Free market magic

by Ron Coleman on July 9, 2007

You can make these things up — economists do it all the time — but it’s a lot more compelling when they really happen (link added):

An influx of doctors lured to Texas by new limits on malpractice lawsuits has overwhelmed the state board that screens candidates for medical licenses, creating a backlog that forces many applicants to wait months before they can start seeing patients.

Officials said many of the relocating physicians are filling shortages in areas such as Beaumont, where trauma patients previously had to be flown other cities because there weren’t enough surgeons to treat them.

(Italicized part added:)This sounds like great news — more doctors coming back into the system. But who knows? Chances are the plaintiffs’ bar can find a way to spin this as an ominous development — the return of the malpracticers. Now it’s entirely possible that this represents an influx of marginally competent doctors who can’t afford to practice elsewhere because their malpractice premiums are justifiably sky-high. As it is, the article in the Houston Chronicle quoted above says that a simple background check takes 41 days — hence the huge bottleneck — and that more complex histories such as those of veteran or out-of-state doctors will take correspondingly more time. So it doesn’t seem as if the Texas regulatory authorities are lowering the bar too too low.

Indeed, any supply-and-demand interplay where the market is allowed to be distorted by an industry like the insurance business, whose operations seem to defy normal ways of doing business and which is itself hopelessly regulated, is going to be hard to predict.

But in fact, one thing that happened shortly after Texas’s Proposition 12 was passed is that malpractice insurance rates started dropping almost immediately. That’s consistent with reduced financial exposure, but certainly not with an influx of incompetent physicians coming to the “market” (i.e., seeking medical malpractice insurance). The pushmepullyou of the interplay between these things is the sort of thing that makes insurance underwriters such exciting company at a weenie roast, so I won’t even try to have at it.

Again, in any event, this is a stunning example of the invisible hand at work. But surely there is a down side, and not only to med-mal plaintiffs’ lawyers? Of course: Med-mal plaintiffs themselves, who no longer can play in the Texas state court injury lottery. That doesn’t mean other personal injury plaintiffs can’t, unfortunately. But one step at a time.

God forbid anyone reading this or their loved one should be in a position to be seeking damages, economic or otherwise, for medical malpractice. But short of the argument that, well, higher non-economic damages should be available just because they should — or proof, in ten years, that there’s more malpractice in Texas than there was before because of the influx of quack doctors attracted to the free bread crumbs of “easy” med-mal limits — this quacks like a policy that works.


1 Monkey Incognito 07.09.07 at 4:21 pm

I believe the real kicker in prop 12 was the limits on how much attorneys could take from the verdict, not the ability to win a true med-mal case. Actual damages were not limited, only punitive. I do stand to be corrected by wiser heads. /2 cents

2 Deoxy 07.09.07 at 6:48 pm

The limits of Prop 12 were $250K on pain and suffering, $250K on punitives (IIRC), and $250K on something else (sorry, forgot that one).

So, basically, it’s actual damages (lost wages, doctor bills, etc) + to $750K. Hardly miserly, but enough to make “lottery” suits worth defending instead of offering a moderate sum of “protection money” AND mak it not really worth the risk for the attorney (taking a 1-in-50 chance is only worth it when you’ve got 50 of them, and the one that wins pays you all the necessary expenses for all 50 plus a very large chunk of money).

Basically, “good” cases are going to be almost entirely undeterred, and “lottery” cases just won’t give a signiciant ROI to the attorneys.

3 ras 07.09.07 at 9:04 pm

OK, maybe this is just a layman’s dumb q, but why couldn’t a doctor in another state, when he/she takes on a new patient, simply require a contract between the doc and the patient to the same effect as the TX law, caps and all?

4 Canuckistan Bob 07.09.07 at 9:10 pm

The interesting trade off is this: is it better to have a questionable or at least less than perfect doctor, or no doctor at all? (Though presumably med-evac flights out if you are rich enough or insanely lucky enough to have an insurer that will cover it might mitigate.)

The insurer’s attitude is going to be interesting; presumably they have less exposure on the suits, but perhaps more on the medical competencies. Because limiting awards does nothing at all to limit the legal world only demand for perfect doctors each and every time.

What is going to be even more interesting is the reaction in jurisdictions that are losing their doctors. Will there be a race to the bottom?

5 Billy Bob 07.09.07 at 11:02 pm

Given that this is Texas, an injured party can always choose to use his/her .45 to get justice if they are not happy with their options in the legal system. Yee Haw.

6 Jeff Schuster 07.09.07 at 11:17 pm

Did I miss something? The original article did not reference attracting low quality doctors only that there was a back log. How does it jump to low quality doctors?

A Texas doctor for 25 years.

7 Ron Coleman 07.09.07 at 11:37 pm

Yes, Jeff, you missed something, but it could be my fault. I skipped the sentences that said, “This sounds like great news — more doctors coming back into the system. But who knows? Chances are the plaintiffs’ bar can find a way to spin this as an ominous development — the return of the malpracticers.” I’ve changed the post and added this.

I sometimes skip things that I say in my head but which, if I would share, would make for clearer expository writing. Sorry.

8 Bob Smith 07.10.07 at 10:13 am

All in all a good thing, though I think the real fix (not that this would ever happen) is to eliminate the idea that an outcome must be malpractice merely because it was unfavorable. Medicine is not mathematics.

Btw, what’s up with TypeKey? I’ve tried using Overlawyered’s “sign in” link and it consistently won’t work for me on this site, though it does for other sites. I keep getting this message: “The site you’re trying to comment on has not signed up for this feature. Please inform the site owner”.

9 Deoxy 07.10.07 at 11:03 am


1) such contracts are routinely thrown out in court (after the fact, of course)

2) that’s what SHOULD happen, but it is pre-empted by MANY different things, all supposedly to protect the consumer/patient (#1, above)

3) such a doctor, if he were to get past #1 and #2, would be sued out of existence by lawyers (whether they won or not), simply to make sure no one else got that AWFUL idea into their heads.

Basically, it comes down to lawyers running the system.

10 mlhm5 07.10.07 at 11:58 am

Having been in the medical business for 30 years, the cost of malpractice insurance has nothing to do with the number of physicians who want it but the expected losses.

As far as the public, well better not go to a teaching hospital because if you are killed by a resident in training, which is not an unusual occurance, your family will be the one that suffers.

11 ras 07.10.07 at 1:58 pm


Thx for the reply; much appreciated.

12 Steve 07.10.07 at 4:59 pm

mlhm5 –

“if you are killed by a resident in training, which is not an unualy occurance [sic]”

This is a ridiculous statement. As a general rule, teaching hospitals offer very high quality medical care, because they are full of specialists and doctors who are intellectually interested in solving problems and expanding medical capabilities.

13 Tom T. 07.10.07 at 11:49 pm

Ron, I think the point of your post is well-taken, but I think that legislative action to cap transfers in an arena (med-mal suits) that is government-created to begin with can’t really be described in any meaningful way as “free market magic,” but rather would be better characterized as a form of rent-seeking.

This is not meant to say that it’s not necessarily good policy. Virginia, where I live, has long had a cap on med-mal damages, and I don’t know of any serious argument that care here is worse than in other states. Given the subjectivity involved in assessing pain and suffering, I don’t see that there’s anything inherently wrong with a legislature making that determination rather than a jury.

14 Ron Coleman 07.12.07 at 1:06 pm

Tom, your point is well taken , but this is still fundamentally a predictable supply-and-demand equation at work.

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