Estimating the Effect of Damages Caps in Medical Malpractice Cases: Evidence from Texas

Using claim-level data, we estimate the effect of Texas’s 2003 cap on noneconomic damages on jury verdicts, post-verdict payouts, and settlements in medical malpractice cases closed during 1988–2004. For pro-plaintiff jury verdicts, the cap affects 47-percent of verdicts and reduces mean allowed non-economic damages, mean allowed verdict, and mean total payout by 73-percent, 38-percent, and 27-percent, respectively. In total, the non-econ cap reduces adjusted verdicts by $156M, but predicted payouts by only $60M. The impact on payouts is smaller because a substantial portion of the above-cap damage awards were not being paid to begin with. In cases settled without trial, the non-econ cap affects 18-percent of cases and reduces predicted mean total payout by 18-percent. The non-econ cap 1 We owe special thanks to Fang Zhang, Myungho Paik, and Kevin Kavanagh for their work in analyzing the data, and to Vicky Knox at the Texas Department of Insurance for patiently answering our many questions. For comments and suggestions, we thank Einer Elhauge, Meredith Kilgore, Russell Korobkin, Ed Richards, Cathy Sharkey, those who attended presentations of the paper at the Leonard Davis Institute of Health Economics at the University of Pennsylvania, Rand Institute for Civil Justice, and the Harvard, Stanford, University of Kansas and Washington University Schools of Law, and participants at the Annual Meetings of the Canadian and Midwest Law and Economics Association, and the Conference on Empirical Legal Studies. Funding for this study was provided by the Jon David and Elizabeth A. Epstein Program in Health Law and Policy at the University of Illinois College of Law and by the Center on Lawyers, Civil Justice, and the Media at the University of Texas School of Law. The working paper version of this article is available at http://ssrn.com/abstract=995649. 2 Hyman is Richard W. and Marie L. Corman Professor of Law and Professor of Medicine, University of Illinois. Tel. 217-333-0061, email: dhyman@law.uiuc.edu. Hyman is the corresponding author. Black is Hayden W. Head Regents Chair for Faculty Excellence, University of Texas Law School, and Professor of Finance, University of Texas, Red McCombs School of Business. Tel. 512-471-4632, email: bblack@law.utexas.edu. Silver is McDonald Endowed Chair in Civil Procedure, University of Texas Law School. Tel. 512-232-1337, email: csilver@law.utexas.edu. Sage is James R. Dougherty Chair for Faculty Excellence in Law, University of Texas School of Law, and Vice-Provost for Health Affairs, University of Texas at Austin. Tel. 512-232-7806, email: wsage@law.utexas.edu. 356 ~ Hyman, Black, Silver, Sage: Estimating the Effect of Damages Caps in Medical Malpractice Cases has a smaller impact on settled cases than tried cases because settled cases tend to involve smaller payouts. The impact of the non-econ cap varies across plaintiff categories. Deceased, unemployed, and (likely) elderly plaintiffs suffer a larger percentage reduction in payouts than living, employed, and non-elderly plaintiffs. We also simulate the effects of different caps and fi nd substantial differences in cap stringency across states. Different caps reduce aggregate payouts in tried cases (all cases) by between 16-percent and 65-percent (7-percent and 42-percent). Caps on total damages have especially large effects.