Research Activities January 2013, No. 389
Defense expenses for medical malpractice claims have risen faster than settlement amounts
Health Care Costs and Financing
Defense expenses represent a growing percentage of the average indemnity (the amount paid to plaintiffs) for malpractice claims paid over a 23-year period, according to a new study. While medical malpractice insurance premiums appeared to have leveled off in 2010 after falling in recent years, no one has looked at the impact of defense expenses, also called "allocated loss adjustment expenses" (ALAE), on the total costs of malpractice insurers.
The researchers examined data from the Physicians Insurers Association of America's Data Sharing Project to whom member insurance companies submit deidentified claim and loss data every 6 months. They first looked at the proportion of paid to closed malpractice claims. They found that the percentage of closed claims resulting in payouts (paid claims) was 33 percent of 8,136 closed claims in 1985. Paid claims fell below 30 percent for 1994–1998, and have stayed below 30 percent since 2003. Despite this variability, the average indemnity (in 2008 dollars) rose almost in a straight line from $174,260 in 1985 to $342,670 in 2008. Meanwhile, the average ALAE rose (in 2008 dollars) from $13,395 to $43,258 (from $0.24 to $0.45 for each "indemnity dollar" paid). Claims resulting in plaintiff verdicts had the highest average ALAE, while 64 percent of claims that were dropped, withdrawn, or dismissed averaged ALAE of only $15,056.
The researchers found that most of the ALAE (74 percent) represented defense attorney expenses, while expert witnesses and other expenses split the remaining 26 percent evenly. Possible reasons for increases in ALAE include the use of technology advancements during jury trials, use of mock trials and jury consultants, increased court reporter costs, and increased hourly rates and use of expert witnesses, the researchers suggest. The study was funded in part by the Agency for Healthcare Research and Quality (HS17572).
More details are in "The impact of defense expenses in medical malpractice claims," by Aaron E. Carroll, MD, MS, Parul Divya Parikh, MPH, and Jennifer L. Buddenbaum, MHA, MS, in the Spring 2012 Journal of Law, Medicine, and Ethics 40(1), pp. 135-142.