Medical Malpractice

Abstract

The traditional common law of medical malpractice holds health-care providers liable for medically caused (iatrogenic) injuries that are caused by negligence. Adverse outcomes that are consistent with the normal risks of customary medical care are the burden of the patient and first party insurance. The rationale for liability of medical providers, as for other professionals, is asymmetric information between consumers and producers. In competitive markets, if consumers misperceive risks, a rule of caveat emptor leads to nonoptimal levels of risky activities and nonoptimal care per unit of activity (Spence 1977; Shavell 1980). In the medical context, if patients misperceive the risks and benefits of alternative treatments and cannot readily monitor the quality of care delivered, then there may be too little care per procedure and too many risky procedures. In theory, a negligence rule of liability for failure to take due care can correct this distortion and create incentives for optimal care per treatment. The optimal level of risky treatments can be achieved by extending the definition of negligence to include liability for performing ‘unnecessary’ procedures.