1

Actuarial Science Program Integrated Project # 6

Designing Prediction Models Of Tort Reforms for

Malpractice

Aug 11, 2014 Students: Bita Bakhshi, Han Han Mentors: Allan Kaufman, Betsy Wellington Supervisor: Lina Xu

2

Table of Contents 1. Executive Summary ........................................................ 3 2. Market Overview of Malpractice ............................... 3

2.1Background ................................................................. 3 2.2 Market Overview of Malpractice in Texas 4

3. Introduction to Tort reforms ...................................... 5 3.1Background ................................................................. 5 3.3 Why Texas? ................................................................. 8

4. Parametric Index Modeling ...................................... 10 4.1 Sample and Collection ....................................... 10 4.2 Variables and Descriptive Statistics ......... 11 4.3 Variable Transformation...................................... 11 4.4Distribution of error of data ................................ 12 4.5 Regression Models .............................................. 15

5. Prediction and suggestion ........................................ 19 5.1 Prediction based on regression model ... 19 5.2 Strategy and suggestion ....................................... 19

6. CONCLUSION .................................................................. 19 Appendix ............................................................................... 21

3

1. Executive Summary Our goal as consultants is to find out the effect of tort reforms on malpractice claims in Texas. In order to do that, we create the tort reform indices describing tort reforms of last 20 years first and then use them as triggers to design a multivariate model to help the insurance company predict the trend of malpractice claims caused by tort reforms. Lastly, a logical analysis is provided to explain the result and give a suggestion of the future strategy for the company and potential policy in the future.

2. Market Overview of Malpractice

2.1Background A. Medical Liability Insurance - Who and What it Covers

Medical liability insurance covers a healthcare professional for errors and omissions arising from the practice of ithe insured's professional specialty.

Coverage for nursing homes will become mandatory effective September 1, 2003. Other healthcare providers are not legally required to purchase coverage but hospitals and HMO's typically require minimum amounts and proof of coverage.

Approximately 54,117 physicians currently practice in Texas. 1 B. Texas Medical Liability Insurance Underwriting Association (JUA)

Requires insureds to provide evidence of rejection by two licensed insurers. Policyholders are not protected by the Guaranty Fund. Policyholders and JUA

member insurance companies may be assessed to maintain solvency. Policy forms and rates of the JUA are regulated by TDI. While the JUA offers an immediate solution with regard to availability, the

more attractive policies and lower rates for certain specialties can be viewed only as a stopgap measure for addressing the present problem of skyrocketing medical malpractice insurance rates and a shrinking number of carriers.

C. Recap of 1993 and 1995 Tort Reform Measures in Texas The 73rd and 74th Texas Legislatures enacted several laws addressing tort reform. The cumulative effect of the tort reform rate rollbacks is that medical malpractice rates are 17.2 percent lower than they would have been without reform. This number is derived from information companies reported to TDI regarding actual 1 Source: AMA Physician Masterfile (December 31, 2012)

4

rate rollbacks and tort reform savings. It includes all medical malpractice lines combined, i.e. hospitals, physicians, dentists, nurses, etc.

2.2 Market Overview of Malpractice in Texas Figure 1 includes the major medical malpractice insurers in Texas:

Figure 1

Based on information obtained above, the following insurers write the majority of coverage for individual physicians and group practices:

American Physicians Insurance Exchange The Doctors' Company The Medical Protective Company Texas Medical Liability Trust (TMLT) Texas Medical Liability Insurance Underwriting Association (JUA)

31%

34%

27%

3%

4%

1%

Market Share for Different Carrier Licensed AdmittedCarriers (excluding JUA)

Texas Medical LiabilityTrust

Risk Purchasing Groups

Risk Retention Groups

Surplus Lines Insurers

Texas Medical LiabilityInsurance UnderwritingAssociation (JUA)

5

3. Introduction to Tort reforms 3.1Background A. Tort and Tort Reform A tort is an injury to someone’s person, reputation, or feelings or damage to real property.2 Under the U.S. system of tort liability, courts can hold injurers liable for many different types of torts, such as those caused by automobile accidents, contract fraud, trespass, medical malpractice, and defective products. The major categories of tort litigation are automobile-related torts (53 percent), premises liability (16 percent), and medical malpractice (15 percent)3. The plaintiff in a tort suit can seek compensation of two types: compensatory damages to cover the “economic” cost of an injury—for example, medical costs and lost wages—and the “noneconomic” costs of pain and suffering and punitive damages intended to punish a defendant for willful and wanton conduct. (See Box 1 for a list of definitions of some common tort terms.) U.S. tort law is almost exclusively contained in state law, and the large majority of tort cases are filed in state courts. In 2000, more than 700,000 torts were filed in state general courts, compared with only 37,000 in federal courts. Tort law is based primarily on common law—in which judicial rules are developed on a case-by-case basis by trial judges—rather than on legislation.

