Medical Malpractice Tort Reform in Texas

Medical Malpractice
Tort Reform in Texas
Treating
Symptoms
Rather than
Seeking a Cure By Roger Sherman and
Geraldine Szott Moohr*
142
Journal of Consumer & Commerical Law

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Over the last thirty years, persistent efforts to limit tort Generally, to win a malpractice tort award, the injured
damage awards for medical malpractice in Texas have
patient, as plaintiff, must show that a harm-causing event occurred,
made the state one of the most physician-friendly in the
that the provider caused the harm, and that the provider was
country. In particular, in 2003, the Texas legislature
negligent. The plaintiff must also prove the amount of damages
made it more difficult to bring malpractice claims to
necessary to compensate for the injury, and juries are given wide
court and limited the amount of money juries could
latitude to decide this issue. Damage awards are justified by
award to injured patients for non-economic damages. In order
evidence of economic loss and non-economic harm. Economic
to understand these and other elements of medical malpractice
damages include past and future medical expenses, lost past and
tort reform, we review recent empirical research on tort reform’s
future income, and other costs that can be converted into dollars.
effects. In brief, the data do not support claims made about
Non-economic damages are those that are not so easily quantified
benefits of reform. And the problem of negligence by physicians,
but are nonetheless real, such as physical pain and mental anguish,
other providers, and institutions is still largely ignored.
physical impairment, disfigurement, loss of consortium of spouse,

We begin by reviewing traditional tort law and
child, or parent. Damage awards perform two functions; they
summarizing Texas medical malpractice tort reforms in Part I. In
compensate those who are harmed and they impose costs on
Part II, we identify the claims made for, and the main effects of,
negligent medical service providers. These costs should, in turn,
malpractice tort reform and consider whether the reform improves
motivate greater care and reduce instances of malpractice.
medical service for Texans. We are aided in this by several empirical
studies that provide data on the consequences of the limits on
A. Unintended Consequences of Litigating Malpractice
non-economic damage awards. Analysis of these studies leads us
Claims
to conclude that malpractice tort reform has reduced insurance

The tort system does not operate perfectly; it is costly
rates for doctors but at the price of reducing compensation to
to administer and juries may make mistakes. Redress is limited
those most seriously injured. There is little evidence that the
to those who can prove that the providers were negligent, and
number of doctors per capita practicing in Texas has increased or
compensation is not available for those whose injuries were caused
that the quality of medical care has improved. Moreover, while
by the non-negligent practice of medicine. The tort system is
limiting non-economic damage awards
useful in other ways, in part because
eases insurance costs for doctors and other
it identifies the magnitudes of harms
Damage awards
providers, it does not treat the root cause
and, over time, fashions a standard for
of the problem, the negligent practice of
quality of care. Nevertheless, the high
perform two
medicine. Indeed, medical malpractice tort
cost of tort cases surely has contributed
reform tends to minimize the malpractice
to malpractice tort reform movements.3
functions; they
problem because limiting damage awards
Because an injured party is often unable
makes malpractice appear less costly than
to afford a lawsuit to pursue damages,
compensate those
it really is, understates the true cost of
lawyers agree to work under contingency
malpractice insurance, and distorts medical
arrangements. Essentially, they receive
who are harmed and
providers’ incentives. Medical malpractice
part of the award, but only if they win
tort reform has thus distorted incentives
the suit. These arrangements might
they impose costs
that would, if left undisturbed, tend to
encourage too many lawsuits, although
penalize malpractice more heavily and
lawyers are unlikely to undertake cases
on negligent medical
thereby possibly reduce it. In Part III, we
that promise a low award even if won
address how medical malpractice might
or that have little chance of success, for
service providers.
be controlled. We note that patients are
in such cases they are unlikely to recover
often unable to obtain relevant information
their costs. Studies show, however,
about the quality of medical care offered by providers and we
that the costs of the justice system are not wastefully high.4 So
present alternative ways to deal with this information disparity,
although litigation is costly and thus may prevent some harmed
such as relying on gatekeepers, medical review boards, and
parties from pursuing compensation for their harms, it also
experience rating by insurers. When applied in combination,
produces otherwise favorable incentives and allows many to seek
these alternatives would be more effective than malpractice tort
compensation when no other means is offered.
reform for improving medical service in Texas.

In addition to the cost of litigation, the medical
profession fears its unpredictability, although evidence suggests
I. Tort Reform in Texas
that outcomes of Texas medical malpractice claims have been

The law of tort developed common law principles
stable and reasonable.5 To the extent that litigation results are
through hundreds of years of judicial and jury decisions that dealt
unpredictable, dealing directly with litigation issues seems
with actual events,1 and today it provides a system of redress for
preferable to reducing incentives to sue by reducing damage
injuries caused by negligence. In Texas, as in other states, “victims
awards. One proposal recommends special health courts that
of medical negligence have a well-defined common law cause
would deal only with medical malpractice cases, much as certain
of action to sue for injuries negligently inflicted upon them.”2
courts now specialize in patent cases.6 A dedicated court could
Patients who have sustained injuries because of negligent medical
utilize the special knowledge needed in malpractice cases, and
practice seek compensation from those responsible. The general
decisions would systematically accumulate a set of principles to
goal of compensation is to make injured patients “whole,” that
govern them, resulting in more predictable outcomes. They may
is, to restore them to the position they would have enjoyed if
also lower cost and improve medical care more effectively than
the tort had not occurred. In malpractice cases involving severe
tort reform. Undoubtedly, other ways to deal with the problems
injuries, that goal of “wholeness” may not be realized, even when
of litigation should be explored.
the lawsuit is won. Notwithstanding this reality, the award of

