Legislature begins winding down
With the budget battle over, House and Senate leaders are sorting out which bills should get a final push or killed so the session can resolve remaining business and adjourn. There was a flurry of activity on a wide range of bills this week but other major bills saw little action, including several we listed in last week’s overview of remaining issues. Most observers continue to feel the session will wrap up by the end of the month. The House passed a resolution Thursday that would adjourn the 2003 General Assembly next Friday. Senate President Pro Tem Marc Basnight indicated he might need a couple of weeks to wrap up Senate business. NCCBI will publish a wrap-up issue of the Legislative Bulletin after the session adjourns, and will publish another issue before then if developments warrant.


Amended revenue bill returned to the Senate
The House on Tuesday gave third-reading approval to S. 236 (Kerr) Revenue Administrative Changes and returned the bill to the Senate for concurrence in amendment. As we told you last week, the House amended the bill to delete an onerous provision that would have required additional reporting by North Carolina corporations who have affiliates outside the state.

The provision struck by the House would require corporate taxpayers to disclose information regarding affiliated members that join in a federal consolidated return. In addition, the legislation would target affiliated entities operating in “tax haven” countries. As written, the provision would require, to the extent a taxpayer is a member of a consolidated federal group, that the taxpayer include with its North Carolina return the gross receipts, cost of goods, total income, deductions and federal taxable income before net operating losses reported on the affiliated group’s federal consolidated return.

The justification for adding the provision to the bill was to give the Department of Revenue information it says is necessary to calculate the impact on state revenues if the state decides to allow corporations to file consolidated returns. NCCBI strongly objected to the provision and offered several options for obtaining appropriate data for this type of research purpose. (It’s worth noting that Illinois defeated a similar provision proposed in their state legislature and Massachusetts is currently considering a similar provision.)

AMA, ABA presidents address Senate on malpractice reform

In a break with tradition befitting the seriousness of the issue, the presidents of the American Medical Association and the American Bar Association were allowed to speak directly to the Senate on medical malpractice reform. AMA President Dr. Donald Palmisano (left), a surgeon in private practice from New Orleans, spoke to senators on June 24; ABA President A.P. Carlton Jr. of North Carolina (right), a partner with Kilpatrick Stockton, spoke this week.

Palmisano said medical liability has reached crisis proportions in North Carolina, and he cited several examples, including:

 The Level III trauma center in Cabarrus County, which serves more than 68,000 patients per year, is facing the possibility of closing because a 17-member emergency medical group faced increased premiums of 88 percent with reduced coverage.
 
 The annual number of settlements greater than $1 million for medical liability cases has more than tripled between 1993 and 2002 from 6 to 19.

 Obstetricians and trauma surgeons in Western North Carolina are seeing increases in their professional liability insurance rates as high as 50-100 percent, according to Dr. Hal Lawrence, director of the Mountain Area Health Education Center's Women's Health Center.
 
Carlton said there is no proof that caps on malpractice awards lower doctors' malpractice premiums. Their appearances were part of the Senate’s exploration of legislation addressing rising medical malpractice premiums. Senate rules and traditions normally don’t allow speeches on the chamber floor by anyone lobbying on behalf of issues before lawmakers. The text of Dr. Palmisano’s remarks and a synopsis of the ABA position are reprinted at the end of this newsletter.

Meanwhile in Washington, the U.S. Senate lost a golden opportunity to reform medical liability laws, making the issue a likely topic in the 2004 campaigns. H.R. 5 Health Act, a measure strongly supported by the National Association of Manufacturers and the U.S. Chamber of Commerce, passed the House in March. But the Senate on Tuesday fell 11 votes shy of the 60 needed to invoke cloture and consider a similar bill, S. 11. NAM members lobbied for both measures. The bills would provide reasonable limits on liability actions against doctors, hospitals, medical device makers and pharmaceutical firms. Two Republicans (Graham – SC and Shelby -- AL) voted with Democrats against the bill.  

Legislative Actions

 The House on Wednesday voted 114-1 for S. 963 (Swindell) Prevent Price Gouging During Disasters, a measure to combat price gouging by store owners and other vendors during natural disasters. The bill now goes to the Senate.

 The Senate on Wednesday voted 35-2 for S. 672 (Hartsell) Strengthen Public Health Infrastructure and sent the bill to the House. The measure requires county health departments to meet minimum accreditation standards by 2005. It also says state health officials must establish plans to ensure they are providing all essential services.

 The Senate voted unanimously Wednesday for H. 743 (Nesbitt) Nurse Testimonial Privilege and the House-passed bill went to Gov. Mike Easley for his signature. The measure adds nurses to the list of medical personnel who can’t be compelled to testify against the patients they treat unless ordered by a judge.

