03/02/2004 01:35 PM Senate L&C
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ALASKA STATE LEGISLATURE
SENATE LABOR AND COMMERCE STANDING COMMITTEE
March 2, 2004
1:35 p.m.
TAPE(S) 04-17, 18
MEMBERS PRESENT
Senator Con Bunde, Chair
Senator Ralph Seekins, Vice Chair
Senator Gary Stevens
Senator Hollis French
MEMBERS ABSENT
Senator Bettye Davis
COMMITTEE CALENDAR
SENATE BILL NO. 322
"An Act relating to the rate of the salmon enhancement tax."
MOVED SB 322 OUT OF COMMITTEE
SENATE BILL NO. 324
"An Act relating to floral business telephone listings and to
acts involving those listings that are considered unlawful trade
practices."
HEARD AND HELD
HOUSE BILL NO. 356
"An Act relating to operation of alcoholic beverage delivery
sites; and providing for an effective date."
HEARD AND HELD
SENATE BILL NO. 319
"An Act relating to claims for personal injury or wrongful death
against health care providers; and providing for an effective
date."
HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: SB 322
SHORT TITLE: SALMON ENHANCEMENT TAX
SPONSOR(s): SENATOR(s) STEVENS B BY REQUEST OF SALMON INDUSTRY
TASK FORCE
02/11/04 (S) READ THE FIRST TIME - REFERRALS
02/11/04 (S) L&C, FIN
02/24/04 (S) L&C AT 1:30 PM BELTZ 211
02/24/04 (S) Heard & Held
02/24/04 (S) MINUTE(L&C)
03/02/04 (S) L&C AT 1:30 PM BELTZ 211
BILL: SB 324
SHORT TITLE: FLORAL BUSINESS TELEPHONE LISTINGS
SPONSOR(s): SENATOR(s) GUESS
02/13/04 (S) READ THE FIRST TIME - REFERRALS
02/13/04 (S) L&C, JUD
02/26/04 (S) L&C AT 1:30 PM BELTZ 211
02/26/04 (S) Scheduled But Not Heard
03/02/04 (S) L&C AT 1:30 PM BELTZ 211
BILL: HB 356
SHORT TITLE: EXTEND ALCOHOL DELIVERY SITE SUNSET
SPONSOR(s): REPRESENTATIVE(s) JOULE
01/12/04 (H) PREFILE RELEASED 1/2/04
01/12/04 (H) READ THE FIRST TIME - REFERRALS
01/12/04 (H) L&C
02/09/04 (H) L&C AT 3:15 PM CAPITOL 17
02/09/04 (H) Moved Out of Committee
02/09/04 (H) MINUTE(L&C)
02/12/04 (H) L&C RPT 4DP
02/12/04 (H) DP: LYNN, GATTO, DAHLSTROM, ANDERSON
02/19/04 (H) TRANSMITTED TO (S)
02/19/04 (H) VERSION: HB 356
02/20/04 (S) READ THE FIRST TIME - REFERRALS
02/20/04 (S) L&C
03/02/04 (S) L&C AT 1:30 PM BELTZ 211
BILL: SB 319
SHORT TITLE: CLAIMS AGAINST HEALTH CARE PROVIDERS
SPONSOR(s): SENATOR(s) SEEKINS
02/11/04 (S) READ THE FIRST TIME - REFERRALS
02/11/04 (S) L&C, JUD
03/02/04 (S) L&C AT 1:30 PM BELTZ 211
WITNESS REGISTER
Senator Ben Stevens
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Sponsor of SB 322.
Senator Gretchen Guess
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Sponsor of SB 324.
Ms. Dorothy Zappa, Coordinator
Alaska Florist Association
Anchorage AK
POSITION STATEMENT: Supports SB 324.
Representative Reggie Joule
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Sponsor of HB 356.
Ms. Christine Hess
Staff to Representative Joule
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Commented on HB 356 for sponsor.
Mr. Brian Hove
Staff to Senator Ralph Seekins
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Commented on SB 319 for sponsor.
Mr. Jim Jordan, Executive Director
Alaska State Medical Association
4107 Laurel St.
Anchorage AK 99508
POSITION STATEMENT: Supports SB 319.
Dr. John Duddey
Alaska Physicians and Surgeons
Anchorage AK
POSITION STATEMENT: Supports SB 319.
Ms. Laurie Herman, Director
Government Affairs
Providence Health System
Anchorage AK
POSITION STATEMENT: Supports SB 319.
Mr. Philip Hinderberger
San Francisco AK
POSITION STATEMENT: Supports SB 319.
Dr. Alex Malter, President
Alaska State Medical Association (ASMA)
4107 Laurel St.
Anchorage AK 99508
POSITION STATEMENT: Supports SB 319.
Mr. Ron Neupauer, President
Medical Underwriters of California
No address provided
POSITION STATEMENT: Supports SB 319.
Mr. Mike Haugen, Executive Director
Alaska Physicians and Surgeons
4120 Laurel, Apt. 206
Anchorage AK 99508
POSITION STATEMENT: Supports SB 319.
ACTION NARRATIVE
TAPE 04-17, SIDE A
SB 322-SALMON ENHANCEMENT TAX
CHAIR CON BUNDE called the Senate Labor and Commerce Standing
Committee meeting to order at 1:35 p.m. Present were Senators
Gary Stevens, Ralph Seekins, Hollis French and Chair Con Bunde.
The first order of business to come before the committee was SB
322.
SENATOR BEN STEVENS, sponsor, said he distributed the
information that Senator French requested to the committee.
CHAIR BUNDE said he understands SB 322 would allow people in
various fisheries to tax themselves.
SENATOR BEN STEVENS replied that is correct.
SENATOR HOLLIS FRENCH thanked Senator Stevens for sending the
price per pound numbers to the committee and said, "Those price
per pound numbers were sobering to a non-commercial fisherman.
It was amazing to see those values flat and even down over more
than a decade."
He asked if increasing the tax cap ten times was an idea he
heard from the Joint Salmon Task Force.
SENATOR STEVENS replied that the debate was initiated by the
fact that cost recovery fish were being required to pay for the
operations of hatcheries. He did not just cook up the super
assessment idea. Independent hatcheries have actually taken
substantial steps in the past and assessed themselves to
accelerate their debt reduction program. However, not all
hatcheries fall under that statute.
