Malpractice Liability for Physicians and Managed Care Organizations

78 Pages Posted: 2 Oct 2003 Last revised: 17 Nov 2013

See all articles by Jennifer Arlen

Jennifer Arlen

New York University School of Law

W. Bentley MacLeod

Columbia University - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Abstract

This Article provides an economic analysis of optimal negligence liability for physicians and Managed Care Organizations explicitly modeling the role of physician expertise and MCO authority. We find that even when patients anticipate the risks imposed on them, physicians and MCOs do not take optimal care absent sanctions. Markets and contracts do not provide optimal incentives because market prices are determined at the moment of contracting, but physician expertise and MCO authority depend on non-contractable actions taken post-contract. Negligence liability can induce optimal care if damage rules are optimal. Optimality requires that MCOs be held liable for both their own negligent treatment coverage decisions and for negligence by affiliated physicians. Moreover, we find that MCOs should be liable even when they do not exert direct control over physicians. Finally, we show that it may be optimal to preclude physicians or MCOs from obtaining liability waivers from patients, even when patients are fully-informed and waive only when it is in their interests to do so at that moment.

Suggested Citation

Arlen, Jennifer and MacLeod, William Bentley, Malpractice Liability for Physicians and Managed Care Organizations. New York University Law Review, Vol. 78, p. 1929, 2003; NYU Law School, Public Law Research Paper No. 73; USC CLEO Research Paper No. C03-21; NYU, Ctr for Law and Business Research Paper No. 03-21. Available at SSRN: https://ssrn.com/abstract=453543 or http://dx.doi.org/10.2139/ssrn.453543

Jennifer Arlen (Contact Author)

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

HOME PAGE: http://https://its.law.nyu.edu/facultyprofiles/profile.cfm?personID=20658

William Bentley MacLeod

Columbia University - Department of Economics ( email )

420 W. 118th Street
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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