Posted by David Hyman:
Damage Caps and Medical Malpractice Litigation: II
http://volokh.com/archives/archive_2008_11_30-2008_12_06.shtml#1228362462
Yesterday, I reviewed some background on damages caps. Today, I want
to focus on the effect of damages caps on payouts. Of course, payouts
are not the only thing worth studying, as the comments to my first
posting reflect. Access to medical services might well be affected by
a cap. So might malpractice premiums � at least that was the
hope/expectation of those who proposed caps to deal with the
malpractice (premium) crisis. And, don�t forget defensive medicine,
which affects total spending on health care. But, for right now, I
want to focus on actual payouts.
What does past research find about the effect of damages caps? The
results are mixed, but most of the studies find that caps do reduce
payouts � typically by between 15% and 35% -- although some find no
effect whatsoever. You can find a review of the literature, with
references to the underlying studies[1] here, in Section II.
There are at last four different ways of studying how damages caps
affect payouts. One can:
1. Compare payouts in states with and without damages caps. This can
be done either at a case-level, or using aggregate insurer payouts.
2. Obtain case-level verdicts and estimate how a particular damages
cap will affect payouts.
3. Obtain payouts in tried and settled cases from a state without a
cap, and estimate how a damages cap will affect payouts.
4. Compare payouts before and after a cap is adopted in a single state
or across multiple states.
Each of these approaches has been used by researchers, and each has
their own mix of advantages and disadvantages.
For example, the first approach implicitly assumes that all states
with caps have the same cap. This is clearly incorrect, as yesterday�s
posting made clear. So, if a comparison finds no difference in payouts
between cap and non-cap states, it might be because caps have no
effect on payouts, or it might be because a very restrictive cap in
one state had a big effect, but less restrictive caps in other states
had little/no effect -- and averaging results across all states with
caps obscures the fact that there was a difference in payouts, but
only in the state(s) with more restrictive caps.
The second approach looks more straightforward, but it has its own
complexities. For example, if payouts don�t correspond to verdicts,
applying the cap to the verdict gives you a misleading impression of
the real impact of the cap. For example, if it turns out that
defendants don�t actually pay what the jury awards, then a
straightforward application of the cap will substantially overstate
the cap�s impact � giving the cap credit for �taking away� money that
isn�t being paid to begin with.
In an earlier [2]article, we found that defendants generally don�t pay
what juries award � and the larger the verdict the larger and more
likely the �haircut.� Overall, only 46% of the amount awarded by
juries is actually paid. The most important factor explaining verdict
haircuts is the amount of insurance coverage. If the doctor has
$500,000 in policy limits, it doesn�t seem to matter whether the jury
awards $500,000, $1,000,000, or $5,000,000. The insurer will pay
$500,000, and that will usually be the end of the dispute.
Above-limits payouts are uncommon, and when they occur, they are
virtually always paid by the insurer. (More discussion of those
subjects is saved for another day).
The third approach, which is the one we use in this [3]paper, has the
virtue of relying on actual payouts (instead of verdicts), but one
needs to make a series of assumptions in order to do the estimation.
The main weakness of this approach (apart from the plausibility of the
necessary assumptions) is that it is a static snapshot: it takes cases
to which the cap doesn�t apply, and assumes the same cases will be
brought post-cap. That�s a pretty strong assumption � particularly if
what we are interested in is the impact of a damages cap on payouts by
defendants. Consider three possibilities:
1. the cap makes some cases insufficiently remunerative, so they are
not brought � decreasing the volume of cases;
2. the cap changes the economics of some (but not all) cases, so some
cases are dropped, but other cases( that used to be insufficiently
remunerative) are now worth pursuing, and they take the place of the
cases that are dropped � meaning the volume of cases stays the same;
3. the cap makes malpractice cheaper, and so doctors take less care
and injure more people � increasing the volume of cases.
The first two effects are likely to be realized, if at all, in the
short-run, while the third is likely to be realized, if at all, in the
long-run. It is hard to know how to sort out this issue in the
abstract. Even though the third approach will not provide a clear
answer as to the dynamic consequences of a non-econ cap on defendant's
payouts, it does have one important advantage -- it tell us what the
impact of a cap will be from the perspective of the current group of
plaintiffs � and if you�re at all interested in the distributional
consequences of a cap, that�s worth analyzing.
The final approach is the best way to do these kinds of studies, but
the data to do so is generally not available. (We anticipate doing one
of these studies around 2011, since that is the earliest the necessary
data will be available).
