Estimating the Effect of Damages Caps in Medical Malpractice Cases: Evidence from Texas

Abstract

Using claim-level data, we estimate the effect of Texas's 2003 cap on noneconomic damages on jury verdicts, post-verdict payouts, and settlements in medical malpractice cases closed during 1988-2004. For pro-plaintiff jury verdicts, the cap affects 47-percent of verdicts and reduces mean allowed non-economic damages, mean allowed verdict, and mean total payout by 73-percent, 38-percent, and 27-percent, respectively. In total, the non-econ cap reduces adjusted verdicts by $156M, but predicted payouts by only $60M. The impact on payouts is smaller because a substantial portion of the above-cap damage awards were not being paid to begin with. In cases settled without trial, the non-econ cap affects 18-percent of cases and reduces predicted mean total payout by 18-percent. The non-econ cap Downloaded from 356 ~ Hyman, Black, Silver, Sage: Estimating the Effect of Damages Caps in Medical Malpractice Cases has a smaller impact on settled cases than tried cases because settled cases tend to involve smaller payouts. The impact of the non-econ cap varies across plaintiff categories. Deceased, unemployed, and (likely) elderly plaintiffs suffer a larger percentage reduction in payouts than living, employed, and non-elderly plaintiffs.We also simulate the effects of different caps and fi nd substantial differences in cap stringency across states. Different caps reduce aggregate payouts in tried cases (all cases) by between 16-percent and 65-percent (7-percent and 42-percent). Caps on total damages have especially large effects.

Medical Malpractice Reform: Noneconomic Damages Caps Reduced Payments 15 Percent, With Varied Effects By Specialty

“…In particular, we estimated the potential impact of two relatively common cap sizes – a $250,000 damage cap, often considered the model for tort reform advocates, or a less restrictive $500,000 cap – and compared their impact on claims in different specialties. Our findings complement prior work which used data from Texas to simulate the impact in other states of noneconomic damage caps of varying stringency 21 ; analyses of the NPDB which demonstrated that states implementing more stringent caps on noneconomic damages during 2003–2006 had larger declines in malpractice claim rates and average indemnity sizes 20 ; and prior studies exploring the impact of cap stringency on outcomes such caesarean section rates (proxy for defensive medicine) and physician labor supply. 43–45 …”

“…Malpractice risk varies considerably across specialties, 15–19 driven by differences in patient populations, rates and risks of procedural use, and physician characteristics, indicating that there is no reason to expect malpractice reform to have a uniform impact across all physicians. Second, prior studies usually rely on highly aggregate measures of malpractice reforms and, with several exceptions 20,21 , do not distinguish between the different dimensions across which states have adopted reforms. A cap on damages with a lower value will be more restrictive, both because it will affect more cases and lead to lower average payments in cases to which it applies.…”

“…Additionally, previous studies suffer from important data limitations, ranging from small samples from individual insurers 8,22 or a single state, 21 to data from the National Practitioner Data Bank (NPDB). Although the NPDB theoretically includes all payments made to claimants on behalf of health care providers, 23 it has been criticized for under-reporting payments, in part because of the so-called “corporate shield” loophole that ignores payments made by hospitals or corporate entities, but also due to underreporting of lawsuits that jointly involve physicians and hospitals, in which hospitals assume the full liability payments so that their physicians are not recorded in the NPDB.…”

The impact of non-economic damages caps on obstetrics: Incentives versus practice style

“…Non-economic damages caps reduce insurer payouts (Sloan et al, 1989;Avraham, 2007;Hyman et al, 2009) and the probability of lawsuits (Kessler and McClellan, 1997;Browne and Puelz, 1999) and, thus, they are expected to increase the supply of medical care.…”

Malpractice Payouts and Malpractice Insurance: Evidence from Texas Closed Claims, 1990–2003

“…19 Syverud (1990). 20 The impact of the damages caps Texas enacted in 2003 is studied in Hyman et al (2008). 21 Gilles (2006);Baker (2001).…”