Legislature(1993 - 1994)
03/10/1994 03:00 PM HES
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE HEALTH, EDUCATION AND SOCIAL SERVICES STANDING COMMITTEE March 10, 1994 3:00 p.m. MEMBERS PRESENT Rep. Cynthia Toohey, Co-Chair Rep. Con Bunde, Co-Chair Rep. Al Vezey Rep. Pete Kott Rep. Harley Olberg Rep. Irene Nicholia MEMBERS ABSENT Rep. Gary Davis Rep. Bettye Davis Rep. Tom Brice COMMITTEE CALENDAR *HB 492: "An Act relating to medical malpractice actions; relating to sanctions against certain health care providers; amending Alaska Rules of Civil Procedure 8 and 83; repealing Alaska Rule of Civil Procedure 72.1 and providing for an effective date." HEARD AND HELD *HB 493: "An Act relating to health care providers and establishing the Medical Insurance Corporation; and providing for an effective date." HEARD AND HELD (* First public hearing.) WITNESS REGISTER ARTHUR SNOWDEN, Administrative Director Judicial Branch 303 K St. Anchorage, Alaska 99501-2084 Phone: (907) 264-0547 Position Statement: Testified on HB 492 and HB 493 DAN HENSLEY, Lawyer 1016 W. 6th Ave., Ste. 420 Anchorage, Alaska 99501 Phone: (907) 274-6551 Position Statement: Testified in support of HB 492 and HB 493 PREVIOUS ACTION BILL: HB 492 SHORT TITLE: CIVIL LIABILITY: MEDICAL MALPRACTICE SPONSOR(S): HEALTH, EDUCATION AND SOCIAL SERVICES BY REQUEST JRN-DATE JRN-PG ACTION 02/14/94 2380 (H) READ THE FIRST TIME/REFERRAL(S) 02/14/94 2380 (H) HES, JUDICIARY, FINANCE 03/10/94 (H) HES AT 03:00 PM CAPITOL 106 BILL: HB 493 SHORT TITLE: MEDICAL LIABILITY INSURANCE CORPORATION SPONSOR(S): HEALTH, EDUCATION AND SOCIAL SERVICES BY REQUEST JRN-DATE JRN-PG ACTION 02/14/94 2380 (H) READ THE FIRST TIME/REFERRAL(S) 02/14/94 2380 (H) HES, JUDICIARY, FINANCE 03/10/94 (H) HES AT 03:00 PM CAPITOL 106 ACTION NARRATIVE TAPE 94-43, SIDE A Number 000 CHAIR BUNDE called the meeting to order at 3:13 p.m., noted members present and announced the calendar. He brought HB 492 to the table. HB 492 - CIVIL LIABILITY: MEDICAL MALPRACTICE Number 036 ARTHUR SNOWDEN, Administrative Director, Judicial Branch, testified on HB 492. He stated that he only wanted to comment on Section 5, which provides for mandatory arbitration. He said the court system has a problem with the provision for a number of reasons. He asserted that there was no provisions for indigents who enter into arbitration and asked who would pay for them. He said if the court system is supposed to pay then it needs to be specified so an appropriate fiscal note can be attached. He then said "...nothing can really happen, if you read this arbitration section, after the answers filed, until somebody goes before an arbitrator, which happens to happen within 120 days. However, these arbitrators are not allowed to do... are not allowed to the discovery that's going to take place. So, I can't see any gain to have a voluntary, I mean mandatory, yet nonbinding arbitration. It adds one more step for the people, one more cost for the people. I would much more prefer to have voluntary binding arbitration, so we don't the case." MR. SNOWDEN felt that as the bill is written the arbitrator will not have a lot of information because much of the work will not have been done. He said he was unsure of how people can talk settlement if they haven't done all their discovery work. He then said, "That arbitrator is going to be called into court, has to be the first witness, which means he'll be deemed as a friend of the court, which means, first of all, an extra witness that has to be called in on the case. And, what are the parties going to do? The arbitrator is going to say I had to do this hearing in two days according to this legislation. I have limited answers and resources because of the numbers of interrogatories and so on and so forth. So, his value or her value is going to be very very limited because of a lot will have been extrapolated after that time." MR. SNOWDEN then stated that the courts are changing their discovery rules and there has been a change in federal procedure. He said it is the courts' intent to speed up the trial process. He said there would be a requirement that attorneys must turn over depositions and pertinent information automatically without having to request it from the court. He felt that when both sides have all the material, they can intellectually discuss settlement. He asserted that the legislation would add cost and time to the proceedings and that it would have little benefit to the overall product. Number 143 REP. VEZEY asked if the bill calls for mandatory arbitration that can be appealed. MR. SNOWDEN replied yes and it is nonbinding. REP. VEZEY said that nonbinding arbitration is another step in the adjudication process. He questioned if it would be practical for health care providers to put an arbitration clause in their health service contract. MR. SNOWDEN said that stock and bond companies practice that. He saw no reason why a health care provider could not provide a form that says a person must agree to binding