 The House voted 76-38 Wednesday to pass S. 583 (Purcell) Tobacco-Free Schools, a measure that would require local school boards to ban smoking in school buildings. Federal law required school systems in the mid-1990s to ban smoking, but only a small percentage of the state's 117 school systems have done so. The House accepted an amendment by Rep. Cary Allred (R-Alamance) that would require the no-smoking ban in any school building and prohibit other tobacco products in enclosed buildings during school hours. The bill goes back to the Senate for concurrence in amendments.

 The Senate on Wednesday gave second- and third-reading approval to H. 897 (Gibson) Underground Storage Tank Program Testing Requirements and H. 1294 (G. Allen) Expand Qualified Business Credit and returned the bills to the House for concurrence in amendments.

 The Senate accepted a conference committee substitute for S. 824 (Albertson) Environmental Reports Consolidation and the measure was enrolled.

 The House on Wednesday accepted a conference report on S. 939 (Kerr) Extend Telecommunications Relay Service Surcharge to Wireless Connections and notified the Senate of its action.

 The House voted 79-36 on Tuesday for H. 1149 (Nesbitt) No Sales Tax on Certain Free Publications, a measure that re-establishes the state sales tax exemption on paper, ink and other property used by publishers of free publications. Such an exemption was eliminated in 1999 after it was found unconstitutional because it applied to free publications that contained general advertising but not specialized ads, such as real estate. H. 1149 applies the sales tax exemption to all free publications at an estimated revenue loss of $5 million for the state and $3.1 million for local governments.

 The House Finance Committee on Tuesday took up H.759 (Goforth) Reduce Utility Equipment Sales Tax, a measure that would cap the sales taxes on some construction equipment at $300. The bill would apply to light construction equipment, mostly machines valued at $12,500 to $235,000. Supporters say the measure is needed to allow N.C. equipment dealers to compete with those in neighboring South Carolina, which has the $300 tax cap.

 The Senate on Tuesday concurred with House amendments to S. 293 (Thomas) Sales Representative Commissions Revisions and S. 774 (Dalton) Liability At Public Skateboard Parks and the measures were enrolled.

 The Senate on Tuesday gave second- and third-reading approval to H. 855 (Alexander) Various Special Registration Plates, H. 886 (Wright) Due Process for Physicians and H. 1194 (Tolson) Establish E-NC Authority and the measures were sent to the House.

 The Senate on Wednesday unanimously approved H. 47 (Baker) Adopt Carolina Lily as State Wildflower and the measure was enrolled and sent to Gov. Mike Easley to be signed into law. Last year, the House passed a similar bill recognizing the flower, but it became tangled up in the Senate over a dispute about designating the state's official berry.

Education

NC students ace NAEP tests, vault to top of the Southeast
North Carolina students scored above the national average and at the top of the Southeast in writing skills in the 2002 National Assessment of Educational Progress (NAEP) test. Officials said Thursday that North Carolina fourth-graders scored better than just three other states and posted the best scores of any state in the Southeast. NAEP, called the Nation’s Report Card, is regarded as the only accurate comparison of state-by-state test scores.

Only Connecticut, Delaware and Massachusetts scored significantly higher than North Carolina fourth graders on the 2002 writing assessment. The scores of North Carolina's fourth graders were similar to the scores of students from 12 states, and there were 27 states and the District of Columbia that had scores significantly below North Carolina.

At the eighth grade level, three states (Connecticut, Massachusetts and Vermont) were significantly above North Carolina, while 11 states had similar scores and 26 states and the District of Columbia had scores significantly below N.C. students.

North Carolina eighth-graders improved their average score by seven points since last measured in 1998, and our average scale score was now is points higher than the national average. At grade four, North Carolina's students had an average scale score six points higher than the national average. Fourth graders participated in NAEP writing for the first time in 2002, while eighth graders were assessed in 1998 and 2002.

State Board of Education Chairman Howard Lee said the scores show that North Carolina schools are focusing attention on some of the most critical skills that students need to succeed in school. "Our ABCs accountability program is paying off in improved student performance at every level. We're pleased to see this validation of the work that is being done in our schools."

Fourth graders in North Carolina had the highest average scale score for the Southeast. For eighth grade, North Carolina students' score of 157 was tied with Virginia for the top score in the Southeast.

State officials attribute the gains to the state's writing assessments, training for school staff members, and the hard work by teachers in delivering the curriculum. The State Board of Education has consistently supported writing instruction in our schools.