SENATOR FRENCH said his concern is that the system appears to
have worked for a long time to need such a radical adjustment.
SENATOR STEVENS responded that is a valid point, but explained
that the financial package for each association is different and
there are 28 separate hatchery programs. Each of them has a loan
portfolio with the Fisheries Enhancement Revolving Loan Fund and
is managed differently. Some of the portfolios have a higher
debt to capital ratio, for instance. "The important thing is
this is an assessment that the harvesters choose to assess
themselves to pay [down on their debt]. It's all voluntary."
He emphasized that the rates had never been adjusted from the
time the fund was created in 1976.
SENATOR SEEKINS moved to pass SB 322 from committee with
individual recommendations and attached fiscal note. Senators
Stevens, French, Seekins and Chair Bunde vote yea; and SB 322
moved from committee.
SB 324-FLORAL BUSINESS TELEPHONE LISTINGS
CHAIR CON BUNDE announced SB 324 to be up for consideration.
SENATOR GRETCHEN GUESS, sponsor, explained that SB 324 basically
requires disclosure in advertising for the out-of-state floral
industry. So, if a floral business in Seattle advertises its
services in Alaska, it can't use a local phone number nor
indicate it is a local provider. Nineteen other states have this
legislation. Although the floral business is a small industry,
this is an important issue for it. Unsuspecting people will call
a number thinking it's a local florist and will be transferred
to an out-of-state florist, who, in turn, will come back to the
local florist with the order and take a chunk of the charge with
them.
I am not trying to prohibit out-of-state florists from
advertising in Alaska, but I want to give Alaskans a
choice so that they know am I ordering flowers from a
local florist or am I ordering flowers from an outside
florist.
CHAIR BUNDE asked if the fact that flowers are such a perishable
product entered into the discussion.
SENATOR GUESS replied yes. The out-of-state florist is going to
have to buy the flowers from the local florist, anyway. So, the
customer will be charged even a little bit more for that
transaction.
CHAIR BUNDE said he thought that out-of-state florists would
also ask the local florist for a wholesale price.
SENATOR GUESS replied that is a good point. She reiterated that
she didn't want to prohibit out-of-state florists from
advertising in Alaska, but wanted their customers to have full
information.
SENATOR RALPH SEEKINS said his reading of the bill indicates
that a Fairbanks company could not use an Anchorage phone number
or a number from anywhere else in the state.
SENATOR GUESS replied he is correct and that the calling area
could be interpreted two ways - by area code and location.
MS. DOROTHY ZAPPA, Coordinator, Alaska State Florist
Association, began by relating her extensive resume' in the
floral area to the committee. She explained that the association
has 20,000 members internationally including retailers,
wholesalers and growers. She directed her comments toward the
need to have a deceptive trade practices act, an idea from
Charles F. Kremp, a florist in Philadelphia, who made a
statement before the Committee on Economic Matters in the
Maryland House of Representatives in 1997. He said:
This bill would make it an unfair trade practice to
knowingly misrepresent the geographic origin or
location of a business. It also requires that whenever
someone uses the name of a locality in its business
name, the actual address of the business must be
disclosed in any telephone directory or any telephone
directory assistance service.
She asserted that professional retail florists are being
bombarded by new competitive forces every day, like super
markets, chain stores and direct mail companies, featuring
flowers and plants to be ordered from a full color catalogue
within 24 hours.
The competitive challenges facing retail florists are
almost too numerous to mention. As difficult as this
competition is to deal with, I feel that the more
exposure to flowers to express our innermost feelings
for the public's awareness and availability is
ultimately very encouraging. It is welcomed by our
progressive, visionarially-thinking florists because
it does two things. First, it compels us to try harder
and there is nothing more fulfilling than figuring out
ways to convince people to buy flowers exponentially
from small traditional shops instead of from some
other sources. Second, all of these sales outlets
expose more people to growers more often. Therefore,
the pleasure of flowers in our everyday lives adds
extra beauty in our environment, plus it is known to
be horticulturally therapeutic in reducing stress
levels. The more that happens, the better chance all
of us in the industry have of increasing our sales,
improving profitability and making contributions to
our local community. What does irritate, not only Mr.
Kremp, but all our fellow florists and myself, is
competition that is based on deceiving the public....
MS. ZAPPA said the most irritating thing about deceptive trade
practice is the impact it has on the consumer. Companies that
run nationwide 800 numbers make it quite clear to the consumer
that they are national market makers. Once consumers know that,
they can decide for themselves about where they want to buy
their flowers. When consumers don't have a reasonable way to
differentiate between an existing local business and one that
claims to be local, that is unethical and deceptive.
MS. ZAPPA said she had sent Senator Guess copies of deceptive
advertisements that are in the GCI Anchorage Mat-Su Valley
telephone directory and Phone Directories Company, Inc. She
closed saying:
As you deliberate over this issue, I ask only that you
put yourselves in the shoes of the local retail
florist. The vitality of any community across the
country, whether it is a small town or large one,
depends on our viability and that of schools, houses
of worship, governing bodies and, of course, the
businesses that operate within those boundaries. Those
businesses provide goods and services to the public,
but they also offer employment opportunities, pay
taxes to support the local community and create a
spirit that helps hold communities together. That
spirit is being threatened by the deceptive trade
practices that a law would hopefully end.
CHAIR BUNDE asked if she intended to prevent competition from
outside the state.
MS. ZAPPA answered no, but she wants to eliminate unethical
practices.
SENATOR SEEKINS pointed out that SB 324 is not placed within the
deceptive trade practices title (AS 45.50.471.12), which reads:
...Using or employing deception, fraud, false
pretense, false promise, misrepresentation or
knowingly concealing, suppressing or omitting a
material fact with intent that others rely upon the
concealment suppression or omission in connection with
the sale or advertisement of goods or services whether
or not a person has, in fact, been misled, deceived or
damaged.
He asked if that is the issue she is talking about.
MS. ZAPPA replied yes.
SENATOR SEEKINS asked her if she felt this issue would apply to
any business, not just floral. She said yes and he asked if
anyone from her group had ever filed a consumer protection
complaint with the Department of Law.
MS. ZAPPA replied no. The Society of American Florists has moved
forward in the direction of SB 324.
