Medical Malpractice Lawsuits: The Role of Measurement in Management
Medical Malpractice Lawsuit: “Whatever is measured is managed” is a fundamental principle in management science. Nowhere is this more evident than in a small, once-prominent reciprocal insurance company in Washington, D.C. This company, which insured two-thirds of the city’s doctors, ultimately collapsed by 2004.
By 2001, its downfall was imminent. Rated “AMB3” by AM Best, it had only an “adequate” ability to meet short-term financial obligations. A closer look at its claims-handling strategy reveals why. That year, the company litigated 20 cases and settled only two, reflecting a 10:1 litigation-to-settlement ratio. Of those 20 cases, five (25%) resulted in plaintiff verdicts, 13 (65%) in defense verdicts, and two in mistrials. The total claim cost soared to $6.7 million, driven largely by excessive and avoidable legal expenses resulting from its reluctance to settle.
This $6.7 million figure takes on greater significance when viewed in relation to the claims-to-premium ratio, the most critical metric in the malpractice insurance industry. While the company disclosed its claims costs, it did not reveal this ratio. However, for any malpractice insurer, controlling this ratio is essential to long-term viability. AM Best likely recognized the issue, which contributed to its low rating.
The Broader Malpractice Insurance Landscape
Medical Malpractice Lawsuit: By 2015, 15 of the top 25 medical professional liability insurers reported $5.3 billion in premiums and an average claims-to-premium ratio of 1.6. This equated to $8.8 billion in claims. If this was considered successful, it is no surprise that smaller insurers struggled. However, this also raises a key question: Is the claims-to-premium ratio a meaningful measure of success, or merely an outcome that fails to influence management decisions?
To control this ratio, insurers must effectively manage claims costs. Identifying the primary cost-driver is crucial—the variable most responsible for influencing costs, measured in dollars per unit of that variable.
The Root of the Malpractice Crisis
Medical Malpractice Lawsuit: This crisis traces back to 1975, when researchers at the University of California’s School of Health Policy and Management conducted a statistical analysis of “proximate cause” in medical malpractice cases. Their study found that departures from standards of care, or “fault,” correlated with injury. However, correlation does not equal causation, and bias frequently distorts legal outcomes. The two primary sources of bias? Expert witness testimony and the legal threshold of “preponderance of evidence.” Both can obscure the distinction between random chance and true causation.
Their findings exposed a fundamental flaw: proving or disproving causation under these conditions lacked scientific reliability. As a solution, they recommended replacing litigation with a “no-fault medical liability insurance” system.
Additionally, the researchers introduced the “coefficient of causality,” a statistical measure that determines with 95% confidence whether a medical intervention directly caused an outcome. This metric offers a scientifically valid way to assess malpractice claims.
The True Cost-Driver: Expert Witness Error
This 1975 study not only validated my decision-making model but also pinpointed the primary cost-driver: errors in expert witness testimony. While deviations from standards of care do cause harm, proving causation with scientific certainty has remained elusive. The “coefficient of causality” addresses this by establishing “dollars per error-prone opinion” as the true cost-driver. Now, departures from care standards and proximate cause can be demonstrated—or refuted—with 95% confidence. By measuring expert witness errors, insurers can control claim costs and, in turn, the claims-to-premium ratio.
My decision-making model achieves the same goal. It distinguishes arguments supported by 95% confidence from those based on mere probability. The cost of ignoring this research for five decades? An estimated $2.5 trillion—equivalent to $1,550 per person in the U.S. annually. Continuing to disregard it could lead to even greater financial consequences, potentially jeopardizing the future of health care.
If you are a physician, you have insurance. At some point, you will be—or have already been—sued. This issue demands your attention.
Join the Movement
Stanford Physician Advocate is dedicated to reshaping health care policy and advancing patient-centered reforms. Visit StanfordPhysicianAdvocate.org to engage in the conversation, support advocacy efforts, and stay informed on the latest developments in health policy.