Since 2002 was the first year for fourth grade NAEP writing assessment, comparisons can only be made to the nation. In grade four, North Carolina students had an average scale score of 159, which was significantly higher than that of the nation at 153.

Grade eight writing was assessed in 1998 and 2002. Eighth graders in our state improved their average score from 150 in 1998 to 157 in 2002. Eighth graders nationally improved from 148 in 1998 to 152 in 2002. Only five states made greater gains than North Carolina from 1998-2002. Delaware, Florida, Maryland, Missouri, and Massachusetts were the only states that gained more than North Carolina's seven points.

The latest scores reflect that more North Carolina students are meeting NAEP's high proficiency standards. In grade four, the percentage of North Carolina's students' performing at or above proficient was 32 percent in 2002. Nationally, 27 percent of fourth graders performed at or above proficient. Thirty-four percent of our state's eighth graders performed at or above proficient, up from 27 percent in 1998. Nationally, 30 percent of eighth graders were at or above proficient.

State officials were disappointed that gaps in student performance did not close at an appreciable level on the NAEP writing assessment. In both grades four and eight, white students scored higher than black and Hispanic students. In grade eight, the gap between white and black performance decreased by one point from 1998 to 2002.

NAEP is becoming more important since No Child Left Behind, the federal education improvement act, requires that states participate in the formerly optional NAEP testing. North Carolina has always participated in NAEP.

State Government

Blue Cross withdraws plan to convert to for-profit status
Blue Cross and Blue Shield of N.C. announced Tuesday that it was withdrawing its plan to convert to a for-profit company, citing potential harm to the company, its customers and the value of the Foundation. "The risks of continuing this process were too great for our company and our customers," said President and CEO Bob Greczyn. "We faced the possibility that confidential business information would be made available to our competitors and that we would be subject to regulation after conversion that no other for-profit insurer must bear."

BCBSNC's board of trustees voted unanimously to withdraw the conversion plan, citing the lengthy and costly process as well as the risk that conversion could result in the company being subjected to regulatory restrictions that would actually make BCBSNC less competitive than it is now. "After careful consideration, the board of trustees concluded that the right decision for our company and our customers was to withdraw our plan of conversion because of the inconclusive status of this process," said board chairman Rhone Sasser. “No other insurer in North Carolina faces this type of government intrusion in its operations."

BCBSNC announced its plans to convert in December 2001, and officially filed its conversion plan in January 2002. The company has spent $18 million on the nearly 19-month process. Greczyn said the company did not foresee filing another conversion plan or pursuing any legislative avenues to convert to a for-profit company.

Greczyn said the company would continue to live up to pledges that it made during the conversion process, including continuing to provide coverage in all 100 counties, serving the individual and small group health insurance markets, negotiating in good faith with hospitals and physicians, and offering coverage to anyone. "Our company has a rich history in North Carolina," Greczyn said. "We have weathered many changes in our company, our industry and our state. But one thing has never changed - our dedication to doing the right thing by our customers."


Economic Development

Packaging company invests in Reidsville
The Rockingham County Partnership for Economic & Tourism Development announced that Quality Associates Inc., a Cincinnati, Ohio-based contract packager, plans to open a new facility in Reidsville and create 150-200 jobs within the next year. The company’s plans will be finalized following a Sept. 8 public hearing and approval of an incentives package. Quality Associates has been awarded a multi-million dollar, multi-year share of Procter & Gamble’s promotional display requirements across several business categories. It is opening the Reidsville facility in order to meet Procter & Gamble’s growing needs in Greensboro. It will lease the former VF building at 310 Rockingham Drive in Reidsville. Quality Associates plans to eventually move into the Reidsville Technology and Industrial Park. Quality Associates is a minority business enterprise that has been in business since 1987. Delores Epps, president and majority owner of Quality Associates, said the company plans to make an initial $1.1 million investment in Rockingham County.   

NCTDA loan supports Bladen County business incubator
The North Carolina Technological Development Authority (NCTDA) announced the closing of a loan to Bladen's Bloomin Agri-Industrial Inc. through NCTDA's Rural Loan Program. The loan is being used to help defray the costs of constructing and establishing a new 10,560 square foot business incubator in Bladen County. Opened in May, the Bladen County incubator is located in the Elizabethtown Industrial Park. Two tenants have already signed leases and will occupy all of the space in the incubator facility.  The first tenant, Aramark Corp., is using a portion of the incubator as a distribution facility. The company will initially hire six to eight new employees with salaries ranging from $40,000 - $75,000. The company expects to increase the total number of Aramark employees in Bladen County to 15. Westwood Robotic Technologies Inc. has also moved into the incubator, bringing the occupancy level of the incubator to 100 percent. Westwood is a high technology company that assembles and programs manufacturing robots.

