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Impact of Malpractice Suits on the Medical Care

Executive Summary

This report will analyze malpractice suits and their impact on the cost of medical care. It will specifically target the aspect of self-interest in the field of medical care practice. The main areas of concern are the options available to both the patients and the physicians. Defensive medicine which is a phenomenon arising from physicians self-interest is also discussed. The limitations of legal topic in the aspect of self-interest are also provided. Recommendations for further action are presented at the end of the report.

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The healthcare system in the United States of America is a unique and complex one. It is unique, expensive and uneven when compared to the healthcare systems of other developed countries. The only positive perception regarding the US healthcare system is that every citizen is entitled to it; it is a right that they are guaranteed. Medical expenditures in the USA are covered by fragmented entities, insurance companies and other tax supported systems like the Medicare and Medicaid. Despite the fact that USA provides the best healthcare in the globe, this care is only available to the segment of the population that is covered by the medical insurance plan or those who can foot their medical care bills hence leaving other citizens vulnerable.

The healthcare system of the US involves several stakeholders. Key among them are the physicians, administrators, medical institutions, medical insurance companies and the governments. All of these stakeholders have diverse interests and more often several conflicts arise as a result of the interests. These fragmented interests have the effect of producing countervailing forces within the system. The USA has several systems of healthcare, for instance, the managed care, integrated delivery, military and system for the vulnerable; each of these systems is financially different. To understand the economics of healthcare, it is imperative to analyze how the health care system is organized. Generally, healthcare market is composed of patients who are the consumers and the producers who are the physicians. The presence of third parties in the health care equation complicates matters. These third parties are the government and insurance companies and are considered surrogate for patients.

Economic Analysis of the Healthcare System

The US healthcare system is characterized by imperfect market conditions. This is where the patients or the consumers have a lot of medical providers to select from; these imperfect market conditions are characterized by the absence of economic forces that shape the market. In this case, healthcare delivery is in the hands of the private entities but the healthcare services are governed by free market forces. The healthcare system in the United States falls short of free market since in a free market patients have the right to choose their appropriate providers based on the parameters of price and quality and where prices are negotiated between the payers and the providers, but in this case the prices are dictated by the agencies of external market. Free market also requires the providers to have various choices at their disposal.

Legal Issues in the Cost of Medical Care

USA is a litigious society where all individuals understand their rights. The litigious nature of USA is motivated by enormous jury awards in cases that have been determined. Private healthcare parties have been the subject and are still susceptible to litigations. This implies that the risk of malpractice law suits has been given a serious thought in the field of medicine. To protect themselves from any form of or possibility of litigation, healthcare providers and physicians have resorted to what is referred to as defensive medicine which involves prescribing numerous diagnostic tests, scheduling of check ups and maintaining copious documentation as a justification for high medical costs. These measures are unnecessary and can result in high medical costs and inefficiency (Shi, Lebrun & Tsai, 2008).

The healthcare costs in the USA have sporadically risen. These have been linked to legal suits that are as a result of medical malpractice. For several years, there are punitive law suites from cases of pain and suffering which have resulted in levying of huge sums of money from the doctors, hospitals and healthcare insurers. This has led to increases in insurance premiums and the growth of several malpractice insurance companies to capitalize on it. Consequently, to offset the malpractice insurance claims, doctors and hospitals have raised the medical charges and they have resorted to more extensive medical tests and diagnoses to protect themselves from any medical accountability. These factors combined results in the surge in medical bills. There have been numerous medical cases between lobby groups, plaintiff lawyers and the healthcare industry.

Malpractice lawsuits have also done more harm in the relationships between physicians and the patients. Consequently, young medical professionals have been discouraged from dealing with complex and high specialist medical areas like gynecologist and obstetrics due to the fear of malpractices lawsuits. The relationship between doctors and lawyers has also deteriorated since some doctors have blamed the lawyers for their predicament and for taking even frivolous suits.

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Self-Interest in the Economic Analysis of Healthcare

It is argued that some physicians have been accused of responding to their self-interests. There have been reports that some physicians have refused to treat lawyers and attorneys or their families due to hatred emanating from litigations. Medical compensations have not however been serving the patient and the lawyer equally; there have been few cases where the economic damages are awarded to the patient to compensate for his earnings which might have been lost due to his inability to fully function in his job description (Plunkett, 2005).

Defensive medicine has been the core of the rising legal costs. This implies the use of new technology and the general advancements in medical knowledge to enhance the tests that are aimed at eliminating law suits. There have been some cases where a particular share of the medical cost is considered consequences of physician’s financial incentive as to direct the patient to another doctor in a facility that the physician has proprietary interest for testing and examinations. Also physician’s concern about medical liability in a situation of conscientious medical care will make them opt for defensive medicine. In this scenario, the healthcare costs are reduced through avoiding medical costs that are linked to medical injury.