arbitration. REP. VEZEY asked if there is a law against that. MR. SNOWDEN said he was unaware of any. Number 212 CHAIR BUNDE asked Mr. Snowden if there should be a fiscal note from the court system that allows for indigents who enter arbitration. MR. SNOWDEN responded that a fiscal note would be submitted if, indeed, financial provisions are drafted for indigents. He also said, "The problem I see with the note is we don't breakdown these types of cases. So, we'd have to look at torts as a category. Say a percentage of the torts are these types of cases and then ascribed another arbitrary percentage to people who are indigent. I'm willing to do that, I don't like putting speculative fiscal notes on bills." He said with or without a fiscal note the legislation still adds to the court process and the time it takes to have cases decided. He further stated that the Supreme Court may put into effect by June 1, 1994, a ruling that speeds up the process by using new discovery rules. Number 270 CHAIR BUNDE asked if the bill would be strengthened by the inclusion of binding arbitration. MR. SNOWDEN said he has no problems with binding arbitration. He said mandatory binding arbitration cannot be put in a bill. Voluntary arbitration can be put in a bill. He felt that anyone who goes into voluntary binding arbitration is going to settle the suit. He indicated that he is working with the Better Business Bureau, the Chamber of Commerce in Anchorage, and small businesses to encourage them to urge their members to agree to arbitrate disputes before going into court. Number 304 REP. VEZEY asked if an arbitrator has more discretion than a court of law. MR. SNOWDEN said yes, within certain confines the arbitrator can have the discretion agreed to by the parties before arbitration. He said for arbitration the rules of evidence can be relaxed and discussions are a lot more informal. He said there is much more flexibility in arbitration than in a court of law. REP. VEZEY said that he has trouble with nonbinding arbitration. For an arbitrator to do a good job, they have to take into account things which would all be subject to court appeals because they don't follow the rigid structure of the courts and they are not bound to the same rules. He said, "We would be harnessing the arbitration process with the same overhead burdens that the court system has. And, there would soon cease to be any advantage to arbitration." He said he would strongly support a provision that would provide for voluntary arbitration or even a clause that would allow health care providers to stipulate arbitration as a settlement vehicle within their contracts. Number 370 CHAIR BUNDE asked for further testimony from Dan Hensley. Number 372 DAN HENSLEY, Member, Trial Lawyers, testified in support of HB 492 and HB 493. He stated that HB 492 and HB 493 were introduced as a courtesy to the trial lawyers organization and thanked the committee for hearing the testimony. He gave a brief history of the legislation and indicated that it might lend perspective to the issue of arbitration. He said critics of the liability system focus on access to the court system, limiting access altogether, or reducing the amount of compensation an individual can recover. He said the legislation could address the problem areas. He addressed arbitration and said at times the process is too expensive and it takes too much time. He explained that people with small legitimate claims never get into the system because it is too costly to prosecute a case. He indicated that a study done on the New York malpractice system by Harvard reports that only one out of every eight people who are injured by "bad medicine" ever files a claim. Only half of those who do claim ever recover anything. He also said the more cost and expenses to litigation, the less the injured individual can recover. He further stated that Section 5 of HB 492 only applies to cases that values $200,000 or less. MR. HENSLEY said the reason for the proposal was to provide some type of forum for those individuals who have small claims. He explained that the purpose for the arbitration was not to supplant the entire liability litigation but to apply those smaller cases. He felt that both the federal and state courts have made great strides in the last 1-1/2 years in changing the rules to speed up the process and to make it more efficient. Number 575 CHAIR BUNDE asked Mr. Hensley if he had any suggestions regarding how indigents will be afforded the option of arbitration. MR. HENSLEY responded by saying that he felt parties should have to pay for the arbitration, not the court system. It is still cheaper for the person with a small claim to pay for arbitration than it is to pay for a case from the beginning to a "full blown jury trial." CHAIR BUNDE asked about the indigent that insists on being able to use the arbitration system. MR. HENSLEY said in a civil case the indigent person cannot insist on anything. CHAIR BUNDE said, "You're not anticipating growth in the public defender