Four cities rated among 100 best in economic performance
Four North Carolina cities rank among the country's top 100 metro areas, according to the Milken Institute's America's Best Performing Cities study. Raleigh-Durham is12th, Charlotte is 46^th, Wilmington is 49th and Asheville is 88th. Since 2002, Raleigh rose eight places in rank, Charlotte rose 40 and Wilmington rose 24. Only three other states -- California, Florida, and Texas -- earned more top-50 rankings than North Carolina. The state also fared well in the Milken Institute's index of small metro areas, which ranked two North Carolina cities in the top 50. Greenville was 24th and Jacksonville was 39th. The Best Performing Cities ranking depicts those U.S. metropolitan areas that are recording the top economic performance and creating the most jobs in the nation. Major factors in determining the Milken rank include an area's economic dynamism, capital access, human and creative capital, innovation capacity and response to globalization. Importantly, the study is outcomes-based and considers such indicators as wages and technology growth rather than standard quality-of-life criteria.


NCCBI News

Kirk reviews state budget for Sanford business leaders
"The good news from Raleigh is that we have a budget, the governor did not veto it, and the legislature may adjourn in three weeks," NCCBI President Phil Kirk told members of the Sanford Chamber of Commerce's congressional action committee on Monday at Trailblazer's in Sanford. "For the third time in 22 years, the budget has been adopted before the new fiscal year began, and that is good news for local officials and education leaders," he said.

Some ask whether spending was reduced, he told the group. He said actual cuts in existing spending totaled around $1 billion for the second straight year, but that additional spending or new spending at more than $1 billion was also contained in the budget.

Kirk told the group that serious attention has to be given to North Carolina's tax structure. "We have the highest corporate income tax and personal income tax rate in the Southeast. Fees and other charges by government are going up dramatically. Local property taxes remain low which pulls our overall tax burden downward."

He called on the legislature to pass medical malpractice insurance reform before adjourning and bemoaned the fact there is not enough support in the House for passing a constitutional amendment limiting the length of legislative sessions.

NCCBI solicits nominations for Small Business Advisory Board
NCCBI has an active Small Business Advisory Board that is designed to make sure the organization is aware of and involved in promoting issues to benefit the health and well-being of that sector of employment in North Carolina. The board's purpose is to increase the awareness of issues specific to businesses with fewer than l00 employees so that NCCBI can better serve this important sector of membership. It consists of 50 members who serve two-year terms with a reappointment option. Pickett Council of Council Tool in Lake Waccamaw is the new chair of the board, replacing Steve Zaytoun, the original chair who is the new Treasurer of NCCBI. He will remain a member of the board.

There are currently five vacancies on the board. If you employ fewer than 100 people and are interested in being considered for appointment, send your request to Rosemary Wyche, vice president of development and staff for the board. Her mailing address is NCCBI, P.O. Box 2508, Raleigh, NC 27602; fax is 9l9-836-1425 and e-mail is rwyche@nccbi.org

The make-up of the board is to reflect NCCBI's diversity in types of businesses, geography, gender, and race. Among the tasks for the board are advising the NCCBI board/executive committee on issues concerning small business, making suggestions for articles in the North Carolina magazine, working to ensure small business representation on the seven NCCBI legislative committees, assisting NCCBI with suggestions for educational programs tailored to the specific needs of small business, and other issues.

The board will meet at least twice per year as a part of the annual meeting in March and the Triangle area meeting in September.  

Names in the News

Duke Power developer elected president of NCEDA
The N.C. Economic Developers Association (NCEDA) elected Richard L. Wiley, director of economic development at Duke Power as president for the year ahead. He succeeds Dale Carroll, president of the AdvantageWest regional partnership. Other new NCEDA officers elected by the board of directors are David "Mac" Williams, economic development director for the City of Asheville, vice president; and Scott L. Millar, president of Catawba County EDC, treasurer. The new officers assumed their positions July 1. NCEDA also elected three new board members, who will serve until 2006. They are: Brenda Daniels, economic development manager at ElectriCities of  N.C. Inc.; Steve Gosselin, vice president at ECS Ltd.; and Donald L. Porter, executive director of the Raeford Hoke County EDC.

