04/19/2005 01:00 PM House JUDICIARY
| Audio | Topic |
|---|---|
| Start | |
| HB92 | |
| SB67 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 67 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| = | HB 92 | ||
ALASKA STATE LEGISLATURE
HOUSE JUDICIARY STANDING COMMITTEE
April 19, 2005
1:27 p.m.
MEMBERS PRESENT
Representative Lesil McGuire, Chair
Representative Tom Anderson
Representative Nancy Dahlstrom
Representative Pete Kott
Representative Les Gara
Representative Max Gruenberg
MEMBERS ABSENT
Representative John Coghill
COMMITTEE CALENDAR
HOUSE BILL NO. 92
"An Act relating to the purchase of interests in corporations,
including limited liability companies, by the University of
Alaska."
- HEARD AND HELD
CS FOR SENATE BILL NO. 67(JUD)(efd fld)
"An Act relating to claims for personal injury or wrongful death
against health care providers."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 92
SHORT TITLE: UNIVERSITY OF ALASKA AND CORPORATIONS
SPONSOR(S): REPRESENTATIVE(S) KELLY
01/21/05 (H) READ THE FIRST TIME - REFERRALS
01/21/05 (H) EDU, HES
04/05/05 (H) EDU AT 11:00 AM CAPITOL 106
04/05/05 (H) Heard & Held
04/05/05 (H) MINUTE(EDU)
04/06/05 (H) HES REFERRAL WAIVED
04/06/05 (H) JUD REFERRAL ADDED AFTER EDU
04/07/05 (H) EDU AT 11:00 AM CAPITOL 106
04/07/05 (H) -- Meeting Canceled --
04/12/05 (H) EDU AT 11:00 AM CAPITOL 106
04/12/05 (H) Moved CSHB 92(EDU) Out of Committee
04/12/05 (H) MINUTE(EDU)
04/14/05 (H) EDU AT 11:00 AM CAPITOL 106
04/14/05 (H) -- Meeting Canceled --
04/18/05 (H) EDU RPT CS(EDU) NT 1DP 5NR
04/18/05 (H) DP: LYNN;
04/18/05 (H) NR: THOMAS, WILSON, GATTO, SALMON,
NEUMAN;
04/18/05 (H) JUD AT 1:00 PM CAPITOL 120
04/18/05 (H) Scheduled But Not Heard
04/19/05 (H) JUD AT 1:00 PM CAPITOL 120
BILL: SB 67
SHORT TITLE: CLAIMS AGAINST HEALTH CARE PROVIDERS
SPONSOR(S): SENATOR(S) SEEKINS
01/21/05 (S) READ THE FIRST TIME - REFERRALS
01/21/05 (S) L&C, JUD
02/08/05 (S) L&C AT 1:30 PM BELTZ 211
02/08/05 (S) Heard & Held
02/08/05 (S) MINUTE(L&C)
03/01/05 (S) L&C AT 1:30 PM BELTZ 211
03/01/05 (S) Moved SB 67 Out of Committee
03/01/05 (S) MINUTE(L&C)
03/02/05 (S) L&C RPT 3DP 1DNP
03/02/05 (S) DP: BUNDE, SEEKINS, STEVENS B
03/02/05 (S) DNP: ELLIS
03/08/05 (S) JUD AT 8:30 AM BUTROVICH 205
03/08/05 (S) Heard & Held
03/08/05 (S) MINUTE(JUD)
03/17/05 (S) JUD AT 8:30 AM BUTROVICH 205
03/17/05 (S) Heard & Held
03/17/05 (S) MINUTE(JUD)
03/22/05 (S) JUD AT 8:30 AM BUTROVICH 205
03/22/05 (S) Heard & Held
03/22/05 (S) MINUTE(JUD)
03/29/05 (S) JUD AT 10:30 AM BUTROVICH 205
03/29/05 (S) Moved CSSB 67(JUD) Out of Committee
03/29/05 (S) MINUTE(JUD)
03/29/05 (S) JUD RPT 2DP 1DNP 1NR 1AM
03/29/05 (S) DP: SEEKINS, HUGGINS
03/29/05 (S) DNP: FRENCH
03/29/05 (S) NR: THERRIAULT
03/29/05 (S) AM: GUESS
03/30/05 (S) CORRECTED JUD RPT W/CS SAME TITLE
04/13/05 (S) TRANSMITTED TO (H)
04/13/05 (S) VERSION: CSSB 67(JUD)(EFD FLD)
04/14/05 (H) READ THE FIRST TIME - REFERRALS
04/14/05 (H) JUD, FIN
04/19/05 (H) JUD AT 1:00 PM CAPITOL 120
WITNESS REGISTER
REPRESENTATIVE MIKE KELLY
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Sponsor of HB 92.
ROGER BRUNNER, General Counsel
University of Alaska
Fairbanks, Alaska
POSITION STATEMENT: Responded to questions during discussion of
HB 92.
MICHAEL HAUGEN, Executive Director
Alaska Physicians & Surgeons, Inc. (APS)
Anchorage, Alaska
POSITION STATEMENT: Testified in support of SB 67, and
responded to questions.
ROD BETIT, President
Alaska State Hospital and Nursing Home Association (ASHNHA)
Juneau, Alaska
POSITION STATEMENT: Testified in support of SB 67, and
responded to questions.
CATHY GIESSEL, M.S., FNP-CS (family nurse practitioner -
clinical specialist
Alaska Nurse Practitioner Association (ANPA)
Anchorage, Alaska
POSITION STATEMENT: Testified in support of SB 67, and
responded to a question.
DOUGLAS G. JOHNSON, Attorney
Alaska Academy Of Trial Lawyers (AATA)
Anchorage, Alaska
POSITION STATEMENT: Provided comments during discussion of SB
67 and responded to questions.
DONNA J. McCREADY, Attorney
Alaska Action Trust (AAT)
Anchorage, Alaska
POSITION STATEMENT: Provided comments during discussion of SB
67 and responded to questions.
PAUL L. DILLON, Attorney
Dillon & Findley, PC
Juneau, Alaska
POSITION STATEMENT: Provided comments during discussion of SB
67 and responded to questions.
PATRICK LUBY, Advocacy Director
AARP Alaska
Anchorage, Alaska
POSITION STATEMENT: Provided comments and suggestions during
discussion of SB 67.
KATHY DALE
Anchorage, Alaska
POSITION STATEMENT: Provided comments during discussion of SB
67, and asked the committee not to lower the existing caps
further.
GEORGE D. RHYNEER, M.D.
Anchorage, Alaska
POSITION STATEMENT: During discussion of SB 67, provided
comments and responded to questions.
ACTION NARRATIVE
CHAIR LESIL McGUIRE called the House Judiciary Standing
Committee meeting to order at 1:27:30 PM. Representatives
McGuire, Dahlstrom, Gruenberg, and Gara were present at the call
to order. Representatives Anderson and Kott arrived as the
meeting was in progress.
HB 92 - UNIVERSITY OF ALASKA AND CORPORATIONS
1:27:50 PM
CHAIR McGUIRE announced that the first order of business would
be committee substitute HOUSE BILL NO. 92, "An Act relating to
the purchase of interests in corporations, including limited
liability companies, by the University of Alaska." [Before the
committee was CSHB 92(EDU).]
1:28:12 PM
REPRESENTATIVE MIKE KELLY, Alaska State Legislature, sponsor,
explained that the University of Alaska has proven to be a
valuable tool in Alaska's economic development. With the goal
of allowing the university to continue to expand its vital role,
this legislation proposes a much needed change in Alaska's
corporate liability laws, and is intended to protect the
university from liability arising from the "piercing of the
corporate veil" concept. He said:
The "piercing of the corporate veil" concept is a
judicial process whereby the court will disregard the
usual immunity of corporate entities from liability
for wrongful corporate activities perpetrating fraud.
They can then impose personal liability on
stockholders, officers, and directors of the
corporation in the case of fraud or other wrongful
acts done in the name of the corporation. While this
is generally a sound policy, in the university context
the application of this theory has the unintended
consequences of discouraging university investment in
new corporate endeavors resulting from intellectual
property generated by faculty research.
The university cannot support various types of
economic development initiatives or associate with
public groups through nonprofit corporations ...
[with] the fear of liability under the piercing the
corporate veil theory, which is quite liberal in
Alaska. ... In one such immediate example, the
university rejected a 501(c)(3) nonprofit corporation,
which would have lead the business enterprise
institute, because of a potential corporate veil
liability. Likewise, the university has not been
supportive of faculty members with intellectual
property ... [for] start up corporations, recognizing
that if liability were incurred by such a corporation,
there would be a substantial risk that such liability
could pass to the university ..., [that it] could
become liable for the tort obligations of a corporate
entity it may start up, where the entity was not
adequately capitalized or insured. ...
