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Should we discourage medical malpractice lawsuits?

Summary:
I’ve always been skeptical of the utility of medical malpractice lawsuits. A new study by Michael Frakes and Jonathan Gruber finds evidence that they are counterproductive: We estimate the extent of defensive medicine by physicians, embracing the no-liability counterfactual made possible by the structure of liability rules in the Military Health System. Active-duty patients seeking treatment from military facilities cannot sue for harms resulting from negligent care, while protections are provided to dependents treated at military facilities and to all patients—active duty or not—who receive care from civilian facilities. Drawing on this variation and exploiting exogenous shocks to care location choices stemming from base-hospital closures, we find suggestive

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I’ve always been skeptical of the utility of medical malpractice lawsuits. A new study by Michael Frakes and Jonathan Gruber finds evidence that they are counterproductive:

We estimate the extent of defensive medicine by physicians, embracing the no-liability counterfactual made possible by the structure of liability rules in the Military Health System. Active-duty patients seeking treatment from military facilities cannot sue for harms resulting from negligent care, while protections are provided to dependents treated at military facilities and to all patients—active duty or not—who receive care from civilian facilities. Drawing on this variation and exploiting exogenous shocks to care location choices stemming from base-hospital closures, we find suggestive evidence that liability immunity reduces inpatient spending by 5 percent with no measurable negative effect on patient outcomes.

I suspect that the actual waste exceeds the 5% figure cited in the abstract.  Recall that active duty patients represent only a tiny share of all medical patients in the US.  Our health care system has evolved over time to meet the needs of a patient population that for the most part is able to sue for malpractice.  Over the past few decades, certain defensive medicine procedures have become viewed as “normal” because they are used so frequently.

While I cannot be certain, I suspect that many doctors unthinkingly employ suboptimal defensive medicine in cases involving active duty personnel, because they are used to doing so for other patients.  If so, then a complete elimination of malpractice insurance could gradually change the “culture”, leading to even greater cost savings.

Furthermore, eliminating medical malpractice lawsuits would also result in less resources being wasted on litigation.

One approach might be to give doctors and hospitals the option of having patients sign contracts that wave away their right to sue.  If there were a strong demand for the right to sue, then you’d expect some hospitals to offer that option for competitive reasons.  That sort of health care would obviously be more expensive, and I would not expect many patients to choose that option.  How many skiers choose to go to ski resorts that allow them to sue for injuries?  It seems to me that most people prefer cheaper services over the right to sue.

Note that my proposal might require a constitutional amendment, as courts are reluctant to allow people to wave away their right to sue in regard to “necessities”.

PS. I favor allowing people to wave away their right to sue in a wide variety of contexts.  Thus bars should be able to insist that customers who get drunk and get into auto accidents refrain from suing the bar.  Similar restraints on lawsuits in other areas of life could make our economy much more efficient, with a wider range of services.  Most Americans are not aware of how many services they are not able to purchase due to fear of lawsuits.

HT:  Ben Southwood

Should we discourage medical malpractice lawsuits?

Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment". In May 2012, Chicago Fed President Charles L. Evans became the first sitting member of the Federal Open Market Committee (FOMC) to endorse the idea.

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