The Receding Tide of Medical Malpractice Litigation: Part 2-Effect of Damage Caps

We study the effect of damage caps adopted in the 1990s and 2000s on medical malpractice claim rates and payouts. Prior studies found some evidence that caps reduce payout per claim, but mixed and weak evidence on whether caps reduce paid claim rates and payout per physician. However, most prior studies do not allow for the gradual phase-in of damage caps, which usually apply only to lawsuits filed after the reform's effective date, or only to injuries after the effective date. Once we allow for phase-in, we find strong evidence that damage caps reduce both claim rates and payout per claim, with a large combined impact on payout per physician. The drop in claim rates is concentrated in claims with larger payouts-the ones that we expect to be most affected by a damages cap. Stricter caps have larger effects. Some prior studies also find a large impact of tort reforms other than damage caps. Once we allow for phase-in, we find that these other reforms have no significant impact on either claim rates or payout per claim.