Medical Malpractice: An Economist's View
The sharp increase that occurred in 1975 in premiums charged doctors and hospitals for medical malpractice insurance raises a number of issues of concern to economists. This paper attempts to survey some of the more important. At first glance the various sections may appear unrelated to each other and without a unifying theme. However, this disunity is superficial. Sections III-V, the bulk of the paper, are repeated applications of a central proposition of economic theory: purposive behavior is to be explained as the rational pursuit of a set of competing objectives by individuals who are constrained by limited resources and must therefore allocate these resources among alternative uses. This proposition is used in section 111 to explain differences in malpractice claim payments among states and changes over time; in section IV, to analyze the effect of different legal arrangements for distributing the cost of iatrogenic injuries on the behavior of patients and doctors; in section V, to show the effect of different methods of compensating lawyers upon their fees and the volume of litigation they undertake; and in section VI, to consider the unresolved question of “who bears the cost of malpractice claim settlements?” As will be seen, the nature of the argument reflects an economist's outlook; its viewpoint is different from that of doctors, lawyers, or “concerned citizens.”