Public Hearing





"Testimony on a proposal to provide medical malpractice insurance
premium assistance for New Jersey physicians"


Committee Room 4  
State House Annex
Trenton, New Jersey


May 1, 2003
10:00 a.m.

Assemblyman Neil M. Cohen, Chairman
Assemblyman John F. McKeon, Vice-Chairman
Assemblyman Jack Conners
Assemblyman Anthony Impreveduto
Assemblyman Robert J. Smith II
Assemblyman Christopher "Kip" Bateman
Assemblyman Paul R. DíAmato
Assemblywoman Loretta Weinberg, Chairwoman
Assemblyman Herb Conaway, Vice-Chairman
Assemblyman Upendra J. Chivukula
Assemblyman Jerry Green
Assemblywoman Nellie Pou
Assemblyman Sean T. Kean
Assemblywoman Charlotte Vandervalk

Mary C. Beaumont Sheila Kenny Marianne L. Ingrao
David Price Wali Abdul-Salaam Tasha M. Kersey
Office of Legislative Services Assembly Majority Assembly Republican
Committee Aides Committee Aides Committee Aides


Meeting Recorded and Transcribed by
he Office of Legislative Services, Public Information Office,
Hearing Unit, State House Annex, PO 068, Trenton, New Jersey


morning, ladies and gentlemen, and welcome to the Joint Hearing of the

Assembly Banking and Insurance Committee and the Assembly Health and

Human Services Committee.

David, would you please take the role for the Assembly Health


MR. PRICE (Committee Aide): Assemblyman Kean.


MR. PRICE: Assemblywoman Pou.


MR. PRICE: Assemblyman Chivukula.


MR. PRICE: Assemblyman Conaway.


MR. PRICE: Assemblywoman Weinberg.


Assemblyman Green is here.

MR. PRICE: And Assemblyman Green.

A quorum is present.

ASSEMBLYWOMAN WEINBERG: Take the role for the

Insurance Committee.

MS. BEAUMONT (Committee Aide): Assemblyman DíAmato.


MS. BEAUMONT: Assemblyman Bateman.



MS. BEAUMONT: Assemblyman Smith.


MS. BEAUMONT: Assemblyman Impreveduto.


MS. BEAUMONT: Assemblyman Conners.


MS. BEAUMONT: Assemblyman McKeon.


MS. BEAUMONT: Assemblyman Cohen.

ASSEMBLYMAN NEIL M. COHEN (Cochair): Yes, here.

ASSEMBLYWOMAN WEINBERG: Just to lay out the outline of

this hearing this morning: We are not going to be taking official action this

morning, because we have not officially received the Senate version of the

medical malpractice bill, because our board has not been open since the Senate

passed its bill. The discussion, we hope, mainly will be on the issues that we are

going to put into our bill -- of the direct premium assistance, and the method of

funding to come up with that premium assistance. So thatís the gist of our

conversation this morning, although we will, certainly, give people some latitude

in what they want to testify for.

So, with that as the parameters, I would like to first call on our

Majority Leader, Assemblyman Joseph Roberts, who has some comments heíd

like to share with us.

A S S E M B L Y M A N  J O S E P H  J.  R O B E R T S  JR.:

Assemblywoman Weinberg, thank you very much; Assemblyman Cohen, and

to the members of the Committee -- itís a pleasure to be with you. I want to


begin by thanking each and every member of this Joint Committee for the time

that you have devoted to this issue. It is clear that this is an issue that has

appropriately dominated the public debate, because it affects so many

healthcare providers and so many people who depend upon them. And you are

all to be commended, and on behalf of myself and Speaker Sires and your

colleagues in the General Assembly, I want to say, irrespective of where you are

on this issue, thank you for the commitment that you have made to tackle this.

I want to particularly thank Assemblywoman Weinberg and

Assemblyman Cohen, as the Chairs of this joint effort, and Assemblyman John

McKeon, who is one of my cosponsors on Assembly Bill No. 50. They

particularly have distinguished themselves by devoting countless hours to this

issue in meetings, that many of you recognize occur sometimes out of the glare

of the television cameras and the media, where a lot of the real hard work is

done. Theyíve been great, great credits to the General Assembly. So, Loretta

and Neil and John, particularly, thank you so very much for the work that

youíve done.

As the Chairwoman said at the outset, this is not official

consideration of Assembly Bill No. 50, or any specific piece of legislation today,

because itís not technically been received by the Assembly yet. But I wanted to

just take a few moments to talk about the concept of premium assistance and

why we think that is meritorious, and why we believe that is, in fact, the way to

go. Assembly Bill No. 50, in the manner that it is currently proposed by the

sponsors, would create a five-year, $150 million fund for direct, immediate

premium assistance.


The Department of Banking and Insurance, the Department of

Health and Senior Services would establish criteria to ensure that the hardest hit

physicians would be entitled to this assistance. The criteria in order to

participate would include whether the physician practices in a certain high-risk

speciality, whether his or her premium increase exceeds certain threshold

percentages, whether the increase will have an adverse impact on the physicianís

ability to practice, whether the physician has been subject to any disciplinary

action, and whether the overall impact of premium increases, when patient

access to medical care in the applicantís geographical area or region--

The intent of this is that physicians in high-risk specialities and subspecialities,

such as obstetrics and neurosurgeons, will directly, immediately

benefit from this subsidy. Our proposal will be fashioned in a manner similar

to what the Senate has advocated: namely, a modest, $3 assessment per

employee; a $50 annual surcharge on doctors, lawyers, and certain other

professionals. Approximately $30 million will be generated per year through

these assessments. And as you know, the fund would sunset at five years.

Assembly Bill No. 50, as amended by the Senate, also allows the

courts to overturn jury awards that are "clearly inadequate, excessive, or

disproportionate." This is very, very important for those who are concerned

about the occasional inappropriate jury verdict that in many cases has had an

adverse impact on premiums. That approach gives the courts flexibility to

overturn these unfair awards, and is, in my judgment, superior to imposing a

harsh and subjective ceiling on compensation for victims of substandard medical



In contrast to what is currently contained in the bill, as amended,

in the Senate, there is simply no way of knowing whether or not the Senate fund

will provide the sufficient relief to med-mal victims. We have heard that the

fund, which appropriates $30 million annually, may conceivably need upwards

of $80 million per year in order to meet its obligations, thus creating a potential

$50 million per year shortfall.

In my judgment, it is reckless to take such a risk, especially given

the lack of evidence establishing the correlation between caps on noneconomic

damages and a reduction in medical malpractice premiums. The Senate

legislation establishes a task force to examine the caps issue, which we support

in order to gather more information on this very important issue. But the

information we have now does not justify imposing a cap on noneconomic


California is often cited as a state where caps on noneconomic

damages have worked, but the Foundation for Taxpayer and Consumer Rights

reports that between 1991 and the year 2000, the average premium increase in

California was 3.5 percent, and it actually grew more quickly than the national

average, which was 1.9 percent. Caps on damages have been declared

unconstitutional in seven states: Alabama, Florida, Illinois, New Hampshire,

South Dakota, Texas, and Washington.

Letís take a minute and discuss who gets hurt by caps. Caps

disproportionately impact our elderly, which is why the AARP has spoken out,

as recently as this week, against caps. Our older citizens are victims of medical

mistakes and may not suffer economic damages, but they do suffer tremendous

pain and suffering. The sad truth is, if there are caps on noneconomic damages,


many attorneys will not pursue cases on behalf of older victims in New Jersey.

Caps on noneconomic damages also discriminate against low- and middleincome

workers who do not receive large economic damages that are attributable

to their lost earning capacity.

Caps in medical cases discriminate, as well, against women, who are

more likely to be the victim of medical malpractice than men, and who are more

likely to suffer the types of injuries, such as miscarriage or loss of reproductive

capacity, that simply may not translate into lost wages, but certainly take a

tremendous toll on victims. Caps on noneconomic damages discriminate

against our children, who will suffer for a greater number of years than adult

med-mal victims, but who will run the risk of not being fully compensated for

their disability before being capped at an arbitrary amount.

Most persuasive of all is that caps simply are not fair. A victim of

medical malpractice does not "win a jackpot." These are individuals who may

be paraplegic, blind, disfigured, or brain-damaged because of a medical error.

In my view, Assembly Bill No. 50 preserves our system of allowing jurors to

determine the appropriate level of damages for victims, but allows courts

unprecedented latitude to correct the occasional egregious misjudgment. It is a

balanced and appropriate way to achieve medical malpractice insurance reform,

without doing so on the backs of seriously injured victims in New Jersey.

My colleagues, let me just conclude, again, by thanking you for

your efforts. It is our job, on important public policy issues like this, not,

frankly, to choose one side or the other, but to search for that middle ground,

to search for that balance that protects all the parties, the interested parties, in

an appropriate fashion -- and, if you will, doesnít take the easy way out. It


would be very easy to side with the Medical Society, or the trial bar, or the

patient advocates and give any group anything that they wanted.

Your work has been to work on that middle ground, and I

compliment you for that. I know that you have many important witnesses to

hear from today, and I want to thank you again for the hours that you have

devoted to this matter.

Thank you very, very much.

ASSEMBLYWOMAN WEINBERG: Thank you very much,

Majority Leader -- and, I neglected to mention, the prime sponsor of A-50.

ASSEMBLYMAN ROBERTS: Thank you, Assemblywoman.

ASSEMBLYMAN COHEN: Physicians and Patients for Quality

Care. If each of you could state your names and the organizations you

represent, and you have to press the red button to speak.

R O O N E Y S A H A I: Good morning, Madam Chair, Mr. Chairman, and

honorable members of the Committees. My name is Rooney Sahai, and I serve

as the Executive Director for Physicians and Patients for Quality Care. I have

here three of my colleagues: Dr. George Ciechanowski, heís on my right side.

Heís a pulmonary medicine specialist in Hudson County. Dr. Delores Lao is an

OB/GYN from Secaucus, New Jersey. Dr. Juliano is an orthopedic surgeon from

Bergen County. We would like to thank you for the opportunity to come before

you and state our position.

A lot of debate has occurred on caps. We feel that any position

that compromises the rights of patients should be carefully considered. We have

looked at evidence from California. In our opinion, what we saw was, in 1975,

they passed their caps. It was not until 1988, when Proposition 103 was


passed, that physicians were able to see any rollback or reduction or

containment in their medical malpractice premiums.

More recently, states like Missouri, Minnesota, Nevada, and Ohio

have passed their caps, and physicians have yet to see any reduction or

containment in their medical malpractice premiums, nor is any reduction or

containment in these premiums in sight.

Having said that, I would like Dr. Ciechanowski to say a few words

on this issue.

G E O R G E C I E C H A N O W S K I, M.D.: Thank you very much.

Madam Chair, Mr. Chairman, honorable Committee members, I

am a practicing pulmonologist. I also do critical care. Iíve been in practice

since 1986 in Hudson County. I am here, really, to tell you that we do not see

capitation as a solution, as an immediate help, for physicians. Physiciansí

practices -- I see my colleagues on a daily basis in the hospital. They are really

drowning, in this day and age, due to the high, escalating costs of maintaining

a practice, an independent practice, outside of the hospital, and not being an


We really need a life raft in order to support ourselves and to

continue to help our patients. This is really about saving individual practices

and helping patients in the interim.

Thank you.

MR. SAHAI: A lot of physician practices are drowning, according

to Dr. Ciechanowski. Theyíre looking for life rafts. These political debates on

caps and reform have not presented any viable solution that benefits physicians

or patients. What weíve heard from Majority Leader Roberts -- and let me


loosely call it the subsidy fund -- gives us some hope that physicians can benefit

without compromising patient rights in the near future.

I would like to draw your attention to an OB/GYN from Hudson

County, New Jersey. Iíve had the privilege of knowing Dr. Delores Lao for over

two years. As I enter her office, I find my demeanor changing to a more softer,

more comfortable one. Her office has been a very kind office, a very sweet

office. Dr. Lao, as she tells me, has been in practice for about 24 years. It was

not until the last five years that she first experienced a malpractice suit, which

was ultimately dropped. And it was not until recently she has a case open.

There is no evidence of any malpractice whatsoever.

Her premiums last year were approximately $45,000. Being close

to retirement, that was at the height of her budget. This year the premiums,

from $45,000, were escalated to $130,000. The reason I would like to draw

your attention to Dr. Lao is because she has decided -- I believe, and I can

speak for her, with quite a bit of pain and suffering -- to close her doors to her

patients. I believe this is not just Dr. Laoís loss. Her patients who she cared

for, for a number of years, lose a lot more. They lose a caring physician and the

community loses her as well.

A life raft is what weíre seeking, and the subsidy package offers

some hope. Dr. Lao, like other physicians in the last 10 years, have experienced

reimbursements cut in the neighborhood of 30 to 50 percent. In the same time

period, practice costs and inflation have escalated 30 to 50 percent. Twelve

years ago, an OB/GYN was reimbursed approximately $4,000 for nine months

of care and delivery of a child. Today, that $4,000 is down to approximately,

on average, $2,000. And if you factor in the ravages of inflation on top of that,


there isnít a whole lot left. And on the heels of all this, we have huge premium

escalations in medical malpractice insurance, which are forcing physicians to

close their doors, and again, compromising patient care.

And on that disappointing note, I would like to hand the

microphone over to Dr. Lao.

D E L O R E S L A O, M.D.: Hi. Iím Dr. Lao. Iím an OB/GYN practicing

in Hudson County. Iíve been in practice for 24 years. Last month I had to

close my office because I cannot afford my malpractice insurance, which goes

from $45,000 to $130,000. I had a case, five years ago, which was dropped,

and recently I have an open case, but it has not been settled yet. With this

increasing malpractice, a lot of my colleagues are suffering from pain -- and

because they could not afford the malpractice. And soon, more OB/GYNs are

going to be dropping out of practice because of the escalating malpractice


MR. SAHAI: Thank you.

I would like to also try and draw the attention of the Legislature to

the overall picture. As I pointed out earlier -- that reimbursements have fallen

almost up to 50 percent or more in the last 10 years. And the question one

asks, had reimbursements remained steady would there be a crisis today, or

would there be a crisis in the magnitude that we have today?

As we turn our attention to the reimbursements, we seek the support

of the Legislature and other groups to support patient-friendly physicians that

we represent in seeking solutions that will benefit physicians and will not

compromise the rights of patients.


The minimum wage-- May I ask what the minimum wage is these

days, if someone can please volunteer, approximately?

Iím sorry?

ASSEMBLYMAN BATEMAN: Seven-forty-five, 7.50.

ASSEMBLYMAN McKEON: The Democrats want to move it to


MR. SAHAI: Seven dollars. Okay. All right.

ASSEMBLYWOMAN WEINBERG: I donít believe itís that high,

but-- Itís $5.35, I think.

MR. SAHAI: What is half of $7? Three dollars and fifty cents.

Well, I got to tell you something. Almost every physician has been working at

50 percent of the minimum wage, and I use this as an analogy. And with this

rise in malpractice premiums, there is no room to absorb that. And itís time to

focus our attention on the larger picture of reimbursements.

And with that, Iíd like to hand the floor to Dr. Ciechanowski.

DR. CIECHANOWSKI: I would like to reiterate what Rooney just

said. Physicians are really caught at this present time between a rock and a hard

place. The declining reimbursements that we are facing and the escalating costs

that we are facing, at the other end, has really provided a very big, short

squeeze, and many physicians really cannot maintain their practices in this type

of an environment. If we are seeking to lessen the burden of malpractice, this

is not the way to do it. By making physicians work harder, longer hours, seeing

more patients per day will not lessen the episodes of malpractice. It will, rather,

escalate them. I think that we need to be reimbursed at a fair level in order for


us to spend more time with our patients and provide them the quality care that

they deserve.

Thank you.

MR. SAHAI: Dr. Juliano, would you like to offer any comments?

A. B. J U L I A N O, M.D.: Well, I agree with what you and Dr.


ASSEMBLYWOMAN WEINBERG: Excuse me, Dr. Juliano, you

must use a microphone. (referring to PA microphone)

Thank you.

DR. JULIANO: Well, I agree with what you said, Rooney, and

what Dr. George has said. I have nothing else to add at this point.

MR. SAHAI: Okay.

Thank you for listening.


ASSEMBLYMAN CONAWAY: Yes, Mr. Sahai. Youíre the

Executive Director of Physicians and Patients for Quality Care. How old is your


MR. SAHAI: Your question is how is the organization--

ASSEMBLYMAN CONAWAY: How old is your organization?

When was it formed, and do you collect dues from members? How many

members do you have?

MR. SAHAI: The organization was founded in July of 2002. The

organization, currently, has the support of approximately 3,000 physicians

throughout New Jersey. We are very strong in Hudson County. This

organization continues to grow every week.


ASSEMBLYMAN CONAWAY: What is your dues structure? They

pay you a salary, I guess.

MR. SAHAI: There is a dues structure, sir.

ASSEMBLYMAN CONAWAY: Now, you mentioned that you did

some analysis of, I guess, caps or something like that. I mean, are you an

actuary yourself, or whatís your professional background, if you donít mind my


MR. SAHAI: Iím a manager of physician practices with an

insurance background, and I donít believe I need an actuarial background or an

underwriting background to analyze the situation. I have analyzed the situation

together with a bunch of physicians. From among other perspectives, from a

commonsense perspective, we have tried to be analytical. We have looked at

a lot of research from actuaries and other research that most folks here have

been privy to. And the conclusions were drawn from those researches.

ASSEMBLYMAN CONAWAY: Madam Chair, if I may.

I have looked at-- I mean, Iím not an actuary myself, but people

who bring testimony and who are experts, I think, would disagree that caps

wonít provide any benefit.

You mentioned that, and I agree with you, that caps wonít provide

any immediate benefit. No one has asked that, but what do you think of this

statement? Many of us feel that without underlying reform weíre not going to

achieve long-term stability in the marketplace for medical malpractice insurance,

and that we physicians will always be subject to these forces which drive our

costs, costs that we canít recoup in terms of reimbursement, and that putting

money into a system that is fundamentally flawed is, one might argue, a waste


of money. Well, not a waste of money, because there will be some immediate

help for physicians, who otherwise would be out of business. But donít you

think that it is inappropriate for lawmakers to think about the long-term health

of the healthcare delivery system, to think 10 years down the road or more, to

bring the kind of fundamental structural reforms that will prevent this kind of

hearing from taking place in five or 10 years. What kind of reform do you think

we ought to do, other than just throwing money in a system that weíre not

prepared to change?

MR. SAHAI: Thank you.

Dr. Conaway, when we analyzed Californiaís situation, our analysis

has the perspective where these physicians need immediate relief, which,

unfortunately, has to be of a monetary nature. As we analyzed the California

situation, we have not been able to see any evidence of rate reduction or

containment. Up until Proposition 103 came to pass in 1988, states like

Missouri, Minnesota, Nevada, and Ohio have all passed caps, and we have not

yet seen any indication of rate reduction or premium containment. Nor is any

expert out there making a prediction or call on that.

ASSEMBLYMAN CONAWAY: Well, thatís not quite true.

Because there are experts that are saying that caps will bring relief. And as I said

to you, and I think thereís general agreement, that caps wonít bring any

immediate relief. So when you mentioned these states who have recently passed

their caps and you tell me thereís no rate reduction -- of course thereís no rate

reduction. There are a lot of cases in the pipeline that are still going to continue

to drive those insurance rates in those states for some time to come. Many

people say three to five years. And so there is a time line involved here. And so,


for the future, because people are going to come up here and talk about the caps

that arenít working in these states, I just want, for the record, for everyone in

here to know that, of course, those caps are not going to bring immediate relief

on the premiums, and that we are talking about a time line that is three to five

years or, perhaps, more. So, perhaps, we wonít hear that with every witness that

comes up opposing caps.

ASSEMBLYWOMAN WEINBERG: Any other questions here?

Go ahead, Mr. Sahai.

MR. SAHAI: I just want to put in my last word on that, please.

There are other measures--

Dr. Ciechanowski, would you like to point them out.

DR. CIECHANOWSKI: I think your comments are very well

taken, Dr. Conaway. However, as a fellow colleague of yours, I think we look

across the state and we see physicians whose practices are dying today. Waiting

three to five years is not an option for those physicians out there. I think while

we seek the long-term solution, I think we really do need a life raft or a stop-gap

measure in the immediate future for those practices and those physicians and

those patients today.



MR. SAHAI: Thank you.

ASSEMBLYWOMAN WEINBERG: Assemblywoman Vandervalk.


Iíve listened closely to what you said, and you say we need life rafts

and stop-gap measures, but you donít say what they are. The only thing you


mentioned in a positive way, as to what you would like, would be increased

reimbursements, which is something we really canít deal with at this table,

certainly not today. So, if you could spell out -- is there something more

specific you could say as to what youíre looking for in the way of a life raft?

MR. SAHAI: Sure. For the first time in 18 months, Majority

Leader Robertsís proposal of -- if I can loosely call it a subsidy fund -- offers

hope. It offers hope because it is a simple plan. It offers hope because the

benefit appears to be immediate. What we have heard is, if a physician qualifies

for relief based on the percentage increase in premium costs, this fund intends

to refund to the physician approximately 50 percent of the increase. That could

make the difference between staying in practice or closing the door. And that

would be my answer.


think that would be sufficient to-- If it was 50 percent of the increase, we would

be talking about $45,000 or $50,000. I donít know if that would be enough to

keep her in business.

MR. SAHAI: We donít know that. However, itís a step closer to

keeping physicians, like herself, in business. The reason we support it is because

it looks like an immediate benefit to physicians, which comes at no cost to the

patients or anyone else.

ASSEMBLYMAN COHEN: Thank you very much. Thank each

of you for coming down.

MR. SAHAI: Thank you.

DR. JULIANO: Thank you.

DR. CIECHANOWSKI: Thank you, Mr. Chair.


ASSEMBLYWOMAN WEINBERG: The next witness is Catherine


R O N A L D G O L D F A D E N, ESQ.: Good morning, ladies and

gentlemen. My name is Ronald Goldfaden, and I want to thank you for inviting

us to speak today. I am a personal injury attorney specializing in medical

malpractice, and Iím proud to represent the family of Richard Fulton, along

with his wife, Catherine Fulton, who will be sitting next to me and will be

speaking to you in a few moments.

Iím here today to, hopefully, put a human face on some of the

victims of medical malpractice, so that you can see that some of the things that

you hear in the press about victims looking for a jackpot or a payday is not

always what we actually see -- those that handle medical malpractice claims.

Iím here today to tell you about the wrongful death of a beloved member of our

community, a treasured husband and father of two children, a man in his late

forties who had everything to live for. His life was destroyed by a total disregard

of hospital protocol and procedure, as well as an act of astonishing negligence

by a doctor.

One year ago, Richard Fulton was 49 years old when he felt a lump

on his neck. He was diagnosed as having a Burkittís lymphoma, and he was

started on chemotherapy. He was to receive four medications; three of them

were to be infused intravenously into his veins, and one of them was to be put

into his spine intrathecally. On July 25, 2002, eight hours after it had been

administered, the hospital realized that they had put the wrong medication into

his spine. When they checked the medical literature, they realized that this had


only been reported to have happened 14 times ever before, and that in each

instance the person died.

When they told Mr. Fulton of his mistake, they told him that he

was certain to die. Over the next day, he called in his 12-year-old son, Ryan,

and he told him to take care of mommy. He called in his 4-year-old daughter,

Katie, and hugged and kissed her goodbye for the last time. And over the next

four days, he died an excruciatingly painful death with ascending paralysis up

his legs, to his waist, to his chest. He lost his hearing, and he lost his gag reflex,

and he was in such pain that they started a morphine drip until he died four

days later.

The only thing that is more horrible than the actual malpractice, or

the death that Mr. Fulton sustained, is the fact that this was so easily

preventable. The medication that Mr. Fulton received is called Vincristine. And

as you can see (indicating bottle), the bottle has a clear warning on the outside

of the package which indicates "fatal if given intrathecally. For intravenous use

only." In addition to that, the medication comes with a whole host of

additional package inserts and warnings. The package insert, also, has a

warning that this medication should be administered by individuals experienced

in the administration of Vincristine, it is extremely important that the

intravenous needle be properly positioned, and that it will be fatal if given


In addition, there are additional warnings on the package inserts.

