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Many physicians and tort reform advocates believe that most medical malpractice (“med mal”) claims are “frivolous”; they often rely on reports that only about 20% of claims result in a payout. Many physicians and reform advocates also believe that plaintiffs lawyers often sue every health provider with even a remote a connection to the patient. Plaintiffs’ lawyers insist that they screen med mal cases carefully, and when they bring a claim, are selective in whom they sue. Can these perspectives be harmonized? We study this question using databases of every insured med mal claim closed in Illinois during 2000-2010 and in Indiana during 1980-2015; and semi-structured interviews with six plaintiffs’ lawyers. We innovate by using defense costs to assess whether the plaintiffs’ lawyers take a case seriously. We treat cases with under $5k in defense spending as “non-serious” cases, unless they have a payout over $25k. We find evidence that many “cases” are non-serious – they never involved filed lawsuits or if they did, the suits were soon dropped – indicating that screening is an ongoing process that does not end when a case is accepted. Observed success rates are sensitive to whether one counts “claims” (each defendant is a separate claim) or “cases” (one plaintiff versus one or more defendants), includes both pro se and represented cases, and includes all versus only serious cases. If we analyze cases instead of claims and limit to serious, represented cases, we find much higher success rates (43% in Illinois; 44% in Indiana). Success rates are higher still in cases brought solely against institutional defendants (58% in Illinois; 68% in Indiana). Plaintiffs’ lawyers are also selective in the number of defendants they sue. In med mal cases involving only physicians and/or institutions, the mean number of defendants is 1.5 in Illinois and 1.8 in Indiana. Online Appendix can be found here: http://ssrn.com/abstract=3010344.

How concentrated is the market for medical malpractice (med mal) legal representation? Do successful plaintiffs’ lawyers start off with better cases to begin with, do they add more value to the cases they handle, or both? How do top plaintiffs’ lawyers market their services, and where did they go to school? How large are the “wages of risk”—the compensation to plaintiffs’ lawyers for working on contingency? How often do plaintiffs proceed pro se, and with what results? We address these questions using a data set of every insured med mal case closed in Illinois during 2000–2010. We show that most plaintiffs have a lawyer. We quantify the market share, case mix, and amounts recovered by the 1,317 law firms that handled med mal cases in our sample, stratify the firms into four tiers, and assess differences across tiers. We find that the market for plaintiff-side med mal representation is both unconcentrated and highly stratified. At all firms, a small number of cases account for a heavily disproportionate share of total recoveries. We use the extensive covariates in our data to (imperfectly) address sample selection, and to estimate the effect of having a lawyer and law firm tier on outcomes. Controlling for observable claim characteristics, having a lawyer predicts a large increase in the probability of prevailing and the estimated recovery. Higher-tier firms have only modestly higher success rates, but substantially higher estimated recoveries. However, the differences shrink and are statistically insignificant when we compare first-tier to second-tier firms. This suggests that there are substantial benefits to having a lawyer—and a higher-tier lawyer—but diminishing marginal returns at the top of the market. Assuming that there is some unobserved case selection, our findings provide a plausible upper bound on the “value added” by different tiers of plaintiffs’ lawyers.

Since 1980, Illinois has experienced three medical malpractice insurance crises—in the mid-1980s, mid-1990s, and early-2000s. Each time, Illinois responded by enacting tort reform. Using a previously unavailable database of closed medical malpractice (med mal) claims, maintained by the Illinois Department of Insurance, we analyze statewide trends in med mal claiming from 1980–2010, covering all three crises. Paid claim rates rose sharply from 1980–1985, roughly leveled off from 1986–1993, and then began a sustained decline. By 2010, paid claims rates were 75 percent lower than in the peak year (1991). Payout per claim has steadily increased since 1980, but these increases can be entirely explained by the virtual disappearance of smaller paid claims and claims involving less severe injuries. The total direct cost of med mal litigation (payouts and defense costs) rose sharply from 1980–1992, with a jump in 1991, and then declined steadily, with a more modest jump during 2000–2002, which persisted through 2006. Thus, of the three Illinois insurance crises, only the first coincided in time with a major change in claiming. Rather than becoming more generous over time, the Illinois med mal system has squeezed out claimants with less severe injuries and smaller claims.

Will tort reform “bend the cost curve?” Health-care providers and tort reform advocates insist the answer is “yes.” They claim that defensive medicine is responsible for hundreds of billions of dollars in health-care spending every year. If providers and reform advocates are right, once damages are capped and lawsuits are otherwise restricted, defensive medicine, and thus overall health-care spending, will fall substantially. We study how Medicare spending changed after Texas adopted comprehensive tort reform in 2003, including a strict damages cap. We compare Medicare spending in Texas counties with high claim rates (high risk) to spending in Texas counties with low claim rates (low risk), since tort reform should have a greater impact on physician incentives in high-risk counties. Pre-reform, Medicare spending levels and trends were similar in high- and low-risk counties. Post-reform, we find no evidence that spending levels or trends in high-risk counties declined relative to low-risk counties and some evidence of increased physician spending in high-risk counties. We also compare spending trends in Texas to national trends, and find no evidence of reduced spending in Texas post-reform, and some evidence that physician spending rose in Texas relative to control states. In sum, we find no evidence that Texas's tort reforms bent the cost curve downward.