Our intent with HB 92 is to specifically define a
university/corporate liability structure intended to
encourage new university investment in limited
liability and nonprofit corporations resulting from
research-generated intellectual property or companies
created and managed on university lands. ...
REPRESENTATIVE KELLY relayed that there are three different
approaches utilized by universities to "spin-off" companies.
The "hands-off" approach entails the faculty member developing
the business plan, acquiring venture capital, and paying start
up costs; the "hands-on" approach entails the university's
involvement in reviewing the faculty member's business plan,
helping acquire venture capital, and perhaps providing funding
for the venture; and the "up to your neck" approach entails the
university putting together the business management team or
providing a "business incubator," substantial funding, and other
start-up support. All three approaches would fall under the
purview of the University of Alaska Board of Regents.
REPRESENTATIVE KELLY said universities that handle "start-ups"
thoughtfully and well attract high energy, innovative faculty,
who in turn attract top-notch students. Students then often
tend to settle near the communities where they attended school.
Start-ups can provide training, "get grounds" for students and
valuable collaborators for university faculty, as well as
provide economic development opportunities. He relayed that the
president of the University [of Alaska] has increased funding
for research, and that it's the president's strong desire to
export that business to the community.
1:32:52 PM
ROGER BRUNNER, General Counsel, University of Alaska, offered
that he was available to answer questions.
REPRESENTATIVE GARA acknowledged that additional funding for the
university is needed. He related his belief, however, that the
"nub" of potential problems with this legislation resides on
page 1, line 14, which states that if the university obtains a
nonprofit corporation as part of an effort to obtain economic
activity or some other university purpose, the university
becomes part owner and therefore is not liable for the
obligations of the company, unless the university president
signs an agreement saying it is liable.
REPRESENTATIVE GARA said he has two concerns: the first is
regarding the purchase of a nonprofit that owes money throughout
the community, because the university will not be liable to pay
those obligations; second, after the university purchases an
interest in the nonprofit and the university garners debt
throughout the community, the university is still not liable.
Thus, the university could get all the benefits of a corporation
but not be obligated to pay the bills or incurred liability. He
noted that presumably in nonprofit corporations there are other
owners, so perhaps this legislation could include some provision
to ensure that those owners could not shirk their
responsibilities to the community. The aforementioned owners
could use [bonds or insurance] in order to be held accountable
for the [debt incurred].
REPRESENTATIVE KELLY concurred [that the aforementioned option]
does protect the university for incurred liability but it risks
changing the corporate structure that signifies it's a limited
liability arrangement.
1:36:41 PM
MR. BRUNNER relayed his understanding that the aforementioned
question is, how is it fair for the university to profit from a
nonprofit corporation without being liable for its debts. He
highlighted that nonprofit corporations are not allowed to
profit. Both the Alaska statutes and the Internal Revenue
Service (IRS) Code prohibit nonprofit corporations from
distributing their assets to members. He also offered his
belief that it's fair for the university to not be held liable
for the debts of a nonprofit because it's prohibited from
profiting and, therefore, the concern is unwarranted. In
response to a question, he said the university would be putting
up money to help the operation get off the ground, and noted
that the state has done something similar in setting up the
Alaska Railroad Corporation and the Alaska Energy Corporation.
CHAIR McGUIRE surmised that the university would be similar to a
silent partner or a passive capital investor.
MR. BRUNNER said HB 92 would allow the university to [invest in]
other entities and the state would be protected because if the
corporation fails it won't be possible to go against the state
general fund (GF) to collect debt.
REPRESENTATIVE GARA clarified that his concern centers around
whether it is fair for the university to receive the "benefit"
of being a part owner of a venture and not have the obligations
the nonprofit incurred. He added that most nonprofits aren't
generally given the right to not pay back debt incurred. He
said he is concerned about protecting the vendors and
contractors that a nonprofit owes.
MR. BRUNNER offered that corporate structures allow things to
start up and encourage further development by offering the
protections of a corporation. This legislation protects the
university by offering limited liability status for investment
[purposes]. He offered that corporate liability, in Alaska, has
become "broad in the courts" and this legislation ensures that
the university will receive the same treatment as other
corporations.
CHAIR McGUIRE noted that funding for things like the Alaska
Science and Technology Fund, and this leaves entrepreneurs with
great ideas without capital funds to invest. This legislation
says that it's fair not to pierce the corporate veil beyond the
amount of money that is invested, and therefore the public
policy issue of "unfairness" is outweighed by the greater public
good of allowing for investment, she said.
1:43:41 PM
REPRESENTATIVE GARA said that if the university wants to be
treated like any other owner of a corporation, then any other
corporate law would apply; however, this legislation is seeking
the exemption that the university isn't liable to pay debt that
other owners of corporations would have to pay. What, he asked,
is unfair about the current corporate veil rule, which applies
to any other corporate owner, that the university wants to be
exempted from.
MR. BRUNNER opined that the main difference is the size of the
"pocketbook," in that it is the university budget on the line.
"Piece the corporate veil and we can't afford that risk; [if we
had a] smaller pocketbook, one, we wouldn't be worried about so
much money and, two, we wouldn't have to worry because the
plaintiff wouldn't come after us," he added. It's the size of
the budget that requires the state to set up different
corporations that disclaim liability - so the GF is not on the
hook; otherwise, every time money owed isn't paid, the state
would get sued.
1:45:56 PM
REPRESENTATIVE GARA opined that in order to make an exception to
the corporate veil rule, [the committee] has to understand what
the rule is. He reiterated his understanding of what the
current rule is and why is it unfair.
REPRESENTATIVE GRUENBERG referred to the handout entitled in
part, "SPIN-OFF COMPANY MODELS FOR UNIVERSITIES:", which states,
"Typically universities that regularly enter into start-ups or
have ownership in other corporations use a research
foundation/corporation as the intermediary." He asked if the
aforementioned [intermediaries] serve as the vehicle for
insulating the university.
MR. BRUNNER said, "I don't know."
REPRESENTATIVE GRUENBERG asked that since this legislation
insulates the state from creditors or tort liability, could it
also provide protection in a vendor situation.
CHAIR McGUIRE relayed that CSHB 92(EDU) would be held over.
SB 67 - CLAIMS AGAINST HEALTH CARE PROVIDERS
1:48:18 PM
CHAIR McGUIRE announced that the final order of business would
be CS FOR SENATE BILL NO. 67(JUD)(efd fld), "An Act relating to
claims for personal injury or wrongful death against health care
providers."
1:48:47 PM
MICHAEL HAUGEN, Executive Director, Alaska Physicians &
Surgeons, Inc. (APS), said that the APS is in strong support of
SB 67. He referred to a statewide poll conducted March 8-10 by
a coalition calling itself Alaskans for Access to Health Care,
of which the APS is a member, and said that the poll indicated
that with regard to the question of medical liability reform, 64
percent of Alaskan "voters" were aware of the ongoing debate
about medical malpractice liability reform and the corresponding
increases in cost to physicians to obtain medical malpractice
insurance. He said that the poll also initially indicated that
approximately 60 percent of Alaskans are in favor of placing a
cap on non-economic damages in medical liability cases, but
after the poll then offered people six "facts" about the "state
of affairs" in Alaska, the number increased to 67 percent.
MR. HAUGEN offered his interpretation that those statistics mean
that "there is strong support for this proposition." The poll
also indicated that 72 percent of Alaskan "voters" feel that
health care providers are doing a good job in preventing medical
errors and promoting public safety; that 58 percent feel that
many or some physicians are performing additional tests or
procedures that are not necessary but are done to protect
physicians from "frivolous" lawsuits; that 48 percent feel that
some physicians have stopped providing high-risk medical
services, or are refusing to treat patients with serious
illnesses, in order to protect themselves from lawsuits. He
offered his understanding that those polled predominately said
that that they fear the medical malpractice insurance problem
will directly affect them in the form of higher healthcare
costs.
MR. HAUGEN offered that the poll has also indicated that 86
percent of those asked were "very or somewhat" concerned that
they will have to pay more for healthcare costs; that 72 percent
fear not being able to find a specialist when they need one;
that 66 percent fear not being able to find a doctor when they
need one; and that approximately 80 percent are concerned that
they may not be able to afford healthcare insurance. He offered
his understanding that others will testify that Alaska has a
shortage of physicians and ranks 46th in the nation in the
number of doctors per capita, and relayed his belief that those
states that have enacted what he termed "meaningful" non-
economic damage caps have seen, on average, "about a 12 percent
greater per capita number of doctors than those states that have
not." He concluded by urging the committee to support SB 67.
