Sweden 94 to answer the critics of no-fault and to develop realistic approaches to an administrative compensation system.95 In both Britain and Canada, there is sentiment for use of a no-fault model.96 In this country, the states of Virginia and Florida have put into effect no-fault compensation plans for neonatal neurological injury.97

How does a no-fault system work for compensation of medical injury? In Sweden, a combine of insurance companies provides a no-fault insurance program. 98 Complementing, yet separate from, the insurance compensation plan is the Medical Responsibility Board (MRB) that hears complaints about quality of care rendered to individuals.99 The advantage of uncoupling the compensation and deterrent approaches to medical injuries as the Swedes have done is that it frees both functions from the adversarial notions of tort litigation, providing greater and more equitable compensation and stronger deterrence signals. 100

Nonetheless, there are significant problems with the no-fault approach. Many have argued that our major present-day use of no-fault within workers' compensation has failed to provide appropriate compensation for individuals suffering from occupational diseases. 101 Still others fear that a no-fault approach

94 See Rosenthal, Dealing With Medical Malpractice: The British and Swedish Experience, (1988) 131-206.

95 See Halley, Fowks, Bigler, Ryan, Medical Malpractice Solutions: Systems and Proposals for Injury Compensation (Springfield, Ill., Charles Thomas 1989).

96 See British Medical Association, No-Fault Compensation Working Party Report (1987); R. Prichard, Medical Malpractice (1989).

97 See White, "Innovative No-Fault Tort Reform for an Endangered Specialty," Virginia Law Review 74 (1988): 1487. Some have criticized the Virginia system for only controlling cases of people who would probably recover in the tort system, thereby resulting in less compensation for them and no more compensation for others. See Gallup, "Can No-Fault Compensation of Impaired Infants Alleviate the Malpractice Crisis in Obstetrics?” Journal of Health Politics, Policy and Law, 14 (1989): 69.

98 A patient seeking compensation for medical injury must merely show that her injuries are of a designated type and compensation is available. There need be no allegation of negligence, and thus physicians often assist their patients in the effort to secure compensation. See Oldertz, "The Swedish Patient Insurance Scheme-Eight Years of Experience," Medical Legal Journal 52 (1984): 43.

"9 Most such complaints are brought by patients but physicians are encouraged to self-report to their department heads who in return report to the MRB. The MRB can discipline physicians who provide poor quality care or can decide that no action is necessary. The MRB has both expert input and political and citizen representatives, similar to the boards envisioned by the AMA's fault-based system.

100 Patient compensation is more straightforward in the absence of the corrective justice aspects of tort litigation. Physicians can actually assist patients in their efforts to receive compensation. On the other hand, since compensation is not directly sought from the physician or his insurer, data regarding sub-standard care is more freely available. Quality assurance efforts proceed smoothly, free from concerns about investigations by plaintiffs attorneys regarding the quality assurance data. Thus, at least in theory, a no-fault system would provide greater compensation and clearer deterrent signals.

101 See Barth and Hunt, Workers Compensation and Work-Related Illnesses and Diseases (1980): see also Kutchins, "The Most Exclusive Remedy is No Remedy At All: Workers Compensation Coverage for Occupational Diseases," Labor Law Journal 32 (1981): 219-20. Indeed, one might conjecture that determining causation in medical injury cases may be much more difficult than determining causation in workers' compensation cases in that most patients will have a significant background of disease from which the medical care-induced injury must be disentangled. Thus no-fault approaches to medical injuries will likely have inherently higher administrative costs than workers' compensation.

would do away with the deterrent effect of medical malpractice litigation. This contention, however, overlooks the fact that no-fault is still a mode of legal liability with one party required to compensate the victims of its activities, and the requisite insurance would likely be provided at the level of hospital or other health care organization where premiums could be strongly experience rated. 102

Recently, we have completed a study of medical injury, and the costs arising out of such injury, in the state of New York. The data from this study indicate that in New York, at least, one can provide full compensation for the net financial losses of all seriously injured patients for roughly the same amount expended on litigation for only a selected number of those negligently injured. 103

Social Insurance-The relationship between providing health insurance for all Americans and tort reform must be underlined, because comprehensive health benefits would deal directly with many of the patient losses for which malpractice litigation now seeks redress. One major advantage of the Swedish and New Zealand systems for no-fault insurance for medical injury is that these compensation systems are nestled within a much more encompassing safety net of social welfare programs. For instance, in Sweden, there is a national health system that provides medical care for all individuals and comprehensive disability insurance for lost earnings. Thus their no-fault system does not absorb much of the costs arising out of an iatrogenic injury, and the smaller stake in the outcome reduces the intensity of conflict in individual cases.