 Michael C. Miller, chairman and president of First National Bank and Trust Co. in Asheboro, was elected chairman of the Community Investment Corporation of North Carolina (CICNC) for the year ahead. Other Board members elected for a two-year term include: Mike Ayotte, president & CEO, Morganton Federal Savings, Morganton; A. Stancil Barnes, president & CEO, Tarboro Savings Bank, SSB, Tarboro; F. X. (Frank) Gavigan, executive vice president, 1^st State Bank, Burlington; Norman B. Osborn, president & CEO, Cornerstone Bank, Wilson; and Robert Shepherd, senior vice president, Southern Bank and Trust Co., Mount Olive. The lending consortium of 108 banking institutions began operations in March 1991 has committed and/or funded financing totaling approximately $110 million for 124 affordable housing developments, producing over 6,000 units of low income housing. 

 Andrew M. Perkins Jr. of Winston-Salem was appointed by Gov. Mike Easley to represent mass transit issues on the State Board of Transportation. Perkins is the assistant vice chancellor for business and finance/facilities at N.C. A&T State University where he oversees the design and construction program for the university. He previously served 30 years with the U.S. Army Corps of Engineers. A 1967 graduate of Hampton University in Hampton, Va., Perkins also earned his master's degree in architecture from the University of Wisconsin in Milwaukee.

 Paula Schrum of Charlotte, Eric Smith of Sanford and Randall Stewart of Rocky Mount were appointed by Gov. Mike Easley to the N.C. Board of Physical Therapy Examiners. Schrum, a licensed physical therapist, has been the director of physical and occupational therapy at Carolinas Medical Center since 1989. Smith is the center manager for Pro-Active Therapy Inc. Previously, he worked as a staff physical therapist assistant at Central Carolina Hospital for 14 years. Stewart is the owner and president of Carolina Physical Therapy Contractors Inc. He is a licensed physical therapist and athletic trainer. Stewart is on the Nash County Board of Commissioners and served two terms as chairman on the board of commissioners for Nash Healthcare Systems.

 Partha Daughtridge of Rocky Mount, Marianne Farris of Rocky Mount and Dean Hamric of Durham were appointed by Gov. Mike Easley to the Art Society Incorporated board of directors. Daughtridge was a sales manager for Daughtridge Oil Company and was head coach for the 2002 conference and state champion varsity girls’ tennis team at Rocky Mount Academy and voted conference coach of the year. Farris was a training officer for Peoples Bank and Trust Co. Hamric is a senior vice president at Central Carolina Bank. He is on the board of visitors at the North Carolina School of the Arts and on the board of directors for Caring House, Durham Technical Community College Foundation, Downtown Durham and Duke University Museum of Art. He is also on the Art Society board of directors for the N.C. Museum of Art. Hamric graduated from the University of Southern Mississippi and the Graduate School of Banking of the South. The Art Society board administers the Phifer Endowment and other funds for the benefit of the Museum of Art.

 Former state senator and Southern Pines mayor Voit Gilmore was presented the state's highest honor, The Order of the Longleaf Pine, by the Senate Wednesday. Gilmore was cited for his support of desegregation efforts in the 1960s and helping to promote tourism.

 Former state Agriculture Commissioner Meg Scott Phipps turned herself in at Wake County magistrate's office Wednesday and was booked on perjury and obstruction of justice charges. A state grand jury on Tuesday indicted Phipps on five counts alleging that she lied during a State Board of Elections hearing last year and altered campaign checks to cover up illegal contributions given to a former aide.


Events
Community colleges honoring Dallas Herring at banquet
Forty years after he founded what has grown to become the N.C. Community College System, educators will honor Dr. W. Dallas Herring at a banquet tonight, July 11, at the Mad Boar Restaurant in Wallace, NC. The banquet begins at 6:30 p.m. The evening will include a look back at the accomplishments of the NCCCS and a look forward to new and exciting opportunities.  There will be a major announcement from the North Carolina Community Colleges Foundation. While serving on the State Board of Education, Herring was asked by Gov. Luther Hodges to develop a plan for industrial education. In 1957, the General Assembly adopted Herring's plan and initiated a statewide system of industrial education centers. In 1963, those centers served as the foundation for what would become a network of community colleges across the state.

Text of prepared remarks by Dr. Donald Palmisano,
president of the American Medical Association,
to the North Carolina Senate, Tuesday, June 24, 2003
 
On behalf of the physician members of the American Medical Association, I want to thank you for inviting me today and giving me an opportunity to talk with you about a serious threat to our nation's health care system - the current medical liability crisis. In March of this year, the American Medical Association felt compelled to declare North Carolina a crisis state. That this situation has reached emergency proportions is clear when you consider the following unimaginable incidents that have occurred in this state:
 
The Level III trauma center in Cabarrus County, which serves more than 68,000 patients per year, is facing the possibility of closing because a 17-member emergency medical group faced increased premiums of 88 percent with reduced coverage. (North Carolina Medical Society) 
 