kind of...?" MR. HENSLEY interjected and said there is no law or precedence that requires that a person who is indigent be provided with arbitration. Number 607 REP. VEZEY asked if Mr. Hensley believed in nonbinding arbitration. MR. HENSLEY said yes. REP. VEZEY asked if Mr. Hensley believed that clients and providers have a right to enter into a contract that would call for arbitration for dispute resolution. MR. HENSLEY said currently a provider can request but not demand that a patient enter into voluntary arbitration. REP. VEZEY indicated that within in a contract it is no longer voluntary. MR. HENSLEY said there is a provision for voluntary arbitration. REP. VEZEY said once the person enters into the voluntary contract, it's no longer a voluntary procedure. MR. HENSLEY stated that "conditioning my right or the right of any citizen to obtain medical care, on that citizen's giving up his or her right to a jury trial..." REP. VEZEY asserted that Americans still have a choice as to which medical provider they would like to see, and said it is a free market in that regard. He said that as long as there is choice, it's a free competition system. MR. HENSLEY pointed out that the reason there is only one hospital in Fairbanks is because under the Certificate of Need Program it specifies that it must be evidenced that there is a need to have a second hospital before a competitor would even be allowed in Fairbanks. REP. VEZEY maintained that a large number of people go to Seattle and Minneapolis for their health care and that their travel expenses can be justified because treatment is considerably less costly. He further stated that the cost of arbitration is split evenly among the parties involved. The arbitrator can mandate that the party that does not prevail must pay the full cost. He said the arbitrator is a contractor. (Chair Bunde indicated for the record that Rep. Nicholia arrived at 3:32 p.m.) CHAIR BUNDE asked if Mr. Hensley preferred voluntary and opposed binding arbitration. MR. HENSLEY said he outright opposes binding arbitration because it would be difficult to uphold a statute which conditions people's rights to go to any physician or hospital and that it would be giving up a person's right to a jury trial. CHAIR BUNDE asked if there were any questions for Mr. Hensley pertaining to arbitration. There were none. He then asked Mr. Hensley to continue with his testimony. Number 712 MR. HENSLEY stated that another criticism of the liability system relates to defensive medicine that implies that doctors are looking over their shoulders because they are afraid they will be sued and subsequently they order more unnecessary medical tests to protect themselves from litigation. He asserted that all the blame should not rest on the liability system and indicated that there is ample studies that show that doctors who own their own X-ray machines order four times more X-rays than physicians who don't. He said that is just one of the many reasons that doctors request unnecessary tests. He further maintained that HB 492 and HB 493 would protect doctors from having to look over their shoulders. He also said the legislation provides for mandatory insurance for physicians and restricts an injured person from recovering anything beyond that which is available as insurance. MR. HENSLEY indicated that the liability system is also criticized because it currently contains no real deterrent for filing frivolous lawsuits. He referred to page 6 of HB 492 and explained that it is required that a lawyer must include with their malpractice filing a certificate from a qualified physician who is practicing in that area and is a subject of the lawsuit. He said the provision ensures that the lawyers do their homework before going to court. Number 730 MR. HENSLEY cited another significant criticism of the liability system is that there are some doctors (i.e., OB/GYN) that are not practicing or choosing not to do some high risk procedures because they can't afford the liability insurance. He questioned again whether the liability system is responsible. He mentioned that a Wall Street Journal article cited that the United States is graduating more doctors from medical school than ever before and referred it as a glut. He indicated that those graduating are specialists, not general practitioners that go to rural communities. Mr. Hensley stated that traditional tort reforms do not address the problem and the advocates of traditional tort reform suggest that those changes in the law might reduce liability insurance rates, but research indicates otherwise. He said a 10% reduction in insurance rates could not guarantee that there would be another doctor in Haines, Cordova or Valdez. MR. HENSLEY stated that the legislation requires mandatory insurance for all physicians and is similar to the Medical Indemnity Corporation of Alaska (MICA) organization which allows physicians to shop and pool and to have access to other insurance buying arrangements. Also, it would provide