New Differences between Negligence and Strict Liability and Their Implications on Medical Malpractice Reform

Abstract

The article seeks to explore previously undiscussed differences between the negligence and strict liability rules and thereby examine the required medical liability reform, if such reform is indeed required. Our main thesis is that negligence as a basis for liability entails a unique mechanism, which is essentially different than the strict liability mechanism, and is more efficient for several reasons, related to the legal function of resolving partial information problems which cause partial failure in the healthcare market. Among other things, the negligence mechanism (1) motivates the parties to a potential damages claim to invest in information gathering; (2) motivates doctors and medical institutions to adjust the appropriate medical procedures through time; (3) uses the market players' professional reputation to resolve the market's partial information problems; (4) introduces the courts as an additional oversight level; and (5) assists the law in reducing costs resulting from lack of standardization. Furthermore, the negligence rule allows the law to ensure a more efficient risk distribution. One reason for that is that it allows the law to distribute risk resulting from negligent errors separately from the risk resulting from non-negligent errors.

This thesis leads to conclusions regarding various issues, such as the required medical liability reform. Inter alia, we argue that it is inappropriate to limit the negligence mechanism's application, such as shrinking the limitation period or by imposing damage caps. We also argue for the advisability of creating and refining mechanisms to assist in resolving the market's partial information problems. For example, general imposition of mandatory disclosure in the healthcare market, similar to that which is imposed on the securities market, including the establishment of a central authority such as the SEC and supportive mechanisms such as those applied to regulating the securities market.

Keywords: Negligence, Strict Liability, Medical Malpractice, Moral Hazard, Adverse Selection, Mandatory Disclosure

JEL Classification: k13, L11, L12, L18, D82