The US Institute of Noneconomic Damage Discussion

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Question: Should the US Institute Noneconomic Damage Caps on Medical Malpractice Awards?

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By Seth A. Seabury, Eric Helland, and Anupam B. Jena
10.1377/hlthaff.2014.0492
HEALTH AFFAIRS 33,
NO. 11 (2014): 2048–2056
©2014 Project HOPE—
The People-to-People Health
Foundation, Inc.
doi:
Seth A. Seabury (seabury@
usc.edu) is an associate
professor at the Leonard
D. Schaeffer Center for Health
Policy and Economics and in
the Keck School of Medicine,
University of Southern
California, in Los Angeles.
Eric Helland is a professor of
economics at Claremont
McKenna College, in
Claremont, and the RAND
Corporation in Santa Monica,
both in California.
Anupam B. Jena is an
assistant professor of health
care policy and medicine at
Harvard Medical School and a
physician at Massachusetts
General Hospital, both in
Boston, Massachusetts.
Medical Malpractice Reform:
Noneconomic Damages Caps
Reduced Payments 15 Percent,
With Varied Effects By Specialty
ABSTRACT The impact of medical malpractice reforms on the average size
of malpractice payments in specific physician specialties is unknown and
subject to debate. We analyzed a national sample of malpractice claims
for the period 1985–2010, merged with information on state liability
reforms, to estimate the impact of state noneconomic damages caps on
average malpractice payment size for physicians overall and for ten
different specialty categories. We then compared how the effects differed
according to the restrictiveness of the cap ($250,000 versus $500,000).
We found that, overall, noneconomic damages caps reduced average
payments by $42,980 (15 percent), compared to having no cap at all. A
more restrictive $250,000 cap reduced average payments by $59,331
(20 percent), and a less restrictive $500,000 cap had no significant
effect, compared to no cap at all. The effect of the caps overall varied
according to specialty, with the largest impact being on claims involving
pediatricians and the smallest on claims involving surgical subspecialties
and ophthalmologists.
M
edical malpractice liability remains one of the most hotly
debated issues in health policy and an area of intense concern among physicians.1,2
Proponents of the US medical malpractice system argue that it is an important tool that helps
protect patients against negligent care. In contrast, opponents argue that it is costly and inefficient and does a poor job of delivering compensation to patients.3,4
In response to these concerns, many states
have enacted legislative reforms that either directly or indirectly limit the damages that patients can recover in medical malpractice cases.
However, researchers have questioned whether
malpractice liability reforms have successfully
lowered the cost of malpractice liability or
assuaged physicians’ fears of malpractice
lawsuits.5,6
Previous studies that have examined the im2048
H ea lt h A f fai r s
November 2014
pact of malpractice reforms on expected liability
have produced mixed results. Several studies
have found that limitations on allowable damage
recovery, particularly for noneconomic damages
(defined as payments for pain and suffering, loss
of companionship, and so on), reduce the average size of malpractice payments.7–11 However,
others have found no effect.12,13
There is a similar lack of consensus on the
relationship between malpractice reform and
the frequency of claims. Several studies have
found that the adoption of liability reform lowers
the probability of physicians’ experiencing a
malpractice claim,7,9,14 but others have found
no effect.8,12,13
Several limitations of existing studies may explain the lack of definitive evidence on the impact of malpractice tort reforms on the size and
frequency of malpractice payments. First, previous studies focus on the effect of malpractice
reforms on all physicians instead of on those
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in distinct specialties. Malpractice risk varies
considerably across specialties,15–19 driven by differences in patient populations, rates and risks
of procedural use, and physician characteristics.
This indicates that there is no reason to expect
malpractice reform to have a uniform impact
across all physicians.
Second, most previous studies rely on highly
aggregated measures of malpractice reforms
and, with several exceptions,20,21 do not distinguish between the different dimensions across
which states have adopted reforms. A cap on
damages with a lower value will be more restrictive, because it will both affect more cases and
lead to lower average payments in the cases to
which it applies. Just as there is an expectation
that reforms will affect liability risk differently
across specialties, there is an expectation that
reforms imposing different restrictions will have
different effects as well.
Third, previous studies suffer from important
data limitations. Some have used small samples
from individual insurers8,22 or a single state.21
Others have used data from the National Practitioner Data Bank, which theoretically includes
all payments made to claimants on behalf of
health care providers.23 However, it has been
criticized for underreporting payments, in part
because of the so-called corporate shield loophole that ignores lawsuits involving both physicians and hospitals in which hospitals assume
the full liability payments—an approach that allows physicians to avoid being reported in the
database.24
Moreover, although the National Practitioner
Data Bank includes information on whether an
adverse event was broadly related to surgery, an
obstetric procedure, or anesthesia, it does not
include information on specific physician specialty. The database also states that codes for
surgery, obstetrics, and anesthesia may refer
to physicians who were not actually surgeons,
obstetricians, or anesthesiologists.
