Curbing medical malpractice claim costs amid social inflation

May 25, 2023

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Today’s industry professionals are very familiar with the phenomenon of social inflation, in which insurers’ claim costs increase faster than general economic inflation. In the medical malpractice space in which my team operates, I’ve observed case values creeping ever higher, especially over the past few years. Outlined below are a few statistics demonstrating these rising costs, as well as some fundamental tactics that Sedgwick’s medical malpractice professional liability team employs to reduce settlement and verdict amounts and overall claims expenses for our valued healthcare clients.

By the numbers

Data firmly support anecdotal evidence of the upward trends. A study released earlier this year found that up to 11% of medical malpractice losses incurred by physician-focused insurers in the U.S. between 2011 and 2021 stemmed from social inflation; this can largely be attributed to rising litigation costs, as plaintiffs pursue nuclear verdicts, or jury awards in the tens of millions of dollars.

Sedgwick’s book of business data shows similar trending. Across over 16,000 medical malpractice claims and suits from hundreds of acute care hospitals and physician group clients since 2017, indemnity for obstetrics rose an astonishing 51%, marking the largest increase. Surgery and diagnosis specialties followed behind, with increases of 8% and 5%, respectively. Additionally, while only 1% of med mal suits proceeded to trial, 91% of those cases resulted in defense verdicts.

These trends pose serious financial threats to the healthcare industry — and particularly to providers in New York, California, Illinois, North Carolina and Minnesota, which have the highest average indemnity payments. However, they need not be taken as foregone conclusions.

Early resolution

Costs increase exponentially when claims develop into lawsuits. Identifying liability cases in the claim stage, before they become suits, and working to pursue early settlement are the most effective ways to control expenses. This approach must be driven by aggressive claims handling, including an early investigation into the facts of the case and a careful review of the pertinent medical records. Cases involving finite damages and clear liability are prime candidates for early settlement; they are easier to resolve in the claim or early litigation stage, before either party has invested significant resources.

A call to the claimant or their attorney early in the processing of the case can help to establish an open dialogue and enable the two sides to reach a satisfactory resolution. Not every case demands an intermediary; many simply require reasonable parties speaking to one another and working together toward a mutually amenable agreement.

Mediation and arbitration

On the other hand, there are times when it helps to bring in a neutral third party. Mediation and arbitration are two forms of alternative dispute resolution (ADR) designed to settle conflict without a long and costly court case. A mediator works to foster collaboration so the two parties can reach a resolution, while an arbitrator considers both sides and makes an independent final decision (whether binding or non-binding).

Undertaking these efforts should not imply that either party doesn’t believe in the strength of their case. Rather, they are means of negotiation and compromise, in the hopes that a resolution can be reached without either party spending time and money on legal discovery. It’s not uncommon for insureds and claimants to come in with unrealistic expectations; oftentimes, an agreed-upon neutral party can bring both sides together.

Sedgwick’s book of business data shows that the average life of a closed matter has decreased 7%, from a high of 3.12 years in 2020 to 2.90 years in 2022. The reopening of court proceedings following COVID-related closures in 2020-21 may have contributed, but we are also hopeful that aggressive claims handling continues to drive these numbers down.

Motion practice and litigation management

If a case cannot be resolved pre-suit, assertive motion practices and litigation management may be warranted. Successful litigation management includes early retention of experts, aggressive investigation, timely evaluation by defense counsel, and knowing when there is sufficient information to make decisions regarding case resolution.

Many plaintiff attorneys today use the “reptile theory” to influence jurors’ decision-making by appealing to their emotions and fears (invoking their primitive “reptilian” brains), rather than the factual circumstances of the case at hand. In medical malpractice cases, plaintiff’s counsel may, for example, focus on safety protocols instead of standards of care or push a defendant to admit that patient safety is the primary duty of a medical provider. These tactics must be countered by the defense team.

There is no established case law that serves to outlaw plaintiff counsel’s application of the reptile theory, but some judges will rule in favor of the defense in order to prevent its misuse. This requires a practice called “motions in limine,” which permits a party to obtain a preliminary order or ruling before or during the trial that excludes the introduction of anticipated inadmissible, immaterial or prejudicial evidence and limits the use of such evidence. An aggressive approach to the early filing of motions in limine puts plaintiffs on notice that the defense is not willing to allow such inflammatory evidence to be a determining factor as the case moves towards resolution.

These are just a few of the strategies that Sedgwick’s medical malpractice professional liability (PL) team uses to support healthcare clients in keeping their claim and litigation costs in check during this period of social inflation. If we can assist your organisation, please contact us at [email protected].

Special thanks to Michael Brendel, Lynn Gmeiner and Tim Over from Sedgwick’s PL operations for their valuable contributions to this blog.

Learn more — explore our professional liability solutions for medical malpractice, and read up on trends in claim litigation in our commentary paper and this article from our digital magazine, edge