To protect themselves against claims of negligence,
non-economic damages expresses the community’s appreciation
providers do more than purchase malpractice insurance. They
of the harm imposed by serious nonpecuniary losses.
may also order many medical tests in an effort to avoid error, a
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step that is made particularly easy when private third-party health
comprehensive lawsuit-reform in the nation,”23 capped total non-
insurers pay for the tests.7 Pursuing excessive protection from
economic damages at $250,000 for all providers who are proved
negligence claims by unnecessarily testing is known as defensive
negligent. A further cap of $250,000 for each facility, with a limit
medicine.
of two facilities, was included. Thus, the maximum award for

Research by Daniel Kessler and Mark McClellan shows
non-economic damages ranges from $250,000 to $750,000.
that defensive medicine adds considerably to the cost of health

Unlike the damage award caps in the overturned 1977
care,8 and it is reasonable to object, as tort reform supporters do,
legislation, the caps of 2003 are set in nominal terms and do not
to costs of defensive medicine. The cost of defensive medicine
increase to reflect the effects of inflation, so as time passes damage
is used to justify limits on non-economic damages for medical
awards will be limited more severely. Compared with $250,000
malpractice on the theory that lowered damage awards would
in 2003, for example, a damage award of $250,000 in 2009 is
reduce the incentive for health providers to order more tests than
worth only $216,800 because inflation has reduced the value of
necessary.9 Indeed, Kessler and McClellan provide some evidence
$250,000 by more than 15 per cent.24 Tort reform legislation
that lower awards have that effect. But there are other more direct
thus reduces malpractice insurance premiums for doctors, but
ways to reduce the waste of unnecessary tests. Patients’ health
it does so by reducing damage awards to the patients who are
insurer’s reimbursement schemes encourage testing, and changing
harmed by malpractice, and as there is no adjustment for inflation
the existing basis for health insurance payments would also reduce
the value of the maximum damage award will steadily decline over
the practice of defensive medicine. We note here only that the
time. The greater point is that the focus on reducing malpractice
costs of tort litigation and a perversion of medical practice that
insurance premiums treats only a symptom of malpractice and
arises largely from existing health insurance arrangements partly
does not address the underlying problem of negligent medical
motivated malpractice tort reform.
treatment.
B. The Political Movement for Malpractice Tort Reform
C. The Limited Scope of Malpractice Tort Reform – Treating

Medical service providers (doctors, other professional
Symptoms
practitioners, and health facilities) purchase medical malpractice

The medical malpractice reform movement focused on
insurance to reimburse them for damages awarded because of
lowering malpractice insurance rates for health care providers and
malpractice.10 Sharp increases in malpractice insurance fees
claimed that lower rates would increase the number of doctors in
during the 1970s burdened doctors even though they were
the state and thus improve medical care. But limits on medical
able to pass much of this increased cost on to their patients.11
malpractice damage awards do nothing to discourage medical
Physicians, other providers, and their insurance companies
malpractice in the first place. Indeed, by reducing the cost
joined together to seek lower damage awards. In 1975 the Texas
borne by negligent doctors for malpractice, damage award limits
Medical Professional Liability Study, chaired by W. Page Keeton,
might even encourage it.25 This effect occurs because tort reform
former Dean of the University of Texas Law School and coauthor
reduces the incentive that is created when providers must fully
of the leading hornbook on torts, reported that insurance rates
compensate patients for the harms they cause. Capping damage
had indeed risen and offered recommendations to lower them.12
awards for malpractice has the opposite effect, saving doctors
A main recommendation of the Report was to place an upper
from facing the full costs of their negligent actions. This effect
limit, or cap, on damage awards.13 Acting on the report, the
is exacerbated because the upper limits of malpractice insurance
Texas legislature passed the Medical Liability and Insurance
usually influence the award made, generally by reducing it.26
Improvement Act of 1977 (MLIIA).14 Among other goals, the

Advocates for malpractice tort reform argue that large
MLIIA was enacted to decrease the cost of malpractice insurance
damage awards raise malpractice insurance rates. This argument
by reducing the number and severity of health care liability claims.
fails to recognize that large awards tend to go to those who are
Accordingly, the MLIIA limited the amounts of civil damage
most seriously harmed. Indeed, in rejecting limits on damage
awards for non-economic damages and economic damages
awards the Supreme Court of New Hampshire put the trade-off
other than medical expenses to $500,000, a limit that was to be
this way: “It is simply unfair and unreasonable to impose the
adjusted for inflation.15 Although the Report also recommended
burden of supporting the medical care industry solely upon those
the creation of a patient compensation fund that would serve as
persons who are most severely injured and therefore most in need
a statutory substitute for the cap on non-economic damages,16
of compensation.”27
legislators did not include this in the bill. In the end, the MLIIA’s

In sum, tort reform was adopted in Texas to pursue a
damage caps failed to survive a constitutional challenge and, in
symptom of medical malpractice – high malpractice insurance
1988, the Texas Supreme Court struck down the liability caps
rates – by reducing compensation to the severely injured. But the
because they violated the “open-court” provisions of the Texas
reform does nothing to treat the underlying problem of medical
Constitution.17
malpractice. On the other hand, even advocates for traditional

Supporters of malpractice tort reform continued to press
damage awards do not claim such awards are ideal, largely because
for legislative changes.18 In 2003, buoyed by a redistricting of
the litigation and medical care systems, in tandem, foreclose
the state that resulted in a Republican legislative majority,19 tort
ideal solutions and motivate practices like defensive medicine.
reform advocates succeeded in passing a massive bill that altered
Notwithstanding these unintended consequences, the tort
many aspects of the tort system in Texas. As to malpractice torts,
system provides a considered estimate of actual harms in specific
the legislation limited non-economic damage awards and made
circumstances and is thus more reliable than an arbitrarily fixed
such cases more difficult to bring to court.20 The bill also proposed
upper limit.
a constitutional amendment, passed by voters as Proposition 12,
that overcame the objections of the Texas Supreme Court.21 We
II. Effects of Tort Reform in Texas
focus on the non-economic damage limitations, but the effect of

Evaluating claims made about the benefits of tort reform
the procedural hurdles that make it harder to win a malpractice
is complicated. First, studies that support reform tend to deal
claim should not be underestimated.22
with broad tort reforms and their evidence may not apply to