We used data from the Physician Insurers Association of America (PIAA) Data Sharing Project,25 the largest available collection of paid and
unpaid malpractice claims from private insurers
in the United States, to estimate the effect of
state malpractice reforms in the period 1985–
2010 on the payment size of malpractice claims
according to different physician specialties. In
addition, we compared the effects of restrictive
noneconomic damages caps of $250,000 to the
effects of less restrictive caps of $500,000. We
estimated these effects overall and for ten distinct categories of physician specialties.
Study Data And Methods
Malpractice Claims Data We used data on malpractice claims for the period 1985–2010 by medical specialty and state from the PIAA Data Sharing Project.25 The association is an organization
of sixty domestic and twelve international insurers, with forty-six affiliated members.
The Data Sharing Project includes medical
professional liability claims against physicians
insured by approximately half of the association’s member companies, with claims from all
fifty states (medical professional liability is the
name of the insurance line that medical malpractice claims fall under). The association’s member
companies insure over 325,000 medical practitioners, and the Data Sharing Project contains
information on all closed claims and on claims
that have been open for one year or longer. The
data represent approximately one-fourth of medical malpractice claims in the United States and
have been used to study malpractice risk in past
studies.14,26–30
Our data consisted of the total number of malpractice claims; the number of claims that involved some indemnity payment to the plaintiff;
and total indemnity payments (if any), broken
down by state, specialty, and year. Consistent
with past work,17–19,31 we included only claims that
involved some defense costs.We did this to eliminate cases in which there was a suspicion but no
formal allegation of negligence. We used these
data to compute average malpractice payment
per specialty, state, and year for claims in which
an indemnity payment to a patient was made.
It is important to note that the relationship
between tort reform and the frequency of medical malpractice claims has been a common target
of study in past work. But the PIAA Data Sharing
Project, despite its strengths, has limited utility
for studying the frequency of claims because it
does not collect any information on the exposure
of its member organizations (that is, the number
of physicians they insure). Thus, there is no denominator against which to normalize the number of claims.
We aggregated our data into the following specialties: internal medicine (including family
practice), general surgery, surgical subspecialties, obstetrics and gynecology, pediatrics, cardiology, anesthesiology, radiology, and ophthalmology. Data were available for other specialties,
but they had too few claims to examine separately. Thus, we combined them into an “other”
category.
All payment dollar values were adjusted to
2010 values using the Consumer Price Index.
All analyses were performed using the statistical
software Stata, version 12. The data were deidentified. The study was exempted from human subNovember 2014
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33:11
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Web First
jects review by the Institutional Review Board
at RAND.
Malpractice Reform Data We used published historical data on state-level tort reforms
from the Database of State Tort Law Reforms.32
This database represents a systematic effort to
provide a comprehensive list of malpractice reforms implemented by state and year, and it has
been widely used in empirical work on malpractice. The database tracks which reforms were
rejected by state courts, allowing us to identify
whether a reform was in effect for a particular
year. We merged information from the database
with claims data from the PIAA Data Sharing
Project at the state-year level for our study
period.
We created indicator variables for whether a
state had in effect in any given year any of the
following reforms: statutory caps on noneconomic damages awards (our main variable
of interest), caps on punitive damages awards,
restrictions on the contingency fees that attorneys charge their clients, reforms to the collateral source rule (which allow defendant physicians
to reduce their liability payments to a plaintiff by
the amount of compensation for costs of injury
already received by the plaintiff from “collateral”
parties, such as insurers), and reforms to the
rules on joint and several liability (which before
reform allowed plaintiffs to recover the entire
amount—as opposed to a percentage—of a damage award from any of the defendants found
responsible for the injury, irrespective of any
one defendant’s degree of responsibility for
the injury).
We focused on caps on noneconomic damages
because these caps have been the most controversial reform in the past several years, and some
researchers and policy makers have argued that
they are the tort reform that has had the largest
effect on average payments.20 Some caps are indexed to the rate of inflation, so that they increase over time. We recorded the nominal value
of every cap in place in each year.
Statistical Analysis We estimated the impact of malpractice liability reforms on average
payments using a difference-in-differences approach. By allowing us to estimate changes in
malpractice risk within states before and after
the adoption of reforms, this approach accounted for fixed differences between states in
malpractice risk and for national trends that affect malpractice risk in all states.
