing premiums. He also suggested that committee members' questions could be forwarded to her in advance.
Commissioner Miller said that consumers do not understand why their rates go up when they have not been a burden to the insurance system. She said that the whole process of insurance is the concept of pooling and that rates, overall, increase on the basis of total claims of the insurer. She said she would be glad to provide the Committee with all of the Department's available data reported by the carriers. She went on to say that data from carriers is the basis for financial oversight of all insurance companies in the country. While it may not be perfect, the Department, as regulator, has to depend on the financial information that is provided—e.g., amount of insurance written, premiums, market shares, claims experience, and direct defense cost. A national company, however, would not be required to report unallocated overhead expenses at the state level. Commissioner Miller said that if the Committee would like to design questions for the Department, they will do their best to provide the answers. Representative Geveden said he agrees with Representative Barrows that the information would be very useful to this Committee and to the General Assembly in the next legislative session.
Representative Geveden asked whether the "9/11" attack had affected medical malpractice insurance as well as property & casualty and automobile insurance. Commissioner Miller said it has. She said that reinsurance capacity in the country shrank dramatically after "9/11" because for the first time insurers realized that they had limited premium dollars covering unlimited exposure. Because of that both U. S. and foreign reinsurers immediately shrunk capacity. They are charging higher amounts for reinsurance, and primary insurers are probably getting less reinsurance coverage. She went on to say that losses in insurance companies' investment portfolios and increasing claims costs are also a factor. Not only medical malpractice but all lines of insurance have been affected. A June 2003 report by the Government Accounting Office ("Medical Malpractice Insurance: Multiple Factors Have Contributed to Increased Premium Rates") found in studying seven large states that multiple factors, including falling investment income and rising reinsurance costs, have contributed to recent increases in premium rates in medical malpractice. However, GAO found that losses on medical malpractice claims—which make up the largest part of insurers' costs—appear to be the primary driver of rate increases in the long run. Commissioner Miller said she would be glad to provide a copy of the report, and Representative Geveden asked her to forward it to committee staff.
Senator Robinson assumed the chair and asked for a report from the Task Force on Elections, Constitutional Amendments, and Intergovernmental Affairs. Senator Kerr, Co-chair of the Task Force, said that at their August 26 meeting they heard information on procedures for maintenance of voter registration lists and received an update on the transmission of death records from the Office of Vital Statistics to the State Board of Elections. She said the Task Force will not meet in September. The report was adopted without objection by voice vote.
Senator Robinson briefed members about the upcoming meetings scheduled for September 23 and 24 at Natural Bridge State Park and Irvine, Kentucky. Business concluded, and the meeting was adjourned at 4:30 p.m.