B. Tort Liability as a Tool for Achieving

Efficiency and Equity The risk of injury or loss is inherent in everyday life: consumers are injured or killed by defective products, workers are hurt on the job, train passengers are injured by derailments, and patients are harmed by medical errors. Markets provide broad incentives to control the number and costs of such injuries. For example, enhanced safety features can give a product a marketing advantage over competitors. Furthermore, insurance allows individuals and firms to reduce the financial uncertainty associated with potential injuries. The U.S. tort liability system, however, serves to augment the safety incentives and insurance opportunities provided by the market.3 In particular, it provides incentives for individuals and firms to take appropriate care, compensates those who are harmed, helps spread risk, and serves the purposes of punishment or retribution. In economic terms, those various purposes can be related to the overarching social goals of efficiency and equity. In theory, the tort system contributes to economic 2 Bryan A. Garner, ed., Black's Law Dictionary, 7th ed. (St. Paul, Minn.: West Group, 1999), pp. 1496-1497. For a review of the basics of the U.S. tort system, see Congressional Budget Office, The Economics of U.S. Tort Liability: A Primer (October 2003). 3 Those percentages are based on each category’s share of the total number of tort trials completed in the general-jurisdiction courts of the 75 largest U.S. counties in 2001. See Department of Justice, Bureau of Justice Statistics, Civil Trial Cases and Verdicts in Large Counties, 2001, NCJ 202803 (April 2004), Table 1.

6

efficiency by assigning liability for accidents so that individuals and firms account for the extent to which their actions affect the risk of injury. However, different concepts of equity may affect the assignment of that liability. For example, a particular concept of fairness might hold that certain victims should not be considered responsible for exercising some forms of care although it would be more efficient if they did so. The literature this paper reviews does not address the efficiency and equity implications of various reforms but examines how reforms might affect the number of court filings or the size of awards.

Figure 24

3.2 General Findings A. General Findings from the Empirical Literature on Tort Reform

• The most consistent finding in the studies that CBO reviewed was that caps on damage awards reduced the number of lawsuits filed, the value of awards, and insurance costs (see The Effects of Tort Reform: Evidence from the States by CBO paper, June 2004). One study of automobile-related torts found that caps on noneconomic damages decreased not only the value of noneconomic claims made to insurance companies but also the number of lawsuits filed. Other studies suggested that those caps related to increases in insurers’ profitability for both medical malpractice and general liability insurance. (Evidence on whether premiums were affected was mixed.)

4 Click on map to find out what civil justice reform laws have passed in each state, when they were passed, and whether they have been upheld as constitutional. Federal reforms are also available.

7

• Yet even those findings must be viewed in context. As a whole, the studies provided little systematic evidence that any one type of reform had a significant impact on any of the various outcome measures studied. Few of the findings—except for a reduction in the losses experienced by insurers—were independently corroborated by other studies. Some studies were unable to document any measurable effects from the tort reforms, a result that may be more reflective of the lack of data than of any failure of the reforms. At least two issues complicate the analysis of tort reform.

• First, data limitations preclude separately estimating the effect of each of the many types of reform. Second, it is difficult to control for differences between states that reformed their tort system and those that have not. Controlling for such differences is critical in assessing the effect of tort reform on outcomes such as the level of insurance premiums.

B. Tort Reform Initiatives at the State Level Some state-level tort reforms have made it more costly or difficult to file tort cases. For example, joint-and-several liability reforms tend to force plaintiffs to bring suit against multiple defendants rather than concentrate their efforts on a few defendants who are wealthier, more easily identifiable, or both; court procedural reforms can make it harder to file suits; and caps on legal contingent fees make it less lucrative for attorneys to accept “long shot” cases. The major argument for those reforms is that too many frivolous cases are brought in general. Other reforms limit the amount of damages, both compensatory and punitive, that can be awarded. Underlying those reforms is the contention that the courts are apt to make excessive awards, in terms of either what is necessary to compensate victims for their losses or what incentives are appropriate to avoid future accidents. Refer to Chart 1, Table 1 in the Appendix for more detailed information.

8

3.3 Why Texas?

Medical malpractice insurance in Texas is the least profitable for insurance companies, compared with the other top fifteen states, based on the 2010 NAIC Report on Profitability By-Line-By State. For all measures of profitability, including Underwriting Profit and Return on Net Worth, Texas ranks last over the ten year period of 1991 through 2000. Under these market conditions, it will be very difficult for Texas to retain or attract medical malpractice insurers.

9

• Underwriting Profit is premiums less losses and expenses as a percentage of the premium. It does not include income from investments or federal taxes. • Return on Net Worth is the return to the insurance company “investors” and is analogous to a return on any investment (e.g. savings account, a bond, etc.). It includes income from all sources and reflects all federal taxes.

10

4. Parametric Index Modeling 4.1 Sample and Collection In response to the perception that liability insurance coverage was becoming more costly and less available, most states enacted legislation in the mid-1980s that reformed the common-law rules and other court procedures involving tort litigation. This can create a misleading appearance of an increasing trend in claim frequency. Therefore, we collected more than 50 million reports for all kinds of malpractice claims, from 1960’s until now. In order to do that, we used the parameters (Rectype Record Type, Work city, Year Type, Payment, Year range and License Field) of the claims (1990-2010) provided by the national Databank (npdb.gov), the annual population per county in Texas (1990-2010) provided by U.S. Census Bureau and the annual Medical Consumer Price Index (1990-2010) provided by the Bloomberg. The data and data source we used are shown in Table 4.1.

