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Friday, March 21, 2014

Frakes on Medical Malpractice and Liability Standards

Michael Frakes (Cornell) has posted to SSRN The Surprising Relevance of Medical Malpractice.  The abstract provides:

The academic community has largely reached a consensus that medical malpractice reform is unlikely to be a meaningful source of health care cost containment.  This Article suggests that one would be premature to take the evidence underlying this academic sentiment to conclude that physicians are universally insensitive to the parameters of medical malpractice law and that liability reform may have no role to play in the health care costs debate.  On the contrary, this Article demonstrates that the medical liability system, under particular structures and/or under particular conditions, may have a meaningful connection indeed to health care spending patterns. 

The shortcoming of the existing empirical literature that has likely contributed to this misconception is its failure to fully appreciate the structure of medical liability rules.  By viewing the substantive dimension of malpractice law too abstractly, the literature has overlooked those features of the system, and of the environment in which it operates, that have likely led to the weak connection observed between medical liability forces and health care spending.  This Article attempts to identify such features, theorizing that the limited empirical findings of the existing literature may, in part, be explained by the fact that the present liability system sets operable standards of care by deference to customary physician practices and that such customs are themselves shaped by financial and other influences that already encourage excessive spending.  On the margin, financial motivations to provide unnecessary care may simply be crowding out the influence of the law. 

Nonetheless, the theoretical framework set forth in this Article identifies various scenarios in which health care spending may exhibit greater sensitivity to liability pressures.  First, despite any present crowd-out of liability forces by financial motivations, this model suggests that defensive medicine may become a more noticeable phenomenon should other delivery system reforms succeed in curbing pernicious financial incentives to over-treat patients.  Second, this framework predicts that spending patterns have the potential to diminish considerably upon the adoption of more structural reforms to the liability system and to the nature in which liability standards are set, as distinct from the remedy-focused reforms — e.g., damage caps — implemented by legislatures to date.  Finally, this Article supports the various predictions of this model through the presentation of a range of empirical findings.  Much of this supporting evidence comes from various facets of the existing literature, including recent papers by this Author.  However, this Article builds on this empirical precedent by providing new evidence of the sensitivity of defensive medicine to the prevalence of financial motivations to provide excessive care, drawing upon previously unavailable data on health care costs and implementing a sophisticated natural-experiment design.

--CJR

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