New Study on Malpractice

A new study on medical malpractice decisions by Alexander Tabarrok and Amanda Agan of George Mason University was released last week.  A lot of the study is dedicated to countering some economically-ignorant canards (e.g. the charge that the recent rise in malpractice insurance is all due to price gouging and not due to malpractice awards).

The most interesting piece is where they compare malpractice awards to results of the independent medical review board rulings.

Our test finds that the tort system and review system do not correlate. Figure Five shows that
adverse actions per doctor in the medical review board system do not correlate with the number of medical malpractice cases per doctor in the tort system, nor do they correlate with the
average award per doctor....                               

In no case is the correlation large; in some
cases, it is actually slightly negative. What these results indicate is that the two systems
we have for determining malpractice, the tort
system and the medical review system, result 
in very different determinations of malpractice.
Surely, one of them is wrong!

The conclusion is one I think many neutral parties have suspected for quite a while:  The tort system is doubly broken:  Bad outcomes that truly are the result of malpractice often do not result in an award, while numerous tort awards go to people who are not the victim of any real malpractice.  Or to put it simply, people who are owed restitution aren't getting it and people who get money often shouldn't be owed anything.

The obvious result is a gross miscarriage of justice.  However, there is a second, less talked about result:  If the tort system is random, having no correlation to real doctor error or doctor quality, then it is impossible to charge doctors with risk-adjusted premiums.  In an efficient market, the worst doctors would pay the highest premiums and would get driven out of the market, just like bad drivers must change their behavior or face lifelong high auto premiums.  However, if tort awards are not correlated with bad behavior, as the study implies, then the system creates a huge moral hazard, with bad doctors underpaying for insurance and good doctors overpaying.  The result is that at best, good doctors will be driven out of the system at least as frequently as bad doctors.  At worst, good doctors, frustrated by the lack of justice in the system, will actually be more likely to leave the system than bad doctors.


  1. mauricem:

    A real eye-opener. Sad but true.

  2. Brad Warbiany:

    It's too bad that students these days learn little to nothing about economics, because what you just said-- while it makes great sense and if acted upon could reduce the cost of medical care-- went right over their heads...

    Good piece...

  3. D. Forrest:

    How can it be concluded that the Tort system is wrong and the "independant" Board is correct?A group of physicians is asked to review one of their own and concludes that there was no wrongdoing. What a shock!Most reviews are absolutely confidential so how is it possible to ever verify the veracity of these reviews. I am always amased that the public seems willing to accept the claim that the Tort system is broken when it is that same public that sits on our juries. The Courts don't go to some list of crazies to draw up a jury pool.Regular citizens don't somehow become drugged or hypnotized when they sit in the jury box. The Insurance industry has done a remarkable job of selling this idea based on horror stories rather than facts. Talk about junk science!

  4. Jim Collins:

    I'd have to disagree with D Forrest. A few years ago I was summoned for jury duty. I sat in a room for two days before being called into the courtroom for a liability case. About 50 of us sat in the back of the courtroom while we were called up one by one to answer questions. When it was my turn I went up and was asked "What I did for a living?". When I replied "That I designed industrial machinery.", the lawyer who asked the question said "No" and the judge told me that I could go. This went on until all of us had been questioned and about three people were selected. What I noticed was that everyone who worked in a profession or had a College degree was rejected. In other words, anyone who might have the ability to really understand what was being said during this trial was rejected. Liabilty trials have nothing to do with the facts of what happened, it is who puts on a better show. There is a simple solution for this. Professional Jurors.