Statement by
Claude A. Allen
Deputy Secretary; Department of Health and Human Services
Addressing the New Health Care Crisis: Reforming the Medical Litigation System to Improve the Quality of Health Care
before the
The United States Senate Committee on Appropriations, Subcommittee on Labor, Health and Human Services and Education

March 13, 2003

Thank you very much, Chairman Specter, Senator Harkin, distinguished committee members, for calling this very important hearing, and for inviting me here to discuss the Bush Administration and Department of Health and Human Services' strong support for legislation that increases access to care for Americans by fixing the broken litigation system.

Before I begin, let me start out by thanking this committee for its leadership and vision on this important issue. Last year, the House passed its medical liability reform bill, however the Senate did not act. Mr. Chairman, the Administration looks forward to working with this Committee and other Senators to move a bill through the Senate this year.

On behalf of our President, I must report that there is today a threat to health care quality and access because of our badly broken litigation system that does more to reward trial lawyers than to help injured patients. This system is impairing access to care for all Americans.

The medical liability crisis is not about doctors or hospitals or insurance companies or even lawyers; it iss about patients. This crisis is threatening quality of care; it is threatening access to care for all Americans. Last, week our Department issued a report entitled: "Addressing the New Health Care Crisis: Reforming the Medical Litigation System to Improve the Quality of Health Care," which shows how problems associated with medical litigation have worsened significantly in this past year. Premiums charged to specialists in 18 states without reasonable limits on non-economic damages increased by 39% between 2000 and 2001. Premiums in these states have since gone up an additional 51%. In other words, they have almost doubled in two years. The report documents the spiraling cost of insurance for health care providers, which is impairing patients' access to care, as well as the cost and quality of care.

In states without reforms, physicians are leaving their practices for states with lower premiums, reducing their care for high-risk patients, or leaving the practice of medicine altogether. Hospitals and nursing homes also are finding it increasingly difficult to obtain insurance against lawsuits. As a result, patients in more states are facing greater difficulty in obtaining access to quality care and physicians.

Pregnant women in states like Nevada, Mississippi, Pennsylvania, West Virginia, and Florida have to drive hours to find an obstetrician who can care for them. Several states, like Vermont, Mississippi, Nevada, and Massachusetts have experienced an exodus of obstetricians from their state.

Trauma centers in several states have had to close because insurance carriers were not willing to offer malpractice liability insurance to doctors staffing it, or surgeons who were called in for cases could no longer afford to pay their malpractice insurance. Some of these doctors' premiums have increased from $40,000 to $200,000.

In Mississippi, doctors have moved across the river to Louisiana to serve the same Mississippi patients because they can no longer afford to practice there. Washington State has reported a thirty-one percent (31%) increase in the number of physicians moving out of state since 1998. The Massachusetts Medical Society reported that rising premiums in their state have forced many obstetricians to give up delivering babies. The Florida Medical Directors Association has reported that attending physicians have stopped seeing their patients in nursing homes in the last 12 months because of difficulty obtaining liability coverage.

Six of the largest nursing home companies have filed for bankruptcy in the past two years, largely because of the uncontrolled costs of medical liability premiums and tort related expenses. One-third of the nation's hospitals saw an increase of 100% or more in liability premiums in 2002, and over one-fourth of all hospitals have reported either a curtailment or complete discontinuation of some services as a result of growing liability premium expenses.

Physicians also are reacting to the threat of litigation by avoiding the specialties that present the greatest risk of a lawsuit. A recent survey of physicians revealed that one-third shied away from going into a particular specialty because they feared the liability exposure. Fear of liability forces physicians to engage in the practice of defensive medicine. The practice of defensive medicine, performing tests and providing treatments to protect themselves from the risk of possible litigation, is astounding. Seventy-nine percent (79%) of physicians admit that fear of litigation caused them to order more tests; Seventy-four percent (74%) refer more patients to specialists than they otherwise would. Fifty percent (50%) have recommended what they consider to be not-medically necessary procedures to confirm diagnoses because of litigation fears.

The litigation system attacks the wallets of every American. We have calculated that each American household is taxed over $1,200 to pay the costs of associated with defending frivolous lawsuits, jackpot jury awards, and the costs associated with defensive medicine.

