Malpractice on the Market - Eric M. Staib - Mises Institute

Malpractice on the Market - Eric M. Staib - Mises Institute: "Malpractice lawsuits, just as lawsuits against corporations, are an important mechanism for the maintenance of financial incentives in the market. While the specialized nature of both physicians and certain afflictions can sometimes limit choice and therefore competition, the threat of a malpractice lawsuit is sufficient to keep doctors from providing reckless care. In this way, the threat of malpractice suits spreads some of the risk of negative health outcomes to doctors. There is a trade-off to this redistribution of risk, however, as doctors who assume a larger portion of malpractice risk will charge higher prices for their services."

"Now that we understand the functions of malpractice lawsuits and insurance, we are able to examine the causes of their failures in America. The symptoms are well-known: unpredictable malpractice rewards, often disproportionate to damages and sometimes even in the millions of dollars, make malpractice insurance unprofitable at low premium levels.

This perverse state of affairs is a result of a government monopoly on malpractice arbitration and the regulation of malpractice contracting between patients and doctors."

"increasingly risk-averse doctors will perform fewer health services, and will discontinue most heavily those services that carry the highest risks. This is precisely why so many doctors are leaving the high-risk fields of obstetrics and gynecology in favor of other areas of practice."

"with higher prices, poor consumers will not have the financial means to acquire these risky services"

"Just as with emergency care, we can see that government regulation, which purportedly protects citizens from the dangers of a free market, forces the most needy patients out of that market. 'Underserved areas' in the medical-care market are visible and tragic government failures."

"attempting to reach more-efficient market outcomes with caps on rewards is just as destructive as allowing 'jackpot justice' and risk-dumping to continue."


"Private negotiation of prices must also be allowed and respected, for at a constant price no doctor will accept a greater share of the procedure's risk. Therefore, what is pejoratively called price discrimination will and should occur on a free market for risk-bearing medical services. With customizable combinations of risk and price, high-income and risk-averse consumers will be able to pay higher prices to be guaranteed large rewards in the case of malpractice, while lower-income consumers will finally achieve greater access to risky procedures, which they're deprived of by the current legal structure."