Magazine article Regulation

The Fairness of Malpractice Settlements: Contrary to Conventional Wisdom, the Adjudication Process Appears to Treat Physicians Well

Magazine article Regulation

The Fairness of Malpractice Settlements: Contrary to Conventional Wisdom, the Adjudication Process Appears to Treat Physicians Well

Article excerpt

Critics of medical malpractice litigation charge that the current system is nothing more than a judicial "lottery' in which the odds of a generous settlement payment are unrelated to the quality of care actually provided by the defendant physician. According to this account, malpractice insurers are so afraid of lay juries that they settle virtually every claim involving a serious injury, regardless of the underlying merits.

President George W. Bush stated the claim this way:

   Doctors and hospitals realize ... it is expensive to fight a
   lawsuit even if it doesn't have any merit. And because the system
   is so unpredictable, there is a constant risk of being hit by a
   massive jury award. So doctors end up paying tens of thousands, or
   even hundreds of thousands of dollars to settle claims out of
   court, even when they know they have done nothing wrong.

Is this claim correct? The strongest empirical support for it comes from the 1996 findings of the researchers who directed the Harvard study of New York hospitals. They concluded that the merits of a malpractice claim have no bearing on the likelihood of a settlement. They even suggested that the entire adjudicative process is "an expensive sideshow" in which settlement is really driven by damages, not negligence.

The widespread reliance of both tort critics and the mass media on this single prestigious study is unfortunate. Its findings are decidedly inconsistent with the substantial body of empirical data accumulated over the past several decades. Those studies demonstrate, contrary to the Harvard study, that settlement outcomes are directly correlated with the strength of the plaintiff's case.

That finding should not be surprising. Malpractice insurers are professional claims adjusters with a clear incentive to assess accurately each claim against one of their insureds and to settle their total portfolio of claims on favorable terms. To do this, they rely on an informal peer review process that sorts the strong claims from the weak. Both they and the plaintiffs' attorneys use independent evaluations to estimate the odds of a plaintiffs' verdict. They then multiply the odds of recovery by the likely damages to determine the "settlement value or 'expected value' of the claim."

Researchers have studied the settlements that result from this process and their findings are reassuring. Weak claims fare worst, toss-ups do better, and strong claims fare best. Weak claims are not only the least likely to result in a settlement payment, but they also settle for pennies on the dollar. Strong claims are more likely to receive a settlement payment, and the average payment is for a much larger amount. Unclear or tossup cases fall in-between. To be sure, the fit is not perfect, yet it is surprisingly good.

To the extent that overall settlement payments depart from the recommendations of experts who have reviewed them, the discrepancies tend to favor defendants more often than plaintiffs. Researchers have found that defendants, on average, are able to settle malpractice cases for sums that are less than expected value. In toss-up cases, for example, defendants not only obtain substantial discount in the cases they settle, but they also escape payment altogether in half of the toss-up cases. Their ability to obtain favorable dispositions suggests that defendants enjoy advantages in the trial preparation and negotiating process that they can exploit in settlement negotiations.

The superior bargaining power possessed by malpractice defendants probably has several sources. Those sources include superior risk tolerance, better access to information, more experienced attorneys and insurance representatives, easier access to expert witnesses, and the incentive to fight low-odds claims vigorously. Defendants probably gain additional bargaining power from the fact that malpractice claims are very hard to win at trial, even with strong evidence of negligence. …

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