Market Incentives and the Costs of Medical Malpractice

Abstract

Since the early 1970s, claim severity has consistently risen faster than both general consumer prices and medical care costs. Liability for negligence can in principle provide a useful corrective to inadequate market incentives for care. Since 1984, there has been talk of a new medical malpractice crisis—less than a decade since the malpractice crisis of the mid-1970s. The visible costs of malpractice insurance are probably small compared with the less visible costs of malpractice: the injuries that occur because of medical negligence. The malpractice system performs two primary functions: deterrence of medical negligence and compensation of its victims. An indirect response to the rising threat of suit is that the medical profession has become more active in other forms of quality control, such as disciplinary actions through boards of medical quality assurance and hospital peer review committees. Many states have general arbitration statutes, and others have enacted legislation specifically enabling binding arbitration of medical malpractice claims.