We estimated linear regressions with average
payment amounts as the dependent variables.
The main independent variables were state and
year indicators for specific malpractice tort reforms, of which noneconomic damages caps
were the primary reform of interest. Other cova2050
H e a lt h A f fai r s
November 2014
riates included state fixed effects, to account for
time-invariant differences across states in their
health care systems and liability regimes, and
year fixed effects to control for time trends.
To control for demographic trends across
states, we also included average income per capita, average age of the population, and the average percent of the population that was white.
This information was based on data from the
Area Health Resource File, published by the
Health Resources and Services Administration.
To capture the overall effect of reforms across
specialties, we estimated a regression that
pooled specialties together. To capture specialty-specific effects of reforms, we used an interacted model that allowed for differential effects
of the cap across specialties.
All regression models and sample means were
weighted by the counts of total claims in each
combination of specialty, state, and year. Stateyear observations in which there were no closed
claims with an indemnity payment were not included. Standard errors were clustered at the
state and specialty level to allow for correlation
in the error terms over time.33 F-tests were used
to assess whether or not the interactions between specialty and noneconomic damages caps
were jointly different from zero.
Our regressions included all reform types in
each model, although we focused our discussion
on the effects of noneconomic damages caps.We
report estimates for the impact of other reforms
on claim outcomes in the online Appendix.34
To estimate the impact of the restrictiveness of
damage caps on indemnity payments, our models allowed the effect of noneconomic damages
caps to differ according to cap size. Specifically,
we estimated the effect of adopting less restrictive and more restrictive damage caps—defined
as cap values of $500,000 and $250,000, respectively—compared to no cap at all on noneconomic damages. For purposes of context, $250,000 is
the cap adopted by California’s Medical Injury
Compensation Reform Act of 1975, which is often used as a model by proponents of reform.35
Limitations Our study had several limitations. First, we did not address the implications
of adopting noneconomic damages caps for other important outcomes, such as the cost and
quality of medical care or patient safety outcomes. Evidence about the impact of malpractice
reform on patient outcomes is mixed.14,36–38 However, opponents of reforms to reduce physician
malpractice liability argue that shielding physicians from the full cost of malpractice liability
could provide incentives to provide lower-quality
care and reduce patient safety.
Second, the PIAA Data Sharing Project is the
largest available database of medical profession-
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al liability claims and covers all fifty states. However, it was not designed to be nationally representative.
Third, we assumed that the adoption of a new
policy was uncorrelated with other, unobserved
factors that could also drive claim outcomes.
This is a limitation of any retrospective analysis
of state policies using a difference-in-differences
methodology.
Fourth, it is possible that stringent caps reduce
malpractice claims and that the claims not made
because of the caps have marginally weaker merits and lower average indemnity payments. In
that case, our estimates of the reductions in average indemnity payments associated with stringent caps may underestimate the caps’ true
effect.
Study Results
Our sample consisted of 220,653 total claims,
of which 74,366 (33.7 percent) involved indemnity (Exhibit 1). This is a higher proportion of
paid claims than in some past work17 but is consistent with other studies.39 The proportion of
claims that involved indemnity varied across
specialties, with the highest proportions in obstetrics and gynecology (39.4 percent), general
surgery (38.8 percent), and anesthesiology
(38.3 percent).
Average payments for paid claims rose steadily
from 1985 through 1994 (Exhibit 2). After a brief
decline, there was rapid growth until 2002. After
2003, average payments leveled off, ranging
from approximately $330,000 to $350,000 per
year. Across all years, the average payment for a
claim with indemnity was $293,645.
From 1985 to 2010, the majority of caps were
of $250,000–$500,000, with a small number of
states adopting caps of $250,000 or less or of
greater than $500,000 (Exhibit 3). The majority
of caps were adopted in the late 1980s or the mid2000s, times that correspond to periods of instability in the malpractice insurance markets.40
The national average payment stabilization appears to coincide with increases in the number of
states with noneconomic damages caps in 2003.
However, other potentially confounding factors
addressed by regression analysis are not controlled for in this simple correlation.