Data

Data Source

parameters (Rectype Record Type, Work city, Year Type, Payment, Year range and License Field)

national Databank (npdb.gov)

annual population per county in Texas U.S. Census Bureau Medical Consumer Price Index Bloomberg GDP Index Bloomberg Number of Physicians and Physicians Rate State Physician

Workforce Data Book number of resident and active attorneys American Bar

Associations of data Table 4.1 Data and Data Source

Figure 4.2

11

From figure 4.2, we cannot find a concrete relation hip between time and payment, For this reason, It is needed to find a way to describe potential varialbles. 4.2 Variables and Descriptive Statistics We chose frequency and severity of claim as the dependent variable, Year, The number of lawyers per 1000, Number of Physicians per 1000, GDP per 1000, Medical CPI as the independent variables. We also tried to add tort reforms in each year, which is the major subject of our project. However, these kinds of data are not available immediately and are less credible, we rule these two variables out to make the model more practical. The variables we chose and their definitions and predicted signs are shown in Table 4.2. Refer to Table 2 in Appendix for more details.

Dependent Variable Definition

Year Malyear-1989

Log GDP (Log GDP)=log (GDP)

Population-TX million Population in Texas in million

NP Number of Physicians per 1000

NL The number of resident and active attorneys

CPI CPI

Dependent Variable:

Frequency(NM/NP) Frequency=Number of Claims/Number of Physicians

Severity(P/N) Severity=Amount of Payment/Number of Claims Table 4.1

4.3 Variable Transformation We can observe from Figure 4.3 that the Frequency and Severity are directly proportional to the population, number of physicians per 1000, number of resident and active attorneys and CPI. Therefore, we assume there exist a linear relationship between factors and outputs.

12

Figure 4.3

4.4Distribution of error of data To test the validation of our model, which kind of method of test should be used relies on the distribution of the error of variables. To decide this distribution, we need to use the quantile - quantile plot. A quantile - quantile plot, or Q-Q plot, is a plot of the sorted quantiles of one data set against the sorted quantiles of another data set. It is used to visually inspect the similarity between the underlying distributions of 2 data sets. Each point (x, y) is a plot of a quantile of one distribution along the vertical axis (y-axis) against the corresponding quantile of the other distribution along the horizontal axis (x-axis). If the 2 distributions are similar, then the points would lie close to the identity line, y = x.

13

Figure 4.3

Figure 4.4

14

Figure 4.5

Figure 4.6

15

From Figure 4.3-4.6 we can see Lawyers, Physicians, GDP and CPI with time are all around the line x=y. The 4 Q-Q plot of Lawyers, Physicians, GDP and CPI with time are all around the line x=y. For this reason, we can assume that all these factors share a distribution with time, who has a normal distribution. For this reason, we can assume that all these factors share a distribution with time, who has a normal distribution. This means that all statistical test like chi-square and t test can be used confidently. 4.5 Regression Models The basic idea of designing the parametric index trigger is first to calculate the modeled loss based on parameters of the malpractice and then to scale the modeled loss to get the parametric index. In order to get the modeled loss, we use linear regression model and under the selection criterion of the highest coefficient of determination R2, the best linear regression loss model is of the following form:

푺풆풓풗풆풓풊풕풚풐풇풄풍풂풊풎풔푴풆풅풊풄풂풍푪푷푰

=

휷ퟎ + 휷ퟏ ∗ 풀풆풂풓 +휷ퟐ ∗ 푻풐풓풕푹풆풇풓풐풎풊풏ퟏퟗퟗퟓ

For Frequency of claims:

+휷ퟑ ∗ 푻풐풓풕푹풆풇풐풓풎풊풏ퟐퟎퟎퟑ +휷ퟒ ∗ 풍풐품(

푺풆풓풗풆풓풊풕풚풊풏푪풐풖풏풕풓풚푾풊풅풆푴풆풅풊풄풂풍푪푷푰

) The coefficients of the linear regression loss models (Model 1 for the first half year, Model 2 for the second half year), P-values, standard errors, coefficient of determinations R2, adjusted R2 and so on are shown in Table 4.4. Model 1 has an adjusted R2 of 0.503, and all coefficients are significant at the 99% confidence interval. Model 2 has an adjusted R2 of 0.423, and all coefficients are significant at the 90% confidence interval.

퐍퐮퐦퐛퐞퐫퐨퐟퐭퐡퐞퐜퐥퐚퐢퐦퐬퐧퐮퐦퐛퐞퐫퐨퐟퐩퐡퐲퐬퐢퐜퐢퐚퐧퐬

= 휷ퟎ + 휷ퟏ ∗ 풀풆풂풓 + 휷ퟐ ∗ 푻풐풓풕푹풆풇풓풐풎풊풏ퟏퟗퟗퟓ +휷ퟑ ∗ 푻풐풓풕푹풆풇풐풓풎풊풏ퟐퟎퟎퟑ

16

Table 4.2 Severity of claims

Independent variables coefficient Standard Error

(Constant) 4.865 0.13

Year 0.248 0.282

Tort reform 1995 -0.658 0.23

Tort Reform 2003 -0.183 0.028 Table 4.3 Frequency of claims

From the regression model, we get the simulation of claim loss. Since we assume the random errors follow a linear regression, the random errors in the above regression model follow the linear function. Using these formulas, we can obtain the modeled loss. To get the indices, we scale the modeled loss by dividing the half year aggregate loss in year i by the mean of total half aggregate loss. The actual (observed) and estimated (fitted) indices are shown in Figure 4.2 and Figure 4.3.

