Each year, more than a hundred and fifty thousand people are killed and more than a million people are injured by medical error, much of which is preventable. Indeed, more people are killed each year by medical negligence than are killed by either automobile accidents or workplace injuries.

Malpractice liability is potentially one of the most effective mechanisms for reducing medical error. Well-designed malpractice liability can optimally deter error by giving medical providers direct financial incentives to make cost-effective investments in patient safety. This benefits patients and medical providers alike.

In its current form, however, medical malpractice liability is not as effective as it could be. It must be reformed. This raises two questions: (1) what is the best process for reforming the system, and (2) what provisions should be included in any state-adopted reforms?

At present, a heated battle rages between proponents of two opposing answers to these questions. One group seeks to reform malpractice liability from within. The other wants to replace malpractice liability with liability imposed by contracts executed between patients and medical providers, either individual medical providers or health insurers.

Proponents of contractual liability assert that all patients would benefit if states allowed patients to contract over liability because some patients would benefit from the right to contract and none would be hurt, as long as contracting is voluntary and patients know the expected benefits and costs of liability. Proponents’ claim that informed patients cannot be hurt by contracting over malpractice liability rests on the assumption that patients obtain the full benefit of state-imposed liability, and bear the same cost, when they impose liability by contract. Thus, any informed patient who would have derived a net benefit from state-imposed liability would impose the same liability rule by contract and obtain the same net benefit. Only those patients who would not have been well served by state-imposed liability would use their right to contract to alter or eliminate liability. Contracting would allow these patients to select a liability rule that they prefer.

Contracting Over Liability: Medical Malpractice and the Cost of Choice