MINUTES OF THE ASSEMBLY COMMITTEE ON JUDICIARY Sixty-eighth Session May 29, 1995 The Committee on Judiciary was called to order at 9:25 a.m., on Monday, May 29, 1995, Chairman Humke presiding in Room 332 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: Mr. Bernie Anderson, Chairman Mr. David E. Humke, Chairman Ms. Barbara E. Buckley, Vice Chairman Mr. Brian Sandoval, Vice Chairman Mr. Thomas Batten Mr. John C. Carpenter Mr. David Goldwater Mr. Mark Manendo Mrs. Jan Monaghan Ms. Genie Ohrenschall Mr. Richard Perkins Mr. Michael A. (Mike) Schneider Ms. Dianne Steel Ms. Jeannine Stroth GUEST LEGISLATORS PRESENT: Lieutenant Governor Lonnie L. Hammargren Assemblywoman Sandi Krenzer STAFF MEMBERS PRESENT: Dennis Neilander, Research Analyst Joi Davis, Committee Secretary OTHERS PRESENT: Sheila Smith, Deputy Attorney General James Cathcart, Vice President, The Doctors Company Honorable David Gamble, Ninth Judicial District Court Judge Alice Molasky, State of Nevada Division of Insurance Charles B. Knaus, Actuary, State of Nevada Property Casualty Lenard T. Ormsby, General Counsel, State Industrial Insurance Systems ASSEMBLY BILL 512 - Authorizes certain local governments to seek reimbursement for expenses incurred for supporting and maintaining prisoners in county or city jail or detention facility. Dennis Neilander, Senior Research Analyst, distributed a proposed amendment to A.B. 512, attached hereto as (Exhibit C) and explained the bill together with the amendment to the committee. An additional amendment to delete "whichever is less" at page 1, line 17 of the bill was brought forth. ASSEMBLYMAN ANDERSON MOVED TO AMEND & DO PASS A.B. 512 USING THE AMENDMENT PROPOSED. ASSEMBLYMAN SANDOVAL SECONDED THE MOTION. Mr. Anderson declared there were other suggested amendments to the bill to allow the jails the opportunity to utilize prisoners in the aid and assistance of elderly person or persons with handicaps by doing chores in their area. However, the fear behind this amendment was what criteria would be utilized to determine whether a person would be eligible for jail labor with private individuals. Mrs. Monaghan offered her concern that $8 per hour was too much and she would prefer to see that amount at least minimum wage. Mr. Goldwater asked if $30 per day was a statutory amount. Mr. Neilander responded the $30 is based on the current average cost of housing an inmate in a county jail per day. Mr. Anderson asked if it would be necessary to define the 24-hour day stating that each eight hours represents a day. So you would be getting three days of time for the work. Chairman Humke asked Mr. Anderson if that definition was a further clarification to his motion. Mr. Anderson stated he would include that in his motion and Mr. Sandoval, the seconder of the motion, did not object. Chairman Humke brought the motion back to the floor for a vote. THE MOTION CARRIED UNANIMOUSLY. ASSEMBLY BILL 520 - Makes various changes to provisions relating to actions for medical malpractice. Chairman Humke announced that pursuant to agreement with most of the major parties regarding A.B. 520 and to some extent Assembly Bill 180, today would be a work session; however, some time would be afforded those persons who signed up to testify on the bills the past two days but were not given the opportunity to do so. Chairman Humke recited the order in which testimony would be given. Jim Cathcart, Vice President, The Doctors Company, testified in support of A.B. 520. The Doctors Company is a physician-owned interinsurance exchange insuring the majority of physicians in Nevada. Mr. Cathcart stated they believe further deterioration of the health care system will occur if this legislation is not addressed now and they would not like to see this issue postponed any longer. Mr. Cathcart stated the Doctors Company, since inception, has paid out total losses of $70,021,485.00. Total premiums earned are $110,792,975.00. Mr. Cathcart also referred the committee to charts contained in his prepared text attached hereto as (Exhibit D). Exhibits to his testimony include trends, severity and frequency of rising claims. Mr. Cathcart declared non-economic awards such as a recent case awarding $6,000,000 are having a significant effect on the medical liability market in Nevada. The fact that these awards do not have a cap plays a primary role in increased settlement awards. Mr. Cathcart added: "While jury verdicts that include non-economic damages are rare, the threat of a large jury verdict forces insurers to settle at substantially higher amounts that would be otherwise a fair settlement." Mr. Cathcart concluded by stating The Doctors Company has no profits for stockholders. Any profits they realize are returned to Nevada physicians either in rate reductions or in dividends to policy holders. The Doctors Company, he said, was not here to make money for third party shareholders, but to serve its physician owners. The