And as you can see (indicating bottle), there is, actually, on the bottle itself,

another warning that indicates that this is for intravenous use only, and that this

is a potent drug that is potentially fatal if given in the wrong administration. In


addition to all of those warnings, there is also a warning that is supposed to go

directly on the syringe itself, which, as you can see again, gives the clear warning

to the doctors. And finally, and almost unbelievable with all of these warnings,

the medication actually comes with plastic baggy overwraps where the syringe

goes inside this overwrap. And as you can see, there is a clear warning that says,

"Donít remove this syringe until the moment of injection. Fatal if given

intrathecally." The medications that Mr. Fulton received, which are indicated

here, also clearly indicated that this medication was not for intrathecal use.

Let me just tell you, very briefly, about the kind of man that

Richard Fulton was. In addition to his wife and two children, he had worked

for the last 15 years as the Director of Special Education Services for

Monmouth and Ocean County Services. He was the director responsible for

providing all special ed services to nonpublic schools. These included things

such as English as a Second Language, home instruction, compensatory

education. He had programs for pregnant teens, prior to school and after

school. He was a Eucharistic minister and religious education teacher at his

church. He formerly was the principal at Mt. Carmel Guild School in Jersey

City, and before that, the director of the Holy Rosary Day Care Center.

Iíd just, rather than speak about him any further myself, want you

to hear from a nun who worked with Richard and who was with him the day

before he died.

(runs program on Richard Fulton)

Ladies and gentlemen, I know you have a difficult task. Please

donít forget the victims of legitimate medical malpractice when you undertake

your difficult responsibility.


Iíd like, at this time, to introduce Catherine Fulton, who has a few

remarks that she would like to make, very briefly.

Thank you.

C A T H E R I N E F U L T O N: Good morning.

I am here today to speak to your about how my husband became

a victim of malpractice and how it has affected our family and me. I call those

last days of Richardís life the nightmare weekend. Nine months later, our 12-yearold

son, Ryan, and 4-year-old daughter, Katie, and me are still living in this


These months have been very difficult for Ryan. I have been told

the most devastating and traumatic time for a child to lose a parent is that of a

12-year-old boy. Not only is Ryan dealing with adolescence, he is grieving the

loss of his dad. To make things even more devastating, he is extremely angry

with the doctor for being so careless as to not read the label of his dadís

chemotherapy. It is mind-boggling to him, and for that matter beyond anyoneís

comprehension, why this tragedy ever occurred in the first place. Ryan is taking

out his anger on Katie and me. Heís being treated for depression and is on


Katie, on the other hand, letís her thoughts and feeling out all the

time. She is constantly saying that she wants to see daddyís real eyes, not the

ones in the picture. She tells me that daddy died because he got the wrong

chemo and that the doctor doesnít know how to read. Katie doesnít sleep

through the night anymore. Like clockwork, she comes into my room each night

around 2:00 in the morning. Katie is very clingy and tells me numerous times

a day that she loves me.


The childrenís psychologist tells me they are both afraid that I am

going to leave them. They are both expressing the same fear in different ways.

For Ryan, his anger is a way of saying, "Why bother loving mommy, because

sheís going to leave, too, just like daddy did." Katie feels, if she showers me

with affection and makes sure Iím there at 2:00 in the morning, I wonít leave

her. I am concerned about the long-term psychological effects this tragedy will

have on our children.

My husband paid the ultimate price of medical malpractice. The

absurdity of this tragedy cries out for justice. Arbitrarily capping the amount of

damages our family can recover would be monstrous. How do I tell our

children their government has put a price tag on their daddyís life because some

medical malpractice lawsuits are considered frivolous? How do I tell them that

we might not be able to live in our house anymore? How do I explain to them

that the country that comes to the aid of the world is turning their back on


MR. GOLDFADEN: Thank you very much.

ASSEMBLYWOMAN WEINBERG: I thank you, Mrs. Fulton.

Are there any questions? (no response)

Thank you both for coming forth this morning.

ASSEMBLYMAN CONAWAY: Cochairpersons, I want to raise a

point of order, please, about these proceedings going forward. Now, my

understanding from the remark relayed from the Majority Leader and from our

own discussions -- that we were dealing with the specific aspects of this bill as

relates to whether or not we were going to have a subsidy to deal with the

medical malpractice premium crisis that physicians face. I would think,


accordingly, that the testimony that we hear today should be directed toward

that end. And so Iím just going forward. Iíd like to know whether or not our

discussions are going to be limited to the question of the subsidy or not?

ASSEMBLYWOMAN WEINBERG: I think I explained at the

outset that that was, definitely, what was before us today, although we would

not be able to take any official action; that we were going to be giving some

latitude to people to go beyond that subject in testimony. But we would like to

hear a concentration on the issue of the direct medical malpractice premium

subsidy. That would be helpful to this Committee, but people will be free to go

beyond that subject.

ASSEMBLYMAN COHEN: Dr. Delores Williams. Dr. Delores

Williams. Okay, fine.

Good morning.

R A Y M O N D E. C A N T O R: Good morning, and thanks for allowing

us to be here. My name is Ray Cantor. I am with The Medical Society of New

Jersey, and with me is Dr. Delores Williams. I have a few things I would like

to say from the Medical Society, specifically on the subsidy issue. But Dr.

Williams has a patient who is in labor and she has to leave soon, so Iím going

to let her talk first and then I--

ASSEMBLYWOMAN WEINBERG: As soon as I heard about the

patient in labor, we moved her up on the list.

Dr. Williams.

D E L O R E S W I L L I A M S, M.D.: Okay, thank you.

Yes. My name is Dr. Delores Williams, and Iím an

obstetrician/gynecologist in private practice in the County of Mercer, New


Jersey, in Trenton. I have been in this area since 1989. I specifically came here

today because I know that the subsidy issue, while it may actually alleviate

some short-term suffering on the part of physicians, will not do anything, really,

in the short or the long run.

At the end of last year, it became very clear to me that the liability

crisis had put me out of business. I elected, in December of last year, to stop

practicing obstetrics. At the time I decided to stop, I had patients due into July,

and I paid my malpractice premium so that I wouldnít have to abandoned any

of my patients. Itís very clear to me that this particular environment will not

allow me to stay in practice, and again, many of the doctors in my department --

about five so far -- have also elected to stop delivering babies.

I think the issue of the subsidy, while good in intentions, certainly

doesnít offer me any hope in the short or the long run. I think without effective

tort reform, even in the long run, there would be no hope for many of us staying

in practice, especially one- and two-person and three-person groups. I only

deliver seven to 10 deliveries per month. And I figured out, in order for me to

afford these huge premiums, Iíd have to double or triple my volume, resulting

in loss of quality care to my patients and also loss of quality of life for myself,

and so I didnít have any other choice except to stop the obstetrical portion of

my practice.

Thank you.

ASSEMBLYMAN COHEN: Assemblyman Green.

ASSEMBLYMAN GREEN: Initially, what type of premiums were

you paying?


DR. WILLIAMS: Well, originally, before this so-called crisis here,

I was paying about $30,000 a year. And my premium then escalated to

$50,000 a year. At this point, if I had not dropped obstetrics, I would be facing

at least -- I was told the good-driver discount is about 72,000. Because I deliver

seven to 10 babies a month, in order for me to come up with that kind of

money, Iíd have to double, and maybe triple, the volume. And I couldnít do

that. Also, my problem also is, as insurance companies have gone out of


For instance, when I made a decision to stop practicing obstetrics,

I had FICO insurance at that time. The actual problem, that weíre not really

dealing with, is the stability of the insurance industry. I received a certified

letter from the State of New Jersey that -- any cases I have during my FICO

tenure -- I may have personal liability, because the statue of limitations is 20

years for delivering a baby in New Jersey, which means FICO is now out of

business. Any cases would be referred to the State Guarantee Fund, which has

a limit of 300,000. Therefore, I have been already notified that I may have

personal exposure for any case resulting from those FICO years that settles in

excess of 300,000. So, again, there are some tremendous problems facing

doctors that weíre not even beginning to address here.

ASSEMBLYMAN GREEN: My next question is that, have there

been any claims against you in terms of malpractice?

DR. WILLIAMS: Actually, there are two claims that Iíve been

named in that I donít know the patients. In one claim, thereís one line with my

name on the chart where I examined the patient for a nurse/midwife. I have

never met the patient. And the other claim is a patient Iíve never met, but my


previous partner was involved in her care. So, yes, those claims count against

physicians. Even though you are eventually dropped, your insurance company

incurs an expense to "defend you," whether you have anything to do with the

case or not. So, for me, the decision was a very complex decision. It was based

on possibly losing my home, my assets, my ability to fund my childrenís college

tuition, and based on this liability crisis -- the statute of limitations at 20 years,

insurance companies out of business, 17 more years before I can rest assured

that there is no FICO claim that I may be personally liable for.

The other issue is just, physically, being able to afford the liability

insurance. We were already sweating every month to pay for financing the

liability insurance premium over 10 months. And every month, with the

decreasing insurance reimbursements, there were times I did take my college

savings for my children to pay my liability payments. So weíre already

struggling to pay liability insurance.

ASSEMBLYMAN GREEN: Listening to your testimony, the thing

thatís very frightening is that, if Iím listening to you correctly, even if you go out

of business and you have no income, you and your family are still going to be

exposed to the fact that over the last 20 years you have basically brought

children into this world. Yet still, thereís no insurance coverage. Thereís

nothing to basically protect you and your family. Is this what youíre saying to


DR. WILLIAMS: Iím saying exactly that. As a matter of fact, one

of the physicians who stopped delivering babies in my department, the end of

last year, he calculated his life expectancy, and he says, "I want to outlive my

risks." We do face 20 years of further risk from the last baby we deliver. And


again, this wasnít a big issue before liability insurance companies were going

bankrupt and to State receivership. But Iíve received a certified letter from the

State of New Jersey. All of us who had FICO insurance received that letter

notifying us that we may have a personal exposure if any case during those

FICO years were to settle for more than 300,000. And as you know, 300,000

is a pittance in terms of the kinds of awards that are being awarded in the

majority of "bad baby cases." So, youíre right, even if I go bankrupt today, I

still have 20 years of exposure from the last baby I deliver.

ASSEMBLYMAN GREEN: Thank you very much.

This question to the Chair. As we sit here, we listen to all the

different testimonies. Itís obvious this thing is getting all kinds of twists. Iím

hoping that a testimony of this magnitude should shed some light on the fact

that no one, including a doctor or a person in life, should not be protected,

especially when they feel they have insurance and the insurance company says

theyíre either belly up or go out of business, and just leave the person hanging

out there -- like this can happen to her. So I just want to hope that, during the

course of our discussion of these types of issues, that we can talk about further


ASSEMBLYWOMAN WEINBERG: Assemblyman Green and Dr.

Williams, let me point out that some of the very basic problems that you raised

are addressed in our bill. The statute of limitations is lowered. There is a

method to get out of the types of lawsuits where, you said, your name was just

on the stationery, but you didnít actually see the patient. There is a method in

the bill so that you can get extricated from such a lawsuit. So although, again,

the subject is about premium assistance, if this legislation passes, those issues


that you raised would be lessened somewhat. And in addition, you would

receive the direct premium relief.

DR. WILLIAMS: However, that doesnít really address what

happens to you after an insurance company loses its license in your state. In

other words, if the insurance company goes bankrupt, you still have some risks.

And therefore, I heard one young lady ask a question, what do we think some,

possibly, interim measures could be? Many physicians in the state, weíve

discussed the fact that, at this point, this is such a severe crisis, many of us are

having to close our doors. I think the Legislature and certainly doctors, like

myself, are thinking that there should be an alternative in the state to liability

insurance, just as the state of Florida has an alternative to liability insurance.

I donít see any "short-term" solutions that would help many of us stay in

business. However, I think if physicians in the State of New Jersey were allowed

to post a bond in lieu of liability insurance, as already exists in the state of

Florida, that would keep some specialists from going out of business.


Thank you, Doctor. I know youíve got to go to handle a patient,

which is more important at this point.

DR. WILLIAMS: Thank you very much.

MR. CANTOR: Thank you, Doctor.

Can I do my testimony?

ASSEMBLYMAN COHEN: We took Dr. Williams first because

she has to handle a patient, so--

MR. CANTOR: Thatís fair.


ASSEMBLYMAN COHEN: The Administrative Office of the

Courts, unnamed but, yet, present.

ASSEMBLYWOMAN VANDERVALK: I donít know if I should

say Madam Chair or--

ASSEMBLYWOMAN WEINBERG: Whichever you prefer.

ASSEMBLYMAN COHEN: Weíre doing a gender neutral.


ASSEMBLYWOMAN VANDERVALK: Can I just ask if thereís

anybody here who can give us a follow-up on posting a bond. I mean, that

would have a cost to it as well. You donít get that -- you have to pay for that

coverage as well.

ASSEMBLYMAN CONAWAY: And itís not enough, the bond by


ASSEMBLYWOMAN VANDERVALK: So I donít know what that

really means.

ASSEMBLYMAN CONAWAY: Well, the bond issue is-- I mean,

$500,000 is not enough protection for these "bad baby cases." I wish there was

another name for it. But that is slim -- thatís a fig leaf protection, considering

the environment that weíre in now.


If you could state your names.

D A N I E L P H I L L I P S, ESQ.: Iím Dan Phillips, from the

Administrative Office of the Courts, and I have with me Kevin Wolfe, who is

an attorney with the Civil Division in the Administrative Office of the Courts.

Weíre appearing today at the request of the Committee to explain a couple of


tables that we have put together, at the request of Senator Vitale, for the Senate

Health and Human Services Committee, regarding jury verdicts and some caseflow

trends on medical malpractice cases. And we have no position at this time

on any of the bills and specific bills, but weíre taking the opportunity to explain

the table again at the request of the Committee.

We provided two tables. One is a table showing a six-year trend --

itís one page -- on the filings and terminations of medical malpractice cases in

the courts. And the other one is the detail on the terminations, the cases that

were terminated by juries, and also showing the jury award amounts. Weíll

explain both tables.

The first table, the one-page table, thatís entitled New Jersey

Medical Malpractice filing/termination data. Again, itís a six-year trend. First,

it shows the number of cases filed in 2002. There were 1,656 cases filed with

the courts for medical malpractice. Thereís also, generally, about 1,500 cases

pending in the courts. So, for example, at this time at the end of March, there

were about 3,200 cases pending in the courts, medical malpractice.

The terminations that you see, with the detail of the method of

disposition, they donít necessarily relate to the cases filed in those years. The

medical malpractice cases, the average case, takes about two years to be

terminated in the courts, and thatís compared to an average civil case, all civil

cases, which is about 11 months. Obviously, the medical malpractice cases are

more complex and take additional time. So when you look at the terminations,

the terminations are not the terminations of the cases that were filed in 2002.

They were filed in some earlier year. So you should look at the terminations

separately from the filings.


As far as the terminations go, in 2002, there were 1,700

terminations. About 43 percent of them were resolved by settlement, about 37

percent were dismissed. And we donít always know the reason for dismissal.

Some of those may be procedural, meaning they were involuntary, and some of

them may be voluntary, meaning the parties may have settled or decided to

dismiss the case and file the stipulation of dismissal with the court. In those

cases, we donít know the reason for the request for dismissal by the parties. We

just get a stipulation of dismissal, and the court dismisses.

Twelve percent of them went to trial; 200 were trial by juries, and

five were trial without juries. And thatís what Iím going to have Kevin explain

the detail on, the-- The other table is the detail of the 205 cases.

K E V I N W O L F E, ESQ.: What weíre talking about on the second table

is the cases that were tried to completion in the year 2002. Thatís the calendar

year. What we did was, we used our automated computer case management

system to generate the cases that went to trial in 2002, and then we asked our

staff in each one of the 21 counties to go in and physically look at the file to

give us the information as to how that case was disposed of.

And youíll see that approximately three out of four cases were no

cause. In other words, it was a verdict for the physician; and one-quarter of the

cases were a verdict -- a jury award on behalf of the plaintiff. We have run the

numbers of the approximate 56, 57 cases that resulted in a jury award. The

total amount came to 59,423,000, for an average number of 1.1 million. And

the median number was, I believe, $350,000. That is on Page 7 of the table.

We also have -- youíll see that there is a column marked additur

and remittitur. That column was used for comments, but it was also -- notice


that cases where there was a jury verdict, and then there was a decision by the

judge on a motion for a new trial -- to change the amount that the jury awarded

in that particular case, because of the evidence in the case.

MR. PHILLIPS: Weíve given, with that table, an explanation of

some of the terms that are used on the tables: no cause, additur/remittitur, and

high/low. If you need further explanation, Kevin can explain what those terms


Iíd be happy to answer any questions.

ASSEMBLYWOMAN WEINBERG: Just before you do, let me

ask, would you please go over again the three cumulative figures on the bottom

of Page 7, and slowly explain what each of those figures -- starting with the 59

million -- mean?

MR. WOLFE: The $59 million was simply the column -- that was

the total in that column of jury award amounts. So that column was added up,

and it amounts to $59 million. We then ran the average number for the cases

that went to jury award, and that came to 1.1 million. And then, finally, we ran

the median, $350,000 -- half were above that, half were below that $350,000.


ASSEMBLYMAN DíAMATO: Thank you, Madam Chairwoman.

ASSEMBLYWOMAN VANDERVALK: We donít have that page,

Madam Chair.

ASSEMBLYWOMAN WEINBERG: Itís the very last page. Oh,

all right. Sheila will try to get more. Apparently, we gave you an amended



ASSEMBLYMAN DíAMATO: May I ask a couple questions?

Thank you.

May I take you to the first page of the chart there. Now, if you

look at the year 2002, you have there 732 cases settled. When you mean

settled, you mean a payment was made by the defendant, through the

defendantís carrier to the plaintiff, correct?

MR. WOLFE: That indicates that -- the communication to the

courts was that that case was settled, and we assume it was settled for a

monetary amount.

ASSEMBLYMAN DíAMATO: Now, letís go to the category where

it says dismissed.

MR. WOLFE: Correct.

ASSEMBLYMAN DíAMATO: How many of those dismissals were

voluntary? Do we know?

MR. WOLFE: We do not have -- we canít look behind that

number. So that category could involve involuntary dismissals because of some

procedural problem, or it could mean that the case was settled and, simply, the

attorneys, rather than communicating to the court that the case was settled,

simply communicate to the court that they want the case dismissed.

ASSEMBLYMAN DíAMATO: Now, if the settlement was sealed,

then in all probability the court would not know that money has, in fact, been

paid, because that was negotiated between the parties. That is, thereíll be no

disclosure to anyone about the fact that a dollar settlement was made, correct?

MR. WOLFE: Youíre going beyond my expertise. I donít want to

answer that.


ASSEMBLYMAN DíAMATO: Okay. Well, I can tell you, thatís

the case. All right.

Now, letís talk about this for a minute here, because of the 638

cases, theoretically there could have been a payment made by the carrier to the

plaintiff, correct?

MR. WOLFE: Thatís correct. As I indicated, if the case was settled

but it was communicated to us as a dismissal--

ASSEMBLYMAN DíAMATO: Then letís assume thatís the case.

So if we add those two figures together, the 732 and the 638, working on the

premise that settlement was made, there were settlements in 1,370 cases of the

1,656 that were filed.

MR. WOLFE: Based upon the way youíve characterized it, yes.

ASSEMBLYMAN DíAMATO: All right. Thank you.

MR. PHILLIPS: Itís not of the file cases. Itís of the terminations

for that year.



ASSEMBLYMAN CONAWAY: Just in carrying on with what

Assemblyman DíAmato said, your data is incomplete in that there are sealed

settlements -- figures that are probably not contained here that are likely to

make these numbers even worse than they are. Isnít that right? Isnít that a fair


MR. WOLFE: The numbers that weíre giving you are simply

information that was communicated to the court and put into the courts ACMS


system. If, in fact, there are settlements outside of the court system, obviously

we would not have that information.

ASSEMBLYMAN CONAWAY: Now, just so that I understand it--

Now, the global number is, whatever it was--

MR. WOLFE: Approximately 1,700 cases filed a year.

ASSEMBLYMAN CONAWAY: Iím talking about the cash. Youíre

talking about a million dollars spread across all the cases. Weíre at a million

dollars that insurance companies are paying out to clients on average. Is that


MR. WOLFE: These are the jury verdicts.

MR. PHILLIPS: These are jury verdicts only, not settlements.

MR. WOLFE: The second table is jury verdicts.

ASSEMBLYMAN CONAWAY: Those are jury verdicts.

MR. WOLFE: Those are jury verdicts.

ASSEMBLYMAN CONAWAY: And there has been a lot of

testimony here, and a lot of dispute and gnashing of teeth over the statements

that we have heard in this committee room, from the insurance industry, who

has said that they are seeing increases in the amounts that theyíre paying. And

they threw a number out of a million dollars of these -- in the multimillion

dollar verdicts. It seems to me, now, what you presented to us today seems to

support rather than to refute what -- the testimony that we heard from insurance

executives. If Iím misunderstanding, please let me know. But this average

number of a million strikes me as very significant. I mean, if he has an answer,

Iíd love to hear it.



ASSEMBLYMAN DíAMATO: The point I was trying to make, and

I thought it was obvious, and once again, I should have thought that, is that in

the year 2002 there was a disposition of 1,656 cases, as they went out of the

court system. And theoretically, there could have been a payment of 1,370

cases. So, I suggest, respectfully, that what this indicates, or should indicate to

us, is that there is a problem. That doctors, physicians are deviating from the

standard of care. Because why would the company pay on 85 percent of the

cases that were disposed of. Thatís the point I was trying to make.

ASSEMBLYMAN CONAWAY: Well, I have an answer.

ASSEMBLYWOMAN WEINBERG: Well, apparently, youíre able

to answer each otherís questions, but we do have--

ASSEMBLYMAN CONAWAY: The reason these settlements get

paid is because of the fear of going in the court system and having to deal with

these very high jury awards, and so you get a settlement. And itís one of the

underlying -- the difficult things to get your fingers around here, because of the

fear of exposing yourself in that court-- You know, you get out and wipe the

sweat off your brow that youíre getting away with a million bucks, if you settle

for the maximum amount of policy, which happens very often. I think there is

a lot of data there thatís tough for us to get at. Thatís my answer.

ASSEMBLYWOMAN WEINBERG: I would like to put a question

to you. Is there a possibility of actually getting the information on settlements

in terms of dollar figures? Is there any way that that can be gleaned?

MR. PHILLIPS: Thatís not reported to the courts, and often, they

are also, as Assemblyman DíAmato said, they are sealed. So that information

is not recorded, and itís confidential among the parties. We do not have it in


our system. We donít record any settlement information, only that there was

a settlement and the case was disposed.

Iíd also like to clarify that we give you two measures of central

tenancy, here, of the jury verdicts where there was a monetary award. We give

you the mean and we also give you the median. The mean, obviously is affected

by the much higher awards. There are some very high award in here, which

affects the mean. The median, for your purposes, may be a better measure of

the central tenancy, which is $350,000, which is pretty much the middle-of-theroad

award. So you have to consider which average you want to use for your

discussions, whether you want to use the mean, which is affected by excessive

highs and lows, or the median, which is $350,000.

But to answer your question, we wouldnít have the information on

settlements. Itís just not reported.

MR. WOLFE: And just one further nuance. That $59 million

includes -- is the jury award. That is not necessarily what was ultimately paid

out, because there is-- Youíll see in the statistics some cases that were actually

reduced by the court.

MR. PHILLIPS: Or that there was a high-low agreement, which

means the attorneys agreed to hedge their liability by agreeing to arrange the

award before it goes to the jury.

ASSEMBLYWOMAN WEINBERG: Are there any other questions?

(no response)

Thank you for putting this information together.

MR. WOLFE: Thank you.


MR. PHILLIPS: If we could be of any other help, please let us


ASSEMBLYWOMAN WEINBERG: We have the consumer group

as a panel: Peter Guzzo from CCJ, Marilyn Askin from AARP, Dena Mottola

from PIRG, Paul Amitrani from the Hemophelia Association, and Dennis


Welcome all of you.


P E T E R G U Z Z O: Yes. Good morning, Madam Chair, members of the

Committee. I was just informed by the hearing person -- what weíll have to do

is play musical chairs, because thereís no microphone working in the back. So

when we finish, if you would allow us, weíll bring the two gentlemen in the back

up front.