1:52:43 PM
REPRESENTATIVE GARA said he would not be making any decisions
based on a poll, but rather would be attempting to determine the
validity of the poll. He asked whether the poll posed the
question of whether one would be in favor of placing a cap on
non-economic damages.
MR. HAUGEN said the poll "started off with a series of more
general questions," but then asked whether one would favor a
cap.
REPRESENTATIVE GARA asked whether those taking the poll were
told that there already is a cap in place.
MR. HAUGEN said that those taking the poll were not told that
fact. In response to further questions, he indicated that
members' packets contain a copy of the questions asked by the
poll, and reiterated when the poll was conducted, who he was
speaking on behalf of, and his position with that organization.
1:55:42 PM
ROD BETIT, President, Alaska State Hospital and Nursing Home
Association (ASHNHA), said that the ASHNHA supports SB 67, and
noted that the ASHNHA's written comments are included in
members' packets. He said that the ASHNHA's membership supports
SB 67 primarily because of access issues; there is a growing
concern that more and more difficulties are being experienced
throughout the state in terms of physicians being available,
particularly for those that need specialists. "We think that
this bill will better balance the non-economic damage interest
entitlement of an individual with the larger community concern
of having enough physicians to meet everybody's medical needs,"
he added, opining that the bill will move Alaska closer to
having a medical liability "law" that would make "that" more
reasonable and fair. He offered his belief that SB 67 does
nothing to reduce economic damages or punitive damages that may
be awarded.
MR. BETIT said that the ASHNHA believes that Alaska needs to act
now because it feels that the literature regarding the lack of a
non-economic damages cap being linked with insurance premium
increases, and thus physician shortages, is compelling. In
addition to Alaska being 46th in the nation in the number of
doctors per capita, more and more physicians are limiting their
practice and the services they offer, he remarked, and opined
that such is due to malpractice liability as well as the cost of
providing "those other services." He offered an example of a
physician in Soldotna who limited his practice, and offered his
belief that this such is happening throughout the state.
MR. BETIT said that physicians are handicapped in that they
cannot simply increase their fees to offset costs, since
Medicare and Medicaid, which make up about 50 percent of the
"total healthcare system," will not recognize, and thus not pay,
such increases; additionally, some people cannot pay for medical
services at all, and are thus being provided with healthcare
services as a charity by physicians. He offered his
understanding that the uninsured rate for Alaska is
approximately 20 percent. Also of concern is Alaska's
population in comparison with the projected growth of physicians
in Alaska; he relayed that the ASHNHA's written comments contain
statistics detailing those percentages, read a few of those
statistics for the committee, and surmised that they reflect
that Alaska's population will be requiring more services by
specialty physicians.
MR. BETIT characterized the statistics the ASHNHA provided
regarding Alaska's projected physician growth rate, as compared
to the rate projected for the entire nation, into the year 2006
as worrisome, and read some of those statistics for the
committee. He stated, "We need more physicians and we need more
in certain specialties," and predicted that should the
statistics prove correct, Alaska's needs will not be met. He
summarized by saying:
We know we have a problem now. We know that it's
going to get worse because the population is going to
put increasing pressure on the physician community.
We know that two-thirds of the public spending ...
[on] Medicare/Medicaid is [for] services to the
elderly, that Medicare/Medicaid together represent 50
percent of total spending in this country - with very
little ability to recover any increased reimbursement
through those programs - yet these are the people who
are going to have very serious prolonged illnesses in
those programs that require a strong physician
community to treat [them]. So we think that this
increase in specialty physicians in those various
fields needs to be addressed, and that the only way
we're going to do that is [to] keep our physicians in
practice as long as possible - not having a medical
school in this state or ... large residency programs -
and by creating a fair medical liability environment
to attract new physicians from outside the state. For
those reasons, ... our membership strongly supports
this measure and encourages your support of it as
well.
2:03:54 PM
MR. BETIT, in response to a question, offered his understanding
that "Region X" encompasses Washington, Idaho, Oregon, and
Alaska.
REPRESENTATIVE GARA asked whether the statistics provided in the
ASHNHA's written comments were gathered before 1996.
MR. BETIT said yes.
REPRESENTATIVE GARA noted that he'd asked Legislative Legal and
Research Services to get him information regarding physician
growth in Alaska, and provided members with a copy of the
resulting legislative research report. He relayed that
according to that information, between 1996 and 2004, not
including "federal physicians," there has been nearly a 50
percent increase in the number of physicians in Alaska, and
surmised that this indicates that the statistics provided in the
ASHNHA's written comments are wrong. The legislative research
report indicates that in 2004, there were 3.54 physicians for
every 1,000 Alaskans, whereas in 1996, there were only 2.63
physicians for every 1,000 Alaskans.
MR. BETIT suggested that perhaps the legislative research report
includes all physicians that are licensed to practice in Alaska
but doesn't indicate how many of them are actually providing
services, whereas the information the ASHNHA provided reflects
only those physicians that are "employed."
REPRESENTATIVE GARA countered that the legislative research
report statistic includes only active state-licensed physicians.
2:07:22 PM
CATHY GIESSEL, M.S., FNP-CS (family nurse practitioner -
clinical specialist), Alaska Nurse Practitioner Association
(ANPA), after relaying that she is an advanced nurse
practitioner (ANP), said that the ANPA supports SB 67. She said
that the bill is important to nurse practitioners - of which
there are over 500 in Alaska, delivering primary health care
services and providing Alaskans with access to care - because of
the impact that liability insurance rates have on physicians.
More that 50 percent of nurse practitioners live and work in
rural Alaska, and malpractice insurance rates for nurse
practitioners have increased 30-50 percent annually over the
last two to three years and some premiums tripled for the year
2005.
MS. GIESSEL said that the insurance carriers for nurse
practitioners have warned that this trend will continue even
though a databank maintained in part by the Department of Health
and Human Services (DHHS) - the National Practitioner Data Bank-
Healthcare Integrity and Protection Data Bank (NPDB-HIPDB) -
reflects that over the last 15 years there have only been three
"license actions" in Alaska. Thus, nurse practitioners are not
making errors, are not being found liable in malpractice suits.
She posited that the increase in insurance rates for nurse
practitioners is a ripple effect of what is happening for
physicians' insurance rates, and so tort reform regarding this
issue is very important to nurse practitioners because they want
to continue offering their services to Alaskans. She concluded
by reiterating that the ANPA supports SB 67.
2:10:00 PM
REPRESENTATIVE GARA said he is skeptical that insurance
companies are going to either reduce or stop increasing premiums
if the legislature further limits the amount of damages people
are allowed to recover when they are harmed. He asked Ms.
Giessel if the liability judgments for nurse practitioners have
increased and are thus being used to justify increasing their
insurance rates. If the answer is no, why, then, would
affecting someone's ability to recover damages result in
insurance companies not increasing rates.
MS. GIESSEL said she did not think that SB 67 alone will result
in [a decrease] in malpractice insurance rates; instead it is
merely a piece of the solution to the increasing of malpractice
insurance rates as well as a piece of the solution to the cost
of and access to healthcare in Alaska. She said she has
information from the American Medical Association (AMA)
indicating that once a cap on malpractice claims was instituted
in Texas, it resulted in there being 14 insurance carriers
providing insurance in that state instead of just the 2 that did
so before the cap was instituted; additionally, insurance rates
dropped 12 percent after the first year, followed by another 5
percent decrease. She also said:
We know that California's rates are 40 percent lower
than Alaska's malpractice [insurance] rates. I
believe that part of the answer will be to hold
insurance companies accountable, after the institution
of a more rigid cap, to reduce those rates, because
they'll no longer have the validity for causing these
continuing increases. I don't feel that this is the
total answer, but it's a piece of the answer. And
doing nothing will certainly ensure that rates will
continue to climb.
2:12:19 PM
DOUGLAS G. JOHNSON, Attorney, Alaska Academy Of Trial Lawyers
(AATA), relayed that he would be speaking on the issue of the
appropriateness of the proposed cap on non-economic damages. He
said he is often called to speak to youth groups about how and
why laws are made, and so he speaks to them about personal
responsibility and about justice and fairness for everyone.
Therefore, he remarked, "I cannot harmonize this bill with those
principles." He went on to say:
You can't harmonize a bill that restricts the damages
that a person is entitled to receive, artificially
based on evidence that has nothing to do with the
facts of the specific case, and yet call it fair.
Personal responsibility means that if you break
something, you fix it, and it doesn't matter if it's
something that's less expensive or more expensive, you
take care of what you've done - you make it right.
