Wednesday, August 8, 2007


Of course the culture of medical malpractice suits plays a role in all of this. However, I would argue that the sizable presence of med-mal is itself a result of the increased regulation of the healthcare industry. Also, as NL pointed out, Med-Mal suits have pretty much declined slightly or leveled off in the last 10 years or so (although that is at least partly the result of “reforms” on the state level):

1. The increased regulation makes it relatively easy for a plaintiff to find a cause of action whenever they are dissatisfied with their care- there are so many regulations that a crafty plaintiff's lawyer can probably find an argument for a regulatory violation in just about any instance. The AMA's own standards and regulations also probably play a big role here.
2. The increased regulation has left the insurance companies in charge of whether a claim (whether for malpractice or additional treatment) is accepted. Since the insurance companies in turn have thousands of their own regulations, they are able to deny many claims at an early stage, creating an incentive to sue rather than just settle right away.
3. I don't know that punitive damages are usually allowed in med-mal cases. However, to the extent they are permitted, they are most often creatures of statute or at least outside the realm of traditional common law. Punitive damages destroy the economic calculus, have no connection to the actual harm caused by a defendant, and when aggregated have a significant negative effect on markets.
4. Most importantly, though (and contrary to popular opinion), increased rules and regulations create a diffusion of responsibility in medical practitioners. In other words, the more “one size fits all” rules the profession has to follow, the more the doctors will blindly obey those rules (since failure to do so means automatic liability and possibly loss of license even if no harm is done), and the less they will obey their own sense of reason (since failure to do so only results in payment by the med-mal insurance, and that is only if the patient actually suffers harm as a result; in either event, the doctor keeps his license since it is only a finding of negligence, not a violation of an arbitrary rule). This sort of phenomenon has been discussed not only by libertarians like Rand, but also by all sorts of social psychologists – from Milgram’s electroshock studies to Zimbardo’s Lucifer Effect/Stanford Prison Experiment.

That said, I'm actually opposed to most of the supposed "med-mal" reforms being attempted – for many of the reasons discussed by NL. By placing caps on damages, the government is adopting a "one size fits all" approach. Additionally, in calculating the amount of the caps, the legislature must either engage in socialist-style economic planning and forecasting (something that is either impossible or so prohibitively expensive as to negate the value of the forecast), or simply set an arbitrary figure based on political pull (which is effectively the California Rule). The result in any event is that some, maybe many, legitimate plaintiffs will not be made whole, which will marginally increase burdens in other (less efficient) areas of the healthcare system.

Additionally, legislative attempts to have med-mal cases at least initially removed from the courts to be vetted by a hearing board will also only make matters worse- you can’t fix a problem caused by too much bureaucracy by adding more bureaucracy. In this case, though, you are building higher costs into the system right off the bat; you are often staffing these review boards with other doctors (again introducing “pull” into the system similar to Rand’s “Unification Board”), you still have some form of discovery process, etc. And once the board has made their decision, a losing plaintiff is going to use whatever means they have at their disposal to appeal (more bureaucracy and expense), while a winning plaintiff simply gets the right to go to court and start all over again (meaning that those cases now cost substantially more to try than prior to the reform).

Ultimately, though, attempts at medical malpractice reform are doomed to backfire because they take us even further away from the common law and the judgments of people actually in possession of the facts in any given case. Just as importantly, they are an attempt to solve a problem of over-regulation by over-regulating even more.

As an aside, I actually liked Nolan’s example of the NYC hospital. But the reason I like it is that it was a rational decision made by the individuals who would actually be directly liable in any malpractice suit. Instead of looking to the government for a shield against liability, they chose to do something they probably would have done in a truly free market years ago – take flexible measures aimed solely at increasing factual knowledge of their own business in order to diagnose and correct internal problems. This of course results in fewer claims and increased profits. The problem is that implementing this on a national level takes away the profit incentive because then the program is being run by the government, which will then implement one-size-fits-all approaches to apparent inefficiencies.

Finally, the problem with “Loser Pays” reforms is that they not only make the loser pay for court costs (which are already paid mostly by the Plaintiff), they also make the loser pay the winner’s legal fees. This will destroy the economic calculus since: 1. Hospitals have far more expensive lawyers, whose fees could be up to 50% of the original claim, depending on the claim’s size; and 2. It artificially increases incentives for the Plaintiff to settle for far less than their actual harm since it automatically reduces the value of their claim by making payment of legal fees inevitable. This would be fine if, in fact, every losing Plaintiff were filing frivolously; the problem is that truly frivolous suits almost always get tossed out by the summary judgment phase. A case that actually goes to trial is usually going to be a closely decided case that could come down to any number of different things.