Iím Peter Guzzo, Executive Director of Consumers for Civil Justice.

And what you see before you this morning, members of the Committee, is the

broadest coalition of consumer, patient advocates, victim advocates, healthcare

advocates, senior advocate organizations.

I have, to my right, Marilyn Askin, President of the New Jersey

AARP, which represents 1.3 million seniors; Dena Mottola, from New Jersey

PIRG; Paul Amitrani, from the New Jersey Hemophilia Association; and Dennis

Donnelly, who is our counsel for the consumer issues. Iím also speaking on

behalf of the Health Professionals and Allied Employees this morning, and

Citizen Action.

So I think you see before you an array of consumer organizations

that have a common message here. And the common message is, if ever there


was a cause for consumers and victim advocates to draw the line in the sand,

medical-mal reform that penalizes the victims, the innocent victims of medical

malpractice, is it. No way in the world will any other consumer organizations

that you see before you today approve of victims being penalized by having

awards capped, especially after you see the horrendous pain that a family goes

through because an innocent victim goes into a hospital, trusting a facility, a

doctor and dies four days after he goes in -- and that life is going to be

trivialized at 250, 300, 400.

Before I hand over to Marilyn Askin, let me just mention a

statement that I was asked to read on behalf of the Health Professionals and

Allied Employees, which is a union of 9,000 nurses and healthcare workers.

ASSEMBLYWOMAN WEINBERG: Excuse me one moment,

Peter. We do have a lot of lengthy written testimony from your witnesses here.

MR. GUZZO: Right. This is one sentence.

ASSEMBLYWOMAN WEINBERG: So I am going to ask each of

you, if you could, to summarize rather than -- since youíve given us copies --

rather than go through a reading of all the testimony.

Go ahead.

MR. GUZZO: Right. And this is just going to be one sentence

from the HPAE. "Health Professionals and Allied Employees believe that

doctors have chosen the wrong enemy, the wrong ally, and the wrong solution.

Patients are not the enemy, and limiting awards to patients who are victims of

malpractice is not the answer." And they support the subsidy as proposed by

Assemblyman Roberts, also.


And just one final comment. Throughout all these hearings for the

past year, this is like a wedding without a groom or a wedding without a bride.

Where is the insurance industry? That is who should be at this table. That is

who should be asked the questions of, and they should be the ones to have to

respond. Itís a sad day when doctors and patients and consumers are opposing

each other. We are common allies. It is the insurance industry that has much

to answer for.

And with that, Iíll hand it over to Marilyn Askin.

ASSEMBLYMAN CONAWAY: I have to make one comment.

ASSEMBLYWOMAN WEINBERG: Can I say no? (laughter)


We physicians are the only ones who by oath and by temperament

stand with patients every step of the way. And I canít sit here and have you say,

in public, that physicians are pitting themselves against their patients. Itís just

not true. And what we are trying to do is to come up with a solution that serves

everyone, to find a middle ground to make sure that, at the end of the day, that

we have a healthcare system that works for everybody -- if youíre a woman, that

you have an obstetrician to go to; if youíre traumatized on the road, thereís a

neurosurgeon or a trauma surgeon or an orthopedic surgeon to take care of you.

Weíre trying to balance the needs of the many, as opposed to the needs of the

few. Thatís what weíre trying to do. But to sit here and say that we physicians

donít stand with patients and walk with them every step of the way is absolutely

wrong, and it should not be said in public.

MR. GUZZO: Well, I commend you, Assemblyman, because you

are one of those physicians who is standing with patients and consumers.


Thank you.


M A R I L Y N A S K I N: Chairwoman Weinberg, my name is Marilyn

Askin. Iím the New Jersey State President of AARP. We have 1.35 million

members in New Jersey. Iím sure some of you -- I know Assemblyman McKeon

is not yet a member, but heíll get there.

Majority Leader Roberts so eloquently articulated our concerns, and

Iíd love you to study his testimony on that, because it really does represent the

concerns of AARP. Why is AARP interested in this? Weíre interested because

most of our members, if they were a victim of medical error, would never have

a day in court whatsoever, because they donít suffer economic damages. The

only damages they suffer are noneconomic damages. And with the cost of

litigation these days, it would be very hard for them to find an advocate who

would be willing to put the up-front money involved and to vest so much energy

into a case in which there would be only noneconomic damages.

So that the caps proposed, any kind of caps proposed, in this

legislation are unreasonable, theyíre unacceptable, and theyíre unwarranted.

Because caps on noneconomic damages denigrate the great value that retirees

and others provide to our society, just because they are currently not earning

economic damages or significant income.

We had a press conference the other day and, Assemblywoman

Weinberg, one of your constituents came down to testify. You probably know

him. His name is Lou Schwartz (phonetic spelling).


MS. ASKIN: Heís 90 years old.



MS. ASKIN: Thatís true. Heís going to be 91 very soon. And he

has been retired since the age of 65. He retired as a plumber. Well, since í65,

his life has taken on such meaning, such advocacy. Heís been a councilman.

Heís on the SHIP program helping people get through the Medicare maze. Heís

on the Martin Luther King board. Heís on the Fair Housing Commission, and

Iím sure there are a host of other things. His attitude was, when he heard that

his life is only worth, maybe, 250,000 -- if he gets that, maybe 100,000, if there

is some egregious error -- really makes him feel that this trivializes the value of

his life.

And so that-- Caps on noneconomic damages could result in an

unequal legal and medical system where wealthy, wage-earning patients who

suffer from medical malpractice will have far greater access to the legal system

and far greater medical concerns. And they are freer from medical malpractice

because physicians and others would become a bit more circumspect in the kind

of care. Maybe theyíd read the labels a little better.

So I know there are a lot of people testifying. In behalf of our

members, let me say that we are absolutely opposed to unreasonable caps. All

these caps are unreasonable because it would deny our constituents their day in


Thank you.

D E N A M O T T O L A: Good afternoon. My name is Dena Mottola. Iím

the Executive Director of the New Jersey Public Interest Research Group, and

Iím also here today to strongly support the direct subsidy approach, which we

believe is the best solution to the medical malpractice problem. We think that


New Jersey needs an immediate solution to this crisis. We think that we need

immediate relief. From the point of the view of the patients and patient care

and access to patient care, we need direct subsidies because we need our doctors

to have immediate relief to the crisis so that they donít leave the state, so they

stay here and take care of us.

So I implore the members of this Committee to take a serious look

at this issue. I know Assemblyman Roberts made the case very well. This is

something that weíve been advocating, and we think this is the right solution.

Weíre tired of hearing the Medical Society say that caps are the only way to

protect a patientís access to care. Caps are not the magic bullet. Direct

subsidies are the magic bullet. Even the Medical Societyís own report, released

in March, acknowledges that caps are not an immediate solution. And I quote

from Page 16, "We would not recommend an immediate rate reduction, as a

result of a cap on noneconomic damages, because of the uncertainty as to the

amount of the benefit resulting from the reform, the apparent current rate level

inadequacy, and uncertainly as to whether the reforms will be upheld in the


So I think that -- even many consumer groups have put out research

saying that caps wonít work and wonít solve the problem, and this is, in fact,

the own New Jersey Medical Societyís research.

Direct subsidies are money in the doctorís pocket -- 50 percent. Dr.

Williams just spoke. I understand sheís experiencing a lot of difficulty in her

practice. A 50 percent subsidy brings her rate down to almost what it was when

she said 30,000, when she was practicing, when she didnít think that there was

a particular problem. It would be retroactive. So, again, money in the doctorís


pocket, back to the time when rates started to increase. I think that the

physicians in this state are just foolish not to support this approach as the best

to solving the problem.

Thereís another reason, from my point of view, why I think this is

the right approach, and that is it acknowledges that this is an insurance crisis

and that itís cyclical. That right now weíre at the high end of the cycle where

rates are high. Weíre coming back. Eventually, weíll come back around, and

this subsidy can -- we can sunset it as the problem goes away and naturally

attenuates. So we think this is the right solution.

Youíre going to hear, or you already did hear a lot why caps are not

right for consumers. I just want to add my voice, New Jersey PIRGís voice, to

why we think caps are anticonsumer. And just in general, access to the civil

justice system when injured is an important civil right afforded to members of

our society. Even when the injury is the result of a physicianís negligence, that

right must be upheld. Doctors are not exempt from accountability. From the

point of view of the victim, a disability caused by medical negligence and a

disability caused by anything else -- a reckless driver, you name it -- is still a

disability. They live with it for the rest of their lives.

So, as we go forward in this debate, letís finally reject this whole

conversation about caps and move onto the solution that we think can actually

solve the problem. You heard Assemblyman Roberts talk a little bit about why

caps wonít solve the problem. I think thatís the practical reason. It certainly

isnít the most compelling reason why we should abandoned caps as a solution.

We heard from the victims. Thatís the most compelling reason. But just to

quote some research that just recently came out from the Center for Justice and


Democracy, a report they released last month, that says that in the three states

where lawmakers recently enacted caps -- that would be Nevada, Mississippi,

and Ohio -- doctors are still struggling to find affordable insurance.

Weíre going to see doctors coming back clamoring for a solution,

if the only solution that weíre going to be looking at is caps, because-- And I

would guess that the solution that theyíd be coming back for is a subsidy,

because we have a crisis and we have to deal with it now.

I just want to conclude by talking a little bit about the long term,

because we need to get out of the short-term crisis. We also need to do what we

can to prevent the crisis from coming back around again, and getting the cyclical

problem. So how do we prevent a future crisis, and what else does New Jersey

PIRG advocate, besides the direct subsidy now? This is what we do for a crisis.

And we probably, in the next 10 years, will be back where we are today, where

we can give consumers the ability to have more power in the market --

consumers meaning doctors who purchase medical malpractice insurance -- and

give doctors the ability to form purchasing alliances to negotiate with

malpractice insurers to get lower rates. We can do insurance reform like

California did, where we can actually ask insurers to open up their books. If

they want to increase over 15 percent, they have to justify it.

So there are long-term solutions out there, that are not caps, that

would help solve the problem tremendously. But I think, right now, in the short

term, the direct subsidyís, the right way to go. Letís help doctors ride out the


Thank you very much for allowing me to speak today.


D E N N I S M. D O N N E L L Y, ESQ.: Madam Chairwoman, itís not

just because youíre my Assembly person that I thought you did a nice job in

responding to Dr. Williams about the positive aspects of your bill, in other

words, the decrease in the--

ASSEMBLYWOMAN WEINBERG: Excuse me, would you just

identify yourself, even though I know youíre a constituent.

MR. DONNELLY: Thank you very much.

Iím Dennis Donnelly. Iím counsel to CCJ, and I wanted to just

add to your statement to Dr. Williams that, in actuality, A-50 -- although some

of the changes in the Senate version were for the worse -- also contains in

Section 20 a limitation on the rate of increase that any one insurance company

can charge. Thatís actually Section 22. And, in Section 20, contains an

additional safeguard or protection, and that is that the type of case that Dr.

Williams mentioned, where sheís a peripheral defendant, could not be included

in increasing the rates. So I think those are examples of positive things that

youíre trying to do.

I also want to point out to you that the presentation from the AOC

gives a very specific example of why, perhaps, your addition, to the remittitur

standard, also dealt well with the problem. Although, frankly, judges are

already dealing with the problem. Because in the data you were given, there was

a $9 million verdict, which you will see was remitted by the judge to a $1

million verdict. So that, actually, $8 million of the data you were presented

from the AOC was eliminated from the mix. So when youíre looking at their

median numbers and when youíre looking at their average numbers, you can


also back out that $8 million, because the judge did the remittitur. And Iím

sorry, I donít have it in front of me, but itís in there, and you will see it.

ASSEMBLYMAN CONAWAY: No, itís 1.4. Iím fine.

MR. DONNELLY: Am I frustrating you? Okay. The last point

that I would make is this, and it is an important point. When consumers speak

to you about -- on behalf of AARP, on behalf of senior citizens, or on behalf of

minors who are the opposite end of the spectrum -- they talk about the two

parts of our society who, I think, weíve always protected the most. And the

legal term that you can apply to that is equal protection. There are real issues

about the constitutionality of caps. And the reason why many states have had

a legislature pass an arbitrary and unreasonable cap, and then had the courts

come and reverse them, is that equal protection means that all parts of the

society -- the children, the elderly -- are protected the same. And if you apply

something based on noneconomic loss, you are unequally treating a large

number of people.

Actually, the AARP Web site has an excellent series of articles, the

last time caps came around, and they had one other disturbing statistic. The

elderly are the largest percentage of the unfortunate recipients or victims of

medical negligence, because they need more medical care and there are more

medical mistakes that are made in that care. So, if you deal with this in the way

itís been presented and the unfair way of "noneconomic damages," you are

visiting on the people who are going to have the most errors made the most

restrictive access to justice. And thatís just not the right way to go.

Thank you.


P A U L D. A M I T R A N I: Good morning, Madam Chairwoman,

members of the Committee, my name is Paul Amitrani, and Iím the Past

President of the Hemophilia Association of New Jersey. The Hemophilia

Association of New Jersey opposes any law that limits an individualís access to

the courts. By access, we mean anything that impedes the ability of an

individual to bring suit, or to be fully compensated for their injuries. A-50 does

not specifically target the hemophilia community. But our struggle with major

pharmaceutical companies in the early í90s, over HIV contaminated blood

products, has made us extremely vigilant of anything that might deny an

individualís right to legal redress in the courts.

I know many of you were very helpful to us during that crisis

period, and I would just like to thank you, again, for the assistance that you did

provide at that time.

Rather than caps, the Hemophilia Association of New Jersey favors

the traditional means of determining damages -- the jury system. In this way,

all parties to the action get a fair hearing of the facts of their specific injury, and

the jury makes a case-by-case determination as to the amount of damages. It

is our position that this is the only fair way to determine compensation.

Thank you.



ASSEMBLYMAN CONAWAY: A couple comments and questions.

Any time you put a dollar value on human life, I would say, that itís being

trivialized. Whether you are talking about $20 million or $30 million, youíre


still putting a value on someoneís life. And that, I think, in any scenario,

represents trivialization.

Someone commented that weíre focused on this cap issue. One of

the reasons why weíre talking about caps is because thereís general agreement

on many of the other things that are there. Caps is the most controversial one,

and sorry that we are discussing it and people are bringing it up, but

unfortunately, thatís the big rub in the legislation thatís being proposed. And

if you look at my own legislation and even the legislation weíre considering here

today, we are talking about comprehensive solutions that are aimed at various

aspects of the problem.

Now, one question that I have, and of course, there are more than

one ways to get at someone. Because one of the issues that has been raised is

the access to folks, generally, to the courts. And some believe -- I havenít made

up my own mind about this -- is that we do -- that perhaps our system ought to

do a better job at getting people who are injured into court, so that thereís not

this sort of income bar -- so much is driven by how much the lawyer is going to

get out of the case that many people who have been injured donít get to court

at all. And that we -- and I donít know if the AARP is saying this or whether

PIRG is saying this -- some kind of a system, whether you call it a workmenís

comp-like system, or some kind of a system, to get folks who have been injured

some kind of compensation, whether youíre looking at that.

Because when you talk about fairness -- and Iím a Democrat, I

donít mind saying so -- having people who have been injured get some kind of

compensation is very important. We donít have that now. My understanding

is that only a small percentage of people who actually have injury are able to go


to court and get any kind of recovery. And maybe when we start talking about

reform and thinking about fairness and equality, as has been raised, we ought

to think about whether or not this kind of a litigation-driven system is the best

way to get people all they need.

So my question is, have you folks been studying the most

comprehensive reform, and that is some kind of workmenís comp system that

makes sure that everybody who is injured gets some kind of a judgment and

determination to give them some redress.

MR. AMITRANI: Dr. Conaway, thereís never--

ASSEMBLYWOMAN WEINBERG: Excuse me, before you


Assemblyman McKeon would like--

ASSEMBLYMAN McKEON: Thank you very much.

Iíve been -- and I will continue to keep -- quiet and, hopefully, stay

on message and listen to the testimony weíre supposed to today. But I have to

say to my colleague -- and I know you probably didnít mean what you said, and

maybe you did -- that the same way that you took umbrage relative to that, that

the doctors are in opposite with the views of their patients-- To say that

litigation is driven by attorneys not because itís in the best interest of the people

that theyíre duty-bound to represent, but because of the money there is, well, I

think thatís just insulting. I know many, many lawyers, of which you are one,

a member of the bar, who move and proceed in the best interest of their clients,

often at their economic peril relative to them taking the case on contingency.

Now, Iím going to tell you the farce that all this is, relative to us

talking about jury verdicts. The bottom line is that if the Senate version or any


type of cap go through, thatís all weíre going to see is jury trials. Because the

bottom line is that jury trials in the State of New Jersey, relative to medical

malpractice, work very well. Take a look at what the AOC gave you. Look at

the number of cases tried and look at how many resolve in the favor of the

doctor. So letís all keep in mind, if we go forward with any type of cap,

modified, what have you, that that is going to result in the insurance companies

going forward and trying 90 percent of the cases. Those numbers, of 700

resolved, youíll see go down to about 50, and then youíll have 10 other pages

attached for the next year, relative to cases getting tried and juries making those

decisions. And that will be the effect of that kind of cap.

ASSEMBLYMAN CONAWAY: Well, let me just respond.

ASSEMBLYWOMAN WEINBERG: Excuse me, but we are going

to have a lot of time to discuss among ourselves what weíre going to be doing

with this bill in the future. Weíre kind of even. Weíve insulted the doctors and

the lawyers now (laughter), so Iíd like to go back to Mr. Donnelly.

ASSEMBLYMAN McKEON: Both of us deserve it.

MR. DONNELLY: Thatís equal protection, actually, and thatís a

good thing.

Dr. Conaway, I think that is a different debate. I will tell you this.

That no one who has ever been involved in a workersí compensation claim is

satisfied with their claim. So youíre suggesting a relief thatís worse than the

disease. But in any event, thatís for another day, and I do appreciate being here.

Thank you.


MR. AMITRANI: Iíll defer to Assemblyman McKeon any day,

because he did a better job than I could.

ASSEMBLYMAN CONAWAY: Can I comment on his testimony?

ASSEMBLYWOMAN WEINBERG: Okay. Are there any other

questions for this panel, because we do-- We have another doctor whoís waiting

to see a patient, and we have the Medical Society, who Iím sure is getting a little

antsy about the length of time theyíre waiting, but go ahead.


ASSEMBLYMAN CONAWAY: Oh, I was just going to say that

counsel for CCJ makes my point. When you have a $9 million verdict that

comes out of the box, in that case, the judge did happen to remit that award.

But the concern is that a different judge wouldnít do that, and you have $9

million sitting there that needs to be paid. So the fact of the verdict itself, I

think, is concerning. It might have been appropriate. That judge happened to

think that verdict was not. You might get another judge, or many other judges,

who think that thatís perfectly fine and that will have, in our view, a very

detrimental effect on our cost structure, because it affects the cost structure of

the people who insure us.

MR. DONNELLY: But again, your own bill has modified and even

strengthened the judges ability to do that--


MR. DONNELLY: --so that seems highly unlikely.

Thank you very much.



We have another physician who has asked to come forth, who also

has a patient waiting, Dr. Stephan Lomazow, is it?

S T E P H A N M. L O M A Z O W, M.D.: Lomazow. Thank you.


And then heíll be followed by the New Jersey Medical Society.

DR. LOMAZOW: Thank you very much.

Madam Chairwoman, thank you. My name is Dr. Stephan

Lomazow. I created the concept of the fund that recently passed the Senate,

introduced and refined by your honorable colleague, Senator Raymond Lesniak.

I have no personal agenda. Being a neurologist, I am not in a high-risk


My concern is for the future of medicine and how an unfavorable

environment to practice, contributed to by skyrocketing liability premiums, will

impact upon the health and welfare of the people of this great state and country.

I have had extensive and substantive conversations with leadership of the

medical, osteopathic, legal, political, and insurance communities in an attempt

to better understand their positions and find an equitable solution to this

exceedingly complicated problem.

The essential question is, how can moneys raised by the State be

best utilized to beneficially impact the system of medical liability insurance?

The present legislation proposes a subsidy for physicians in high liability crisis

specialties. I would urge you not to adopt this approach. First of all, it would

be an administrative nightmare and vastly more expensive than the Senate

proposal. The needs of a pediatrician or a senior part-time clinician, for want

of a few thousand dollars, who would ordinarily stay in practice and then retire,


is equal to that of a neurosurgeon whose premiums may be elevated by 75 to

$100,000 a year.

There is no equitable way to distribute a subsidy of insurance

premiums. Moreover, it does nothing to affect a long-term solution to the

problem, and it is not what the organized medical community wants.

Politically, my mentor, Senator Lesniak, has told me on numerous occasions,

"Donít give people something they donít want," citing the billions of dollars to

education by former Governor Florio, only to have the teachers demonstrating

in Trenton the next day.

Organized medicine is focused on caps on liability. They have

commissioned studies which show a relationship between caps on liability and

stabilized cost of premiums. They are not interested in Band-Aid approaches,

even those which may have an obvious and immediate benefit for high-risk


The Senate bill is not a cap. Most of the testimony you hear today

is against caps. The Senate bill is not a cap. It is a limitation on the personal

liability of physicians against large awards for noneconomic damages. A cap is

not on the table. Senator Lesniak is opposed, in any form, to a cap.

The legal profession feels that the insurance industry is primarily to

blame. Fortunately, both the medical and legal professions are in favor of

needed reforms to protect doctors against frivolous litigation and against

penalizing them for being named in an action in which they were not involved,

as you heard earlier. Neither the doctors nor the lawyers are wrong. The crisis

is multifactorial, precipitated by greedy insurance companies that artificially

lowered rates to get market share in a favorable economic environment, and now


have to bear the consequences after a fall in investment income. Itís about a

small percentage of incompetent lawyers who will bring wrongful and poorly

prepared litigation. And yes, a small percentage of physicians, who overreached

their capabilities.

The essence of the dispute about the fund, as it is created, is

whether or not it would encourage or discourage litigation, as Assemblyman

McKeon so clearly spoke. Some would then argue, why wouldnít insurance

companies then not settle any cases and wait for the State to pay their bills after

a trial. Senator Lesniak believes that the strong bad faith language in the Senate

bill will afford protection against this. I agree, but I also feel that there is even

greater potential to encourage early settlement of cases, by applying a portion

of the fund to the noneconomic portion of cases that settle rapidly and


Everyone agrees that prolonged litigation adds undue expenses that

raise premiums and are passed along to the physicians. Another very major

point of contention between the interested parties is the ratio of economic to

noneconomic damages in malpractice awards. The Medical Society, in some

degree, citing the AOC report, believed that the noneconomic damages in cases

settled last year totaled about $175 million, which is 70 percent of the total.

The trial lawyers believe this number is grossly inflated. Obviously, the greater

the percentage of noneconomic damages, the greater the effect on rates by any

limitation or subsidy of them. An accurate determination of the true number is

absolutely critical. I would urge the Assembly to obtain this information from

the carriers and carefully analyze it.


Also, one thing thatís been overlooked here is the implications of

concurrent Federal legislation -- have been overlooked. It is stalled in the

United States Senate, but if passed, any cap on damages imposed would be

applicable to New Jersey unless some preemptive measure, presently lacking in

the New Jersey legislation, is enacted.

The creation of a streamline, fair, and efficient system of medical

liability is a daunting task requiring innovative, bold, and well-thought-out

ideas. The Senate bill, in my opinion, is an excellent foundation. I would urge

the Assembly to build upon it.

Thank you.

Any questions?

ASSEMBLYMAN COHEN: Thank you, Dr. Lomazow.

DR. LOMAZOW: Thank you very much.

ASSEMBLYMAN COHEN: The New Jersey Medical Society.

MR. CANTOR: Thank you, Madam Chairman, Mr. Chairman.

Again, my name is Ray Cantor. I am with the Medical Society of

New Jersey. I do have a few comments I do want to make about the issue of

subsidies. But first, I want to introduce James Hurley, from Tillinghast-Towers

Perrin, who is here today to talk about the report he did on behalf of the

Medical Society.

Weíve heard many people testify today about what are the drivers,

what are the causes, why are rates going up, and what can we do about that.

