Doctors, damages and deterrence. An economic view of medical malpractice

Abstract

Damages awarded in a malpractice suit must be viewed not only as compensating the victim but also as deterring health-care providers from negligent behavior. Economic analysis of the malpractice system indicates that awards can send a signal to providers that informs them how much to invest in avoiding mishaps. The malpractice system is beset by difficulties, but not the ones commonly incriminated. The signal to the physician, as determined by the number of claims and size of awards ("expected damages"), appears to be insufficient for ideal deterrence. Moreover, the deterrence signal is attenuated because malpractice premiums are set for groups of physicians, not for individuals according to their record of previous malpractice incidents. Replacing the present tort system with a no-fault insurance scheme would not necessarily be cheaper, and might well abolish the deterrent signal or distort clinical decision making.