푺푪푻푿푪푷푰

= 휷ퟎ + 휷ퟏ ∗ 풀 + 휷ퟐ ∗ 푻푹ퟏퟗퟗퟓ + 휷ퟑ ∗ 푻푹ퟐퟎퟎퟑ +휷ퟒ ∗ 풍풐품(

17

Figure 4.7 Severity claims

18

Figure 4.8 Frequency of Claims

More details and procedure of linear regression will be attached in the Appendix.

19

5. Prediction and suggestion 5.1 Prediction based on regression model As shown in the Figure 4.6 and 4.7, both severity and frequency of claims is reducing to 0, which means there are less profit can be earned in Texas year by year. We can also see that it is tort reform in 2003 affect the frequency and severity negatively. There are three main reason causes this result in detail: The unfriendly tort reform put a cap at the amount of payment, which reduced the severity of claim. In the meanwhile, the cap of malpractice resulted in no profit in each claim, the cost of malpractice is decreasing, the lawyer will lack of interest to such case, so there will be less case go through court, so the frequency is decreasing, too.

5.2 Strategy and suggestion Since the prediction value and trend are approach to zero, our predicted value based on linear regression model is meaningless because it shows a future without hope. But this does not mean there is no suggestion offered to deal with this problem. Here we will give our suggestions facing government and companies separately: GOVERNMENT IN TEXAS Federal government should sentence new tort reforms with no doubt, since Texas has become a least profitable place and the out-of –date tort reforms are the main reason. The market need new incentive to build a free atmosphere, or the tough situation and loss of money will never stop. COMPANY IN TEXAS

A. Lobby This is the most direct way to deal with the problem in Texas; companies need to find representative to speak for them and appeal their will to federal government. It relies on same strategy as government, only difference is that the government will decide the consequence of law while company can only try to persuade government.

B. Special product The Venue Reform in 2003 is no doubt good news because it offers an opportunity to sell malpractice product in Texas, but actually it will be dealt in other states who have better policy like higher cap, which make the case more profitable and more lawyers will tend to deal with it.

6. CONCLUSION The tort reforms enacted since the mid-1970's malpractice "crisis" affected the frequency and severity of malpractice claims over the decade from 1990 to 2010 in a manner broadly consistent with economic theory and with previous evidence. Although claim frequency and severity have continued to ise despite reforms, this trend does not indicate that the tort changes have had no effect. States that enacted shorter statutes of limitations and set outer

20

imits on discovery rules have had less growth in claim frequency than states with statutes more lenient to plaintiffs. On average, cutting one year off the tatute of limitations for adults reduces claim frequency by eight percent. The ffect would presumably be greater for a reduction from, say, four to three years than from ten to nine years. (Percentage changes are the average differential in a single year, relative to what the situation would have been without enactment of the reform.).Statutes permitting or mandating the offset of collateral benefits have apparently reduced malpractice claim severity by eleven to eighteen percent and claim frequency by fourteen percent relative to comparable states without collateral source offset. The feedback from a reduction in severity to a eduction in frequency is not surprising, since collateral source offset reduces he potential recovery for a large number of claims, thereby reducing incentives to file. Among the other factors affecting claims, urbanization remains a highly significant factor that explains much of the observed difference among states in claim frequency and severity. The evidence suggests that urban areas have a particularly high frequency of nonmeritorious claims (those closed without payment) and claims filed more than two years after the alleged injury. Per capita income, the unemployment rate, and the number of attorneys per capita have no statistically significant effects. The surgery rate in a state increases claim frequency, and the ratio of surgeons to medical specialists increases claim severity. An overall evaluation of the merits of the various tort reforms from a public policy perspective is beyond the scope of this paper and has been done elsewhere. However, it is worth noting that on average, severity has increased at almost twice the rate of inflation of consumer prices over the last decade. Thus, in the absence of further statutory controls, the income of successful malpractice claimants-or at least some subset of them-will continue to rise relative to the income of the population as a whole, and relative to the income of other accident victims who are not compensated through the tort system. The optimal structure of tort awards therefore warrants further attention.

21

Appendix BOX 1 Definitions of Some Common Tort Terms Malpractice: “An instance of negligence or incompetence on the part of a professional.”

Economic damages: Funds to compensate a plaintiff for the monetary costs of an injury, such as medical bills or loss of income

Contingent fee: A fee charged by an attorney for his or her services only if the lawsuit is successful or is favorably settled out of court. Usually, the contingent fee is calculated as a percentage of the amount the plaintiff recovers from the defendant.

Collateral-source payments: Amounts that a plaintiff recovers from sources other than the defendant, such as the plaintiff’s own insurance. Under the collateral-source rule, that compensation from other sources may not be admitted as evidence at tr ial.

Negligence: A violation of a duty to meet an applicable standard of care.

Punitive damages: Damages awarded in addition to compensatory (economic and noneconomic) damages to punish a defendant for willful and wanton conduct.

