Private Contractual Alternatives to Malpractice Liability

Jennifer Arlen, NYU Law School


Leading law and economics scholars claim that the best way to reform medical malpractice liability is to permit patients and medical providers to determine the scope of malpractice liability by contract. Contractual liability is superior to any form of tort liability for malpractice, it is argued, because contractual liability benefits those patients not well served by existing tort law, but does not hurt patients who benefit from malpractice liability because these patients can, and will, impose liability by contract.

This chapter shows that contractual liability is not necessarily better than tort liability because it can make patients worse off. Proponents of contractual liability asserts that contractual liability cannot make patients worse off because they assume that liability obtained by contract affords patients the same benefits as liability imposed by tort. This is not the case. Medical providers often will be unable to design contracts that enable patients to obtain the same benefits from contracted-for liability as they can from tort liability because tort liability benefits patients through the incentives to invest in care (to benefit all patients) provided by the threat of liability for injuries to other patients, now and in the future. Providers may not be able to replicate this collective, multiperiod liability by contract. Patients unable to replicate the benefits of tort liability by contract may rationally reject contractual liability, even when they would have benefited from (and voted for) tort liability for malpractice. If so, contractual liability makes these patients worse off. Patients also are worse off if they are not sufficiently informed to contract in their own best interests. Accordingly, while malpractice liability reform is essential, policymakers cannot assume that it would be better accomplished by private contracting because contractual liability and tort liability are quite different products.