Here's a long post, it's about medical malpractice:
First, it must be said that the data and research on the topic is often spotty and dated. Many studies look at just one state, or just hospitals. Many studies are decades old[1], and rely on the judgment of independent expert reviewers using only paper records. These factors should make one cautious about the certainty of their conclusions, but they are the best information available, and tend to concur.
Malpractice law and insurance is a state issue, meaning there are over 50 varieties. There are two basic types of suits that people think of as “malpractice”. The first is “failure to notify”, an aspect of contract law, where a physician fails to give patients “reasonably full” information. The other type is negligence. Negligence occurs when a patient is injured, the injury was preventable, and it was “reasonable” to undertake preventative action. In this post I focus on negligence.
Negligence Claims
Negligence is thankfully rare and decreasing. The highest rate observed in a 1991 study (Brennan et al.) was for neurosurgery, at 3.5%. The number of claims has been declining, from 17 per 100 physicians in 1986 to 15 per 100 in 1995.
A majority of cases are settled before they go to trial, most with no payment to the plaintiff. Even when payment is awarded, plaintiffs often recover less than the cost of bringing the case. Farber and White (1991) performed a study using hospital records and independent reviewers to determine how often how often victims of negligence were compensated. They concluded that negligence was present in 35% of claims, not present in 42% and indeterminate in 23% of claims. In 66% of cases deemed negligent, the plaintiff was awarded an average of $200,000. On the other hand, in 16% of cases ruled non-negligent, plaintiff received an average award of $42,000. The numbers break down to 77% of malpractice awards, and 94% of the money awarded, going to victims of negligence.
There is very little error in terms of money going to undeserving plaintiffs, but nearly a third the negligently injured who brought a case received no compensation.
Furthermore, only a minority of those negligently injured ever bring a suit. Studies on propensity to sue by those negligently injured vary between 1 in 10 to 1 in 5 negligently inured patients. Combining the findings of The Harvard Medical Malpractice Study (1990) and Brenan et al. (1991), one finds that around 1 in 8 negligently injured patients ever files suit, and around 1 in 15 negligently injured patients receive compensation. This points to a substantial failure to compensate victims. And while evidence on deterrence is indirect at best, the malpractice system cannot deter negligence if the negligently inured do not sue.
Liability Insurance
The chance of being sued, due either to negligence or a wrongful claim, has given rise to malpractice insurance. Some worry that this dulls the deterrence of negligent behavior, as it reduces the cost of negligent behavior. If all doctors pay the same premiums regardless of their individual risk, there is little monetary incentive to avoid negligent behavior. This is avoided if insurers can accurately identify higher risk doctors or behaviors and charge a higher premium based on that risk. However, many states have laws that limit the ability of insurers to charge risk based premiums, or run their own insurance programs that accept all doctors. Often insurance companies will either not accept certain doctors to reduce their risk, and therefore fees, among its pool of clients, or charge high fees and accept any doctor.
When examining the literature on the chances of being sued, it is clear that doctors are not randomly targeted. Rolf (1981) found relatively few repeat defendants. Of 8,000 insured doctors in California, 46 (0.6%) accounted for 10% of all claims and 30% of penalties. It should be mentioned that insurance does not cover the cost of time spent defending a case, so doctors will always bear some cost of defending a claim.
The chance of being sued, due either to negligence or a wrongful claim, has given rise to malpractice insurance. Some worry that this dulls the deterrence of negligent behavior, as it reduces the cost of negligent behavior. If all doctors pay the same premiums regardless of their individual risk, there is little monetary incentive to avoid negligent behavior. This is avoided if insurers can accurately identify higher risk doctors or behaviors and charge a higher premium based on that risk. However, many states have laws that limit the ability of insurers to charge risk based premiums, or run their own insurance programs that accept all doctors. Often insurance companies will either not accept certain doctors to reduce their risk, and therefore fees, among its pool of clients, or charge high fees and accept any doctor.
When examining the literature on the chances of being sued, it is clear that doctors are not randomly targeted. Rolf (1981) found relatively few repeat defendants. Of 8,000 insured doctors in California, 46 (0.6%) accounted for 10% of all claims and 30% of penalties. It should be mentioned that insurance does not cover the cost of time spent defending a case, so doctors will always bear some cost of defending a claim.
Defensive Medicine
Though worries about the frivolousness of suits and costs of the system are overblown, the system still creates inefficiency through the practice of Defensive Medicine[2], and the cost of malpractice insurance. In 1994, the Office of Technology Assessment of the U.S. Congress found that just under 8% of procedures could be attributed to concern over liability risk. Another study, by Kessler and McClellan (1996), looked at Medicare patients treated for heart attacks and poor blood supply to the heart in states that enacted tort reforms. They found that treatment intensity decreased after the reforms, with no change in either mortality or rehospitalization. The findings suggest defensive medicine had existed in some amount before the reforms.
Though worries about the frivolousness of suits and costs of the system are overblown, the system still creates inefficiency through the practice of Defensive Medicine[2], and the cost of malpractice insurance. In 1994, the Office of Technology Assessment of the U.S. Congress found that just under 8% of procedures could be attributed to concern over liability risk. Another study, by Kessler and McClellan (1996), looked at Medicare patients treated for heart attacks and poor blood supply to the heart in states that enacted tort reforms. They found that treatment intensity decreased after the reforms, with no change in either mortality or rehospitalization. The findings suggest defensive medicine had existed in some amount before the reforms.
