Working Paper No. 3

Reforming Medical Malpractice Liability through Contract

This paper discusses the medical malpractice “crisis” and the potential of contract liability to reduce overall malpractice costs as well as improve the quality of and access to care. First, the paper describes the current medical malpractice liability “system” and some of the more common reforms offered. It then discusses the economic rationale of allowing patients and providers to agree in advance of treatment on how the patient will be compensated in the event of simple negligence on the part of providers, explaining how contract liability may offer improvements in the areas of costs, patient preferences, the pursuit of more efficient liability rules, and quality of care. The paper then critiques select objections to contract liability — those based on the superior bargaining power of providers, the lack of information available to patients, and possible reductions in quality — and forwards possible limitations on the right to contract that may allay such concerns.

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Michael F. Cannon is director of health policy studies at the Cato Institute.