Use of Nondisclosure Agreements in Medical Malpractice Settlements by a Large Academic Health Care System

Importance  Honesty and transparency are essential aspects of health care, including in physicians’ and hospitals’ responses to medical error. Biases and habits associated with medical malpractice litigation, however, may work at cross-purposes with compassion in clinical care and with efforts to improve patient safety.

Objective  To determine the frequency of nondisclosure agreements in medical malpractice settlements and the extent to which the restrictions in these agreements seem incompatible with good patient care.

Design, Setting, and Participants  We performed a retrospective review of medical malpractice claim files, including settlement agreements, for claims closed before (fiscal year 2001-2002), during (fiscal year 2006-2007), and after (fiscal years 2009-2012) the implementation of tort reform in Texas. We studied The University of Texas System, which self-insures malpractice claims that involve 6000 physicians at 6 medical campuses in 5 cities.

Main Outcomes and Measures  Nondisclosure provisions in medical malpractice settlements.

Results  During the 5 study years, The University of Texas System closed 715 malpractice claims and made 150 settlement payments. For the 124 cases that met our selection criteria, the median compensation paid by the university was $100 000 (range, $500-$1.25 million), and the mean compensation was $185 372. A total of 110 settlement agreements (88.7%) included nondisclosure provisions. All the nondisclosure clauses prohibited disclosure of the settlement terms and amount, 61 (55.5%) prohibited disclosure that the settlement had been reached, 51 (46.4%) prohibited disclosure of the facts of the claim, 29 (26.4%) prohibited reporting to regulatory agencies, and 10 (9.1%) prohibited disclosure by the settling physicians and hospitals, not only by the claimant. Three agreements (2.7%) included specific language that prohibited the claimant from disparaging the physicians or hospitals. The 50 settlement agreements signed after tort reform took full effect in Texas (2009-2012) had stricter nondisclosure provisions than the 60 signed in earlier years: settlements after tort reform were more likely to prohibit disclosure of the event of settlement (36 [72.0%] vs 25 [41.7%]; P < .001), to prohibit disclosure of the facts of the claims (31 [62.0%] vs 20 [33.3%]; P = .003), and to prohibit reporting to regulatory bodies (25 [50.0%] vs 4 [6.7%]; P < .001).

Conclusions and Relevance  An academic health system with a declared commitment to patient safety and transparency used nondisclosure clauses in most malpractice settlement agreements but with little standardization or consistency. The scope of nondisclosure was often broader than seemed needed to protect physicians and hospitals from disparagement by the plaintiff or to avoid publicizing settlement amounts that might attract other claimants. Some agreements prohibited reporting to regulatory agencies, a practice that the health system changed in response to our findings.

Transparency is a core principle in efforts to improve the safety and quality of health care.^1,2 Government agencies, health insurers, and private employers require physicians, hospitals, and health care organizations to measure and disclose the processes and outcomes of care and to report avoidable complications. Professional ethics emphasize patient-centered care with informed decision-making based on sharing data about therapeutic options, physician and hospital performance, and conflicts of interest.

When medical errors occur, honesty is expected as a matter of professionalism, and silence and secrecy are no longer acceptable responses. Guidance from the American Medical Association and other professional organizations, standards from the Joint Commission, and laws in several states mandate disclosure of errors to patients or their families.³ An increasing number of hospitals and health care systems have implemented formal communication-and-resolution programs,⁴ including demonstration projects supported by the Agency for Healthcare Research and Quality.⁵ Features of these programs include pledges to promptly reveal errors, treat patients and families with compassion, offer financial compensation when appropriate, and generate feedback from health care professionals, hospitals, and patients to improve organizational safety.⁶

In contrast, medical malpractice litigation draws on adversarial traditions that resist transparency when resolving and preventing medical errors. A deny and defend mentality is deeply entrenched among attorneys who represent hospitals, health care professionals, and liability insurers. When claims are settled, payment to the plaintiff is usually conditioned on a signed release that often includes a nondisclosure provision or “gag clause.” This practice reflects longstanding concern among physicians and hospitals about damage to reputation from revealing facts about claims and settlements, an expectation that additional predatory litigation will ensue if information becomes public, and a belief (or rationalization) that medical care was not truly negligent in many cases in which payment was made. However, prohibiting individuals who have been subjected to substantial harm from discussing their experiences is problematic. It devalues the perspectives of patients and families and withholds from other physicians and hospitals, as well as other patients, information that might help them avoid medical errors in the future.

