The Correct Rx to Target Malpractice
Whether patients will be allowed to sue HMOs for malpractice finally will be resolved by a congressional conference committee pitting a nominally supportive House against a recalcitrant Senate. Despite the House vote eliminating the immunity of health maintenance organizations from claims of negligence, the chances of new legislation emerging soon are small because the speaker has stacked the committee with members unalterably opposed to any change.
The clarity of the debate is being obscured because neither side appears to understand the fundamental purpose of the malpractice system. They each start with the erroneous assumption that compensating victims of medical negligence is the main goal of malpractice law. In fact, the real purpose is to deter future negligent behavior by putting health care providers on notice that negligent care can result in severe economic penalties.
Yet what constitutes negligence? The distinguished Judge Learned Hand many years ago laid out the most useful and widely accepted criterion, stating that “negligence occurs whenever it would cost less to prevent a mishap than pay for the damage predicted to result from it.”
As an example, let us say that there is a sudden failure of a light on the stairway of a store. In the following moment or two, the darkness causes a patron to lose her footing and fall, breaking an arm. No jury is likely to find negligence on the part of the owner because it would not be reasonable to station an individual on every stairway to provide instantaneous correction of lighting problems; the cost would far exceed the anticipated costs of any injury, calculated as the probability of the injury occurring multiplied by the cost of the injury. If, however, someone takes a fall after the light is allowed to remain unrepaired for half an hour or more, the situation is different because the cost of checking on the light at relatively long intervals is low. Preventing the accident would have been far less costly than the cost of the injury to the shopper. Under these circumstances, a jury would be expected to find for the plaintiff.
Yet this sensible act of balancing costs of prevention against the costs of injury is exactly what HMOs can avoid. Because of an unexpected consequence of the Employee Retirement Income Security Act, or ERISA, HMOs do not face the possibility of malpractice suits no matter how egregious their behavior. Health care providers thus have no motivation to offset their desire to maximize profits. Without risk of penalty, they are spared the need to invest in reasonable measures to prevent harmful outcomes.
Immunizing HMOs against liability claims simply conceals the social costs borne by patients when under-investment in quality of care brings suffering, pain, disability and sometimes death. Barring lawsuits may help keep premiums low, but it simply shifts the burden to the patient and eliminates a highly desirable deterrent to improper refusal of HMOs to pay for care.
As the light bulb example demonstrates, someone who is injured is not automatically entitled to compensation even though everything about the injury is identical to that of another person who does merit compensation. Nor does this formulation of malpractice law mandate that all injuries be prevented. If the cost of prevention is greater than the anticipated damages, avoiding the injury is simply not economically feasible. Over-investment in safety is not justified because it misuses society’s resources. With most HMOs enjoying virtual immunity from patient lawsuits, the key problem is under-investment, not over-investment.
Opponents of opening managed care organizations to malpractice suits argue that HMOs will become victims of a flood of capricious lawsuits that will drive up premiums. Such an outcome is highly improbable. Lawyers who take on malpractice cases usually do so on a contingency basis, meaning that they don’t get paid unless they win. Why would they take on lawsuits that are not winnable and impose heavy, non-reimbursable expenses on themselves?
On the other hand, patients and lawyers who do bring valid claims will be acting as unwitting but valuable agents of a broader social good. The prospect of financial reward for plaintiffs and their lawyers provides the incentive for them to play their part in making HMOs accountable for their health care decisions.
If the ERISA protection against patient claims is repealed and HMOs react rationally to the threat of lawsuits, they will be forced to use the Learned Hand calculus in making appropriate investments in patient-care quality. That’s good news for all HMO patients, not just those who win in the courtroom.
