An Alternative to Malpractice

About three decades ago, University of Chicago law professor Richard Epstein proposed a radical alternative [gated, but with abstract] to our system of malpractice liability. He called it “liability by contract.” 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).

One version of this idea in medicine has already been tried. For years, hospitals asked admitting patients to sign a form agreeing not to sue the hospital or the doctors, no matter how negligent they were. When these forms showed up at the courthouse, however, judges routinely dismissed them on the grounds that the patients were too sick, too scared and too uninformed for there to have been a true meeting of the minds.

My colleagues and I at the National Center for Policy Analysis believe we have found here and here. Let the state legislature decide on the minimum elements (including the amount of monetary compensation) that must be in such contracts in order to make sure patients are fairly protected. Then widely publicize these elements so that people generally understand (before they get sick) what will happen if they opt out of the malpractice system. Courts would be required to accept these contracts as binding.

Recently we have added a new element to the proposal, as a result of our work on hospital safety. Whereas the current system is absorbed with finding fault, for reasons explained below, we propose a system of voluntary, no-fault contracts under which patients and their families are compensated for deaths and injuries that arise from any cause other than the medical condition which caused them to seek care.

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 my last Alert, I reported on the general results of the hospital safety literature. Judging by the comments I received you would have thought I had joined an anti-medicine, left-wing conspiracy. Yet hospital safety is not a left/right issue. Betsy McCaughey, for example, is a valiant crusader for lower hospital infection rates and most people would put her well to the right side of the political spectrum. In fact there are very few people — regardless of politics — who have looked at this issue and concluded that the current system is satisfactory.

As things now stand, the only way a victim of an adverse medical event can get compensation is by filing a lawsuit, enduring its trauma and discomfort, and trying to prove malpractice. Yet only 2 percent of victims of malpractice ever file a lawsuit. Fewer still ever receive any compensation. On the other hand, 37 percent of lawsuits filed involve no real malpractice. To add insult to injury, more than half the money spent on malpractice litigation goes to someone other than the victims and their families.

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

As explained in our Health Affairs study and at a previous blog post, the malpractice system distorts the incentives of doctors and hospitals by encouraging them to make the malpractice events as rare as possible, even if they increase the number of other adverse events. For example, doctors may order more blood tests and other procedures in order to reduce the risk of a malpractice lawsuit, even though these procedures may put patients at additional risk.

Fortunately, there is 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? We propose to allow patients, doctors and hospitals a voluntary, contractual, no-fault alternative to the malpractice system. In return for forgoing their common law rights to litigate, at the time of entry into the health care system patients would be assured that if they experience an adverse outcome for some reason other than the medical condition for which they seek care, 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.

Note that the minimum compensation for adverse events really is a minimum. Hospitals would be free to offer much better terms and no doubt many would. Geisinger Health System, for example, offers a “warranty” on its heart surgeries. Patients don’t pay for readmissions, regardless of whether there is an adverse event.

In addition to Epstein, Emory University economist Paul Rubin has proposed nonjudicial mechanisms for creating a market for resolving liability issues. Our proposal builds on the pathbreaking work of these scholars, and we believe it can make liability by contract a reality. It is an idea whose time has come.

John C. Goodman, PhD, is president and CEO of the National Center for Policy Analysis. He is also the Kellye Wright Fellow in health care. His Health Policy Blog is considered among the top conservative health care blogs where health care problems are discussed by top health policy experts from all sides of the political spectrum.

