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.

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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