The annual number of settlements greater than $1 million for medical liability cases has more than tripled between 1993 and 2002 from 6 to 19. (N.C. Lawyer’s Weekly)
 
Obstetricians and trauma surgeons in Western North Carolina are seeing increases in their professional liability insurance rates as high as 50-100 percent, according to Dr. Hal Lawrence, director of the Mountain Area Health Education Center's Women's Health Center. (Ashville Citizen-Times, Feb. 8, 2003)
 
Gerald Cox, president and CEO of Autumn Corp., a privately held company that has nursing homes in Mocksville and King, received his insurance bill last November for his chain of 24 nursing homes, which total 2,700 beds, in North Carolina and Virginia. The price had gone up 85 percent, or by $900,000. And that was cheap: A year earlier, it had gone up 434 percent, by $1.16 million. (The Business Journal, Feb 15, 2002.)
 
North Carolina hospitals have experienced professional liability insurance premium increases of 400-500 percent over the past three years, with small, rural hospitals experiencing the greatest increases. According to McNeary Healthcare Services, small, rural hospitals in North Carolina experienced an average increase in professional liability insurance of 180 percent in 2002 alone. (North Carolina Medical Society)
 
According to the American Association of Neurological Surgeons, North Carolina is a “severe crisis” state for neurosurgeons, meaning that neurosurgeons have seen their malpractice insurance premiums increase by 50 percent from 2000 to 2002 or paid average premiums in excess of $100,000 in 2002.
 
“If we remain in North Carolina we will likely be forced to make the decision to limit procedures which carry high risks (but also are often life-saving),” said K. Stuart Lee, M.D. of Eastern Neurosurgical and Spine Associates Inc. Dr. Lee’s practice saw their medical liability premiums increase 116 percent last year. (The News and Observer, Jan. 26, 2003)
 
Women’s Care P.A., the largest independent Ob-gyn physician group in North Carolina, saw its medical liability insurance premiums increase 30 percent in 2003 for almost three times less coverage. One of its obstetricians will soon stop delivering babies, and others are considering following his example, according to the group’s corporate director.
 
North Carolina medical liability insurers paid $1.13 in claims for every dollar in premiums received in 2001, according to the National Association of Insurance Commissioners. Direct losses incurred by N.C. medical liability insurers have nearly tripled in the last five years, according to the NAIC.
 
Contrary to those who argue that this is a temporary problem the crisis facing our nation's and North Carolina’s medical liability system has not waned -- in fact, it is getting worse. The often catastrophic repercussions of this crisis are being felt by patients and providers across this state, and the nation as a whole. The situation is so dire in this state that physicians are being forced to close their practices or drop vital services - all of which seriously impede access to care.
 
The primary cause of the growing crisis is escalating jury awards and the high cost of defending against lawsuits-even meritless claims-that have caused medical liability premiums to reach unprecedented levels. Let me speak from a national perspective. Between 1999 and 2000 the median jury award in medical liability cases increased 43 percent. Median jury awards for medical liability claims grew at 7 times the rate of inflation, while settlement payouts grew at nearly 3 times the rate of inflation. Even more telling is that the proportion of jury awards topping $1 million increased from 34 percent in 1996 to 52 percent in 2000, according to a study conducted by Jury Verdict Research.
 
The cost to defend a lawsuit, regardless of its merit, is also escalating. According to a report released in March 2003 by the U.S. Department of Health and Human Service, expenses on claims settled in 2001 averaged $39,819.
 
Substantial economic resources are being squandered on fruitless legal wrangling. This is evidenced by the fact that about 70 percent of claims end with no payment to the patient. These are precious resources in our already strapped health care system. Resources that could be used to help more Americans find health insurance. However, even when an injured patient receives a large award, a substantial percentage of the award never reaches the patient -- it is eaten up by attorney expenses.
 
As all of you well know, insurers establish rates prospectively, therefore, premiums set today must take into account the escalating jury awards and the rising costs to defend a suit. It’s no wonder that medical liability premiums are increasing astronomically in parts of the country. Over the past two years, many physicians have been hit with premium increases of 25 to 400 percent. 
 
Exacerbating the problem is a growing number of insurers like St. Paul, MIIX, and Phico that have exited the market altogether. And many insurers will no longer provide coverage for some high-risk specialties such as obstetrician/gynecologists, or have stopped writing new policies altogether. Deteriorating market conditions and ballooning costs leave an increasing number of physicians with virtually no choice but to retire early, limit their services, or leave this state entirely.
 
