The Free-Market Approach to the Medical Malpractice Crisis

by Dr. Ron Paul
from Texas Straight Talk

3/31/03

I’ve spent nearly four decades practicing medicine as an obstetrician, and I’ve seen firsthand how the cost of medical malpractice insurance has risen. Among doctors, malpractice costs truly represent a crisis that threatens the economic viability of the profession.

There is no question that medical malpractice lawsuits are out of control in this country. We’ve become a society that expects medical care to be guaranteed, that demands a perfect outcome to every medical procedure. Mother Nature provides no guarantees however, and things can go wrong without the slightest negligence by the doctor involved. Of course some malpractice suits are legitimate, and truly negligent doctors should pay economic damages. But far too many suits are filed simply because a patient is unhappy despite the competent efforts of his doctor, and far too meritless suits are settled simply to avoid litigation costs. The result is malpractice premiums that cost doctors tens of thousands of dollars per year, and increasingly threaten to put some out of business.

Every American pays for this not only in the form of much higher medical costs, but also in countless other ways. Trauma center doctors have walked off the job in protest. Many doctors feel stressed, unhappy, and unappreciated, which leads to a declining quality of care. Most are hesitant to explore new treatments that could benefit patients because they fear a lawyer will seize on any deviation from standard practices. Similarly, patients endure more and more unnecessary and costly tests ordered by doctors who feel they must explore even the most unlikely diagnoses. Worst of all, the best and brightest young people are abandoning the pursuit of medical careers. Already faced with years in medical school and daunting tuition bills, they increasingly understand that malpractice and economic concerns have damaged the quality of life for doctors.

Many Americans understandably want Congress to fix the medical malpractice problem. Yet the “solution” offered by Congress, namely the federalization of malpractice law, threatens to do more harm than good. First and foremost, this approach damages the Constitution by denying states the right to decide their own local medical standards and legal rules. Capping liability limits sounds appealing, but it fails to address the basic problem of too many lawsuits and too many shakedowns, most of which settle for less than the proposed caps anyway.

The federal approach also ignores the root cause of the malpractice crisis: the shift away from treating the doctor-patient relationship as a contract to viewing it as one governed by federal regulations. The third-party payer system, largely the result of federal tax laws and the HMO Act of 1973, invites insurance company functionaries, politicians, government bureaucrats, and trial lawyers into the equation. This destroys the patient’s incentive to keep costs down, because he feels he is part of “the system” and someone else pays the bill. In other words, the costs of medical care have been socialized, even though HMOs are ostensibly private businesses.

Yet the assessment of liability and compensation should be determined by private contractual agreements between physicians and patients- in other words, by the free market. The free-market approach enables patients to protect themselves with “negative outcomes” insurance purchased before medical treatment. Such insurance ensures that those harmed receive fair compensation, while reducing the burden of costly malpractice litigation on the health care system. Patients receive this insurance payout without having to endure lengthy lawsuits, and without having to give away a large portion of their award to a trial lawyer. This also drastically reduces the costs imposed on physicians and hospitals by malpractice litigation.

I have introduced legislation that allows individuals a tax credit for the purchase of negative outcomes insurance. Needless to say, my bill prohibits the IRS from treating such insurance proceeds as taxable income. After all, while we don’t need trial lawyers getting any more insurance money, but we certainly don’t need the IRS getting it either!

Dr. Ron Paul is a member of the U.S. Congress.