Reforming Medical Malpractice Liability through Contract

November 24, 2010

There is near-universal agreement that the current medical malpractice system does not achieve its aims.  In theory, that system is supposed to encourage providers to deliver high-quality care by transferring to negligent providers a large portion of the costs that their negligence imposes on patients.  In practice, however, the medical malpractice system achieves that goal rather imperfectly, says Michael F. Cannon, director of health policy studies at the Cato Institute.

  • Research suggests that only a small fraction of patients injured by provider negligence actually recover costs and that many who do recover from providers are not victims of negligence.
  • A recent study estimates that in 2002, the medical liability system provided benefits of $33 billion, but carried far greater costs of $113.7 billion, thereby imposing a net loss of $80.7 billion on society.

The costs of the medical liability system are passed on to patients through higher prices for medical care.  One approach to medical liability reform would allow patients and providers to determine in advance the rules that govern how patients will be compensated in the event they are injured by simple negligence.

  • For instance, a patient and provider could agree to some combination of caps on noneconomic damages, the English rule of costs (or "loser pays"), and so forth.
  • The contract could also alter the standard of care used to determine negligence.
  • Alternatively, the contract could specify greater protections against negligence than are currently available through tort liability.
  • A patient could demand a higher standard of care than customary practice within a region and specialty, or a California patient could insist on being able to collect more than the $250,000 statutory limit on noneconomic damages.

Contract liability offers a means to drive the imperfections out of the medical malpractice liability system through a process that selects liability rules based on their ability to deliver improvements in both cost and quality, says Cannon.

Source: Michael F. Cannon, "Reforming Medical Malpractice Liability through Contract," Cato Institute, November 12, 2010.

For text:

http://www.cato.org/pubs/researchnotes/WorkingPaper-3.pdf

 

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