The American Medical Association and the North Carolina Medical Society is committed to seeking a solution to this crisis. The medical liability crisis has become a serious problem for patients and their ability to access health care services in this state. Physicians believe the time has come for decisive action to resolve this crisis. The legislature of North Carolina must act now to pass fair and reasonable reforms that stabilize the North Carolina’s medical liability system.
 
We recognize that injuries due to negligence do occur in a small percentage of health care interactions. Understandably such injuries can be devastating to patients and their families. That's why when injuries do occur and are caused by a breach in the standard of care, physicians believe that patients are entitled to prompt and fair compensation.
 
This compensation should include, first and foremost, full payment of all out of pocket "economic" losses. We believe that patients should receive some compensation for intangible "non-economic" losses such as pain and suffering and, where appropriate, the right to pursue punitive damages.
 
Unfortunately, the medical liability litigation system is neither fair nor cost effective in making a patient whole. Transformed by high-stakes financial incentives, it has become an increasingly irrational "lottery" driven by open-ended non-economic damage awards.
 
To ensure that all patients who have been injured through negligence are fairly compensated, we support the reform legislation (introduced in the General Assembly) which is based on proven reforms passed in California over 25 years ago. These reforms would effectively address the medical liability insurance crisis by:
 
 Awarding injured patients unlimited economic damages, including past and future medical expenses, loss of past and future earnings, and the cost of domestic services;

 Awarding injured patients non-economic damages up to $250,000 for such unquantifiable damages as pain and suffering, mental anguish, and physical impairment.

 Establishing a "fair share" rule that allocates damage awards fairly and in proportion to a party's degree of fault.

 Finally, establishing a sliding-scale for attorneys' contingent fees, maximizing the recovery for patients.
 
These reforms are not part of some untested theory they work. The major provisions that I just mentioned are based on California's highly successful Medical Injury Compensation Reform Law of 1975 also known as MICRA. MICRA reforms have proven effective in stabilizing the medical liability insurance market in California -- increasing patient access to care and saving more than $1 billion per year in liability premiums. Recent data from the National Association of Insurance Commissioners show that physicians’ medical liability insurance premiums between 1976-2000 have risen 167 percent in California compared to 505 percent in the rest of the United States.
 
California’s reforms have also reduced the time it takes to settle a claim by 33 percent. And finally, MICRA is saving California from the current medical liability insurance crisis brewing in many states that do not have similar reforms.
 
MICRA-type reforms are effective, especially at controlling and providing predictability for non-economic damages. According to one study, capping non-economic damages reduced premiums for general surgeons by 13 percent in the year following enactment of MICRA, and by 34 percent over the long term. Similar results were shown for premiums paid by general practitioners and OB/GYNs. Caps on non-economic damages also decrease claims severity (Zuckerman et al. 1990). Caps on non-economic damages have also proven to reduce insurer payouts by 31 percent, while caps on total damages reduced payouts by 38 percent (Sloan, et al. 1989).
 
Other reliable sources of information confirm the effectiveness of these reforms. As just one example, a study by Kessler and McClellan, published in the Quarterly Journal of Economics, 1997, has shown that states adopting reforms (similar to those before the General Assembly) experienced reductions in hospital expenditures of 5 percent of 9 percent within three to five years. 
 
The effectiveness of limitations on non-economic damages in particular has been demonstrated in states whose limitations have been overturned by courts. For example, a 1996 American Academy of Actuaries study shows that medical liability costs rose sharply in Ohio after the Ohio Supreme Court overturned a liability reform law in the 1990s that set limits on non-economic damages. (note: Ohio recently enacted a new liability reform law.)
 
Although it seems apparent that the malpractice insurance costs and the escalating costs of malpractice litigation are inexorably linked, I'm sure that you are aware of interest groups that argue that runaway medical liability premiums are unrelated to rising litigation costs. These same critics argue that reforms aimed at controlling runaway litigation costs will not stabilize the medical liability insurance market. These arguments do not hold water.
 
Several recent government and private sector reports confirm that the cause of the medical liability crisis is the unrestrained escalation of jury awards. The U.S. Department of Health and Human Services stated in a report issued in March 2003 that insurance premiums paid by health professionals are largely determined by the costs of the litigation system imposed on insurers.
 
I'd like to take a moment and address in more detail some of the claims made by opponents to medical liability reform. For example, we have all heard the claim that soaring medical liability premiums are the result of declining returns from investments made by liability insurers. We disagree and a number of authoritative and credible studies confirm that such claims are misleading.
 
First, as many of you know, and as reported in A.M. Best, medical liability insurers have approximately 80 percent of their investments in bonds, yielding consistent returns. The return on investment has been stable and positive for the past 5 years at 5 - 5.4 percent (A.M. Best)
 
Second, a report issued in January 2003 by Brown Brothers Harriman & Co. confirmed that there is no correlation between the premiums charged by the medical liability insurance industry, on the one hand, and the industry's investment yield, the performance of the U.S. economy, or interest rates, on the other hand.
 