At the same time, this crisis is being caused by a medical liability system that does not serve the interests of patients. Too many lawsuits that have no merit are filed against doctors. The unpredictability of our liability system encourages plaintiffs' attorneys to file frivolous cases, in the hope of receiving a very large verdict - a verdict that means a very large payday for the lawyer. Mega-million dollar "jackpot" jury awards for non-economic damages are a very real problem to our health care system. The health care system suffers because the awards siphon money out of the system. Future settlements are influenced because the "jackpot" awards create a benchmark for them. Between 1991 and 2001, the maximum payment reported to the National Practitioner Data Bank escalated from $5,300,000 to $20,700,000. The number of payments of $1 million or more reported to the National Practitioner Data Bank exploded in the past 7 years nationwide, from 298 in 1991 to 806 in 2002.

This crisis has also not been caused by losses from investment income. In fact, investments by medical malpractice companies have been conservative. Most states have laws that specifically limit the percentage of assets an insurance company can put in stocks. Over the last five years, the industry wide allocation of assets into equities has been relatively constant. Medical malpractice insurers' investments in equities as a percentage of total assets, as shown below, has been 11% or less. Neither asset allocation nor investment income correlates to, much less causes, the current medical malpractice crisis. Brown Brothers Harriman & Company analyzed the relationship between premiums and the change in investment yields among malpractice insurers. The results showed that the performance of the economy and interest rates do not determine medical malpractice premiums.

There is another attempt to shift the blame to insurers by asserting that they have engaged in anti-competitive practices. The National Association of Insurance Commissioners has reviewed this assertion and reported that "insurance regulators have not seen evidence that suggests medical malpractice insurers have engaged or are engaging in price fixing, bid rigging, or market allocation." Rather, the NAIC also says, "the preliminary evidences points to rising loss costs and defense costs associated with litigation as the principal drivers of medical malpractice [insurance] prices."

President Bush outlined a framework for addressing this national crisis. First, the President believes all those who are truly injured by medical care should receive swift, certain recovery of their full economic injuries. But for the sake of affordability and access, we need reasonable limits on non-economic damages, such as pain and suffering. While we grieve for the individuals who were injured, we also recognize that money obtained years later will do little or nothing to relieve the pain. The House of Representatives passed these reforms last September. We believe that was an important step in the right direction - and are encouraged that the Judiciary and Energy and Commerce Committees have forwarded H.R. 5 for a full vote in the House. I understand that the House is scheduled to vote on this important legislation this afternoon. We are committed to working with this committee, and other members of the Senate to bring these common sense reforms to all Americans.

Reasonable caps on non-economic damages result in lower medical liability costs and lower insurance premiums-increasing doctors', hospitals' and nursing homes' ability to stay in business, which leads to greater access to care. Everyone wins, except trial lawyers. We have estimated that if this reform were adopted nationally, it would save as much as $126 billion in health care costs this year. Of that amount, over $28 billion is taxpayers' money the Federal Government spends in Federal health care programs. The research is compelling that this type of reform works. Over the last two years, states with limits of $250,000 or $350,000 on non-economic damages have seen increases in premium quotes for specialists increase only 18%, but states without reasonable limits on non-economic damages, in states representing almost half of the entire United States population, have seen average increases of 45%. Since California instituted a reasonable cap on non-economic damages and other critical procedural reforms 25 years ago, liability premiums have increased by less than 1/3 as much as in the rest of the country.

The President has also called for reserving punitive damages in health care cases where there has been egregious misconduct. And he has called for several other key procedural reforms that would ensure that defendants pay their fair share-ensuring that cases are brought before they become stale and taking steps to make future payments are available when patients need them.

We are also encouraging states to consider other innovative ways to deal with the broken medical liability system. The Department of Health and Human Services is implementing a demonstration program, an "Early Offer Program", for rapid and fair settlement of claims made against the Department for claims of negligence by Indian Health Service and Health Center patients.

Our judicial system must also address medical errors. If we truly want a healthcare system where quality is valued, we should seek to change health care systems to reduce or avoid real medical errors before problems become injuries. Seminal studies have established that one of the best ways to improve health care quality is to provide better opportunities for health professionals to work together to identify errors, or practices that may lead to errors, and correct them. Many preventable errors and complications arise not from failures by individual doctors, but from systemic problems in our increasingly complex medical delivery system. In its report, To Err is Human, The Institute of Medicine acknowledged, "the common initial reaction when an error occurs is to find and blame someone… Preventing errors and improving safety for patients require a systems approach in order to modify the conditions that contribute to errors. The problem is not bad people; the problem is that the system needs to be made safer."