Exhibit 4 shows the estimated effects of a
state’s adoption of a noneconomic damages
cap on average malpractice payments, compared
to having no cap at all, for all physicians and by
physician specialty. These estimates do not
distinguish between caps of varying restrictiveness. Overall, noneconomic damages caps reduced average malpractice awards by $42,980
(p < 0:001), a reduction of about 15 percent. The caps had variable effects on average indemnity payments across specialties. The largest effect was in pediatrics (a reduction of $116,662; p < 0:001), which is a specialty known to have a low frequency of claims but among the highest average payments.41 The caps also led to large and significant reductions in average payments in obstetrics and gynecology (a reduction of $104,809; p < 0:001) and cardiology (a reduction of $57,480; p ¼ 0:05). They had a lowerthan-average impact on payments in surgical subspecialties, even though these specialties tend to be at highest risk in terms of frequency of claims.17 More restrictive noneconomic damages caps would be expected to have a greater impact on the size of malpractice awards, especially for specialties with high average payments. Exhibit 5 shows the estimated effects of a restrictive cap of $250,000 and a less restrictive cap of $500,000, compared to having no cap in place. We present average payment amounts to provide context. Consistent with past findings,17 our results showed wide variation in the size of average payments by specialty. Across all specialties, a less restrictive cap on noneconomic damages was associated with a small reduction in average award size ($17,866, or 6.1 percent; Exhibit 5). However, this reduction was not significant. In contrast, a more restrictive cap was associated with a significant and substantial reduction in award size ($59,331, or 20.2 percent). Generally, the less restrictive cap had no significant effect on malpractice awards for various specialties; the only exception was internal medicine (Exhibit 5). But the more restrictive cap Exhibit 1 Medical Malpractice Claims, By Physician Specialty, 1985–2010 Specialty Number of claims All specialties Anesthesiology 220,653 8,151 Cardiology Claims with indemnity Number Percent 74,366 3,123 33.7 38.3 4,225 911 21.6 General surgery Internal medicine 23,245 55,390 9,030 17,870 38.8 32.3 Obstetrics and gynecology 32,666 12,860 39.4 6,339 6,340 2,085 2,045 32.9 32.3 Ophthalmology Pediatrics Radiology 12,733 4,267 33.5 Surgical subspecialties Other specialties 46,451 25,113 14,685 7,490 31.6 29.8 SOURCE Authors’ analysis of data from the Physician Insurers Association of America Data Sharing Project database (see Note 25 in text). NOTE Internal medicine includes family practice. N ov e m b e r 2 0 1 4 Downloaded from HealthAffairs.org on August 15, 2018. Copyright Project HOPE—The People-to-People Health Foundation, Inc. For personal use only. All rights reserved. Reuse permissions at HealthAffairs.org. 33 : 1 1 Health A ffairs 2051 Web First Exhibit 2 Trends In Average Medical Malpractice Payments, 1985–2010 SOURCE Authors’ analysis of data from the Physician Insurers Association of America Data Sharing Project database (see Note 25 in text). NOTE The figure shows the claim-level average payment using only claims that involved some indemnity payment to the plaintiff. was associated with significant reductions in malpractice award sizes overall and for seven of the ten specialty categories. The effect of the more restrictive cap was strongest for pediatrics, followed by obstetrics and gynecology and cardiology. Across specialties, the effect of the more restrictive cap was larger for specialties with higher average indemnity payments. For example, pediatrics, obstetrics and gynecology, anesthesiology, and cardiology were the specialty categories with the highest average payments and were also those for which the estimated effect of the cap was greatest. More generally, the correlation between average specialty malpractice award size and estimated specialty-specific restrictive cap effects was 0.82, which suggests a greater impact of restrictive caps for specialties with higher malpractice awards. A joint F-test of the specialty interaction Exhibit 3 Trends In States’ Adoption Of Noneconomic Damages Caps, By Size Of Cap, 1985–2010 terms with the noneconomic damages cap suggested that the effects were significantly different from one another for a damages cap of $250,000 (p < 0:001). The online Appendix shows the effects of other reform types (caps on punitive damages awards, restrictions on the contingency fees that attorneys charge their clients, reforms to the collateral source rule, and reforms to the rules on joint and several liability) on average payments, estimated in the same difference-in-differences model as the effects of the noneconomic damages cap.34 Other reforms had little consistent effect on outcomes, except for caps on attorney contingency fees, which were associated with higher payments. This is consistent with other evidence that these reforms may discourage attorneys from accepting cases with relatively low expected awards.42 We also found that joint and several liability reform was associated with higher payments, which is also consistent with past findings.37 The online Appendix reports the effects of noneconomic damages caps on all claims (paid and unpaid).34 The caps were associated with a reduction of $16,948 (p < 0:001) in the average payment overall and had no effect on the share of claims resulting in payment. Finally, the