In an addendum to this study issued in February, BBH specifically examined the market's impact on the investments made by medical liability insurance companies. Using NAIC data, BBH found that over the last six years, medical malpractice companies' investment gains have not declined overall because a decline in equities was more than offset by capital gains in bonds due to declining interest rates. BBH concluded that "investments did not precipitate the current crisis."
 
Opponents of liability reform also claim that the reason insurance premiums have been stable in California is due to a rate regulation measure adopted in California in the late 1980's. Again we disagree. First, Proposition 103 was adopted by California voters 13 years after MICRA was enacted and was primarily aimed at controlling auto liability costs, (although it also applies to medical liability carriers).
 
Second, Proposition 103 does not prohibit insurers from raising rates but merely requires an insurer who wants a rate increase to file an application with the Insurance Department prior to its use. The Insurance Commissioner must also grant a hearing for a challenge to any increase above 15 percent for commercial lines of insurance. According to Californians Allied for Patient Protection, insurers have regularly applied for and received double digit increases under Proposition 103 - except medical liability where MICRA has kept rates stable. According to the Health Coalition on Liability and Access and let me stress this point - the California Department of Insurance has never denied a single medical liability rate filing under Proposition 103.
 
Misdirected claims like these about the sources of the medical liability crisis disregard the very real access crisis facing patients in North Carolina. This situation will not improve unless the litigation environment is reformed. That is why the American Medical Association is committed to seeking fair and reasonable legal reforms to stabilize the medical liability insurance market. Again, MICRA is a tested and proven reform that has worked in California for over 25 years. Let is work for patients and physicians in North Carolina.
 
Thank you for your time today. It is a great honor to be before you today.

The following is the text of a letter by ABA President A.P. Carlton Jr. sent Tuesday to members of the U.S. Senate on a bill before the chamber to pre-empt portions of the state medical professional and product liability laws. While the remarks mostly address issues specific to the federal level, they contain views pertinent to the debate in the North Carolina General Assembly on medical malpractice reform.

Insurance premiums in a number of areas are up significantly. A threshold question is "why?" The U.S. insurance market is intensely competitive, which has caused both dramatic increases and dramatic decreases in insurance rates over time. For example, competition caused insurance rates to be comparatively lower in the United States from 1979 through 1983 than in other countries. When increases occurred in the U.S. between 1984 and 1986, they appeared more dramatic because they occurred against the background of the prior artificially low rates. That same cycle seems to be operating today.

For over 200 years, the authority to promulgate medical liability laws has rested with the states. This system, which allows each state autonomy to regulate the resolution of medical liability actions within its borders, is a hallmark of our American justice system. Because of the role they have played, the states are the repositories of experience and expertise in these matters. S. 11 would pre-empt portions of the state medical and product liability laws, and, therefore, the ABA opposes its enactment.

Currently, states have the opportunity to enact and amend their tort laws, and the system functions well. Congress should not substitute its judgment for the systems which have thoughtfully evolved in each state over time. To do so would limit the ability of a patient who has been injured by medical malpractice to receive the compensation he or she deserves. This is especially problematic since such a patient already is in a very difficult position.

When a car is hit by another car that has run a red light, it is relatively easy to know what caused the accident. But when, by way of example, a surgery patient wakes up to an unexpected bad outcome, he or she cannot possibly comprehend the cause. Those in the position to know what caused the bad outcome are the medical professionals. Because patients lack the necessary information, they often must file a claim to determine what happened. If it is without merit, it is in the patient's own interest to drop the claim, and thus many claims are dropped once the patient finds out the facts. And contrary to what some believe, juries do not favor plaintiffs over doctors in medical malpractice cases.

The ABA is especially concerned about the provisions in S. 11 that would place a cap on pain and suffering awards. The ABA opposes caps on pain and suffering awards. Those affected by caps on damages are the patients who have been most severely injured by the negligence of others. No one has stated that their pain and suffering injuries are not real or severe. These patients should not be told that, due to an arbitrary limit, they will be deprived of the compensation they need to carry on. Yet S. 11, if enacted, would result in the most seriously injured persons who are most in need of recompense receiving less than adequate compensation. The courts already possess and exercise the their powers of remittitur to set aside excessive verdicts, and that is a far more appropriate solution than an arbitrary and harmful cap.

We urge you to vote against S. 11. Thank you for considering our views.

Sincerely,

Alfred P. Carlton, Jr.