reality is, increased premium rates will force many physicians from private practice and threaten access of medical care from Nevadans. Ms. Buckley asked of the ten cases settled in 1994 for $250,000 or more, how many of those contained more than $250,000 for non-economic damages. Mr. Cathcart stated he was unable to determine that amount because the figures are not broken out in the settlement process like it would be in a verdict. Ms. Buckley stated the attorney's demand letter would indicate the amount of medical bills, future lost earnings, etc., so a calculation could be ascertained through those means. Mr. Cathcart stated his company has not done that but he would see if it could be done. Mr. Sandoval asked what happens to the reserve account if the reserve amount exceeds the amount of a verdict, settlement, or dismissal. Mr. Cathcart replied the excess would be taken out of the reserve amount in that the reserve account fluctuates constantly. Mr. Cathcart also directed the committee to Schedule 1 on the last page of his handout (Exhibit D) hereto in further responding to Mr. Sandoval's inquiry. Mr. Sandoval referred to testimony on A.B. 520 utilizing the term "scorched earth" policy in defending medical malpractice cases and failure to respect findings at settlement conferences after a finding of malpractice by the MLSP. Mr. Cathcart commented they must have the consent of the insured before settling a case. However, there are some cases where the company wishes to settle and the doctor does not wish to settle which creates a problem in the negotiating process. Mr. Sandoval asked Mr. Cathcart to comment on earlier testimony that insurance defense counsel are sometimes instructed to delay at every turn, to file every motion, and extend cases out. Mr. Cathcart responded having not worked directly in the claims process or worked with defense attorneys, he was not aware of the entire process; however, it is not the policy of The Doctors Company to engage in such practices. Mr. Carpenter asked Mr. Cathcart if they do not know what portion of the settlement goes toward non-economic damages, what benefit would A.B. 520 be to them? Mr. Cathcart replied when you are faced with the fact a jury can declare a $6,000,000 non-economic award, as was recently seen, that raises the settlement value of every other case because as a defense you are in fear of going to a jury trial and possibly receive such a non-economic award. If there is a cap on these awards, however, that will facilitate settlements because defense will not be afraid to go to jury trial. Mr. Carpenter, recalling testimony that The Doctors Company was attempting to do away with the Medical Legal Screening Panel (MLSP) as unconstitutional, asked Mr. Cathcart to comment. Mr. Cathcart stated this simply was not true and The Doctors Company is in full support of the MLSP. Mr. Carpenter called attention to a letter he received from the Law offices of White & Meany, dated May 26, 1995 regarding a recent medical malpractice verdict in Elko, Nevada. A copy of that letter was distributed to members of the committee and is attached hereto as (Exhibit E). Mr. Carpenter asked, with regard to a comment in the letter about The Doctors Company's "never-settle-anything" policy, what statistics, if any, they could provide on exactly what is settled. Mr. Cathcart stated they do have some statistics containing the results of the MLSP where there has been medical liability and for those cases that have gone forward and those that have been settled. In addition, there are the cases that have been termed as no liability but have gone forward to litigation anyway or settled and he would be happy to provide those figures to the committee. Lastly, Mr. Carpenter inquired with the average settlement for The Doctors Company being approximately $136,000 is that not a small amount compared to the amount of premiums the company receives? Mr. Cathcart reiterated The Doctors Company is not profitable in any way. The line of insurance practices, especially in the state of Nevada, is not making a profit. In addition, the figure of $136,000 is just an average and does not take into consideration the cases where the MLSP finds no liability but there is still legal work incurred. Ms. Steel pointed out the committee is being asked to make some large changes in social policy without having any real grounds as to how it will help the patient. She further stated testimony has suggested The Doctors Company is reluctant to consider a "closed claim" yet the Nevada Trial Lawyers is eager for it. Ms. Steel asked why a "closed claim" would not be a good idea. Mr. Cathcart stated the information they have provided to the committee suggests the fixed figures involved in this issue will not change with a closed claim study. Ms. Steel stated the committee does not even have the average non-economic damage award. Mr. Cathcart stated the non-economic damage