SENATOR SEEKINS said he had dealt with yellow page sales people
and it seems that is where part of the blame for the deceptive
trade practices lies.
MS. ZAPPA agreed.
SENATOR SEEKINS asked Senator Guess why she didn't want to apply
this issue across the board instead of to just one small
industry.
SENATOR GUESS replied that is a good question, but it is mainly
because other industries didn't seem to have this problem.
Sometimes unintended consequences happen from applying a policy
broadly, but she would entertain his suggestions.
SENATOR SEEKINS said he felt that these situations were already
unlawful and it might be time for the Attorney General's Office
to intervene.
CHAIR BUNDE said SB 324 would be set aside for further work.
HB 356-EXTEND ALCOHOL DELIVERY SITE SUNSET
CHAIR CON BUNDE announced HB 356 to be up for consideration.
REPRESENTATIVE REGGIE JOULE, sponsor, said some larger
communities in his district have elected to go damp, which means
being able to import alcohol, but not legally being able to sell
it. Dry means not being able to import any liquor to communities
at all. Barrow, Kotzebue and Bethel are damp; Nome is wet. All
of the villages surrounding Barrow and Kotzebue are dry.
Bootlegging is a challenge in these communities and residents
are constantly voting on whether to be either wet, damp or dry.
Finally in 2001, the Alcohol Delivery Site Law allowed Barrow to
vote on using a distribution center. Now, Gold Streaks, freight
and luggage coming into Barrow arrived through that distribution
center. A permit is required and an ordinance has established
amounts of alcohol that can be brought in. Barrow, with a little
over 1,700 permits, has found that this system helped smooth out
the emotional turmoil it continually went through in voting on
whether to be wet, dry or damp. Kotzebue and Bethel have chosen
not to utilize this method. Representative Joule said SB 356
simply extends the sunset provision for the alcohol delivery
site to July 1, 2008.
CHAIR BUNDE asked how much alcohol a Barrow resident can bring
in.
REPRESENTATIVE JOULE replied they may not import more than 13
gallons of malt beverages, 20 liters of wine or 4.5 liters of
distilled spirits per month. If an alcoholic beverage is being
carried as luggage, it's supposed to be marked on the luggage.
After people got fined a few times, it worked pretty well.
CHAIR BUNDE noted that at Christmas time, at least one Anchorage
post office refused to accept presents that were wrapped in
alcohol-labeled boxes, because they might be going to a
distribution center. He asked how much people were charged to
pay for the program.
REPRESENTATIVE JOULE replied a $25 annual fee.
SENATOR HOLLIS FRENCH asked how the distribution center kept
alcohol from being shipped through Barrow to Nuiqsut, for
instance.
REPRESENTATIVE JOULE answered that first of all, you have to be
a resident of Barrow. Theoretically, alcohol could be smuggled
to the smaller villages, but then the permit is at risk. Most of
those villages have flights from Fairbanks through Prudhoe Bay
and Barrow could be easily bypassed. This program has not
stopped alcohol from going to the villages, but it has cut down
on the amount.
SENATOR GARY STEVENS said he assumed the goal of the program was
to reduce alcohol problems and he wanted to know if the program
reduced consumption.
REPRESENTATIVE JOULE replied that the Department of Public
Safety on the North Slope feels that it has. It has also
improved the emotional wars over what status to be in.
CHAIR BUNDE asked if anyone else wanted to testify on HB 356.
There was no response and he said this was the first hearing and
he would hold the bill for a future date.
SB 319-CLAIMS AGAINST HEALTH CARE PROVIDERS
CHAIR CON BUNDE announced SB 319 to be up for consideration.
MR. BRIAN HOVE, staff to Senator Seekins, sponsor, said SB 319
amends AS 09.55.548 and AS 09.55.556 and is intended to
alleviate a growing crisis in Alaska's healthcare industry with
respect to the availability of liability insurance. It places a
hard cap on damage awards, clarifies informed consent language
and limits liability with respect to healthcare advice
communicated through an electronic means.
He stated that Alaska's healthcare system is breaking down and
ranks near the bottom in number of physicians per capita. Most
of Alaska's physicians exceed the age of 50 and will retire in
the next 10 years. Attracting and keeping physicians is of
utmost importance and availability of liability insurance plays
a critical role in solving this crisis. Half of the insurers
have ceased doing business in Alaska in the last 12 months.
Other professional liability carriers have not shown an interest
in doing business in the state due to the volatile medical
liability environment.
One solution that has proved especially effective in
other states is capping non-economic damages. SB 319
intends to help establish a predictable risk
assessment environment by placing a $250,000 cap on
this type of award. It does not change awards for
quantifiable economic damages such as lost wages and
past and future medical expenses. The bill also makes
provisions, which limit liability in cases where
patients elect to not follow advice that was
communicated by a healthcare provider through
electronic means. Lastly, qualifying language is added
to informed consent.
Instituting a $250,000 cap on non-economic damages
will help stabilize the professional medical liability
insurance market here in Alaska... [END OF SIDE A]
TAPE 04-17, SIDE B
CHAIR BUNDE said he participated in previous tort reform
legislation, which allowed actual damages without caps. He
thought, then, that there was a cap on non-economic damages. He
asked how this would change existing law.
MR. HOVE said he wasn't aware of an existing cap.
SENATOR RALPH SEEKINS said that there is currently a $400,000
cap.
CHAIR BUNDE asked him to explain the informed consent language.
MR. HOVE said he would like better-informed people to testify on
that.
MR. JIM JORDAN, Executive Director, Alaska State Medical
Association (ASMA), said he also serves on the Board of
Directors of the Medical Underwriters of California, the
operating company for the Medical Insurance Exchange of
California (MIEC).
MIEC is one of the two remaining providers of medical
liability insurance coverage for physicians in Alaska.
You will be receiving testimony later from an
executive representing MIEC.
Also, Dr. Alex Malter, MD, MDH, current president of
the Alaska State Medical Association, will provide
testimony regarding SB 319. He will speak to the
critical shortage of physicians in Alaska today and
how SB 319 will help us recruit those doctors that we
need.
Today, I will specifically address the informed
consent issues, because I heard that question earlier.
The starting point is that there are two Alaska State
Supreme Court cases that play on the informed consent
issue. The first is the Korman v. Mallin case, which
is a 1993 case. The second is a more recent case,
Marsingill v. O'Malley, in 2002.
First, I should address the term informed consent....
In essence, informed consent is a process required in
Alaska law whereby a physician is required to provide
sufficient information to the patient about a proposed
procedure or course of treatment. The information
provided is obviously intended for the patient and is
the information that is necessary so that the patient
can decide whether she or he decides to embark on the
course of treatment that has been recommended.
Section 3 of SB 319 makes minor stylistic changes to
Alaska's informed consent law and those were the
colons and periods and other punctuation marks....
However, I will move on to the Alaska Supreme Court
case in the Korman v. Mallin. Korman v. Mallin held
that when jurors evaluate whether or not the
healthcare provider has adequately informed the
patient of the common risks and reasonable
alternatives of treatment, they are to evaluate the
information based on what a reasonable patient would
expect to hear under the circumstances. However, the
reasonable patient standard, set by the court, fails
to provide a healthcare provider with any objective
basis upon which to determine at the time of treatment
what risks and alternatives should be conveyed to the
patient.
Section 4 of SB 319 establishes the standard of
disclosure to be what a skilled healthcare provider of
the same or reasonably similar specialty would
disclose under similar circumstances. This paves the
way for the healthcare profession to adopt reasonable
guidelines so that patients are insured to receive the
adequate information, without subjecting the
healthcare provider to later second-guessing.
Marsingill v. O'Malley deals with another problematic
situation. Ms. Marsingill called Dr. O'Malley at
night. Dr. O'Malley had previously performed surgery
on Ms. Marsingill and, I forget what the time period
was before this particular circumstance. However, the
doctor advised her over the phone to go to the
emergency room for treatment and she declined to do so
and several hours later suffered a cerebral injury.
The court held that the jury under the circumstances
would still be able to find Dr. O'Malley negligent of
not providing informed consent.
Section 4 of SB 319, in the new subsection AS
09.55.556(d), protects healthcare providers from legal
liability who are consulted other than in person and
who are, therefore, unable to personally evaluate the
patient and assess firsthand the nature of the
patient's condition. This only holds true if their
recommendation is for the patient to seek further
treatment and the patient chooses not to follow that
advice. This provision applies to healthcare providers
who are contacted by phone, e-mail, or who provide
telemedicine services, for example, to our remote
communities not otherwise served.
Since the Marsingill decision, some physicians will
not take phone calls at all after hours and instead,
all patients are directed right to the emergency room
or to call 911. This is not optimal healthcare with
patients being directed to the most expensive care
setting - the hospital emergency room.
ASMA supports SB 319 and urges you to support it as
well.
CHAIR BUNDE asked him to address how SB 319 changes the existing
cap.
MR. JORDAN replied:
The non-economic damage cap, which applies to all
wrongful death and personal injury actions in Alaska,
is $400,000 or 8,000 times the life-expectancy of the
claimant, whichever is greater, for most injuries. For
severe physical impairment or severe disfigurement,
the cap amount is $1 million or 25,000 times the life-
expectancy, whichever is greater. SB 319 changes that
to $250,000.
CHAIR BUNDE asked if he knew how that has turned out in
practical terms.
MR. JORDAN replied that the potential exists for an injured baby
with a life-expectancy now approaching 80 years to have a $2
million award at 80 years times $25,000.
CHAIR BUNDE asked if he knew of actual awards like that since
the last tort reform.
MR. JORDAN replied that he didn't have that information.
CHAIR BUNDE asked if he knows what happened after the original
tort reform.
MR. JORDAN replied that those questions could better be answered
by the insurers who deal with this day in and day out.
SENATOR SEEKINS asked him to expand on Mr. Hove's comment about
the difficulty of recruiting and retaining physicians in this
state.
MR. JOHN DUDDEY, president, Alaska Physicians and Surgeons, said
he is an orthopedic surgeon in Anchorage and related how he
stayed in Alaska when he was first deciding where to practice.
At that time, the practice environment in Alaska was
pretty good. Practicing physicians in the Midwest were
complaining about malpractice rates and availability
of insurance while the doctors I spoke with in Alaska
were upbeat and happy, which is a really marked change
from my experience in Ohio.
After moving to Alaska, the practice environment
remained relatively good for a matter of two or three
years. The practice environment began to change about
three years ago when the AMA [American Medical
Association] declared that the state was at risk with
respect to potential medical malpractice prices. Very
few physicians, including myself, noticed the gradual
change until May 2003 when my insurance company,
Northwest Mutual Insurance Company, notified my
practice and other Alaska physicians that they were no
longer going to issue policies in Alaska.
This is a first wakeup call for myself and many other
physicians. In the last year, the loss of half of the
medical malpractice carriers, as I said before, we're
down to two, has had a negative impact on our creating
new physicians. The state's only neurosurgeons have
been unsuccessful in attracting new neurosurgeons.
Internists and family practice specialists are leaving
the state and not being replaced in adequate numbers.
Not only has it become difficult to attract new or
practicing physicians to the state, but also when a
crisis develops, many of the practicing physicians
including my senior associate will retire early.
SB 319 is about access to high quality medical care,
continued care for our loved ones in Alaska. We have a
shortage of practicing physicians. Dr. Malter will
comment on that later. The July 3, 2003 study from the
Agency of Healthcare Research and Quality looked at
the distribution of physicians across states with and
without caps on non-economic damages since 1970. After
adjusting for multiple factors, AHRQ found that by the
year 2000, states with caps averaged 12 percent more
physicians per capita than states without caps. This
study also found that caps are effective in improving
the supply of physicians and patients' access to care.
The lower the cap, the greater its effect on insuring
patients' access to care.
A February 2003 poll on what Americans think about the
healthcare liability crisis showed that 84 percent of
Americans fear that skyrocketing medical liability
costs could limit their access to medical care. A Blue
Cross Blue Shield survey also showed that rising
medical malpractice premiums are causing access and
cost problems in crisis states. The Blue Cross Blue
Shield study also validates the conclusion that
reduced access to care is the result of the current
medical liability crisis. For example, 56 percent of
Blue Cross Blue Shield plans in crisis states respond
that the physicians are refusing some high-risk
procedures. In non-crisis states, only 32 percent find
this. Fifty-six percent of Blue Cross Blue Shield
plans in crisis states report that physicians are
leaving their practices or retiring whereas only 42
percent of plan in non-crisis states report this
finding. One-third of Blue Cross Blue Shield in crisis
states are moving practices out of state; in non-
crisis states, it's only 20 percent. Currently, only
six states are considered stable. Alaska is among the
25 states that have the potential to be deemed in
crisis. In the last year, the situation has worsened
and both the American Medical Association and the
Academy of Orthopedic Surgeons feels that we'll be
moved into the crisis state within the next year.