Regardless of which approach one uses, there are additional
complexities to be dealt with, such as determining when a cap actually
went into effect. That problem is harder than one might think: how
should one handle a cap while it is under constitutional challenge in
the state courts? How should one handle a cap that was in effect for a
while, and then struck down? The answer to both questions will depend
on one�s sense of the factors that influence insurer behavior. For
example, to what extent do insurers discount their expectations
regarding cap effects by their expectations of when and whether the
cap will be upheld? Do they hold up settlement of cases until it is
clear whether the cap will be upheld, or settle them with the
expectation the cap will be upheld � or struck down � or something
in-between?
One final difficulty, which is common to all four approaches, is the
problem of obtaining data. When money is transferred from defendants
to plaintiffs, it is almost always the result of a settlement � and it
is extremely hard to obtain case-level information on settled cases.
It is somewhat easier to obtain case-level information on tried cases,
but trials are rare, and, as noted above, the jury verdict does not
necessarily indicate the actual payout. The most common source of
information on jury verdicts (commercial jury verdict reporters) are
systematically skewed toward larger verdicts � and they usually don�t
contain information on payouts.
Researchers have used different strategies to address this problem.
Some have simply used information on verdicts, while cautioning
readers as to the limitations of this approach. Others have obtained
information on payouts in tried and settled cases from individual
insurers, the [4]National Practitioner Databank, or state closed
claims databases. Several states maintain such databases, but not all
of them are public. For example, Illinois has a database of all
malpractice claims dating back to 1980, but the enabling statute
prohibits public release of the information, even if it is
de-identified. A slightly dated list of such databases, which is Table
1 in this[5] article, is reproduced below.
The National Association of Insurance Commissioners is [6]working on
developing guidelines for states that are interested in creating their
own databases. Not surprisingly, one of the flashpoints has been the
degree of confidentiality of the reported information. [7]Physician
groups have generally opposed public release of the information, even
on a de-identified basis. That said, the [8]American Society of
Anesthesiologists has used closed claims to identify areas likely to
lead to malpractice claims, and to improve the quality of the services
they deliver.
In our study we rely on the Texas closed claims database, which
includes case-level information on all commercially insured closed
medical malpractice claims in which there was a payout > $10,000
nominal. More detailed information is available on cases in which the
payout was greater than $25,000 nominal. The database is updated
annually, and currently includes the years 1988-2005. The data is
[9]here. ("Closed Claim Data"
As my posting from yesterday indicates, the Texas non-econ cap varies
from $250,000 to $750,000, depending on the number and type of
defendants. The Texas cap is not indexed for inflation.
This post has once again gone on longer than I intended, so I�ll just
summarize our findings, and provide some more detailed analysis
tomorrow. We find that
�� The Texas cap reduces the mean (median) "allowed verdict" (the
allowable portion of the jury award, plus interest) by 37% (36%). The
mean allowed verdict drops from $1.28M to $800k.
�� The Texas cap reduces the mean (median) predicted payout in jury
verdict cases by 27% (23%). The mean payout drops from $696k to $512k.
The reduction in mean payout ($184k) is substantially smaller than the
reduction in the mean allowed verdict ($480k). In total, the non-econ
cap reduces adjusted verdicts by $156M, but predicted payouts by only
$60M.
�� Settled cases account for 97.5% of the cases and 95% of the dollars
in the dataset. Predicted aggregate payouts in settled cases decline
by 18%. The mean settlement payout declines from $313k to $257k. The
total reduction in payout is on the order of $780M.
�� The non-econ cap has a disparate impact across plaintiff
demographic groups, with the larger percentage reductions borne by
deceased, unemployed, and (likely) elderly plaintiffs, relative to
non-deceased, employed, and non-elderly plaintiffs.
That�s enough for today.
References
Visible links
1. http://ssrn.com/abstract=1087679
2. http://ssrn.com/abstract=914415
3. http://ssrn.com/abstract=1087679
4. http://www.npdb-hipdb.hrsa.gov/
5. http://ssrn.com/abstract=770844
6. http://www.naic.org/committees_c_catf.htm
7.
http://www.naic.org/documents/committees_c_sitf_070918_ama_med_mal_comments.pdf
8. http://depts.washington.edu/asaccp/ASA/index.shtml
9. http://www.tdi.state.tx.us/reports/report4.html
Hidden links:
10. file://localhost/files/davidh-List_of_State_Databases.jpg
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