Copyright 1999 Federal News Service, Inc.
Federal News Service
JULY 15, 1999, THURSDAY
SECTION: IN THE NEWS
LENGTH:
2693 words
HEADLINE: PREPARED TESTIMONY OF
MR.
RANDEL K. JOHNSON
VICE PRESIDENT
U.S. CHAMBER OF COMMERCE
BEFORE THE
HOUSE COMMERCE COMMITTEE
HEALTH AND THE ENVIRONMENT
SUBCOMMITTEE
SUBJECT - H.R. 2470
BODY:
Mr.
Chairman and Members of the Committee, good morning. I am Randel Johnson, Vice
President, Labor and Employee Benefits, U.S. Chamber of Commerce. The U.S.
Chamber of Commerce is the world's largest business federation representing more
than three million businesses and organizations of every size, sector and
region.
Mr. Chairman, I have been asked to address the narrow issue of
whether or not a private cause of action in court should be authorized under the
legislation before you today, the "Medical Information and Research Enhancement
Act of 1999." We believe the only reasonable answer to this question is "no" and
the Chamber would strongly oppose inclusion of a new individual right to sue in
addition to the severe civil and criminal penalties already in the legislation.
Contrary to the assumptions of some, it is not true that a new right to sue
must, or should be, created each time Congress creates a new substantive legal
right or that such a right is necessary for effective enforcement. Furthermore,
experience would suggest that - given the inherent negatives associated with
court litigation - Congress reserve creation of new private causes of action in
court for only those situations where there has been a demonstrated and
well-documented problem with existing enforcement mechanisms. This threshold
criteria has not been met here.
It should be emphasized that whatever is
enacted will be an important, but complicated new federal law. Before we subject
individuals and organizations to the expense and uncertainty of private
litigation, we need to allow time for any uncertainties in the law to be
clarified. Hopefully, much of this will be accomplished through administrative
regulations that will flesh out the many rights, responsibilities and
protections in the legislation, a far preferable course than the vagaries,
expense and inconsistencies of the court system developing policy on a case by
case basis.
Since the question of whether a private cause of action is
necessary turns on whether or not the existing legislation has adequate
provisions to deter violations of its provisions, we need to look carefully at
what is in the legislation now. I urge the Members to refer to the actual text
of the legislation in this regard because these existing sanctions are actually
quite severe. First, let's review the criminal penalties under proposed Section
2801 "Wrongful Disclosure of Protected Health Information." Under this section,
a "person that knowingly and intentionally" discloses protected health
information shall be fined up to $50,000, imprisoned not more than one year or
both; and if the offense is committed under "false pretenses," be fined not more
than $100,000, imprisoned up to five years or both. And if the offense is
committed with "the intent to sell, transfer, or use protected health
information for monetary gain or malicious harm" the person could be fined up to
$250,000, and imprisoned not more than 10 years or both. All of these penalties
and prison sentences could be doubled under certain circumstances. I also note
that the "person" subject to these sanctions apparently could be anybody
employed by, or with any connection to, the health information - from a clerical
worker on up; hence the sweep of these provisions is quite broad.
Now let's
turn to the civil penalties under new Section 311. Under this section, "a
person" who the Secretary of Health and Human Services determines has
"substantially and materially failed to comply with this Act" shall be subject
to up to $500 for each violation and up to $5,000 for multiple violations
arising from failure to comply with Title I of the act; and, where a violation
relates to Title II, a civil penalty of up to $10,000 for each violation, and up
to $50,000 in the aggregate for multiple violations, may be imposed. A $100,000
penalty is provided for violations which constitute a general business practice.
This legislation also sets out detailed procedures for consideration of
penalties under Section 312. The Secretary is empowered to seek injunctive
relief.
To state the obvious, I can assure you that any entity covered by
this legislation will take these civil and criminal penalties quite seriously,
and I have to ask if there is anyone in this room today who would view these
possible jail terms and monetary penalties lightly if they were subject to this
law - I doubt it. I would ask you for one moment to put yourself in the place of
an individual within a business handling health care information - of whatever
size - and ask yourself that question.
To help demonstrate the extreme
nature of these criminal and civil penalties, it might be useful to refer, for
the purposes of comparison, to a few employment laws. Under the Occupational
Safety and Health Act willful or repeat violations can be penalized by monetary
penalties of between $5,000 and $70,000; a serious violation up to $7,000; a
non-serious violation up to $7,000, and for failure to correct a violation, a
civil penalty of not more than $7,000. With regard to criminal penalties, a
willful violation causing an employee's death can be punished by a fine of not
more than $10,000 and imprisonment for not more than 6 months or both, except
that if the violation is committed after a prior conviction, punishment can be
doubled.