awards are established by jury verdicts and in a total settlement the allocations are not set out into non-economic or economic damages. Mr. Cathcart stated he would attempt to provide a "ball park" figure on the non-economic damages by reviewing attorney demand letters. Mr. Goldwater again disclosed he works in the medical industry and would not be voting on A.B. 520 however he could participate in discussion. He asked Mr. Cathcart what rate of methodology was utilized for The Doctors Company. Mr. Cathcart replied there are actuaries involved, risk factors, along with nationwide data. He added Nevada has a higher risk than many other states. Ms. Ohrenschall asked if there was a formula to determine how much was put aside in reserves. Mr. Cathcart answered there was no precise formula but rather as a claim comes in the claims representative will be authorized a certain limit then, based on his experience on other cases, he will assign a dollar value to that claim. Ms. Ohrenschall inquired if any additional reserves were set aside for non- economic jury verdicts. Mr. Cathcart stated "they" do not break it into non- economic or economic damages but rather what could possibly be a settlement value on the case. The cases are continually reviewed to determine if reserves are too much or too little and they will be adjusted as the case evolves. When the payment is made on a settlement, any money remaining in reserves will be immediately removed from that account. Mr. Cathcart stated the company's policy is to pay the claim and settlement is encouraged rather than going to court. Upon Ms. Ohrenschall's further inquiry, Mr. Cathcart stated having caps on damages will encourage settlements. Ms. Ohrenschall commented if there are caps on non-economic damages then it would appear they have no incentive to settle the damages. Ms. Ohrenschall asked if a closed claim audit would assist in providing a formula for settlement negotiations. Mr. Cathcart stated he did not see any benefit from a closed claim study. Ms. Steel asked if it was possible policy premiums were rising due to the new technology and procedures available to doctors. Mr. Cathcart replied the premiums increase for a variety of reasons: cost of living, more expensive medical procedures, increasing settlement costs. However, research indicates economic caps will result in an approximate 25% to 30% reduction in premiums. Ms. Steel commented further on the practices of insurance companies in general regarding the collateral source rule and subrogation. Mr. Carpenter asked if the graph the committee viewed in previous testimony correctly stated the average cost of medical malpractice insurance premium as being close to $40,000.00. Mr. Cathcart stated the average premium for Nevada physicians through The Doctors Company is $16,757.00. However, the $40,000 figure would be taking into consideration a speciality practice, such as OB-GYN. Mr. Carpenter noted there was a big deal made in earlier testimony about the average sum for malpractice premiums paid by Nevada physicians was $40,000 yet now the committee is being told that average is really only $16,000.00. Ms. Ohrenschall asked how the premiums received are distributed. Mr. Cathcart stated all the premiums received from Nevada physicians are set aside for Nevada cases but there is no designation for the premiums to be carried with the individual physician. He further clarified the premium monies are most all placed in investments and operating costs. Any surplus would be realized in dividends or reduced premiums. Chairman Humke announced the Lieutenant Governor was being granted ten minutes to testify on A.B. 520. Lieutenant Governor Lonnie L. Hammargren declared he was emotionally involved with this issue. He stated he was for health care reform and tort reform nationally. Lt. Governor Hammargren restated that the state of California established similar tort reform in 1975 and Nevada is twenty years behind in this regard. Lt. Governor Hammargren explained the reason he was upset was because the testimony the committee has been provided during last week on this subject matter is untrue. For instance, the committee was told the insurance companies have made a 28% profit and have been making profits for many years. However, Lt. Governor Hammargren stated he comes from an insurance family and The Doctors Company has never paid a dividend in Nevada. Further, the Nevada Medical Liability Insurance Company (NMLIC) lost $1,000,000 last year. Lt. Governor Hammargren invested in this company over ten years ago and the reason they are selling out to St. Paul Insurance Company is because the 300-base of doctors is too small. Lt. Governor Hammargren stated, as a neurosurgeon, he is now looking at a 56% increase proposal. In addition, he commented on his "follow the money" theory which was demonstrated with a pie. He stated one-quarter (the apple portion) goes to the insurance