DR. DUDDEY said that the only trauma center in Las Vegas closed
its doors for 10 days this past summer when orthopedic surgeons
couldn't afford professional liability insurance. In
Pennsylvania, over the past five years, eight companies have
stopped offering medical liability insurance with only two
companies remaining. In Florida, the average time for women
seeking mammography rose from 20 days in 2000 to 150 days in
2002. Many radiologists couldn't find or afford the necessary
liability insurance. In a recent survey of Palm Beach, Miami
Dade and Broward counties, seven out of 29 radiologists said
they had stopped reading mammograms and eight others were
considering this possibility.
Sixty-two percent of Texas physicians prior to their
recent malpractice reform had begun denying or
referring high-risk cases and 52 percent stopped
providing certain services to their patients. Home to
about 20 malpractice carriers in 1999, Texas only had
four carriers three years later in 2002.
Alaskan physicians have lost all but two medical
malpractice carriers. As we have seen in other states,
as insurance becomes unavailable, physicians will
relocate, close their practices or drop vital services
- all of which will seriously impede patient access to
care. Some officials in the AMA and the Academy of
Orthopedic Surgeons feel that Alaska is less than one
year from a crisis. We know the experience in the
Lower 48 is that high-risk procedures such as
obstetrics, neurosurgery and trauma would certainly be
sent south to Washington or elsewhere. We have a
chance to avert such a crisis in Alaska. We know it's
only a matter of time before the crisis that is
affecting those states without liability and reform
will affect Alaskans. This bill's hard cap is just
what the citizens of Alaska ordered for the dying
medical malpractice system in Alaska.
A study from Tillinghast Towers & Perrin found that
savings could be expected with a $250,000 cap on non-
economic damages whereas a cap of $500,000 is likely
to be of little benefit to physicians. AHRQ also found
that the lower the cap, the greater its effectiveness
in insuring a patient's access to care. Physicians in
the state feel that SB 319 is good for Alaskans.
CHAIR BUNDE asked when he had begun his practice in reference to
the first tort reform.
DR. DUDDEY replied 1999 - after the first tort reform.
SENATOR GARY STEVENS asked what "severe" means and what has gone
wrong in the past that warranted a $1 million lawsuit.
DR. DUDDEY replied that anything is considered severe.
SENATOR STEVENS wanted specifics.
CHAIR BUNDE said that specifics were listed in current
legislation as one eye, one limb, etc.
SENATOR HOLLIS FRENCH asked Dr. Duddey what his liability
insurance had done.
DR. DUDDEY replied that his insurance with Northwest Mutual went
up 1800 percent since he has been in Alaska and he has had no
claims.
SENATOR FRENCH asked what he was paying in 1999.
DR. DUDDEY replied almost $3,000 and now he pays about $42,000.
SENATOR FRENCH asked if his insurance carrier had promised him
anything about his insurance rates if this bill is passed.
DR. DUDDEY replied no, not a definitive promise. Experience in
other states has shown that rates would level out and start
dropping.
SENATOR FRENCH said that California is making a study of this
phenomenon, because its medical malpractice reform was passed in
1975 and the cap was set at $250,000. "If we had done the same
thing in 1975 and set our caps at $250,000, do you think those
awards should go up over time to compensate for inflation?"
DR. DUDDEY replied:
The economic damages are certainly linked to inflation
and I think they do go up. Medical costs and rehab
costs will go up and linked to inflation with economic
losses.
SENATOR FRENCH pointed out that $250,000 in 1975 is not worth
$250,000 today. Dr. Duddey agreed.
SENATOR FRENCH asked if it was true that insurance rates
continued to climb in California after the reform was put into
effect in 1975. "What made the California insurance industry
work better was insurance reform. Isn't that really what it took
to get those rates under control?"
DR. DUDDEY replied, "I can get you specific data on that, but
no, Prop 103 did not do that."
Proposition 103 was the reformation of the insurance industry in
California.
SENATOR FRENCH asked if he is contending that rates went up
after Proposition 103.
DR. DUDDEY replied that Proposition 103 passed in 1988 and went
into effect by 1990. Rates were already leveling out from 1975
through '90 and they dropped a little faster after Proposition
103.
SENATOR FRENCH asked if he disputes statistics that show that
malpractice insurance rates continue to climb in California
after the 1975 reforms.
DR. DUDDEY replied that everything continued to climb, but not
as steeply and much less steeply than in the rest of the
country. He offered to get the specific numbers.
MS. LAURIE HERMAN, Director, Government Affairs, Providence
Health System, wholeheartedly supported SB 319. A 2002 study
commissioned by Providence Hospital indicated that Anchorage is
facing a physician shortage. Limiting the amount of damage for
medical malpractice cases will help a great deal in attracting
new physicians to Alaska. However, the study indicates that a
majority of physicians begin their practice not farther than a
50-mile radius from the hospital where they completed their
residency. Providence's WAMI (Washington-Alaska-Montana-Idaho
Medical School Program), a family practice residency program, is
designed to help in this area, but of the 32 graduates who have
completed the program, 75 percent are practicing in Alaska -
half in rural and half in urban Alaska. The WAMI program costs
$2 million per year, but ways of mitigating its costs are being
investigated.
MS. HERMAN said that Alaska is facing an aging physician
workforce with the average age of 51 and recruitment is not
happening at a rate that will replace them when they retire.
Alaska is one of the costliest states in the nation for
physicians and medical liability insurance is a large component
of that cost. Putting a limit on non-economic damages in medical
malpractice cases would be a big help in their effort to bring
more physicians to Alaska.
CHAIR BUNDE said he was glad to hear the WAMI program was so
successful.
SENATOR FRENCH asked how many doctors there are per 10,000
Alaskans.
MS. HERMAN said she didn't have a study in front of her, but she
would get back to him with an answer.
SENATOR FRENCH asked who did the counting for the Providence
study.