This bill artificially shields people for creating
greater harm; it takes away their responsibility for
harm created.
This bill disproportionately affects people in our
state who have little to say in their representation -
the very young, children, [and] the very old, our
elders - [and] it disproportionately affects those who
have a subsistence lifestyle, because what it says is,
the only people who are entitled to be fully
compensated are those who have damages of economic
losses, but people who can't show large economic
losses are not entitled to full compensation for the
losses which they suffer. That is not fair and it's
not just and it is not appropriate to discriminate
against those folks.
This bill violates the right to trial by jury;
somehow, if passed, we would be saying that we do not
trust the citizens of this state to make correct
decisions on placing values on damages or harm done to
people through other people's mistakes. Now I
recognize that folks who are working on this bill are
trying to do good things - they have good purposes -
but I think they are severely mistaken in their
foundations upon which they base what they're trying
to do here.
MR. JOHNSON referred to material provided by the [Alaska Action
Trust (AAT)], and noted that statistically, whenever there has
been reform of the laws affecting the damages that someone can
receive, it is often heralded as something that's going to
reduce insurance premiums. However, until a few moments ago,
when he'd heard about the information pertaining to Texas, he'd
not heard of any instances in which a cap has ever actually
resulted in lower rates, he remarked, and added that he would be
researching the information pertaining to Texas further to see
if the cap truly did result in lower rates. In other states
that have adopted a cap similar to what is being proposed in SB
67, insurance premiums have not gone down.
MR. JOHNSON added:
There's been talk about the number of claims here, and
yet, statistically, by the Alaska State Medical Board
information, ... the amount paid out in total damages
... between 1993 and 2003, when adjusted for
inflation, has stayed exactly the same. And this is
for total damages. There has been no change, there
has been no rise, or dramatic rise, as we've heard
talk about. Basically, Madame [Chair], I cannot
harmonize this bill with the principles that I think
we all espouse as being just and appropriate and part
of what we are supposed to be about here. Thank you.
2:17:10 PM
CHAIR McGUIRE surmised that there are two different perspectives
on the issues being raised by the bill. With regard to the
issue of fairness, she said that she also has to look at the
fact that some people in smaller communities - such as elderly
men with heart problems, young adults suffering from head
injuries, and young women - don't have access to specialists
such as cardiologists or neurosurgeons or those physicians that
specialize in obstetrics and gynecology (OB/GYN).
MR. JOHNSON offered his belief that those with the need for such
specialists are the very people that the legislature ought to be
looking out for, that many of those types of people will suffer
disproportionately under the bill because they don't have an
earnings history and so won't be justly compensated should they
be harmed as a result of a physician's error. Such people will
suffer throughout the rest of their entire lives, but will not
be able to claim compensation for lost wages and will be limited
to only $250,000 for non-economic damages. He opined that it is
not appropriate to say that if harm happens within the medical
field that there should not be appropriate and just
compensation. With regard to the issue of OB/GYNs, he offered
his understanding that the number of such specialists in Alaska
has actually increased in the last two years.
MR. JOHNSON opined that reducing the amount of awards that
injured people can receive for full and just compensation will
do nothing to affect the number of doctors who practice in
Alaska.
CHAIR McGUIRE surmised that everyone has a responsibility to
address "the problem," and offered her understanding that once
the contingency fees charged by the trial lawyers representing
those with medical malpractice claims are deducted from the
awards, plaintiffs can end up being left with as little as 50
percent of such awards. She asked whether the trial lawyers in
such cases bear any responsibility.
MR. JOHNSON opined that the [trial lawyer] profession bears the
responsibility of doing everything it can to try to protect
injured people, noting that in order to do that, there have to
be trial lawyers who are willing to invest two or three years in
actively pursuing something for which there is a 50-50 chance or
less that they will ever have any compensation for it,
whatsoever, while at the same time investing their own funds to
make it happen. He added:
I think that absolutely the profession bears
responsibility to make sure that these innocent
victims are not left out - those who don't have a
voice right now, those who don't have many, many, many
dollars backing their activities here in Juneau. And
so, yes, absolutely, I agree ... we have a
responsibility to protect them, equally, along with
the rest of the citizens of the state.
CHAIR McGUIRE clarified that her question is whether the trial
lawyer profession bears any responsibility for looking for a
solution to the "crises we have right now, which is escalating
healthcare costs, escalating medical malpractice [insurance]
rates, decreasing number of specialists - particularly in areas
where we need them - and an escalating population base."
2:23:06 PM
MR. JOHNSON, in response, offered that when someone calls him
because he/she has been seriously injured as a result of some
sort of medical negligence, it has been difficult to find an
attorney in this state to which that person can be referred to,
because of the incredible difficulty of bringing a medical
malpractice claim. He predicted that if such attorneys had
their fees capped at a certain amount, then the only people that
would have access to appropriate legal representation would be
those that could pay by some means other than contingency fees.
In response to another question, he said that he is troubled by
the tremendous cost of pursuing such claims, adding, "The
defenses arrayed against those claims are huge, and the amount
of funds that they have to bring to bear to fight against those
claims is enormous and almost without bounds."
2:25:22 PM
REPRESENTATIVE GARA offered his belief that the amount that has
been paid for malpractice settlements and judgments is about the
same now as it was in 1993. However, insurance rates continue
to rise, he remarked, even though he doesn't think that there is
any evidence of escalating liability.
MR. JOHNSON, in response to a question, mentioned that non-
economic damages generally include things like the fact that one
has been severely disfigured, for example, or will live in pain
for the rest of his/her life. Non-economic damages can also
include the loss of one's ability to hug one's spouse, or enjoy
being with one's children, or hold a grandchild, or go hunting
and fishing - either for enjoyment or to provide for one's
family; non-economic damages are supposed to compensate a person
if those abilities are taken away.
2:28:25 PM
MR. JOHNSON offered the analogy of owning a painting that was of
great worth to a person individually but was perhaps originally
bought at a very low price. If that painting were to be
[destroyed], the recovery of the loss of that painting wouldn't
be just the cost of the glass that covered it or the frame
around it. In order to be fair and just the recovery would have
to include the value the painting had to the owner. The award
of non-economic damages is an attempt to put a dollar figure on
the suffering that people have incurred but for which an
economist can't testify regarding worth.
CHAIR McGUIRE pointed out, however, that in such situations,
where a person is severely disfigured or must live in pain for
the rest of his/her life, no amount of money in the world will
make it right.
MR. JOHNSON concurred, but noted that under the current system,
"under our constitution," money has to be put up to try and make
it right. "To say that it's tough to figure out how much that
is and so we aren't going to do it anymore is not correct," he
concluded.
REPRESENTATIVE ANDERSON offered his belief that everyone is
trying to find some common ground and a solution to "this." He
asked Mr. Johnson whether he thinks the current caps are fair or
whether he would prefer to have even higher caps.
MR. JOHNSON said his preference would be to leave it to the jury
to decide what a person's injuries and losses are, adding, "I
trust the citizens of this state, wherever they may be, to make
those decisions in their various communities, more than what we
can do here without any of the specific facts of a specific case
in front of us."
REPRESENTATIVE ANDERSON suggested that another part of a
possible solution might be instituting a cap on attorney fees.
2:32:16 PM
REPRESENTATIVE ANDERSON asked Mr. Johnson what he thinks would
serve as a solution.
MR. JOHNSON clarified that he did not say he agrees that there
is a problem; rather, he'd said he thinks that there are good
folks working on what they have perceived to be a problem, but
he himself considers the basis for the opinions espousing that
there is a problem to be false and that such can be shown
statistically.
2:33:24 PM
REPRESENTATIVE GRUENBERG asked whether "hedonistic damages" is a
term of art.
MR. JOHNSON relayed that he wouldn't be able to comment on that,
but said he would research the issue further.
REPRESENTATIVE GARA said he would provide Representative
Anderson with a memorandum by Legislative Legal and Research
Services which indicates that Alaska used to have a medical
insurance pool. He elaborated:
The last time there was a medical liability problem in
the state and there weren't enough insurers, the state
said, "Okay, we'll create a pool also." And roughly
half the physicians in the state bought into the state
pool, which actually made money for the state. It was
profitable enough that at some point it was purchased
by [NORCAL Mutual Insurance Company ("NORCAL"),
though] there was another problem with it the way it
was set up - there was a tax issue that you'd have to
work on.
REPRESENTATIVE GARA offered his belief that a wise way to go
would be to form a working group that would recreate a pool so
that doctors could buy liability insurance if, in the ebb and
flow of private insurers in this state, there were to be "a
bottoming out at some point." He offered his understanding that
the aforementioned pool lasted 10-15 years.