insurance at low rates in areas where there is no availability because of lack of insurance. He said no other tort reform addresses these concerns. MR. HENSLEY asserted that it was the goal of both proposals to address the criticisms of the liability system. He then suggested that he could give a section by section analysis of both HB 492 and HB 493 to underline what the provisions will accomplish. Number 875 CHAIR BUNDE said it was not his intention to move the bills out of committee as the HESS Co-Chair, Rep. Toohey, who was instrumental in having the bills drafted, was not yet present. He thanked Mr. Hensley for being proactive and part of the solution. He asked for a sectional analysis. MR. HENSLEY stated that it would help his presentation to address HB 493 first. HB 493 - MEDICAL LIABILITY INSURANCE CORPORATION Number 895 MR. HENSLEY indicated that Section 2 of HB 493 requires health care providers to have liability insurance. Section 3 establishes a state medical insurance corporation. He stated that the corporation is not a government agency, but is similar to the MICA agency and would ensure that the provisions of Section 2 are fulfilled. Number 925 CHAIR BUNDE indicated there was no fiscal note and suggested that the agency would be a quasi-state agency, nonprofit organization, that does not involve general funds. MR. HENSLEY stated that funds may be needed to establish the agency. He said the idea is that it will not be continually funded by the state. MR. HENSLEY further stated that the medical insurance corporation would have the authority to mandate that all health care providers carry insurance and would provide the insurance through the corporation through pooling arrangements, self-insurance, competitive bids, and other plans that would allow for the lowest possible rates. He also stated that within Section 3, subsection 6, there is a mechanism that provides insurance to those in limited areas where needed services are not being provided because of the lack of availability of insurance. (Chair Bunde indicated for the record that Rep. Toohey arrived at 3:45 p.m.) CHAIR BUNDE explained to Rep. Toohey that the committee was hearing the sectional analysis from Mr. Hensley on HB 492 and HB 493. He indicated that the focus of discussion was on page 4, subsection 6. He then noted that someone from the Department of Commerce and Economic Development was supposed to be at the meeting, but for whatever reason they did not attend. Number 995 MR. HENSLEY stated that Section 3 also establishes the maximum liability under mandatory insurance would be $5 million, and the amount includes catastrophic cases. He said regardless of the extent of the damages, $5 million would be the maximum that anyone person could recover. CHAIR BUNDE asked Mr. Hensley how the establishment of those guidelines will mesh with the current insurance system and insurance rates and if it will save money, cost money, or be a wash. MR. HENSLEY said he did not know the answer. He indicated that there are some aspects of the legislation that save money, citing the reduction of overlap in coverage and the increase of size in insurance pools that will subsequently increase bargaining power. He felt those aspects would work in favor of reducing costs. CHAIR BUNDE stated that the proposal includes not only physicians but all health care providers. MR. HENSLEY said the health care providers are defined in HB 492. He said HB 493 essentially establishes the organization and HB 492 allows for change in the liability system. MR. HENSLEY then began a sectional analysis on HB 492 and said he would skip the introductory section and start on page 4, subsection 4. He indicated that the section requires that a person cannot recover damages against a health care provider in excess of the insurance coverage. CHAIR BUNDE asked about the constitutionality of the state setting limits on what a person can recover. MR. HENSLEY explained that there have been Supreme Court cases around the country where caps on recovery have been litigated. He said some of the caps were upheld and some were thrown out. He said the lower the cap the more likely it will be thrown out, hence taking the decision-making function from the jury. He felt a $5 million cap has a substantially greater chance of passing muster than $500,000. He also said that a noneconomic cap of $500,000 is different from an overall cap on all recovery of $5 million. He said there are very few cases where there would be damages in excess of the overall cap. In some cases the economic loss -- lost wages -- might be the significant portion of the case, or the amount of medical care required over a lifetime of an injured infant. MR. HENSLEY further stated that Section 5 addresses mandatory arbitration. Number 128 CHAIR BUNDE noted that the arbitration within Section 5 is "mandatory nonbinding." REP. OLBERG said he assumed that mandatory arbitration is tied to the medical insurance corporation. A claim against a person insured by the medical