The Medical Malpractice and Tort Reform Act of
malpractice cases, which are our main concern. Second, in the
2003, which Governor Rick Perry called the “most sweeping and
area of medical malpractice, an accurate evaluation requires an
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assessment of claimed benefits against the lost compensation to
treats damage awards as if they were solely costs that do not benefit
those injured by malpractice. That is, an accurate evaluation
patients or the economy by fully compensating the injured. To put
requires a comprehensive benefit-cost analysis that has so far not
the issue in the starkest terms, capping non-economic damages in
been undertaken.28 Here, we begin that evaluation by analyzing
order to lower malpractice insurance rates essentially redistributes
recent research about the consequence of malpractice tort reform.
money from those harmed by medical malpractice – who under
We separate the research into three categories, (1) effects on costs,
traditional tort rules are entitled to compensation – to medical
(2) effects on the number of doctors in Texas, and (3) effects on
service providers.
insurance payouts.
B. The Number of Doctors in Texas
A. General Claims about Costs

Supporters of malpractice tort reform also claim that

Supporters of general tort reform in Texas have interests
the number of doctors practicing in Texas increased markedly
well beyond medicine, including for example product liability, so
after non-economic damage awards were capped in 2003.35 The
their evaluations include factors that are not related to medical
evidence, however, is not so clear. Charles Silver, David Hyman,
cases. Supporters rely on general studies emphasizing the costs
and Bernard Black found no increase in physicians per capita in
of our tort system, which is more expensive than similar legal
Texas when they examined effects of the 2003 reforms on the
procedures in many other countries.29 They also point out that
supply of physicians.36 Data showed a substantial increase in
many public companies have lost substantial sums as a result
license applications to the Texas Medical Board, but the authors
of tort awards, but they offer no evaluation of the companies’
point out that applications for new credentials or even awards
harmful conduct or its effects. Instead,
of new licenses fail to reveal the number
they make general claims about increased
of doctors directly dealing with patients.
productivity, enhanced product innovation, It is inappropriate
In particular, if some physicians retired
and faster economic growth because of cost
or moved out of Texas, their numbers
savings due to tort reform. The costs of tort and misleading
could offset the number of new
cases and their attendant liability are said to
physician licenses, and the total number
hold back the development of risk-reducing to focus on such
of practicing physicians might even
products and may even raise accidental
decline.
death rates that exclude vehicle accidents. benefits for doctors
Silver, Hyman and Black obtained
Emphasizing these types of costs in the
data from the Texas Department of State
medical malpractice area is misleading, and insurance
Health Services that show the number
however, because supporters ignore their
of physicians who provide direct care
main use in medical cases of compensating companies while
to patients in Texas.37 They calculated
injured patients. Injured patients suffer
the number of direct care physicians
under medical malpractice tort reform ignoring the cost of
per capita per year, and found that
because their compensation is reduced and
although that number increased steadily
made harder to obtain, but no account lost compensation
from 1990 to 2003, it remained flat, or
of the lost compensation is included in
constant, between 2003 – the year the
evaluations of tort reform by its supporters. for those harmed by legislature adopted damage caps – and
This point is illustrated by analyzing studies
2007. It is possible that the caps on
that focus on the overall benefits from tort malpractice.
non-economic damages will yet bring
reform.
an increase in direct care physicians per

For example, the Perryman study analyzes national
capita, but so far the data show it has not had any such effect.
studies that found patterns among these many variables and applies

To further enrich their analysis, Silver, Hyman, and
the patterns to Texas in order to estimate effects of reductions in
Black estimated a predictive model for the twenty-two years
litigation costs and other claimed benefits.30 Outcomes of two
from 1981 to 2002.38 They found that Year and Real Texas Gross
simulated conditions are compared for the year 2008, one with
State Product provided an excellent forecast of physicians, or of
and the other without tort reform. Economic benefits of tort
physicians per capita. The successful model was then applied to
reform are claimed through those comparisons, but such claims
the 2003 to 2007 period, to obtain predictions of physicians and
are misleading for the health area. For medical cases in particular,
physicians per capita. Actual physicians fell 1,650 short of the
the claimed reductions in tort costs cannot simply be classed as
predicted total for 2007, and 9 physicians per 100,000 population
benefits because their sources are reductions in compensation
below the predicted per capita level. This result indicates that
for injured parties, which are costs to those parties. Counting
if the same forces that accurately predicted physician numbers
cost reductions as benefits while ignoring loss in compensation
through the twenty-two years from 1981 to 2002 had continued
is inherently one-sided. It may be accurate to say that limiting
into the period from 2003 to 2007, more physicians would work
non-economic damages reduced medical malpractice insurance
in Texas than the number actually observed. Simply stated, it
premiums by as much as 50 percent,31 or that the declines in
cannot be claimed that the 2003 reforms caused an increase in
premiums averaged 21.3 percent.32 It may also be true that, since
physicians per capita in Texas.
malpractice tort reform of 1995, the number of legal cases has

Supporters of malpractice tort reform also claim large
dropped substantially.33 But it is inappropriate and misleading
increases in doctors who practice in specialties where malpractice
to focus on such benefits for doctors and insurance companies
lawsuits are more common, such as orthopedic surgery, obstetrics,
while ignoring the cost of lost compensation for those harmed by
or neurosurgery.39 But Silver, Hyman, and Black show that the
malpractice.
sources of data cloud such claims.40 First, recall that supporters

In sum, supporters of tort reform focus on limiting
rely for their data on the Texas Medical Board, which counts all
damage awards rather than finding an ideal balance between
doctors in Texas, whereas Silver, Hyman, and Black use the Texas
harm and award. Although that ideal balance is mentioned in the
Department of State Health Services data which include only
Perryman study, along with the goal of efficiency,34 it consistently
those doctors who are directly involved in patient care. Second,
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a change in physician reporting in 2001 allowed physicians to

As to the first effect – a decline in the number of cases
register online, where it is easier to declare specialties, resulting in a
brought – a full comparison of the before and after regimes is
general increase in reported specialties that may have had nothing
not yet possible, so it is not possible to assess directly the decline’s
to do with malpractice tort reform.41 But even when they used
effect on total payouts. That such a decline has occurred is
the higher numbers of the Texas Medical Board, which probably
beyond dispute. The reduction in cases after 1995 is cited by
overstates medical specialists after 2003 due to online reporting,
the Perryman study as a benefit of tort reform,45 and reasons for
Silver, Hyman, and Black found that the number of doctors in the
reductions after the 2003 tort reform are carefully described by
three high-risk specialties grew no faster than the Texas population
Nixon46 and by Sweeney and Perdue.47
from 2003 to 2007.