There are a lot of nonexperts who are posturing their opinions. There are people

who say that they know the answers. The Medical Society of New Jersey,

representing the physician community in New Jersey, was, and remains,


dedicated to finding out what the truth is. But itís really our members who are

being impacted most severely by this crisis. We have no interest in coming up

with a solution that is false, and itís not going to help our members. We have

no intention of trying to fight battles that donít have to be fought, if theyíre not

going to result in substantial premium relief for our members.

It is with that emphasis in mind that we determined to find out

what the truth is and to find out the possible solutions to solve this crisis. In

order to do that, we engaged the services of Mr. Hurley, who is a nationally

renowned actuary. And what we did then was negotiate with Princeton

Insurance Company and MIIX Advantage, or MIIX Insurance Company, to

release to Mr. Hurley their proprietary data over the last 10 years. We, as the

Medical Society, have not seen this data. It remains confidential. We had to

sign confidentiality agreements. But this data was turned over to Mr. Hurley for

his analysis and his report.

Princeton and MIIX, I believe, represent, maybe, 70 or 80 percent

of insurance policy coverage of the physician community in New Jersey. So we

think their data really is telling as to what is going on in New Jersey. Now,

having said that, I will turn it over to Mr. Hurley to present his findings.

J A M E S D. H U R L E Y: Good morning, Madam Chairwoman, Mr.

Chairman, and members of the Committee. I think Ray is probably describing

in greater detail and with greater glory than I deserve, so Iíll not mention

anything about what I do. But I have spent the last 20 years, believe it or not,

looking at med-mal problems as a consulting actuary. I am an actuary by

training, which means my tendency is to try and figure out the score. So some


of my comments are going to focus on that score-keeping process and how we

see the score at this moment.

I guess, itís fair to say, that itís anticlimactic to say thereís a

financial problem as it relates to medical malpractice in New Jersey, as there is

in many other jurisdictions. Our task was to find out what that problem was

and what some of the drivers are. First is, it seems clear that the payments that

are being made by these companies are in excess of the premiums that theyíre

collecting. There is actual paid data that is indicated by these companies that

is exceeding the premiums that theyíre collecting. So clearly, from their

standpoint, the economic proposition is not working very well.

The data that we were provided indicated that there was roughly

$1.36 or so in paid expense and loss dollars relative to the premium they

collected, and thatís on a paid basis. Unfortunately, youíre not providing paid

coverage in this state. Youíre not providing claims-paid coverage, youíre

providing occurrence coverage, which means if trends continue at the rate they

are, that number will not be $1.36 or $1.40. It will be something closer to

$1.70 or $1.80. And no amount of investment income is going to offset that


These studies are based on several sources of data, including the

information that the two companies that Mr. Cantor described provided to us,

as well as published data. In fact, most of our work was done based on not just

the two companiesí data, but on the broad medical malpractice industry data

that we were able to collect in conjunction with the study that we did.

So a couple of findings about why thatís happening. Itís our

conclusion that the primary reason for these needed higher rates and the loss


statistics that we see is an increasing severity. There is data that shows clearly

that thereís a higher severity in current periods relative to prior periods. Thereís

an increase in the percentage of claim dollars that are being paid relating to very

severe claims, and those are claims of over a million dollars. If you go back four

or five years, the data says that, roughly, 15 percent of the claim dollars that are

paid to claimants were related to claims that cost more than a million dollars.

Today, or in 2002, that percentage now has exceeded 25 percent, based on the

data that was provided to us. So more severe claims are occurring, more claim

dollars are being paid on those severe claims.

A second reason that contributes to the increase is the level of

investment income that companies can make. And that doesnít mean that

companies lost money on their investments and are recouping that. And Iíll

touch on that in a moment. What it means is that interest rates out there,

which is the way most companies invest their assets, are lower. Interest rates

dropped 250, 300 basis points over the last several years, and we all know thatís

true. We all feel that in our investments. Well, insurance companies feel that,

too. And when you change the rate of interest that you can earn on assets --

because these companies reflect investment income and reduce the rates, in

response to that level of investment income, when interest rates are lower -- rates

will be higher. Itís a calculation that gets done whenever rates are determined.

And when interest rates go down, rates will, generally, go up. And thatís where

we are today -- in a lower interest rate environment.

I mentioned that stock market loss -- sometimes itís mentioned that

stock market losses are a cause for increases in rates, and, in fact, thatís not the

case. These companies invest very little of their assets in the stock market. And


while they have-- To the extent they did invest them, they have separate losses

they are not able to recoup that -- and Iíll come back to that in a moment -- in

the rates that they file.

Our study indicated that the rate increases that have been taken so

far are justified. We have reviewed rate filings of the companies, that were made

with the Insurance Department. We have analyzed the data that we have

available to us, provided by the companies and in the general industry, and we

conclude that not only are those rates justified, we fear that the rates are not

adequate at this moment. In fact, there may be need for greater rate increases.

One reason for the timing of this, and one reason for the difficulty

in identifying these needed rate increases, is the fact that itís hard to identify

these changes in trend levels. And youíll see in our report that we show you

some graphs of the level of changes in severity of claims. Thatís the average cost

of a claim over time. And youíll see that that number doesnít go in a nice

smooth line over extended periods of time. It will shift. Itís those shifts and

those turning points in the data that are most difficult for anyone to identify.

And even when you study it persistently, over time, you may not be able to

identify it. Itís those shifts, and recognizing those shifts, that are difficult; and

itís partly those shifts that weíre seeing affecting the level of the increases that

are being implemented at this point in time. As I say, to the extent that that rate

of increase has not been arrested somehow, itís possible that there will be further

increases needed as we go forward.

Just a couple more thoughts. I just wanted to discuss a couple of

misconceptions. First is that insurance companies recoup investment or


underwriting losses in rates that they charge prospectively. That is not done.

That is not allowed. The law, in general, in most states will prohibit you from

doing that. Rate making, as it is called, the setting of rates, is a prospective

exercise. It is a forward-looking exercise. You set rates based on what your

experience has been, but youíre not able to go back and say, "Well, I lost money

in underwriting last year. Thatís my insurance operations." Or, "I lost money

in the stock market." That doesnít get into the rate-making process. Itís a

forward-looking exercise.

The second misconception is that insurance companies report bad

results to justify higher rates. Again, not done. A clear example of that is very

close here -- is the fact that if MIIX reported bad financial results to get higher

rates, it didnít work, because theyíre in runoff. And thereís several other

companies that were mentioned. FICO, for example, didnít report bad financial

results to be put into liquidation. And there are other companies who have

suffered that same fate.

And St. Paul, a major writer, the top writer of business in the

country, withdrew entirely from medical malpractice. Not because they wanted

to make the money back -- because with increased rates in medical malpractice,

theyíll never make the money back. Theyíre out of the business. So this, in the

words of St. Paul and the published statements they made, is that the business

is too unpredictable -- "We cannot adequately predict these losses and,

therefore, we want to deploy our capital in more prudent ways on behalf of our


Lastly, I just wanted to talk for a moment about the issue of cycle.

And certainly, I donít think we would argue that there is not a cycle, an


economic cycle out there that somehow dovetails into and affects the insurance

business, and so, as such, part of the cycle for the insurance business.

Unfortunately, where we are is not going to get much better. The losses that we

have today, the level of investment income needs to be reconciled with the

premiums, and thatís the process that weíre going through right now. In other

words, those loss levels and those investment income levels are being reconciled

to premium. And the premiums that are being charged today are functions of

those losses and those investment income levels. Unless you do something to

change those, these rates are not going to go down prospectively. At least, you

should have no expectation that theyíre going to do down prospectively. And

so the changes in the financial environment are not likely to change,

substantially, the level of the rates that are being put into place.

And with that, Iíll conclude and answer any questions you would

have for me. I know you have a very thick piece of paper or set of papers in

front of you, and I apologize for that.

ASSEMBLYMAN COHEN: Assemblyman McKeon.


And thank you for your testimony.

My question is relative to the -- I donít know how familiar you are

with the current Senate bill -- but it is the way itís drafted. It applies

retroactively. Meaning that if it was to be passed, every lawsuit thatís currently

filed and not yet disposed of, it would apply to. Now, thereís a cause for

concern for those proponents of that bill that that provision will be challenged

with the court. Thereís a very good chance that at least that provision will be

deemed unconstitutional. If that was to happen -- letís not talk about if it


would or wouldnít -- if that was to happen, what would be the effect, if any, on

premiums over the next five years, if the cases currently in the pipeline were

affected by the modified cap, and as a matter of fact, if there was maybe a ton

that would be filed, out of the hope that one wouldnít be affected by the cap?

MR. HURLEY: If I understand the question, youíre saying that the

cap that would be put in place would apply to claims currently in process.

ASSEMBLYMAN McKEON: Thatís what the proposal is. Thereís

a school of thought that thatís going to be -- if it was passed, that the courts

would have a final say on that, as it may be unconstitutional. So, if that was

declared unconstitutional, would there be any effect on premiums? As a matter

of fact, theyíd go up, wouldnít they?

MR. HURLEY: Itís quite possible they would go up. I donít know

to what extent the loss estimates, at this point, would reflect some expectation

of favorable results due to the change in the law. I donít think they would, at

this point, if the law hasnít been passed. I think what would have to happen is,

youíd have to sort out those claims over time and see what happened. But itís

quite possible that-- As I say, the loss experience weíve projected here

anticipates no changes in the environment. And so $1.70, $1.80 is what weíre

looking at for underwriting results, which cannot be offset by investment

income. So the results could get worse. I doubt, seriously, it would get better.

ASSEMBLYMAN McKEON: And as we all know, the doctors do

need some relief. And going forward in that direction, that relief is, at least, five

years off, as opposed to the current bill that the Assembly is proposing, and

thatís immediate relief.


MR. HURLEY: As I understand these bills, the so-called subsidy

bill thatís been described would represent an immediate reduction, I guess, in

certain circumstances to be defined. And that would give immediate relief to the

physicians. I guess the question for you folks to deliberate about is, what is the

long-term solution? Thatís a more difficult question. Certainly I could see the

desirability of a bill that would give some sort of immediate, short-term relief.

But as time goes on, thereís no signals in this data, and if you do nothing to

affect it, thereís no signals in this data that these losses are going to go down.

They are, in fact, where they are.

ASSEMBLYMAN McKEON: And the last question -- relative to

the comprehensive, all the other changes, even as they relate to both frequency

and severity, as actuaries should look at all the other changes in the proposed

law -- if theyíre given a chance to percolate over four years, will then, from an

actuary perspective, would that lead to improvement?

MR. HURLEY: I donít know that I could articulate exactly all the

provisions of the bill. I think itís one that we had looked at. My recollection

was that the bill, if it was AB-50. Is that--

MR. CANTOR: Yes, A-50. I assume youíre referring to the bill

that came out of the Senate.


MR. HURLEY: With the $300,000 in excess liability fund.

ASSEMBLYMAN McKEON: I am referring to that bill, but the

point is, and it seems the witness has answered the question, that heís not

analyzed all of the bill to understand, when given five years for all those reforms

to percolate, whether or not that will improve the environment, therefore


resulting in the ability to stabilize rates from the insurance industryís


MR. HURLEY: If it was a bill that the Medical Society asked us

to review, it was our conclusion that that bill probably would have a net effect

of increasing costs slightly.

MR. CANTOR: Excuse me, excuse me. Youíre--

ASSEMBLYMAN COHEN: No, let him finish. Let him finish.

MR. CANTOR: I think heís referring to the wrong bill.

ASSEMBLYMAN COHEN: Maybe you donít understand, let him


MR. HURLEY: I think that the right solution would be-- We were

asked to look at one version of the bill, in fact, several versions of the bills over

time. And I think, in order to provide a proper answer to the question, perhaps

I could submit something after weíre done here, so Iím looking at the right

version of the bill. We had looked at several versions, and there was one that

looked to us like it would actually increase costs, rather than decrease costs. I

should look at the exact bill youíre referring to and give you a written response

to that, if you donít mind.

ASSEMBLYMAN McKEON: All right. And Iíll appreciate that.

Thank you, Mr. Chairman.


Assemblyman DíAmato.

ASSEMBLYMAN DíAMATO: Thank you, Mr. Chairman.

Sir, if I could direct your attention to Page 2 of your report, where

you talk about reliances and limitations. You say, in part, and Iíll quote it, "We


have also relied, without audit, on information contributed to the Medical

Society of New Jersey study by MIIX Insurance Company, MIIX Advantage of

New Jersey, and Princeton Insurance Company." Did you write a letter, or did

the Medical Society of New Jersey write a letter, to MIIX and Princeton,

itemizing the data that you needed in order to do an objective and an

intellectually honest analysis?

MR. HURLEY: The way the process worked was, the Medical

Society of New Jersey retained us, and we defined a data request that was

provided to the companies.

ASSEMBLYMAN DíAMATO: And did you get all the data that

you wanted?

MR. HURLEY: No. We never get all the data we want.

ASSEMBLYMAN DíAMATO: Tell us what you asked for that you

didnít get?

MR. HURLEY: I donít know that I could articulate exactly what

we didnít get that we asked for, sitting here at this moment, but there were some

details of data, breaking it down into coverage year -- that type of information --

that we were not able to obtain from the companies, and therefore, we did not

use those types of analyses.

ASSEMBLYMAN DíAMATO: Now, the fact that you relied on

information without an audit, in simple English for everybodyís comprehension,

what does that mean?

MR. HURLEY: That means that the data was provided to us by the

companies without having, for example, an accounting firm review the data to

match it against, exactly, their records. So, for example, what we get is a data


run or a list of claims that was not reconciled by an auditor or an accountant to

the individual claim records within the company.

ASSEMBLYMAN DíAMATO: So, if the data that was supplied to

you by the two insurance companies, MIIX and Princeton, was intentionally or

negligently skewed a certain way, then the conclusions of your report would,

perhaps, be different.

MR. HURLEY: Well, clearly, if the data was biased in some way

by the companies, it would affect our conclusions. However, I would comment

that that was not the only data that we used in doing our analysis.

ASSEMBLYMAN DíAMATO: As part of your analysis, did you

do a study of the investment practices of MIIX and Princeton over the last 10




MR. HURLEY: We didnít think-- Well, actually, that wasnít the

focus of our analysis. Our focus of analysis, on their particular information,

was on the claim or the loss side. We did look at the relative proportion of

assets that they had in equities versus bonds, fixed income, interest, and that

sort of thing, but did not review the investment practices of these companies

over the last 10 years.

ASSEMBLYMAN DíAMATO: Have you ever investigated an

insurance company, particularly medical malpractice insurance company,

regarding their investment practices, as to whether they were reasonably prudent

in their investments?


MR. HURLEY: I am not in the business of reviewing companiesí

investment practices. Thatís sort of outside my area of expertise. But I am

familiar with how these companies invest their assets, having looked at them

over the last 20 or so years. So I think Iím familiar with it, but I donít

investigate it. No.

ASSEMBLYMAN DíAMATO: In order for this combined

legislative Committee to do something thatís fair, would you recommend to us

that we study the investment practices of the two companies to see how this

crisis evolved?

MR. HURLEY: While Iím not comfortable with advising the

Committees about what they should or should not do--

ASSEMBLYMAN COHEN: Feel free. (laughter) Itís an open


MR. HURLEY: It would be my observation, based on past

experience, that looking at companiesí experience over time, it has typically not

been investments that have been the cause of problems. So my experience is

that in looking at the investment practices of these companies, over the time Iíve

dealt with them, the problems do no emanate from the investment side. And I

can tell you that if they did emanate from the investment side, as I mentioned

earlier, relief in the form of increased rates would typically not occur, as a

consequence of that.


Thank you, Mr. Chairman.



ASSEMBLYMAN CONAWAY: Just to reiterate a point on that,

with your experience looking at these insurance companies -- not only in the

State of New Jersey, but across the country -- that-- Because the claim is that

all of these huge increases that weíre seeing are due to their losses in either their

interest income or to their stock market income. And I think you testified -- or

losses -- that there is not much of a correlation between those factors and the

premiums that are paid. Isnít that right? Is that a fair statement?

MR. HURLEY: I believe it is, but let me state it again, just so Iím

clear. Rate increases today are not a function of investment losses from

yesterday. Companies are not increasing their rates because they lost

investments or they lost money in the stock market or anything like that. It is

partly a function of the fact that they cannot invest the premium flows theyíre

going to collect next year in interest instruments that are going to generate 6

percent yields; rather, theyíre going to generate 3 or 4 percent yields. So rates

are higher as a consequence of that, but not because they lost money in prior


ASSEMBLYMAN CONAWAY: And so, one would wonder then

about the value of some of the explorations that have been suggested as -- in

terms of how they run their business. But moving on from that, you seem to

suggest in your comments, if I understand them, at least in your study of what

goes on in New Jersey, that there has been a trend toward higher awards.

Because this has been one of the big bones of contention here from the one time

we were able to get one of the insurance company executives to come in, that

theyíre seeing higher and higher payouts which is affecting -- which is a second

question, because of a following question -- which is affecting the premiums that


they have to charge. I mean, theyíre looking at what their liabilities are, going

forward, and trying to make a prediction about what itís going to be, in setting

a rate. So, did you say, and from your analysis, did you see or are you seeing

evidence which supports their contention that the awards, in fact, are higher

than they had been in previous years?

MR. HURLEY: Yes. The awards are higher, and correspondingly,

the settlements that they make, which are not awards, to distinguish between

jury findings and payouts, are likewise moving up. So the combined effect of

those is increasing and, therefore, driving up rates.

ASSEMBLYMAN CONAWAY: Very good. Thatís what I had

thought. And it is true to say that those awards have to affect the premiums

they charge the physicians, or is that-- I mean, I know thereís some other

factors going in there, but what would you say is the principle driver of the

premiums they have to charge us?

MR. HURLEY: The key driver is lost costs. Most of the dollars

that these companies spend money on is on lost costs and defending claims.

Thatís where most of the money gets spent.

ASSEMBLYMAN CONAWAY: Thatís what I thought.

Now, one of the-- To go back to Assemblyman McKeonís point,

because I think what he was trying to get at-- And I read your initial report to

the Medical Society, and you did say, and your comments on the bill before

you, that you were concerned that some of the provisions might actually be cost

drivers. I think that what the Assemblyman was getting at -- who is not here --

was looking, specifically, at the limitation on liability to insurance companies

of $300,000, and whether or not that limitation to their liability, hopefully,


translated to us in terms of a lower premium, whether or not that particular

provision would lower the premiums they have to charge we physicians.

MR. HURLEY: It would be my expectation that it would reduce

the losses that the companies will be responsible for, but I would caution you

in drawing the conclusion that that will translate immediately into lower rates.

And the reason for that is, that the rates need to be adequate. In other words,

they need to be reflective of the current loss level before you can start thinking

about the impact of having lower loss costs reduce them. So the first step in the

process is to get the rates to be adequate. And as I alluded to earlier, they may

not be adequate at this point.

ASSEMBLYMAN CONAWAY: And thatís the problem. What

now, what youíre saying is that we have an inadequate rate structure for the

costs right now, which may obliterate, perhaps, all of the savings measures in

this legislation.

MR. HURLEY: Quite possible, yes.

ASSEMBLYMAN CONAWAY: Now I wanted to get to a point

that has been raised here time and time again by folks regarding the experience

in California, because I think the graph is pretty clear -- over 25 years, and what

has happened there. And itís been a combination of things, which Iíve said in

all of my comments -- which keeps being missed -- and that is that itís a

combination of the cap and the tough regulations they have on insurance

companies. Can you comment on the effect of the proposition in California as

regards insurance reform, and comment, generally, on the method of a cap and

strong insurance regulation in affecting the kinds of premiums that physicians

pay in those jurisdictions?


MR. HURLEY: How long have you got? I guess, a couple of

comments on Proposition 103 and MICRA, which I guess are the two subjects.

It took a while for MICRA to have some impact. And MICRA, which was a

package of reforms, not just a 250 noneconomic cap, it was a package of

reforms that was passed -- was implemented in í75. The companies didnít know

how it was going to impact their losses over time. It wasnít quite tested in the

courts until the middle í80s. You may recall, in the early part of the í80s, and

California was no exception, we had 20 percent inflation rates. In the medical

malpractice trend, we had plus-25 percent per year trend rates. So, you could

imagine, we were running hard just to keep up with that rate of increase. But

thatís the rates of increase we were seeing in the frequency and severity of

claims, in that time frame, in the early í80s.

California, despite that law at that point in time, was not immune

from those types of pressures. So their rates went up during the early part of the

í80s. Their loss costs were going up, driving the rates up. Toward the end of the

decade, there were, roughly-- In the middle part of the decade, there were,

roughly, 200 pieces of legislation passed throughout the country in the middle

í80s. Various ones throughout the states. California, obviously, had already

had MICRA, and I donít know if they had passed anything at that point in

time, but many other states passed many other types of tort reform. And you

may recall that trend rates and inflation rates and the rate of inflation declined

as we got to the latter part of the í80s. Where our prime rate had reached

almost 20 percent in the early part of the decade, it fell off.

Trends, amazingly, fell over. Youíre going into the early part of the

í80s, and youíre seeing 20 percent or more per year. The frequency and severity


of claims rolled over, went flat, and, in fact, declined in the latter part of the

í80s. Well, as that happened, companies reacted to that, learned what was

going on, reduced their rates, and California likewise saw thatís where the

benefit in its loss costs-- And incidentally, at or about that time, MICRA was

confirmed. In other words, it was upheld in the courts -- the 250 noneconomic

cap was upheld.

In 1988 and 1989, I think, Proposition 103 was passed. It was

finally determined that Proposition 103 would be upheld in 1991. In the

meantime, the medical malpractice companies who wrote business in California

had already started to take down their rates in response to the confirmation of

MICRA and in response to the improving loss environment that became

apparent in their data. They, actually, voluntarily made agreements with, as I

understand it -- and this is second hand -- voluntarily made agreements with the

insurance department to give one-time dividends as a consequence of the

rollback provision in Prop 103, and did so, 20 percent. They were already

paying dividends at that point in time, which means they were paying back

premiums that they thought were excessive, as a consequence of the

improvement in the loss experience. So they were paying back dividends, and

part of it, at that point in time, they paid an extraordinary dividend that was

satisfactory of their requirements under the Proposition 103 rollback provision.

Proposition 103 guides, as I mentioned -- confirmed in 1991. We

come into the middle í90s, trends flatten out. And in California, the data had

stabilized in the latter part of the í80s and coming into the í90s, and has

remained relatively flat since that time. My comment to you about Prop 103

and its effect on the rate filings that companies make in California is that losses


drive rates. No rate regulation is going to make losses go away. If the losses are

continuing up, as they are in other jurisdictions, rates will need to go up or

companies will leave or go broke.

In California, the loss costs have been more stable. I cannot tell

you itís cause and effect of MICRA, but it coincides in its occurrence. The

companies have not had the same problems that there have been in other

jurisdictions, and therefore, there has not been a problem as far as Prop 103

needing to hold the rates down. To me, rate regulation is not the answer there.

The loss costs being more stable, more predictable, and increasing at a lower rate

is the answer to why the California rates havenít gone up.


course, which affects directly what the losses are, is the cap portion of it, isnít


MR. HURLEY: That is generally viewed as the cornerstone, yes.

ASSEMBLYMAN CONAWAY: And so, if a state or a legislature

is looking at getting a handle on a problem thatís driving physicians out of the

State of New Jersey and Pennsylvania -- they lost a thousand, weíre losing them

here -- preventing people from staying in the state, interfering with our

recruitment of bringing physicians here to the state, because of this environment,

wouldnít you say that policy makers, as they look out across the country, would

make the laws more like California, rather than less?

ASSEMBLYMAN COHEN: You may answer that leading question.


ASSEMBLYMAN CONAWAY: Iím just trying to be a good

counsel, thatís all that counts.


MR. HURLEY: I think that my goal here is not to be a policy

maker or not to advocate for or against reform. What Iím really trying to do is

tell you what I think Iíve seen over time, and what seems to work, and what

doesnít, and what the experience has been. So Iíll defer answering that question,

if you donít mind.


MR. HURLEY: I think you folks are the folks who are going to

have to face the challenge of that question.

ASSEMBLYMAN COHEN: Oh, this jury will rule on that, but--

MR. HURLEY: Iím sure. You donít need my help, Iím certain.

