What Lawsuit Abuse?

For many months before passage of Texas House Bill 4 in 2003, lawyers and consumer rights organizations tried repeatedly to get legislators and the voting public to understand the real reasons for the so-called “medical malpractice crisis.” The huge increases in medical malpractice insurance premiums charged to physicians and hospitals had much more to do with the falling stock market and low interest rates than with medical malpractice litigation. Insurance companies, in the years before 2003, were losing money on their investments in the stock market, and also in their “safer” investments in interest-bearing accounts. In addition, the terrorist attacks of September 11, 2001, cost insurance companies a great deal of money.

Unfortunately, not enough members of the legislature or the public listened or understood the reasoning behind the arguments of the consumer organizations, and the law was passed. House Bill 4 essentially denies full justice though the court system to patients killed or injured by medical malpractice. The law does this by limiting recovery of non-economic damages to $250,000 from all doctors involved in one case, and $250,000 from each hospital involved, with an overall limit of $750,000. This limit is per claim, not per plaintiff. So the negligent death of a housewife with a husband and four children is basically worth no more than $750,000, and that would be only in the unusual situation in which more than one hospital was responsible for the death.

The real-life effect of the law is that fewer lawyers are willing to accept these cases, which involve huge investments of time and money on the part of the lawyer.

Now that the damage has been done, some people finally are beginning to realize this draconian law purportedly solved a problem that never even existed. The most dramatic proof of that fact has just been produced in a study conducted by law professors from several universities, and released in March 2005.*

The study, titled “Stability, Not Crisis: Medical Malpractice Claim Outcomes in Texas, 1988-2002,” reaches the conclusion that there is only a loose connection between insurance rates and malpractice claim payments. In other words, there may well be occasional “medical malpractice insurance crises,” but they are not caused by increases in payments for medical malpractice claims. Therefore, attempted reforms of the liability system will have little, if any, effect on insurance premiums, and will do little, if anything, to prevent future insurance crises.

The forty-page study is based on a comprehensive database of closed claims maintained by the Texas Department of Insurance, and covers the time period 1988-2002. Among many others, the following facts emerge from the study:

● Adjusted for population growth, the total number of closed claims, the total number of large claims (payouts of at least $25,000 in 1988 dollars), and the percentage of claims that produced large payouts were stable from 1990-2002.

● There was a sharp decline in the number of smaller paid claims.

● Mean and median payouts per large paid claim were stable in real dollars over 1988-2002, and declined if adjusted for medical care cost inflation.

● In large paid claims tried to verdict, both verdict amounts and actual payouts per claim were flat or perhaps declined slightly.

● In 2000-2002, paid claims averaged 4.6 per 100 practicing Texas physicians per year, down from 6.4 per 100 physicians per year in 1990-1992. Total claims averaged 25 per 100 practicing physicians per year in 2000-2002, of which about 80% closed with no payout.

The study closes with this sentence, “Our point, which has been largely neglected in the furious battle over malpractice liability, is that attempts to avoid crises in malpractice insurance prices should focus on insurance, not litigation.”

That is exactly the point plaintiff lawyers and consumer rights organizations spent so much time and effort trying to convey to the legislators and the voting public. Unfortunately, the statistical proof came too late to prevent the damage done by House Bill 4 to the legal rights and remedies of consumers of medical services in Texas.


*Columbia Law & Econ Research Paper No. 270; U Illinois Law & Economics Research Paper No. LE05-002; U of Texas Law & Economics Research Paper No. 30: http://papers.ssrn.com/sol3/papers.cfm?abstract_id