David A. Hyman, Bernard Black, Charles Silver, and

In 2003, Texas was ranked 40th among the states by the
William M. Sage were able to deal with the second effect by
American Medical Association for direct care physicians per capita;
reducing actual damage awards in completed Texas jury trials
in 2006 its rank had fallen to 43rd.42 Silver, Hyman, and Black
from 1988 to 2004 to comply with the award caps. By comparing
suggest that the relative dearth of physicians in Texas may be due
consequent payouts with and without caps, all in 1988 dollars,
in part to the large fraction of the population that is uninsured. At
they estimated tort reform’s effect on insurance payouts in Texas.48
24.2 percent, Texas has a larger fraction of uninsured citizens than
We focus on effects of non-economic damage caps and note, as a
any other state.43 This fact might even lead to more malpractice
starting point, that jury awards for non-economic damages in the
lawsuits, if uninsured victims of malpractice lack other means
period totaled $185,842,000. The authors first applied all other
with which to cover their medical expenses. Expanding health
caps to these damage awards (such as limits on punitive damages)
insurance coverage might be more effective than malpractice tort
and found the total non-economic damage awards were reduced
reform in improving health care and attracting doctors to Texas.
to $162,481,000. Then they applied the non-economic damage
award caps. The allowed total of non-economic damage awards
then dropped to $43,066,000. Limits on non-economic damage
awards thus reduced damage awards by 73 percent.

Actual insurer payouts are even lower than damage
awards, however, because successful plaintiffs receive less than
adjusted jury verdicts would indicate.49 The Hyman, Black,
Silver, and Sage research shows that actual insurer payouts for
non-economic damages over the 1988 to 2004 period, after other
caps were imposed, totaled $92,267,000.50 This insurer payout
amount is considerably less than the total damage awards after
other caps were imposed of $162,481,000. Indeed, the total
payout of $92,267,000 is only 50 percent of the $185,842,000
that juries had originally awarded. After the 2003 non-economic
damage award limits were applied, the payouts for non-economic
damages fell 62 percent, from $92,267,000 to $35,117,000. This
much-reduced payout is only 19 percent of the $185,842,000
that juries originally had awarded. Thus, the reduction in insurer
payouts that can be traced solely to the 2003 damage award caps
is quite large, especially when compared with original jury awards.
If the effects on payouts caused by declines in the number of cases
brought could also be analyzed, the total of the lost insurance
payouts would almost certainly be even greater.

Hyman, Black, Silver, and Sage also examined settled
cases, which are more numerous and involve more dollars than
juried cases, although less information is available for them. By
applying patterns found for juried cases, the authors estimate
that damage caps lower payouts for non-economic damages in
settled cases by 38 percent. Their analysis provides much more
information, and readers interested in methods and results of the
analysis are urged to consult the original paper.51 The point made
here is that damage award limits clearly reduce payouts for settled
cases as well as juried cases.
C. Effects on Insurance Payouts in Texas

Who bears the greatest burden of these lost insurance

Although not examined by supporters of tort reform,
payouts? The caps on non-economic damage awards imposed by
nationwide evidence from tort verdicts demonstrates that caps
malpractice tort reform caused a decline in payouts for completed
on non-economic damages have markedly reduced medical
cases of 62 percent, and that is effectively the decline in the
malpractice insurance payouts.44 It is not possible to observe
average payout. Hyman, Black, Silver, and Sage also report that
directly the Texas experience under award caps because insurance
the reduction in the median court award for those cases is only
payout data are available only through 2005. Insurance cases can
2 percent, which means those in the lower half of awards by size
take many years to complete, so there are not enough data after
would not have suffered greatly.52 The burden of lost compensation
2003 to compare payouts before and after caps were imposed. Yet
due to the damage caps is thus borne almost entirely by those who
we know that award caps can have two kinds of effects: (1) fewer
otherwise would have received the largest non-economic damage
cases are brought because, under capped awards, some cases are
awards – those in the upper half of jury awards by size. Assuming
not worth bringing, and (2) for cases brought, awards are lower
that juries make reasonably accurate findings, these patients
because of the caps.
would tend to be the most seriously harmed.53 The limits on
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non-economic damage awards thus have a greater negative effect
Wellpoint, a medical insurer, to provide such information.60 Like
on those most in need of assistance.
those it supplies for restaurants, Zagat’s review of doctors will be

The authors were able to show that greater reductions
based on customer-patient evaluations. Doctors complain, with
are experienced by victims in cases that involve death or
some justification, that patient evaluations may not properly assess
unemployment, and the elderly and children, although
doctor quality. To the extent doctors are correct in this judgment,
comparisons for these latter two groups were not statistically
however, it only underscores the point that market mechanisms –
significant.54 The data did not include the sex of plaintiffs, so
such as market responses to negative information – do not work
it was not possible for the authors to determine whether women
in this context because of the absence of evaluative information
suffer larger losses than men. Other studies have shown that
about the quality of medical care. Thus, we must turn to indirect
caps on non-economic damages have greater effects on women,
substitutes for such information.
children, infants, and the elderly.55

In sum, malpractice tort reform may have lowered
B. Gate-Keeping by Physicians
some apparent costs of the tort system if compensation to those

Research reveals that one substitute for patient
harmed is ignored, which of course it should not be. Nor is there
information results from the design of fee-for-service health
evidence that tort reform has brought a surge of doctors into the
insurance plans.61 Included originally to certify the need for a
state to raise the ratio of doctors per capita, even in specialties
specialist, physician gate-keepers in these plans are better able than
that experience more lawsuits. Much of
patients to evaluate qualified specialists.
the savings claimed for malpractice tort
Gate-keepers are likely to know which
reform comes from damage award limits If patients were well doctors have troubling records, and they
that reduce compensation to the most
are unlikely to recommend them to their
seriously injured. While it lowers apparent informed, they could patients. Referring physicians’ incentives
costs, reducing compensation to those
to find good solutions for their patients
harmed by malpractice is surely an unfair choose good doctors reward high quality specialists by sending
source of benefit for doctors and hospitals.
them more referrals. So even without
And malpractice tort reform does nothing and shun bad ones,
other remedies, the insurance mechanism
to curtail medical malpractice itself.
under fee-for-service principles can move
and their choices
patients toward higher quality medical
III. Going for a Cure
service providers.

High malpractice insurance rates would tend to weed
In their study of medical referrals,
prompted medical professionals to join the
Gary Fournier and Melayne McInnes
malpractice tort reform movement, which poorly performing
also noted that HMO managed-care
won legislated limits on damage awards
systems do not allocate patients to
for malpractice. But how effectively doctors out of the
doctors as effectively as traditional fee-
has the medical profession controlled
for-service systems.62 Perhaps because
medical negligence, the major reason for medical profession.
HMOs have stronger incentives to cut
its high medical malpractice insurance
costs, they do not shun doctors who have
rates? Bear in mind that narrow self interest can lead generally
had malpractice claims as thoroughly as fee-for-service systems
to tight control within professional groups, as incomes of existing
do, with the result that lower quality doctors may still obtain
members rise when there are fewer of them. This has historically
HMO referrals.
been accomplished, from the age of medieval guilds, by limiting
the number of providers and making entry into the profession
C. Medical Licensing Boards
difficult.56 Nevertheless, research shows that although control by

A second substitute for information is action by a state
professional groups may bear down more on older doctors with
medical board, which is responsible for regulating the standard of
larger practices,57 it does not appear to be harsh and certainly is
care, to provide the public with accurate evaluations of medical
not excessive.58 The role of the medical profession in controlling
service providers. The medical boards should make their evaluations
quality in medical service markets is important in large part
public. They should also increase disciplinary actions against
because information in the market for medical care is so poor.
negligent doctors and curtail their practices if necessary to preserve
the quality of physician services.63 Professionally disciplining
A. The Problem of Information Disparity
poorly performing doctors directly attacks the problem of medical

Whether the medical profession should provide more
malpractice. Discipline by a state medical board also has indirect
information and guidance to patients is an appropriate question,
effects that may reduce incidences of malpractice. Disciplinary
largely because it is very difficult for patients to obtain relevant
actions can raise the costs faced by poorly performing physicians
information about the quality of care offered by providers. If
by reducing the number of patients they attract, thereby lowering
patients were well informed, they could choose good doctors
their incomes. The threat of medical board sanctions and lower
and shun bad ones, and their choices would tend to weed poorly
income provides incentives to doctors and other providers to take
performing doctors out of the medical profession. In the case of
more care, which in turn benefits all patients.
medical care, however, patients do not have adequate information

The record shows, however, that medical licensing
with which to make those decisions. Internet sources mainly
boards, across the states and over time, have only weakly
provide access information like name, specialty, and addresses,
regulated physician effectiveness. Based on a large sample of
although online sources may provide more information about
medical board disciplinary actions in Florida, Gary M. Fournier
medical care in the future. At this time, there is only limited
and Melayne Morgan McInnes found few instances of Medical
publicly available information about doctors who have been
Board censure.64 In the most egregious cases, where awards
subject to lawsuits,59 and a non-negligent standard of care is not
exceeded one million dollars, only 16 percent of the involved
readily available. Indeed, information about doctor quality is so
physicians were penalized by the Florida Medical Board, and
poor that Zagat, a leading guide to restaurants, has teamed with
those penalties were seldom severe. The Texas Medical Board
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ranks 33rd in the country for the number of disciplinary actions
Conclusion
per doctor.65 This record is slightly better than Florida’s but is

Lowering medical malpractice insurance premiums
still well below the average number of disciplinary actions for
for doctors and other service providers through tort reform has
all states, which itself has declined 22 percent since 2004. One
not benefitted patients in Texas. The reforms attack malpractice
possible explanation for so few disciplinary actions is a view that
insurance costs, which are a symptom of medical malpractice, by
all doctors face the same risk of negligently practicing medicine,
limiting damage award payments to those patients who are harmed
and it therefore seems arbitrary for individual doctors to be
by malpractice. But the reform ignores the genuine, and more
sanctioned for a malpractice event. But the evidence indicates
fundamental problem of medical malpractice, and can even be
otherwise, and shows that, given doctors’ records, experience
said to encourage it by reducing the cost to doctors of negligence.
rating of malpractice insurance is entirely feasible.66 Experience
Full experience rating of malpractice insurance – without any
rating by insurers is thus a promising alternative that merits
award limits – is a more effective way to reduce malpractice. By
further discussion.
imposing damage award limits, tort reform distorts experience-
rated insurance premiums, lowering them especially for more
D. Experience-Rated Malpractice Insurance
negligent doctors. Corrections to experience-rated malpractice

Malpractice insurance serves two functions: (1) it
insurance premiums and stronger Medical Board actions are both
provides compensation to those harmed by malpractice, and (2)
urgently needed now that tort reform has weakened control over
it discourages malpractice by penalizing service providers who are
medical malpractice in Texas. Medical boards should provide
negligent and cause harm. Under experience rating, doctors with
information to the public about provider quality and take action
more malpractice claims against them pay more for insurance, just
against problem doctors. In addition to medical board action and
as motor vehicle drivers with more accidents do, and this added
effective experience rating of insurance, a special medical court
cost will discourage medical negligence. Fournier and McInnes
might also improve the handling of medical malpractice cases.
show from Florida data that a doctor’s past record of malpractice