Doctors have argued that the laws that are aimed at protecting the patients have resulted in the doctors providing poor health care. These have made laws to be bad laws hence claims are levied against medical malpractice litigations which have made physicians practice defensive medicine which goes against the rights of the patient. Defensive medicine has been used as an excuse of limiting patient rights. These unnecessary medical attention which are aimed at enriching physicians and hospitals through unethical practice of false lab and other examinations amounts to fraud and financial malpractice (Porter & Teisberg, 2004). The extreme judgments in small proportion and the settlement of litigation cases are influencing the direction of healthcare costs. In cases of litigations, most of the patients are not awarded compensation. These cases of excessive litigation are impeding the efforts of the government to reform and improve the quality and cost of healthcare.

Insurance premiums are largely influenced by the expensive litigation system. Self interest is considered a fundamental part of individuals programming; it is a menace that is too hard to eradicate. According to economists, it is the engine that propels development. The self interest of physicians manifests itself in two main ways: first is to enhance their personal earnings and secondly is to guard their clinical autonomy.

The desire by the doctors to do the best for the patients is a clear area of self interest. The principle of rationing requires the doctors to refuse care even if the patients demand them and even when it will benefit the patients. It is argued that doctors should not support the demand of the patients especially in the pursuit of marginal cost effectiveness which might result from depriving the patient of a medical care that they deserve. Consequently, doctors should desist from lowering the threshold of treatment without the evidence of cost-effectiveness.

Self interest in the economic perspective is understood to mean regard for ones advantage especially by disregarding others. The referral of patients to one individual or particular institution in which the physician has some financial interest may at times be interpreted as self referral. It has been established that physicians make referral cases to fellow professional health practitioners or health care facilities that they have financial interest without providing information to the patients to enable them make informed decisions. The patients should also be informed about other existing alternatives for them to choose from and be given assurance about the degree of the treatment they will receive.

Self interest and the response to financial incentives by medical practitioners are inherent in human behavior. Doctors have always placed money before productivity which has led to poor quality of healthcare (BMJ, 2008). A medical practitioner who receives financial incentives to limit the patient will be considered to have acted as both a caregiver and a gatekeeper that is analyzed to mean a conflict of interest. As a caregiver, it is his/her responsibility to provide quality health care while as a gatekeeper the doctor is motivated by his/her desire to limit the care of the patient through the making of referrals, by ordering few laboratory tests and by eliminating tests and treatments which are expensive. These two aspects present a central conflict between the responsibility and duties of the physician and financial interests which can pose danger to the quality of patient care that he will be subjected to.

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Due to the emergence of the phenomenon of physician’s incentives as a cost effective tool, some scholars prefer physician incentives as measures to regulate the healthcare costs.

Model of Approach –Utilize Quantitative Data

It is acknowledged that the excesses of litigations can not alone be considered responsible for the rising medical costs but it is a major contributor to the ever surging medical bill. As indicated in the following graph, medical malpractices on doctors and the hospitals contribute to the costs of health care. Medical malpractice accounts for up to 10% of the tort tax. Litigations over pharmaceutical companies are considered to be the highest. The direct costs of healthcare litigation are taken to have scratched the American economy and have also had large impact on the cost of healthcare. Law suits inflate health care costs by encouraging defensive medicine. Defensive medicine cost extremely higher than the regular liability costs. The litigation industry has always marginalized the very people that it seeks to protect. Lawyer and administrative charges or fees take a higher percentage than the plaintiffs and claimants.

One common feature of healthcare markets is that, there is uncertainty concerning the kind of treatment, diagnosis and the effectiveness of a service. These uncertainties are irreducible. Neither the physician nor the patient understands with certainty about the consequences of particular treatment; this may lead to the problem of unmet needs. This uncertainty is one-sided, since the patient lacks the requisite medical training and knowledge to make informed decisions. Information in healthcare is an economic good and the physicians utilize it for their self interest. This information may be classified or specialized for the patient to understand hence creating a likelihood of his inability to make informed decisions and hence low benefits will be accrued to him. The relationship between the physician and the patient is one of principal-agent one where the doctors is an agent of the patient who is the principal in this case in the making of healthcare decisions. Healthcare economics is one of supplier induced demand (Morris, Devlin & Parkin, 2007).

In the principal-agent relationships, compensation package allows for agents attitude towards taking risks. Agents are more risk averse as compared to the principals and hence they need to be compensated for their risk taking. This behavior of incentive package as a measure to motivate the agents is understood as a mechanism design theory. Irrespective of the package that is produced, several forces other than the principal interfere and influence the behavior of the agent. These external forces may be the conditions of the market or degree of competition in the healthcare market. The field of healthcare or medical practice is purely influenced and motivated by healthcare. Negotiations for maximum incentive structure bring to individual attention whether self interest propels or should be allowed to propel healthcare systems. Self interest has replaced the internalized values of professional code of conduct where the physician should work at best to fulfill the demands of the patient and to satisfy patient’s interest (Jan, Kumarayanake, Hanson, Roberts & Archibald, 2005).

