A new study on medical malpractice decisions by Alexander Tabarrok and Amanda Agan of George Mason University was released last week. A lot of the study is dedicated to countering some economically-ignorant canards (e.g. the charge that the recent rise in malpractice insurance is all due to price gouging and not due to malpractice awards).
The most interesting piece is where they compare malpractice awards to results of the independent medical review board rulings.
Our test finds that the tort system and review system do not correlate. Figure Five shows that
adverse actions per doctor in the medical review board system do not correlate with the number of medical malpractice cases per doctor in the tort system, nor do they correlate with the
average award per doctor....
In no case is the correlation large; in some
cases, it is actually slightly negative. What these results indicate is that the two systems
we have for determining malpractice, the tort
system and the medical review system, result
in very different determinations of malpractice.
Surely, one of them is wrong!
The conclusion is one I think many neutral parties have suspected for quite a while: The tort system is doubly broken: Bad outcomes that truly are the result of malpractice often do not result in an award, while numerous tort awards go to people who are not the victim of any real malpractice. Or to put it simply, people who are owed restitution aren't getting it and people who get money often shouldn't be owed anything.
The obvious result is a gross miscarriage of justice. However, there is a second, less talked about result: If the tort system is random, having no correlation to real doctor error or doctor quality, then it is impossible to charge doctors with risk-adjusted premiums. In an efficient market, the worst doctors would pay the highest premiums and would get driven out of the market, just like bad drivers must change their behavior or face lifelong high auto premiums. However, if tort awards are not correlated with bad behavior, as the study implies, then the system creates a huge moral hazard, with bad doctors underpaying for insurance and good doctors overpaying. The result is that at best, good doctors will be driven out of the system at least as frequently as bad doctors. At worst, good doctors, frustrated by the lack of justice in the system, will actually be more likely to leave the system than bad doctors.