In considering such improvements, it is important to
events is a good predictor of that doctor’s future events, because
use results of research on the consequences of malpractice tort
from a malpractice standpoint some doctors are simply better
reform and their possible remedies, so we can reject political
than others.67 This makes it possible to base insurance premiums
solutions that are not as effective as options for treating medical
on doctor experience so doctors with poorer records pay more for
malpractice that are based on evidence. Currently, research points
insurance. In states where malpractice insurance is not experience
not to a single solution, but to a combination of alternatives. At
rated, insurance premiums are quite uniform across all doctors,
a modest level, the non-economic damage cap should be adjusted
so high-quality doctors pay high premiums even though they
upward from $250,000, and inflation adjustment is certainly in
have fewer malpractice events. Doctors who have better records
order to prevent the cap from constantly growing smaller. More
effectively subsidize those who perform poorly. It is unfortunate
importantly, attention should move beyond malpractice insurance
that malpractice tort reform focused on lowering malpractice
fees and focus on malpractice itself.
insurance premiums, because damage award limits only make
malpractice appear less costly than it really is. The resulting
* Roger Sherman is Emeritus Professor of Economics at the
distortions in insurance costs lower premiums for negligent
University of Houston and the University of Virginia. Geraldine
doctors and thereby reduce their incentive to avoid malpractice.
Szott Moohr is Alumnae Law Professor at the University of

Many insurance companies in Texas use experience
Houston Law Center. The authors gratefully acknowledge the
rating, but their premiums to negligent physicians do not rise as
thoughtful comments of Seth Chandler, Gary Fournier, and
sharply as they should because, in limiting the damage awards
Rich Saver, the help of Mon Yin Lung, Associate Director of the
that go to those harmed, tort reform has made insuring negligent
University of Houston Law Center Library, and the help of our
doctors less costly. By making malpractice seem less costly,
student research assistant, Aaron Reis. Professor Moohr thanks the
damage limits distort the application of experience rating. How
Law Center Foundation for continued support of her research.
can this distortion of medical malpractice insurance rates – caused
by malpractice reform – be overcome? Raising the level of damage
1 See W. Page Keeton, et al., Prosser & Keeton on the Law
award caps would reduce the distortion in rates, and the higher
of Torts (5th ed. 1984).
the caps the less the distortion. But note that with no adjustment
2 Lucas v. United States, 575 S.W.2d 687, 690 (Tex. 1988).
for inflation, the value of present damage award limits will decline
3 See Joseph M. Nixon, The Purpose, History and Five Year Effect
as time passes, and insurance rate distortions under experience
of Recent Lawsuit Reform in Texas, 44 Advoc. 9, 9-10 (2008).
rating will have ever larger effects.
4 See Charles Silver, Does Civil Justice Cost Too Much?, 80 Tex.

A more direct way to avoid distorting experience rating is
L. Rev. 2073 (2002) (concluding that the civil justice system is
to eliminate caps on damages, which would make experience rating a
reasonably efficient).
more effective tool in pricing malpractice insurance and thus penalize
5 See Bernard S. Black, et al., Stability, Not Crisis: Medical
negligent doctors. Of course this step would undercut the aim of
Malpractice Claim Outcomes in Texas, 1988-2002, 2 J. of
the reform movement, which was to reduce malpractice insurance
Empirical Legal Stud. 207 (2006); David A. Hyman & Charles
rates. But insurance rates that reflect the true costs of negligent
Silver, Medical Malpractice Litigation and Tort Reform: It’s the
doctors would impose greater penalties on them and motivate a
Incentives, Stupid, 59 Vand. L. Rev. 1085 (2006).
reduction in malpractice, while premiums for high-quality doctors
6 See Philip K. Howard, Just Medicine, N.Y. Times, April 2,
might not change much at all. By lowering all insurance rates of all
2009, at A27. There is no shortage of suggestions for reform.
doctors, damage caps and other reforms prevent negligent doctors
See, e.g., Patricia M. Danson, Tort Reform: The Case of Medical
and their insurers from facing the ful costs of the harms they cause,
Malpractice, 10 Oxford Rev. of Econ. Pol’y 84 (1994).
and that circumstance has to be remedied if medical malpractice
7 For instance, testing can increase the income of providers
is to be discouraged. The main point is that tort reform seriously
because insurance companies reimburse doctors at a higher rate
distorts experience-rated malpractice insurance rates. To return
for medical tests than for some medical procedures. For an
incentives to their proper levels, especially for negligent doctors, the
analysis of health providers’ financial incentives, see Richard S.
rates should reflect the ful costs of harms caused.
Saver, Squandering the Gain: Gainsharing and the Continuing
148
Journal of Consumer & Commerical Law