company and one-quarter goes to the patient; and the remaining one-half of the pie (the lemon portion) goes to the attorneys. This demonstration was provided to show there are no profits to doctors. Lt. Governor Hammargren provided his personal views on the testimony by a trial attorney in Friday's testimony adding maybe it is just the best attorneys who win lawsuits rather than the the lawsuit actually being meritorious. He added the main motive of the physician is to heal the patient--unlike the main motive of the attorney. Lt. Governor Hammargren vehemently testified attorneys are in it for the money and maybe they should work for free once in awhile like physicians do. Lt. Governor Hammargren also presented a display shaped like a dollar sign with money pinned to it. The display set forth that Nevada was the fifth most litigious state in the nation; fifth highest malpractice insurance cost in the nation; lowest number of doctors in the nation. He concluded that a closed claim study would be alright but do it now not two years from now. Upon Ms. Ohrenschall's inquiry, Lt. Governor Hammargren stated his malpractice premium is $56,000.00. Honorable David Gamble, Ninth Judicial District Court Judge, testified on behalf of A.B. 520 by offering an amendment to the bill. Judge Gamble stated he was not testifying on behalf of the District Judge's Association rather on his own behalf. He asked the committee not to "fiddle" too much with the MLSP as it took long, hard legislation to adopt it and it has been successful. However, he would urge the committee to review Section 11(3) of A.B. 520 regarding the jury not being informed of the limitation on the amount of award for non-economic losses. This would require the judge to reduce the verdict after it comes in based on the cap suggested in A.B. 520. Judge Gamble stated he trusts the jury system and currently in place are tools, "additur and remittitur" which provides the judge the power to reduce verdicts or increase verdicts if he believes the jury has been incorrect. However, in 20 years in the practice of law including eight years on the bench, he has only seen one jury whereby he would have changed the verdict. Judge Gamble stated if the legislature is going to make a law that the jury is limited to award $250,000 in non-economic losses then they [the legislature] should also be willing to stand behind the legislation by informing the jury. Chairman Humke announced the Las Vegas Chamber of Commerce would like to go on record as supporting the concept of tort reform, thus A.B. 520 and Assembly Bill 180. In addition, the Reno-Sparks Chamber of Commerce concurs. Sheila Smith, Deputy Attorney General, representing the Nevada State Welfare Division, stated they are in opposition to Section 11(4) of A.B. 520 and Section 6 of Assembly Bill 180 both of which eliminate the Medicaid programs' right to subrogation. If these provisions in the bills outlined above are not amended, the state of Nevada may jeopardize current federal funding. Ms. Smith elaborated further on the third-party liability issue and subrogation of Medicaid in its right to recovery. The provisions in current legislation would require the court to hold a separate hearing to determine if any of the plaintiff's expenses have been paid by a collateral source. Then the court would reduce the amount of damages awarded by the amount of the benefit. Medicaid's right to reimbursement applies in all cases including medical malpractice where the injured patient is a Medicaid recipient. Ms. Smith's prepared testimony is attached hereto as (Exhibit F). Chairman Humke asked Ms. Smith to provide the committee with language for a proposed amendment outlining her concerns. Alice Molasky, State of Nevada, Commissioner, Division of Insurance, introduced Chuck Knaus, Property and Casualty Actuary, for the State of Nevada, Division of Insurance, and addressed provisions in the bill that affect the insurance division. In addition, she provided proposed amendments to the bill attached hereto as (Exhibit G). Ms. Molasky stated their amendments deal with Section 5 of A.B. 520 wherein a request is made for an increase of panel members in both southern and northern panels. She stated there is a reluctance of panel members, in northern Nevada, to hear cases. However, in southern Nevada panelists are much more cooperative. Ms. Molasky added their major concerns are in Section 6 of the bill which requires a complaint to be accompanied by an affidavit of a medical expert. She sees this as possibly requiring the division of insurance to make a finding as to whether the affidavit is supporting the allegations in the complaint or not. Also, it would require the division to determine if the expert were in fact an expert. The other part of the section that provides concern to the division is in the requirement of the division to not accept a response that does not address the allegations of the