The Puzzle of Medical Malpractice Payouts

Forbes Reports

A great majority of payouts (fully 96% in 2013) happen as a result of a settlement, as opposed to following a trial verdict.   In fact, when doctors insist on going to trial they actually win a quite solid majority of cases.  Why, then, do they settle?  In part the high settlement figure is due to sample bias  — doctors presumably agree to settle cases where their negligence is more obvious, and fight cases where they are more confident that they did nothing wrong.  In part the high settlement figure is part of the moral hazard of insurance – doctors often tire of the emotional drain of a lawsuit, and signal a desire to settle (after all, the payout is insurers’ money and doesn’t come out of the physicians’ own pockets) – and insurers are loathe in many cases to make enemies of doctors, who could sue them for bad faith if a very bad verdict occurs at trial.It is compulsory to report to the NPDB, within 30 days, notice of any payout that follows a written demand of payment sent to a medical practitioner.  It’s important to note that NPDB data doesn’t cover all medical malpractice payouts (for example, suits filed solely against hospitals (which aren’t “practitioners”) aren’t included – nor are payouts that follow purely verbal requests or that take place during some mediations (if no written “demand” has been made).  Methodological flaws aside, most payouts by sued physicians and their insurers are arguably captured by the data, though with a significant time lag (payouts typically happen many years after the alleged malpractice occurs).

In any given year, especially in smaller states, a few mammoth settlements or judgments might theoretically skew results  – that is why multi-year comparisons are more informative.  And per capita payouts are more useful than are total payouts – it is of little interest to learn that Wyoming payouts were only a tiny fraction of California’s.

Here are the per capita payouts[ii] for each of the fifty states, for 2012 and 2013, supplied to me by Jeremy Gower at Diederich.  [Per Capita payouts were not calculated by Diederich before 2012.]  As you will see, it turns out that there was very little variation inside each state from one year to the next, but great variation among states.