ASSEMBLYMAN COHEN: Assemblyman Chivukula.

ASSEMBLYMAN CHIVUKULA: Thank you, Mr. Chairman.

Just looking at some of the charts, one chart that says Model of New

Jersey Malpractice Results without Changes, somehow it seems to stop at 2001 for

earned premium.

MR. HURLEY: Which chart are you referring to, sir? Iím sorry.


MR. HURLEY: Exhibit F, okay.

ASSEMBLYMAN CHIVUKULA: It stops at 2001, and also there

is an earned premium drop from year 2000 to 2001. Iím just curious, I mean,

why did it stop there? Also, the Exhibit G, you have a model of potential results

with reforms. It looks like the losses and expenses with reforms starts at year

í98, or í99.

MR. HURLEY: First, taking Exhibit F. Exhibit F reflects some data

from a company called A.M. Best, which collects industry data for all lines of


business and all types of coverages. This is data, from that data source, which

collects information from all the companies. The data for 2002 was not

available. In fact, I donít believe itís necessarily available even at this point in

time. Theyíre still assembling that information, which will be available later in

the year. So 2001 was the most recent year we had available.

ASSEMBLYMAN CHIVUKULA: Also, do you know why the

earned premium dropped from 2000 to 2001?

MR. HURLEY: I do not know why it dropped. I canít tell you


ASSEMBLYMAN CHIVUKULA: Any, maybe -- to continue that--

MR. HURLEY: To be honest with you, it looks relatively flat to

me, but it dropped a little bit, I guess, yes.

ASSEMBLYMAN CHIVUKULA: Now, if you look in the

hundreds of thousands, definitely thereís a drop there.

MR. HURLEY: I cannot explain the decline.

ASSEMBLYMAN CHIVUKULA: Itís in the millions, or it is--


And Exhibit G, I have a question on it. How did this -- losses and

expenses, they start diverging with reforms and without reforms. How did this

start in í98? We donít have any reforms right now.

MR. HURLEY: Yes. The idea of this graph is, you may remember

at the early -- at some early comment, I mentioned that the way you provide

coverage in New Jersey is generally occurrence-type coverage, as opposed to

claims-made coverage. The implication of this graph is that -- and I think it was

mentioned by one of my dear colleagues a moment ago -- the implication of this


graph is, if you implement tort reforms, itís likely to have an effect that goes

back and affects claims that havenít been reported or claims that havenít been

settled. So the beneficial effect youíre seeing, reaching back, is the effect on the

claims that are still open or the claims that havenít been reported for those prior

coverage years. And thatís why it affects those.



ASSEMBLYMAN COHEN: Assemblywoman Nellie Pou.

ASSEMBLYWOMAN POU: Thank you, Mr. Chairman.

Sir, Iíd just like to go back to your testimony earlier. You

mentioned something with regards to the premium increase. Youíve made two

statements that Iíd just like you to just clarify for my benefit. One was that

there is an increase in the severity of claims and rate increases are justified.

Would you say that the awards are higher due to the severity of the cases that--

Is that what your comment is based on, that number? Is it because of the -- the

increase of the severity of the cases has led to the higher awards?

MR. HURLEY: Yes. Thatís probably a terminology problem, and

I apologize for that. When I was talking about severity, I slipped into

actuarialese (sic) on you. Iím really talking about the average cost of a claim,

not the severity of the injury.


MR. HURLEY: So when Iím talking about changes in severity, Iím

really talking about the change in the average cost of a claim over time, not the

severity of the injury or something like that. Does that clarify?


ASSEMBLYWOMAN POU: Well, that helps, yes. No, that

certainly makes a world of difference in my mind in terms of what I understood

you to mean, in terms of increase and severity of the claim. What was your


MR. HURLEY: It is an average claim cost. And what it means is,

itís the dollars paid divided by the number of claims associated with those

payments. Itís the average claim cost. We do not see data in sufficient detail

to determine, for example, whether there are different injuries in a given year.

Our assumption is that thereís a fairly consistent distribution of injury types in

a given period, so that averages can be compared from one year to the next.

Weíre not evaluating the individual severity of claims. Weíre looking at the

overall average of claims. Is that fair?

ASSEMBLYWOMAN POU: All right. Thank you very much.

ASSEMBLYMAN COHEN: Assemblyman DíAmato.


Were you here when the representatives of the Administrative Office

of the Courts testified, AOC?

MR. HURLEY: I think I was in the room. I donít know that I

could quite hear them.

ASSEMBLYMAN DíAMATO: Have you seen the data that theyíve

submitted to our combined Committee here?


ASSEMBLYMAN DíAMATO: Why didnít you contact the

Administrative Office of the Courts as part of your analysis?


MR. HURLEY: I didnít think that it was necessary. My intent was

to evaluate the reasonableness of what the rate structures -- rate changes were.

And part of my purpose was to make a determination about that, rather than

to, in some way, gather data that I couldnít then compare to any premiums, or

number of doctors, or something like that. I need something to compare it to.

ASSEMBLYMAN DíAMATO: Because this -- the combined

Committees here are going to have to deal, I would hope, with the information

supplied by the Administrative Office of the Courts of the State of New Jersey.

And if my math is right -- and I didnít use my calculator -- it seems that the

median jury verdict, in 2002, I have as 300,000, not 350, 300,000. If I counted

right, there were only 18 verdicts in excess of 1 million, and one was remitted,

as we heard before, which is not reflected on here. And it seems that there is a

downward trend in our state in the number of med-mal verdicts. Is that

something that should have been considered by you?

MR. HURLEY: Well, certainly it would be if it were data that were

evaluated or structured or organized in a manner in which we could evaluate it.

We did look at the severity of claims in several ways in the report, both on a

closure-year basis and on, what we call, a report-year basis, which means, sort

of, on a claims-made basis. And we determined from that data that, in fact, the

severity of claims is increasing. I canít easily reconcile that data to your data

without some pretty extraordinary efforts with individual claim information.

ASSEMBLYMAN DíAMATO: As I gather, from quickly going

through your report and your testimony, you did not study the underwriting

practices of MIIX and Princeton over the last five, seven years, did you?


MR. HURLEY: I did not study the underwriting practices, no. I

just evaluated their experience.

ASSEMBLYMAN DíAMATO: But weíve been told by legitimate

commentators, who profess to have no stake in this debate, that these two

companies insured physicians at below fair market value and physicians who

had a history of med-mal claims against them. Is that something that should

have been considered by you as part of your fair and objective analysis?

MR. HURLEY: My analysis was to determine the reasonableness

of the necessary -- or the premiums relative to losses, and whether there was a

legitimate and real driver of what those increases were. It was not to evaluate

their underwriting practices. It was not to evaluate what they may or may not

have charged for an individual physician. It was intended to say, in the broad

aggregate of things, when you compare the premiums they collected to the losses

they have -- and more broadly, beyond MIIX and Princeton, to the data for

medical malpractice, in general, within the state -- do the losses make sense

relative to premium? The answer to that is no. The losses exceed the premium

by a substantial margin. Does that imply that there needs to be rate increases?

And the answer is yes.

ASSEMBLYMAN DíAMATO: Okay. Finally, I have to share with

you a personal experience. I decided to make Italian sauce this past weekend,

because I said I could make it better than my wife. I made it, and I said to her,

"What do you think?" She says, "It seems to be better than what I make." In

your report, you say that caps seemed to be working in states that have the caps,

as opposed to states that donít have any. You use the word seemed. Is that

something that this legislative body should rely upon -- this report where you do


not conclusively state that caps work? Rather, you say it seems that rate level

can be controlled better.

MR. HURLEY: Let me see if I can put that in perspective. I donít

have any sauce to mix, but Iíll see if I can sort through that. Our view on caps

is that they will reduce the loss payouts. But there are many other dynamics

that go on in a given jurisdiction that affect whatís going to happen to loss costs.

Caps in their singular and absolute -- only by themselves may not actually arrest

the increase in losses, if there are other things that change, that make the losses

go up.

So, for example, you shouldnít assume that if you implement an

noneconomic damage cap that there will not be any increases in rates, because

the other major aspect of things is the economic damages, which do have upper

pressure. So for me to sit there and tell you, well, rates wonít go up after you

implement a noneconomic cap, or we can take rates down because we

implement noneconomic caps, ignores the reality of the economic damage aspect

of the equation that is a very significant contributor to that.

Youíre reading, I think, a little, probably, too literally what weíre

trying to get at there, but it is true that there can be no guarantee until such time

as the caps have been confirmed and that you actually see the benefit and the

losses. You really donít know what the impact is going to be. But one thing is

clear, and that is that if you implement caps, even to the extent it doesnít stop

rates from going up, it will make the losses lower than they would otherwise be,

and it will make rates, as a consequence, lower than they would otherwise be.

So it may not make them go down, it will slow the rate of increase. Thatís what

Iím trying to say in my report.



Thank you, Mr. Chairman, Madam Chairman.


Did you read the A.M. Best reports on MIIX from April 2002?

MR. HURLEY: I canít say that I have, no.

ASSEMBLYMAN COHEN: What was the last A.M. Best report

you reviewed either for Princeton or MIIX?

MR. HURLEY: Let me clarify. When I say we used A.M. Best

data, sir, what we were using was data that they collect for all companies

reporting to them that wrote business, for example, in the State of New Jersey.

So we did not individually get information from A.M. Best on MIIX or on

Princeton. What we collected was the aggregated data that included all

companies writing medical malpractice data in the State of New Jersey.

ASSEMBLYMAN COHEN: All right. But A.M. Best issues reports

that are also three or four pages long, correct?

MR. HURLEY: Yes, they do. Yes, sir.

ASSEMBLYMAN COHEN: And you can make certain

assumptions from their findings on information that theyíve gathered, correct?

Theyíre a respectful organization, are they not?

MR. HURLEY: I think theyíre recognized as a good organization

that summarizes the data for the insurance company and financial results, yes.

ASSEMBLYMAN COHEN: Okay. And in April 2002, A.M. Best

issues a report that says that MIIX -- the keystone to MIIXís financial problems

was its out-of-state business, where it was being hit strong by losses in

Pennsylvania, Ohio, Texas. Do you recall that? Do you recall that issue?


MR. HURLEY: Actually, I do recall the issue, yes.

ASSEMBLYMAN COHEN: And in black and white, in A.M.

Bestís report in April 2002, it says that the problem with the company and its

rate increases was generated by a loss history sustained out of state. Now, if

youíre going to come in-- I mean, youíre very good at your craft. Iíll give you

that. Thatís very good. But one would think that before you wrote a report in

April 2003, you would have looked at, or someone would have shown you, the

A.M. Best reports, because New Jersey physician premiums in that report, in

that report, were being used to pay the claims created out of state. Itís right in

A.M. Bestís report. It provided us with very easy reading that the losses that

were being sustained, through MIIX, were being paid because of New Jersey

physician premiums, collected in New Jersey.

I suggest that you, if youíre going to continue with this, that you

take a look at the A.M. Best reports after 2002. Iím not sure-- In fact, let me

ask you this. What A.M. Best report did you read?

MR. HURLEY: These are data that are provided, called A.M. Best


ASSEMBLYMAN COHEN: Listen to my question. The A.M. Best

reports -- that is, A.M. Bestís final product -- what was the last A.M. Best report

that you used as part of your report?

MR. HURLEY: May I answer?


MR. HURLEY: Is it okay for me to answer the question?

The A.M. Best report we used was the A.M. Best Executive Data

Service, which provides data summarized for the companies. And let me


address just the question you mentioned. In our analysis, we limited our review,

as far as it related to the MIIX experience, to only its experience in the State of

New Jersey. We did not look at states outside of New Jersey, because it was not

relevant to the study.

ASSEMBLYMAN COHEN: Well, if MIIX were taking money from

MIIX and paying the claims to Texas, isnít that relevant to how their financial

situation is?

MR. HURLEY: Itís certainly relevant to how their financial

situation is. Iím not telling you that MIIXís problems or the fact that MIIX had

to go into voluntary runoff is a consequence of its New Jersey business. And if

youíve interpreted that as my comment, then I apologize. My comment was,

as it relates to MIIX, is that it went into voluntary runoff because it charged

inadequate premiums relative to the losses that are emerging. It could have been

in Pennsylvania. It could have been in Virginia. It could have been in Texas.

But as far as my analysis and the conclusions Iíve given you from the numeric

standpoint in this report, it is New Jersey-only data. As it relates to MIIX, it is

New Jersey data only, not Pennsylvania, not Texas, and not Florida. But I

would agree with you.

ASSEMBLYMAN COHEN: The money thatís paid out of New

Jersey MIIX -- weíll use that name -- thatís paid out of their funds to go pay a

Pennsylvania or Texas claim, isnít that part of its financial picture in New

Jersey, since itís taking New Jersey physician premiums? And itís right in A.M.

Bestís report in April 2002 -- taking New Jersey physician-collected premiums,

being used to bolster and protect cases in Texas and out of state. Isnít that part

of New Jersey MIIX financial picture? Itís the same checkbook.


MR. HURLEY: I would agree that it is the same checkbook from

which they are writing their claim checks. However, in our analysis and in the

conclusions I have given you, it is irrelevant. The fact of the matter is that the

rate structure that was used in New Jersey is inadequate to meet the loss costs

that are emerging in New Jersey.

ASSEMBLYMAN COHEN: When did that begin? When did the

inadequate pricing begin?

MR. HURLEY: It appears that it would probably have started --

oh, I donít know -- during the late í90s, 1999 or so, something like that. But

the problem, as I mentioned earlier, is that itís difficult to determine that the

rates are inadequate as of that point in time, in part because of the coverage

thatís provided here, which is occurrence-type coverage. Itís very difficult to

identify these turning points in the data.

ASSEMBLYMAN COHEN: Now, whether or not itís going to be

an occurrence or claims made is a decision made by the insurance company

when they offer it to those who wish to be insured, correct?

MR. HURLEY: The company decides what coverage it will provide.


Now, in terms of that, which of those benefits the insurance

company, more so, than the consumer it serves?

MR. HURLEY: Which of what, sir?

ASSEMBLYMAN COHEN: In other words, on an occurrence or

claims-made basis, that they determine what theyíre going to offer to a physician

or anyone else, which of those benefits the insurance company more?


MR. HURLEY: Iíd have to give interpretation to your word benefit.

So Iíll use my interpretation--


MR. HURLEY: --and perhaps youíll correct me if I make a mistake

there. Benefit to me would be, itís less risky for the insurance company to write

one coverage form rather than the other. Would that be a correct interpretation?

ASSEMBLYMAN COHEN: Okay. Which would be more

expensive to the one whoís being protected -- occurrence or claims made?

MR. HURLEY: Iím sorry. You changed the words.

ASSEMBLYMAN COHEN: In other words, what Iím trying to get

to, maybe, and Iím not phrasing it exactly correctly--


ASSEMBLYMAN COHEN: --but if you have two options, you can

either offer a claims-made policy or an occurrence-based policy, correct?

MR. HURLEY: Yes, those are two options.

ASSEMBLYMAN COHEN: If Iím a consumer, like a doctor or

nurse or a hospital, would I prefer to have it claims made or would I prefer to

have occurrence protection?

MR. HURLEY: It depends on what your criteria for preference are.

If you prefer to pay less, perhaps youíd like a claims-made product. If you

prefer to pay more, you might want an occurrence product. If you prefer--

ASSEMBLYMAN COHEN: Okay. Now, on a claims made -- if

you would pay less on a claims made as a doctor, physician, a nurse, or a

hospital, and you would have to pay less in premiums on a claims made, if the


insurance company only offers occurrence that means that the cost to you is

going to be higher in good times and bad times, correct?

MR. HURLEY: Incrementally higher, yes. It would be higher,


ASSEMBLYMAN COHEN: Now, do you think that those who are

covered should have the option of either picking a claims made or an


MR. HURLEY: I donít know that I have an opinion on whether

they should have an option or not. I think companies are not required to offer

both, so therefore, apparently, we donít think itís appropriate for them to have

a choice. A company decides. Now, if companies in the State of New Jersey are

precluded from writing one form versus another, then youíve made it -- then the

law makes it that way.

ASSEMBLYMAN COHEN: No oneís precluded. But when the --

that which is offered is, of course, determined by the insurance companies. And

the ones that they offer, obviously, are the occurrence, which means that those

who are being protected are going to pay something higher than what it would

be in a claims-made basis, as you just indicated.

MR. HURLEY: But the tradeoff, which I donít think I quite got

out before you asked your next question, is that youíre buying different

protection. Under an occurrence policy, you buy the policy and, forever, any

claim that gets reported is covered by that occurrence policy. Under a

claims-made policy, you buy the policy and only those claims that are reported

during that policy period are covered. So youíre buying a different coverage, and

therefore, the price is correspondingly different.


ASSEMBLYMAN COHEN: Which will -- and the claims made is

less than what the occurrence is?

MR. HURLEY: As generally is the view that the coverage provided

is also less.

ASSEMBLYMAN COHEN: Now, the data that you received from

Princeton and MIIX, in terms of losses, that information -- was there a

breakdown to you in terms of how much represented, letís say, on a jury award,

how much represented noneconomic and how much was economic and medical

and wages? Did you have that background on jury verdicts?


ASSEMBLYMAN COHEN: Did you ask for it?

MR. HURLEY: We discussed whether or not we could get any

breakdowns in terms of noneconomic and economic damages. I believe, and as

is true of most companies, they were not able to provide it. So, no, we didnít

get that.

ASSEMBLYMAN COHEN: So on any jury verdict, whether itís

500,000 or 3 million, you donít know how much represented pain and suffering,


MR. HURLEY: That is correct.

ASSEMBLYMAN COHEN: Now, on matters that were settled, on

the information that was provided to you from MIIX and from Princeton, on

the matters that were settled, was there a breakdown provided to you in terms

of pain and suffering -- that is, not economic damages and wages, medical bills?

MR. HURLEY: There was no breakdown of the indemnity



ASSEMBLYMAN COHEN: So you donít know, even in the settled

cases, whether or not the noneconomic represented 3 percent of the settlement

or 80 percent of the settlement?

MR. HURLEY: As is true of most companies, they were not able

to provide that detail, correct.

ASSEMBLYMAN COHEN: Did you ask them for it?

MR. HURLEY: I believe, as I said earlier, we asked for what would

be available in that regard, and we did not even include it in the data request,

I do not believe, because we were told that, as is true in most companiesí case,

was not available.

ASSEMBLYMAN COHEN: Well, in viewing whether or not

noneconomic damages should have a cap, whether itís 250 or a million or 7

million, isnít it important to look at, for purposes of history, exactly how much

is being paid out for noneconomic damages in a settlement or in a trial? I mean,

thatís actual data. Isnít that important in looking at?

MR. HURLEY: I think it would be helpful to have that sort of

breakdown. It is my understanding, from talking to claims people, that thatís

a very difficult thing to get your arms around. And, in fact, when they make

claim payments, itís not clear what portion is noneconomic and what portion

is economic. For example, if a payment is made at policy limits, and they are

presented with information that says the economic damages are 2 million and

we want noneconomic damages of a million, and the policy limit is a million

and thatís the amount they pay, Iím not sure what the portion of economic and

noneconomic damages are. So there are difficulties in getting that information.


There are judgments. Itís somewhat subjective, and companies tend not to keep

that information, unfortunately.

ASSEMBLYMAN COHEN: They donít keep the information.

MR. HURLEY: They donít keep information in the detail of

economic and noneconomic, because they donít know exactly what that is, and

itís very subjective.

ASSEMBLYMAN COHEN: So theyíre devoid of any information

on it.

MR. HURLEY: They arenít able to split their data into economic

and noneconomic damages.

ASSEMBLYMAN COHEN: Now, did you look at the jury verdict

sheets on the jury awards?

MR. HURLEY: I do not have any data from jury verdicts that say

this is -- if I understand your question -- the jury verdict on this particular claim,


ASSEMBLYMAN COHEN: Did you ask for it?


ASSEMBLYMAN COHEN: Did they offer to give it to you?

MR. HURLEY: No, they didnít. I didnít feel I needed it.

ASSEMBLYMAN COHEN: You know, on jury verdict awards, it

says, nonec pain and suffering award and economic damages, thereís a check off

as to each count. Were you aware of that?



ASSEMBLYMAN COHEN: Did you speak to any of the defense

attorneys in terms of the jury award verdicts in MIIX and Princeton for the last

couple of years?

MR. HURLEY: No, I have not spoken to the claims defense

attorneys at MIIX or Princeton.

ASSEMBLYMAN COHEN: So that when interest rates go down,

that has an impact on the rate of return that a company may have with

investments. Is that correct?

MR. HURLEY: I believe thatís correct.

ASSEMBLYMAN COHEN: Okay. Anybody who has their

certificate of deposit knows that they were making more money at 8 percent

than they are now at 1.1 percent, correct?


ASSEMBLYMAN COHEN: Okay. So can you tell us, on a

percentage basis -- and I know a lot of expert opinion report is trying to draw an

opinion, but it should be based on the factual predicate. What percentage of

our problem in Jersey deals with the interest rates, which have gone from 8 and

9 percent down to 1?

MR. HURLEY: Iíd have to do a calculation that reflected that

order of gap, but I think, in our report, we provided you an assessment or a

rough estimate of what the impact would be. For example, going from 6.5

percent interest down to, roughly, 4 percent interest, and we said that in rough

terms that was probably somewhere between 10 and 15 percent of rate level.

So dropping the interest rate assumption by 250 basis points, from 6.5 to 4 we


(indiscernible) something between 10 and 15 points of rate level, given the

payout pattern that exists in New Jersey.

ASSEMBLYMAN COHEN: All right. But what percentage of an

impact on what the rates would be -- 15 percent, 20 percent, 30 percent -- on

interest rates dropping 250 basis points?

MR. HURLEY: I think, I just--

ASSEMBLYMAN COHEN: Fifteen percent.

MR. HURLEY: Between 10 and 15 percent. I think the actual

number was 11 percent.

ASSEMBLYMAN COHEN: Did they give you computer-driver

data, MIIX and Princeton, or did they give you hard copy files?

MR. HURLEY: It was electronic information.

ASSEMBLYMAN COHEN: They had this information on a

computer, that youíre aware of?

MR. HURLEY: The data they provided to us was on -- in electronic

form. So, I mean, I donít know what their data system issues are. I just know

they provided us information in electronic form.

ASSEMBLYMAN COHEN: Are you aware, or did you take into

consideration, that by virtue of -- and Iím going back to the A.M. Best reports --

that by virtue of out-of-state losses, paid for out of the New Jersey checkbook,

that as a result of that, there had to be rate increases to make up for those losses

out of state. Is that correct?

MR. HURLEY: I cannot speak to what impact their out-of-state--

I assume weíre talking about MIIX, first of all?



MR. HURLEY: I cannot speak to what decisions and what rate

changes were implemented by MIIX in New Jersey as a consequence of its losses

from out-of-state business. I cannot speak to that question.

ASSEMBLYMAN COHEN: Now, an insurance company, as we

understand, obviously as it gets more claims in and sustains more losses, unless

it has tremendous investments, either in the bond market or elsewhere -- right

now, nobody does -- the only thing that an insurance company can do to make

up for those losses is adjust the rates upward to recapture revenue. Is that


MR. HURLEY: I would disagree with your characterization.

ASSEMBLYMAN COHEN: Would you disagree with the premise

that if my losses are larger, Iím going to have to increase rates somewhat and

make up for those losses so I can stay in business?

MR. HURLEY: I disagree with that.


MR. HURLEY: Yes. Because, as I said--

ASSEMBLYMAN COHEN: So one would not increase premiums

if they were sustaining losses?

MR. HURLEY: Could I amplify?


MR. HURLEY: As I mentioned earlier, the way rates are

determined, you learn from the loss experience that you had historically, but you

do not get to recoup, which is my interpretation of your comment. Your

comment suggests that somehow, if I lose money last year, Iím going to adjust

my rates this year to make up for that. Thatís not what happens. What


happens is you interpret the loss experience that you had in prior years, you

adjust it so that you make an estimate of what the losses are youíre going to

have for next year, on a loss cost basis, and then determine what rates you need

to charge for the coverage youíre going to be providing in the next year. You do

not recoup for the losses you had for prior years, which was my interpretation

of your characterization, which is why I said that. I apologize.

