The Center on Lawyers, Civil Justice, and the Media

PROJECT 2: MEDICAL MALPRACTICE CLAIMING IN TEXAS, 1988–2002 – Answers to Frequently Asked Questions

• Questions about Our Findings
• Questions about Our Data
• Questions about Our Analytical Methods
• Questions about Damage Caps and Other Tort Reforms
• Responses to Criticisms

Questions about Our Findings

1. Is there a crisis in malpractice premiums in Texas?
   
   ANSWER. We did not specifically investigate premiums; we merely reported the most commonly used premium data, which show that malpractice premiums in Texas increased dramatically beginning at the end of 1998, and continuing through 2003. The weighted, inflation-adjusted increase in the premiums during this period (1999–2003) was 110% – meaning that premiums more than doubled in four years. We do not take a position one way or another on whether these increases constitute a "crisis."
2. Is there a crisis in malpractice claim rates or outcomes?
   
   ANSWER. Not in Texas, as best we can tell, at least through 2002. Claim rates and payouts to patients were generally stable throughout the period we studied (1988–2002). There was no increase in blockbuster verdicts (>$1 million), which were consistently around 5–6% of large paid claims.
3. Have jury verdicts skyrocketed, as one often hears?
   
   ANSWER 1. After adjusting for inflation, we found limited evidence of rising jury verdicts in medical malpractice cases. The magnitude of the increase was 2.5% to 3.6% per year. However, the increase was statistically insignificant in one dataset and only marginally significant in the other, so we cannot rule out the possibility that no real increase occurred. (We configured multiple datasets because the closed claim database contains three markers for medical malpractice. Some claims contain one or two markers; others contain all three. By running our tests on samples of the data selected by using the markers in different combinations, we learned whether our results depended on the particular sample of the data we happened to be looking at. Most of the time, they didn't. When it came to jury verdicts, however, the size of the increase and its statistical significance differed in the manner just described.)
   
   ANSWER 2. We also found that jury verdicts vary greatly, both within years and over time. Given the small number of jury verdicts that favor plaintiffs each year, substantial variation is predictable. One dataset contains about 21 pro-plaintiff jury verdicts per year; the other contains about 24 pro-plaintiff verdicts per year. With numbers this small, one must expect a lot of variation, if only because tried cases may differ from one another in many respects. For example, some trials may involve only hospitals as defendants while others involve hospitals and physicians and still others involve nursing homes. Some trials may involve patients who died while in others the patients survived. We plan to publish a separate study examining jury verdicts in greater detail.
4. Who paid for your study?
   
   ANSWER. The study was funded by the Center for Lawyers, Civil Justice, and the Media at the University of Texas School of Law and by the John David and Elizabeth A. Epstein Program in Health Law and Policy at the University of Illinois College of Law.

Questions about Our Data

1. What data did you use?
   
   ANSWER 1. Our data on medical malpractice claims came from the Texas Department of Insurance (TDI), which started collecting information about closed claims from liability insurers in 1988. TDI also audits certain aspects of the data to ensure accuracy and completeness. The data are publicly available for use by researchers.
   
   ANSWER 2. We also used data from other sources. For example, to determine the number of malpractice claims per 100 Texas physicians, we consulted various sources of information about the supply of physicians in this state. All of the sources we relied on for supplemental information are identified in our article and are publicly available. Most were produced by government agencies.
2. How complete is your data on medical malpractice claims?
   
   ANSWER. Although our dataset is very large, it does not contain all medical malpractice claims that arose in Texas 1988–2002. TDI collects data only on claims involving insured health care providers. Consequently, our dataset does not contain claim reports for self-insured hospitals, such as the University of Texas Health System. TDI also collects information on defense costs only when payments exceed $10,000. Consequently our dataset does not contain information about defense costs incurred when on claims when payments fell below this amount. Finally, TDI collects data when claims close. Consequently, our dataset has no information about claims that were still being processed when 2002 ended or that arose in later years.
3. What are some of the principal limitations of your study?
   
   ANSWER 1. Our conclusions are limited by TDI's data. We have data only on claims that were closed (resolved) by the end of 2002. Because it takes several years to resolve many claims, changes in the number or potential amount of claims outstanding at the end of 2002 or more recent years are not reflected in our data.
   