Appendix34 shows that our findings and conclusions were robust to several sensitivity analyses. These were a discrete, nonparametric approach to estimating the effect of noneconomic damages cap size on average payments; inclusion of lead effects of tort reforms— that is, indicator variables for future tort reforms in a state introduced as explanatory variables in regressions—to assess preexisting trends in malpractice awards in states that implemented reforms; inclusion of lag effects to account for the possibility of a delayed onset in the impact of the cap; clustering of standard errors at the state instead of the state-specialty level; focusing on caps that applied to all tort cases as opposed to caps that applied only to malpractice cases; and adjustment for state-year specific rates of penetration of health maintenance organizations into state health care markets. Discussion SOURCE Authors’ analysis of data from Avraham R., Database of State Tort Law Reforms (Note 32 in text). 2052 H e a lt h A f fai r s November 2014 We analyzed the impact of noneconomic damages caps and other medical malpractice reforms on the size of malpractice indemnity payments according to physician specialty. We found that restrictive noneconomic damages caps were associated with lower average payments across all specialties, with particularly large reductions among specialties with high average payment sizes such as pediatrics and obstetrics. In addi- 33:11 Downloaded from HealthAffairs.org on August 15, 2018. Copyright Project HOPE—The People-to-People Health Foundation, Inc. For personal use only. All rights reserved. Reuse permissions at HealthAffairs.org. Exhibit 4 Estimated Impact Of Noneconomic Damages Caps On Average Medical Malpractice Payments, By Physician Specialty SOURCE Authors’ analysis of data from the Physician Insurers Association of America Data Sharing Project database (see Note 25 in text). NOTES Estimated impacts are based on difference-in-differences regression of average payments from 1985 to 2010 against the presence of noneconomic damages caps as well as fixed effects for physician specialty, year, state, the presence of other forms of tort reform in the state (punitive damages caps, joint and several liability reform, collateral source rule reform, and caps on attorney contingency fees), and state demographic characteristics (average income per capita, average age of the population, and average percentage of the population that was white). Specialty-specific estimates come from a separate regression with cap-specialty interactions. The dots represent the average estimated effect of noneconomic damages caps on average payment, compared to having no cap at all, and the lines represent the 95% confidence intervals. Confidence intervals reflect variance estimates that were calculated to allow for clustering at the state and specialty levels. tion, we found that the size of the noneconomic damages cap made a difference in the cap’s impact. For example, a $250,000 cap reduced average indemnity payments by approximately onefifth, compared to having no cap at all, but a less restrictive cap of $500,000 generally had no effect. Our analysis contributes to previous work in two important ways. First, we analyzed the different effects of malpractice reforms across various physician specialties. Malpractice risk is known to vary considerably across specialties15–19 because of differences in patient populations, rates and risks of procedural use, and physician characteristics—all of which may lead malpractice reforms to have distinct impacts across specialties. Second, we analyzed how the effects of noneconomic damages caps on payment size varied according to the restrictiveness of the cap. We estimated the potential impacts of two relatively common cap sizes—$250,000, which tort reform advocates often consider the model, and $500,000—and compared their impacts on claims in different specialties. Our findings complement previous work that used data from Texas to simulate the impact in other states of noneconomic damages caps of varying stringency;21 analyses of the National Practitioner Data Bank that demonstrated that states implementing more stringent caps on noneconomic damages in the period 2003–06 had larger declines in malpractice claim rates and average indemnity sizes;20 and previous studies that explored the impact of cap stringency on outcomes such as cesarean section rates (a proxy for defensive medicine) and physician labor supply.43–45 The impact of a more restrictive $250,000 cap was greatest for specialties with higher average indemnity payments (such as pediatrics, obstetrics and gynecology, and cardiology), instead of N ov em b e r 2 0 1 4 Downloaded from HealthAffairs.org on August 15, 2018. Copyright Project HOPE—The People-to-People Health Foundation, Inc. For personal use only. All rights reserved. Reuse permissions at HealthAffairs.org. 33:11 Health Affa irs 2053 Web First Exhibit 5 Estimated Impact Of Noneconomic Damages Caps On Average Medical Malpractice Payments, By Cap Size And Physician Specialty Effect on average indemnity payment of: Average payment ($) 293,645 Specialty All specialties $500,000 cap $250,000 cap Effect Effect Dollars ?17,866 Percent ?6.1 p value 0.18 Dollars ?59,331 Percent ?20.2 p value Purchase answer to see full attachment Explanation & Answer: 2 pages Tags: Noneconomic Damage Medical Malpractice User generated content is uploaded by users for the purposes of learning and should be used following Studypool's honor code & terms of service.