Policy Limits, Payouts, and Blood Money: Medical Malpractice Settlements in the Shadow of Insurance
University of Texas at Austin - School of Law
David A. Hyman
Bernard S. Black
Northwestern University - Pritzker School of Law; Northwestern University - Kellogg School of Management; European Corporate Governance Institute (ECGI)
Hanyang University - College of Policy Science
November 17, 2014
5 UC Irvine Law Review 559-586 (2015)
Northwestern Law & Econ Research Paper No. 16-20
University of Texas School of Law Paper No. 567
In prior research, we found that policy limits in Texas medical malpractice (“med mal”) cases often served as de facto caps on recoveries in both tried and settled cases. We also found that physicians faced little personal exposure on malpractice claims. Out-of-pocket payments (OOPPs) by physicians were rare and usually small. Physicians could reduce their personal exposure to near zero by carrying $1 million in primary coverage ― a standard amount in many states. Finally, the real amount of insurance coverage purchased by physicians with paid claims declined substantially over 1988–1999, consistent with physicians learning over time how low the OOPP risk was and deciding to carry less coverage.
We now revisit our findings, using an extended dataset (1988–2005) that lets us study policies purchased through 2003, which encompasses the period during which Texas experienced a med mal insurance crisis (1999–2003) and adopted tort reform to limit med mal lawsuits (2003). Our updated findings are largely consistent with our original findings: policy limits continue to cap recoveries; physicians still rarely make OOPPs; most OOPPs are modest; and real policy limits continue to shrink. We also find evidence that, at the end of the extended period, physicians often purchased less coverage (i.e., policies with limits of $100,000–$200,000 instead of $500,000–$1 million).
Our findings have important policy implications. If physicians carry less real coverage over time, lawsuits should become less profitable. This will make it harder for injured patients to find plaintiffs’ lawyers willing to handle their cases; shift the cost of medical injuries away from providers and toward patients and first-party health insurers; weaken liability insurers’ incentives to monitor providers; and diminish the (already modest) deterrent effect of tort law. If these findings are representative, they may help explain the nationwide decline in med mal claiming that we document elsewhere. Finally, our findings raise questions about the explanatory power of Baker’s “blood money” norm, at least for med mal litigation.
Number of Pages in PDF File: 29
Keywords: Blood Money, Policy Limits, Med Mal, Personal Exposure
JEL Classification: K13, K41
Date posted: September 22, 2016 ; Last revised: December 16, 2016