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A US Chamber Institute for Legal Reform study by NERA finds (no surprise) that the US legal system is the most costly in the world, even when one accounts for the difference in social-insurance programs between American and Europe. Of interesting note: UK legal expenses are up 47% in the last three years, though still substantially cheaper than the US. More: Fisher @ Forbes; Sunday Times ($); related: Zywicki @ Volokh on auto safety.

I'd like to see the full report, because even the figure of an extra 1% of GDP going to excess legal expenses relative to Europe is likely an understatement. A 2011 edition of a similar report by NERA didn't include the expense of securities litigation, where much of the money goes to attorneys (and a disproportionate share of the proceeds goes to institutional investors at the expense of small shareholders). (Update: here it is, and, indeed, the 0.82 to 1.03% estimate is very definitely an underestimate.)

While the trial bar argues the expense of the liability system as a deterrent to make medicine and consumer products safer, I'm not aware of any evidence that Europe is less safe than the US. For example, though Germany has both an Autobahn without speed limits and a much higher percentage of mini cars like the "Smart," in 2005, their auto fatality rate was 7.8 deaths per billion km travelled versus 9.1 in the United States the same year. New Zealand has no medical-malpractice cause of action at all, and there is no evidence that patients there are being butchered as a result. And fear of liability and overcautious pharmaceutical regulation is likely costing lives at the margin.


This morning, the Manhattan Institute released my latest finding in the Proxy Monitor series: 2013 Proxy Season Underway: JPMorgan Chase Chairman vote looms large in busy May proxy season. As of May 3, 175 of America's 250 largest publicly traded companies, tracked in the ProxyMonitor database, had filed proxy documents and 72 of these had held annual meetings. In addition to summarizing proxy submission and voting results to date, I look at JPMorgan Chase's looming --and widely publicized--May 21 annual meeting, in which shareholders will consider a proposal sponsored by the pension fund of the American Federation of State, County, and Municipal Employees (AFSCME) to separate the bank's chairman and CEO positions, which the market may read as a referendum on the leadership of incumbent chairman and CEO Jamie Dimon--and which may, if the board reacts to the vote by stripping him of his chairmanship, prompt Dimon to leave the bank he steered ably through the financial storm.

Key statistics on filings to date include:


A new study's abstract says that it finds that a "physician's years in practice and previous paid claims history had no effect on the odds" of a payout of more than a million dollars to a plaintiff—supporting my contention that, at the margin, the status quo medical malpractice system is largely random and does more to deter practice than malpractice. The authors don't seem to realize this implication of their finding, but only the abstract is available publicly. [JHQ via Torts Prof]

Related on POL: January 2005; April 2011.


Black/Hyman/Silver have a new draft paper, "Does Tort Reform Affect Physician Supply? Evidence from Texas," (via Robinette) that substantially undermines the empirical case for the conventional wisdom that Texas's 2003 reforms against medical malpractice lawsuits attracted more doctors to Texas. The result is highly counterintuitive: after all, even the authors acknowledge that the reforms dramatically decreased malpractice expenses for doctors. Are we to conclude that doctors do not respond to economic incentives?

Alas, the authors do not suggest any explanation for the phenomenon they describe. Possibilities:

  • The supply of doctors is inelastic relative to after-expense income. This is a testable hypothesis, and would have dramatic implications for "bending the cost curve" of health-care expenditures if true.
  • Employers of doctors offset the decrease in medical-malpractice expenditures by decreasing wages paid to doctors. This seems somewhat implausible, as many doctors are independent, and the ones that aren't probably aren't paying for their own malpractice insurance. But it is also a testable hypothesis. Too, if the health-care market in Texas responded to such a wage decrease by reducing costs to patients (or, at least, reducing costs to patients relative to the nationwide trend of rising costs to patients), that is also worth studying, and would be a benefit that may refute the overstated conclusion of the authors that "tort reform is a small idea, when it comes to the larger and linked questions of health care access and affordability."
  • The quantity of doctors did not increase, but the doctors responded to the incentives by changing the mix and quality of services provided in any given year: more OB/GYNs willing to deliver babies rather than restricting themselves to less risky work; more doctors willing to work in emergency rooms; doctors spending more time seeing patients and less time in medical-malpractice-related activities like defending themselves in lawsuits, cover-your-ass documentation, and (for better or worse) defensive medicine. If the average practicing doctor is spending more hours with patients post-tort-reform than pre-tort-reform, doctor supply is increasing, even if the raw numbers aren't. I am not aware of any evidence for this, but economic theory would predict this result. It's not clear whether the data exists to test this hypothesis, but as in the parable of the drunk looking for his lost keys under the streetlamp, one should avoid drawing conclusions that contradict economic theory just because it is too difficult to test an alternative hypothesis consistent with economic theory. Too, if defensive medicine practices changed, as one predicts they would, have health outcomes changed for better or worse? (Professor Silver has argued elsewhere his concern that Texas doctors would take less care post-reform.) Again, this is difficult to test, especially since the adverse consequences of many defensive-medicine decisions, such as excessive CAT scans, won't be known until the additional cancers show up decades later. But it is both a potential benefit and a potential cost of tort reform, as we don't know to what extent doctors are properly weighing benefits and costs (including opportunity costs of more intensive treatment of a particular patient) at the margin. Kessler's study, backed to a lesser extent by the CBO, certainly suggests defensive medicine is wasted money at the margin in the state of the world without damages caps, but defensive medicine is surely different today than in the 1980s.
  • For many doctors with low-risk practices, malpractice liability is not a large factor in their practice decision. But the malpractice liability crisis most heavily hit high-risk practices, like neurosurgery or OB/GYN or emergency-room care. Did Texas tort reform materially affect the supply of doctors in high-risk specialties, while the effect on low-risk specialties was overwhelmed by noise? This should be a testable hypothesis, but the data is poor because of a change in the way statistics were collected. The authors try to get around this by comparing 1997-2000 growth to 2008-2010 growth, but there's not necessarily a reason that one would predict a post-tort reform world to have a different post-equilibrium effect than a pre-tort reform world. One cannot rule out the hypothesis that doctors overreacted to the new incentive when tort reform was first imposed and that depressed new demand in later years. Of course, one cannot rule out the null hypothesis that a dramatic decrease in malpractice-insurance rates caused by tort reform did not increase the supply of high-risk doctors, though, again, one wishes for an alternative explanation for why doctors are not responding to economic incentives. (Note, too, that the authors' decision of excluding 2001-07 from the data has dramatic effects on the data. It's unclear to me why a reporting change in 2001 that would artificially increase the 2001-02 numbers relative to the 1999-2000 numbers should have an effect on the 2003-07 numbers, especially given the 2000-2003 declines that are being excluded.)

Can anyone think of other alternative hypotheses in the comments?

I remain skeptical that a wealth transfer from lawyers to doctors and patients didn't have positive externalities, but I, for one, am going to stop claiming that Texas tort reform increased doctor supply without better data demonstrating that. More study is needed to explain Black/Hyman/Silver's counterintuitive result, and partisans on both sides need to be more conservative with their policy claims. Earlier.


Despite the president's promise that "you can keep your own insurance," key PPACA provisions are calculated to undermine the long-term viability of the private insurance market, by making existing coverage unaffordable or unavailable at any price. Indeed, while individuals may technically be allowed to keep their plans, that protection exists in name only. Plan serial numbers may temporarily remain the same, but the PPACA's combination of high taxes, large subsidies, and extensive mandatory contractual terms seems likely to eventually drive most private insurance plans out of business.

So say Richard Epstein and David Hyman in a new report on the Patient Protection and Affordable Care Act for the Manhattan Institute, "Why Obamacare will End Health Insurance as We Know It." PPACA not only drastically changes the entire face of the health insurance market, but will eventually be the death knell of employer-based private insurance, the two argue.


I'd encourage everyone who hasn't done so to read in full my exchange with Cato adjunct scholar Shirley Svorny discussing her recent policy analysis, Could Mandatory Caps on Medical Malpractice Damages Harm Consumers?

In her final comment, Svorny says "[w]hether the costs of the [medical-malpractice tort] system are greater than the benefits is not something we have a handle on." But that is the wrong question, since no one is feasibly advocating eliminating medical malpractice liability altogether: the policy question, as any economist should know, is whether the marginal costs of the system exceed the benefits. If so, then reforms at the margin that reduce liability will have benefits exceeding the costs. As I explained in my contributions to the debate, I believe that such marginal cost-benefit improvements do in fact flow from medical malpractice caps for noneconomic damages: such caps reduce inaccuracy of the system, reduce the incentive to bring low-merit cases, and send a better signal to doctors about the relative likelihood of being sued for malpractice versus being sued for malpractice wrongfully. (Thus, Svorny misstates my position when she says "Frank is convinced that the costs of the current system outweigh the benefits"; I am only claiming that this is the case at the margin.)