Empirically, the pricing regime of physicians in particular and the healthcare sector in general do not conform to the principles or conventional economic theory. Physicians charge higher prices, economic analysts have advanced the theory of cartel behavior to explain this anomaly in the healthcare or physicians market. Another theory advanced to explain this price effect is the target income theory where the doctors exercise their power in making pricing decisions. There is also the case of physician induced demand where the doctors can anyhow just increase the price of their service because they exercise control over the patient. The strong influence that the physicians exercise over the patient is analyzed to be a self-interested economic behavior. Doctor’s influence over the patient can affect pricing decisions in the market and will deny the patients the opportunity to assert their economic motive of taste and preference (Greaney, n.d.).

The following is the medical malpractice payment compensations for physicians. It also includes compensations for payments by states to supplement patient claims.

Medical Malpractice Payments


The impact of medical malpractice suits on the cost of healthcare has been the subject of intense debate. There have been limited data or extensive research on healthcare. The critical concern is how to improve the safety of healthcare and how to make liability claims affordable for health providers and more so how to ensure that there is a just system for compensating patients who have been injured as a result of medical negligence. Medical malpractice falls under tort law which takes care of people who are injured. Litigations affect both parties to primary care, nurses and hospitals. The function of the legal system in the US is to safeguard the rights of the patient and the entire citizens to file legitimate suits in circumstances that they feel they have been harmed. This resulted in the filing of frivolous suits which at times overwhelm the legal system leading to the entire citizenry indirectly paying the price (Maynard, 2008).

Medical liability has widespread impact on the citizens: among these challenges is shortage of medical practitioners, increase in the cost of healthcare. Patients also suffer from the problem of inordinate delay in receiving medical attention. A lot of physician no longer pay attention to emergency patient cases or physicians fear performing high risk medical operations due to the fear of litigation or compensation suites.

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The legal system in the USA allows for the principle of joint-and-several liability. This principle allows that a claimant should recover all the amount of the damage from any of the parties found to be responsible for the injury. The following graph illustrates the fact that medical malpractice has superseded the rise in claims payment.



The arbitrary statutory laws or the damages award in medical malpractice suits limits the right of access to the courts for redress for the injuries suffered by the patient. The law denies equal protection to both the patient and the doctor.

It also violates the right to trial by jury. This is because the courts restrict the damages or the compensation and the determination by the court are reserved for the jury. By allowing frivolous claims, the court infringes the constitutional right of being open to all the people for the redress of injury and that justice should be administered without sale or denial (ABA Journal, 1992)


To safeguard the roles and the indispensable responsibility of medical practitioners, there should be legislations in all the states to extend legal protection to physicians who attend to the emergency cases of the patients. Stats should also adopt the medical model of the Texas state and emulate the reforms of the Texas healthcare system which include: cap on non-economic damages, $ 250000 for all the physicians according to the claimants and periodic payments of rewards. They have also implemented the expert witness reform cap which is aimed at curbing frivolous legal suits (Tabarrok & Agan, 2006).


The recent rise in the medical malpractice has raised issues concerning the surge in premium rates. It is common concern that it is motivated by awards. Self-interest which is often a characteristic in conventional economics has been made a common practice in healthcare especially by the physicians who actualize it through defensive medicine to raise the cost of medical care services.


ABA Journal. (1992). Not Guilty: After the King verdict. American Bar Association, 78(1), pp. 1.

Fed Gazette. (2006). Charts: medical malpractice payment reports for physicians. Minneapolis Fed. Web.

Greaney, T. (n.d.). Economic regulation of physicians: A behavioral economics perspective. Saint Louis University law journal, 53(1), pp. 1189-1210.

Jan, S., Kumarayanake, L., Hanson, K., Roberts, J. & Archibald, K. (2005). Economic Analysis for Management and Policy. New York, NY: McGraw-Hill International.

Maynard, A. (2008). Is doctor’s self interests undermining the National Health Service? Faculty KSU. Web.

Morris, S., Devlin, N. & Parkin, D. (2007). Economic analysis in health care. New York, NY: John Wiley and Sons.

Plunkett, W. J. (2005). Plunkett’s Health Care Industry Almanac 2006 (E-Book): The Only Complete Reference to the Health Care Industry. New York, NY: Plunkett Research, Ltd.

Porter, M. & Teisberg, E. O. (2004). Redefining competition in health care, Harvard Business Review. Web.

Shi, L., Lebrun, L. & Tsai, J. (2008). Reforming US healthcare delivery, Harvard Health Policy Review, 9(1), pp. 68-77

Tabarrok, A. & Agan, A. (2006). Medical Malpractice Awards, Insurance, and Negligence: Which Are Related? Civil justice report. Web.

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