Tort Reform
The great deal of attention malpractice has garnered has led to various tort reforms to control the cost of the system. Various states have enacted the reform of capping of awards for non-economic damages. Another common reform is to mandate a contingent fee system, where plaintiff lawyers are compensated from the potential award amount rather than a per hour fee. This has the benefit of reducing frivolous cases, as lawyers must have some expectation of winning to take up a case. Some states with contingent fee systems also limit lawyers to a certain percentage of the award amount, typically the percentage decreases as the award amount increases. On the other hand, these reforms have the effect of decreasing the incentive to pursue cases with potentially large payouts, or to put additional effort into finding evidence that can marginally increase an award amount. Theoretically the cases with larger payouts are cases with a greater magnitude of injury. And the use of “lost wages” in determining payouts reduces the award level, and the incentive for lawyers to work for poorer clients.
A study by Zuckerman et al. (1990) looked at different tort reforms and subsequent changes in malpractice premiums. The authors found that premiums were reduced the most by reforms that capped liability awards or limited the number of years plaintiffs had to file a suit after injury. However, there was no corresponding decrease in overall cost of providing medical care as a result of any of these reforms.
The great deal of attention malpractice has garnered has led to various tort reforms to control the cost of the system. Various states have enacted the reform of capping of awards for non-economic damages. Another common reform is to mandate a contingent fee system, where plaintiff lawyers are compensated from the potential award amount rather than a per hour fee. This has the benefit of reducing frivolous cases, as lawyers must have some expectation of winning to take up a case. Some states with contingent fee systems also limit lawyers to a certain percentage of the award amount, typically the percentage decreases as the award amount increases. On the other hand, these reforms have the effect of decreasing the incentive to pursue cases with potentially large payouts, or to put additional effort into finding evidence that can marginally increase an award amount. Theoretically the cases with larger payouts are cases with a greater magnitude of injury. And the use of “lost wages” in determining payouts reduces the award level, and the incentive for lawyers to work for poorer clients.
A study by Zuckerman et al. (1990) looked at different tort reforms and subsequent changes in malpractice premiums. The authors found that premiums were reduced the most by reforms that capped liability awards or limited the number of years plaintiffs had to file a suit after injury. However, there was no corresponding decrease in overall cost of providing medical care as a result of any of these reforms.
No-Fault Insurance?
Given the concern about the current malpractice system, some have proposed switching to a no fault system similar to Workers Compensation. The no-fault system would entail a determination of the “magnitude of injury” to calculate an award amount covered by insurance. As the name suggests there would be no determination of fault, which would reduce the cost of bringing and defending cases. There would also be savings on the side of doctors because they would no longer need malpractice insurance. At the same time, a no-fault system would reduce the theoretical incentive to avoid negligent behavior; the reality, however, means that this would also reduce the incentive to practice defensive medicine. Even with a no-fault system it is still theoretically in the interest of hospitals and employers to reduce negligence to reduce their contribution to a no-fault system and for their own reputations.
The conclusion of the data is simple. The malpractice system is not a major driver of increasing health care costs, and it is not made useless by frivolous suits that randomly target doctors. But the system still imposes some cost, and money that goes towards that cost is spent very inefficiently. This is because the system fails to compensate the majority of victims of negligence, and is therefore of very questionable deterrence value. The system also provides an incentive for wasteful defensive medicine, and increases physicians’ cost due to malpractice insurance. In light of this information, it’s an open question as to whether an alternative system, such as no-fault, would be more efficient.
1. However, the occurrence of malpractice suits and cost of the malpractice system was higher in the late 70s and 80s than it is now, so it is more likely that these studies overstate the current cost of the system rather than understate it.
2. The practice is providing unnecessary procedures to prevent being sued for not doing something. Doctors are rarely sued for an unnecessary procedure if no harm occurs.
Given the concern about the current malpractice system, some have proposed switching to a no fault system similar to Workers Compensation. The no-fault system would entail a determination of the “magnitude of injury” to calculate an award amount covered by insurance. As the name suggests there would be no determination of fault, which would reduce the cost of bringing and defending cases. There would also be savings on the side of doctors because they would no longer need malpractice insurance. At the same time, a no-fault system would reduce the theoretical incentive to avoid negligent behavior; the reality, however, means that this would also reduce the incentive to practice defensive medicine. Even with a no-fault system it is still theoretically in the interest of hospitals and employers to reduce negligence to reduce their contribution to a no-fault system and for their own reputations.
The conclusion of the data is simple. The malpractice system is not a major driver of increasing health care costs, and it is not made useless by frivolous suits that randomly target doctors. But the system still imposes some cost, and money that goes towards that cost is spent very inefficiently. This is because the system fails to compensate the majority of victims of negligence, and is therefore of very questionable deterrence value. The system also provides an incentive for wasteful defensive medicine, and increases physicians’ cost due to malpractice insurance. In light of this information, it’s an open question as to whether an alternative system, such as no-fault, would be more efficient.
1. However, the occurrence of malpractice suits and cost of the malpractice system was higher in the late 70s and 80s than it is now, so it is more likely that these studies overstate the current cost of the system rather than understate it.
2. The practice is providing unnecessary procedures to prevent being sued for not doing something. Doctors are rarely sued for an unnecessary procedure if no harm occurs.
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