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The Goals and Pitfalls of Tort Liability for Medical Malpractice

Issues surrounding the effects of the malpractice system and of possible restrictions on it can be viewed as questions of economic efficiency (providing the maximum possible net benefits to society) and equity (distributing the benefits and costs fairly).

Fairness is ultimately in the eye of the beholder. But the common equity-related argument for malpractice liability is that someone harmed by the actions of a physician or other medical professional deserves to be compensated by the injuring party.

The efficiency argument is that, in principle, liability (as a supplement to government regulations, professional oversight, and the desire of health care providers to maintain good reputations) gives providers an incentive to control the incidence and costs of malpractice injuries. In practice, however, the effect on efficiency depends on the standards used to distinguish medical negligence from appropriate care and on the accuracy of malpractice judgments and awards. If malpractice is judged inaccurately or is not clearly defined, doctors may carry out excessive tests and procedures to be able to cite as evidence that they were not negligent. Likewise, if malpractice is defined clearly but too broadly or if awards tend to be too high, doctors may engage in defensive medicine, inefficiently restrict their practices, or retire. Conversely, if doctors face less than the full costs of their negligence--because they are insulated by liability insurance or because malpractice is unrecognized or undercompensated--they may have too little incentive to avoid risky practices. For all of those reasons, it is not clear whether trying to control malpractice by means of liability improves economic efficiency or reduces it.

The costs of court-imposed awards and out-of-court settlements for malpractice are reflected in the premiums charged for malpractice insurance. If those costs are inefficiently high (or low), premiums will tend to be too, on average. But premiums can also be a source of inefficiency themselves. The amounts that physicians pay for malpractice coverage are generally based on broad aggregates, which reflect factors such as doctors' medical specialties and locations but neglect relevant differences in the quality of their services. Thus, even if premiums are correct on average, they may be too high for the large majority of physicians and too low for a minority who are less careful or competent.

Source: http://www.cbo.gov/

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