Health care is really expensive. It is expensive in part because Americans want access to all the best services:
There is something that every health care customer in America is forced to buy, whether she wants it or not: the right to sue the doctor for negligence.
It is not possible to buy the insurance à la carte, with reduced rights to sue people if they mess up.
Similarly, many patients and health care providers would gladly enter into an arrangement to eliminate the right to sue for negligence.* In return for a waiver of that right, a doctor, hospital, or insurance carrier could offer a patient a lower price for health care. Some patients would choose to take the lower price and assume the risk themselves. Others would prefer to waive medical malpractice liability and instead buy private disability or injury insurance. But these arrangements aren’t available to patients, because courts have long held that waivers of medical malpractice liability are unenforceable as “against public policy.” These rulings are the opposite of libertarian; they deny people the freedom to make contracts as they see fit.
Exposure to medical malpractice liability has been estimated to account for 5 to 9 percent of hospital expenditures—which means that litigation costs are a contributor to the expense of the health care system.3
The full costs of litigation actually include much more than judgments that are paid to plaintiffs and the costs of litigation—the “direct costs.” There are indirect costs as well, and patients must bear those costs too.
Many doctors practice “defensive medicine,” ordering expensive but unnecessary treatments for patients, or refusing to provide risky but beneficial treatments, simply in order to avoid liability.
Error reporting in hospitals and among physicians is discouraged.
It is not clear that patients gain a lot from the right to sue. At the same time, part of the current cost is passed onto patients, in the form of higher bills, and defensive medicine can be bad medicine for those who want good care.
This is the key point—courts will block any deal between patients and providers that exchanges lower-cost treatment for a waiver of the patient’s right to sue.
Why do courts block such deals? The answer is nonlibertarian paternalism, pure and simple. Courts appear to think that sensible patients would not waive their right to sue, and that doctors should not be treating patients without the threat of malpractice liability to deter negligent treatment.
One reason to allow patients the option of giving up the right to sue is that the deterrent effect of tort liability is overstated.
A doctor will pay the same premium no matter how many times he has been sued for malpractice. Of course, any doctor would like to avoid the ordeal and embarrassment of a malpractice lawsuit, but she generally need not fear the financial burden imposed by one.
The deterrence argument is also undermined by the stunningly poor fit between malpractice claims and injuries caused by medical negligence. To put it bluntly, most patients don’t sue even if their doctor has been negligent, and many of those who do sue, and end up with favorable settlements, don’t deserve the money.
Most patients who are harmed by medical malpractice do not get any compensation, and many patients who do receive compensation were not harmed at all or were not treated negligently.
If you can save something by waiving your right to sue, you might well elect to do that. The point is especially important for people without a lot of money. Since it is impossible to buy medical treatment without implicitly buying the right to sue, sick people who can afford treatment but not the package of treatment plus suit option will drop out of the market.
Another problem with the current system is that jury awards for the pain and suffering that may be associated with a medical malpractice claim are highly erratic.7 It is difficult to predict, from the facts of the case, whether a plaintiff will get a lot or a little.
We recognize that patients might find it hard to understand the nature of medical malpractice liability and the consequences of waiver. Waiving liability should not be done lightly or impulsively. In other domains, this view is reflected in state law, which often requires waivers to be accompanied by procedural safeguards designed to ensure that the waiving party is fully informed. Waivers generally must be in writing and must state precisely what is being waived.
If waiving the right to sue were the default, and retaining it would cost extra, most patients would probably waive (recall that the default option usually sticks).