We examined the information restrictions in malpractice settlements reached on behalf of University of Texas physicians before and after the enactment of tort reform legislation in the state. Our hypothesis was that nondisclosure agreements remain common in medical malpractice settlements, even in a large public university health care system with a stated commitment to honesty and transparency after medical error.

We retrospectively reviewed settlement agreements in medical malpractice cases as part of a larger study of transparency after medical error that focuses on the potential role of patients and families in safety improvement. The institutional review board at The University of Texas Health Science Center at Houston approved the research protocol. The data we collected do not identify individual patients or health care professionals; no informed consent was required. Descriptive statistics, t tests, and Pearson χ² analysis were performed with the use of SPSS statistical software for Mac, version 21.0 (SPSS Inc).

We examined the closed claims files of The University of Texas System. The system self-insures medical liability claims against more than 6000 faculty physicians, dentists, residents, and fellows.⁷ These health care professionals practice or train at 6 health campuses in Dallas, Galveston, Houston (2 campuses), San Antonio, and Tyler. The health law department of The University of Texas System works in cooperation with risk managers at the health campuses to resolve claims and with the office of the attorney general of Texas to defend lawsuits.

We examined the documentary record in all malpractice claims covered by the university’s insurance plan that were closed in fiscal years 2001-2002 (244 claims with 60 settlements), 2006-2007 (142 claims with 24 settlements), 2009-2010 (100 claims with 17 settlements), 2010-2011 (114 claims with 25 settlements), and 2011-2012 (115 claims with 24 settlements). Each fiscal year runs from September 1 through August 31. All payments for claims in these years resulted from settlements not judgments at trial. Review of claims and settlements for earlier years was not feasible because those records were not available electronically.

In 2003, Texas amended its constitution, and enacted legislation that capped noneconomic damages against physicians in medical malpractice cases at $250 000 and imposed other limitations on personal injury lawsuits.⁸ As a quid pro quo, the legislation also increased the disciplinary authority of the state’s medical licensing board. The potential liability of government units, including The University of Texas System, was further restricted by subsequent interpretations of the Texas Tort Claims Act.⁹

In 2008, The University of Texas System adopted a formal, system-wide commitment to disclose medical errors to patients. However, neither the system nor the office of the attorney general of Texas has a policy regarding confidentiality after settlement. The 2001-2002 period predates tort reform. The 2006-2007 period predates the system’s commitment to disclosure and includes cases from before and after tort reform. The 2009-2012 period includes the most recent years for which documents were available.

We collected and analyzed data on the age of the patient, the site and type of medical care, whether the claim was for wrongful death, whether a formal lawsuit was filed, the time from event to claim and from claim to resolution, whether a payment was made and the dollar amount of that payment, and the terms of the settlement agreement entered into by the parties. For time to resolution, we report only claims that involved adults (aged ≥18 years) because claims that involve minors are subject to different statutes of limitation and other procedural requirements.

During the 5 study years, The University of Texas System closed 715 malpractice claims, making settlement payments in 150 cases. We excluded 20 cases in which only defendants not from The University of Texas made payments and 6 cases that involved only minor dental injury. The characteristics of the remaining 124 cases with settlement payments are listed in Table 1.

The median amount paid by the university in settlements on behalf of its physicians was $100 000 (range, $500-$1.25 million), and the mean amount was $185 372. In 18 cases, a hospital independent of but affiliated with the university made an additional payment. When these additional payments are included, the median compensation for all settled cases was $150 000, and the mean compensation was $444 899 (range, $500-$10.5 million). Table 2 lists the interquartile ranges for settlement amounts and time to resolution of the settled cases.

Of the 124 settlements, 110 (88.7%) included nondisclosure agreements. Of the 13 cases settled without confidentiality requirements, 10 settlements predated tort reform. The settlement agreement for one case could not be located.

Although The University of Texas System assumes financial responsibility and provides a common legal defense for all 6 health care institutions, the content and language of nondisclosure agreements varied widely across and within institutions. The nondisclosure clauses ranged in length from 23 to 385 words. The most common language, used verbatim or slightly adapted in 20 of the settlements with nondisclosure agreements, reads as follows:

Claimants agree to keep confidential and secret: (1) the facts and events made the basis of this claim, (2) the fact that this settlement has been made, (3) the amount of the consideration paid under the terms of this agreements, (4) the existence, details, or terms of this agreement and any facts regarding the negotiation of this Confidential Agreement of Settlement, Release and Indemnification from any third parties, except for legitimate financial, banking, or accounting purposes, or pursuant to court order, or as required by the Texas Rules of Civil Procedure or Texas law.