The Family and Medical Leave Act and Title VII of the 1964 Civil
Rights Act contain no criminal penalties and only a civil fine of $100 for a
willful failure to post a notice of FMLA and Title VII rights. The Age
Discrimination in Employment Act has a criminal penalty of up to $500 or
imprisonment of up to 1 year for interfering with an EEOC agent. Similarly, the
National Labor Relations Act, protecting the rights of employees to unionize,
provides only for a fine of not more than $5,000 or imprisonment for one year
for interfering with a Board agent. The Fair Labor Standards Act contains fines
of not more than $10,000 and imprisonment at up to 6 months for certain
violations.
As you can see, the proposed civil and criminal penalties of the
legislation before you are quite severe in comparison to other laws - laws which
also protect important rights.
I led my testimony with a discussion on civil
and criminal penalties to dispel any doubt that this legislation somehow
provides an invitation for non-compliance or that such penalties are not
otherwise adequate to deter violation. Nothing could be further from the truth.
In this context, I turn to the question of the need for a private cause of
action.
Contrary to what seems to be a popular conception, many laws rely
exclusively on government enforcement for protection of important substantive
rights, as does this legislation. In the labor area alone these include: The
Davis Bacon Act (requires payment of prevailing wages on government contracts
for construction), the Service Contract Act (requires payment of prevailing
wages on government services contracts), the Walsh-Healey Act (payment of
minimum wages and overtime to employees working on government contracts);
Executive Order 11246 (prohibits discrimination by government contractors);
Section 503 of the Rehabilitation Act (prohibits discrimination by government
contractors on the basis of disability), and, perhaps most notably, the
Occupational Safety and Health Act (protects employee safety and health), the
Mine Safety and Health Act (protects safety and health of miners), and the
National Labor Relations Act (protects the rights of employees to engage in
concerted activities, including unionization.
)
Of course some labor
statutes (in interest of full disclosure) do have a private cause of action,
typically with remedies keyed to economic damages, such as lost pay with - in
some instances - a doubling where the violation was willful or without good
faith. (But let me again emphasize that these laws do not have the severe
criminal and civil penalties contained in the privacy legislation.) An atypical
example is Title VII of the 1964 Civil Rights Act, which was amended in 1991 to
include non-economic damages (capped at various levels), but only after two
years of much contentious debate encompassing two separate Congresses.
These
changes were based on a long record of experience amassed over some 30 years,
which demonstrated that by the 1990's changes were needed. Even with this
lengthy consideration by Congress, the results have not been pretty. Litigation
has exploded - tripling since 1991 - with discrimination cases constituting
almost one of every ten cases in federal court, the second highest number after
prisoner petitions. That only 5% of cases filed with the Equal Employment
Opportunity Commission are found to have "reasonable cause" and 61% "no
reasonable cause", tells us that many of these cases are of questionable
validity. I've also attached for the Members' reference an article entitled,
"Lawsuits Gone Wild," February 1998, discussing the plight of businesses under
this surge of litigation. Litigation expenses alone to defend a case can
approach $50,000 - $150,000 even before trial.
Perhaps this isn't surprising
given the nature of civil litigation, but it does emphasize the importance of
Congress carefully deliberating before it authorizes individual civil litigation
as a remedy. Indeed, the fact that private lawsuits are expensive, blunt
enforcement instruments with enormous transactional costs can hardly be argued.
While I do not wish to debate tort reform here, it may be
worthwhile to refer to a few further facts on this issue:
A
Tillinghast-Towers Perrin analysis (Nov. 1995) of the U.S. tort system found
that when viewed as a method of compensating claimants, the U.S. tort system is
highly inefficient, returning less than 50 cents on the dollar to the people it
is designed to help - and less than 25 cents on the dollar to compensate for
actual economic losses. (Tillinghast-Towers Perrin, "Tort Cost Trends: An
International Perspective," pp. 4, 8) The study broke down costs as follows:
- Awards for economic loss 24% - Administration 24% - Awards for pain and
suffering 22% - Claimants' attorney fees 16% - Defense costs 14%
Hence, even
when non-economic "pain and suffering" awards are included, claimants ultimately
collected only 46% of the money raised, the balance going for the high
transactional costs of the system.
