Although estimates of the total cost of the medical malpractice system range from $20 billion to $45 billion, most scholars think that about 1 percent of the nation’s annual health care bill is consumed by malpractice premiums and another 3 percent by defensive medicine. There are, however, reasons to believe that they underestimate the true cost of defensive medicine. But even if the current estimates are accurate, the cost of the medical tort liability system is quite high - about $36 billion for the nation as a whole or $360 per year per household. Note that this amount is considerably more than the cost of mammograms, childhood vaccinations and other preventive services.

The financial burden of the medical malpractice system might be worth bearing if the system’s benefits exceeded its costs. But such benefits are hard to document. Studies show that one out of every 10 actual incidents of malpractice results in a lawsuit. And many insurers are convinced that whether patients "like" their doctor is more important than actual malpractice in determining legal action. Moreover, many believe that once a suit has been initiated, the outcome more resembles a lottery than the administration of justice.

Some have calculated the considerable savings from abolishing the system entirely. But the tort system is not all bad. Given that third-party payers put enormous pressure on providers to make quality-reducing changes, the tort system may be the single most important protector of patient welfare. By contrast, consider Britain, where the quality-reducing pressures are much greater and the rights of plaintiffs more restricted. When British patients sue hospitals, they are actually suing the government. Unquestionably, there is far more actual malpractice in Britain than in the United States, even though there is far less litigation.

"The tort system is another bureaucracy, replete with its own perverse incentives."

The primary problem with the tort system is that it is another bureaucracy, replete with its own perverse incentives. Moreover, it is a bureaucracy that feeds off the health care sector with little consideration of the damage it causes. Juries do not even know and are not allowed to consider that huge damage awards set precedents affecting other patients, physicians and hospitals - not just those who are litigating the specific case. How can the system be reformed in order to reduce costs and at the same time protect patients’ rights?

Best Idea: Reduce Liability by Contract.

"Why not allow patients to make contractual agreements in their own interests?"

For example, one sensible way to cut down on negligence litigation is to have the hospital take out a life insurance policy on a patient prior to surgery. The hospital and the patient (or the patient’s family) could agree that if the patient dies for any reason the family would accept the policy’s payment as full compensation, unless there was criminal negligence. Litigation costs would be avoided, and life insurance companies would monitor the quality of care.

Second-Best Idea: Mandatory Arbitration and Limits on Awards.

Some argue, however, that capping the award limits a victim’s ability to "punish" a provider for poor or negligent practice. Nebraska has passed legislation meant to address this problem. Providers can be sued for punitive damages, but the plaintiff receives only actual damages, which includes pain and suffering. The Nebraska Constitution requires that all punitive awards be earmarked for public education.

Mediocre Idea: State-Provided Practioners’ Liability Coverage.

Mediocre Idea: Practice Guidelines.

The primary problem with practice guidelines is that they tend to force physicians to practice "cookbook medicine." That may be fine for most instances, but for unusual cases the best treatment may not be in the cookbook. Patients may die or suffer prolonged illness if their physicians stay within the guidelines. It is in the patients’ interest for health care providers to treat illness without artificial constraints.

Bad Idea: Shift Liability to Bureaucracies.

In fact, the deep pockets of the AHP might actually encourage lawsuits by making them potentially more profitable. Even if physicians did reduce the amount of defensive medicine, that would not reduce total costs if the move were offset by more and higher liability awards. Physicians engage in defensive medicine in order to reduce tort liability claims. Less defensive medicine might mean more liability.

"On the whole, the best way to achieve efficiency and minimize costs is through voluntary agreements and contracts."

On the whole, the best way to achieve efficiency and minimize costs is by voluntary agreements and contracts. Arbitrary assignments of liability by the legislative branch of government interfere with that process.