MS. HERMAN replied that it was conducted by a professional
organization and that she would get the entire study for him.
MR. PHILIP HINDERBERGER, General Counsel, NORCAL Mutual
Insurance Company, a physician-owned and managed company in San
Francisco and a successor to MICRA [Medical Injury Compensation
Reform Act in California], said the company was established by
the Legislature to handle medical malpractice in Alaska after
the 1975 crisis. He supported SB 319 saying it would make
healthcare more readily available to the citizens of Alaska
where NORCAL has provided hundreds of physicians medical
malpractice insurance over that period of time. It has also
helped Alaska reform its tort laws by providing information to
bring its medical liability laws into parity with other states.
Unfortunately those efforts have not had the desired effect. The
major cost for Alaskan physicians is medical liability insurance
at an average of $30,627 per year, the highest average cost in
the country. In Harris, California, physicians pay $14,564 per
year. This means that Alaskan physicians pay about 110 percent
more on average each year than California physicians.
During 2001 the average medical liability payment in Alaska was
th
$308,476, the 14 highest in the country. Health payments by
comparison averaged $178,499. Alaska payments are about 70
percent higher than in California. Alaska has some of the most
dramatic increases in the cost of medical liability in the
country. The National Association of Insurance Commissioners
(NAIC) said that they have increased by approximately 1,600
percent between 1976 and 2001. Studies have tried to determine
why some states' premiums go up faster than others and have
uniformly found that medical liability reform is the single most
important factor. California's Medical Injury Compensation
Reform Act (MICRA) passed in 1975 and has been identified as the
most successful effort in the country to control these costs. It
has a $250,000 cap on non-economic damages.
CHAIR BUNDE asked if he had figures that compared Alaska to
other states that have a small population and two insurers.
MR. HINDERBERGER said he had statistics on A-rated insurers who
have 3 percent or more of market share in a state. It ranges
from one or two up to eight or nine insurers per state. New
York, Massachusetts, Alaska and Wyoming have only two insurers
who are A-rated doing business in the state. He pointed out that
none of those states has medical liability reform.
California, by comparison, has seven A-rated insurers.
So, we have a pretty healthy and competitive market in
California and I think it's because the insurers feel
that they can set their prices at an appropriate
level... due to MICRA.
CHAIR BUNDE said, "Apparently, the number of insurance companies
has not been related to the number of doctors who are buying
insurance if New York and Alaska both have two companies."
MR. HINDERBERGER agreed and said it has to do with the
environment. "It's not the size of the state; it's not the
number of doctors; it's really the reliability of the judicial
system...."
SENATOR SEEKINS asked if Mr. Hinderberger could give the
committee NORCAL's perspective on its risk portfolio in the
State of Alaska versus other states.
MR. HINDERBERGER replied that the doctors in Alaska are as good
as the doctors in all the other states where NORCAL does
business. Alaska is at the most volatile end of the spectrum in
terms of jury awards, which influences the settlement
perspectives. Couple that with the fact that a small number of
doctors have to shoulder the cost, it's difficult to predict
what the year-to-year costs are going to be. In California,
premiums have been going up for a long period of time at a
slightly higher rate than medical inflation. In Alaska, premiums
go up 22 percent a year.
SENATOR FRENCH asked if he thought the $250,000 cap that
California passed in 1975 should be adjusted for inflation.
MR. HINDERBERGER replied that obviously there is a difference in
dollars between then and now, but this is not the only element
that is in play. Total awards in California have gone up faster
than medical inflation, about two times faster than the CPI. In
1975 the average award in California was around $10,000. Today
it's around $170,000. Those costs have been trending upwards and
will continue to do so because the underlying costs are
primarily economic losses, including the cost of lost wages,
medical care and rehabilitation.
SENATOR FRENCH asked if Alaska has had any outrageous jury
awards on the non-economic losses.
MR. HINDERBERGER replied that he hadn't had a chance to pull
those numbers, but he would provide them as soon as he could.
SENATOR FRENCH asked how big this issue is in the total
healthcare picture. "Aren't medical malpractice claims and paid
losses really a very small and tiny part of healthcare costs?
Aren't they something like less than a half of one percent?"
MR. HINDERBERGER replied that studies show it is more like 5
percent depending on what is included in the total cost.
Insurance premiums, self-insured costs borne by governmental
entities, defensive medicine, defending claims are included in
the 5 percent of the medical system. In a state like Alaska,
with a specialty like obstetrics, malpractice costs are a
material part of a physicians' practice and a determining factor
many times on whether a physician chooses to continue in Alaska.
SENATOR FRENCH said it looks like insurance rates are abnormally
skyrocketing and asked why insurance reform hasn't been looked
at as a potential solution.
MR. HINDERBERGER replied:
If you take a look at insurance premiums and match
them to the underlying losses, you'll find they are
trending on the same line. Underlying losses in Alaska
are up dramatically, even since 1997. So, there is a
direct link between the cost of medical malpractice
insurance and the major driver, which are judgments
and settlements. Your Alaska Insurance Department
works us over pretty good every year when we put our
rate filing in.... We are not making undue profits on
the positions in Alaska.
SENATOR FERNCH asked after Proposition 103 passed, what dollar
amount did NORCAL refund in medical malpractice premiums.
MR. HINDERBERGER replied that there are five medical malpractice
companies and they were the first companies to voluntarily pay
rollback refunds at the request of California Insurance
Commissioner Garimendi.
The reason was that the commissioner allowed the
dividends that we were paying, the micro dividends, to
be considered as rollback refunds. So, we were paying
dividends in the neighborhood of 25 to 30 percent,
which translated in the neighborhood of $30 million
over the last few years. That wasn't the only dividend
we paid. We have paid over $250 million to our
policyholders in California, Alaska and Rhode Island
over the last 15 or 20 years.
SENATOR FRENCH said in California he heard Mr. Hinderberger to
say reform led to a $30 million rebate.
MR. HINDERBERGER responded:
In California, we refunded $250 million to our
policyholders over the last 15 or 20 years. Of that,
$30 million was characterized by the commissioner as a
rollback refund. It was part of an overall return of
redundant reserves here in California that were
generated through MICRA. MICRA substantially reduced
the anticipated cost of paying claims and all those
funds were refunded. As a practical matter, whether
Prop 103 had come along or not, we would have refunded
those dollars.
