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Malpractice. Econ 737.01 2 /8/11. Outline. I. Introduction II. Key Statistics III. Theory IV. Evidence V. Reforms . I. Introduction. In U.S., health care providers held liable for medically-caused injuries attributable to negligence. Plaintiff must show: Injury suffered

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Econ 737.01



  • I. Introduction

  • II. Key Statistics

  • III. Theory

  • IV. Evidence

  • V. Reforms

I introduction
I. Introduction

  • In U.S., health care providers held liable for medically-caused injuries attributable to negligence.

  • Plaintiff must show:

    • Injury suffered

    • Injury caused by medical care

    • Provider’s care deviated from “due care” (customary practice)

I introduction1
I. Introduction

  • Physicians buy malpractice insurance to protect against lawsuits

    • Premiums community instead of experience rated; deductibles and co-payments are rare

      • Suggests perception that most claims result of bad luck

    • Physicians’ motivation for avoiding negligence is therefore mostly to avoid time and reputational costs

I introduction2
I. Introduction

  • History

    • Growth in claim frequency in 1960s and 1970s due to increase in surgeries, laws making it easier to show negligence, and laws making it easier to sue hospitals

    • Accompanying spike in malpractice insurance premiums

    • Tort reforms in the 1970s and 1980s to mitigate growth

    • Claim frequency relatively stable since then

Ii key statistics
II. Key Statistics

  • From surveys of medical records from New York in 1984 (California in 1974):

    • 3.7% (4.65%) of hospitalized patients suffered injury due to medical care

    • 28% (17%) of these injuries involved negligence

    • 7% of these cases of negligence resulted in permanent disabilities; 14% death

    • Implies over 75,000 deaths per year in US from negligent care

Ii key statistics1
II. Key Statistics

  • 1 in 7 physicians sued per year (Weiler et al., 1993)

  • Bovbjerg (1995)

    • Only 43% of claimants receive any payment

    • Most others closed before trial

  • White (1994)

    • P(Claim) 0.026 if negligent injury

    • P(Claim) 0.01 if non-negligent injury

    • P(Claim) 0.001 if no injury

    • Large variance in payment amounts for those who receive compensation; mean $205,000

Ii key statistics2
II. Key Statistics

  • Average malpractice insurance premium is $16,000, can reach $200,000 (Bovbjerg, 1995).

  • Malpractice insurance premiums account for 1% of health care spending.

  • Premiums appear to be fully passed on to patients

  • Malpractice insurance premium dollar:

    • 40% litigation

    • 20% overhead

    • 40% plaintiff compensation

Iii theory
III. Theory

  • Perfect information

    • Accidents byproduct of otherwise beneficial activities

    • Probability and size of losses can be reduced by lowering quantity or investing in costly preventive measures (safety).

    • Choice between no liability (i.e. first-party insurance), negligence, and strict liability systems

    • Liability more costly than first-party insurance; must generate deterrence benefits that outweigh the added costs to be efficient

Iii theory1
III. Theory

  • Perfect information

    • Learned Hand rule: Negligence occurs if “the loss caused by the accident, multiplied by the probability of the accident’s occurring exceeds the burden of the precautions the defendant might have taken to avert it” (Handbook p. 1346) (failure to take efficient precautions)

    • Liability system could be efficient if we assume

      • Providers know efficient standard of care

      • Courts costlessly enforce efficient standard

      • Patients file claim iff injured due to negligence

    • Would be no negligence, no claims, no defensive medicine, and no malpractice insurance since by definition cheaper to prevent it than pay for resulting damage

Iii theory2
III. Theory

  • Imperfect information

    • Perfect information models are obviously inadequate to explain medical malpractice system

    • Learned Hand rule rarely applied; instead, due care defined as “customary” level of care

    • If the customary level of care is too high (i.e. because of fee-for-service insurance), providers must provide “too much” care to meet standard

    • Gradual transition to capitation may mitigate this problem by reducing customary level of care

    • Assumption that “patients file claim iff injured due to negligence” is clearly not true => malpractice insurance

Iv evidence
IV. Evidence

  • Causes of injuries

    • Age (+)

    • Medicaid status (+)

    • University teaching status of hospital (+)

    • Hospital in urban area (+)

    • Small or medium sized hospital (+)

  • Causes of proportion of injuries from negligence

    • High proportion of minorities at hospital (+)

    • University teaching hospital (-)

    • For-profit hospital (-)

  • Distribution of claims concentrated among doctors and hospitals (not random chance)

Iv evidence1
IV. Evidence

  • Deterrent effects of liability

    • Weiler et al. (1993)

      • Estimated impact of claims per negligent injury on proportion of patients injured from negligence

      • Data from 49 hospitals in NY

      • IVs: urbanization and population density

      • Negative and large (but insignificant) effect

      • Estimate (if taken at face value) large enough to justify liability system

Iv evidence2
IV. Evidence

  • Defensive medicine: liability-induced changes in medical practice that entail costs in excess of benefits

    • Form of physician-induced demand but motive is fear instead of greed

    • Likely interacts with insurance-induced waste

Iv evidence3
IV. Evidence

  • Defensive medicine

    • Localio et al (1993)

      • Cross-sectional data for 31 hospitals in NY in 1984

      • Malpractice premium rates, mean “perceived risk” of suit, and prior claim history of hospital all increase rate of caesarean sections.

    • Kessler and McClellan (1996)

      • Estimated effect of state tort reforms on treatment intensity and outcomes using diff-in-diff estimator

      • Tort reform decreased extent of treatment following heart attack with no increased risk of mortality or re-hospitalization

Iv evidence4
IV. Evidence

  • Other effects of liability (Danzon et al., 1990; Danzon, 1990a and 1990b)

    • Physicians increased expenditure on insurance less than in proportion to increases in expected liability => bore more risk

    • Elasticity of fees with respect to liability insurance rates ~ 0.1-0.2; more than enough to offset losses

V reforms
V. Reforms

  • Caps on nonmonetary damages

  • Periodic payments instead of lump sum

  • Collateral source offset (reduce tort awards by amount patient receives from insurance)

  • Limit contingent fees for lawyers (percentage if win)

  • Alternative dispute resolution (initial panel screens case)

  • More formal guidelines for care

  • Enterprise liability (hospital instead of doctor)

  • No-fault programs (various possibilities, ranging from strict enterprise liability to no liability with public pool of money)

  • Private contracting (between patients and providers; circumvent tort laws)