Deterrence and Liability for Medical Negligence: Theory and Evidence

Patient compensation systems are means by which two objectives can be pursued: the cost of the harm can be transferred away from the patient (the “compensation” objective); and the doctor can be given an incentive to take appropriate care to avoid making mistakes which may harm their patients (the “deterrence ” objective). All patient compensation systems attempt to deliver these objectives jointly with varying degrees of success, and with varying administration costs. The paper begins by reviewing what theory and evidence exists from various countries in relation to the impact of both existing and proposed alternatives in delivering the deterrence objective. Additionally, an empirical study was undertaken to explore for the first time inter-hospital differences in recent clinical negligence experience under the current UK system, which is based on enterprise fault liability. Data were collected from hospitals in relation to the numbers of open, closed and outstanding claims in recent years. Information about insurance arrangements, including subscriptions, voluntary excess levels and risk management discounts have also been collected. These data are analysed in the paper to identify those hospitals with claim rates significantly higher than would be expected given their casemix, and to discover whether these hospitals are systematically different in relation to their exposure to litigation risk as measured by their voluntary excess levels. The paper concludes with some policy implications. 2