SENATOR SEEKINS asked for a further explanation of the rollback
if it was funded from redundant reserves, not excess profits.
MR. HINDERBERGER replied that NORCAL was not required to
rollback its premiums, at all, but to pay back collected funds
that weren't needed.
3:10 p.m.
TAPE 04-18, SIDE A
DR. ALEX MALTER, President, Alaska State Medical Association,
supported SB 319. He concurred with all the previous testimony
and wanted to focus his comments on how strong medical liability
reforms would help Alaskans to recruit and retain enough
physicians to provide adequate care for the state's citizens in
the future.
Access to medical services is limited in much of the
state. Alaska has one of the smallest, if not the
smallest, number of physicians per capita in the
country. A report in the American Medical News
recently noted that our situation was quite
precarious. 'Alaska has long ranked amongst the worst
states in terms of physician supply.' In 2002, the
state had fewer than 1,350 doctors in private
practice. Only six states have a lower doctor-to-
patient ratio.
That article went on to identify Idaho as having the
worst physician shortage, estimating it had one non-
government physician for every 544 patients. However,
numbers from ASMA's own database, which we believe to
be more accurate than those used in the article,
showed approximately one physician here for 578
patients.
It's likely that Alaska actually has the lowest
physician-to-patient ratio for the country in 2002.
More updated estimates show that that is most likely
still true. By comparison, to reach the national
average of one doctor per 360 patients, the state
would need about 500 more actively practicing
physicians right now.
Exacerbating the problem as we've heard, over half the
state's practicing physicians are greater than 51
years old. A 2002 local study of physicians by
Providence, which was alluded to earlier, confirmed
that Anchorage physicians were aging quickly and
highlighted immediate shortages of psychiatrists,
surgeons and general internists. This looming
recruitment challenge is the main reason medical
liability reform is so important in Alaska right now.
Unfortunately, the state does not have the capacity to
grow all the physicians we need. We have no medical
schools and of the small number of WAMI students, some
do not return to practice. Likewise, the state's lone
residency training program is quite small.... The WAMI
students still often do not return to the state or
occasionally don't. The numbers that the Providence
representative was referring to were the residents who
were trained by the Providence residency program.
Those are the folks who are staying in the state, but
that program is actually quite small. In any case,
Alaska is and will continue to be a net importer of
doctors and, as such, we have to compete for new
doctors with other states facing physician shortages.
A recent study of medical students found the
availability of affordable liability insurance plays a
major part in a graduate's decision regarding where to
set up practice. Alaska needs to optimize its medical
legal environment to help us recruit the doctors we
need. That is why ASMA supports SB 319. With its
$250,000 cap on non-economic damages, the bill
provides the accepted gold standard in liability
reform.
ASMA understands that this legislation is only one
element in developing a healthy practice environment.
Still, because the state had the foresight to enact
other important medical practice legislation,
liability reform is the most critical remaining
element. ASMA is proud to have worked with the
Legislature on the key statutory changes. We have also
worked with our congressional delegation on Medicare
payment updates specifically targeted to Alaska. The
Association has even offered the current
administration strategies to actively market Alaska to
out-of-state physicians. As a result of these
initiatives, ASMA believes that with the exception of
strong medical liability reform, the state's practice
environments are actually quite favorable....
ASMA's greatest concern is that Alaskan citizens have
access to high quality healthcare and it's for this
reason that the association would urge you to support
SB 319.
SENATOR FRENCH asked if the 2002 study he referred to was the
same Providence study on numbers of physicians practicing in
Alaska.
DR. MALTER replied that there are two analyses, one conducted by
Providence, which is primarily focused on Anchorage physicians
and shows large shortages of doctors. Other numbers were done
nationally by the AMA, which ASMA reanalyzed. ASMA believes its
numbers are probably more accurate.
SENATOR FRENCH asked what number of doctors he had for Alaska
statewide.
DR. MALTER replied that the nationwide estimate is that Alaska
might have 1,350 private practice physicians. ASMA's local
database is more accurate and estimates it to be closer to 1,115
for 2002.
So, our estimate is, while that national study made us
look like we were perhaps seventh in the country, we
are actually worst in the country in that our
calculations show we are worse than Idaho, which was
the state they touted as having the worst physician
shortage.
SENATOR FRENCH asked how doctors who aren't in private practice
- working for the Air Force, the Alaska Native Medical Center
and the Army - are counted.
DR. MALTER replied that is a good question and ASMA doesn't do a
great job of counting those. However, the national study also
excluded Army physicians, as well.
I would contend that we very well may be about the
worst in the country in terms of physician shortage,
but even if we aren't perhaps the worst, I think the
numbers are clear that we are very close to the worst
and when you think about the average nationwide one
physician per 360 patients and Alaska's apparent
average of 1 physician per 578 patients, you really
see that we're lacking almost 50 percent of the
doctors that you would expect compared to nationwide
averages. It really is substantial whether we're worst
or whether we're second from the worst....
SENATOR FRENCH asked how the 1997 reforms affected the number of
physicians.
If we enact this law, if we restrict a patient's right
to recover for pain and suffering, can you promise me
that we're going to get more doctors so that we'll
have better medical care statewide?
DR. MALTER replied that he couldn't promise anything, but data
presented by his colleagues indicate that states with liability
reforms have a better supply of physicians. One of the problems
with the 1997 reforms is that the soft caps are not as tight as
the caps, which are necessary to really see benefits. The 1997
reforms did not implement a $250,000 cap.
SENATOR FRENCH concluded that any representations that were made
during those reforms on the part of the medical community should
have all been preceded by the caveat that this reform was not
going to go far enough to do any real good.
DR. MALTER pled ignorance of that situation, because he had just
started to practice in Alaska in 1997 and mused:
I guess in-as-much as we didn't get the tight reform
that we thought we needed back then, I personally am
not that surprised that there might not have been an
enormous jump in the number of physicians in the
state.
SENATOR SEEKINS asked what the two remaining companies in the
state are now.
DR. MALTER replied that one is NORCAL and the other is the
Medical Exchange of California (MIEC).
SENATOR SEEKINS asked Mr. Hinderberger if NORCAL is a mutual
company.
MR. HINDERBERGER replied yes.