Providers need to be able to study how mistakes occur and how to prevent them. When they do, the results can be incredible. The doctors and hospitals of the Pittsburgh Regional Healthcare Initiative reduced blood infections in ICUs by 20% through collaborative work to identify safer ways to treat ICU patients. Anesthesiologists reduced dramatically the patient death rate from anesthesia administered during surgery, from two deaths per 10,000 anesthetics in the mid-1980s to about one death for every 200-300,000 anesthetics administered today.

How did the anesthesiologists do it? First, they acknowledged that a problem existed, and they shared information. They standardized anesthesia machines to ensure consistency in the delivery of drugs and also addressed issues of fatigue and sleep deprivation and changes in training. To give one example: an engineering researcher observed a number of anesthesiologists in operating rooms. The researcher noted that anesthesia machines were not standardized: Turning a dial clockwise on one machine decreased the concentration of anesthesia in some machines. In others, turning the dial clockwise increased the concentration of anesthesia. The research was publicized and manufacturers standardized anesthesia machines so that dials turned in a uniform direction.

Unfortunately, our tort system has set up roadblocks that discourage health care providers from participating in quality improvement efforts. Providers are reluctant to report information about adverse events or near misses out of fear that it will be used against them in a tort action and are reluctant to collaborate on solutions for fear of drawing up a road map for lawsuits.

Legislation in the last Congress would have given health professionals the ability to engage in quality and safety evaluation without fear of having the process or information used against them in court. The Administration supported these efforts, and has encouraged quick action this year. Just yesterday, the House passed H.R. 663, the Patient Safety and Quality Improvement Act. I would like to take this opportunity to applaud the House's quick action on this important issue. We look forward to working with this Committee and members of the Senate to secure passage of a similar bill and other proposals to help fix the medical liability system and improve access to care for all Americans.

Additionally, today Secretary Thompson is making a major patient safety announcement. FDA is proposing a new regulation that would require "bar codes" on all prescription and some over-the-counter drugs. Bar codes are symbols consisting of horizontal lines and spaces and are commonly seen on most consumer goods. In retail settings, bar codes identify the specific product and allow software to link the product to price and other sales- and inventory-related information. FDA's bar code rule would use bar codes to address an important public health concern - medication errors associated with drug products. FDA's regulation proposes to require bar codes on prescription drugs, over-the-counter drugs packaged for hospital use, and vaccines. The bar code would, at a minimum, contain the drug's National Drug Code number, which uniquely identifies the drug, its strength, and its dosage form.

The Institute of Medicine and other expert bodies have concluded that medical errors have substantial costs in lives, injuries, and wasted health care resources, and that misuse of drugs is a major component of those errors. FDA estimates that the bar code rule, once implemented, will result in a 50% increase in the interception of medication errors at the dispensing and administration stages. This will result in 413,000 fewer adverse events over the next 20 years. Some hospitals that currently have bar code systems in place report a substantially higher reduction in errors from bar code usage. This initiative is another example of the Administration's commitment to doing everything in our power to increase access to health care and enhance patient safety, both of which are among the President's and the Secretary's top priorities.

Thank you for giving me the opportunity to represent the Administration here today. In closing, let me stress that the Administration believes that doctors who practice bad medicine ought to be held accountable for their actions. But, a system that puts good doctors out of business is a broken system; a system that restricts patient access to physicians is a broken system; a system that encourages physicians to order excessive tests and procedures that places patients at great risk is a broken system. Needless litigation does incredible harm to our health care system. Our goal is to improve the quality of care, increase access to care, and reduce the costs. The litigation system is imperiling this effort. We should rely on doctors, not lawyers to improve our health care system. We need to fix this broken medical liability system now, and the reforms I just discussed are the first step. With good ideas, strong leadership through this committee, and much-needed reform, we can truly restore common sense to medical liability in America.

Thank you, Mr. Chairman, and Members of the Committee, for your commitment to this issue.

Last Revised: March 14, 2003