Statute of limitations: A statute specifying the period of time after the occurrence of an injury—or, in some cases, after the discovery of the injury or of its cause—during which any suit must be filed.

Noneconomic damages: Damages payable for items other than monetary losses, such as pain and suffering. The term technically includes punitive damages, but those are typically discussed separately.

Joint-and-several liability: Liability in which each liable party is individually responsible for the entire obligation. Under joint-and-several liability, a plaintiff may choose to seek full damages from all, some, or any one of the parties alleged to have committed the injury. In most cases, a defendant who pays damages may seek reimbursement from nonpaying parties. Chart 1 Time line of Tort Reforms in Texas 1987 Joint and Several Liability Reform: SB 5 (1987). Bars application of the rule of joint and several liability in the recovery of all damages from defendants found to be less than 20% at fault, except when a plaintiff

22

is found to be fault free and a defendant’s share exceeds 10%, and when damages result from environmental pollution or hazardous waste. Prejudgment Interest Reform: SB 6 (1987). Limits the period during which prejudgment interest may accrue if the defendant has made an offer to settle the lawsuit. Punitive Damages Reform: SB 5 (1987). Requires a plaintiff to show that a defendant’s actions were fraudulent, malicious, or grossly negligent. Limits the award of punitive damages to the greater of four times the amount of actual damages or $200,000. 1989 Rural Health Care Act: HB 18 - Effective September 1, 1989 (1989) ▪ requires that juries be instructed that a bad medical outcome does not necessarily justify a finding of negligence; ▪ requires that expert witnesses be practicing physicians; ▪ indemnifies physicians with a case load of 10% or more charity cases. Note: under the Act, OB-GYN's and emergency room physicians would be indemnified for the first $100,000 and all physicians meeting the patient load, risk management and insurance requirements would be indemnified for the first $25,000. 1990 Medical Liability Reform: Wrongful Death: Tex. Rev. Civ. Stat. art. 4590i § 11.02. Limits damages in wrongful death actions to $500,000. The statute originally limited damages in all negligence actions, but the Texas Supreme Court held it unconstitutional except as to wrongful death actions in Rose v. Doctors Hospital, 801 S.W.2d 841 (Tex. 1990) 1993 Forum Non Conveniens Doctrine: SB 2 (1993). Reinstates the forum non conveniens doctrine, which permits a court to decline to hear a case if justice would be better served by trying the case elsewhere. Product Liability Reform: SB 4 (1993). Requires proof of an economically and technologically feasible safer alternative design available at the time of manufacture in most product liability actions for defective design. Provides a defense for manufacturers and sellers of inherently unsafe products that are known to be unsafe. Establishes a fifteen‑year statute of repose for product liability actions against manufacturers or sellers of manufacturing equipment. Provides protection for innocent retailers and wholesalers. 1995 Deceptive Trade Practices Act: HB 668 (1995)

23

refocuses the original law's intent to protect consumers from fraud and deceptive practices. The bill limits recovery to economic damages in most cases, however, damages may be tripled if the seller knew his conduct was fraudulent or deceptive. Frivolous Lawsuits: SB 31 (1995) adopts the model federal rule so that a court may impose penalties when a groundless lawsuit is filed Governmental Liability: HB 383 (1995) provides a $100,000 limit for specified cases of governmental liability Joint and Several Liability Reform: SB 28 (1995). Bars application of the rule of joint and several liability in the recovery of all damages from defendants found to be less than 51% at fault. Prejudgment Interest Reform: HB 971 (1995). Allows prejudgment interest only for damages that occurred before judgment. Punitive Damages Reform: SB 25 (1995): Tex. Civ. Prac. & Rem. Code §§ 41.003, 41.008. Limits the award of punitive damages to the greater of $200,000 or two times the award of economic damages plus non‑economic damages up to $750,000. Requires a plaintiff to show by “clear and convincing” evidence that a defendant acted with malice, defined as the “conscious indifference to the rights, safety, or welfare of others.” Requires the determination of awards for punitive damages to be made in a separate proceeding at the request of the defendant. Venue Reform: SB 32 (1995). Allows a plaintiff to bring a lawsuit where the injury occurred, where the defendant resides, or (if none of those apply) where the plaintiff resided when the injury or harm occurred 1997 Forum Non Conveniens Doctrine: SB 220 (1997). Restores the common-law doctrine of forum non conveniens to allow the court to decline to exercise jurisdiction in an action or claim for personal injury or wrongful death that arose outside of the state. Interlocutory Appeals Reform: SB 453 (1997) Amends the Texas statute to allow an interlocutory appeal for 1) a special appearance, or 2) a jurisdictional challenge over a unit of state or local government before the time and expense of trial have been incurred 1999 Government Retention of Personal Injury Lawyers: SB 113 (1999). Requires that the state attempt to handle all litigation through in-house counsel. Provides that when seeking outside counsel, the contracting agency must first seek an hourly fee arrangement. Provides that contingent fee contracts in excess of $100,000 be approved by a Legislative Review Board. Requires that at the conclusion of contingent fee representation, the state receive a statement of hours worked and total fees recovered. TX Note:

24

In 1999, the Texas Legislature adopted several recommendations of the Texas Supreme Court’s Jury Task Force. These reforms included increasing juror pay from $6 per day to a rate that varies based on the length of jury service, establishing a uniform juror summons and questionnaire form, exempting from jury service those who have served within the past three years, and strengthening civil penalties and adding criminal penalties against employers who fire or threaten employees for performing jury duties. Volunteer Immunity: SB 215 (1999) Provides immunity to licensed health care providers who volunteer their services for or on behalf of charitable organizations Y2K Liability: SB 598 (1999) Provides a two-year statute of limitations and a fifteen-year statute of repose; requires a 60 day cooling off period before a suit may be filed; protects sellers and users who rely on statements that a product or service does not have a Y2K problem; establishes affirmative defenses; requires alternative dispute resolution before trial; prohibits pain and suffering awards, and limits punitive damages, unless the plaintiff can prove by clear and convincing evidence that the defendant committed fraud or malice. 2003 Appeal Bond Reform: HB 4 (2003). Limits the amount a defendant can be required to pay to secure the right to appeal to the lesser of 50% of a defendant’s net worth or $25 million. Provides that defendants are no longer required to post a bond to appeal punitive damages. Provides that foreign judgments cannot be executed in Texas if appeal is pending in a foreign jurisdiction and a bond has been or will be posted. Class Action Reform: HB 4 (2003). Provides for the interlocutory appeal of class action certification. Reforms attorney fees whereby fees are based on time and cost expended rather than a percentage of recovery. Provides for stay on all proceedings during appeal of class certification. Provides for administrative relief which requires a court to consider administrative relief from state agencies before certifying a class. Constitutional Amendment - Noneconomic Damages: H.J.R. 3 (Proposition 12) (2003) Provided that the Texas legislature has the authority to place limits on noneconomic damages. Joint and Several Liability Reform: HB 4 (2003). Defendant pays only assessed percentage of fault unless defendant is 50% or more responsible. Defendants can designate (as opposed to join) other responsible third parties whose fault contributed to causing plaintiff’s harm. In toxic tort cases, the threshold for joint and several liability raised from 15% to 50%. Medical Liability Reform: Noneconomic Damages Reform: HB 4 (2003). Limits the award of noneconomic damages in medical malpractice cases to $250,000 against all doctors and health care practitioners and a $250,000 per-facility cap against health care facilities such as hospitals and nursing homes, with an overall

25

cap of $500,000 against health care facilities, creating in effect an overall limit of noneconomic damages in medical malpractice cases of $750,000. Prejudgment Interest Reform: HB 4 (2003). Sets the prejudgment interest rate to the New York Federal Reserve prime rate, with a floor of 5% and a ceiling of 15%. Product Liability Reform: HB 4 (2003). Provides for a 15 year statute of repose for product liability cases. In cases involving latent diseases, the plaintiff must have been exposed within 15 years of the product’s sale and must show symptoms more than 15 years after the sale. Provides for an innocent seller provision which prohibits actions against non-manufacturing sellers except in specific circumstances such as if the seller participated in the design of the product or knew of the defect at the time of the sale. Punitive Damages Reform: HB 4 (2003). Tex. Civ. Prac. & Rem. Code §§ 41.003. Requires unanimous jury verdict to award punitive damages. Specifies that jury must be so instructed. Venue Reform: HB 4 (2003). Provides that every plaintiff must establish venue independently of every other plaintiff. Mandates dismissal or transfer of any plaintiff who cannot establish venue except upon exception showing. Provides for interlocutory de novo appellate review of order granting or denying transfer or dismissal. Contains a forum non conveniens clause that states that the court must decline jurisdiction if there is a better forum for the suit. 2005 Forum Non Conveniens Doctrine: SB 15 (2005). Restores the discretion of trial court judges to dismiss lawsuits with little or no connection to Texas under the doctrine of forum non conveniens. Jury Service Reform: S.B. 1704 (2005). Increases juror pay in both civil and criminal cases from not less than $6 per day to not less than $40 per day, beginning on the second day of service. The increased compensation is to be financed by a $4 fee placed on individuals convicted of a crime. Provides prospective jurors with one automatic postponement from service, in which case service must be rescheduled within six months after the date of the original summons. Obesity Litigation Reform: HB 107 (2005) Exempted from civil liability trade associations, livestock producers, agricultural producers and manufacturers, sellers, marketers, distributors, and advertisers of food (as defined in 21 U.S.C. 321 (f);(g);(i)) for claims arising out of weight gain, obesity, a health condition associated with weight gain or obesity, or other generally known conditions allegedly caused by or allegedly likely to result from long-term consumption of food. This liability exemption includes actions brought by a person other than the individual whose weight gain, obesity, or health condition the action is based. It also includes any derivative action brought by or on behalf of any individual or any representative, spouse, parent, child, or other relative or individual. The liability exemption does not apply for a violation of federal or state

26

law applicable to the manufacturing, marketing, distribution, advertising, labeling or sale of food and the violation was committed knowingly and willfully. The liability exemption also does not prohibit an action from being brought under Chapter 431, Health Safety Code; or by the attorney general under Section 17.47, Business & Commerce Code. Provided that discovery and all other proceedings shall be stayed during a motion to dismiss. Settlement Credits Reform: SB 890 (2005) Restored dollar-for-dollar settlement credit in a multiple defendant civil action. Table 1

Selected Tort Reforms Enacted Since 1986

Type of Reform

Number of States

Summary States That Have Enacted the Reform

Modify Joint-and-Several Liability

38 States have based the amount for which a defendant can be held liable on the proportion of fault attributed, but the formulas differ substantially from state to state. In addition, most of the reforms apply to specific types of torts or have other restrictions.

Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Idaho, Illinois, Iowa, Kentucky, Louisiana, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oregon, Pennsylvania, South Dakota, Texas, Utah, Vermont,

27

Washington, West Virginia, Wisconsin, Wyoming

Modify the Collateral-Source Rule

25 Typical reforms either permit evidence of collateral-source payments to be admitted at trial, allow awards to plaintiffs to be offset by other payments, or both.

Alabama, Alaska, Arizona, Colorado, Connecticut, Florida, Georgia,* Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas,* Kentucky, Maine, Michigan, Minnesota, Missouri, Montana, New Jersey, New York, North Dakota, Ohio, Oklahoma, Oregon

Limit Noneconomic Damages

23 The caps range from $250,000 to $750,000. More than half of the reforms apply to torts involving medical malpractice.

Alabama,* Alaska, Colorado, Florida, Hawaii, Idaho, Illinois,* Kansas, Maryland, Michigan, Minnesota, Mississippi, Montana, Nevada, New Hampshire,* North Dakota, Ohio, Oklahoma, Oregon,* Texas, Washington,* West Virginia, Wisconsin

Limit Punitive Damages

34 Various types of limits include outright bans; fixed dollar caps ranging from $250,000 to $10 million; and caps equal to a multiple of compensatory awards.

Alabama, Alaska, Arizona, Arkansas, California, Colorado, Florida, Georgia, Idaho, Illinois,* Indiana, Iowa,

28

Table 2 Mal Year

Year The number of lawyers per 1000

Number of Physicians per 1000

GDP per 1000

CPI

1990 1 2.750456 1.491906 22.51645 125.1 1991 2 2.79542 1.537028 22.91233 130.8 1992 3 2.837157 1.579501 23.74816 133.9 1993 4 2.854296 1.619796 24.79656 137.3 1994 5 2.880302 1.657772 26.05711 141.2 1995 6 2.901488 1.693518 27.23023 144.9 1996 7 2.900937 1.727069 28.97814 148.8 1997 8 2.895502 1.758619 31.24531 151.4 1998 9 2.895473 1.788198 32.572 153.6 1999 10 2.874003 1.815752 33.73748 158 2000 11 2.866889 1.833373 35.63777 164.7 2001 12 3.023499 1.862383 36.81782 170.4 2002 13 2.878054 1.890779 36.88045 172.7 2003 14 2.931914 1.920793 38.29672 176.2

Kansas, Kentucky, Louisiana, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, South Carolina, South Dakota, Texas, Utah, Virginia, Wisconsin

29

2004 15 2.946459 1.947977 41.09971 178.7 2005 16 3.047019 1.972473 43.81825 184.7 2006 17 2.986387 1.987671 46.8232 190.1 2007 18 2.972558 1.998615 49.38612 193.245 2008 19 3.023777 2.006746 51.1469 201.791 2009 20 3.027457 2.021732 47.06193 200.544 2010 21 3.0506 2.046601 49.43224 201.624 Data source For this project we mainly use two following sources of data: (The data files is attached in appendix) 1- http://www.tdi.texas.gov/reports/report4.html 2- http://www.npdb.hrsa.gov/resources/publicData.jsp Some clarification for Data Claim Source 1: These reports do not include open claims, or claims not settled under Texas law. Source 2: Based on this data base, medical malpractice claims classified in tree category:

- Claims that lead to payment - Adverse action claims - Reinstatement Restore

Year: Source 1: The data utilized in the preparation of this report includes 5,234 commercial liability closed claims submitted for calendar year 2012 on Quarterly Closed Claim Reports. Source 2: Medical Malpractice Payment and Adverse Action Report totals are based on NPDB aggregate data through every calendar year. Frequency of claims

30

Source 1 Frequency of claims by business classification Source 2: This data bank show us the number of medical malpractice claims, as a result we define two kind of frequency for medical malpractice claims: Medical malpractice claims/ population Medical malpractice claims/ physician’s population We have these data from 2003 to 2013. Severity of claims Source 1:

1. Payment amount in this report refers to the amount paid by the primary carrier on line 12 A.1 of the Quarterly Closed Claim Reports. Settlement amount refers to the amount paid by all parties on line 12 A.7 of the Quarterly Closed Claim Reports. The settlement amount may include payments from other insurers, the insured, excess carriers, and other defendants that may not submit closed claims due to the reporting requirements.

2. AVERAGE CLAIM PAYMENT

Source 2

It classified the payments amount in 7 group of: 0-45 Thousand $ 50-99 Thousand $ 100-249 Thousand $ 250-499 Thousand $ 500-999 Thousand $ 1000-1999 Thousand $ 2000+ Thousand $ and shows us how many claims paid in every group. Also based on the SPSS files that we download from DataBank website we only have payments of the claims from 2003 to 2014. As you can see there are many differences between data from two databases, based on these differences we can only compare the trend of these data and we cannot compare them point-by-point.