Broader disability insurance and sick leave benefits would also decrease the overall costs associated with compensation programs for iatrogenic injury. When a collateral source offset is in place, any increase in the coverage of first party loss insurance correspondingly reduces the losses left to be handled by the much more expensive system of third party malpractice insurance.

Beyond Health Care Providers-Malpractice litigation is not the only aspect of tort law that plays a major role in the health care area. Just as prominent and often just as troubling are product liability suits against manufacturers of vaccines, prescription drugs and other medical appliances. Indeed, many of these cases are the result of the combined action of a manu

102 The best work on workers' compensation and deterrence suggests that workers' compensation has a considerable preventive effect on workplace fatalities. See Viscusi and Moore, Compensation Mechanisms for Job Risks: Wages, Workers' Compensation and Product Liability (forthcoming, Princeton University Press).

103 See Harvard Medical Practice Study, Patients, Doctors, and Lawyers (1990), chap. 8.

The most straightforward form of damages restriction is the damage cap. As mentioned above, a relatively small number of large awards comprise a substantial share of the total amount of money paid in tort claims. Since the mid 1970s, states have experimented with caps on damages. Some states place numerical limitations on pain and suffering. In the 1970s, most of these numerical restrictions applied to both economic and non-economic damages, 59 but in the 1980s almost all have focused simply on pain and suffering. To this point only a handful of states have indexed or adjusted their nominal dollar caps to subsequent changes in wage and price levels. 60

The efficacy of various tort reforms have been assessed by economists and health policy analysts using econometric methods. 61 Danzon, for example, traced the effect of mid-1970s legislation over an extended period of time and updated her research with claims information as late as 1984. She demonstrated that reductions in the statute of limitations result in a significant decrease in claims frequency. Moreover, the reversal of a collateral source rule reduced claims severity by somewhere between 11 and 19 percent, and claims frequency by around 14 percent. Finally, caps on damage awards reduced claims severity by 23 percent, but did not seem to have any effect on the propensity to initiate claims.

In a more recent study, Sloan and co-authors combined data on individual closed claims from the National Association of Insurance Commissioners' Study of Closed Claims From 1975-1978 with closed claims information from 1984 collected by the General Accounting Office of the United States Congress, and analyzed the effect of tort reforms on claims' severity.62 Just as did Danzon, Sloan et al. found few tort

59 See e.g., Indiana Code Annotated, Section 16-9.5-2-2.1 (Burn's Supplement 1986).

60 We have reviewed the major forms of tort reform in the 1970s and 1980s, but our list is not exhaustive. For instance, Bovbjerg's review of tort reforms touches on arbitration as an effort to limit the number of suits getting into court, restrictions of ad damnum clauses as a method for decreasing the size of recovery; expert witness standards as means of increasing the plaintiff's difficulty or cost of winning; and precalendar conference requirements and preferred scheduling for malpractice cases as means of decreasing the costs of the judicial process. See generally Bovbjerg, "Legislation on Medical Malpractice," 499.

61 The most recent of these empirical analyses are Danzon, "The Frequency and Severity of Medical Malpractice Claims: New Evidence," Law and Contemporary Problems 49 (1986): 37-56; and Sloan, Mergenhagen and Bovbjerg, "Effects of Tort Reforms on the Value of Closed Medical Malpractice Claims: A Microanalysis," forthcoming, Journal of Health Policy, Politics, and Law. Unless otherwise stated we rely on these authors' analyses. This is not to overlook some of the important research which was done before 1985. See, in particular Reder, "An Economic Analysis of Medical Malpractice," Journal of Legal Studies 5 (1976): 267; Feldman, "The Determinants of Medical Malpractice Incidence: Theory of Contingency Fees and Empirical Evidence," Atlantic Economic Journal 7 (1979): 59; Danzon, "The Frequency and Severity of Medical Malpractice Claims," Journal of Law and Economics 27 (1984): 115; Adams and Zuckerman, “Variations in the Growth and Incidence of Medical Malpractice Claims," Journal of Health Politics, Policy and Law 9 (1984): 475; Sloan, "State Responses to the Malpractice Insurance Crisis of the 1970s: An Empirical Analysis," Journal of Health Politics, Policy and Law 9 (1985): 629.