2:35:42 PM
CHAIR McGUIRE, in response to Representative Gruenberg's
question, relayed that Black's Law Dictionary defines "hedonic
damages" as:
Damages that attempt to compensate for the loss of the
pleasure of being alive. Such damages are not allowed
in most jurisdictions. Also termed (erroneously)
"hedonistic damages."
2:36:29 PM
DONNA J. McCREADY, Attorney, Alaska Action Trust (AAT), after
noting that she is also a member of the Alaska Academy of Trial
Lawyers (AATL) and that she has represented plaintiffs in some
medical malpractice cases, indicated that she agrees with Mr.
Johnson's comments, particularly with regard to personal
responsibility and justice. She noted that there already are
non-economic damages caps in Alaska: $400,000 for physical
injuries, and $1 million for "permanent, severe physical injury
or severe disfigurement." She said she is mystified over the
amount of energy, money, and resources being spent to further
lower Alaska's existing caps on non-economic damages.
MS. McCREADY offered her belief that the bill will not only
lower those caps for a citizen that is able to prove that he/she
has been seriously harmed by a physician's negligence, it will
also completely deny access to justice for certain groups of
people such as children, "stay-at-home moms," the elderly,
people who are retired or are near retirement, and Alaska
Natives living a subsistence lifestyle. This is because such
people are either not high wage earners or earn no wages at all.
Under the bill, regardless of how bad a physician's conduct is,
such groups of people are essentially cut off from the justice
system even if the physician is grossly negligent or reckless or
intentionally harms a patient.
MS. McCREADY explained that it is very difficult and expensive
to prove that a physician was grossly negligent or reckless or
intentionally harmed a patient. A plaintiff must hire expert
witnesses in the form of competent physicians - generally from
the Lower 48 - who practice in the same field of medicine, and a
plaintiff can't bring a case unless such witnesses agree that
the standard of care under the circumstances of a particular
case has been breached; the plaintiff must then prove that that
breach actually caused the harm, which must be serious harm.
She offered her belief that the public would agree that such
should be the case, that a plaintiff should have to prove that a
physician's conduct was bad enough to cause harm, that it
shouldn't be easy to bring a malpractice case, that it should
involve some risk. The risk currently faced in Alaska by a
plaintiff is that if he/she is not the prevailing party, there
could be judgment against him/her, and he/she could end up owing
costs and [attorney fees] to the prevailing party.
MS. McCREADY relayed that according to information she'd
compiled for the legislature last year, doctors are not shy
about getting judgments against their patients who have sued
them but not prevailed. Reiterating that there is a lot of risk
involved in bringing a medical malpractice case to court, she
offered her belief that this is the reason that very few
attorneys are willing to represent plaintiffs in such cases.
She said that if the cap proposed in SB 67 passes, there will be
a number of people that she simply could not represent because
it wouldn't make any sense, economically, for them to pursue
their cases.
MS. McCREADY, on the issue of attorney fees, she relayed that
those that come to her [with a medical malpractice suit]
generally don't have a lot of economic resources, and so when
she takes on that type of case, it ends up being a big
investment, monetarily and time-wise, for her firm.
Additionally, she might spend a lot of her own money on a case
and then realize that she can't continue it because either they
won't prevail or the client finally decides that he/she doesn't
want to take on the risk; she would then be out whatever money
and time she had spent. She relayed that her fee agreements are
generally one-third [of an award] plus costs, but that she
compromises her fee in certain circumstances because she really
is interested in doing what is fair; at the same time, however,
given the amount of time and money she puts into such cases, it
is not unfair for her to be compensated for the work she does.
MS. McCREADY added:
I'm really operating as a private attorney general -
people come to me ... [but] I can't afford to just
take cases just because ... somebody thinks they ...
[are] good. They really have to be cases where people
are really seriously injured and the conduct on the
part of the medical professional is really quite
serious. So I view myself as a private attorney
general. I think that if doctors realized how much
time I spend explaining to people who think they've
been harmed by negligence that maybe they really
weren't, they might be surprised by that. I spend a
lot of time educating the population, [explaining
that] it's really not appropriate to sue your
physician just because you think that you were harmed,
[that] you really have to prove that somebody did
something wrong, [that] it's not good enough to have a
bad outcome.
2:43:49 PM
MS. McCREADY also pointed out that just like doctors, lawyers
also have to deal with insurance companies and the rising costs
of premiums, and opined that there is absolutely no connection
between payouts in malpractice cases and healthcare provider
insurance premiums. The insurance industry is subject to
cycles, and the big increases in premiums that every industry is
presently being subjected to are a result of the insurance
industry attempting to recoup its losses due to bad or
unfruitful investments in the [stock] market. Referring to some
of Representative Gara's comments, she added that in the 1970s,
the Medical Indemnity Corporation of Alaska (MICA), by allowing
physicians to self insure, successfully served as a solution to
the problem of a lack of insurance carriers willing to
underwrite medical malpractice insurance in Alaska. She
suggested that something similar could be used to address the
issue of rising insurance premiums.
MS. McCREADY predicted that under SB 67, large groups of people
are not going to have access to the court system no matter how
badly they are harmed by the conduct of a physician and no
matter how bad the conduct of the physician is. She asked the
committee to consider who will benefit from the adoption of SB
67. It will not be healthcare providers and it will not be
Alaskan citizens; the only ones who will benefit from the
passage of SB 67 will be the insurance companies.
REPRESENTATIVE GRUENBERG mentioned that in the past, were
someone to bring a lawsuit but lose, he/she could file
bankruptcy to escape having to pay the award of attorney fees;
as a result of the new bankruptcy law, however, this can no
longer be done as easily. He asked Ms. McCready to comment on
this issue.
[Chair McGuire turned the gavel over to Representative
Anderson.]
MS. McCREADY offered her understanding that the new bankruptcy
law radically changes the existing bankruptcy system, and so the
discharging of certain debts will no longer be allowed. She
opined that if frivolous medical malpractice lawsuits really are
being filed, then they probably are not being filed through
attorneys with experience doing medical malpractice lawsuits.
She posited that if such lawsuits are being filed, they are
probably being brought pro se; such lawsuits won't stay in court
for very long and those filing the lawsuits, because they don't
have an attorney and thus have no one giving them accurate legal
advice, probably won't know that they are subject to the fees
provided for in Rule 82 of the Alaska Rules of Civil Procedure.
MS. McCREADY suggested that under the new bankruptcy law, many
people will be so chilled by Rule 82 that they won't bring a
suit to trial because of the fear that they will lose what
little resources they have. She pointed out that people who
come to her for help in medical malpractice suits aren't the
type of people that would rely on being able to file bankruptcy
should a judgment go against them - bankruptcy isn't something
they would take on lightly.
2:50:16 PM
REPRESENTATIVE GRUENBERG, on the issue of plaintiff attorneys
acting as little attorneys general, offered his understanding
that if a physician has a number of successful medical
malpractice suits brought against him/her, such can be used as
evidence before the Alaska State Medical Board when it is in the
process of determining whether to take disciplinary action
against a physician's medical license. He posited that the
compilation of such evidence can then save the state
considerable money in the board's investigatory process.
MS. McCREADY confirmed that point, but noted that when a lawsuit
is brought against a physician, that one lawsuit by itself won't
directly affect that physician's license. However, because of
the resources spent in investigating a particular claim, certain
practices of that healthcare provider and/or his/her institution
that ought to be examined may be brought to light, and so the
results of that investigation can certainly save the state money
and provide it important information.
REPRESENTATIVE GRUENBERG asked whether doctors are required to
carry medical malpractice insurance.
MS. McCREADY said no.
2:53:10 PM
REPRESENTATIVE GRUENBERG opined that if the insurance industry
"did a little policing," it could solve the problem.
2:53:46 PM
[Representative Anderson returned the gavel to Chair McGuire.]
PAUL L. DILLON, Attorney, Dillon & Findley, PC, relayed that his
firm does medical malpractice litigation in its Anchorage office
and across the state, and its attorneys [specialize in] a
variety of practices; he, for example, specializes in insurance
litigation and represents insureds against insurance companies.
With regard to the question of whether there is a crisis, he
noted that according to material put out by the Division Of
Insurance, it doesn't think that there is a crises at this
point. For the last three years the Division of Insurance has
studied, as part of the tort reform Act, the effects of tort
reform with the caps at $400,000. Those yearly reports clearly
indicate that at least as far as insurance carriers are
concerned, there isn't a problem. Alaska is a small market and
therefore has problems similar to some other western states
[with small populations].
