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Hidden Costs of the Liability Crisis

A hidden problem resulting from the various medical liability crises in the last thirty years is that there are relatively few large insurers selling med mal coverage. Insurers have dropped out of the market over the last three decades allegedly due to the uncertainty, risk, and low profitability of medical malpractice insurance. It is possible that this exodus has had an impact on quality of medical care. As the amount of underwriting expertise declines leaving relatively young physician owned firms being a major provider of insurance in the market, the markets ability to generate quality improvements is reduced.The states have been relatively successful in passing tort reforms and at the same time the med mal market is returning to profitability, so now is the time for physicians and insurers to work on systems to reduce medical errors. David Hyman and Charles Silver, in the most recent issue of Regulation, point to an important agency cost problem in the medical profession - - self policing (or the reluctance to self police). However, they note specifically the successes the professional association of anesthesiologists has had in improving quality of care and reducing medical errors.

If we had more, larger insurers the industry could exert a positive effect on medical care quality. Given physicians' alleged reluctance to police themselves, insurers may have a greater ability to underwrite and to set standards for improved medical care quality. Essentially, this is what insurers did for manufacturing and product safety in the last two centuries.However, because of the relatively small economies of scale of physician owned firms and the lack of large interstate med mal insurers, this pressure is not as strong as its potential.

Update: Today's WSJ ($) describes in more detail how the American Society of Anesthesiologists has been able to work with physiscians to reduce medical errors and malpractice premia.



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.