May 11, 2006
More on the Closed Claims Study
On what is still a pretty quick read, some interesting snippets from the NEJM piece (first mentioned here)...
We found that only a small fraction of claims lacked documented injuries. However, approximately one third of claims were without merit in the sense that the alleged adverse outcomes were not attributable to error. Claims without merit were generally resolved appropriately: only one in four resulted in payment. When close calls were excluded, claims without evidence of injury or error accounted for 13 percent of total litigation costs.
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We found stark differences in the outcomes of litigation for claims that did and those that did not involve errors: non-error claims were more than twice as likely as error claims to go to trial; they were nearly one third as likely to result in compensation; and when the plaintiffs received compensation, payments averaged 60 percent of the amount paid for error claims. . . . The profile of non-error claims we observed does not square with the notion of opportunistic trial lawyers pursuing questionable lawsuits in circumstances in which their chances of winning are reasonable and prospective returns in the event of a win are high. Rather, our findings underscore how difficult it may be for plaintiffs and their attorneys to discern what has happened before the initiation of a claim and the acquisition of knowledge that comes from the investigations, consultation with experts, and sharing of information that litigation triggers.
The first two conclusions are those that have gotten the most play:
One is that portraits of a malpractice system that is stricken with frivolous litigation are overblown. Although one third of the claims we examined did not involve errors, most of these went unpaid. The costs of defending against them were not trivial. Nevertheless, eliminating the claims that did not involve errors would have decreased the direct system costs by no more than 13 percent (excluding close calls) to 16 percent (including close calls). In other words, disputing and paying for errors account for the lion’s share of malpractice costs.
A second conclusion is that the malpractice system performs reasonably well in its function of separating claims without merit from those with merit and compensating the latter.
But they come with significant caveats involving false negatives and "exorbitant" costs:
Although the number of claims without merit that resulted in compensation was fairly small, the converse form of inaccuracy — claims associated with error and injury that did not result in compensation — was substantially more common. One in six claims involved errors and received no payment.
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In addition, enthusiasm about the precision of the malpractice system must be tempered by recognition of its costs. Among the claims we examined, the average time between injury and resolution was five years, and one in three claims took six years or more to resolve.
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In monetary terms, the system’s overhead costs are exorbitant. The combination of defense costs and standard contingency fees charged by plaintiffs’ attorneys (35 percent of the indemnity payment) brought the total costs of litigating the claims in our sample to 54 percent of the compensation paid to plaintiffs.
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One thing I thought was interesting is that the study discusses the exorbitant cost of overhead for defense, but what about for the plaintiff? It is my understanding that often certain expenses are far greater for the plaintiff - such as finding and hiring expert witnesses - than for the defense (who can often get experts for free). I'm not suggesting this is intentional, but I'd be curious to see a comparison of costs for a plaintiff vs. defense.
I do think it's interesting that the AP article about the study seems to emphasize the findings about non-error claims and defense costs, while pretty much downplaying the general conclusion of the study.
Posted by: Seth (not a lawyer) | May 11, 2006 6:17:43 AM