MR. DILLON predicted that in so far as the availability of
insurance and the affordability of it, should any of the
physicians that come before the committee be asked, they would
testify that insurance is available to them and that they can
afford it, given their practice. He went on to say:
Let's set the stage here, folks. We're talking about
physicians who are making six to seven figures every
year. ... That means hundreds of thousands [of
dollars] or potentially a million [dollars] or more in
this state. Now what we're also talking about on the
other end of this equation, in terms of ... who you're
affecting by this bill, you're talking: kids, moms,
and the elderly. Now I'm sorry if you've got a
problem with [the fees charged by] lawyers or trial
lawyers, but kids, moms, and the elderly aren't going
to come and testify before you. So who's going to
protect them if you don't.
MR. DILLON, on the issue of caps for non-economic damages,
offered:
There is no linkage in the question of premiums and
caps. ... We heard from the nurses today indicating a
study in Texas; I can show you the latest information,
... that came out March 10 from the state of Texas,
wherein they analyzed their tort reform efforts and
found that there is no linkage between caps and
premiums. ... In an equal and interesting report from
the state of Washington, in March, they also have done
a review of the question of premiums and caps.
Interestingly enough, what that produced was a rebate
of millions of dollars, by the insurance company, to
... the doctors because the insurance companies were
overcharging in the state of Washington for premiums.
[It] might be interesting to take a look at that, but
you don't need to go out of this state; you have a
very effective Division of Insurance, in the context
of the production of the data and the information
that's available to you, and I would hope, strongly,
that you would take the opportunity to take a look at
it.
And ... certainly don't rely on me ... - call in your
Division of Insurance, call in the people that have
the statistics and the information that set the stage
and maybe even provide an answer or two to you. ...
The chair asked about, what is a solution. The MICA
situation is one that this state studied; it was a
model, it was successful, and indeed it was sold to
NORCAL, ... [which has] essentially 80 percent of your
insurance market for the medical malpractice
situation. So, from the perspective of caps, I don't
think that there's going to be an issue between caps
and premiums. That isn't to say that there is not a
problem, Madame Chairman. Insurance is a problem and
you are wrestling with it in [regard to] workers'
compensation, [and] you are wrestling with it in
[regard to] doctors, ... lawyers, architects,
engineers; you are in a small market situation and
that is a very tough market.
The facts of life are that ... 600,000 people does not
make a lot of money for the "majors" - majors being
the major insurance companies. So that's a fact - ...
they could go to Cleveland and make more money than
they make in the state of Alaska. Although I want you
to know that your Division of Insurance is reporting
that the insurance companies are making a lot of money
here, and that's reported; I can show you those
volumes ... and you should just take a minute to thumb
through [them] because ... in 10 minutes you can see
what their profits are and ... what kind of insurance
their offering. And it's broken out by segments in
the insurance industry, and one of those segments is
medical malpractice.
3:00:13 PM
MR. DILLON, on the issue of whether there is a crises in terms
of [the number of doctors practicing], offered his belief that
there is a national crisis brewing, that according to reports
regarding decisions made in the 1980s, it looks like there is
going to be a national doctor shortage because of the way that
medical schools "pushed out the doctors, or didn't push out the
doctors in the '80s." He opined that doctors, if they want a
big practice, will look at working in places like Houston, Los
Angeles, and the big medical centers where "they can tie onto
their careers and become the next leading [surgeons]."
Therefore, one of the factors to keep in mind is that the state
of Alaska has a small population and so it will be difficult to
attract professionals whether they be doctors, lawyers, or
engineers and architects.
MR. DILLON opined that although Alaska has fine physicians
practicing in the state, the lack of neurosurgeons in some
Alaskan communities - for example, Juneau - is just a fact of
life for those who live here, that passage of SB 67 will not
result in a neurosurgeon setting up practice in Juneau. He
strongly suggested that the committee consider alternatives to
the bill, such as perhaps creating an insurance company, or at
least studying the feasibility of it, before putting Alaska's
doctors against Alaska's victims.
MR. DILLON relayed that according to information he is familiar
with, doctors themselves have testified that approximately
98,000 people a year die as a result of medical malpractice,
that one out three doctors say they or their family members have
been the victims of preventable malpractice error, and that
approximately 10 percent had some relationship to a family
member who died. "Why would this legislature want to pit good
doctors, who are trying to earn a living - albeit a very rich
living - against the people who are the subject of their
errors," he asked, and opined that there is not a professional
in Alaska, be it a doctor or a lawyer, that once an error is
made, won't own up to a mistake and make amends to the subject
of that mistake.
3:04:55 PM
CHAIR McGUIRE relayed that when she was recently in Washington
D.C., U.S. Senator Lisa Murkowski spoke to her of a woman from
Alaska who is finishing up her medical residency and who told
the Senator that she and her husband want to go home to Alaska
and set up practices but won't because of the liability issue in
Alaska. Chair McGuire relayed that the committee has looked at
various surveys that indicate that medical students are looking
at such issues when deciding where they want to set up practice.
3:06:50 PM
MR. DILLON, noting that Alaska already has caps on non-economic
damage awards, opined that they don't affect liability one way
or the other. The bill will simply make it impossible, for a
select number of Alaskans, to get any form of recovery at all
from the insurance industry because those Alaskans won't be able
to afford [pursuing a claim]. With regard to the aforementioned
soon-to-be physician that Chair McGuire said she'd heard U.S.
Senator Lisa Murkowski speak of, he remarked, "The bottom line
is, if she thinks that the liability here is going to be any
different, in terms of the rules of evidence or the court
procedure, she's wrong - flat wrong."
3:07:34 PM
MR. DILLON, in response to a question, clarified that after the
director of Washington's Division of Insurance had the division
review the "medical malpractice issue" in the state of
Washington, insurance companies were required to issue a rebate
to doctors because they'd been overcharging the doctors for
insurance coverage. He offered his belief that Alaska's
Division of Insurance has the authority to do something similar.
REPRESENTATIVE GARA asked Mr. Dillon to submit any information
he has from the Division of Insurance that he thinks might be
helpful to the committee.
MR. DILLON agreed to do so, and suggested that the committee
could also ask the Division of Insurance to testify.
REPRESENTATIVE GARA noted that Alaska doesn't have [medical]
residencies to the same extent that states with medical schools
do, and that a fair number of doctors tend to practice where
they do their residencies or where they attend medical school.
He offered his belief that in addition to creating an insurance
pool, the legislature should fund the Washington, Wyoming,
Alaska, Montana, Idaho Medical Education Program (WWAMI) program
more and do anything else it can to increase the number of
residencies available in Alaska.
3:10:42 PM
MR. DILLON pointed out that the aspect of competitiveness in the
medical field is another issue to consider; there will be a
limit to the number of physicians that small population centers
can support, since the economic pie can only be sliced just so
thin.
REPRESENTATIVE ANDERSON again raised the issue of placing a cap
on attorney fees.
MR. DILLON opined that doing so would at least present the
legislature with a clear target, adding, "If you want to go
after the lawyers, go after the lawyers, but don't go after the
kids and the moms and the elderly." In response to a comment,
he said:
I'm not going after bad physicians here. I'm not
going after bad insurance companies. Everybody has
their place here. Everybody's pursuing their
occupation in their chosen profession. What I'm
talking about is the effect of what this body is doing
on Alaskans.
MR. DILLON, in response to a question of whether he would
support a cap on attorney fees, noted that that debate has been
going on for about 15 years, and suggested that under certain
circumstances, the issue of contingency fees is definitely open
for debate. But that is not the issue that SB 67 addresses, he
pointed out.
CHAIR McGUIRE noted that sometimes when legislation is being
discussed, other issues are discussed as well in an effort to
arrive at a possible solution.
3:14:22 PM
PATRICK LUBY, Advocacy Director, AARP Alaska, started off by
saying that the AARP is sure that none of Alaska's health
professionals get up in the morning thinking about how many
people they want to hurt that day. However, [medical] mistakes
do happen, even by the most skilled health professional. For
this reason, the AARP believes that the legislature should focus
on preventing future mistakes, that it should focus on error
reduction rather than a reduction on [non-economic] damage caps.
The tort system, he opined, encourages healthcare providers to
cover up mistakes to avoid lawsuits, and does not encourage them
to report errors and learn how to prevent them.
MR. LUBY opined that someone who is hurt by a medical error is
entitled to fair compensation, but emphasized that it's more
important to ensure that errors are reported in order to prevent
future errors. He noted that older people with limited income
potential based on life expectancy will receive less in economic
damages than younger victims, and informed the committee that
the AARP believes $250,000 is too low a cap for non-economic
damages. He also informed the committee that the Institute of
Medicine (IOM) has proposed testing non-judicial, no-fault
alternatives to the tort system for medical errors. If Alaska
adopts one of the IOM's recommended alternatives, he predicted,
it would foster fair compensation and error reduction, which
should be the real goal of both consumer-oriented reform and the
bill.
