When IT Creates Legal Vulnerability: Not Just Overutilization but Underprovisioning of Health Care Could be a Consequence

We study the potential impact of the legal vulnerability created by ubiquitous information technology (IT) and provide insights into its unintended consequences in a typical healthcare screening context. Screening policies determine the level of care provision (i.e., whether to conduct a test) based on patient risk information. When IT shares the risk information to physicians in the testing stage, follow-up decisions could be more accurate. Yet, physicians may also face heightened legal risk from increased information visibility. In this context, we examine the socially optimal screening (based on risk information) and follow-up policies (based on risk and test information). Litigation is generally associated with overutilization of health care because of physicians' defensive medicine practices. In contrast, we find that strategic underprovisioning of health care through screening policies could be a consequence of information sharing in the presence of litigation. The underprovisioning of health care is aggravated if the precision of the risk information relative to that of the medical test increases or the physician becomes more self-interested and less patient-oriented. On the other hand, limits on malpractice damage can alleviate the underprovisioning of health care.