Medical malpractice litigation and tort reform: It's the incentives, stupid

I. INTRODUCTION Health care providers and tort reformers invariably claim that the medical malpractice litigation system is rife with behaviors that are irrational, unpredictable, and counter-productive. They attack civil juries, asserting that verdicts are skyrocketing without reason, are highly variable, and bear little or no relation to the merits of plaintiffs' claims. They complain about patients, arguing that the few with valid claims sue rarely, while the many who receive non-negligent treatment sue all the time. They attack greedy lawyers, alleging that they rake in obscene profits by routinely filing frivolous complaints. They complain that compensation flows almost randomly, winding up in the hands of patients who were treated non-negligently as often as (or even more often than) it reaches patients with valid complaints. They argue that the tort system does a poor job of distinguishing real victims from phony ones, claiming that it no more discourages malpractice than a police officer would discourage speeding by ticketing drivers randomly. Instead of motivating providers to do better, the system supposedly paralyzes them with fear and causes them to hide their mistakes. Many of the preceding claims are facially implausible. The medical malpractice liability system is an enormous market whose principal trading partners-trial lawyers and liability insurers-are sophisticated, economically-oriented repeat players. They run the system, and they have the knowledge and incentives to select efficient means to accomplish their respective ends. Given this backdrop, their behavior and the behavior of the system they administer should not be random, or even particularly hard to explain. Nor, given the absence of market power and barriers to entry, should attorneys earn more than market-driven returns on the services they provide. Most of the preceding claims are also inconsistent with empirical studies of the medical malpractice liability system. These studies, which now constitute a substantial body of research, depict a system that is stable and predictable, that sorts valid from invalid claims reasonably well, and that responds mainly to changes in the frequency of errors and the cost of dealing with them. The system does have a number of pathologies, however, including its loading costs, the snail's pace at which it processes claims, and its failure to compensate patients injured by medical negligence as fully and as often as it should. It is possible to reform the liability system to address these shortcomings, but tort reform proposals like caps on non-economic damages and attorneys fees will not do so. The goal of these proposals is to reduce insurance prices by making the system less remunerative for claimants. If implemented, these measures will predictably worsen the problem of under-compensation by limiting the remedies available to patients with serious injuries and by reducing the number of valid claims that are sufficiently profitable for attorneys to pursue. They will also weaken providers' incentives to protect patients from avoidable perils. In this Article, we review the findings of empirical research into matters internal to the medical malpractice litigation process, including studies we have produced or are working on currently.1 These studies demonstrate that the medical malpractice litigation system is both stable and predictable. We argue that economic incentives account for the tendencies and patterns the studies report. However, the empirical findings are what they are, whether or not our incentive-based explanations are correct. We therefore summarize the literature first and then offer our explanation for the patterns we observe. Part II addresses the frequency with which patients bring malpractice suits. Part III considers the accuracy with which the malpractice system sorts claims. Part IV examines the frequency of frivolous complaints. Part V addresses the correlation between patients' injuries and the amount of compensation they receive. …