MR. LUBY explained that under the IOM approach, compensation
would be based on "avoidability" of errors rather than on
negligence, and there would be preset schedules for
compensation, with reasonable limits, that may help stabilize
malpractice premiums. He relayed that the IOM believes that
mandating the reporting of errors and providing for prompt
compensation payments would help experts find system-wide
[solutions] and improve patient safety. With fewer errors, the
cost of compensating injured people would decline, and there
would be fair and speedy compensation. He concluded by saying
that the AARP believes that everyone would benefit from such.
3:16:59 PM
KATHY DALE relayed that she, her husband, and her family are
victims of medical malpractice. On May 18, 2000, her husband,
who at that time was 56 years of age, went to have rotator cuff
surgery, but came out of what was supposed to have been routine
surgery with a complex, severe brain injury due to the
recklessness of a nurse anesthesiologist. As a result if this
brain injury, her husband lost his short term memory, his
cognitive abilities, his personality, and his ability to
interact with people; in short, she lost her husband of 38
years, her children lost their father, and her grandsons lost
their grandfather.
MS. DALE noted that she is a certified public accountant
licensed by the State of Alaska, and as such she would address
several aspects of the bill. She said that the increase in
medical malpractice premiums that physicians experienced several
years ago was the result of the steep drop in stock market
values. Insurance carriers invest a portion of their reserves
in the stock market, so when the value of these investments drop
below the actuarially determined reserve requirement, the only
way to make up this shortfall is by increasing insurance
premiums. Everyone feels the brunt of this practice via
increases in homeowners' insurance policies, automobile
insurance policies, and liability insurance policies. The
market has now recovered some of the value it lost, and
insurance carriers' profits have increased; however, according
to testimony from doctors, it appears that the insurance
carriers have not yet reduced their premiums to reflect this
change in market value.
MS. DALE explained that an insurance carrier can assess its risk
pool with the exiting $400,000 cap just as easily as it can with
the proposed $250,000 cap. She noted that based on the Consumer
Price Index (CPI) increase, the $250,000 cap that California
adopted in 1976 is worth at least $820,000 in 2005 dollars. She
went on to say:
There have been many changes in our lives, and we
assumed many risks when we filed the suit. When my
husband had rotator cuff surgery, we had planned to
retire in three years. My retirement has been put off
because of our uncertain financial situation. I
haven't heard ... any doctors say they were putting of
their retirement because of insurance premiums. Just
the contrary, they plan to retire earlier. My husband
was 56 on the date of his surgery; we had savings and
we owned our home. When we filed our medical
malpractice suit, we took a substantial risk due to
Rule 82 [of the Alaska Rules of Civil Procedure].
But we moved forward. When we filed the suit we did
not know what had happened to Gene. We just knew it
was devastating. Through the use of depositions,
expert witnesses, and neurologists at the [Mayo
Foundation for Medical Education and Research ("Mayo
Clinic")], we were able to get a clear picture of what
occurred. With a $250,000 cap, we would not have been
able to move forward with a suit. The cost of
developing the case would have been too great to
afford us any benefit even if we were successful at
getting a settlement at the cap. Don't forget, we had
to repay our health insurance carriers the medical
payments made on Gene's behalf for his care after
surgery; these were the subrogation claims.
There [are] ... existing [caps] of $400,000 and $1
million on non-economic damages. At my husband's age,
non-economic damages were the only kind of damages we
could claim. If you pass this proposed $250,000 cap,
you are robbing the citizens of Alaska of their day in
court. Your constituents will not be able to press
forward with suits due to the costs of securing expert
testimony and help. Texas and California both have
$250,000 caps. The statistics coming from those
states ... don't bear out what the insurance carriers
and the medical professionals would like us to
believe.
MS. DALE, in conclusion, offered to provide the committee with
those statistics, and asked the committee not to lower the
current caps any further, adding that she wishes she had the
words to describe the daily emotional pain that she and her
husband suffer as a result of what occurred.
3:21:05 PM
REPRESENTATIVE GARA asked what the depositions revealed.
MS. DALE explained that the depositions revealed that the nurse
anesthetist had lowered her husband's blood pressure further
than it should have been lowered by using different medications
that had the synergetic effect of lowering blood pressure
further than either would have done if used singly. In
addition, the nurse anesthetist used too large a dose of those
medications, and then stopped monitoring her husband's blood
pressure.
3:22:18 PM
GEORGE D. RHYNEER, M.D., relayed that he had just returned from
an American College of Cardiology (ACC) meeting at which he
represented Alaska as a governor and at which one of the main
topics was the difficulty patients in some states are having in
finding a physician. Also discussed at that meeting was the
difficulty some physicians are having in finding malpractice
coverage in the states in which they practice. He said that in
Alaska, he and his colleagues have been very fortunate in that
they have been able to buy medical malpractice insurance at an
affordable rate. Both of the companies that offer malpractice
insurance in Alaska are physician owned and thus the cost of
premiums exactly offsets the cost of doing business in Alaska;
for example, any losses have been made up via premium increases.
DR. RHYNEER offered his understanding that insurance companies
are required by law to keep "X number of million dollars in
reserve for perceived losses in the future," and this money is
usually invested in the stock and/or bond market. He offered
his believe that although malpractice insurance rates are high,
particularly for some medical specialties, physicians in Alaska
can still afford to pay the premiums. He noted that a couple of
years ago, there were two other insurance carriers offering
medical malpractice insurance in Alaska, but those companies
have since stopped doing business in Alaska.
DR. RHYNEER relayed that he and his colleagues feel that it is
important to carry [medical malpractice] insurance so that they
can "make do, and make up for, and recompense any damage that
might occur under our hands." He added, "We feel like we have
to carry a large amount of insurance; we carry [$5 million] and
$7 million worth of insurance because accidents which occur to
our patients generally are catastrophic, and we want to make
sure that they have things done right for them." He mentioned
that of the two insurance companies offering medical malpractice
insurance in Alaska, only one is able to provide his firm with
the quantity of insurance coverage it wants. This has left him
in the position of not knowing whether, should that one
insurance company stop doing business in Alaska, he can continue
his practice.
DR. RHYNEER mentioned that a similar situation did occur around
the time that MICA was formed, and he had to send all of his
patients that required heart surgery to Seattle; he predicted
that such a situation could happen again. He opined that the
legislature has control over the problem [purported by those in
favor of the legislation] and can fix it. He elaborated:
We need to have a situation where insurance companies
are happy to do business here. We need to have
insurance so that physicians are happy and want to
come here despite all the other disincentives that
you've already heard about. We are in competition
with areas all over the country for physicians ...
despite the data that [Representative] Gara alluded to
and brought out, which is actually the number of
licensed physicians in the state - that is the number
who have active licenses.
And actually, many of those don't practice in the
state but rather come up here temporarily and work for
a short period of time and then leave, or once had a
license here, and then keep it up. If you actually
look at that list, you'll see that many of the active
license holders have addresses which are out of state,
and ... a lot of those which are in state [are] no
longer actively practicing. So the number of ...
actively practicing physicians is probably one half of
that number, and that number is much easier to obtain
from the Alaska State Medical Association's [ASMA's]
executive director, Jim Jordan, who can give you the
number of people he actually has on a mailing list
....
DR. RHYNEER suggested that one way of figuring out if there are
enough physicians in Alaska would be for legislators to ask
their friends how easy it is to find a doctor, when was the last
time they tried, and how long they had to wait for an
appointment. He said that it is not easy to get an appointment
in his office, and that he spends a lot of time trying to
recruit new physicians. He opined that there is need for a
legislative solution, and noted that daily his patients ask him
not to retire, though he would be forced to do so if he could no
longer get insurance. He went on to say:
So we're talking here about the better of two goods,
if you like. We think it's good to have insurance to
take care of our patients in case there's an injury.
We want to have the ability to take care of them. We
also think it's absolutely 100 percent fair for a
person who's been injured and who has some sort of
horrible misery to face for the rest of their life
[to] ... have no limit, whatsoever, on the amount of
non-economic damages that they should receive. I
mean, I couldn't even begin, and neither could you
folks begin, to put a value on the loss of your
parents, even, or the loss of a limb, or the inability
to hold a grandson, or you name it - you can think of
a million things for which money can't possibly
recompense. ...
