Legislature(2003 - 2004)

03/02/2004 01:35 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    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                                                                
     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                                                                   
     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                                                               
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                                                               
     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                                                                    
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                                                               
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                                                               
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                                                               
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                                                                    
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                                                               
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                                                               
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                                                               
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                                                                   
CHAIR BUNDE asked him to explain the informed consent language.                                                                 
MR. HOVE said he would like better-informed people to testify on                                                                
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                                                                    
     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                                                                    
     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                                                                    
CHAIR BUNDE asked him to address  how SB 319 changes the existing                                                               
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                                                                   
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                                                               
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                                                               
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                                                                    
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                                                               
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                                                               
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                                                               
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                                                               
SENATOR  FRENCH  asked how  many  doctors  there are  per  10,000                                                               
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                                                               
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                                                               
$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                                                               
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                                                                    
     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                                                                    
     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                                                               
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                                                               
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                                                                    
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                                                               
     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                                                                    
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                                                               
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                                                               
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                                                                    
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.                                                                

Document Name Date/Time Subjects