But Svorny's concession that she doesn't know even as an absolute matter whether the benefits of liability in toto exceed the costs is really extraordinary. In this debate, she says she cannot opine whether we would be better off if we abolished malpractice liability altogether. But abolishing medical malpractice altogether is a cap of zero, a far more radical cap than the one she condemns in her paper and in the Huffington Post, where she made widely-repeated claims that non-economic damage caps for medical malpractice cases were a bad idea. In this exchange, she has effectively acknowledged she has no basis for that unequivocal policy prescription that has headlined the discussion of her paper. I hope Cato prints a retraction, given that without it, that paper's non sequitur conclusion is destined to be misused to distort the debate for years to come.


On October 20, our friends at the Cato Institute published a study by Cato adjunct scholar Shirley Svorny claiming that existing empirical evidence suggests that "medical malpractice awards do track actual damages" and that noneconomic damage caps and other "policies that reduce liability or shield physicians from oversight by carriers may harm consumers." An economics professor at California State University, Northridge, Svorny has since publicized her findings in outlets such as the Huffington Post, in which she not only argued against the medical-malpractice reform provision of the Jobs Through Growth Act but also suggested that "[r]educing liability, as caps do, is rarely a good idea in any situation."

Needless to say, Svorny's position is at odds with that we've generally taken here at Point of Law (see back posts here), including our former editor, Svorny's Cato colleague Walter Olson (see, e.g., here, here, here, here). (See also this seminal contribution by MI visiting scholar Richard Epstein and this Manhattan Institute study by libertarian economist Alex Tabarrok.)

This week, Professor Svorny has graciously agreed to come to Point of Law to discuss her paper with MI adjunct fellow and PoL editor Ted Frank. The featured discussion will be available here; please check back throughout the week as the discussion continues.

Join the debate! Please send your questions and commentary via Twitter, #PoLdiscussion.


A Center for Justice & Democracy study complains that "new media" overreports big-money plaintiffs' verdicts, while failing to report on all the small-money verdicts and losses. This strikes me as akin to complaining that there was a lot more tweeting about David Freese's World Series walk-off home run, when there are far more Little Leaguers who pop out to shortstop. Of course the news stories that are interesting and novel are going to get more attention than the events that are routine. Readers don't want to read about $15 thousand traffic accident cases, even if there are many more of them than multi-million-dollar propofol cases. Nor should they: the latter has real public policy consequences from trial lawyers putting profits ahead of people, while most traffic-accident cases do not.

So far CJD is doing nothing but identifying the obvious. But then, in its typically shoddy fashion, CJD draws conclusions that its data do not support. As I point out in an interview with Fair Warning, CJD's complaint about shorthand media reports does not support its conclusion that the result is to prejudice plaintiffs and the civil justice debate.

For example, CJD complains that newsrooms fail to mention that caps will reduce verdicts in many cases. But this is hardly a conspiracy by corporate media to promote an image of jackpot justice. It's plaintiffs' lawyers who are using the big (and often ultimately unsustainable) verdicts to draw business to themselves. For example, in Ernst v. Merck, as I pointed out contemporaneously, Mark Lanier's $253 million verdict could not possibly stand under Texas law's caps; indeed, as I predicted at the time, the entire judgment was thrown out for trial shenanigans. But Lanier disingenuously told reporters for over a year that he didn't think caps would apply to his verdict, and stalled the eventual appellate reversal so that he could use the publicity from the megaverdict to sign up thousands of clients that plaintiffs' lawyers ultimately turned into a multi-billion dollar settlement against an innocent defendant. Lanier's loss in Ernst, and the fact that Merck was victimized by thousands of fraudulent cases, didn't get a fraction of the publicity of the initial flawed jury verdict. That sort of analysis is absent from the one-side CJD "study."

