Only 1 in 15 patients who suffer an injury because of medical negligence receives compensation, and five-sixths of the cases that receive compensation have no evidence of negligence. Injury attributable to medical care generally, and to negligence specifically, is surprisingly common. At the same time, U.S. health spending has reached unprecedented levels, with no clear sign of slower growth rates in sight. My research with Mark B. McClellan addresses these questions. In theory, the liability system should provide physicians with incentives to take the socially optimal amount of care against accidental medical injury.
Doctors bear the costs of injuries that they negligently cause.
With their patients, they balance the costs of injuries against the costs of precautionary medical treatment and undertake those tests and procedures that are worthwhile from the perspective of social welfare. But the pervasiveness of insurance in the health care sector drives a wedge between these seemingly sensible incentives and socially optimal medical decisionmaking. On the one hand, because physicians have insurance against the financial costs of malpractice that is not strongly experience-rated, they may bear little of the costs of medical injuries. This could lead physicians to take fewer precautions than the low costs of diagnostic tests, for example, would warrant. On the other hand, because most health care is financed through health insurance, patients and physicians bear little of the costs of precautionary medical care in any particular case.