ASSEMBLYMAN COHEN: You referenced National Practitioner

Data Bank and other national information in your report. You used out-of-state

data, also, to look at issues in New Jersey?

MR. HURLEY: There certainly was some countrywide data that we

used in our study.

ASSEMBLYMAN COHEN: Which countrywide data, if you can


MR. HURLEY: I believe it was, some A.M. Best data was used in

the early part of the discussion to look at the long-term trends over the í75

through 2000 period, or something like that. Thatís my only recollection of outof-

state data. It was not used directly in the conclusions I mentioned earlier.

ASSEMBLYMAN COHEN: Did you measure the jury awards and

settlement awards over the last five or six years in Jersey?

MR. HURLEY: We looked at severity of claims implied by the

payments that were made by these companies over the last five or six years, yes.

ASSEMBLYMAN COHEN: Iím not sure if that did or did not

answer, but--

MR. HURLEY: I thought it did. I think the answer is--


ASSEMBLYMAN COHEN: Letís try it again. Letís try it again,

either for my benefit or for your benefit. But over the last five years, in

reviewing the information from, letís say, MIIX, did you review the payout

claims on all settlements and all jury awards?

MR. HURLEY: I believe if you-- We received payout information

from MIIX and from Princeton and--

ASSEMBLYMAN COHEN: How was the payout information from

MIIX provided to you? In what form?

MR. HURLEY: I believe it was--

ASSEMBLYMAN COHEN: Was it a list of 800 settlements, or

was it a gross amount?

MR. HURLEY: I believe it was aggregated into coverage year, what

we call coverage year detail, either by accident year or report year, is my

recollection. And in Exhibit C of our report, we summarized, on a report-year

basis, what the severity of claims had been for those companies, based on that


ASSEMBLYMAN COHEN: All right. So letís take that so that I

know that my question has been answered, or the best that you can do it. What

you were presented with was, for each of those years, MIIX paid out $50

million in claims that year. Is that basically it?

MR. HURLEY: Not exactly. It was in more detail than that. It

was by -- I think it gave us accident year, report year, summarizations of the

data. And we may, actually, have had some more detailed data. I just donít

recollect it off the top of my head.


ASSEMBLYMAN COHEN: But what you were provided with was

a gross number? It didnít say, like AOCís report, which is, "These are the 800

cases MIIX had in 2002 that paid out." This was the amount paid out in

settlements, this was the amount paid out in jury awards. You did not have that


MR. HURLEY: I donít think we got it in individual claim detail,

but we got summarizations by, what I call, either calendar period or coverage


ASSEMBLYMAN COHEN: So, summarization, so that I

understand it, is a gross amount, whether--

MR. HURLEY: Itís an amount that would have--

ASSEMBLYMAN COHEN: --itís 10 million or 5 million. Thatís

the amount that you got. You got no breakdown?

MR. HURLEY: That is true in one sense of the data. I think we

did get something. Iíd have to look back and refresh my memory on the exact

detail of the data to answer correctly. But I think we did get some detail about

the individual claim detail, but I donít recollect that.

ASSEMBLYMAN COHEN: And that would have been for all

those years, correct?

MR. HURLEY: It would have been for, roughly, the last 10 years.

ASSEMBLYMAN COHEN: What was the date that you went up

to, in terms of the information provided by MIIX and Princeton?

MR. HURLEY: I believe it was through the latter part of 2002, but

not quite through December 31, 2002.



Thank you.

ASSEMBLYWOMAN WEINBERG: Just before you do -- I have

a couple of questions.

To understand, when you said the insurance company, based on the

data given to you, paid out $1.36 for every dollar collected. Is that -- did I write

that down right?

MR. HURLEY: Yes, you did.


Does that $1.36 -- is that only for New Jersey claims, or did it

include, as my colleague said, the out-of-state claims to other states?

MR. HURLEY: No. That was only New Jersey data, only New

Jersey experience. It did not include out of state.

ASSEMBLYWOMAN WEINBERG: Now, you also said that there

was no breakdown of the economic versus noneconomic?

MR. HURLEY: I did say that, yes.

ASSEMBLYWOMAN WEINBERG: Does an insurance company

usually keep that?

MR. HURLEY: No, it doesnít. It generally doesnít have it,

unfortunately. It may be able to get it, as it was mentioned, in situations where

thereís a jury verdict, if it actually retains that information. But because most

of the claims are settled rather than tried to verdict, it would be, as I mentioned

earlier, a very subjective exercise to try and keep track of that information, and

they generally donít.


ASSEMBLYWOMAN WEINBERG: So we canít really say that

this increase was due to pain and suffering. It could have been due to economic


MR. HURLEY: That is correct. That is correct.

ASSEMBLYWOMAN WEINBERG: And there is nothing in here

that could either prove or disprove that?

MR. HURLEY: There is no data in here that would distinguish

between economic and noneconomic-- No, itís combined together, and I do not

have the ability to separate it, with the information available.

ASSEMBLYWOMAN WEINBERG: So how would an insurance

company then decide to lower their-- If this information isnít even available to

them -- and Iím a layperson at this obviously -- how would they decide to lower

their rates if there was some kind of cap on noneconomic damages, if they donít

even know what percentage of what theyíre paying out is actually for economic


MR. HURLEY: That is a difficult decision for an insurance

company to make. Their expectation would be that the loss costs, if they were

to do such a thing, their expectation would be that the loss costs would be

reduced as a consequence of the implementation of the noneconomic cap, and

it would be based on some judgments or some assumptions about what the

impact of that would be, if they were actually to prospectively reduce the rates.

Hence, part of our observation is that you need to wait until you see what the

loss data shows and let the rates respond to the loss data. Itís very difficult to

make these assessments because, as you correctly noted, the data is not

available to do it in an explicit, quantitative way.




ASSEMBLYMAN CONAWAY: Just following on the

Chairwomanís comments, the analysis was based on loss data, and that is a

global number. Now, perhaps, for the sake of our study, which I think is

redundant, on this question of noneconomic damages of impact, perhaps we

ought to require them to keep this data so that we can figure out what these

impacts are, going forward. But at the end of the day, theyíre making decisions

based on loss data, and that is aggregated. What seems to me that we do know,

that if we take steps to reduce that loss data in the form of a cap -- I think if I

understand all of your testimony taken as a whole -- that we would, looked in

isolation, expect to see some reduction in premium. Now that reduction in

premium might be swamped out by poor rate premium, going in the past; poor

rate structure; and a number of other factors. But the point that Iím not quite

understanding, and some of the questions Iím just hearing, is, youíre talking

about and youíre analysis is based only in New Jersey. It is based on loss data

only, and we know that if we decrease the losses to the insurance companies,

thatís going to have -- that, well, it may not be the whole determining factor on

what our rates will be. It should have an impact which would serve to reduce

the rates that they have to charge to physicians. Isnít that right?

MR. HURLEY: Yes, over the long term, reducing losses will reduce



ASSEMBLYMAN DíAMATO: Thank you, Madam Chairperson.


In June of 2002, this distinguished body took testimony, and the

chairperson and chief executive officer of MIIX testified here. There was some

dialogue that I had forgotten about, but I think itís very, very important to share

this with you. Assemblyman Impreveduto and the CEO of MIIX had the

following to say. Iím going to quote this:

"There are several parts of the story of MIIX. MIIX was founded

in 1977 as part of a malpractice crisis. We operated as a New Jersey company

until 1991, at which point we began to write coverage in Pennsylvania. In the

mid-í90s, we began to move outside New Jersey and Pennsylvania to write in

approximately 25 additional states." This CEO says, "For MIIXís 25-year

history, we have done very well in New Jersey. We have always been at a

profitable business plan in New Jersey." The Assemblyman says, "So, in 1991,

when you were in New Jersey only, you were making a lot of money." She says,

"I donít know about a lot of money, but we were always a profitable company."

The Assemblyman -- and Iím almost finished -- "So it would seem to me that

when you began to expand out of New Jersey your problems began." And here

is her response: "New Jersey is a volatile environment, but clearly not as volatile

as markets outside New Jersey. The tort reform that was put in place in the

mid-í90s has served us well. Weíve seen a decrease in the frequency of cases.

Itís a market where we believe we defend cases very successfully."

Sir, you have the CEO of MIIX saying that for the 25-year history,

up until she testified here, that it was a profitable company, but the problem

was they went outside of New Jersey, as was explained to you in the dialogue

between you and Assemblyman Cohen. Isnít that something, when you have

the CEO of MIIX saying we were good in New Jersey? We made a mistake.


We went into 25 other jurisdictions. Because they made that mistake, we ought

to have caps in this state?

MR. HURLEY: Is that a question to me?


MR. HURLEY: Could you state the question so I can understand


ASSEMBLYMAN DíAMATO: You know what, Iíll withdraw the


Thank you, Madam Chairperson.

MR. CANTOR: Madam Chairwoman?


MR. CANTOR: I did have a few statements, on the part of the

Medical Society, on the issue of subsidies, if you want me to just go through

those right now.


Go ahead, Mr. Cantor.

MR. CANTOR: Again, I know the day is late, so I will just keep

it short. One, first of all, there are a number of doctors who would have liked

to have been here today, but unfortunately, as I think you know by now, our

annual conference is going on. So we apologize that we could not be here -- our

leadership could not be here.

The doctors of MSNJ are very thankful that you are taking this

issue seriously, and I think the fact that you are proposing subsidies show that

you recognize itís a problem and that there are a number of physicians who are

really hurting and need relief. The Medical Society of New Jersey would support


subsidies being given to doctors. However, we do not support a short-term

bandage approach of subsidies in lieu of the long-term fix to the liability

problem. Now, we believe that a comprehensive system that is contained in the

Senate version of A-50 is the best way to go right now.

Again, we would support subsidies, but could not in lieu of. And

let me speak, specifically, to the subsidy which I think is being proposed here

today. It is very difficult, because we donít have the language before us. But

itís my understanding that what youíre doing is taking the funding mechanism

of the current Senate version of A-50 and merging it into the A-50 bill that

passed initially, but changing the loans into a subsidy program. If I have that

right, I think-- I donít have it right?

ASSEMBLYWOMAN WEINBERG: We have not -- I think I

explained at the beginning -- we have not officially received the Senate version

of A-50, because our--

MR. CANTOR: No, Iím not saying that youíve done it. Iím saying

that the concept that I think weíre talking on today is, basically, I think, the

language of A-50, as it passed this House, using the funding mechanism of the

existing Senate version.


MR. CANTOR: A few points on that. It was mentioned before

that you were looking to raise $30 million per year for the subsidy. Itís my

understanding, in talking to the Senate staff, that they were really looking to

raise between $20 and $25 million to do that, and thatís before any

administrative costs are taken out in order to run any type of program. So we


donít think, in the first instance, you are going to raise the type of money that

youíre looking for.

Next, under the language of that proposal, itís very uncertain which

doctors will be getting any subsidies or any assistance at all. Youíre talking

about leaving the (indiscernible) to determine where you may have geographical

limitations, where you may have doctors who can no longer practice, and certain

value judgments being made, which Iím not sure if the Department is going to

be competent to make those determinations.

I believe we heard from Commissioner Lacy, at one point in time,

that, if you were going to do a subsidy idea, that all doctors should be able to

get the benefit of that subsidy, not just a select few based on criteria which,

again, weíre not sure how itís going to apply.

We also think there are two fundamental flaws with the subsidy

idea. One, I think thereís a belief that thereís only a certain limit or amount of

physicians who are really being impacted. However, itís not just an OB

problem, not just a neurosurgeon problem. This is a problem that is filtering

down to all doctors in the state -- obviously, some worse now than others, but

itís creeping up. If you go talk to any surgeon in the state right now -- not

neurosurgeons, any general surgeon in the state -- they are seeing their premiums

increase substantially, and as Mr. Hurley mentioned, the rate increases are only

becoming more.

I believe, this year alone, Princeton Insurance imposed a 25 percent

rate increase January 1; I think another 18 percent rate increase on April 1.

Surgeons are being hit substantially in the state, and no amount of subsidy that

youíre going to have is going to be able to help them. Even the family


practitioner, who may see only a $10,000 increase in their premium -- which we

may think is not a big deal, but really, practitioners and pediatricians do not

make enormous sums of money -- theyíre maybe making $90 or $100,000 a

year. And I would suggest to you that a $10,000 increase on your operating

costs, when youíre only making 100,000 a year, and you have your other bills

and your college loans, is a substantial hardship even on those family


Again, and the other problem with the theory is that thereís an

assumption that this problem is cyclical and, in a couple of years from now, the

economy will turn around and that this problem will go away. Therefore, we

only need this for three, four -- I believe I heard five years today. I believe, if

you listened to Mr. Hurleyís testimony today and if you read his report, that

this is not a problem thatís going around. The trend increases began in 1997,

when the economy was good. Theyíre continuing now, and thereís no indication

that, unless the Legislature acts, that thereís going to be anything to change the

losses that companies are experiencing into the future.

So, while we may support a subsidy to help some physicians right

now, we believe itís not a solution for a long-term problem. If you want to do

both, to help out those physicians now, into the future, we would appreciate

that. But what doctors in New Jersey are really looking for is a long-term

solution, because they want to practice their careers in New Jersey. They want

to take care of their patients into the future. We believe we need a long-term


Thank you.


ASSEMBLYWOMAN WEINBERG: Thank you very much, Mr.

Hurley. Thank you for your time and patience here today.

The last on my prior sign-up list -- and just a word. I know, and

I see Clark Martin standing there, that it was not convenient for the Medical

Society today, since your annual meeting is being held, and I appreciate your

coming here in spite of those other pressing obligations.

The Trial Lawyers Association.

B R U C E S T E R N: Good afternoon, Madam Chairwoman Weinberg,

Chairman Cohen, and members of this Committee. My name is Bruce Stern,

and I am the President of ATLA New Jersey. Iíd like to thank you once again

for the opportunity to testify here this afternoon, as you work to provide

medical malpractice insurance assistance for New Jersey physicians.

As you know, debate has been raging in New Jersey and around the

country for more than a year now about how to best address the problem within

the medical community due to the increasing costs of medical malpractice

insurance. We fully appreciate the work, energy, and attention that has been

paid to this issue by legislative leaders and the members of the Banking and

Insurance, and Health and Human Service Committees.

We support the plan to provide immediate, meaningful, financial

support to the physicians who are experiencing cost increases in their medical

malpractice premiums that endanger their ability to maintain a medical practice.

The subsidy plan developed by the Assembly, and discussed this morning by

Majority Leader Roberts, is an immediate solution to an immediate problem.

When compared to the cap gap cap fund option, the subsidy plan is a far

superior way to address this cyclical problem, which is driven by economic


considerations outside the control of State government. More importantly, this

approach does not harm victims, as it strives to help doctors.

With all respect to Dr. Lomazow, this bill passed by the Senate is

a cap. It is a $300,000 cap on doctorsí liability. There is a $700,000ís worth

of a fund, a cap gap fund, but for every dollar recovered on economic losses,

that fund gets reduced a dollar by dollar. So that if a jury returned a verdict of

a million and half dollars in pain and suffering, disability and impairment, loss

of enjoyment of life, all that could be recovered by the injured plaintiff was $1

million. This bill is a cap.

Secondly, Dr. Lomazow mentioned that if we have a cap in New

Jersey that is higher than the cap being proposed under the Federal legislation,

somehow citizens in New Jersey will be protected. That is wrong. The bill

thatís before the United States Senate is a bill that would preempt all state law.

And if that bill were to pass, there would then be a $250,000 cap.

There are many unknown and unanswerable questions surrounding

the creation of a cap gap cap fund that not only limits the liability of the

physician who has committed an act of malpractice, but also limits the financial

recovery of the injured patient. How much money will the fund need to cover?

Who will administer the fund? Will lawyers be needed to defend the fund?

How will future dollars be raised if the fund is depleted? If the fund only

applies to jury verdicts, how will any cases ever be settled? Will this turn into

another failed attempt by State government to run an insurance company?

Remember the JUA and MTF disasters.

Responsible professionals on all sides of this issue have admitted,

at some point in these discussions, that the problems of high insurance rates will


not be solved by any cap on the damages victims seek. Rather, the problem will

be solved by reducing medical errors. Stop the injuries and you will stop the

lawsuits. Honest disclosure of medical errors to the patient -- tell the patient

what happened to them, as required by the AMA ethics. Impose some

regulatory control of the medical malpractice insurance carriers. Appropriate

changes to tort law that encourage timely resolution of a case--

For the past year, Dr. Rigolosi and the Medical Society has

continually misrepresented the facts, and threatened and extorted this body to

destroy the civil justice system here in New Jersey. When this debate began a

year ago, the Medical Society alleged that the problem was due to excessive

verdicts. When the Administrative Office of the Courts dispelled that argument,

the rhetoric changed.

Just yesterday, in an Associated Press story, John Shaffer,

spokesman for the Medical Society, admitted that the Medical Societyís claims

of excessive verdicts was wrong. But now the Medical Society claims that since

verdicts are only averaging under a million dollars, well then, caps wonít hurt

patients that much. Weíve gone from: Verdicts were way too excessive to, now,

verdicts are so small why not enact a cap, no one will be hurt.

Speaker Sires, Majority Leader Roberts, Committee Chairman

Cohen have recommended legislation to subsidize the high medical malpractice

premiums of those high-risk specialties, which have been especially hit and hurt

by the medical malpractice insurance companies. These proposals would put,

in some cases, over $40,000 in tax-free moneys in the pockets of the

obstetricians, neurosurgeons, and other high-risk specialists. Yet, the Medical

Society has said no to this proposal. Instead, the Medical Society continues to


clamor for caps on noneconomic damages and seeks immunity from

responsibility and accountability for its membersí cause.

Dr. Williams, who testified here this morning, is proof that a

subsidy would work. Letís recall what her testimony was this morning. She

testified that, previously, she paid $30,000 in medical malpractice premiums.

Now she pays $50,000, without the ability to deliver babies. She testified that

her malpractice premiums would be $72,000 if she were to deliver babies. Now,

according to the report that Mr. Hurley presented, the first report, his study

found that if you enacted caps, perhaps there would be a 5 percent savings in

premiums. So, if we take Dr. Williams quote of $72,000, you enacted caps,

there would be a reduction, maybe, of 5 percent. So her premiums would go

down to $69,000. Not very much help for Dr. Williams. Certainly getting a

$3,000 reduction on her premium is not going to be the item thatís going to let

her practice and deliver children.

However, under Majority Leader Robertsís subsidy program, under

the formula that had been expressed before, in which she would be reimbursed

one-half of the increase, if you look at her premium quote of 72,000, her

previous premium was $30,000. Therefore, the different is 42,000. She would

receive a $21,000 tax-free subsidy. You subtract the $21,000 subsidy from her

$72,000 quote and, all of a sudden, sheís only paying, out of her pocket,

$50,000. The same $50,000 sheís paying today, but sheíd have the ability to

deliver children in Mercer County, under the subsidy program, that sheís not

able to do now and she wonít be able to do under a cap.

Recently, before the Senate Health Committee, Paul Anzano,

counsel to ProMutual Insurance Company, one of New Jerseyís medical


malpractice insurance companies, testified and recognized that the medical

malpractice insurance problem was a cyclical and short-term one, requiring a

short-term solution. So why then is the Medical Society against legislation

which would subsidize its members? Is it the fact that the Medical Society of

New Jersey is the third largest shareholder of MIIX and will reap millions of

dollars in profits if the compensation to injured people is drastically reduced?

Is it the fact that the Medical Societyís officers sit on the board of MIIX and

that the Medical Society representatives, also, are large shareholders of MIIX?

Why was it, when Neal Weissfeld (phonetic spelling), Deputy Executive

Director of the Medical Society of New Jersey, issued a report condemning the

conflict of interest between the Medical Society and MIIX, he was summarily

fired and escorted out of the building, jointly occupied by MIIX and the

Medical Society, by guards?

Six months ago, this Joint Committee requested, in writing,

documentations and statistics from New Jerseyís medical malpractice insurance

companies. Yet, isnít it interesting that these same insurance companies, MIIX

and Princeton, which have refused to comply with your written request,

voluntarily provided data to Mr. Hurley and his company, who is retained by

the Medical Society? How is it and why is it that Princeton Insurance

Company and MIIX are permitted to snub their noses at this Committee and

yet voluntarily comply with the request of the Medical Society to provide its

actuarial firm with the same data requested here? Isnít it interesting that the

Medical Society brings in an actuarial person?

Thatís like, if somebody brought into court an expert who never saw

the patient, but just did a paper review. Why didnít they bring in MIIX to give


you the real data? Theyíre the third largest shareholder. They own 821,000

shares of MIIX, and yet they donít bring MIIX here to testify before you.

Fortunately, here this afternoon is a former Vice President of MIIX, who will be

more than happy to supply you with the information you requested, not hearsay

information -- firsthand information.

Also interesting is that Mr. Hurley didnít take in the compensation

package paid by MIIX, a company that has gone into insolvent runoff, a

company that pays its CEO $750,000 a year, according to it prospectus, and

plans to pay her more money next year. Unfortunately, A-50 as amended by the

Senate, fails to address or provide any solution to the medical malpractice

insurance problem here in New Jersey. Nothing in this legislation will cause

medical malpractice premiums to drop. A-50 provides no financial assistance

to New Jerseyís physicians and hospitals. Rather, it makes injured patients bear

the responsibility for the medical malpractice caused by physicians and medical


According to the Institute of Medicine, over 98,000 people a year

are killed as a result of preventable medical errors. Thatís one jumbo jet crash

every other day. The legislation passed by the Senate utterly fails to address this

public epidemic. The bill drastically changes the statute of limitations in

medical negligence cases, which will have a dramatic effect on children, women,

and the elderly. And yet, this legislation does nothing to address the ethical

requirement that physicians notify their patients when a preventable medical

error has occurred.

Dr. Lacy, New Jersey Commission of Health, has testified that it is

ethically and morally wrong for a physician to fail to notify a patient that a


preventable medical error has occurred. Even more distressing is the failure of

this legislation to address the real cause of this short-term problem, the medical

insurance companies themselves.

Over a year ago, Patricia Costante, CEO of MIIX, appeared and

gave testimony. She appeared only because MIIX needed government dollars

in order to stay afloat and to start up MIIX Advantage. Since that day, she has

never returned. Despite all of the hearings before these Joint Committees and

the Senate Committees addressing medical negligence, not once has an insurance

company, other than Mr. Anzano, ever appeared.

William McDonough, CEO of Princeton, was willing to talk to

Money magazine, but not to this Committee. The Star-Ledger, The Bergen Record,

the Asbury Park Press, the Courier-Post, the Trenton Times, The Press of Atlantic

City, and other leading editorial boards have written editorials denouncing this

legislation. They have called upon this Committee to investigate medical

malpractice carriers and obtain the data before you take any action. We have

demonstrated that the civil justice system is not the cause of the arbitrary rise

in medical malpractice premiums. Weíve been honest and straightforward in

providing you with the facts.

Donald J. Palmisano, the President-Elect of the American Medical

Association, testified, "People who cause harm should be held accountable."

Dr. Palmisano gave that testimony before the United States Congress when the

AMA urged Congress to enact legislation to hold HMOs accountable for the

medical harm caused to patients due to HMOsí bad business decisions. People

who cause harm must be held accountable, whether itís the person who runs the


red light, a company which manufactures a defective product, or a physician

who commits a medical error.

A-50, as passed by the Senate, is a flawed piece of legislation. It

fails to address the real cause of medical malpractice and the real cause for the

arbitrary rise in medical malpractice premiums. On behalf of ATLA New Jersey,

we oppose that bill. We support the plan to provide immediate, meaningful

financial support to the physicians who are experiencing cost increases in their

malpractice premiums that endanger their ability to maintain a medical practice.

We applaud the efforts of Speaker Sires and Majority Leader Roberts to balance

the interests of the parties involved in this debate. More importantly, we

applaud their stand on behalf of the injured patients in New Jersey.

Thank you.

ASSEMBLYMAN COHEN: Thank you very much.

Any questions from the Committee? (no response)

Thank you very much.

MR. STERN: Thank you very much.

ASSEMBLYMAN COHEN: Is Mr. Weiss present?

Mr. Weiss.

H O W A R D W E I S S: Thank you.