insurance corporation is mandatorily arbitrated if it's less than $200,000. MR. HENSLEY said yes. TAPE 94-43, SIDE B Number 000 REP. OLBERG said the language says "an action against a health care provider..." MR. HENSLEY asserted that the defense of the health care provider and the insurance coverage for the provider is provided by the medical insurance corporation. REP. OLBERG said, "...the mandatory arbitration, now, makes a little bit of sense." MR. HENSLEY stated that there is criticism of the arbitration provision that alleges that the process is not very thorough, citing that claims would not be resolved and there would be an increase in cost and delays. He explained that the purpose of the arbitration is to allow for smaller claims, less than $200,000, to be heard. Number 063 REP. TOOHEY stated for the record that she has heard the testimony before and she would review the tapes of the meeting at a later date. MR. HENSLEY continued with his analysis. He indicated that Section 6 would offer measures that would decrease the amount of frivolous lawsuits. The provision requires a lawyer to attach a certificate of merit from a qualified health care provider to the lawsuit that says the case has merit. CHAIR BUNDE stated that Mr. Hensley had previously indicated that most all proficient lawyers currently practice that procedure and asked if it would serve any purpose to have two health care providers sign the certificate of merit. He supposed that a certificate of merit factory could be set up. MR. HENSLEY said that most medical malpractice lawyers are prepared before they file a lawsuit resulting from consultation from an expert. The intent of the provision is for the certificate of merit to encourage those lawyers who are not prepared to get prepared before they go to the court house. Number 162 CHAIR BUNDE said he was unsure as to how the provision would unclog the courts or would make recovery more efficient. MR. HENSLEY indicated that the provision was included to address the criticism that there are too many frivolous lawsuits. MR. HENSLEY further stated that another criticism of the liability system relates to an Alaskan Supreme Court case called Jackson vs. Power, which is a case where the Alaska Supreme Court held that if a hospital is required by law to have an emergency room, then the hospital should be responsible for negligence in the emergency room regardless of whether the services of the emergency room are contracted out. He related the scenario of a case where he represented the plaintiff in a case where there was negligence in the emergency room of the Fairbanks hospital. The patient was severely injured and lost both kidneys. When the patient went to seek compensation, he was told that it was not the hospital's responsibility, it was the emergency room's responsibility. He said the emergency room was known as Emergency Room, Incorporated and they did not have enough insurance coverage to pay for the medical coverage for the 18 year old boy. The Alaska Supreme Court then ruled that full service hospitals are required to have emergency rooms and that they should be responsible for any negligence in the emergency rooms. He further stated that one of the criticisms of that rule is that there is overlapping coverage, citing that the hospital has coverage and the contracted doctors in the emergency room have their own coverage. He pointed out that with the universally required insurance, there would be no overlap of insurance. Number 250 REP. TOOHEY asked if there is a contract between a hospital and the contracted emergency room that requires the emergency room to have a specific amount of liability. MR. HENSLEY responded that as a business practice the hospital can require anything they want but do require that the emergency room have insurance. He said the question is whether they require enough insurance. REP. TOOHEY said that is the problem. MR. HENSLEY suggested that the problem could be solved commercially by providing emergency room coverage through the hospital policy rather than having double coverage. He said he thought there may be other solutions than legislatively reversing a unanimous Alaska Supreme Court decision. REP. TOOHEY thanked Mr. Hensley for his answer. MR. HENSLEY thanked the committee for granting him the courtesy of introducing the legislation that is intended to be a proactive response to problems within the liability system. Number 314 CHAIR BUNDE indicated that the sweeping changes provided for in the proposals would necessitate continued discussion. He said he hoped to hear from the medical and insurance communities, as well as the Department of Commerce and Economic Development and the Division of Insurance. He said that he would appreciate their interpretation of the legislation. MR. HENSLEY thanked the committee again. CHAIR BUNDE thanked Mr. Hensley for striving to be part of the solution. Number 343 Seeing no further business before the committee, CHAIR BUNDE ADJOURNED the meeting at 4:04 p.m.