Curing the Healthcare Crisis

Empowering patients and caregivers

Curing the Medical Malpractice Malady

Defensive medicine costs consumers more than they realize

Despite its poor track record, the malpractice system in the United States imposes a heavy social cost—as much as $2,500 per household per year, including defensive medicine, at today’s prices.[1] And it may be making hospitals less safe than they otherwise would be.

The malpractice system distorts the incentives of doctors and hospitals by encouraging them to make malpractice events as rare as possible, even if in doing so, they increase the number of other adverse events. As explained in our Health Affairs study[2], the system encourages doctors to order more blood tests and other procedures in order to reduce the risk of malpractice litigation, even though these procedures may put patients at additional risk.

A Better Way

For the money we are now spending on a wasteful, dysfunctional malpractice system, we could afford to give the families $200,000 for every hospital-caused death. We could give every injury victim an average of $20,000—with the actual amount varying, depending on the severity of the harm.

How exactly could this work? What I propose is to provide a voluntary, contractual, no-fault alternative to the malpractice system. In return for forgoing their common law rights to litigate, patients entering the healthcare system would be assured that if they experience an adverse outcome, the provider institution will write them a check—without lawyers, without depositions, without judges and juries—no questions asked.

This proposal would take quality-of-care issues out of the hands of the legal system and put it in the hands of people who are best able to do something about it. Providers would soon realize that every time they avoid an adverse death, they will save, say, $200,000. They would come to view every life as equally valuable—regardless of whether the cause of harm is negligence, preventive steps not taken, or an “act of God.”

To pay off the claims, hospitals would probably purchase insurance just as they purchase malpractice insurance today. Insurers would become outside monitors of hospital quality, and their premiums would reflect doctor and hospital experience. Those with higher adverse-event rates would pay more. Those with lower rates would pay less. Further, if patients desired to pay an additional premium and top up their potential compensation—doubling or quadrupling the amount—they would have that option as well.

Under this proposal, state legislators would establish a commission to set the minimum compensation patients must receive for various adverse events. An independent commission (with patients, doctors, and hospitals all represented) would regularly review hospital records and determine whether an adverse event has occurred in marginal cases. The decision to opt out of the malpractice system is a decision to accept these nonjudicial parameters.

About three decades ago, University of Chicago law professor Richard Epstein proposed a similar idea. He called it “liability by contract.”[3] The idea: let patients and doctors voluntarily agree in advance how to resolve things if something goes wrong.

In nonmedical fields, Epstein’s idea is actually quite commonplace. Contracts for performance often have provisions detailing what the parties will do if something goes awry. If the parties disagree, contracts often spell out dispute resolution procedures (such as binding arbitration). My colleagues and I propose to make this idea the cornerstone of more general reform.[4]

By voluntary, we really mean voluntary. If doctors and hospitals choose not to opt out of the tort system, they can practice under the rules of existing law.

In future installments we will look some steps to achieve these reforms. More details can also be found in my book, Priceless: Curing the Healthcare Crisis.

Notes:

  1. Estimate based on Brandon Roberts and Irving Hoch, “Malpractice Litigation and Medical Costs in the United States,” Health Economics 18, No. 12 (2009): 1394–1419.
  2. John C. Goodman, Pamela Villarreal and Biff Jones, “The Social Cost of Adverse Medical Events, and What We Can Do About It,” Health Affairs 30 (2011): 590–595, doi: 10.1377; See also John C. Goodman, “How Safe Is Your Hospital?” John Goodman’s Health Blog (blog), April 20, 2011.
  3. Richard Epstein, “Medical Malpractice, Imperfect Information, and the Contractual Foundation for Medical Services,” Law and Contemporary Problems 49, No. 2 (1986): 201–212.
  4. For more details, see John C. Goodman et al., “Malpractice Reform: Five Steps to Liability by Contract,” in Handbook on State Healthcare Reform (Dallas, Texas: National Center for Policy Analysis, 2007), 167–178.

John C. Goodman, Ph.D. is Research Fellow at The Independent Institute; President in National Center for Policy Analysis, & author of Priceless: Curing the Healthcare Crisis.

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