The agreement to keep all these matters confidential and secret from “any third parties” specifically means that Claimants agree never to disclose any of this confidential information to any members of the media, any organizations or companies, any governmental entities, the Texas Medical Board (even an anonymous complaint), and any other organization regulating health care in any manner.

The prevalences of specific terms in the 110 nondisclosure agreements are listed in Table 3. Only 10 of the nondisclosure clauses applied to all parties to the agreement, including the physicians and hospitals; 100 clauses applied only to the claimant and the claimant’s representatives or associates. In 3 (2.7%) of the 110 settlement agreements, the nondisclosure clause specifically prohibited disparagement of the physicians or hospital by the claimant.

All the clauses prohibited disclosure of the dollar amount and other terms of the settlement agreement. Disclosure of the underlying facts and events of the medical care at issue was prohibited by 51 clauses (46.4%). Complaints to the Texas Medical Board or other regulatory bodies were prohibited by 29 clauses (26.4%). Settlement agreements that involved minors (n = 22) were less likely than those that involved adults (n = 88) to prohibit disclosure that settlement was reached (8 [36.4%] vs 53 [60.2%]; P = .05) or disclosure of the underlying facts of the claim (6 [27.3%] vs 45 [51.1%]; P = .05).

The nondisclosure agreement specifically applied to the plaintiff’s attorney and to the plaintiff in 59 agreements (53.6%). Settlements that attorneys were expressly prohibited from disclosing (n = 59) had higher mean payment amounts than those without such a prohibition (n = 51) ($219 236 vs $135 542; P = .03). Express prohibitions on disclosure by attorneys were more common in cases that involved labor and delivery (n = 11) than in other cases (n = 99) (9 [81.8%] vs 50 [50.5%]; P = .05).

The 50 settlement agreements in 2009-2012, after tort reform in Texas took full effect, were more likely than the 60 earlier settlements (2001-2002 and 2006-2007) to prohibit disclosure of the event of settlement (36 [72.0%] vs 25 [41.7%]; P < .001), to prohibit disclosure of the facts of the claims (31 [62.0%] vs 20 [33.3%]; P = .003), and to prohibit reporting to regulatory bodies (25 [50.0%] vs 4 [6.7%]; P < .001). Explicit language in nondisclosure clauses referring to the plaintiff’s attorney decreased in frequency after tort reform, however (45 [75.0%] vs 14 [28.0%]; P < .001).

Although confidentiality provisions in agreements settling civil litigation are common throughout the United States, their utility and propriety continue to be debated.^10,11 Defendants often prefer that neither the fact that they have agreed to pay a plaintiff nor the amount of that payment become public knowledge. The former seems a confession of guilt, and the latter may be a magnet for additional claims. Avoiding publicity is one reason why defendants settle out of court rather than go to trial. Confidentiality also benefits many plaintiffs: a defendant may pay more, and more quickly, if silence is part of the deal.

In situations where the harm is more general or might occur again, however, confidential settlement of private litigation can be contrary to the public interest. Several states have enacted sunshine reforms, which make settlements that must be filed with courts (eg, settlements that involve minors) and settlements that involve the administration of government or issues of public health or safety publicly accessible.¹² Some aspects of settlement agreements remain confidential; even the most far-reaching of the state sunshine statutes, such as the Florida statute, permit the amount of settlements to remain sealed.¹³ Courts occasionally have ruled that public financing of settlements is incompatible with confidentiality. For example, a judge in Pennsylvania refused a motion to seal his approval of a malpractice settlement because it was paid mainly with public dollars through the state’s supplemental physician insurance fund.¹⁴

When the number of malpractice lawsuits began to increase in the 1960s and 1970s, the conventional wisdom among physicians and hospitals was that most claims were meritless and that settlements were justified mainly because aggressive lawyers might mislead sympathetic jurors. These beliefs were conducive to secrecy, particularly to protect the reputations of innocent physicians. Since that time, however, research has revealed that many patients are avoidably injured in hospitals and outpatient settings each year.¹⁵ Moreover, patients with avoidable injuries often are not compensated through litigation and may not even know that they were harmed.¹⁶

If adverse events cannot be identified and investigated, unsafe medical practices will continue. Part of this process, conducted through formally constituted entities such as hospital peer review committees and federally listed patient safety organizations, is properly confidential. Our data indicate that settlement agreements are rarely inconsistent with these processes; few agreements preclude health care professionals from sharing information from malpractice claims with one another. Even so, other hospitals and physicians may be denied knowledge that allowing patients to discuss their experiences and complain to regulators might convey.

