Tr e n d sThe Growth Of Physician Medical MalpracticePayments: Evidence From The NationalPractitioner Data BankThe growth of malpractice payments is less than previously thought.by Amitabh Chandra, Shantanu Nundy, and Seth A. SeaburyABSTRACT: We used data from the National Practitioner Data Bank (NPDB) to study thegrowth of physician malpractice payments. Judgments at trial account for 4 percent of allmalpractice payments; settlements account for the remaining 96 percent. The average pay-ment grew 52 percent between 1991 and 2003 (4 percent per year) and now exceeds $12per capita each year. These increases are consistent with increases in the cost of healthcare. A preoccupation with data on judgments, extreme awards, or specific specialties re-sults in an incomplete understanding of the growth of physician malpractice payments.Influential trade associations suchas the American Medical Association(AMA) and the Physician Insurers Associ-ation of America (PIAA) have attributed thedramatic increase in physician malpracticeinsurance premiums to the growth in mal-practice payments.1Other factors such as de-clines in insurers’ investment income are ac-knowledged to have contributed to the newmedical malpractice crisis; however, lossesfrom rising malpractice payments are be-lieved to be the primary contributor to thegrowth of malpractice premiums.2To restrictthe growth of payments, both groups advo-cate a nationwide $250,000 limit (cap) onnoneconomic damages, a policy endorsed byPresident George W. Bush.3Support for dam-ages caps is largely driven by the belief thatmalpractice payment growth has been con-centrated in the very largest awards.4Discussions of the malpractice crisis oftenrely on restrictive subsets of malpractice data,so a precise description of the problem is lack-ing. The AMA has drawn attention to trendsin jury verdicts, even though only a small frac-tion of malpractice cases are resolved at trial.5This restriction overstates the size of pay-ments, and by ignoring information on settle-ments, it may drastically understate the over-all burden of malpractice payment. The PIAA’stabulations, while more complete in principlethanthosethatonlyrelyonjuryverdicts,relyon data that are not publicly available. In thispaper we establish new facts on the growth inmalpracticepaymentsmadeonbehalfofphy-sicians by using a national database of pay-ments from judgments at trial and settlementsduring 1 January 1991–31 December 2003.W5-240 31 May 2005Health TrackingDOI 10.1377/hlthaff.W5.240 ©2005 Project HOPE–The People-to-People Health Foundation, Inc.Amitabh Chandra ([email protected]) is an assistant professor of economics at Dartmouth inHanover, New Hampshire; a senior research associate at the Center for the Evaluative Clinical Sciences,Dartmouth Medical School; and a facultyresearch fellow at the National Bureau of Economic Research (NBER).Shantanu Nundy is a medical student at the Johns Hopkins University in Baltimore, Maryland. Seth Seabury is aneconomistattheInstituteforCivilJustice(ICJ)atRANDinSantaMonica,California.Study Data And MethodsnData and study sample. All malprac-tice payments made on behalf of a licensedhealth care provider must be reported to theNational Practitioner Data Bank (NPDB)within thirty days under the Health CareQuality Improvement Act of 1986.6Noncom-pliance is subject to civil penalties codified in42 USC 11131–11152.7The NPDB has informa-tion on 250,137 such payments made between 1September 1990 and 31 December 2003. We re-stricted our sample to the fifty states and ex-cluded payments made for Washington, D.C.;areas with missing state information; andother U.S. territories (N = 3,200). The NPDBbecameoperationallatein1990,sowedeletedobservations in this year (N = 2,132). We ex-cluded payments that were linked to dentists,pharmacists, social workers, or nurses (N =53,538). In a small fraction of payments (n =10,823), there are multiple physician defen-dants (and thus multiple reports) but only thetotal payment by all defendants is reported. Inthese cases, we averaged the payment by thenumber of physicians involved.8In the NPDB, 5 percent of payments aremade by state funds in addition to other pay-ments made by the primary insurer for thesame incident (N = 9,919). We matched suchpaymentsbasedonanalgorithmthatusedphysician identifiers, state of work, state oflicensure, area of malpractice, type of payment(judgment or settlement), and year of occur-rence. We also experimented with using addi-tional data fields to perform this match, butvalues were missing for many of these fields.Fund payments that could not be matchedwere retained in the data (N = 3,822). Becausethese cases were rare, we experimented withdeleting them from the analysis. With the ex-ception of Pennsylvania, which had 5,308 statefund payments (53 percent of all fund pay-ments recorded in the NPDB), our results wereessentially unchanged.Our final sample consists of 184,506 pay-ments made between 1 January 1991 and 31 De-cember 2003 in the fifty states. Ninety-fourpercent of these were for physicians with amedical degree (MDs); the remaining 6 per-cent were for osteopathic physicians (DOs).Each malpractice payment in the NPDB isclassified in ten major categories of liability(such as surgery, diagnostics, obstetrics),which we used for our primary analysis.Data on health care spending for 1991–2002are from the National Health Accounts (NHA)published by the Centers for Medicare andMedicaid Services (CMS).9We converted al lpayment amounts into 2000 dollars using theImplicit Gross Domestic Product (GDP) PriceDeflator.10Finally, data on state and nationalpopulation levels by year for 1991–2003 comefrom the U.S. Census Bureau.11nData quality and the role of the “cor-porate shield.” Most previous studies of mal-practice awards used data from publicationsthat recorded information on jury verdicts inlocal jurisdictions, known as “jury verdict re-porters.” Data from these reporters and theNPDB differ for several reasons, all of whichmake the NPDB better suited to our analysis.First, the reporters are not meant to cover theuniverse of awards; information is collectedonly on jury verdicts in local jurisdictions, andno data on settlements are included. Second,amounts recorded in the NPDB measure theamount of actual payments, not jury awards: Ifa jury awards a plaintiff $1 million, that figureis recorded by a reporter; however, if a mal-practice policyholder has coverage for