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Study Shows Tort Reform Does Have Big Impact

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October 24, 2006 | by Pat Vaughan Tremmel

CHICAGO --- A new Northwestern University School of Law study that weighs in on one of the most contentious issues of the day concludes that, contrary to previous research findings, tort reform has had a significant impact on medical malpractice settlement payments. 

Two reforms were associated with a reduction of average settlement payments by roughly half and the number of cases by roughly 10 percent. 

Those two reforms place caps on pain and suffering and prevent plaintiffs from recovering from “deep pocket” defendants more than their proportional share (modifying the so-called joint-and-several liability). They are the most significant among six types of tort reform advocated in the Bush administration's federal medical malpractice bill and analyzed for this study. The Bush administration has tried six times in the last five years to federalize tort law, which historically has been state law. The latest version of the federal medical malpractice bill passed in the U.S. Senate in May.

“An Empirical Study of the Impact of Tort Reforms on Medical Malpractice Settlement Payments,” by Ronen Avraham, associate professor of law at Northwestern University School of Law, evaluates the expected impact of the federal bill. The most comprehensive look at tort reform to date, the law and economics analysis measures the past impact of similar states' tort reforms included in the federal bill, showing the frequency, size and total annual settlements of medical malpractice cases.

“Most striking was how the results changed significantly when a correction was made for a common error made in previous studies as a result of miscoding reforms,” said Avraham. “Basically, the correction takes into account retroactive applicability of reforms.”

In other words, when a state Supreme Court strikes down a reform, all pending cases -- including those that occur when the reform was valid -- are no longer subject to the reform.

“With that correction, the study suggests that lawyers may well anticipate reforms will be struck down later by state Supreme Courts and delay settling cases until caps on pain and suffering damages are lifted and the awards potentially are much greater,” he said.

That means that the cases that do get settled during the years that reforms are in effect tend to be those whose awards lawyers predicted would be smaller and in any case fall within the bounds of the caps. Without the accounting for the retroactive applicability of reforms struck down, the analysis would show that tort reform has little effect on average settlement payment. But with that correction, the analysis suggests that tort reform mainly causes delays in high value settlements, Avraham said.

The study reveals that only about 10 percent of all the cases that would have been subject to tort reform if the lawsuits were settled closer to the time of injury actually were subject to tort reform. Because only a small portion of the cases is eventually affected by tort reform, the real economic impact of caps on pain-and-suffering damages on average settlement payment as well as on overall total annual payments is much smaller.

But tort reform's impact on average settlement payments is complicated by other findings in the analysis, Avraham cautioned. Only two of the six types of tort reform analyzed for this study reduced average settlement payments and frequency, while the impact of all six reforms shows a statistically insignificant impact on average or total annual payments.

Besides coding for striking down of reforms by supreme courts, other characteristics set the study apart. The number of cases studied, 100,000, dwarfs the usual number of cases analyzed for tort reform studies, ordinarily under 1,000. Cases with settlements, which include about 95 to 98 percent of the cases, rather than with court awards, were studied, and the analysis covered all 50 states rather than a select number of states. 

To do the analysis, Avraham employed a federal data set of more than 100,000 malpractice settlement payments in the study's time frame, from 1991 to 1998, and built a separate legal data set that carefully evaluates effective tort reform dates and when laws were overturned.