62 See Sloan, Mergenhagen and Bovbjerg, "Effects of Tort Reform."

As one might have gathered from this review of the content of malpractice reform, most of these measures have been proposed by medical associations and championed by their legislative supporters. However, when a state legislature enacts a tort reform package, the legal dialogue does not end there. Patients and their attorneys can return to the state courts for decisions about how to treat the new statutory law-in particular, under the state constitution. After a decade of such constitutional challenges, it ap pears that patients have fared quite well in the judicial forum, with many of the state courts having struck down some the key reforms, especially in the damages area. 63

63 See in general, Vinson, "Constitutional Stumbling Blocks to Legislative Tort Reform," Florida State Law Review 15 (1987): 31; Turkington, "Const tutional Limitations on Tort Reform," Villanova Law Review 32 (1987): 1299 Smith, "Battling a Receding Tort Frontier: Constitutional Attacks on Med cal Malpractice Laws," Oklahoma Law Review 38 (1985): 195; Learner, "Re strictive Medical Malpractice Compensation Schemes: A Constitutional quid pro quo Analysis to Safeguard Individual Liberties," Harvard Journal on LA§ islation 18 (1981): 143.

64 See e.g., Fein v. Permanente, 695 P. 2d 665, 38 Cal. 3d 137, 211 Cal Rptr. 368 (1985), appeal dismissed, 106 S.Ct. 214 (1986).

65 See Brennan, "The Bill of Rights in the States: The Revival of State Constitutions as Guardians of Individual Rights," New York University Lav

Review 61 (1986): 535.

especially offended when they perceive physician groups having secured statutory measures that substantially cut back on the tort rights of injured patients without the latter receiving some form of quid pro quo along the lines of no-fault workers' compensation. That judicial sentiment has been displayed in a number of constitutional guises; in the 1970s usually under equal protection or due process, but in the 1980s more often under the right of access to the court or to a jury trial.66

It is no accident that this judicial sentiment tends to surface in challenges to the constitutionality of restrictions on tort damages. While these are the measures that do offer the greatest relief to doctors from the burden of the malpractice regime, the cases where the caps are applied often involve the most seriously injured patients, and in situations where judges realize that some of the supposedly "excess" award is really going to pay the percentage contingent fee of the attorney whose services were necessary to secure any tort recovery for the injured party. In addition, as we have seen, the conclusion of more systematic research is that under the common law system, there are far fewer malpractice claims being made (let alone paid) in the legal system than there are malpractice events and injuries occurring in the health system.

One other alternative for overcoming the deficiencies of the present system might be to move from a tort to a contract regime. Some have argued that tort law smacks too much of "command and control" regulation, and thus retards the efficiencies and inno=vation that could arise out of a "free market" : approach.67 They advocate much broader scope for voluntarily-negotiated contracts between patients and : providers which would stipulate whether and how much compensation should be paid for injuries occurring in the course of therapy. In theory, these contractual alternatives would be more efficient in reflecting the mutual interests of the immediate parties while reducing the administrative costs associated with litigation. For example, providers and patients could stipulate that in the event of injury due to substandard care, certain scheduled damages would be available. The definition of substandard care in this case could be left up to binding arbitration which was faster and cheaper than jury trials.

66 Smith v. Department of Insurance, 507 So.2d 1080 (Fla. 1987); Kansas Malpractice Victims v. Bell, 757 P.2d 251 (Kan. 1988); Lucas v. United States, 757 S.W.2d 687 (Tex. 1988); Sofie v. Fibreboard Corp., 771 P. 2d 711 (Wash. 1989). In Boyd v. Bulala, 647 F.Supp. 781, 786 (W.D. Va. 1986) a federal district court held that legislation violated both the federal and Virginia's guarantee of a jury trial, but that state law interpretation was reversed in "Etheridge v. Medical Center Hospital, 376 S.E. 2d 525 (Va. 1989), and in Boyd v. Bulala, 872 F.2d 119 (4th Cir. 1989), regarding the federal constitution. 67 See generally, Havighurst, "Private Reform of Tort-Law Dogma: Market Opportunities and Legal Obstacles," Law and Contemporary Problems 49 (1986): 143.

