Fixing Medical Torts by Repositioning Inalienability and Contract
Benjamin N. Cardozo School of Law
March 9, 2006
Cardozo Legal Studies Research Paper No. 151
This Essay calls for a repositioning of two distinct legal regimes - inalienability and contract - that govern the imposition of liability for medical malpractice upon doctors and institutions, respectively. The inalienable right to tort remedies places opportunistic patients - who file unmeritorious lawsuits against doctors and increase the cost of medical care - in the same pool with honest patients, who cannot credibly promise doctors not to sue them opportunistically. The contract regime allows managed care organizations (MCOs) not to monitor their doctors, which enables bad doctors to pool with good doctors. MCOs' functioning as a platform in a two-sided market for medical services intensifies this pooling. Good doctors and honest patients consequently suffer. Good doctors earn less than they should and their prospect for being erroneously adjudicated liable for malpractice looms larger than it should. Honest patients subsidize the opportunists by paying for medical care more than they should.
A complete switchover between inalienability and contract would make good doctors, honest patients, and society at large better off. MCOs' institutional liability should become patients' inalienable right; the law also should stop treating the patient's entitlement to tort remedies as inalienable. Under this system, an MCO can offer patients a menu of agreements. The menu's baseline agreement must honor the patient's inalienable right to tort remedies; other agreements are free to limit the MCO's liability. The price-difference between the agreements would credibly inform patients about the quality of the MCO's doctors. To attract patients, the MCO would have to keep this difference at its lowest, which would motivate it to hire good doctors only. Honest patients would then agree to limit their entitlement to tort remedies and get inexpensive quality care in return. An opportunistic patient would prefer the full-liability agreement - a self-selection that would not only cost more, but would also expose the patient to defensive medicine.
Keywords: tort, contract, medical malpractice, health care, MCO, pooling, inalienable rights, two-sided market
JEL Classification: A10, A12, C70, D18, D23, D82, H41, I00, K12, K13working papers series
Date posted: March 23, 2006
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