Liability for Medical Malpractice

P_ hysicians and other medical providers are subject to a negligence rule of liability. To prevail, a plaintiff must show that he or she sustained damages that were caused by the failure of the physician to take due care, defined as customary practice of physicians in good standing with the profession, or a significant minority of such physicians. In a simple model, with perfect information and homogeneous physicians, a negligence rule of liability with an appropriately defined due care standard should induce complete compliance: there should be no malpractice, no malpractice claims and no demand for malpractice insurance. The malpractice experience is seriously at odds with this prediction. The incidence of negligent injury is not trivial-roughly one per hundred hospital admissions (Harvard, 1990). From 1975-1985 the frequency of malpractice claims per hundred physicians increased at roughly 10 percent a year, claim severity (average amount per paid claim, including jury verdicts and out-ofcourt settlements) rose twice as fast as the consumer price index, and malpractice premiums increased sharply. From 1985 to 1989 claim costs and premiums stabilized, but are beginning to increase again. There have been no major changes in the basic common law rules defining medical liability that could explain this increase in claims. This discrepancy between the simple theory and actual experience raises two related issues. First, what goes wrong? Second, if the system does indeed operate imperfectly, does it yield benefits in terms of injuries deterred that outweigh the high overhead costs of operating a liability system?