Of course, there are drawbacks associated with contractual arrangements of this sort. The contracts themselves could be the subject of a good deal of litigation, decreasing the potential gains in efficiency. More important, both state courts and state legislatures have exhibited great concern about the likely fairness of the terms of a contract struck between a provider and a patient, given the inequalities in bargaining power and knowledge that exist between these parties.68 Thus while contractual alternatives to malpractice litigation do represent another option that should be explored, they are clearly not a panacea for the problem of medical injury.

Beyond Tort Law

The reforms we have suggested for tort law might go some distance in terms of rationalizing the system. However, we are still left with the overwhelming empirical facts that few negligent adverse events now lead to claims, and conversely that many claims arise out of situations in which there is no evidence of negligence or even of injury. There are both too many unwarranted claims, and too many apppropriate claims that are never brought. Any comprehensive review of the medical malpractice crisis must at least consider what options lie beyond tort litigation.

The tort reforms discussed in the previous section modify the rights and obligations of patients and doctors in malpractice litigation. They do not, however, change the basic ground rules-that the patient must prove to a jury that he or she was injured due to the negligence of a physician or health care provider. There are, however, numerous alternatives to traditional tort litigation, some modest, some major. In this section we review several such methods through which one might provide compensation to patients injured as a result of their medical care, and also create incentives for better care by providers.

Alternative Dispute Resolution-Given the high administrative as well as emotional costs of litigation, many have sought alternative dispute resolution formats for medical malpractice claims. The term "alternative dispute resolution" is an umbrella concept covering a variety of specific procedures designed to provide fair outcomes at lower costs. Included in ADR are such approaches as arbitration, or mediation.69 In the area of medical malpractice, the most prominent vehicle has been the pretreatment agreement through which patients accept binding arbitra

68 Havighurst, "Private Reform of Tort-Law Dogma,” 163-4. 69 See Goldberg, Green, and Sander, Dispute Resolution, (Boston: Little Brown and Company, 1985).

tion in lieu of a jury trial, an agreement that is made enforceable by legislation.70 If a patient is injured, and seeks compensation, the determination of liability and the amount of damages is made by a neutral arbitrator rather than a court. Since the process of arbitration is streamlined, there are comparatively less administrative costs than in traditional litigation.

Courts generally have found this arbitration model acceptable. They have, however, carefully scrutinized the terms of the initial agreement and the circumstances of its signing in order to ensure that there was a fully informed and voluntary waiver of the patient's right to a jury trial.72 Such judicial scrutiny has largely dissipated the possible gains from arbitration as a more expeditious and economic procedure. In turn, this may explain why econometric analyses noted above have shown little impact of arbitration models on changes in the number of claims or severity of claims.73 Thus, while further experimentation in dispute resolution procedures might be appropriate for the benefit secured in individual cases, binding arbitration does not appear to offer huge potential as an alternative to tort litigation.

Administrative Fault-The administrative fault system advocated by the American Medical Association is a more serious attempt at ADR, because this program relies not on ad hoc agreements and adjudication, but on a new specialized tribunal that would be responsible for resolving all malpractice claims, while retaining fault as the basis for liability.74 Specifically, the proposal contemplates the establishment of a state agency called the "Medical Practices Review Board." The review board would adjudicate medical liability disputes, investigate substandard care by physicians, undertake disciplinary proceedings, and act as a source of information concerning performance by licensed physicians.75

Under this plan, malpractice claims would be removed from the civil justice system and placed before this administrative board for determination.76 Either

70 As of 1987, 15 states had in place such statutes. See Henderson, “Agreements Changing the Forum for Resolving Malpractice Claims," Law and Contemporary Problems 49 (1986): 243.

71 Madden v. Kaiser Foundation Hospital, 552 P.2d 1178 (Cal. 1976); Morris v. Metriyakool, 344 N.W.2d 736 (Mich. 1984).

72 See Bedikian, "Medical Malpractice Arbitration Act: Michigan's Experience with Arbitration," American Journal of Law and Medicine 10 (1984): 42. 13 See pages 48-49,

74 See Johnson, Phillips, Orentlicker, and Hatlie, "A Fault Based Administrative Alternative for Resolving Medical Malpractice Claims," Vanderbilt Law Review 42 (1989): 1366.