   ANSWER 2. The largest malpractice payments typically involve hospitals. Many hospitals are self-insured, and therefore do not report data to TDI. Therefore, many large payments are not in the database.
   
   ANSWER 3. We have data on defense costs only for claims with payout of at least $10,000 (in nominal dollars). We know that defense costs per claim rose over 1988-2002 for these claims. Defense costs presumably also rose for claims with zero or small payouts, but we cannot measure by how much.
   
   ANSWER 4. Certain medical specialties (e.g., neurosurgery, obstetrics) are known to be at higher risk of malpractice litigation, and tend to experience greater increases in premiums than other physicians. Because TDI data do not identify the medical specialty of physicians involved in reported claims, we cannot measure changes in claims or payouts for high-risk specialties.
   
   ANSWER 5. We do not assess whether there were county-by-county variations in malpractice outcomes. We are planning to perform a county-by-county analysis in a subsequent study.
   
   ANSWER 6. We do not have data on jury verdicts in cases involved self-insured defendants. Some trials involving these defendants are known to have produced large awards.

Questions about Our Analytical Methods

1. Why did you study 1988–2002?
   
   ANSWER. We studied all the years for which data is currently available from the TDI, and always used the maximum number of years for which reliable data is available. We did not choose the time period to generate or strengthen a particular result. We intend to update our findings and extend the number of years employed as TDI releases new data.
2. Why did you perform regression analyses at various points in your study?
   
   ANSWER. Regression analysis is a formal statistical method for assessing the connection between independent and dependent variables. In our study, we used regression analysis to determine and quantify trends in the data such as the extent to which jury verdicts, defense costs, and total payments were increasing over time.

Questions about Damage Caps and Other Tort Reforms

1. Will damage caps reduce malpractice insurance premiums?
   
   ANSWER 1. Our study does not address this question. However, we believe that over the long run, the answer is almost surely yes. Caps should reduce per claim malpractice payouts, and should also reduce the number of claims that are worth bringing. By lowering costs, caps should eventually lead to lower liability insurance premiums. In the short run, the relationship between caps and premiums less uncertain. It is even possible for caps to increase malpractice payouts, if they are set high enough and are used as an "anchor" by juries and judges making decisions about damages.
   
   ANSWER 2. Whether caps are a good idea is a separate matter which our study also does not address. When considering the desirability of caps, it is important to remember that more than insurance rates are at stake. Other relevant matters include (1) the impact of caps on severely injured patients (the only patients whose claims are large enough to trigger the caps); (2) the affect caps may have on health care providers' incentives to protect patients from avoidable perils; and (3) the impact caps may have on the cost or availability of health care.
2. Did the Texas liability cap, adopted in 2003, lead to lower malpractice rates?
   
   ANSWER 1. Our study does not address this question. We looked at malpractice claims that were closed from 1988 through 2002. We are planning to examine this matter when data for later years are released.
   
   ANSWER 2. Reports indicate that premiums for malpractice coverage in Texas declined in 2003 and 2004, and that insurance companies also entered (or re-entered) the Texas market after tort reform was enacted. Because several explanations for these events are possible, no one can say with authority whether or how greatly the 2003 tort reform statute contributed to changes in market conditions. One possibility is that the liability caps and other tort reforms enacted in 2003 brought about the decline in premiums and market entry by insurers. Another possibility is that market conditions would have improved without tort reform because insurance is a cyclical business. A third possibility is that market conditions would have improved without tort reform, but that tort reform caused rates to fall more than they otherwise would have and also caused more insurers to write policies in this state. To our knowledge, no study has been done that would enable one to determine which explanation is correct.
3. Will liability caps prevent the next malpractice insurance crisis?
   
   ANSWER 1. Although we did not study caps directly, our study does suggest that malpractice insurance premiums can swing widely in the short-to-medium term, partly or mostly without any related changes in claims experience or jury verdicts. If so, damage caps may not prevent the next malpractice insurance crisis, particularly if liability insurance continues to be priced based on the specialty and county-level practice location of individual physicians rather than in a better diversified manner.
   
   ANSWER 2. At the same time, caps should lower the aggregate amount of medical malpractice payouts in the long term, and make payouts more predictable for insurers, which should reduce the size of future premium swings (in nominal dollars, rather than as a percentage of existing premiums).
   
