Reforming the Tort System, Part 1: Freeing the PatientJohn C. Goodman • Wednesday November 28, 2012 1:11 PM PST •
A reformed tort system is one that is governed by the ten principles of a rational tort system. This is the default system, and all cases of malpractice will be tried in this system unless patients and providers contract out prior to the occurrence of the alleged malpractice.
The following is how liability by contract might work, especially for patients.  Subsequent posts will examine potential benefits for doctors and other medical experts, and the courts. For more details, please see my book Priceless: Curing the Healthcare Crisis.
Free the Patients
Under the traditional system, most hospitals and doctors ask their patients to sign a form at the time of treatment releasing the provider from any legal liability in case of negligence. In malpractice suits, the defendants point to the form and claim the plaintiff (victim) has waived the right to sue by contract, as a condition of treatment. Courts have routinely dismissed such arguments, however, on the grounds that they do not really constitute informed consent. After all, how can a patient who is ill, frightened, and intimidated by the healthcare system make rational decisions about complex legal liability issues?
The position of the courts is understandable, but it has had an unfortunate side effect: doctors and patients are unable to avoid the costs of the malpractice system through any contract whatsoever.
How can the system give patients and doctors other options, while at the same time protecting patients from making unwise decisions when they are least able to negotiate contracts? One answer is for the legislature (or a body designated by the legislature) to decide in advance what will constitute an enforceable contract. Let the state legislature decide on the minimum elements (including the amount of monetary compensation) that must be in such con- tracts in order to make sure patients are fairly protected, then widely publicize these elements so that people generally understand (before they get sick) what will happen if they opt out of the malpractice system and waive their common law rights to litigate.
Patients would not be required to agree to such contracts as a condition of treatment; however, if they voluntarily signed the agreement, it would be binding.
Here are some provisions that should be considered for inclusion in such contracts.
Compensation Without Fault
This provision obligates the provider to compensate the patient (or family of the patient) in the case of unexpected death or disability. In the case of an unexpected death, the amount could be set in advance and generally known to all patients. In the case of an unexpected disability, the contract might use the provisions of the state workers’ compensation system.
How much compensation should be paid in the case of an unexpected death? Any number would be somewhat arbitrary. The amount could be varied by patient characteristics, including the patient’s age, the age of any surviving spouse and children, the patient’s income, and so forth. In other words, the amount could be based on some of the same criteria the current malpractice system uses.
Adjustments for Risk
Not all medical cases are the same. Even if the probability of an unexpected death is low, complications in one patient may create risks twice as high as for another. There must be a way of adjusting for this, or providers would try to avoid all the harder cases. One possibility is to reduce the amount of compensation for riskier patients.
As a condition of waiving the patient’s legal rights to pursue liability claims under traditional tort law, providers should be required to make certain quality information public. For routine surgeries, for example, hospitals and doctors should post (case-adjusted) mortality rates, readmission rates, hospital-acquired infection rates, and so forth. Providers should also be required to disclose the use of safety measures, including electronic medical records, computer software designed to reduce errors, and procedures designed to prevent hospital-acquired infections.
In addition, in the case of death or disability, providers should be required to fully disclose all facts to appropriate investigative bodies so that steps can be taken to prevent future recurrences. The patient should also be required to provide full disclosure. The time of the last meal or the ingestion of other drugs, if undisclosed at the time of treatment, can lead to adverse medical outcomes.
Even for simple surgery, patients must comply with certain provider directives, including diet restrictions, full disclosure of medications being taken, and so forth. For maternity cases, compliance in the form of prenatal care is more involved and extends over a longer period of time. Failure to comply in all these cases would result in a reduction in the amount of compensation and perhaps no compensation at all.
Additional Insurance Options
As explained above, legislatures will set minimum requirements for liability contracts. In most cases, insurance companies will then insure those contracts. However, once premiums for a doctor, patient, and procedure are set, patients could increase the coverage by paying an additional out-of-pocket premium. For example, if the legislature requires a minimum payout of $200,000 for an unexpected death, and the providers have to pay $x of premium for the insurance, patients should be able to pay an additional $x to obtain $400,000 of insurance coverage (or any other multiple).
 John C. Goodman et al., “Malpractice Reform: Five Steps to Liability by Contract,” in Handbook on State Health Reform (Dallas, Texas: National Center for Policy Analysis, 2007), 167-178.
[Cross-posted at Psychology Today]