75 The board would be composed of seven people, each serving a term of five years. At least two, but not more than three, of the members of the board would be physicians. One or more would be consumer representatives. The board itself would appoint the other key personnel in the agency, including attorneys, claims reviewers and investigators.

76 The claims resolution process would be divided into four stages. First, there would be a pre-hearing in which an individual who contended that he or she was injured as a result of inadequate health care would initiate the claims process by filling out a simple form. The form would be reviewed by

party could then appeal the Board's decision to an intermediate appellate court in the state. The AMA proposal also calls for a number of changes in substantive medical liability law.77 In an effort to provide some quid pro quo for patients and thus survive constitutional challenge in the state courts, the AMA proposal contemplates broad powers for the Medical Practices Review Board in credentialing and disciplining physicians. 78

The administrative fault-based proposal is an attempt to develop an integrated approach to both compensation for past medical injuries and deterrence of substandard practice in the future. There are, however, some concerns. First, the proposal does face a real constitutional difficulty, because while fault is retained as the basis for liability, the jury is eliminated entirely. If state courts are already striking down caps on tort damages as offensive to the right of access to the courts and juries, they will be very skeptical about the validity of the AMA proposal. Next, while many have advocated increased efforts by state disciplinary panels,79 it is not at all clear that the best efforts of such boards will result in significant deterrence signals.80 Probably in partial recognition of

board personnel and, if it appeared to have merit, would be reviewed by a peer expert. If both the claims reviewer and peer expert felt that the claim had some merit, an attorney on the board's staff would represent the injured claimant. If the claim was felt to be without merit, the patient could still pursue the dismissed claim with a private attorney.

In the hearing stage, an examiner, acting like an administrative law judge in the Social Security system, would preside in a judicial hearing. Prior to the hearing, both patient and health care provider would be required to submit blind settlement offers. The parties would be subject to sanctions if the outcome of the case did not represent a significant improvement over the settlement offer rejected at this stage. At the hearing itself, certain eviden tiary rules would be in place, but the judge would be able to play an active role and could call independent experts if she saw fit.

The hearing examiner's decision could be appealed to the Board. A panel of three members of the Board, only one of whom could be a physician, would hear an appeal. No new factual determinations would be made at this stage. For all legal issues, however, the panel would conduct de novo review.

77 The AMA envisions some changes in the standard of care which, while not embracing the traditional locality rule, do acknowledge the role that the availability or unavailability of specialized equipment and personnel can play in treatment decisions. Another important change concerns causation. The proposal calls for abandonment of the more probable than not threshold for a finding of causation and allows liability if providers' negligence was a contributing factor. In these cases, damages would be apportioned according to a pure comparative negligence standard. With regard to informed consent, the AMA would adopt the reasonable patient standard. The proposal also op poses lump sum damage claims. In addition, it would cap non-economic damages by an amount tied to the percentage of the average annual wage in the state. Joint and several liability would be eliminated from medical negligence claims. A periodic payment schedule would be put into place and the collateral source rule would be overturned.

78 First, hospitals would be required to review physician performances on a regular basis and physicians who are not affiliated with institutions would be required to participate in a credentialing process undertaken by the state. The board would also maintain a clearing-house for information regarding physician discipline and sub-standard care. The board would also have authority to conduct on site review of physicians' practices. Broad powers for disciplining physicians would be lodged with the board. See generally Amen can Medical Association/Specialty Society Medical Liability Project, Mode! Medical Liability and Patient Protection Act (May 1989).

79 See Wolfe, Bergman, and Silver, Medical Malpractice: The Need for Dis ciplinary Reform not Tort Reform (1986).

80 See Kusserow, Handley and Yessian, "An Overview of State Medical Discipline," JAMA 257 (1987): 820. Recently, several large states including

these potential drawbacks, the American Medical Association has prudently suggested that its plan be initiated in a few states on an experimental basis. This experimental period would also allow some assessment of the ways in which administrative fault either ameliorates or exacerbates the problems with peer review at the hospital level.

Organizational Liability-Another possible alternative to traditional malpractice litigation is to relieve physicians of the direct financial burden of malpractice insurance by shifting the focus of legal liability from individual physician to the hospital or health care institution connected with the incident. Organizational liability is consistent with a number of doctrinal developments in tort litigation that have expanded the "corporate" or "vicarious" liability of hospitals for the negligence of non-employee physicians.81 It also reflects some new insurance "channeling" arrangements wherein large hospitals provide their associated physicians with coverage under the institutions' own policy.

These changes in malpractice law and insurance approaches recognize that the hospital is better able to assess its risks and to distribute the burden of its liability across a broad pool of constituents, and thereby obviate the problems faced by individual physicians in the high risk sectors in obtaining insurance at reasonable cost. Even more attractive about this arrangement are the new incentives and opportunities it creates for institutional quality assurance. Because hospitals are much more likely to have their malpractice premiums set according to their claims experience, this new focus of liability would considerably sharpen the deterrence incentive created by malpractice litigation. The hospital also has the institutional perspective and capacity to develop comprehensive standards and procedures that promote quality assur

California, New York, Massachusetts and Florida have undertaken sweeping reforms in their state medical disciplinary apparat. While it is too early to judge in any final way the efficacy of such reforms, it appears that reviewing agencies may have difficulty gaining access to appropriate information regarding quality of care. See Keidan, Physician Discipline: Cure for the Medical Malpractice Crisis? (unpublished manuscript 1989) (on file with authors). These agencies are also especially sensitive to the vagaries of state funding and have had difficulty maintaining continuous employment of qualified investigators and lawyers. Thus, if the state's commitment to such disciplinary panels is not strong, especially in a fiscal sense, deterrence under an administrative fault plan could be weakened significantly.

1 See Southwick, "Hospital Liability: Two Theories Have Been Merged," Journal of Legal Medicine 4 (1983): 1; and for recent reviews of the cases, see Jackson v. Power, 743 P.2d 1376 (Alaska 1987); Insinga v. Labella, 543 So.2d 209 (Fla. 1989).

ance and safety,82 akin to a "systems" approach 83 that would lessen the individual finger pointing that makes medical malpractice so emotionally destructive for providers.

There are, of course, problems with organizational liability. First, some would question whether it is equitable to make such hospital liability mandatory and exclusive. They would argue that legal insulation of the physician from liability would decrease deterrence incentives. In addition, there would be a financial problem in the legal shift to organizational liability as hospitals and other health care institutions were saddled with much larger liability insurance premiums, while physicians would no longer have to pay such premiums. Unquestionably, shifts in health care reimbursement schedules would have to accompany any such move to organizational liability. In addition, small hospitals would have to aggregate their risk pools with other hospitals in order to function under organizational liability.

Finally, most physicians are not employed by hospitals and typically they have jealously guarded their professional autonomy, and their relations with patients, against control by hospital administrators. On the other hand, the fact is that doctors already face growing scrutiny from judges and juries in malpractice litigation and recently many state legislatures have been directing hospitals to create quality assurance programs that contemplate ongoing review of individual physicians' practice decisions and patterns, in order to ensure safer and better care for patients. Thus, doctors are increasingly subject to the kind of supervision contemplated by organizational liability, without having the benefit of any relief for the costs of malpractice insurance.

Ironically, this expansion of quality assurance activities in an effort to reduce the need for and incidence of malpractice litigation by patients has in turn precipitated yet another bout of litigation, this time by affected doctors. The ultimate source of the medical staff's ability to secure and enforce a higher quality of care in the hospital is the peer review committees' power to suspend or revoke the credentials of those incumbent doctors who have provided sub-standard

82 As mentioned previously, changes in liability standards have increased incentives for physicians to develop appropriate practice standards. For example, in a major risk management effort, the Department of Anesthesia at Harvard Medical School devised specific detailed and mandatory standards for minimal patient monitoring during anesthesia. Such standards had not existed previously but were accepted by practitioners. See Eichhorn, Cooper and Cullen, "Standards for Patient Monitoring During Anesthesia at Harvard Medical School,” JAMA 256 (1986): 1017-1020. These practice standards appeared to have lowered malpractice claims against anesthesiologists at participating institutions and efforts are now underway to develop similar standards for obstetricians at Harvard Medical School.

83 Berwick, "Continuous Improvement," 53.