Similarly, the exoneration of Toyota in the trial-bar's ginned-up sudden-acceleration hysteria got a fraction of the publicity as the original false claims of the trial bar; Jamie Leigh Jones's false accusations got much more promotion than the fact that they contradicted the evidence and a jury quickly rejected them. Teva and other propofol manufacturers are being dragged through the mud in the coverage of the Nevada litigation over propofol misuse, while the unfairness of that litigation gets a fraction of the coverage, and almost never mentioned in the stories about the big verdicts themselves. Susan Saladoff's dishonest documentary on the McDonald's hot coffee case has a far bigger footprint on the web than the truth about why the case is frivolous. (Ironically, Wyzga does a mea culpa for taking the CJD study on faith without considering the other side of the story, and then repeats the mistake with "Hot Coffee" in the next blog post.) conclusions on faith without considering the other side, and The media is far more likely to report sympathetically about litigation as a David-and-Goliath story when, in fact, the trial bar is wealthy and politically connected, and willing to use that power to extract wealth using trumped up allegations that fail to distinguish the innocent from the guilty. Again, this sort of analysis is absent from the CJD paper. The legal establishment promotes CJD's dishonest blog, while debunking websites are ignored.

Yes, media coverage of the civil justice system can be sensationalistic and skewed (as is the media's coverage of most events). But it's corporate defendants that bear the brunt of it.


A study by BU Law professors James Bessen and Michael Meurer (via a good Popular Mechanics article via @normative) analyzes stock market events associated with patent troll litigation, and comes up with a $500 billion estimate for lost wealth. But less than 10% of this reflects wealth transfers to the patent trolls themselves. The authors theorize that the difference reflects lost innovation incentives, but it's hard to see why that wouldn't be reflected in companies' stock prices already: are investors that unaware of the patent thicket ex ante, before the lawsuit is filed? And if they are, why do we believe the market is efficient in predicting the effects of patent litigation on market value? If one smartphone manufacturer is sued by a patent troll claiming a blocking patent, shouldn't we expect the rest of the smartphone market to face similar problems?

Certainly the existence of a patent lawsuit means costs to a defendant beyond the eventual damages or license fees; there are the costs of attorneys, there's lost executive and engineer time sitting in depositions and engaging in other litigation tasks instead of productive activities. There's increased cost of capital from the overhang of the threat of litigation. And, yes, at the margin, there's decreased innovation incentives. But much of this should have been captured in the existing stock prices (and, for that, reason, any study estimating the costs of litigation based on stock market events will systematically fail to count existing depression of stock prices; the authors themselves note that their study doesn't capture the losses to privately-traded firms). If market values are really declining ten times as much as what is eventually paid out to the trolls themselves suggests to me what I've said in other circumstances: markets underestimate litigation risk before litigation is filed and overestimate litigation risk once litigation is filed and plaintiffs' lawyers and their agents start inserting self-serving information into the marketplace. This is a great data set: I'd love to see if companies facing stock shocks from being sued by patent trolls then outperform peers in the long run because the market overreacts to the realized threat of litigation.

It would not surprise me if patent trolls do cost the economy as much as $500 billion or more. I don't think this paper dispositively demonstrates that. Much of the loss from patent litigation and the threat of patent litigation (which would include resources diverted to defensive patent filings) is unmeasurable, mostly because we cannot observe the but-for world where incentives are better aligned to see what consumer surplus we're missing from depressed innovation.


A new report by Josh Wright finds, says the Pennsylvania Record,

that Philadelphia courts host an especially large number of cases and have a larger docket than expected; Philadelphia plaintiffs are less likely to settle than plaintiffs in other state courts; and Philadelphia plaintiffs are disproportionately likely to prefer jury trials.

"These findings are consistent with a conclusion that Philadelphia courts demonstrate a marked and meaningful preference for plaintiffs, consistent with both the Complex Litigation Center's intention of inviting 'business' from other courts and criticisms that Philadelphia's courts provide a unique combination of advantages for plaintiffs," the study states.

The Complex Litigation Center handles mass tort cases such as asbestos lawsuits and other drug litigation or similar cases. It was designed to streamline mass tort cases and simplify resolution, but instead seems to have created a climate "inviting" to business from plaintiffs in other jurisdictions, the study states.

"While this may provide additional work for Pennsylvania lawyers, it also increases the cost of operating the civil justice system in Philadelphia and Pennsylvania more generally - a cost borne by the state's consumers and businesses," Wright's study concludes.

H.B. 1552, pending in the Pennsylvania legislature, would require suits to be filed in the county where the injury occurred. Plaintiffs' lawyers claim that the bill is unconstitutional because the legislature doesn't have authority to regulate civil procedure.