   ANSWER 3. The caps being considered today apply only to non-economic damages such as pain and suffering, not to economic (out-of-pocket) losses such as future medical expenses and foregone wages. The largest malpractice payments, often made in cases involving permanent injuries to newborns or children, typically include millions of dollars in economic damages. As health care costs continue to grow and as new (and expensive) technologies evolve for keeping injured patients alive, liabilities may continue to strain the malpractice insurance system even if non-economic damage caps exist.
4. Will tort reform help patients gain access to health care providers?
   
   ANSWER: Our study does not address this question. Although many contend that malpractice lawsuits have created access problems, the evidence on this point is not clear. Some studies find that states with weaker tort laws have more physicians per capita; others do not. Worse, although it seems reasonable to expect the supply of physicians to be somewhat greater over the long haul in states that restrict lawsuits, no one knows whether that difference actually benefits patients. Studies conducted by researchers at the Dartmouth Medical School find that states with more medical specialists per capita have significantly higher health care costs but not demonstrably healthier populations.
5. Do the results of your study imply that the malpractice system is working properly?
   
   ANSWER 1. This study attempted to determine whether aspects of the system for processing malpractice claims (including the number of claims, payouts per claim, defense costs, and jury verdicts) changed over time in ways that could plausibly explain recent increases in malpractice premiums. Although the study found that few changes occurred, this finding implies neither that the malpractice system is working well nor that it is working badly. The study shows only that in 2002, the system worked pretty much as it did in 1988.
   
   ANSWER 2. A large literature has identified many problems with the medical malpractice system, including a failure to compensate deserving patients adequately and a failure to deter errors sufficiently. Three of the authors of this study have contributed to this literature in other published works. Few doubt that the system needs improvement, but there is a great deal of disagreement over how to make it work better for patients and providers.

Responses to Criticisms

1. Why didn't you inflation adjust the increase in malpractice premiums during the period 1988–2003?
   
   ANSWER. The version of the article released on March 10, 2005 included a chart showing that premiums increased by a weighted average of 135% between 1998 and 2003. The chart, which was prepared by TDI and was not inflation adjusted, generated the criticism that adjusting for inflation would make the premium increase smaller and possibly bring it into closer alignment with our inflation-adjusted findings on the costs of medical malpractice claims. We accepted the criticism and revised the chart. The final version of the article shows that the inflation adjusted weighted average increase in premiums was 110%, meaning that premiums more than doubled in 4 years even after inflation is taken into account.
2. Why didn't you assess claiming patterns and payouts in individual counties in Texas?
   
   ANSWER: We began with Texas' statewide claims and payment experience for many reasons. First, the AMA declared that the entire State of Texas was in crisis, not just particular counties. Second, the number of pro-plaintiff jury verdicts was too small to permit disaggregation. Third, by focusing on the state as a whole, we reduced the volatility of claims and payouts that would occur if we focused on individual counties. Fourth, malpractice legislation is also enacted at the state level. We hope to focus on claiming patterns and payouts in individual counties in a future study.
3. What happens when you exclude 1990 from your analysis?
   
   ANSWER. One commentator suggested that the amount paid in 1990 was artificially inflated because insurers were "cleaning up" cases that had been closed in earlier years, but had not been reported. We excluded 1988–1989 from our analysis because TDI stated that there had been underreporting in those years. When we excluded 1990 from our regression analysis, it did not materially affect the results.
4. Why did you adjust the data?
   
   ANSWER: We adjusted the data in a variety of ways, about which we say more below. Overall, our aim was to be able to compare results produced when analyzing data for different years. Without ensuring comparability, it would have been impossible for us to determine whether aspects of the medical malpractice system changed over time.
   
   An example may help make this clear. Suppose two identical patients with identical injuries sought compensation, one in 1988 and the other in 2002. Now suppose the first patient received $100,000 in compensation and the second received $250,000. Would it be right to infer that the malpractice system treated the second patient more generously than the first? Without controlling for inflation one cannot tell, because $250,000 in 2002 may be worth more than, the same as, or less than $100,000 in 1988. Because we adjusted for inflation when analyzing the data, we can compare the sizes of payments in different years.
5. Why did you adjust for population, change in the number of physicians, and change in real health care spending?
   