MR. WEISS: Iíd like to give you a little background. I was one of

a team of healthcare consultants that helped form MIIX in late 1976 and early

1977. I stayed on with MIIX as a consultant until October 1978, and I joined

them as a Vice President and was subsequently promoted to Senior Vice

President. I left MIIX in January of 1992. My responsibilities included


legislative affairs, particularly the passage of tort reform, actuarial statistical

analysis, information services, and general troubleshooting.

The tort reform effort that we undertook at that time had about

eight different proposals, including collateral source and joint and civil liability,

a $250,000 cap on pain and suffering, revising the statute of limitations, among

others. We were successful in enacting an offset for collateral sources and a

revised doctrine of joint and civil liability. Those were the two elements of the

package that, as data showed, would have the biggest impact on losses. The rest

of the package was "window dressing."


MR. WEISS: We passed this in 1986, and it was signed by

Governor Kean, I believe, in January of 1987.

At that time, my data had shown that a $250,000 cap on

noneconomic damages, if it had been enacted -- we would not have been able

to cut premiums one dime. The overwhelming majority of indemnity dollars on

settlements is for real economic loss, for past and future medical care, past and

future lost income, past and future custodial care, renovations for homes for

people who are handicapped, and other economic loss. In essence, I can tell

you that in the majority of cases settled by MIIX, the settlement doesnít even

cover for economic loss.

The medical communities claim that 70 percent, or 75 percent, of

dollars paid are for noneconomic loss is really ludicrous. They donít have any

data to make that claim, and I can tell you firsthand they donít, because Iím the

one who designed their data system. Iím the one that included in their data

system places to put how much of the settlement was for past medical bills, how


much was for future medical bills, how much was for past lost wages, how much

are for future lost wages, and so forth, and so on. So we had a category for

every economic component of the loss. It was decided that it was too

burdensome and too cumbersome to input this data into the system, so it was

never input.

Iíve been in medical malpractice now since 1976, and Iím still in

it, in terms of evaluating medical malpractice claims. If I was forced to make

a bet, I would bet that not 10 percent of dollars paid in indemnity is for

noneconomic loss. Another part of the window dressing was a revision to the

statute of limitations for minors. We had proposed cutting the statutes of

limitations from age 20 to age 11. That also wouldnít have saved a dime. The

overwhelming majority of dollars paid out on pediatric claims or for

neurologically impaired infants -- the overwhelming majority of those claims are

filed within three years of the birth of the child. The parents, basically, recognize

when the child is not rolling over, when the eyes are not tracking, when theyíre

not walking when theyíre supposed to, theyíre not speaking when theyíre

supposed to. And certainly, the ones that are filed after that are certainly filed

once the kid starts going to school and learning disabilities are uncovered in

kindergarten, in Grades 1, 2, 3.

The only thing that revising the statute of limitations will do is to

keep those kids -- whose parents decided not to file an action -- when they reach

the ages of 16, 17, 18, and 19 years old, and they decide that they want to look

into whatís causing their disability -- it would deny them a cause of action.

Also, my 27 years experience in medical malpractice has taught me that

frivolous claims is not even a small problem for medical malpractice insurers.


It is virtually an unexisting problem. And I think itís important to make a

distinction between an unmeritorious claim and a frivolous claim.

A person who has an encounter with the healthcare system that has

an untoward event has the right, if they so choose, to investigate why that event

happened. Itís called a discovery process. Once that discovery is finished and

they decide that, "Gee, there wasnít a real -- no malpractice," most of those

cases are dropped. And I can give you some real and accurate statistics. I have

a company that evaluates claims for plaintiffsí attorneys. Weíve been doing it

for 11 years. Weíve evaluated 3,576 claims for 600 law firms in 32 states. Out

of those 3,576 claims, our clients have proceeded with only 610 -- only 17

percent. Eighty-three percent, or 2,966, of those claims were dropped after the

discovery process.

Itís important to also understand that in about 750 of the 2,966

that were dropped, it was our judgment that there was negligence on behalf of

the healthcare provider, but there wasnít sufficient cause in terms of damages or

there werenít sufficient damages to make it economically feasible to continue

with those claims. So even though it was determined that, 750 of those claims,

there was negligence, our clients didnít proceed with them.

Statistics were gathered from a prestigious south Jersey law firm over

a 19-month period, where 323 individuals had walked into their office saying,

"Iíve been harmed by some healthcare provider." At the time of the study, they

had only accepted 12 as clients. Frivolous cases, on the other hand, would

encompass those cases in which there were no real injury.

During my time with MIIX, which was from 1977 through 1991,

the number of truly frivolous cases -- ones in which there was no untoward


medical outcome -- was minuscule and didnít put any financial burden on the

company. MIIX was formed in combination by the Medical Society and

Osteopathic Association. It was formed as a reciprocal insurance company, and

hence, had a board of governors. It was run by an attorney, in fact, that had a

board of directors. Both these boards were "stacked" with physicians who also

served on the Board of the Medical Society and the Osteopathic Association, or

otherwise politically connected with these organizations. Far and away, the

Medical Society had the most representation.

As such, MIIX was always governed with an eye toward what was

good for the Medical Society. Premium discounts were given for being a

member of the Medical Society, even though there was no data to suggest that

such membership reduced the doctorís risk. This was done to encourage doctors

to join the Medical Society. In essence, premium dollars were used to subsidize

Medical Society membership dues. Outlandish perks were given to board

members, including million-dollar life insurance policies.

In the late í80s and early í90s, after Peter Sweetland (phonetic

spelling), the President of MIIX, passed away, MIIX hired Dan Goldberg as

President. He changed MIIXís philosophy. Up until that time, MIIXís mission

was to assure that the doctors in New Jersey would never be without a

reasonably priced market for medical malpractice insurance, and hence, one of

fiscal responsibility. Dan Goldbergís idea of success was measured in market

share. The more insureds the better, even at an inadequate premium rate. The

expansion into other states was undertaken with the idea to write as many

insured as possible, regardless of whether they were reasonable risks or whether

the pricing was adequate. I personally saw Dan Goldberg offer a large reduction


in premium to a large group after Princeton had quoted them a large renewal

premium increase based on their experience. The difference in premium was

over 50 percent.

I would not leave today without discussing several proposals that

could help cut losses and lead to premium stability and even reduction. The

first issue relates to the State Insurance Department, which is supposed to

monitor rates and make sure that rates are adequate. And Iím going to go a

little bit into what the actuary said and respond to some of the things he said.

New Jersey, for medical malpractice, is a use and file state. You make a rate,

and you use it, you file it with the Insurance Department. In the meantime, itís

being used. I donít really know how much time it takes the Insurance

Department to get around to looking at the rate filing and making some

determination as to whether itís reasonable or not, but all this time the rate is

being used.

Premiums for medical malpractice are made by trending individual

factors, such as the number of claims that are expected, what percentage of these

claims will end up with a payment, what will the average payment be, how

many will require extensive defense costs, what will the average defense cost be,

and what will be our average investment return over the 15 to 18 years that

weíre going to hold all or part of this money?

The actuary indicated, and people seem to be interested in the fact

that, the loss ratio was 136 percent. In other words, they paid out $1.36 for

every premium dollar they collected. Thatís the way rates are made. Itís made

that way purposely, because if they didnít make it that way, then theyíd make

unconscionable profits. Because over the 15 to 18 years that theyíre holding the


money, theyíre going to make 70 or 80 or 90 percent of investment income. So

what they do when the rate is made is, they make a loss ratio of 130 to 135 to

140 percent, versus premium, expecting that if they collected 100 million in

premium, theyíre going to end up paying out 140 million. But in the meantime,

theyíre going to make 80 or 90 million of investment income, and therefore,

make a 30 percent profit.

One of the factors that are trended is severity. Severity that -- and

that means, what was the average payout on a paid claim? And the actuary

said, "Well, severity is trending up." Well, you canít take that figure in a

vacuum because severity trends up -- it may be trending up or it may not be

trending up, based on individual factors. If this year the average case was

250,000 and next year itís 300,000, okay, you really have to look at why. If the

250,000 severity was based on a caseload where you had severity of injuries one

through nine being: one, emotional injury only; two, three, four, and five,

temporary injuries; six, seven, eight, and nine, various degrees of permanent

injury -- nine being death, eight being quadriplegia, coma, seven being

paraplegia, and so forth. If the 250,000 severity was because I had an even

number of all of these injuries -- one, two, three, four, five, six, seven, eight, and

nine -- but the 300,000 was because that particular year I had only one one and

eight eights, eight quadriplegia cases, then naturally the severity is going to go


What you have to do is, you have to look at severity in terms of the

severity of injury. In addition, severity is going to go up because economic costs

go up. As wages go up, the lost wages component goes up. As medical costs go

up, the economic portion for medical bills goes up. In addition, the actuaries


that work for the insurance companies, or work for me, were "independent

actuaries." They werenít on our staff. They were independent. But

independent actuaries arenít so independent. Because if they donít do what you

want, you go out and find somebody who does.

When they trend each factor that goes into making up the rate,

since thereís such a long-tail line of insurance, they tend to be conservative and

put some, what we used to call, "fat" into the rate. And they do it for a number

of claims, and they do it for the severity of the claims, and they do it for how

many youíre going to have -- expenses, and how what that expense is going to

be. And in the end, if you put a little fat here and little fat here and little fat

here and little fat there, what you end up is -- you end up with a rate thatís 7

percent higher than itís supposed to be. And if you do that year after year after

year, it gets compounded.

In addition, actuaries are funny people in a way, in the sense that

theyíre conservative, in that they-- When they see something -- a factor -- go up,

it increases, they basically say itís a trend. When they see it decrease, they

basically look at it almost as a aberration, and they say, "Well, itís got to

decrease more than once for me to take it into account as a trend." So what

happens is, you have fat built into the factors. You then have this trending,

which is not -- is trending of increases in these factors that donít fully take into

account decreases in these factors.

In addition, insurance is a spreading of the risk. If you have 10,000

doctors insured by MIIX, letís say, in New Jersey, and 1,000 of them are

classified as high-risk doctors -- obstetricians, neurosurgeons, orthopedic

surgeons -- and you have 9,000 that are considered either low risk or medium


risk, and your loss data shows that a neurosurgeonís loss ratio is 30 times that

of a family practitioner, you just donít go and charge that neurosurgeon 30 times

the family practitioner rate. The reason is, youíll price neurosurgeons out of the

market. So what you do is, you say, well, there are only 70 neurosurgeons in

New Jersey. You make them a reasonable rate. You take the difference, and

you spread that difference around the other 9,000 low-risk people, so that the

rest pay $300 more or $400 more or $500 more. So, in essence, companies like

MIIX and Princeton are already, in their rates, supposed to be subsidizing high

risk. Now, we did it when I was there. I donít know whether theyíre still doing

that or not, and the Insurance Department ought to make sure that they are.

The second issue that Iíd like to talk about, and a possible solution,

is to get the Board of Medical Examiners to be more proactive in terms of

looking at doctors that are repeat offenders in terms of medical malpractice.

And figures are tossed around -- 5 percent of the doctors account for 60 percent

of the medical malpractice losses. And I think youíve got to take that into a

context, because a lot of that 5 percent are high-risk doctors. But a norm must

be established for each speciality, and doctors whose claimsí experience are one

standard deviation away, or two standard deviations away, should be

investigated. And that doesnít mean that everyone of them should be

disciplined or sanctioned, but it means that the public is -- at least hold an

investigation as to why these doctors are engendering so many malpractice


The third issue really relates to something that I think can save a

lot of money in this system. And that is, early settlements of meritorious cases.

And there are a number of factors in the system that are working against that.


The first thing that works against that is that the insurance policy contains the

consent-to-settle clause. The consent-to-settle clause gives the doctor the right

to consent to a settlement or not consent to a settlement. When the insurance

company does an in-house peer review and their own peer reviewer says that the

doctor was negligent, and the insurer wants to settle the case and the doctor

says, no, the hands of the insurer are tied. Now that was put in there -- that

consent-to-settle clause was originally put in by MIIX, because they wanted to

show the doctors that they were different from the commercial carriers that had

been insuring them.

Well, the policy also contains a cooperation clause, saying that the

doctor must cooperate in his own defense. He must provide records. Heís not

going to alter the records. Heís going to show up at deposition. Heís going to

show up at trial. Well, if itís been determined by the carrier that the case really

is -- thereís liability on the case and should be settled, the consent-to-settle

clause really is in contradiction to the cooperation clause. And I know of no

other insurance policy -- I certainly donít have to consent to my auto carrier

settling a claim on my behalf.

The second element -- and I guess Iím going to make a lot of people

mad at me today -- the second element working against early settlement of

meritorious claims is the defense attorneys. The insurers pay the defense

attorneys such a paltry rate to defend cases -- $100 an hour, $115 an hour. So,

basically what happens is, the defense attorneys have to tell the carrier that

every case is defensible so they have cases to work on to build up their hours.

If they were paid a reasonable rate, they could make a living defending the really

defensible cases, and the cases with real liability would be settled.


Thirdly, the third issue that works against early settlement of cases

is that many, many cases involve more than one insured, and therefore, more

than one insurance company. And even though the two insurance companies

may know that something was done wrong, they basically argue with one

another. They go back and forth with one another, and they -- in terms of trying

to say, "Well, my guy was only 20, yours was 80." "No, yours was 80, mine

was 20." If there was some mechanism where those cases could be settled early,

and then liability apportioned after the fact by some mediation or arbitration

or some other mechanism, then cases could get settled earlier.

In addition, the passage of a cap would work against early

settlement of cases. Why? If you put a cap on noneconomic damages, the

insurer would have no downside in taking everything to trial, and nothing would

ever get settled. Now, why is it important to settle cases early? Itís important

to settle cases early because studies have shown -- studies that I did, studies that

I have access to -- that a claim, where there was negligence that could have been

settled within 12 months of presentation to the insurance company, that was

not settled until between 36 and 48 months, costs 73 percent more in just

indemnity. When you add the cost of defending the case, the cost about

doubles. So, in essence, a case that could have been settled for $100,000, and

you donít settle it for three or four years, itís going to cost you $173,000, plus

tens of thousands dollars in defense costs. Okay.

I also would like to respond to a comment by the actuary that

insurance companies are not allowed to make up for past losses, or rotten

investment income, or anything in rates made for the next year. Well, theyíre

not supposed to. But basically what happens is, after you make a rate based on


losses -- and you make that rate, letís say, at 140 percent of premium -- and you

now think youíre going to make 80 million of investment income, if instead of

putting in your actuarial report that, "I think weíre going to make 7.5 percent

over the next 15 or 18 years while holding this money," if you say, "Gee, Iíll put

in Iím only going to make 6.5 percent or 5.5 percent." And they can do that,

and the Insurance Department will say thatís reasonable. The difference

between 5.5 percent investment income and 7.5 percent investment income may

be the difference between a 15 or 20 percent change in the premium rate.

Because thatís how much investment income is made over the long term they

hold the money.

I also think itís important that you understand why I left MIIX.

I left because of a dispute over two issues. Firstly, it was disheartening for me

to see a company built on fiscal responsibility to, now, be a company where

insured counts, market share was more important than maintaining a strong

survivorable market. Secondly, I thought that we should continue our tort

reform effort, not because it would save any money, but as a public relations

effort for the doctors in New Jersey and our insureds.

Vince Morasa (phonetic spelling), the Executive Director of the

Medical Society, and at the time the Chairman of the Board of Directors, said

it would just be a waste of money, as additional tort reforms would have no

effect on our business.

Thank you.


Any questions from the Committee?




ASSEMBLYMAN CONAWAY: You mentioned -- by the way, just

for the record, I guess -- the bulk of your income now comes from providing

consultants who work to--

MR. WEISS: The bulk of my income comes from consulting with

plaintiffsí attorneys.

ASSEMBLYMAN COHEN: You have to hit the red light.

(referring to PA microphone)

MR. WEISS: Oh, red.

The bulk of my income -- all of my income comes from evaluating

and screening medical malpractice cases for plaintiffsí attorneys.

ASSEMBLYMAN CONAWAY: Youíve mentioned in your

statement that, in your opinion, that you didnít think that the bulk of the

awards were driven by noneconomic damages.

MR. WEISS: Correct.

ASSEMBLYMAN CONAWAY: And I guess it begs the question,

then whatís all the fuss about? I mean, if, in your opinion, and people have

different-- Iím sure you donít represent the plaintiffís bar and wouldnít want to

do that, but just for yourself, looking at it, if the noneconomic damages donít

represent a big portion of the awards, then why should anybody care that we put

a cap on noneconomic damages?

MR. WEISS: I think itís a very easy answer. If putting a cap on

noneconomic damages is not going to lower lawsuits and is not going to cut

premiums, but will, in some cases, deny justifiable compensation to seriously

injured people, then why do it? There are people who deserve more than


$250,000 of pain and suffering. There are people who are so seriously injured

that they deserve to be compensated for having-- A neurologically impaired

infant who is going to have a normal life expectancy of 82 years, 80 years, 85

years -- okay. If it was going to save some money in the system and there was

a benefit to society from that, then maybe it should be considered. But thereís

no justification for taking justifiable damages from seriously injured people

when it will have no effect whatsoever. We could not have cut premiums onehalf

of 1 percent, one-tenth of 1 percent, if a cap had passed.

ASSEMBLYMAN CONAWAY: Well, obviously, people have

differing opinions about that. We look at California. We look at the opinion--

MR. WEISS: Well, if they--

ASSEMBLYMAN CONAWAY: The next question.

You talked about the fact, in some of the bills, about cutting the

statute of limitations bringing these cases from 20 years to 11. And I agree with

you, I donít think it will help -- and, indeed, my legislation has a lower number,

because I think 11 wonít work. I thought you said something very interesting --

which I had been arguing in smaller groups -- was that the bulk of parents, of

course, bring these claims within any of the limits, that have been set by

anybody that Iíve seen, in the bills that are currently in the hopper.

So, if you had, say, a statute of limitations that was at six years,

you would expect that that would reduce, over the long term, your payouts, and

should bring savings?

MR. WEISS: This has got to be red, right? (referring to PA


ASSEMBLYMAN COHEN: Just hit red and it will--


MR. WEISS: The answer to that is no. Bringing it down to six is

not going to save any money, and itís going to deny, again, the individual whose

parents didnít bring the claim on his behalf. When he now becomes 17 or 18

years old and realizes that he had a cause of action that he could bring by

himself-- The overwhelming majority of these cases are all within the first three

years. Whether you lower it to six or 10 or 14 or 15, youíre going to save no

money. So if youíre going to save no money, why take rights away from people?

ASSEMBLYMAN CONAWAY: Well, again, those questions are

argued. Rights are certainly very important, and some of us are concerned about

the system as a whole and making sure that there is somebody there to take care

of people. For instance, because of the insurance crisis, we have

ophthalmologists who can no longer afford to take care of the eye care of

neonates, because they canít afford to do the work. And I think thatís a tragedy

for those infants that are born and who we must provide for, that they donít

now have a provider that can afford to take care of them. So Iím focusing on

that tragedy and that problem, as well as the rights of individuals, from my own


Thatís all I have for now.

ASSEMBLYMAN COHEN: Let me ask an open-ended, broad

question that I wouldnít normally try to do in court. But given the fact-- You

see, I find you to be a key witness in these proceedings because you had 14

years of experience at MIIX, which is the key provider in New Jersey to the

Medical Society and its members. And the work that you currently do is not

advocating -- you review claims, whether or not, in your view, the law firm


should pursue or not pursue. So itís not as if youíre testifying in court for either

plaintiff or defendant, but you have a good sense of the type of cases that are

out there.

My question to you, in a general sense, since you have specific

information in terms of how MIIX worked, how it operated, how it viewed the

tort system, and everything else, what is your view of all the factors that have

occurred that have raised rates in Jersey and elsewhere?

MR. WEISS: I think there was some naivety on the part of the

actuary group who spoke, because I think that anybody who thinks that MIIX

didnít try to recover lawsuits in Pennsylvania, Texas, and Ohio on the backs of

the New Jersey doctors, I think is very naive. And they can do it by filing

actuarial reports that increase factors by -- that the Insurance Department is not

going to look at. If you go from 5.5 to a 6 percent increase on one factor, and

from 6 to 6.5 on another factor, and you go from 7.5 percent to 5.5 percent on

anticipated investment income, you could recover all of that. Okay.

Second of all, as I said before, the system has a built-in increasing

severity, in that, as wages go up, lost income goes up, as medical care becomes

more costly, the medical component of economic damages goes up. So severity

is always going to go up a little bit. Thereís no question in my mind that thereís

fat in the premium rates in New Jersey. There was fat when I was there, when

rates were reasonable. And thereís nothing to suggest that the fat has gone

away. Itís probably increased.

In addition, thereís nothing to suggest that if you looked at number

of claims filed-- The number of claims filed are going down. Something like

2,200 medical malpractice cases were filed, I believe, in 19--, 2000 -- I donít


know, I donít know the exact years -- and that, last year, was only 1,650. The

number of claims is going down. The thing that the insurance companies have

to do to cut loses are very simple. They need to get defense costs under control.

They need to undertake a program to settle meritorious cases early. That will

save them a bunch of money. And they have to stop paying their boards of

directors and providing them with million-dollar insurance policies, which they

-- I think that they did away with.

The other thing thatís interesting is, when I was with MIIX, when

we first started out, we wrote an occurrence policy. We found that to be very,

very -- after a few years, that that wasnít the best way to control premiums in

this State, so we switched from an occurrence policy to a claims-made policy.

And when I left, we were still selling a claims-made policy. Now, for whatever

reason, they went back to an occurrence policy. It doesnít make any sense. You

can buy a first year claims-made policy at 20 percent of an occurrence rate; a

second year claims-rate policy at 40 percent of an occurrence rate. You donít

actually pay an occurrence rate until youíve reached the mature claims-made

policy which -- five years, six years, seven years -- Iím not really sure where it

falls in the actuarial scale now. But they can save money by going to a

claims-made policy and making things more affordable.

The other thing is that the Insurance Department should make sure

that the way that theyíre making rates for specialties is spreading the risk. They

need to make sure that theyíre not charging neurosurgeons and orthopedists and

obstetricians their true loss ratio. That would be unconscionable.

ASSEMBLYMAN COHEN: Would that be possible to be -- being

done by--


MR. WEISS: But thereís a way to do it--

ASSEMBLYMAN COHEN: Could that be happening?

MR. WEISS: It could be happening. I donít know that it is

happening. All Iím saying is that, for example, when I was there, the loss data

showed that a neurosurgeon should pay 25 times a family practitioner rate. We

only charged him seven times. Because you take the difference between the

seven times and the 25 times and you spread it across the 9,000 family

practitioners and the allergists and dermatologists, so each one is making up a

couple of hundred dollars and youíre keeping each neurosurgeon from paying

an extra $180,000. Well, isnít that what youíre talking about now with this

bill? Subsidizing those specials. Well, thatís supposed to already have been

done. And I think itís a good idea to do it here if -- but first make sure that the

insurance company is doing their portion to subsidize those rates.

ASSEMBLYMAN CONAWAY: Which is us doing that

subsidization, by the way. Go ahead.

ASSEMBLYMAN COHEN: Assemblyman DíAmato.

ASSEMBLYMAN DíAMATO: Thank you, sir.

I want to make a statement and, maybe, together you can help me

frame the question. Iíve been practicing 28 years as an attorney. I was

discussing with my wife, who handles the books in the office, that 10 years ago,

when legal malpractice insurance for $3 million was about $5,500-- Iím now

up to $13,000 per year, per lawyer. I havenít had one claim against me in 28

years. Iím told by people who are more astute than I am that, simply, thatís

what the cost of insurance is. The market is going up.


To what extent, with respect to medical malpractice insurance, do

we simply see that a component in the higher premiums is simply that the cost

of insuring a professional, whether it be an architect, a physician, or a lawyer,

is simply going up?

MR. WEISS: Oh, I believe that to be the case. I believe that costs

go up and-- Itís interesting that you bring up that issue, because professional

liability premiums for lawyers have just about tracked those of physicians.

Those of accountants have just about tracked those of physicians. And itís

interesting to note that those two professions, the losses in those two

professions, have no noneconomic component. Thereís no noneconomic

component to an accountant malpractice or a lawyerís malpractice. And, yet,

their rates have gone up the same as physician rates.

Another thing that needs to be done is administrative costs in

insurance companies. When I was with MIIX, we ran the insurance company

at nine cents on the dollar. Iíll bet you that thatís more than doubled. You can

run a company very efficiently if you pay your people liveable wages, you

control what theyíre doing, you control defense costs, you do early settlements

of claims, you get the Board of Medical Examiners to at least investigate

doctors, you get the State Department of Insurance to really clamp down and

look at premiums -- look at the way theyíre made, look at what it --

(indiscernible) they have been given for investment income. Look at how

theyíre trending each of their factors -- look that their building into the trend

decreases in number of claims, decreases in this, decreases in that, and their not

holding it out to see whether it happens again and again and again. If you do

those things and you go ahead and make sure that the insurance company is


subsidizing high-risk physicians, itís my opinion you wouldnít have to do

anything, and premiums would stabilize and maybe even come down.

ASSEMBLYMAN DíAMATO: Thank you, Mr. Chairman.

ASSEMBLYMAN CONAWAY: I would say that, I guess, if you

saw -- what -- 100-and-some percent increase over 28 years, I think a lot of

physicians would love to see that over 28 years. Weíre seeing people seeing 100

percent increase in a year or two. So Iím not quite sure I agree with the

proposition that the rates of physicians and other professionals are tracking.

You mentioned about this business of having a claims-made policy.

Itís not one that I would purchase. Iím paying, I guess, more for an occurrence

policy, because it gives me more protection. Iíve talked to folks that have to

make claims-made policies or buy those, because they canít afford to get the

occurrence plus, and theyíve gotten quotes that their tail coverage was over

100,000 -- $200,000, one person told me. Youíre also telling me that in order

to get this rate I have to stay with a company five years. Iíve been with three

different companies shopping for better rates, as we move forward. And of

course, in Pennsylvania theyíve seen companies go out of business. The

obstetrician that was here has seen her company go out of business, and now

sheís going to be exposed to liability in the out years. Why would one-- Is it

really a good deal for anybody to get a claims-made policy, and isnít the reason

why not a whole bunch of them are written when things are well is because it

doesnít provide the same level of protection, and also protection against

companies going out of business, and all the vagaries that happen that an

occurrence policy gives you?


MR. WEISS: I think the word protection, okay-- You asked a

number of questions, and Iíll respond to each and every one of them. Does a

claims-made policy provide the same amount of protection? In essence, yes.

It only does it in a different way. What it does is, it lets you save money the

first few years that you practice. You save 80 percent of the premium the first

year, 60 percent the second year, something like 45 percent the third year--

ASSEMBLYMAN CONAWAY: If I stay with them the whole time.

MR. WEISS: Well, wait a second. And you save that all. And

then at the end, when you quit practice, you have to buy a tail, and now you

say that tail may cost you a 100 percent, 200 percent. Thatís true. Thatís true.

But it affords the same level of protection, and youíre not paying for it up front.

So the obstetricians who are new to the business and, maybe, donít have a

flourishing practice, who want to deliver babies their first and second year in

practice, can certainly do that by buying a claims-made policy.

The answer to the other part of your question is, that when you

change carriers, okay-- When you change carriers, if you buy a tail from the

carrier you left, the carrier you are going to will charge you a first year

claims-made rate, which is 20 percent. If you donít buy the tail, then the carrier

is either going to charge you -- if you were two years with another company --

theyíll charge you the third year rate or they will sell you whatís called a prior

acts policy, saying Iím going to cover you for all your prior acts. And theyíll

price that based on how many years you were insured with the other company.

But to say that an occurrence policy provides you more protection is not true.

Both provide you the protection assuming you buy the tail at the end.


ASSEMBLYMAN CONAWAY: I mean, if Iím making a decision

about -- assuming, buying a tail-- People are going out in the market to buy the

tail and find that they canít afford it. I know that if -- what my premium is

going to be in that year, and if I could afford to pay it and make a go of it, Iím

going to pay that, and Iím done. What youíre saying is that someone in my

position is going to say, "Well, look, weíre going to stay here, around for a

while, and then, hopefully, when it comes time for me to buy the tail, I can

afford to buy the tail." Thatís the uncertainty that I think that, certainly, I

wouldnít accept, and I think a lot of people wonít accept. And so, as far as

from where I sit, I think thatís less protection, because I now have to hope that

I can afford the tail coverage when it comes time for me to buy it. Right?

MR. WEISS: I think you have a point. I think thatís why people

should be given choices. Okay. First year doctors who canít afford an

occurrence policy should be given the opportunity to buy a claims-made policy.

Everybody is in a different position. I can afford to drive a Chevy and you can

afford to drive -- whatever you drive. I can afford to buy an occurrence policy,

you can afford to buy a claims-made policy. The problem is that theyíre not

giving those people the opportunity to buy the cheaper policy which provides

the same protection. Okay. Now, are you taking a chance that, at the end, the

price of the tail is going to be exorbitant? Yes. But again, thatís where the

Insurance Department comes in and the Insurance Department should be made

to approve the rates every year, tail rates every year, to make sure that theyíre

not gouging the insureds, to make sure that those rates are not making up for

past bad underwriting decisions, bad claims decisions, bad investment decisions,

and should reflect the true nature of the losses in the business.


ASSEMBLYMAN CONAWAY: Now you mentioned that -- what

sounds like to me is that -- these insurance companies can, basically, do

whatever they want with the numbers, which has always concerned me. And

that the government really doesnít have enough, either, regulatory authority or

power to actually get in there and make sure that the numbers it receives, as part

of its oversight responsibility are -- to, in fact, represent a true reflection of

whatís going on inside that company. You have made some suggestions that we

need to step that up, and I was wondering if you could put some more clothes

on that. It sounds like we-- In your experience, does the government send its

own auditors into these insurance companies to get the data that it needs to find

if-- "Well, thatís a fad. It sounds like itís been there. Itís going to be there in

the future if we canít do anything about it." So Iím not sure how it plays on

this particular discussion. But are there things we can do, ought to be doing, in

terms of independent audits or other things, to make sure that we are getting the

truth from these folks?

MR. WEISS: The answer is yes. Medical malpractice is a lot

different than other types of insurance. Itís a lot different than automobile,

where the accident happened this year, youíre covered this year, the accident

happened this year, and, boom, the whole thing is going to be over shortly, or

other types are. Medical malpractice is a very long-tailed line of insurance. If

you write an occurrence policy, okay, one-half of 1 percent of the claims you

see, and the money youíre going to spend, is going to go out the first year. Only

4 percent is going to go out the second year. Itís such a long-tailed line, and Iím

not sure whether-- And again, I donít want to be disparaging to the Insurance

Department, but I donít know what kind of actuaries they have. I donít know


what their understanding is as to the different lines of insurance, and whether

they have actuaries that really understand medical malpractice, or any kind of

professional liability, where itís going to take that long, where you may see a

claim-- You may not see a claim from a-- Letís say the parents didnít file a

claim for the kid, and now the kid, at age 18, says, "Iíve been injured. I want

to file a claim." Well, that claim goes back against the policy of 18 years ago.

Itís very difficult to make rates. Itís very easy, because of such a long-tailed

line, to -- I donít want to use the word fudge, donít take it that way -- but for

medical malpractice actuaries to say, "Well, Iíll make this 6 percent rather than

5 percent." Well, the effect of that over 15 or 18 years is 15 or 20 percent in the

rate. If the Insurance Department doesnít understand that, and your Insurance

Department is not willing to say to this company, "Thatís not supposed to be

six, thatís supposed to be five," or "No, you canít say Iím going to earn only 4

percent. You got to say, Iím going to earn 6 percent." The rate will come down

20 percent or 25 percent, or whatever their number is.

But I donít think any of thatís done. I donít think anything is

done. The other thing is that I firmly believe that a legislator, whether it be

State or Federal, should never consider passing any legislation unless they have

accurate, valid data upon which to judge what it is theyíre doing. Okay. What

you should do--

ASSEMBLYMAN COHEN: Donít disrupt our system too much.

MR. WEISS: --from this point on is, the Insurance Department or

somebody should require the insurers to keep that information on their

computer systems as to economic loss versus noneconomic loss. They should

be required to keep information about severity of claims, dollars paid by severity


of injury, so that we can see that last year a severity eight was 300,000. This

year, itís 297,000. Itís about the same. But the reason it went up overall from

250 to 300 is because we got many more eights. But they donít keep this data.

And they come to the Legislature and they ask for help with a crisis thatís

manufactured by the insurance companies, by the way they make rates, by the

way they invest their money, by the way they go out and write in other states

where they all donít know what the environment is in the other states, because

they think success is measured in market share rather than the mission that these

companies were created for. And this is not only in New Jersey.

In Pennsylvania, the Pennsylvania company PMSLIC, you canít be

insured by them unless youíre a member of the medical society. If youíre not,

theyíll almost pay you a dues to make sure youíre a member of the medical



went out of business or withdrew from the market. I had them, and I didnít

have to be a member of the medical society.

MR. WEISS: This is something thatís not just in New Jersey. Itís

all over the place. The truth is, better monitoring of the way premium rates are

made, better monitoring of physicians who are repeat offenders, early settlement

of claims, everything Iíve said before, will stabilize the market and maybe even

bring it down to a reasonable rate.

ASSEMBLYMAN CONAWAY: The last one for me, anyway.

Do you have any reason to assume that this severity factor is

significant in the data that the independent actuary presented earlier today? I

mean, any reason -- do you have any sense of, are things more severe and,


perhaps, thatís driving these numbers -- or, even, maintain these high numbers,

even as cases are coming down? Are things just worse out there in terms of

injury, in your opinion, or based on, I hope, some data or knowledge you have?

MR. WEISS: I think the cost to a plaintiffís attorney of pursuing

a medical malpractice action is prohibitive. The cost is high. The average cost

of pursuing a medical malpractice case on behalf of a plaintiffís attorney is

probably between $30,000 and $50,000 a case. So theyíre not going to take

cases of low severity. Theyíre going to take cases of high severity where there are

high damages. So, basically, what you end up with, okay, year after year after

year, you end up with increasing severities of injury, but it doesnít mean that the

amount of money paid on those injuries has been going up. Thereís just more

of them.

ASSEMBLYMAN CONAWAY: Or severe, you said. The more


MR. WEISS: More severe injuries. In the cases -- for example, in

the 610 cases that we counseled our clients to go ahead with, Iím not aware of

any of those cases -- and, of course, theyíre not all settled, some of them are still

going on -- but Iím not aware of any one of those cases where there was a

significant settlement or verdict that had an unreasonable noneconomic

component. In fact, most of them had no noneconomic component. Most of

them were justified by the severity of injury, the age of the patient, the job that

the patient had and how much lost income was being generated, and the need

for custodial care and others things that go into economic loss.

ASSEMBLYMAN COHEN: Assemblywoman Pou.


ASSEMBLYWOMAN POU: Very quickly. You had mentioned,

and I believe very early on into your testimony, and I think the Assemblyman,

Conaway, had made reference to it, but -- if you could explain to me, if you

have an opinion or any of your data that will show -- you mentioned that

thereís a decrease in the claims from last yearís amount, the yearly claims are

lower now than what they were before. Would you say that that may be

attributed to the decrease in the specialties?

MR. WEISS: No. I believe that the decrease in the number of

malpractice claims that were filed is directly related to the legislation that was

passed in 1995 requiring an affidavit of merit before -- in order to proceed with

a medical malpractice client. That legislation said that once a claim has been

filed, the plaintiff has 60 days in which to provide an affidavit of merit from an

expert with at least five years experience in the same speciality. Okay. Now,

that has helped decrease cases where, before, there would be claims filed and

somebody would go through and, maybe, wait a year or 18 months before they

would find an expert. Now you have to find an expert quickly. You have to get

that affidavit. And basically, thatís why the number of claims dropped from

2,200 to 1,650. I believe thereís a direct relationship. You can see the number

of claims going down after that legislation was passed.

ASSEMBLYWOMAN POU: As a result of the higher premium

insurance, would you say that we have the number of subspecialties currently

in place that are going to be able to provide the kind of input and information

that youíre referring to?

MR. WEISS: Yes. MIIX, for example, has specialties broken down

into well over 100 categories. There are surgical categories, nonsurgical


categories. They have orthopedic surgery. They have orthopedics/office practice

only. They have -- so they have specialties broken down. They even have

specialties broken down into subspecialties. They have more than 100 of them

and, basically, data should be kept among those specialties. And I donít know

whether you have to break it down that fine. You could certainly combine some

like-specialties. Family practice and general practice are pretty much the same

thing. Internists that are practicing as general practitioners can be folded in with

the same thing. But data should be kept as to the norms for those specialties,

in terms of numbers of cases that they get dragged into, the number of cases that

end up being paid, the number of cases that end up being closed with no

payment, what the average is, letís say-- So you come up with a profile for an

average doctor in that specialty. And then what you do is, you say, "Well,

somebody is one over that." You certainly donít want to bother with them, but

you do a statistical analysis and say, "If theyíre one standard deviation away or

two standard deviations away on this bell curve," then you want to look at


Like I said before, you donít want to look at them with an eye

toward, that, they should be disciplined, that they should be sanctioned, but

you want to look at it to see if you can find out why they are generating these

claims and whether something can be done to modify the way they practice.

When I was with MIIX, we had a dog-and-pony show where we

would-- We had a whole loss prevention department, and we would send

people out to doctorís offices to see the way their office was set up, because we

had determined that there was a good portion of claims that were not being

generated by the medicine being practiced, but were being generated by the


systems in the doctorsí offices, where test results would come back in and the

nurse would file them before the doctor would see it. So three days later,

somebody who had an abnormal stress test would die of a MI.

So we would go in and we would look at the systems in the doctorsí

offices and say, "Look, you canít practice medicine this way. What you must

do is, you must have a system so that nobody will file anything unless your

initials are on the bottom, to make sure you saw that." We also had loss

prevention that was very, very specialty specific.

We had, and Iíll give you an example of the way it works and can

work if itís taken seriously. We had had, from 1979 through í83 -- we had had

a whole bunch of claims involving the use of two different kinds of agents in

anesthesia -- IV Valium and something else. I forget what it was right now.

And we had a whole bunch of claims -- 11, 12 of them -- and they were costing

us a lot of money. We went to the Association of Anesthesiologists. We told

them what the problems were. They took it seriously. They put it in their

newsletters. Every time they had a meeting they told the doctors about this.

And lo and behold, in the next six years, we only had one case. We had 11

cases in four years and, boom, the next six years only one case.

Loss prevention works if the societies take it seriously -- if you go

to the Society of Orthopedics, and OB/GYN, ACOG, and the rest and you tell

them, "This is whatís causing your losses and this is the way you can prevent it."

I used to go on the road, when I was at MIIX -- I used to go on the road and

speak to 400 general surgeons in Las Vegas or 300 otolaryngologists in Phoenix

and tell them, this is whatís causing your losses and this is the way to prevent

them. How much of that is going on, whether theyíre devoting enough money


to loss prevention, I donít know. We devoted a lot of money to it, and in

certain situations, it paid off big.

ASSEMBLYWOMAN POU: Thank you, Mr. Chairman.


Any other questions from the Committee? (no response)

Thank you very much, Mr. Weiss.

MR. WEISS: Thank you.

ASSEMBLYMAN COHEN: Ed McCreedy and Valerie Brown.

Nice to see you, Ed.

E D W I N J. M c C R E E D Y, ESQ.: Mr. Chairman, members of both


You all know Valerie, I think.

Iím Ed McCreedy. Iím the First Vice President of the New Jersey

State Bar Association, which is the largest professional association in the state

representing attorneys. Iíve also been practicing law doing exclusively litigated

matters for approximately 34 years. Iíve been involved in medical malpractice

litigation on both sides, representing doctors and representing plaintiffs as well.

We recognize the extensive debate that has preceded this hearing,

and we appreciate being a part of the dialogue on this important issue. We

oppose some medical malpractice reform provisions and support others. Let me


The New Jersey State Bar Association Task Force on Medical

Malpractice was formed last year and is actively engaged in review of this critical

issue. The task force brings together knowledgeable members of the Bar, who

represent clients on all sides of the issue -- doctors, hospitals, the insurance


industry, and injured patients -- because we represent all lawyers. I happen to

serve on that task force. We have kept our members abreast of the latest

medical malpractice developments through our newspaper, the New Jersey Lawyer,

and communicated with State print and broadcast media, and met with

members of the State Legislature, the Office of the Governor, the Commissioner

of Banking and Insurance, and other affected interest groups.

We were pleased to see that the Senate version of the medical

malpractice legislation, passed in March, included the State Bar Association on

the Medical Care Availability Task Force. We recommend such a task force,

and we hope that the Assembly will include us in the task force as well.

However, we believe that deliberate study of medical malpractice by the task

force should occur before any reforms are instituted.

And if I could just depart from my prepared remarks a moment--

And what Iíve heard today leads me to that conclusion even more. The idea

that the information thatís been provided by MIIX, and apparently by Princeton

or anyone else doing insurance, is so sketchy-- And listening to the accountant,

or the expert, who testified on behalf of MIIX, and listening just now to Mr.

Weiss as well, I have to think that the information is available, or can be made

available, that would enable the Legislature to determine exactly what

noneconomic loss is costing in medical malpractice matters and to tailor

legislation based on that. So we believe very strongly that there should be a task

force and an investigation, to include the insurance companies providing

information thatís needed in order to make intelligent decisions.

With respect to the current legislation and the rumored legislation

in the Assembly, a couple of comments. First of all, we strongly oppose a $50


annual assessment on members of the Bar to fund this liability excess fund or

premium relief fund. There is no rational basis for taxing thousands of lawyers

in New Jersey who do not practice in the medical malpractice area to pay for

harm caused by the doctors. In fact, lawyers are beginning to experience, as was

earlier alluded to, a similar premium rate crisis. And if you were to carry this

proposal to its logical conclusion, we would be back here before you asking that

the doctors subsidize our premium increases as well, which makes no sense.

You might, for instance, also say that all accountants in the country

should be billed $50 apiece to bail out the Enron pension plan or something like

that. Or, if a newspaper goes under, letís bill all reporters $50 to help bail out

that newspaper. Itís makes as much sense. The lawyer who is up in Sussex

County doing nothing but closings for his entire practice, and who never sees

and never will see a medical malpractice case, shouldnít be paying $50 for a

doctorís negligence. It makes no sense at all.

If you look at the figures provided by the AOC, you can readily see

that there are, number one, very few malpractice cases, down something like

1,900, down to 1,600 and change. There are about 110,000 cases filed every

year in the Superior Court, so weíre talking about less than 2 percent of the

litigation to begin with, and weíre talking about a very small number of law

firms that prosecute and defend medical malpractice cases. So the great,

overwhelming majority of lawyers in New Jersey have nothing to do with this

issue and shouldnít be subsidizing the doctorsí expenses.

With respect to -- we do believe that if there is going to be some

type of fund, it should be a fund thatís designed for premium relief, rather than

trying to pay for settlements or verdicts.


With respect to caps, there was an editorial in The Star-Ledger

entitled "Doctors have put a cap on the truth," on February 8. And others have

objectively called into question the efficacy of the cap prescription for relief.

Assemblyman DíAmato, who is here today, put it directly to Patricia Constante

of MIIX, when she was here, "Are you telling the insured physicians in New

Jersey that if this State Legislature passes caps youíll guarantee that you wonít

raise your premiums, in fact, youíll reduce them?" And her answer said, "No,

Iím not telling you that."

The problem is, as you just heard from the last speaker, we really

donít know what the cause of this premium increase is, and there is nothing to

indicate that caps is going to solve it. Caps, after all, deals with noneconomic

loss, and we have no idea what percentage of the payouts are being for

noneconomic loss, as opposed to total payouts.

Just as an aside, there was a San Diego Times editorial in January, an

op-ed piece by Jamie Court of Californiaís Foundation for Taxpayer and

Consumer Rights, and she was quoted as saying, "Letís lower auto insurance

premiums by stopping lawsuits against drunk drivers, not by preventing drunk

driving. And this is the same logic," she says, "by which insurance companies

and doctor lobbies propose to lower the medical malpractice premiums that

doctors pay."

With respect to the proposals for limitations on the statute of

limitations, I know that this is a tempting solution, but it is really contrary to

the entire jurisprudence of this State. We recognize that peopleís claims for

rights should not begin to run until they are aware that they have actual or


constructive notice of the injury. And to pass such a provision, which would

not continue this concept, runs counter to our system of jurisprudence.

Iíve indicated why I believe that there should be a study

commission. We think that the study commission should have all interested

parties present and that there should be no legislation passed until a study

commission takes place with all parties present. We are not convinced that

there is a malpractice litigation crisis in New Jersey. Youíve heard the figures of

the AOC, and I had planned to make a comment with respect to them, but

youíve seen them. In essence, there are very few cases that go to verdict. Only

205 cases were juries-issued verdicts. They found for doctors and against

plaintiffs on 151 of those cases. Of the 54 cases where there was a verdict, the

median verdict was, as the AOC indicated, about $350,000.

And I know from personal experience that many of the verdicts that

get a lot of publicity never wind up being the final result in the case, either

because of settlement or because of remittitur. So you canít just accept those

figures as saying, this is what is returned in malpractice cases.

We believe that the jury system in New Jersey has worked well to

provide justice to all parties on a case-by-case basis. The statistics are, in fact,

objective statistical proof that there is not a medical malpractice lawsuit crisis

in New Jersey. We ask that both Committees consider these points. We thank

you for the opportunity to be heard, and Iíll be happy to answer any questions

if you have them.




I wanted to share something with Mr. McCreedy, as well as the

members of this Committee. Last week I received a telephone call from my

malpractice carrier, whoís insured me for 28 years. And he said, "Weíre not

going to renew your policy." I said, "Why? I havenít had any claims against

me." "Weíre getting out of the business." So weíre searching for a malpractice

carrier now, and I had to sign a form as to the type of cases I handle in my firm.

I failed to fill in a certain blank, and the underwriter called me up and said, "We

have to know one way or the other, do you do plaintiffsí medical malpractice

work? Do you sue doctors?" I go, "No." He said, "Okay, then, weíre going to

consider you." "What do you mean?" And at which point, I had to get back

to a disposition, and I put my office manager on -- also known as my wife --

and she said, "Whatís going on here?" We went over the whole thing again.

And this underwriter said, "We are not going to insure any plaintiffsí personal

injury attorney who sues doctors." And my wife made the comment, "So is that

your way of handling the medical malpractice crisis?" There was silence on the


I just want to leave that one with you, because I think, before I

leave the Assembly, I think we ought to investigate that particular one. And as

a representative of the New Jersey State Bar Association, letís see if we have that


MR. McCREEDY: Well, weíre beginning to hear complaints about

spiraling premium costs for legal malpractice. Dr. Conawayís comment earlier --

that itís not as bad as it is with doctors -- Iím not sure. I bet it tracks a lot

closer until the last three or four years, when MIIX went to Texas and

Louisiana. Up to that point, I have a feeling that the increases that lawyers and


doctors were experiencing were probably tracking a lot more comparably, but

Iím not an expert.

Thank you.

ASSEMBLYMAN CONAWAY: Anyone else? (no response)

Okay. Thank you for your testimony.

MR. McCREEDY: Thank you.

ASSEMBLYMAN CONAWAY: Whoís next here? Ms. Clark,

youíre coming forward.

L A U R I E C L A R K: Thank you very much, Mr. Chairman.

Due to the lateness of the hour and the fact that my testimony has

pretty much been covered by Mr. Cantor and Dr. Lomazow, I will take the high

road and refrain from testifying. I want to thank everyone for the attention they

paid to this very important issue this morning. I look forward to working with


Take care.

ASSEMBLYMAN CONAWAY: Bless you. (laughter)

MS. CLARK: I got more points doing that, right? (laughter)

ASSEMBLYMAN CONAWAY: I donít see Ms. Ryan, Betsy? (no

response) She submitted written testimony. We have that.

Letís see, I have Justin Mattes, perhaps, with Frank Rodriguez? (no


Howard Weiss, I think he was called. He was up, thatís right.

Colby and Colby? (no response)

Zaccaria, no? (no response)

Is this the right list?


Okay, is anybody else out there who wants to testify? Please come

forward, draw near, and be heard. (no response)

With that, I will take a motion for adjournment, unless anybody

has any closing comments from the Committee.

ASSEMBLYMAN McKEON: So moved, Mr. Chairman.