All liability insurance policies have coverage limits, and insurers usually control whether a case is settled or tried. If the insurer rejects a within-limits settlement offer, the insured bears the risk of an above-limits verdict. In response, virtually every state has imposed a “duty to settle” on insurers, which creates incentives for plaintiffs to make at-limits offers and for insurers to accept those offers when expected damages exceed limits. We study the association between the duty to settle, settlement at limits, claim duration, and defense costs using detailed data from Texas for 1988–2005 on closed, commercially insured personal injury claims. We focus principally on medical malpractice suits against physicians, but find consistent evidence for other types of cases. We find strong evidence that the duty to settle affects settlement dynamics. Essentially, all physician-defendant cases that settle at limits are preceded by an at-limits demand. Roughly 20 percent of physician-defendant cases settle at 90–100 percent of policy limits (broad at-limits) and 13 percent settle exactly at limits (exact at-limits). Broad- and exact-at-limits cases close about five months faster than similar “below-limits” cases—a roughly 20 percent shorter time from suit to settlement, controlling for payout and type of harm. Broad- and exact-at-limits cases also have substantially lower defense costs, controlling for case duration and complexity. More broadly, as the payout/limits ratio approaches 1 from below, duration declines (controlling for payout) and defense costs decline (controlling for payout and duration). Payouts above limits are uncommon; when they occur, insurers are the primary payers. Policy limits alone cannot explain these results; most likely they reflect a combination of policy limits and the duty to settle.

In a prior article in this journal, we estimated the effect of an “O'Connell” early settlement offer program on payouts in medical malpractice litigation. Using Texas data and a base set of assumptions, we predicted that early offers would result in a 16 percent (20 percent) decline in payouts in currently tried (settled) cases. The overall decline came almost entirely from a sharp drop in payouts in cases with small economic damages. We compared our results with the estimate by Hersch, O'Connell, and Viscusi (2007) (HOV) of a 70 percent reduction in payouts, reconciled the two estimates, and explained why HOV's estimate reflected the compound effects of a series of unreasonable assumptions. In a reply in this journal, Hersch, O'Connell, and Viscusi (2010) (HOV-2) complain that we misunderstand both the early offer proposal and their analysis. Remarkably, they do not dispute our estimates, given our assumptions. In this rebuttal, we defend our assumptions and provide an alternate analysis of settled cases based on insurer allocations, which also produces an estimated 20 percent payout decline. We also develop further our proposal for two-sided early offers. This proposal would reduce the predicted payout decline by about 2 percent in both tried and settled cases. We explain in greater detail the problems with HOV's analysis. If we correct an error they made in understanding the Texas data set, and leave their other assumptions unchanged, their payout decline estimate drops to 30 percent, not far from ours.

Medical malpractice litigation is costly and time consuming. Professor Jeffrey O'Connell, with various co-authors, has long advocated “early offer” rules that would encourage defendants to offer to settle for economic damages plus attorney fees, and punish plaintiffs who refuse such offers. Using detailed closed claims data from Texas for 1988–2005, we simulate the effects of these “early offers.” Under a base set of assumptions, early offers will sharply reduce payouts in cases with small economic damages (under $100,000, all amounts in 1988 dollars); will moderately reduce payouts in currently tried cases with economic damages from $100,000–$200,000 and would normally increase payouts (and therefore will not be made) in tried (settled) cases with economic damages over $200,000 ($100,000). Overall, we predict that early offers will be made in 72 percent of all cases, and will result in a 16 percent (20 percent) decline in payouts in tried (settled) cases. Almost all this effect comes from the sharp decline in payouts in cases with small economic damages. Defense costs will drop by roughly 60 percent (20 percent) in currently tried (settled) cases in which an early offer is made, and by about 13 percent overall. An early offer program will have very different effects on different types of plaintiffs, with especially large payout reductions for elderly and deceased plaintiffs. An early offer program also overlaps substantially in its effects with a statutory cap on noneconomic damages (which 26 states already have). Defendants in many of these states have already realized large reductions in payment of noneconomic damages; the additional reductions from an early offer program are modest and would often affect plaintiffs whose recoveries were already limited by damage caps. Our mixed results contrast sharply with dramatic claims by O'Connell and co-authors, who predict 70 percent reductions in both payouts and defense costs. Their estimates reflect the compound effects of a series of unreasonable assumptions.

Legal scholars, legislators, policy advocates, and the news media frequently use jury verdicts to draw conclusions about the performance of the tort system. However, actual payouts can differ greatly from verdicts. We report evidence on post-verdict payouts from the most comprehensive longitudinal study of matched jury verdicts and payouts. Using data on all insured medical malpractice claims in Texas from 1988–2003 in which the plaintiff received at least $25,000 (in 1988 dollars) following a jury trial, we find that most jury awards received “haircuts.” Seventy-five percent of plaintiffs received a payout less than the adjusted verdict (jury verdict plus prejudgment and postjudgment interest), 20 percent received the adjusted verdict (within ± 2 percent), and 5 percent received more than the adjusted verdict. Overall, plaintiffs received a mean (median) per-case haircut of 29 percent (19 percent), and an aggregate haircut of 56 percent, relative to the adjusted verdict. The larger the verdict, the more likely and larger the haircut. For cases with a positive adjusted verdict under $100,000, 47 percent of plaintiffs received a haircut, with a mean (median) per-case haircut of 8 percent (2 percent). For cases with an adjusted verdict larger than $2.5 million, 98 percent of plaintiffs received a haircut with a mean (median) per-case haircut of 56 percent (61 percent). Insurance policy limits are the most important factor in explaining haircuts. Caps on damages in death cases and caps on punitive damages are also important, but defendants often paid substantially less than the adjusted allowed verdict. Remittitur accounts for a small percentage of the haircuts. Punitive damage awards have only a small effect on payouts. Out-of-pocket payments by physicians are rare, never large, and usually unrelated to punitive damage awards. Most cases settle, presumably in the shadow of the outcome if the case were to be tried. That outcome is not the jury award, but the actual post-verdict payout. Because defendants rarely pay what juries award, jury verdicts alone do not provide a sufficient basis for claims about the performance of the tort system.