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Dilemma of Physician Financial Incentives, 98 Nw.U.L. Rev. 145,
24 See Bureau of Labor Statistics, Price Calculator, http://www.
157 (2003) (noting that Medicare’s reimbursement scheme “has
bls.gov/data/inflation_calculator.htm.
tended to increase fees for evaluation/management services at the
25 There is some evidence that better health care is associated
expense of procedure-based services”).
with greater risks of being sued, although the relation is weak
8 See Daniel Kessler & Mark McClellan, Do Doctors Practice
across a large sample of cases. See David A. Hyman & Charles
Defensive Medicine?, 111 Q. J. of Econ. 353 (1996).
Silver, The Poor State of Health Care Quality in the United States:
9 See id. at p. 388.
Is Malpractice Liability Part of the Problem or Part of the Solution?,
10 For a classic description of malpractice insurance see Frank A.
90 Cornell L. Rev. 893 (2005). Nevertheless, evidence from
Sloan, Randall R. Bovbjerg, & Penny B. Githens, Insuring
specialized areas, like anesthesia, shows that the threat of damage
Medical Malpractice (1991).
awards induces changes in practices that lead to significant
11 See Patricia M. Danzon, Mark V. Pauley, & Raynard S.
improvements in health outcomes. Id. Indeed, medical errors
Kington, The Effect of Malpractice Litigation on Physician’s Fees and
may be due to faults in systems that are beyond the control of
Incomes, 80 Am. Econ. Rev. 122 (1990).
individual providers. But, analogous to the anesthesia example,
12 Tex. Med. Prof. Liability Study Com., Final Report of
the incentive of malpractice awards can motivate solutions
the Texas Medical Professional Liability Study Commission
to systemic flaws. For discussion of system complexities, see
to the 65th Texas Legislature (1976).
the important Institute of Medicine report, To Err is Human:
13 See Lucas v. United States, 575 S.W.2d 687, 691 (Tex.
Building a Safer Health System, Linda T. Kohn, Janet M. Corrigan,
1988) (commenting on the Keeton Report). For commentary on
and Molla S. Donaldson, eds., http://www.nap.edu/openbook.
the legislative efforts, see the supplemental issue of the Texas Tech
php?isbn=0309068371.
Law Review, Michael S. Hull, et al., House Bill 4 and Proposition
26 See Kathryn Zeiler, et al., Physicians Insurance Limits and
12: An Analysis with Legislative History, 36 Tex. Tech L. Rev.
Malpractice Payments: Evidence from Texas Closed Claims, 1990-
2 (2005) [hereinafter House Bill 4 and Proposition 12]. For an
2003, 36 J. of Legal Stud. S9 (2007); see also Charles Silver, et
excellent collection of recent, conflicting commentary on the
al., Malpractice Payouts and Malpractice Insurance: Evidence from
effects of that legislation, see Symposium: Five Year Retrospective on
Texas Closed Claims, 1990-2003, in 33 Geneva Papers on Risk
House Bill 4, 44 Advoc. 1 (2008).
and Insurance 177 (2008).
14 See Act of May 30, 1977, 65th Leg., R.S., Ch. 817, 1977
27 See Carson v. Maurer, 424 A.2nd 825, 837 (N.H. 1980),
Tex. Gen. Laws 2039.
overruled on other grounds, Community Resources for Justice v.
15 See House Bill 4 and Proposition 12, supra note 13, at p 4.
Manchester, 917 A.2d 707 (N.H. 2007).
16 See Lucas, 757 S.W. 2d at 691 (noting that Indiana and
28 For the basics of benefit-cost analysis, see E.J. Mishan,
Louisiana had created such funds when they adopted damage
Cost-Benefit Analysis: An Introduction (1971).
limitations).
29 See The Perryman Group, Texas Turnaround: The
17 See id. at 690 (holding that limitations on non-economic
Impact of Lawsuit Reform on Business Activity in the
damages were “unreasonable and arbitrary” and unconstitutionally
Lone Star State (2008) (reporting that administrative costs and
limited plaintiff’s right of access to the courts for a “remedy by
attorneys’ fees have been estimated at about 40 percent of our tort
the due course of law” under Article I, Section 13 of the Texas
system costs).
Constitution).
30 See id.
18 For instance, legislation enacted in 1995 provided several
31 See Am. Tort Reform Found., Judicial Hellholes, 2006
procedural rules whose aim was to reduce the number of cases
(2006), http://www.atra.org/reports/hellholes/.
filed. See 65th Leg., R.S., ch. 817, 1.02, 1977 Tex. Gen. Laws
32 See David Hendricks, Insurance Companies, Doctors Flock to
2040, 2041 (codified at Tex. Rev. Civ. Stat. Ann. Art. 4590i)
Texas, San Antonio Express News, June 1, 2007, at D1.
(currently at Tex. Civ. Prac. & Rem. Code Ann. §§ 74.001 et
33 See Perryman, supra note 29.
seq.).
34 See id..
19 See A. Craig Eiland, A Word from the Opponents, 44 Advoc.
35 See Hugh Rice Kelly, House Bill Four After Five Years: Business
22, 22 (2008) (emphasizing the political agenda of supporters of
Perspective, 44 Advoc. 35, 39 (2008) (quoting the executive
reform).
director of the Texas Medical Board); Hendricks, supra note 32.
20 The 2003 legislation requires plaintiffs to submit the report
An element of the savings from tort reform cited by Perryman,
of an expert, defined as a practicing physician in the same or
supra note 29, at 25, depends on an increase in the number of
similar field as the defendant, within 120 days of filing suit that
doctors.
clearly states the provider violated the standard of care. Failing to
36 See Charles Silver, David A. Hyman, & Bernard S. Black,
do so results in dismissal with prejudice. See Nixon, supra note 3,
The Impact of the 2003 Texas Medical Malpractce Damages Cap on
at 15 (recounting imposition of numerous controls).
Physician Supply and Insurer Payouts: Separating Fact from Rhetoric,
21 See The Medical Malpractice and Tort Reform Act of 2003:
44 Advoc. 25 (2008); see also David A. Hyman, Bernard S. Black,
Hearings on Tex. H.R.J. 3 Before the Senate Affairs Comm., 78th
Charles Silver, & William Sage, Estimating the Effect of Damage
Leg., R.S. (May 13, 2003). The amendment passed both houses
Caps in Medical Malpractice Cases: Evidence from Texas, 1 J. of
of the Texas legislature in June, 2003, and the constitutional
Legal Analysis 355 (2009).
amendment was approved by voters in September, 2003. See
37 See Silver, Hyman & Black, supra note 36. The count
Janet Elliot, To Amend? The Propositions: Lawsuit Caps Win in a
of physicians who give direct care excludes fellows, teachers,
Squeaker, Hous. Chron., Sept. 14, 2003, at A1.
administrators, researchers, federal, military, retired or those
22 See generally Paula Sweeney & Jim M. Perdue, Jr., HB4 –
otherwise not available to the general population.
Medical Malpractice – Plaintiff’s Perspective, 44 Advoc. 42 (2008)
38 See id.
(providing judicial interpretations of procedural limitations that
39 See Howard Marcus & Bruce Malone, 2003 Reforms Helping
generally favor defendants).
Doctors Do Their Work, Austin American Statesman, April 10,
23 See Seyfarth Shaw, Texas Tort Reform – Highlights of the
2006, http://www.tortreform.com/node/220; Perryman, supra
Omnibus Civil Justice Reform Act, July 11, 2003, http://www.
note 29.
seyfarth.com/dir_docs/news_item.
40 See Silver, Hyman, & Black, supra note 36, at p. 28.
Journal of Consumer & Commerical Law
149

