Friday, September 15, 2006

Med Mal Insurance Rates

There have been a couple of developments that have been pointed to as evidence of changes in liability law working -- Mississippi saw another reduction in med mal insurance rates, and Texas has a new survey in which physicians state that they feel better about practicing there, and there is apparently a fairly significant increase in the number of new license applications.  (Texas has also seen some reductions in insurance rates.)

One quote caught my eye in the Texas Medical Association press release:

“As it should be, Texas physicians’ No. 1 challenge is how to cure the patient, not how to avoid a frivolous lawsuit,” [TMA president Homer] said.

One can certainly assert with some credibility that the liability caps had at least something to do with the insurance rate reductions -- if the total exposure drops, one would expect the carriers to recognize that.  And if insurance rates are lower, one can also expect physicians to be more open to riskier procedures. 

But was there something in the 2003 reforms that targeted "frivolous" suits?  Screening panels?  Tightening up expert testimony?  If not, how do caps reduce frivolous suits?

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As your question makes obvious, damage caps have nothing to do with stopping frivilous lawsuits. The health care industry wants special treatment to limit responsibility for meritorious lawsuits, but lack the intellectual honesty and courage to admit it. Because the leaders of the industry, including doctors, have sufficient intellect to understand the lack of a causal relationship between damages caps and reduction in frivilous lawsuits, the only rational explanation for their position is that they find it perfectly acceptable to lie to the public and to public officials. And it seems to be working, at least in the short run. Over time, as the body count increases, more and more people will come to understand the big lie and there will be hell to pay.

Posted by: John Day | Sep 15, 2006 7:32:25 PM

Caps may have an effect if they reduce the incentive to file suit. This incentive is presumed to exist because of the lottery nature of a lawsuit. If one reduces the outcome of the lottery (through a cap), one reduces the incentive to invest in proving liability.

One reason that the SC and Texas results may differ is that in Texas it may be that the insurers are more certain the reforms will be upheld in court. In South Carolina, it may be that the reforms' eventual outcome is uncertain. When (and if) the uncertainty is resolved, it is more likely to have an effect on insurance prices.

Posted by: RiskProf | Sep 18, 2006 9:47:38 AM

Of course they feel better. Now there is a limit to which their negligence can cost them if they decide to cut corners. I would feel better if the government would limit my exposure to a suit caused by a mistake which could have been avoided had I been more careful.

Posted by: Bill | Sep 18, 2006 10:09:11 AM

Well, sure, caps have an effect on the number of suits, but why would they have an effect in particular on the number of frivolous suits? I expect -- without knowing -- that "frivolous" suits have a lower likely verdict value, even recognizing the lottery situation, and thus that the caps may have less of an influence on those suits. At a minimum, I would expect the effect to be across-the-board, not limited to frivolous suits.

You're likely right, RiskProf, at least in part, about the differences between Texas and South Carolina, even though the insurance spokesperson in South Carolina didn't make any reference to it in the news story. Ted noted that possibility in a comment to the South Carolina post.

Posted by: Bill Childs | Sep 18, 2006 10:29:58 AM

Bill, the mistake that you (and John Day) are making is thinking that your specialized legal-jargon definition of "frivolous" corresponds to the layperson's use of the word. Rule 11 conceptions of "frivolous" are substantially narrower by orders of magnitude to the conventional definition of the term. If one assumes (as is most likely the case) that Homer is using the latter definition, then caps reduce frivolous litigation by reducing the number of lottery strike-suits where damages are purely non-economic, and thus potentially unbounded. Those cases are no longer profitable. I discussed this in more detail in 2004.

John Day's unfounded accusation that caps "increase the body count" is contradicted by the substantial empirical evidence that shows that caps save lives by reducing doctor exit from the market.

Posted by: Ted | Sep 18, 2006 12:49:30 PM

No, actually, that's not my mistake. My definition of "frivolous" is substantially broader than Rule 11's and, I imagine, substantially closer to the conventional conception than Rule 11's. We can use the term "meritless" if you prefer -- something that probably shouldn't and wouldn't win in front of most juries, but that is not sanctionable. I remain largely unconvinced that caps disproportionately reduce meritless claims, and certainly there is no evidence presented by the TMA that I have seen that suggests that to be the case.

Posted by: Bill Childs | Sep 18, 2006 1:41:58 PM

As a matter of theory, non-economic damages are easier to fake and exaggerate than economic damages, and one would expect to see more meritless and speculative claims for non-economic damages when they're not capped.

There's a whole class of meritless cases whose value consisted almost entirely of the in terrorem possibility of unbounded non-economic damages. (That Lionel Hutz was fond of neck braces was a stereotype of a joke, but one that was funny because it was true.) Those suits cease to have profitable settlement value when non-economic damages are capped.

But you won't get any argument from me that caps are at best a partial and imprecise solution.

Posted by: Ted | Sep 18, 2006 3:40:58 PM

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