These conclusions are consistent with a
1985 RAND study which indicated that plaintiffs in tort lawsuits in state and
federal courts of general jurisdiction received only approximately half of the
$29 billion to $36 billion spent in 1985. The cost of litigation consumed the
other half with about 37% going to attorney's fees (pp. v - xi). A 1988 RAND
study of wrongful discharge cases in California found that "total legal fees,
including defense billings, sum to over $160,000 per case. The defense and
plaintiff lawyer fees represent more than half of the money changing hands in
this litigation." (pp. viii, 39- 40) (The range of jury verdicts were from
$7,000 to $8 million with an average of $646,855. pp. vii, 25-27, excluding
defense judgements.) (Average award after post-trial settlement and appellate
review was still $356,033, p. 36)
A March 1998 study by the Public Policy
Institute entitled, "How Lawsuit Lottery is Distorting Justice and Costing New
Yorkers Billions of Dollars a Year," applied the Tillinghast-Tower's analysis
for New York's tort liability system and calculated that liability expenditures
broke out as follows:
- $6.57 billion in payments to claimants (including
$3.1 billion in pain and suffering awards and only $3.4 billion for actual
economic damages).
- $3.4 billion for administrative overhead.
- $2
billion for defense costs.
- And nearly $2.3 billion for plaintiffs'
attorneys.
The study found: "In sum, more than half of the money extracted
from our consumers, our taxpayers, and our economy by New York's phenomenally
expensive liability system doesn't go to its supposed beneficiaries" (p. 26).
And a May 1995 Hudson Briefing Paper, "The Case for Fundamental Tort
Reform" noted that:
- The U.S. tort system needs to be made far
more efficient and our society far less litigious and far larger shares of tort
payments should go to injured parties rather than to lawyers. Currently, more
than fifty cents of every dollar paid out of the tort system goes to cover
attorneys' fees. o Lawyers monopoly of access to the courts allows them to
impose a 33.33 to 40 percent toll charge on all damage recoveries, even in cases
in which defendants are willing to pay on a rapid no-dispute basis. Contingency
fees, the near-uniform means of compensating tort claim attorneys, can provide
risk free windfall profits to lawyers while harming defendants, plaintiffs, and
the economy as a whole.
The real costs of the nation's tort civil litigation
system is enormous, and the broader a civil action is in terms of grounds for
liability and damages the more incentive there is for frivolous litigation - as
many lawyers and plaintiffs seek to play the litigation lottery in front of
juries for huge monetary rewards. However, my primary point here is that simple
logic dictates that a system with such heavy transactional costs should, by
definition, be considered as an option of last resort.
Of course, I realize
that there are those who would argue that a business need not fear litigation so
long as it obeys the law - so a provision for civil court litigation should only
trouble truly bad actors and not present a problem to others. The only problem
with this argument is that it is patently false. The reality of laws in this
country is that they are invariably complex and, often, simply vague, with the
lines of compliance uncertain and often changing. The Code of Federal
Regulations governing the workplace arena alone covers over 4,000 pages of fine
print, and hundreds of court and administrative decisions provide their own
gloss of what the law is, or is not, on any given day. The Supreme Court handed
down three decisions on the Americans with Disabilities Act just a month ago and
two on what constitutes sexual harassment under Title VII and one on the Age
Discrimination in Employment Act in the last session. Eleven Circuit Courts of
Appeal render their own versions of the law. One treatise on discrimination law
stretches over two volumes and two thousand pages of analysis with more
footnotes, as does another on the National Labor Relations Act. And these are
not atypical examples of one area of the law. Even enforcement agencies, with
all their expertise, cannot give clear answers as to what is or is not required.
(See "Workplace Regulation - Information on Selected Employer and Union
Practices," GAO Report #94-138)
All of these problems are magnified when it
comes to a new law, such as that before you today, which will, no matter how
well drafted, be subject to much interpretation. Many times there will not be
right or wrong answer and that problem will be heightened if courts across the
country, likely combined with jury trials, are immediately faced with cases to
sort out every nuance - which may very well differ from jurisdiction to
jurisdiction - while the employer is faced with both uncertain requirements and
liability.
In closing, our opposition to inclusion of a private right of
action is premised on the straightforward notions that (1) the civil and
criminal penalties now in the legislation are quite severe and provide more than
adequate deterrence, (2) many laws are adequately enforced without private
causes of actions, and (3) law suits are a rough, blunt and expensive instrument
of justice with many negative attributes which should only be used where there
is a clear track record demonstrating that the law in question currently has
inadequate enforcement mechanisms-a record which certainly does not exist here.
Should the Congress find that, after passage of this legislation and a period of
enforcement, the business community is ignoring its responsibilities, it can
always revisit the issue and authorize new enforcement mechanisms.
Thank
you.
END
LOAD-DATE: July 21, 1999