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41 See id. Silver, Hyman and Black show that doctors declaring
Sanctioned? 12 J. of Reg. Econ.113 (1997) (providing evidence
no specialty averaged 2 percent from 1997 to 2003, when it began
of the effectiveness of medical boards).
to decline, and then fell to 1 percent in 2004 and close to ½ percent
58 See Harris County Medical Society, HCMS Advocacy:
after that, an indication that more specialties were being claimed,
Texas Medical Board (2008), http://www.hcms.org/Template.
probably as a result of the change to on-line reporting. Id.
aspx?id=131; see also Roberto Cardarelli & John C. Licciardone,
42 See id.
Factors Associated with High Severity Disciplinary Action by a State
43 See id.; Sweeney & Perdue, supra note 22, at 52 (over 5.5
Medical Board, 106 J. Am. Osteopath Assoc. 153 (2006), http://
million Texans do not have health insurance, placing Texas “dead
www.jaoa.org/cgi/content/full/106/3/153.
last” among the states).
59 See e.g. http://www.ratemds.com. (providing simple one-
44 See Patricia Born, W. Kip Viscusi, & Tom Baker, The Effects
dimensional information rating system). Advice on searching
of Tort Reform on Medical Malpractice Insurers’ Ultimate Loses, 76
for doctors’ malpractice records is increasingly available. See
J. Risk & Ins. 197 (2009).
e.g., Trisha Torrey, How to Find a Doctor’s Medical Malpractice
45 See Perryman, supra note 29.
Track Record, About.com. Dec. 30, 2008, http://patients.
46 See Nixon, supra note 3.
about.com/od/doctorinformationwebsites. Unfortunately, a
47 See generally, Sweeney & Perdue, supra note 22.
National Practitioner Data Bank that contains information about
48 See David A. Hyman, Bernard Black, Charles Silver, &
malpractice claims is not available to the public. See http://www.
William M. Sage, Estimating the Effect of Damage Caps in Medical
npdb-hipdb.hrsa.gov/npdb.html.
Malpractice Cases: Evidence from Texas, 1 J. of Legal Analysis S9
60 See Milt Freudenheim, Noted Rater of Restaurants Brings Its
(2009) (analyzing cases with payouts of more than $25,000 in
Touch to Medicine, New York Times, Feb. 16, 2009, at B1.
1988 dollars).
61 See Gary M. Fournier & Melayne Morgan McInnes, The
49 See David A. Hyman, et al., Do Defendants Pay What Juries
Effects of Managed Care on Medical Referrals and the Quality of
Award? Post-Verdict Haircuts in Texas Medical Malpractice Cases,
Specialist Care, 50 J. of Indus. Org. 457 (2002).
4 J. of Empirical Legal Stud. 3 (2007) (showing that actual
62 See id.
insurance payouts are considerably smaller than damage awards).
63 The Texas Medical Board has been the subject of criticism.
50 See Hyman, Black, Silver, & Sage, supra note 48.
See AAPS, Doctors Sue Medical Board for Misconduct, Assoc. of
51 See id.
Am. Physicians and Surgeons, Inc., News of the Day, Dec.
52 See id.
21, 2007, http://www.aapsonline.org/newsoftheday/004.
53 See Black, et al., supra note 5.
64 See Fournier & McInnes, supra note 57 (providing evidence
54 See id.; see also Jeff Watters, Comment, Better to Kill than
of the effectiveness of medical boards).
to Maim: The Current State of Medical Malpractice Wrongful Death
65 See Sidney M. Wolfe & Kate Resnevic, Public Citizen’s
Cases in Texas, 60 Baylor L. Rev. 749 (2008) (reviewing effects
Health Research Group Ranking of the Rate of State Medical Boards’
of tort reforms in wrongful death cases).
Serious Disciplinary Actions, 2006-2008, http://www.citizen.org/
55 See, e.g., Lucinda M. Finley, The Hidden Victims of Tort
publications/print_release.cfm?ID=7652; Cheryl W. Thompson,
Reform: Women, Children, and the Elderly, 53 Emory L.J. 1263,
Jurisdictions Rated on Doctor Discipline, Wash. Post, April 21,
1280-1312 (2004) (analyzing data from Maryland, California,
2009, at B3; Cardarelli & Licciardone, supra note 58.
and Florida). Women, children, and the elderly, whose estimated
66 See Gary M. Fournier & Melayne Morgan McInnes, The
lost future wages may be low or hard to determine, depend more
Case for Experience Rating in Medical Malpractice Insurance: An
heavily on non-economic awards to make them whole. Id.
Empirical Evaluation, 68 J. of Risk & Ins. 255 (2001); see also
56 See Avner Shaked & John Sutton, The Self-Regulating
Frank A. Sloan, Experience Rating: Does It Make Sense for Medical
Profession, 48 Rev. of Econ. Stud. 217 (1981).
Malpractice Insurance?, 80 Am. Econ. Rev. 128 (1990).
57 See Gary M. Fournier & Melayne Morgan McInnes, Medical
67 See Fournier & McInnes, supra note 66
Board Regulation of Physician Licensure: Is Excessive Malpractice
150
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