Malpractice is part of a larger subject called medical liability, which really is all about risk management.
Medical liability, by nature, is a big issue. Any medical treatment that is potent enough to be effective carries big risk. Any system that delivers medicine must include liability costs.
It would be extremely fun to hold a meeting about how transitioning from Insurance back to self-funded health care would affect the medical liability issue. Sadly, it is extremely difficult to write a web post about the issue.
I contend that people who self-fund their care will want the risks associated with a medical procedure included in the price. Let's say a procedure costs $100. It is has a success rate of 99%. A 99% success rate is fantastic. The catch is that the one percent failure leads to a $10,000 expense.
In this simple example, the clinic performing the procedure would make $10,000 for every 100 procedures but would have a $10,000 liability for that one failure.
My simple example was designed so liability was equal to the cost of the procedure. It is not uncommon that the risk of a procedure is greater than the cost of administering it.
In my simple example, patients self-funding care are would not want to take a gamble and have to pay the $10,000 if things go bad. So, the clinic is likely to charge the $200 and absorb the cost of complications.
Imagine that the clinic found that, by adding an extra $20 expense per procedure, they could cut the fail rate in half. They would spend $2,000 on 100 procedures, but cut the expected liability by $5,000.
By factoring the risk into the price, the clinic can convey that the enhanced procedure is a better deal. 120 + 50 < 100 + 100.
I repeat. It is not uncommon for liability costs to exceed the cost of a procedure. The cost of dealing with a birth defect is substantially more than the cost associated with a score of healthy births.
In a free market, a Birth Center is likely to have an expensive intensive care unit. The moms using the center are happy to pay to have access to the unit. It would actually be a selling point.
The unfortunately family that has a crisis during birth would not pay the full cost of the unit. A smart hospital might create a product in which they sold the delivery service and access to intensive care as a single package. In this package access to intensive care component might actually be more than the cost of delivering the child.
There are some big advantages to treating the entire birthing process as single product. For example, many people claim that using a doula decreases the likelihood of birth defects and c-sections. If this is true then a birthing clinic that assigns a doula to each mom could charge a lower price than one with obstetricians alone, while ensuring that family will have access to intensive care if needed.
I love the field of risk management. I think there is a general rule about liability. Your liability system is in good working order if the price of a product or procedure accurately reflects the risk associated with the product. When this happens, people are able to use the pricing mechanism to make the best decisions.
When you look at the status quo, with a system dominated by health insurance, we find that the prices are a complete jumble and people cannot use the pricing system to make the best health decisions.
If ever I could find a group interested in discussing the Medical Savings and Loan, we would spent a lot of time talking about risk management, liability and pricing. I suspect the conclusion of the meeting would be that reviving the paradigm of self-funded care would help us achieve a pricing system that helps accurately communicate risks through the pricing system.
Unfortunately, it is an extremely difficult issue to discuss in a blog post. I would gladly travel to any group willing to host a serious multiday discussion on free market health care. Sadly, I live in Salt Lake City, which is politically dominated by a group that seeks socialized medicine. Here is my contact form if there is any group interested in discussing free market health care.