Malpractice liability, technology choice and negative defensive medicine

• Published in: The European journal of health economics 2012-04, Vol.13 (2), p.157-167
• Main Author: Feess, Eberhard
• Format: Article
• Language: English
• Subjects: Authorizations; Biomedical technology; Biomedical Technology - economics; Bodily injury liability; Decision Making; Defensive medicine; Defensive Medicine - economics; Due care; Economic models; Economic Policy; Economic theory; Financial liabilities; Health Care Costs; Health care delivery; Health Care Management; Health Economics; Health problems; Hospitals; Humans; Incentives; Insurance, Health, Reimbursement - economics; Legal liability; Liability; Liability insurance; Liability, Legal - economics; Malpractice; Malpractice - economics; Medical malpractice; Medical technology; Medicine; Medicine & Public Health; Models, Economic; Negligence; Original Paper; Patients; Pharmacoeconomics and Health Outcomes; Physicians; Public Finance; Public Health; Quality of care; Risk Assessment; State court decisions; Strict liability; Studies
• ISSN: 1618-7598; 1618-7601
• DOI: 10.1007/s10198-010-0294-7

We extend the theoretical literature on the impact of malpractice liability by allowing for two treatment technologies, a safe and a risky one. The safe technology bears no failure risk, but leads to patient-specific disutility since it cannot completely solve the health problems. By contrast, the risky technology (for instance a surgery) may entirely cure patients, but fail with some probability depending on the hospital's care level. Tight malpractice liability increases care levels if the risky technology is chosen at all, but also leads to excessively high incentives for avoiding the liability exposure by adopting the safe technology. We refer to this distortion toward the safe technology as negative defensive medicine. Taking the problem of negative defensive medicine seriously, the second best optimal liability needs to balance between the over-incentive for the safe technology in case of tough liability and the incentive to adopt little care for the risky technology in case of weak liability. In a model with errors in court, we find that gross negligence where hospitals are held liable only for very low care levels outperforms standard negligence, even though standard negligence would implement the first best efficient care level.