12 replies »

  1. As long as malpractice is kept a secret, M&M conferences held in strict secrecy and confidentiality, and as long as doctors refuse to testify against colleagues when they will tell you there was outright negligence and malpractice, the system will never be fixed. To not affix “blame” is to let off those 15% of recidivist doctors whom says public citizen says cause 85% of the malpractice.
    I rarely read articles saying that the medical community and state need to sanction and more those doctors who are repeat offenders. Get rid of them and the costs of med. mal will quickly fall.
    (I was a ‘victim’ of med. mal. The Superior Court of Pa called the doctor ‘s testimony perjurious ,”We have little difficulty in concluding that Dr. Jannetta’s testimony at deposition was different than, or inconsistent with, the testimony at trial.” Levy v Jannetta, CCP Allegheny County, GD 81-7689; appeal -J. A370017/92 Levy v Jannetta et al, No. 00150 Pittsburgh, 1992. settled, 1995
    proof of ghost surgery, defensive tests ignored, etc. The case was in the courts for 14 years (not a mistype), I was forced by my lawyer to settle for an amount that has not come close to my lifetime costs and 3 weeks after the forced settlement Gov. Ridge nominated the doctor (defendant) for Pa Sect of health (Peter Jannetta 1995 – 1996). The medical community and the legal community both need to ‘clean up their act.”

  2. Robert,
    Of course the 200K and 20K are inadequate, but these numbers are just for poor people. Everybody is “free” to buy more coverage, with only the wealthy being able to do so. This is a perfect fit with the various empowerment measures to shift as much health care cost and risk onto patients as possible, because then rich people have to pay a lot less into the common pot and can use the difference to take care of themselves with no need to waste resources on the less fortunate.

  3. Concerning “. . . .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.”

    These amounts are grossly inadequate and do not come close to covering economic damages, let alone non-economic damages. Death of a high earner in the prime of life costs a family much more than $200,000 in lost income. And many injuries would require much more compensation to make the patient whole again. Many injuries would cost more than $20,000 just for medical care in the first year alone; and then there is lost wages, etc.

    Compensating malpractice victims without the necessity for lawsuits is a great idea, but it will cost more than the current system costs if we fairly compensate all victims.

  4. Unlike the current system, this would compensate every patient injured. The safe harbor for the physician and hospital would be contingent on transparency and disclosure. Experience-rating coverage for no-fault would give the providers incentives to utilize the information from M&M conferences etc., to improve safety records. This is really a way to improve workplace safety — for workers and their customers!

  5. Goodman’s solution is eminently practical, workable, would result in favorable payments to victims, insofar as society can provide that; in sum, it works in the best interests of victims and the average American, who ultimately pays the freight for the outrageous and irrational awards and settlements under the current system. However, it isn’t in the interest of several monied and powerful groups. Bon chance, but I’m not betting on its adoption anytime soon.

  6. Medical malpractice reform is in need of some fresh thinking. The old ideas never got much traction. John Goodman presents some new ideas that are worth considering.

  7. The beauty of liability by contract is that people who are more risk averse; or who prefer a large payout in the event of an adverse event (whether negligent or not) can pay for that protection. Insurers would soon stop underwriting the doctors who medical loss was to high.

  8. I find myself in lukewarm agreement with Dr. Goodman for a change (though I like the notion of the “safe harbor” medical court better). Clearly what we have now is dysfunctional, enabling the insurance people to line their pockets handsomely while simultaneously triggering a raft of expenses in the name of defensive medicine.

    [btw, paragraph 3 above is repeated.]

  9. Agree that there is a problem with malpractice, but not that this is the solution. I really think medical courts, similar to business courts, would be the way to go.

  10. I agree with Mr. Goodman that the current malpractice law is highly dysfunctional and that defensive medicine does exist and does cause significant amounts.

    But this solution – a negotiated (?) waiver seems unreasonable. It seems to create confusion and introduces another layer of bureaucracy.

    IMHO, the big problem with the current practice malpractice law is that it fails to recognize that medicine operates mostly in a grey area of judgment calls that are often complex and difficult. If someone has a poor outcome, a lawyer will often find an expert who states, with the benefit of hindsight, that the outcome would have been better if Dr. X just did action Y – even though only some (or even a minority) of doctors would have thought of action Y in that particular patient/situation.

    I think the following paper suggests a realistic, simple and yet effective solution: