Topics in the debate over no-fault versus tort liability for medical injuries

The tort system of liability which governs medical injuries in the United States has been frequently maligned in recent years. According to its critics, tort neither compensates injured patients nor deters future injuries efficiently. The Harvard Medical Practice Study (MPS) of 1990 documented many of tort's shortcomings. A major policy recommendation of the MPS researchers was conversion of the existing tort system to a no-fault system based on a workers' compensation model in which the hospital is liable rather than the physician. Unique MPS injury cost data based on surveys of injured patients are used to investigate two hypotheses regarding compensation and deterrence.;Second, the MPS cost data are used to test the proposition that no-fault with experience-rated liability insurance will produce financial incentives for prevention at least as large as those produced by the current tort system. Simulated premium schedules indicate that no-fault is capable of producing superior financial incentives. However, excluding losses from no-fault liability for administrative purposes creates a significant loss of incentives. In this case, experience-rated premiums under tort generate financial incentives as large or larger than those under no-fault, even at a low claims rate.;First, stochastic dominance methodology is used to test theoretically and empirically the proposition that no-fault compensation is ex ante preferred to tort by risk averse patients. Theoretical results indicate that the ex ante preference of no-fault compensation over tort partly depends on the distribution of potential losses faced by the patient. For reasonable non-economic loss measures, the proposition is strongly supported empirically in these data.