December 2005
The Medical Malpractice Myth?
Is the real problem with America’s medical liability system too much medical malpractice rather than too much litigation? Are recent rises in medical malpractice insurance premiums caused by economic cycles instead of increasing claims? Should the system be compensating more people? In his new book, The Medical Malpractice Myth, Professor Tom Baker, who is the director of the Insurance Law Center at the University of Connecticut, answers these questions affirmatively, criticizes proposed and implemented liability reforms, and suggests, among other changes, the creation of a supplemental “no-fault” mechanism. At a December 19 AEI panel discussion, Professor Baker presented his findings and debated his conclusions with a panel of experts.
Tom Baker
University of Connecticut Insurance Law Center
The medical malpractice myth is a narrative of soaring medical costs spurred by reckless litigation, resulting in a dangerous exodus of doctors from certain specialties and even from the profession itself. This myth is so compelling that even its own proponents often forget that it is a distortion of the facts that bears little resemblance to the best empirical evidence we have, which overwhelmingly suggests that the problem is not too much litigation, but too little. I wrote The Medical Malpractice Myth because I was distressed at the extent to which this myth had overtaken the political debate that might potentially yield useful reforms if it were grounded in the evidence.
The original research in this book is focused on the so-called insurance cycles, and it provides a clear, economical explanation for spikes in medical malpractice insurance rates in the 1970s, 1980s, and 2000s, which is that insurance companies simply failed to charge enough for their policies in the periods immediately preceding these “crises.” I also offer four evidence-based reform proposals to the standard, myth-based tort reform proposals most often suggested. First, doctors should be required to tell their patients about all possible adverse events from their treatment, with the presumption of negligence if an event occurs that was not disclosed. Second, doctors should be able to offer an oral and written apology, along with an offer of compensation, to patients they have harmed through malpractice--a practice that could be induced by penalizing the plaintiff if a jury awarded them less than 20 percent more than the doctor’s offer. Third, there should be supplemental no-fault insurance available for all victims of adverse effects from medical care. Finally, hospitals rather than doctors should bear the risks of fluctuating insurance markets, because as institutional actors they are better suited to the task. I am not wedded to the specifics of these proposals but think that they point the way forward.
Ted Frank
AEI
Unlike some critics of tort reform, Professor Baker at least does not try to demonize the insurance industry for rising malpractice insurance rates. Baker also raises valuable issues about the importance of fairly weighing and measuring the benefits and costs of defensive medicine. But his book does show bias in its harsh scrutiny of pro-reform studies while failing to subject anti-reform evidence to the same standard, and his attack on caps ignores or assumes away the main arguments in their favor. The main problem with Professor Baker’s approach is that he does not confront the second-order transaction costs induced by litigation, which his reforms--especially the punitive aspects of his disclosure proposal--would aggravate. Professor Baker is right to direct our attention to the problem of preventable medical errors, but he is wrong to suggest that this means that problems presented by litigation are not worth our attention. There is little evidence for seeing courts, in the aggregate, as good decision-makers in medical malpractice cases, and much evidence to the contrary. Citations to studies which find reasonable median awards or that the majority of juries find in favor of doctors miss the point, because outliers by just a small fraction of cases are large enough to severely distort the expected outcomes, which are what translate into costs. Professor Baker’s proposals are based on the premise that providers should pay more for malpractice; it implies that medicine would be great if it were not for all the doctors. The end result of adopting his proposed changes may be the deterrence of medical practice, rather than the deterrence of medical errors.
David Hyman
University of Illinois at Urbana-Champaign Law School
Whereas the conventional take on the malpractice debate sees doctors and insurers pitted in a struggle against lawyers, the more significant divide seems to be between academics studying the problem and everyone else. Professor Baker has fairly well distilled the general consensus among academics, which is that preventable errors are as large a problem as any stemming from litigation. In a few places, though, Professor Baker overstates the conclusions warranted by the evidence, for instance relying too much on a somewhat suspect definition of negligence in one observational study, and on a study that probably understates the current impact of defensive medicine. His answer to problems of access--that they may simply be economically justified--is probably technically efficient, but is politically out of the question, and it is unclear that his preference for no doctor instead of a bad doctor is justified. Professor Baker also seems insensitive to the political difficulties of regulating the insurance market, which to do successfully would require companies to set rates higher than they want to during troughs in order to offset price reductions at peaks. I differ from Professor Baker’s particular solutions, which I think are generally off the mark. Public health departments would not be capable of enforcing the proposed disclosure requirements, and hospitals are not ideal entities to bear risk through enterprise liability in an age in which medicine is increasingly practiced outside the hospital. Academics should focus more on the specifics of our proposals if we want to be taken seriously by policymakers.
Martin F. Grace
Georgia State University, Department of Risk Management and Insurance
The Medical Malpractice Myth is an uncommon book in its sophisticated and generally unbiased characterization of the available evidence about the insurance industry. Like Professor Baker, economists favor lawsuits when they force providers to internalize the full costs of the goods and services they produce. Unfortunately, there is no guarantee that medical malpractice lawsuits really do that. Professor Baker might explain this by arguing that there are too few lawsuits to make the deterrent really effective, but he does not consider the possibility that there might be rational reasons why there are not many lawsuits. Instead, he utilizes an analogy between medical malpractice insurance and personal automobile insurance, but this is a specious comparison. Medical malpractice claims (through the tort system) have extremely high administrative costs compared to auto claims (85 percent and 24 percent, respectively). The system we have is clearly not efficient, and so suggesting more of it seems odd.
The medical malpractice insurance picture is also somewhat more idiosyncratic than Professor Baker’s description reveals. Pricing is extremely difficult; there are many non-traditional insurance mechanisms operating, such as risk pooling; and there are few sources of funding. So we are left with many small, single-state companies writing a single line of business, and with little access to capital when they need it. The insurance cycle he discusses does not exist as a cycle, but rather as unpredictable shocks to the system. Neither firms nor regulators could exert effective control over the market in responding to external shocks, regardless of how much authority they were delegated. Furthermore, the risk pool among doctors is not large enough to be priced in any really systematic way, especially since being sued for medical malpractice is not necessarily a good indicator of future risk. And while insurance companies have now begun to break even on their medical malpractice lines, they are more unsure about the future than ever, and so they have a rational basis for keeping rates high. Professor Baker’s suggestions seem unlikely to be able to fundamentally alter these uncertainties, and so the problem of drastically fluctuating rates would persist.
Jonathan Klick
Florida State University College of Law
Professor Baker does not take seriously enough the empirical evidence that tort reform affects medical malpractice costs, dismissing this effect as small. Especially in high-risk specialties, however, this marginal effect can be very important, and studies have suggested that poorly served areas tend to be the ones most helped by these marginal effects of reform. So while Professor Baker would like to dismiss tort reform as yielding very little benefits for what they cost, his assertion is unsupported by evidence. It may be that tort reform is a very cheap way to have a positive effect at the margins, and without available evidence, Professor Baker’s denunciation of common tort reforms simply represents his own opinion.
AEI research assistant Philip Wallach prepared this summary.