SENATOR SEEKINS asked what the difference is between a mutual
company and a for-profit company.
MR. HINDERBERGER explained that mutual companies were formed for
doctors to provide basic medical malpractice insurance as close
to at-cost as possible. It's composed almost substantially of
doctors. NORCAL has redundant reserves, which are returned in
the way of dividends. There are no shareholders.
MR. RON NEUPAUER, President, Medical Underwriters of California,
said it is the management company on whose board Mr. Jordan
sits. It is a physician-owned insurance exchange.
MIEC started in California during the 1975 crisis and
began insuring doctors in Alaska at the invitation of
the Alaska State Medical Association in 1977-78 when
there was a shortage of insurance companies willing to
insure doctors there and practically all of them had
no choice but the state-run program. Some of the
doctors in the medical association wanted an
alternative. We have insured doctors consistently
since 1978. I believe we now have just under 50
percent - roughly the same size that Mr. Hinderberger
described on behalf of NORCAL.
He emphasized that MIEC is physician-owned and does not seek a
profit from being in the insurance business and tries to keep
rates as low as possible. He strongly supported the $250,000 cap
on non-economic damages saying, "Chiefly the $250,000 cap seems
to stabilize situations in malpractice costs more than anything
else that we can identify...."
MR. NEUPAUER said the average malpractice premiums paid by
doctors in California are less than half of what they are in the
five highest-cost states according to a comparative rate survey.
Alaska rates are more volatile because of the limited
number of physicians who practice there and the
occasional large verdicts and settlements that are
made. That volatility, I think, has something to do,
perhaps, with the decision of other insurance
companies to withdraw from the market in the last few
years. But that situation has occurred before, but I
think this time it's more acute. The stakes seem to be
higher. We're committed to stay with the physicians
who choose to insure with us in Alaska, but obviously
we have to charge the rates that our actuaries say are
necessary in the environment we find ourselves. Those
rates in Alaska, of late, have been going up a bit.
SENATOR FRENCH asked if he had any specific examples of large
awards in Alaska recently.
MR. NEUPAUER replied that his company hadn't experienced any in
its policyholder base. However, less than 5 percent of all
malpractice claims end up in a verdict through court action.
Some are settled. Most are dropped, sometimes with substantial
legal expense. Those that go to verdict act as sort of the bell-
wether for settlement negotiations in other cases that have to
be settled. He hastened to add that they have had substantial
settlements.
MR. MIKE HAUGEN, Executive Director, Alaska Physicians and
Surgeons, said he wanted to explain where the malpractice
premiums go.
I think it's important for the members to understand
just how the tort system and medical malpractice
works.... Over 60 percent of the malpractice claims
are actually dropped or dismissed. Most people don't
know that. About another 32 percent of claims are
settled.
SENATOR FRENCH interrupted to ask if this is nationwide or here
in Alaska.
MR. HAUGEN replied:
This is nationwide. The 61 percent that are actually
dropped or dismissed still cost the defendant in
defense costs about $16,000 per claim. Those that are
settled cost about $40,000 per claim. Only 7 percent
of claims that are actually filed make it to trial. In
six out of those seven, the defendant actually wins,
the doctor wins, but those on average cost about
$85,000 per claim. So, you add up the numbers of
claims that are filed and this turns into some real
money. Only about 20 percent of every tort dollar
actually goes to the plaintiff if they win.
Approximately 58 percent of every tort dollar never
goes to the plaintiff. It pays for defense attorney
costs or plaintiff attorney costs or expert witnesses
or administrative costs. It's an extremely inefficient
system. In the time period of 1995 through 1997, 36
percent of plaintiff verdicts were for over $1
million. By 2000-2001, that percentage had gone up to
54 percent for over $1 million. The tort system in
this country costs all of us over 2 percent of GDP
(gross domestic product). That number is expected to
go up to 2.4 percent next year.
Now, with all this money in the system and the
increase in the amount of the claims, you'd think that
doctors are committing more malpractice. Well, it
turns out that the frequency of malpractice claims has
actually decreased over the last 10 or 12 years. On
average, in 1990, there were about 30 claims per 1,000
physicians. In 2002, that number had actually gone to
about 24 claims per 1,000 physicians. During that same
time period, the mortality rates for things like heart
disease went down 20 percent, cancers went down 7
percent, stroke went down 8 percent and child
mortality went down 25 percent.
Research has shown that the medical malpractice
liability crisis is actually causing doctors to
practice what's known as defensive medicine. In other
studies, three out of four doctors have actually
admitted to doing this. They order more tests; they
practice more conservative medicine. They refuse to do
riskier procedures. The [2002 study] estimates that
adds between 5 and 9 percent to the total healthcare
costs in this country. And when you turn that into
dollars, they estimate that's between $60 billion and
$108 billion in additional defensive medicine costs.
The question is do non-economic caps actually help
with patient access to physicians, as has been alluded
to previously, in states that have instituted non-
economic damage caps. Studies have concluded that on
average they have 12 percent more physicians per
capita than states that don't. In addition, premiums
in the states with caps are on average 17 percent
lower than the states without caps. In California,
which has been referenced several times, MICRA, their
tort reform legislation, between the years 1975, when
it was introduced, and the year 2001, their premiums
did go up. They went up 182 percent over that 25-year
period, but nationally, on average, they went up 569
percent. The idea of insurance reform in California
has been brought up actually in many states that are
looking at this idea as maybe the real reason why
California was successful.
I'd like to read you very quickly the AMA's response
to that. Question: What about those who suggest
California insurance market is stable because of
Proposition 103, not the '75 MICRA law? The truth is
Proposition 103 had very little to do with medical
liability insurance. Since 1975, California's medical
liability reforms have been responsible for protecting
California's patients and keeping the insurance market
stable. Prop 103 was passed in 1988, thirteen years
later, to address mainly auto insurance issues. Prop
103 does not prohibit insurers from raising rates. It
says that if an insurer wants to raise rates by more
than 15 percent, there must be public hearings. That's
only happened once and the request was recalled by the
insurer after the public objected. Anyone who tells
you Proposition 103 is the reason for California's
successful medical liability reform is not dealing
with the facts. I'll just leave it at that.
CHAIR BUNDE noted that the time was late and the bill would come
before the committee again. There being no further business to
come before the committee, he adjourned the meeting at 3:33 p.m.
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