Health Data, Patient Safety and Our Legal System: What Few See
An Economist and Lawyer Provide an Unusual Perspective on Our Health System
From electronic medical records to mobile devices, big dollars are flowing to capture health data and improve our lives. Yet long before today’s innovations, another industry evolved to promote and protect consumer interest: the court system. And while our legal system has a wide record of furthering corporate responsibility, advancements in healthcare seem modest. Why? Are financial incentives and penalties — the carrots and sticks of economic theory — ineffective? Is healthcare somehow different?
Duke University researchers Frank Sloan and Lindsey Chepke, an economist and lawyer, respectively, explore these and related topics in “Medical Malpractice.” Applying an economic lens to the impact of patient litigation and medical malpractice, they dive into what the data tells us, as well as what it doesn’t. They write, “The concepts of patient safety and medical malpractice are closely linked, at least in theory. Whether this is true in practice is quite another matter…” For anyone curious about the answer, or looking for a different perspective on the healthcare industry, their observations are worth exploring.
What may surprise readers, at least this one, is medical malpractice insurance pricing. Financially speaking, doctors are neither rewarded nor penalized by patient legal claims. As a sophisticated, numbers-focused intermediary, the insurance industry should naturally seek to efficiently price risk. Yet there are a number of reasons why doctors’ malpractice premiums often look alike: infrequent claims, judgment variability and long resolution time.
Perhaps contrary to the impression from news headlines, relatively few malpractice lawsuits are filed and only a sliver of those are successful. As a result, underwriters start with an unexpectedly small base. Further complicating the picture are the sometimes large, and often unpredictable swings in dollar awards. Finally, liability claims and legal disputes often take years to resolve; assigning an “active” claims rate to assess doctor risk is difficult. For these reasons the insurance industry has trouble grouping risk and equitably pricing it, as they do in other lines of property and casualty insurance.
However, hospitals receive no free pass. As the authors write, “many hospitals self-insure…and buy excess insurance to cover catastrophic risk…[which] is highly experienced-rated.” Patient judgments and financial losses do matter when hospitals seek to purchase “stop loss” insurance. However, as this second market is only a fraction of the first, “there is virtually no academic literature on the subject of [medical] reinsurance.” And insurance companies who sell primary malpractice insurance to doctors are in the same predicament, as an industry practice they also re-insure and purchase “experience-rated” catastrophic loss protection.
Complicating the picture further, the authors cite the “complexity of medical care” and difficulty in overseeing “all aspects of care that may potentially affect quality,” as significant barriers to establishing patient safety protocols. More hopefully, Sloan and Chepke propose that “enterprise liability” could provide the necessary economic incentive for reform. Hospitals and large health systems represent “legal agents” who can not only drive change, but also have the scale to absorb and charge for this added responsibility.
Further sobering, Sloan and Chepke find inconclusive data, conflicting research findings and uncertain economic proposals all conspire to make health policy recommendations challenging. Summarizing: “There is no convincing empirical evidence…[the threat of medical malpractice] makes health care providers more careful.”
Bah-humbug.
All is not lost, however. The authors point to one potential bright spot: “a good relationship with patients…might be a productive defense against being sued.” Perhaps in exchange for the “element of trust” the health industry asks of consumers, a doctor’s bedside manner may have economic value after all.
A special thanks to my former HelloWallet colleague, lawyer and mobile app guru, Michael Yoch, now Product VP at ShiftGig. His legal background, as well as perspective on health, money, and user experience, among many topics, inspired me to pick up this book.
Thanks for reading. Comments and suggestions for other topics welcome.
Below are reviews of bestsellers in the health space:
· Dr. Eric Topol’s “The Patient Will See You Now: The Future of Medicine is in Your Hands” here.
· Steven Brill’s “America’s Bitter Pill: Money, Politics, Backroom Deals and the Fight to Fix Our Broken Healthcare System” here.
· Athenahealth Co-Founder and CEO, Jonathan Bush, “Where Does It Hurt: An Entreprenuer’s Guide to Fixing Health Care” here.
· Dr. Marty Makary’s “Unaccountable: What Hospitals Won’t Tell You and How Transparency Can Revolutionize Healthcare” here.
I’ve also written about nutrition, money, technology, behavior and other (mostly) related topics. On LinkedIn and Medium.
HSA Coach. Health is WealthTM
Our personal health document storage and health savings account (HSA) educational app is now available. App Store here. Google Play here.
