Certain groups within the government are proposing caps on pain and suffering awards in an attempt to solve the supposed medical liability crisis we are facing. This crisis, apparently, is the result of doctors being sued out of business. The cost of liability insurance, it is said, is enough in some cases to make it unprofitable, or at least undesirable, to be a doctor at all. The problem is that it is obviously unjust to deny an injured person whatever damages he is entitled to, pain and suffering or otherwise.

There are certainly numerous things wrong with our current system of medical liability. I’ll point out a few that I am able to identify. First of all, there is the liability rule we are currently using; doctors are liable for harm to their patients if they are negligent. Ignoring the fact the juries are not qualified to make such determinations, it is quite possibly impossible to determine objectively whether a doctor was negligent, whether things went wrong that were beyond his control, or even whether he “tried his best” but still screwed up anyway. If a surgery is categorized as “risky,” how can you ever know whether its failure was the doctor’s fault?

There are other options for liability rules. One possibility, that I think we can rule out without much discussion, is that doctors are never liable, a.k.a. “buyer (patient) beware.” It would simplify things, but it would also have horrible consequences in that doctors would have little incentive, aside from protection of their reputation, to do a competent job in the operating room. The other possibility is that the doctor is always liable. In this case, the patient simply pays for a successful outcome. Anything short of a successful outcome entitles the patient to compensation.

What would the consequences be of full liability? Well, all else being equal, the cost for procedures would probably go up, since doctors would be paying out more damage awards and their insurance premiums would go up accordingly. On the other hand, there wouldn’t be much room for frivolous law suits and there would be little need for aggressive lawyering. After all, any time the procedure does not work out as promised, the doctor pays the patient damages. The only potential source of disagreement is whether or not the surgery did work out as promised, and how much the damage award should be. I’ll address the latter concern later.

It might be worth noting that there are few, if any, other professions that get away with only being liable if negligent. Can a plumber screw up your pipes and escape liability by claiming that the job was especially difficult or complicated?

Another problem with our current system is that there is no effective way for a prospective patient to agree not to sue in exchange for a reduced charge. We all pay more for medical care because of people who sue. People certainly have the right to damages, but there is no denying that the cost comes back on all of us. The problem is that it is utterly impractical to try to draft a contract that says “I promise not to sue as long as you promise to do your best.” Courts, rightly, will not honor a contract under which the patient signs away his right to sue. In such a case, the doctor would have free reign and could effectively kill the patient with no consequences.

There is a way out of this, however. If a patient were allowed to sell, either partially or in full, his right to sue prior to a surgery, he could use the money to offset the cost of the surgery. For example, assume we have a system of full liability for doctors and a particular procedure has only a 50% chance of success (assuming a competent doctor). The doctor would have to charge a larger fee for the surgery since he knows that 50% of the time he will owe the patient a large damage award (the total fee might be something like 0.5 times the doctor’s normal fee plus 0.5 times his normal fee plus the expected damage award). The patient could simply pay this large fee and then be able to collect damages if the surgery goes bad. If he wants to though, he could sell his right to sue to a third party insurance company. The value of this to the insurance company would be 0.5 times the expected damage award. The patient can use this money to offset the cost of the surgery, effectively only paying the doctor’s normal fee out of his own pocket. There is no “moral hazard” here as in the case of trying to write a contract to indemnify the doctor, because the doctor will still owe damages if the surgery goes bad, they will simply go to the insurance company who bought the tort rights, not the patient himself.

And there is no reason why the patient has to sell all his future rights to sue. He could, for example, sell only his rights to “pain and suffering” damages. Or, if he wants to mimic the proposals currently being considered by the government, he could sell his right to pain and suffering damages above $250,000.

So, it seems to me that a system of full liability for doctors, combined with legal changes to allow the sale of future rights to sue, would simplify things greatly and allow flexibility of choice by consumers (patients). Since negligence does not need to be proven or disproved, the involvement of lawyers (and legal costs) would be greatly reduced.

What about damage awards? I think this is the toughest problem. I have to admit that I’m not really sure how they are currently determined, but I have the strong suspicion that jury emotions come heavily into play in determining how much an injured patient should be compensated. Ideally, someone with some sense could come up with some objectively calculated guidelines for determination of damage awards. How is this possible, you may ask?

While most of us would put a near infinite value on our sight (for example) if asked, in real life we do not behave as if our eyesight was infinitely valuable. Every day, we do things that put our sight at risk in exchange for other benefits. Most obviously, we choose not to wear goggles around all the time, despite the fact that this would decrease the probability of us losing our vision. The discomfort or social stigma of wearing goggles to the grocery store outweighs the small probability of us losing our sight because we didn’t have goggles on.

It may take some effort, but studies can be done to establish estimates of how much people value their sight, their hearing, or even their lives. We can’t ask people how much they value their lives, because they will always say “infinite.” This is not because they really value their lives infinitely, but because money is of no value to a person who is dead. On the other hand, what if we had evidence that a person was willing to accept a one in a thousand chance of death in exchange for $1000? This would imply that he values his life at not more than $1M (assuming he was rational and knew the risks). In his book, Law’s Order, David Friedman states that studies of this type have been done by looking at how much additional pay people require to take on extra risks in their jobs. The result was that the average American values his life at between one and ten million dollars.

Certainly, more work needs to be done in this area. But once this is done, the results could be used to provide reasonable guidelines to the courts for damage awards. Each case would be slightly different since every person has a particular level of risk aversion (more risk averse people value their lives more highly) and a particular valuation of his sight, hearing, etc. (a musician may value his hearing more than the average person). It would be the job of the lawyers to debate the standing of each particular person relative to the average. The guidelines would get us in the ballpark and provide the basis for a rational debate.

So these are my suggestions: (1) change the medical liability rules so doctors are always liable for damages when a procedure does not come out as planned, (2) allow patients to sell their future tort rights to third parties, and (3) establish rational guidelines for damage awards. All three of these could reasonably be implemented today.

This entry was posted on Saturday, March 15th, 2003 at 6:43 pm and is filed under Economics, Politics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.