In this study we examine the experience of a single large hospital with an
informal pre-litigation “complaint” process that resolves some cases outside of the legal
system. The empirical results are generally consistent with an information structure where
patients are poorly informed about the quality of medical care and the hospital does not
know whether particular patients are litigious or not. The complaint process seems to
resolve many complaints in a less costly manner than filing lawsuits. Almost half of all
complaints are resolved before a lawsuit is filed. The large majority of these are dropped,
and they are cases that would likely have been dropped even if they had been initiated as
lawsuits. Very few cases are settled with a cash payment to patients before a lawsuit is
filed, suggesting that patients must file lawsuits in order to convince the hospital that they
are litigious enough to justify a settlement. Cases initiated through the complaint process
are not resolved (dropped, settled, tried to a verdict) significantly differently from cases
initiated as lawsuits, controlling for observable case characteristics. When settlements
of lawsuits occur, the amounts paid do not vary depending on how the case originated,
but settlements of complaints are much higher for cases settled after a lawsuit is filed.
We conclude that the complaint process is a cost-effective “front-end” for the litigation
process that provides information to patients regarding the quality of their medical care
and, hence, the likelihood of negligence.