   ANSWER 1. We used these adjustments to determine whether observed trends in claims, payouts jury verdicts and other aspects of the malpractice system reflected forces operating outside the system or changes occurring within it. For example, suppose the number of claims processed in 2002 was greater than the number processed in 1988. The increase could have a number of causes: patients could have become more inclined to sue; the number of injuries inflicted on patients could have increased; or both changes might have occurred concurrently. The adjustments for population, physician supply, and real health care spending help identify the actual causes.
   
   ANSWER 2. The adjustment for population helps us address a simple problem. Texas' population grew substantially between 1988 and 2002. As the population grew, the total amount of health care consumed also rose. More people needed more health care, just as they also needed more food, housing, and automobiles. Because a risk of malpractice exists every time a patient is treated, one would naturally expect the number of malpractice claims to increase with the number of Texans. By controlling for population growth, we were able to determine whether the number of claims increased faster than the population. It did not, suggesting that patients' inclination to sue remained unchanged over time.
   
   ANSWER 3. Some people rarely visit doctors or hospitals. Others visit health care providers frequently. If the size of the latter group grew relative to the former over time, health care consumption would increase. Because a risk of malpractice exists every time a patient is treated, one would naturally expect the number of malpractice claims to increase with service intensity. Unfortunately, it is very difficult to measure service intensity directly. We therefore used the supply of physicians and real health care expenditures as proxies. Doing so enabled us to determine whether claims or payments increased faster than service intensity. It did not, again suggesting that patients' willingness to sue was unchanged.
   
   ANSWER 4. Some non-academic commentators have objected to our use of these adjustments. Although we believe their criticisms are unfounded, in the study we report our findings without the adjustments as well as with them. Anyone who thinks the adjustments are improper can ignore them.
6. Why did you adjust for gross state product?
   
   ANSWER 1. Gross state product (GSP) is a measure of a state's wealth. A wealthier population (one with a higher GSP) tends to consume more of everything, including health care. Because Texas's GSP rose substantially between 1988 and 2002, and because higher health care consumption means more opportunities for accidents and more malpractice claims, GSP is an important control.
   
   ANSWER 2. Gross state product (GSP) is commonly used to measure how well the people of a state can bear a particular economic burden. A $1 billion outlay may impose an enormous burden on the people of a state with a small GSP, but may be much more easily afforded by the people of a state with an enormous GSP. A large literature describes the burden tort lawsuits impose on society as a "tort tax" because the costs of these lawsuits are spread across all members of society in the form of higher prices for goods and services. The literature on medical malpractice lawsuits specifically charges that the costs these lawsuits entail are spread across all patients and taxpayers in the form of higher charges for health care services. By controlling for GSP, we found that the direct economic burden of malpractice lawsuits became easier for Texans to bear over time, because GSP grew faster than these costs.
7. Won't damage caps decrease the risk premium that insurers demand to compensate them for the risk of high-dollar verdicts?
   
   ANSWER 1: Our study did not examine this. However, as stated above, in the long run we expect caps to reduce payments to claimants and, therefore, insurance costs. Caps should therefore reduce the risk premiums insurers charge. Some studies dispute this, however, finding that caps do not reduce costs significantly. Whatever the truth may be, it is important to remember that the answer to this question provides only part of the answer to the larger and more important question, which is whether caps are socially desirable. Many considerations bear on the larger issue, as previously explained.
   
   ANSWER 2: Caps on non-economic damages are only one of many possible ways of dealing with variation in jury verdicts. As an alternative, one could design an award schedule for non-economic damages tied to a patient's economic damages, a patient's income, the average or median income in the state, or some other standard. Any such approach would reduce risk premiums by making damages more predictable.
   
   ANSWER 3. One must also remember that jury verdicts vary downward as well as upward. If upward variation causes insurers to charge risk premiums, it is reasonable to infer that downward variation (unusually low awards of non-economic damages) causes patients to give up risk premiums when settling, that is, motivates them to accept less money than they would demand if jury awards were more predictable. We do not know whether variability harms patients or providers more. However, if all risk premia stemming from the variability of jury awards are bad, then policymakers should consider proposals (like damages schedules) that reduce variability for both patients and providers as well as proposals (like caps) that protect only providers.