Joseph P. Newhouse

A Measure of Malpractice tells the story and presents the results of the Harvard Medical Practice Study, the largest and most comprehensive investigation ever undertaken of the performance of the medical malpractice system. The Harvard study was commissioned by the government of New York in 1986, in the midst of a malpractice crisis that had driven insurance premiums for surgeons and obstetricians in New York City to nearly $200,000 a year. The Harvard-based team of doctors, lawyers, economists, and statisticians set out to investigate what was actually happening to patients in hospitals and to doctors in courtrooms, launching a far more informed debate about the future of medical liability in the 1990s. Careful analysis of the medical records of 30,000 patients hospitalized in 1984 showed that approximately one in twenty-five patients suffered a disabling medical injury, one quarter of these as a result of the negligence of a doctor or other provider. After assembling all the malpractice claims filed in New York State since 1975, the authors found that just one in eight patients who had been victims of negligence actually filed a malpractice claim, and more than two-thirds of these claims were filed by the wrong patients. The study team then interviewed injured patients in the sample to discover the actual financial loss they had experienced: the key finding was that for roughly the same dollar amount now being spent on a tort system that compensates only a handful of victims, it would be possible to fund comprehensive disability insurance for all patients significantly disabled by a medical accident. The authors, who came to the project from very different perspectives about the present malpractice system, are now in agreement about the value of a new model of medical liability. Rather than merely tinker with the current system which fixes primary legal responsibility on individual doctors who can be proved medically negligent, legislatures should encourage health care organizations to take responsibility for the financial losses of all patients injured in their care.

The health care industry differs from most other industries in that medical pricing is primarily administered by the government and private insurers and in that it uses several types of contracts. Providers may receive a fixed sum for all necessary services within a given period of time, for the necessary services to treat a given condition, or for each specific service. The industry is changing dramatically, offering many natural experiments to aid understanding of the economics of pricing for health care. In Pricing the Priceless, Joseph Newhouse explains the different pricing systems and how they affect resource allocation and efficiency, focusing on the efficiency of pricing. He also discusses larger issues of equity, fair distribution of burden, and social justice. Although most of the examples are American-based, the same issues arise in all medical care financing and delivery systems, and the theories and models are general enough to apply to many institutional contexts. The topics include Medicare, managed care, the contemporary integration of health insurance and medical care, the management of moral hazard and stinting, uncertainty and risk aversion, the demand for health insurance, agency relationships, information disparities, regulation, and supply-side and demand-side selection.

From 1971 to 1982, researchers at the RAND Corporation devised an experiment to address two key questions in health care financing: how much more medical care will people use if it is provided free of charge? and what are the consequences for their health? This book presents a comprehensive account of the experiment and its findings. It will be an invaluable teaching tool and reference for anyone concerned with health-care policy.

Poor health habits (drinking, smoking, lack of exercise) obviously take their toll on individuals and their families. The costs to society are less obvious but certainly more far-reaching. This investigation is the first to quantify the financial burden these detrimental habits place on American taxpayers. Willard Manning and his colleagues measure the direct costs of poor health habits (fire damage, motor vehicle accidents, legal fees), as well as collectively financed costs (medical care, employee sick leave, group health and life insurance, nursing home care, retirement pensions, liability insurance). Consider two co-workers covered by their employer's health plan: both pay the same premium, yet if one drinks heavily, the other--through their mutual insurance program--involuntarily funds the resulting health problems. After laying out their conceptual framework, methods, and analytical approach, the authors describe precisely how and to what extent drinking, smoking, and lack of exercise are currently subsidized, and make recommendations for reducing or reallocating the expense. They present, for example, a persuasive case for raising excise taxes on alcohol. The authors correlate their data to make costs comparable, to avoid double counting, and to determine the exact costs of each of these poor health habits and some of their findings are quite surprising. This unique study will be indispensable to public health policy specialists and researchers, as well as to health economists.