There is increasing consensus, even among early proponents of protected peer review, that greater transparency to patients and the public is necessary for safety to improve.¹⁷ Accordingly, many physicians and hospitals, particularly academic health care systems, have revised their approach to malpractice litigation. Communication-and-resolution programs, for example, commit the sponsoring institution to vigilant detection of error, full disclosure of errors to patients and families, and timely redress of injuries. Many of these programs also seek to incorporate the experiences of patients and family members into ongoing safety improvement activities.⁶

As our findings indicate, conventions about how to settle litigation that are inconsistent with such ethical and clinical commitments may persist even in reputable and well-intentioned academic medical centers. We found that nondisclosure agreements were used in most malpractice settlements, but with little standardization or consistency. The agreements selectively bind patients and patients’ representatives, making them hard to justify on privacy grounds. The scope of nondisclosure agreements is often far broader than seems needed to protect physicians and hospitals from disparagement by the plaintiff or to avoid the disclosure of settlement amounts that might attract other claimants.

Nearly half of the nondisclosure agreements encompassed all aspects of the medical care that led to the settlement, not merely the settlement itself. These agreements prevent patients and family members from discussing their experiences to improve patient safety. They also make it less likely that subsequent patients will recognize the possibility of error.

It was surprising that approximately a quarter of the nondisclosure agreements prohibited the disclosure of settlement information to medical licensing boards or other regulators, even though The University of Texas is a public university. Courts typically void such restrictions as contrary to public policy,¹⁸ and California barred them legislatively in 2012.¹⁹ Nonetheless, their inclusion in settlement agreements may well have a chilling effect on interactions between patients and government organizations that oversee patient safety. In response to the findings of this study, as of 2014, The University of Texas no longer restricts regulatory reporting in settlement agreements.

Although tort reform in Texas substantially reduced the number of malpractice lawsuits,²⁰ it also directed more complaints to the state medical board.²¹ This direction of complaints was partly deliberate but also reflected the difficulty of finding plaintiff’s lawyers to take cases where only limited damages might be collected. In our study, prohibitions in settlement agreements on reporting to regulators and disclosing the facts of the claim became more common after tort reform.

Our study has limitations. We examined nondisclosure agreements in malpractice settlements from one academic health system in one state. The number of settled cases was low, especially in the years after Texas enacted tort reform. Nevertheless, nondisclosure clauses in settlement agreements that go beyond nondisparagement and restrictions on disclosing the amount of payment seem inconsistent with respect for patients and current approaches to improving the safety of medical care. The use of nondisclosure agreements should be reviewed elsewhere, including at institutions with communication-and-resolution programs.

An academic health system with a declared commitment to patient safety and transparency used nondisclosure clauses in most malpractice settlement agreements but with little standardization or consistency. The scope of nondisclosure was often broader than seemed needed to protect physicians and hospitals from disparagement by the plaintiff or to avoid publicizing settlement amounts that might attract other claimants. Some agreements prohibited reporting to regulatory agencies, a practice that the health care system changed in response to our findings.

Accepted for Publication: February 12, 2015.

Corresponding Author: William M. Sage, MD, JD, School of Law, The University of Texas at Austin, 727 E Dean Keeton St, Austin, TX 78705 (wsage@law.utexas.edu).

Published Online: May 11, 2015. doi:10.1001/jamainternmed.2015.1035.

Author Contributions: Dr Sage had full access to all the data in the study and takes responsibility for the integrity of the data and the accuracy of the data analysis.

Study concept and design: Sage.

Acquisition, analysis, or interpretation of data: All authors.

Drafting of the manuscript: Sage, Jablonski.

Critical revision of the manuscript for important intellectual content: Jablonski, Thomas.

Obtained funding: Sage, Thomas.

Administrative, technical, or material support: Sage, Thomas.

Conflict of Interest Disclosures: None reported.

Funding/Support: This study was supported by award R18-HS019561-01 from the Agency for Healthcare Research and Quality (Drs Sage and Thomas).

Role of the Funder/Sponsor: The funding source had no role in the design and conduct of the study; collection, management, analysis, and interpretation of the data; preparation, review, or approval of the manuscript; and the decision to submit the manuscript for publication.

Disclaimer: The content is solely the responsibility of the authors and does not necessarily represent the official views of the Agency for Healthcare Research and Quality.

Additional Contributions: We thank Raymond S. Greenberg, MD, PhD, Kenneth I. Shine, MD, Melodie Krane, JD, Allene Evans, JD, Erika Kenney, BA, and Kathy Smith, BA, from The University of Texas System for facilitating access to The University of Texas data. University of Texas law students Molly Colvard, BS, and Jessica Winchell, JD, provided research assistance, including statistical analysis of the data. They were compensated at the usual university rates for student research assistants.