So we think that is a good that should be available to
all, and we, I personally and all my physician
associates, would dearly love to be able to provide
that kind of recompense for [an] injured person who
had severe non-economic damages. But by the same
token, we have to have a legal environment, and a
business environment, that allows insurance companies
to continue to provide insurance for us to buy. And
... other states which have gone this route and
produced a $250,000 limit on non-economic damages have
seen success in this particular endeavor. I don't
think this is a panacea, this is not a long-term
solution, but this is a short-term solution, and we
have a short-term problem, and I think we need a
solution, and you folks can provide it.
3:34:03 PM
CHAIR McGUIRE relayed that her father and many other physicians
in Alaska spend a lot of time attempting to recruit new
physicians to set up practice in Alaska.
DR. RHYNEER, in response to a question, reiterated that the ASMA
keeps a list of the physicians who actually have an office, who
are actually practicing, [in Alaska].
REPRESENTATIVE GARA asked Dr. Rhyneer to provide that
information to the committee with an affidavit as to its
validity.
DR. RHYNEER agreed to do so.
REPRESENTATIVE GARA said he would be providing the committee
with a report that indicates that there are between 12 and 24
insurance companies underwriting [medical] malpractice insurance
in Alaska. He asked Dr. Rhyneer if he'd researched whether any
of those companies would provide him with medical malpractice
insurance.
DR. RHYNEER said his firm has only been able to find NORCAL and
a company called Medical Insurance Exchange of California
(MIEC), both operating out of California, who were willing to
underwrite [medical malpractice] insurance for his firm. He
offered his belief that there is also what he called a "stock
company" that underwrites insurance for one physicians' group in
Juneau, and that there was another "fairly large" stock company
that underwrote insurance primarily in Fairbanks, but that
company has since stopped doing business in Alaska. He offered
his understanding that the Division of Insurance maintains a
list of insurance companies that have the authority to sell
insurance in Alaska; however, although those companies may have
the authority to sell insurance in Alaska, they are not doing
so. In response to another question, he reiterated that only
NORCAL was able to provide his firm with the amount of [medical
malpractice insurance it needed.
REPRESENTATIVE GARA offered that another course of action, aside
from adopting SB 67, would be to discuss the possibility of
creating a medical liability insurance pool, and said he would
be happy to work on such a project because although it might not
be simple to accomplish, it could offer physicians the extra
protection of having an alternative to the companies currently
offering insurance in Alaska.
DR. RHYNEER offered his belief that physician would have no
problem with that. He relayed that his business partner sat on
the MICA board [of directors] and he sat on the NORCAL board [of
directors], and so he was privy to the financial operations of
those two companies and to the people that ran MICA until it was
sold to NORCAL. Everyone heaved a sigh of relief, he remarked,
when MICA was sold to NORCAL, because it would then be able to
defend "defensible cases." He explained that when a physician-
owned insurance company looks at the merits of a case, if it
thinks that the standard of care was not met, it settles the
case, period; however, if a physician-owned company, after
reviewing the case, thinks that the standard of care was met or
thinks that there is still a question of whether the standard of
care was met, it will defend the case. This is quite unlike
what stock companies did in that that they tended to settle
suits of either a small value or a large value if they thought
that there was any risk of losing. He surmised that this
practice by the stock companies resulted in a lot of suits being
"won," but only because the companies were loath to risk any
money pursuing those cases.
3:42:50 PM
CHAIR McGUIRE surmised, then, that with a physician-owned
insurance company, those that make the decision to settle will
ultimately bear the cost of doing so.
DR. RHYNEER concurred, but added that that cost ends up being
small to them but large to the medical community or, in some
cases, the entire country. In response to a comment, he said
that physicians now have a greater incentive not to give in on
suits when they don't think they did anything wrong in the case.
This is because a physician who either loses or settles a case
will get reported to the State Medical Board and the [National
Practitioner Data Bank-Healthcare Integrity and Protection Data
Bank (NPDB-HIPDB)]; if enough such reports are filed, then the
State Medical Board investigates that physician. He noted that
the Alaska State Medical Board is responsible for maintaining
the quality of physicians and medical care in the state.
3:44:29 PM
REPRESENTATIVE GARA relayed that in the one medical malpractice
case he took on, the local doctors refused to testify against
the physician named in the suit, and although the insurance
company was willing to settle the case because there was
malpractice, it was offering an insulting amount. Therefore, he
remarked, he is not confident that an insurance company will
always settle a case when it should. He went on to say:
The other problem is that in many Alaska medical
malpractice liability policies, one of the things that
ends up costing the system so much is [that] the
doctor has the right to veto. So the insurance
company will say, "You know, we think you committed
malpractice; you should pay up," [but] the doctor has
the right to say "No," because ... they don't want the
mark of a malpractice settlement on their professional
integrity. So in my own experience, and I'll go to my
grave believing this, in a case of really bad
malpractice, there wasn't that easy sort of settlement
offer from the insurance company when there should
have been. ... The whole idea that the [State] Medical
Board will protect us - maybe we don't fund them very
well, I don't why - but ... I brought [this case] to
the [State] Medical Board, [and the State] Medical
Board said they didn't see anything wrong with what
the doctor did. And I'm angry about that to this day;
... I, frankly, don't think they do that great a job.
DR. RHYNEER said that generally suits arise when there is a
difference of opinion, and so it is the job of a jury to arrive
at a conclusion.
3:46:57 PM
REPRESENTATIVE KOTT asked whether there are technologies
available that would assist in the prevention of errors.
DR. RHYNEER said that there are, adding that there has been a
tremendous push lately to develop such technology.
REPRESENTATIVE KOTT also asked whether physicians are required
to carry medical malpractice insurance.
DR. RHYNEER said no, and offered an example of a physician in
Seldovia that doesn't carry medical malpractice insurance
because his client base is not sufficient for him to be able to
afford it. He mentioned that when the state formed its own
insurance company, physicians were required to purchase medical
malpractice insurance from that company in order to get a
license to practice in Alaska, but "that caused a revolt among
the physicians." He also mentioned that sometimes the larger
hospitals require their doctors to carry medical malpractice
insurance, and that sometimes a hospital will assist with that
cost because the physicians can't afford to carry it on their
own.
REPRESENTATIVE KOTT pointed out, however, that Dr. Rhyneer said
in his opening remarks that affordable insurance is available in
Alaska.
DR. RHYNEER clarified that when he used the term "affordable,"
he meant that insurance was affordable for the majority of
physicians but not for those who are "subsistence" physicians or
those who practice in small communities.
REPRESENTATIVE KOTT asked whether the Division of Insurance is
involved in the rate setting of medical malpractice premiums.
DR. RHYNEER offered his belief that it is.
REPRESENTATIVE KOTT referred to Mr. Luby's testimony regarding
the IOM and preset schedules, and asked Dr. Rhyneer to comment.
DR. RHYNEER characterized the IOM as a national think tank that
published what he termed "highly suspect" data. The IOM is
attempting to standardize methods and techniques with the goal
of reducing errors, but its ideas and techniques are as yet
untested, so it is not yet known how they will work. He offered
his understanding that a lot of "schemes" meant to reduce errors
have been tried but have been found to have very severe,
negative, unintended consequences. He elaborated:
For instance, in New York City, about five years ago,
they started to have a report card for heart surgeons.
They thought: ... "Every year we'll put up ... the
doctor's name, how many heart ... surgeries [he] did,
and how many deaths [and complications he] had. ...
This will really ... shake things up; from now on
these surgeons will do a really good job." Well no
one really understood the fact of the matter is that
[a] heart surgeon can "dial in" his complication rate.
It's really easy, because if you take patients who are
in good shape [and] ... have simple problems ..., you
can have a complication rate and a death rate of zero.
However, if you want to take on people who ... have a
50 percent chance of dying, ... [you] can turn up
having a very high mortality rate ... [in] those
report cards. Well, the New York City surgeons ...
could see the writing on the wall and they weren't
about to be the lowest guy on the totem pole. So in
the subsequent years, the referral rate to the
"Cleveland clinic," from New York City, went up 30
percent. ... So you can see you have to be very
careful, when you decide to develop techniques and
schemes and devices to improve quality, how that's
going to affect [things]. ...
And this is where the IOM's recommendation comes into
play; they recommended having mandatory reporting of
errors. Well, in the hospitals, we do that, but right
now that's protected in the state statute. So we can
sit around ... [and] educate ourselves ... without the
fear that every single one of those things which
didn't turn out right ... [is] going to wind up in
court. So mandatory reporting of errors is one of
those things which may have huge, negative, unintended
consequences, and that has not yet been tested.
[CSSB 67(JUD)(EFD FLD) was held over.]
ADJOURNMENT
3:56:09 PM
There being no further business before the committee, the House
Judiciary Standing Committee meeting was adjourned at 3:56 p.m.
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