31

Some potential factors that affect the project Based on source 1 - Classification of the claims in two group of:

Short Forms – Indemnity settlements over $25,000 but less than $75,000

Long Forms – Indemnity settlements of $75,000 or more

(Note that this criteria changed in 2009)

(Note that usually non-economic losses are more in long forms in compare to short forms.)

- Classification of the claims in two group of:

Single-party claims- single defendant cases

Multi-party claims- more complex cases that involve multiple defendants

- Classification of the claims in two group of:

Claims that involve law attorney and courts

Claims that don’t involve law attorney and courts

(Note the first case has more payment amount and non-economic losses)

Based on source 2

The physicians can be classified in two groups of

MD (medical doctor regard the body part by part)

32

OD (osteopathic medicine regard the body as an integrated whole)

The medical malpractice claims can be raised from these classification of physicians:

Nursing Adv. Practice Nurse Licensed Nurse Nursing Para-Professionals Registered Nurse Therapeutics Clinical Social Worker Psychologist Therapists & Counselors Dental Dentist Dental Hygienist/Asst. Chiropractor Optometrist Pharmacist Physician Assistant Podiatrist Technicians & Assistants

Other

(based on client as Chiropractor and… are not obliged to report the claims, so the data is not accurate and we do not consider them)

Data - Number of the claim: Sum of the claims in each year - Rectype: Record Type:

33

M Malpractice Payment (format used prior to 1/31/2004) P Malpractice Payment (format first used 1/31/2004)

- Work city TX (Texas)

- LICNFELD

Practitioner's Field of License, [Note: Reporting is required for malpractice payments made for all practitioners regardless of their field of license; reporting is required for adverse actions (other than exclusions) only for practitioners in license fields 10 through 35 (physicians and dentists).

If only consider physicians:

Codes will be:

Physicians

10 Allopathic Physician (MD)

15 Phys. Intern/Resident (MD)

20 Osteopathic Physician (DO)

25 Osteo. Phys. Intern/Resident (DO)

- ALEGATN1

First Specific Malpractice Act or Omission Code

- MALYEAR1

Accident year (the year that they report the accident)

34

- Payment

Amount of reported payment. This is the amount of the specific payment that led to the filing of this malpractice payment report.

Data should be from 1991-2010

Severity = Payment/number of the claims

Tort reforms

Year Tort Reforms Related to medical malpractice

1990 - Medical Liability Reform

- Medical Liability Reform

1991 1992

1993

- Forum Non Conveniens Doctrine: SB 2 (1993)

- Product Liability Reform: SB 4 (1993).

1994

1995

- Deceptive Trade Practices Act: HB 668 (1995)

- Governmental Liability: HB 383 (1995)

- - Governmental Liability: HB 383

(1995) - Joint and Several Liability

Reform: SB 28 (1995). - Prejudgment Interest Reform:

HB 971 (1995). - Punitive Damages Reform: SB 25 - Venue Reform: SB 32

- Prejudgment Interest Reform: HB 971 (1995).

- Punitive Damages Reform: SB 25

1996

1997

- Forum Non Conveniens Doctrine: SB 220

- Interlocutory Appeals Reform: SB 453

1998

1999

- Government Retention of Personal Injury Lawyers: SB 113 (1999).

- Volunteer Immunity: SB 215

35

- Y2K Liability: SB 598 (1999) 2000 2001 2002

2003

- Certificate of merit - Appeal Bond Reform: HB 4

(2003) - Class Action Reform: HB 4

(2003). - Constitutional Amendment -

Noneconomic Damages: H.J.R. 3 (Proposition 12) (2003)

- Joint and Several Liability Reform: HB 4 (2003).

- Medical Liability Reform: Noneconomic Damages Reform: HB 4 (2003).

- Prejudgment Interest Reform: HB 4 (2003).

- Product Liability Reform: HB 4 (2003).

- Punitive Damages Reform: HB 4 (2003).

- Venue Reform: HB 4 (2003).

- Certificate of merit - Appeal Bond Reform: HB 4

(2003) - Constitutional Amendment -

Noneconomic Damages: H.J.R. 3 (Proposition 12) (2003)

- Medical Liability Reform: Noneconomic Damages Reform: HB 4 (2003).

-

2004

2005

- Forum Non Conveniens Doctrine: SB 15 (2005).

- Jury Service Reform: S.B. 1704 (2005).

- Obesity Litigation Reform: HB 107 (2005)

- Settlement Credits Reform: SB 890 (2005)

2006 2007 2008 2009 2010

2011

- Barratry - Early Offer of Settlement

Trespasser Liability Reform

- Early Offer of Settlement

2012

2013 - Asbestos Inactive Docket

36

Tort

Reform

Number year

Prejudgment Interest Reform: HB 971 (1995). 1 1995

Punitive Damages Reform: SB 25 2 1995

Certificate of merit

3 2003

Appeal Bond Reform: HB 4 (2003) 4 2003

Constitutional Amendment - Noneconomic Damages: H.J.R. 3 (Proposition 12) (2003)

5 2003

Medical Liability Reform: Noneconomic Damages Reform: HB 4 (2003).

6 2003

Early Offer of Settlement 7 2011