answer. She stated the division of insurance acts as a clerk basically by processing the pleadings but they do not read the pleadings. This provision would require the division of insurance to read and interpret the pleadings and a judgment would have to be made--putting the division in the position of a finder of fact and law. Ms. Molasky stated she discussed this provision with Bill Bradley of the Nevada Trial Lawyers (NTLA) and Larry Matheis, Nevada Medical Association, who both indicated there may be an alternative in the training of the panelists and perhaps they could work together in the spirit of cooperation. Ms. Molasky went on to discuss problems in Section 7 of the bill dealing with the confidentiality of panelists. Pursuant to a recent Attorney General Opinion on this subject, she presented a proposed amendment. (Exhibit G). Lastly, Ms. Molasky requested the language be changed regarding the filing of an answer. She stated there are respondents who fail to file an answer and therefore fail to file the filing fee of $350.00. The filing fee is only due upon the filing of an answer. She proposes the language be changed and also that if the respondent does not file an answer they should be considered in default and permitted to participate in the panel process. She concluded by stating the division of insurance will not consider challenges to the statutes of limitations. Upon Ms. Steel's inquiry, Ms. Molasky stated the only insurance carrier who has requested a premium rate increase is The Doctors Company and there will be a hearing in June to determine that request. Charles Knaus, property casualty actuary for the State of Nevada Insurance Division, testified previous testimony pertaining to the NAIC profitability study indicated the market entry in this area was because of attractive profits. Mr. Knaus stated their office is very familiar with this study and he cautioned the committee that the study does not include lost development and therefore significantly over- states profits. He concluded insurance companies are tending to enter Nevada and other states at this time because the future of medical providers is possibly megagroups on a national basis and insurance companies are positioning themselves to provide service on a national basis. Mr. Knaus referred the committee to his handout attached hereto as (Exhibit H) which addresses rate increases between northern and southern Nevada and other statistical data. Lenard Ormsby, Attorney at Law, representing State Industrial Insurance Company, stated they concur with Sheila Smith's comments concerning the elimination of the collateral source rule. The bill states there is no fiscal impact; however, the fiscal impact on the State Industrial Insurance System by itself is 5.4 million dollars per year if you do away with the collateral source rule. Therefore, they are opposed to that provision in both A.B. 520 and Assembly Bill 180. In addition, any "tinkering" of the joint and several liability issue may eliminate their ability to recover the payments made by the system. Dollar for dollar, every amount they recover goes right back into the employer's account. Mr. Anderson stated the 5.4 million dollar impact was not present on the fiscal note for the bill and asked Mr. Ormsby to provide a letter clarifying that issue. Said letter is attached hereto as (Exhibit I). Chairman Humke announced a five minute rebuttal would be provided to the Nevada Trial Lawyers Association since there was a violation of the agreed upon rules of procedure. Bill Bradley, President, Nevada Trial Lawyers Association, stated their earlier presentation of facts came from NIAC study regarding profitability and he did not appreciate being called a liar or anyone else that testified on Friday for that matter being called a liar. From day one, they have been asking the committee to ask themselves how A.B. 520 will protect each and every Nevadan. He does not believe the proponents of the bill have provided that answer. Mr. Bradley concluded by stating a viable solution they have offered is the closed claim study. Many of the questions the committee has pertaining to this bill could be answered by a closed claim study. Further, A.B. 520 would only benefit one area of society and could truly detriment the remainder. B.D.R. 43-2072 Revises provisions governing evaluation of certain offenders for abuse of alcohol or other drugs. ASSEMBLYMAN ANDERSON MOVED FOR COMMITTEE INTRODUCTION OF B.D.R. 43-2072. ASSEMBLYMAN BUCKLEY SECONDED THE MOTION. THE MOTION CARRIED. ASSEMBLYMAN CARPENTER VOTED NO. ASSEMBLYMEN PERKINS, BATTEN, AND OHRENSCHALL WERE NOT PRESENT FOR THE VOTE. There being no further business before the committee, the meeting was adjourned at 11:05 a.m. RESPECTFULLY SUBMITTED: Joi Davis, Committee Secretary APPROVED BY: Assemblyman Bernie Anderson, Chairman Assemblyman David E. Humke, Chairman Assembly Committee on Judiciary May 29, 1995 Page